Like several other oil and gas companies, Penn Virginia Corp (OTCMKTS:PVAH) has been delisted from the NYSE and is now trading on the OTC markets. PVAH now joins fellow E&P producers Goodrich Petroleum and Sandridge Energy. The NYSE said Penn Virginia was no longer suitable for listing due to "abnormally low" price levels. The key for investors is deciding what's next and how to play PVAH on the OTC markets.Penn Virginia Corporation is an independent oil and gas company engaged in the exploration, development and production of oil, NGLs and natural gas in various domestic onshore regions of the United States, with a primary focus in the Eagle Ford Shale in south Texas. Just this week, the company announced that it had retained financial advisors Jefferies LLC and legal advisors Kirkland & Ellis LLP to advise management and the Board of Directors on strategic alternatives related to its capital structure.PVAH's goal is to avoid bankruptcy. If bankruptcy were to occur, common shareholders would most likely be wiped out. Most of them, however, are already pretty much wiped out if they've been holding shares of Penn Virginia for the past several years. The stock was trading near $20 in 2014 and hit over $70 in 2008.One investor taking a big bath on shares is billionaire George Soros. As of September 30, 2015 his firm Soros Fund Management, LLC was Penn Virginia's largest shareholder with 6 million shares, or an 8% stake in the company. No doubt Soros isn't happy and will be looking to recoup as much of his investment as possible. He's hoping that the company can avoid bankruptcy and that oil prices rebound and then Penn Virginia can work its way out of the hole it's in. Like many other small oil and gas companies, Penn Virginia is a victim of the oil crash and a highly leveraged balance sheet.
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Chairman Edward Cloues remains optimistic about Penn Virginia's future. He recently said:
“We believe Penn Virginia has a strong future, even in today’s challenging commodity price environment. Consequently, we have retained Jefferies and Kirkland & Ellis to advise us in exploring strategic alternatives with respect to restructuring our balance sheet, including our senior unsecured notes, which trade at levels significantly below face value, and enhancing liquidity.”
The key to remember with PVAH is that the company has some valuable acreage. In the most recent quarter, total production was 20,976 barrels of oil equivalent (BOE) per day (BOEPD), compared to 23,519 BOEPD. Total production was above the midpoint of production guidance of 18,500 to 22,800 BOEPD. The average initial potential (IP) and 30-day rates for 11 Eagle Ford wells turned in line were 1,501 and 790 BOEPD, up 88% and 59% compared to 798 and 497 BOEPD for 16 wells turned in line in the second quarter. Gross drilling and completion costs for the 11 wells, including facilities, averaged $5.7 million per well, approximately 30% lower than the average cost of the 16 second quarter wells.In regards to the low oil price environment and its balance sheet, Penn Virginia has known about it for some time and has been taking measures. During the third quarter and in early October, PVAH sold its East Texas and certain non-core Eagle Ford assets for gross proceeds of $88 million. Going forward, Penn Virginia plans to keep drilling, but with only 1 rig and will focus on less costly two-string Lower Eagle Ford wells in Gonzales County and northwestern Lavaca County where economics are optimized.
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Penn Virginia is hoping to find new life now that it's trading on the OTC markets. In terms of penny stocks, Penn Virginia could be a winning lotto ticket if the company can avoid bankruptcy and we see a recovery in oil and natural gas prices. Penn Virginia was once a darling of the small cap oil shale plays and might be again one day. PVAH is one name worth keeping an eye on. We will be updating Insider Financial on the latest developments regarding PVAH so make sure you sign up and get our latest alerts!
Disclosure: We have no position in PVAH either long or short. We have not been compensated for this article.
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