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Penn Virginia Corporation announces year-end 2012 proved reserves and provides operational update

Tuesday, January 29, 2013
  • Preliminary fourth quarter 2012 realized oil price was $99.30 per barrel, compared to $99.45 per barrel price in the third quarter of 2012.
  • The production in the fourth quarter of 2012 and full-year 2012 exceeded the upper end of our previously provided guidance.

Penn Virginia Corporation (NYSE: PVA) today announced proved oil and gas reserves and provided an update of its operations, including full-year and fourth quarter 2012 operational results.

Proved Reserves and Operational Update Highlights

Proved reserve data included the following:

  • Proved oil and gas reserves were 113.5 million barrels of oil equivalent (MMBOE) at year-end 2012, compared to 130.3 MMBOE at year-end 2011, pro forma to exclude 16.9 MMBOE of Appalachian reserves sold in July 2012

    • Proved oil and natural gas liquids (NGL) reserves increased 28 percent to 45.5 MMBOE, or 40 percent of total proved reserves, from 35.6 MMBOE, or 24 percent of total proved reserves, at year-end 2011
    • Eagle Ford Shale proved reserves increased by 161 percent from 10.0 MMBOE at year-end 2011 to 26.1 MMBOE at year-end 2012
    • Pro forma natural gas proved reserves decreased by 161 billion cubic feet (Bcf) (26.9 MMBOE), or 28 percent, primarily due to low gas prices

  • The pre-tax present value of estimated future net cash flows from proved reserves, discounted at 10 percent, (PV-10) was $692 million

    • The PV-10 value, excluding all proved undeveloped (PUD) wells with negative PV-10 value, was $839 million
    • The PV-10 value of proved developed reserves was $628 million

  • As determined by our third party reserve engineering firm, the average gross estimated ultimate recovery (EUR) for Eagle Ford Shale PUD wells with full-length laterals in Gonzales County was approximately 400 thousand barrels of oil equivalent (MBOE) and in Lavaca County was approximately 500 MBOE

Operational results for the fourth quarter of 2012, with comparisons to the third quarter 2012 where applicable, included the following:

  • Production of 1.4 MMBOE, or 15,444 barrels of oil equivalent (BOE) per day (BOEPD), compared to 1.4 MMBOE, or 15,245 BOEPD, pro forma to exclude production from Appalachian assets sold in July 2012

    • Eagle Ford Shale net production was approximately 6,900 BOEPD in the fourth quarter of 2012, compared to approximately 6,300 BOEPD
    • Fourth quarter and full-year 2012 production exceeded the upper end of previously provided guidance
    • Oil and NGL production was 56 percent of quarterly production, compared to 52 percent

  • Currently, we have 66 (55.1 net) Eagle Ford Shale wells on line, with one (0.9 net) well waiting on completion, two wells being drilled in the Eagle Ford Shale in Lavaca County and one horizontal test well being drilled in the Pearsall Shale in Gonzales County
  • The average peak gross production rate per well for the 59 wells we have completed to date with full-length laterals was 972 BOEPD. The initial 30-day average gross production rate for the 55 of these 59 wells with a 30-day production history was 651 BOEPD

    • The wells drilled and completed to date in Gonzales County with full-length laterals had an average initial gross production rate of 984 BOEPD and an initial 30-day average gross production rate of 649 BOEPD
    • The wells drilled and completed to date in Lavaca County with full-length laterals had an average initial gross production rate of 926 BOEPD and an initial 30-day average gross production rate of 660 BOEPD
    • The higher average 30-day initial rate in Lavaca County, along with the higher reservoir pressure, is consistent with higher expected EURs as compared to the EURs expected in Gonzales County

  • Currently, we have approximately 40,000 gross (approximately 32,000 net) acres in the Eagle Ford Shale

    • We increased our net acreage by approximately 2,000 net acres since late October 2012, at a cost of approximately $4.9 million

Fourth Quarter 2012 Operational Results

Pricing

Our preliminary fourth quarter 2012 realized oil price was $99.30 per barrel, compared to $99.45 per barrel price in the third quarter of 2012. Our preliminary fourth quarter 2012 realized NGL price was $32.40 per barrel, compared to $32.94 per barrel price in the third quarter of 2012. Our preliminary fourth quarter 2012 realized natural gas price was $3.41 per thousand cubic feet (Mcf), compared to $2.72 per Mcf price in the third quarter of 2012. Adjusting for oil and gas hedges, our preliminary fourth quarter 2012 effective oil price was $106.40 per barrel and our effective natural gas price was $3.83 per Mcf, or increases of $7.10 per barrel and $0.42 per Mcf over the realized prices.

Production

Total and Daily Equivalent Production for the Three Months Ended
Dec. 31, Dec. 31, Sept. 30, Dec. 31, Dec. 31, Sept. 30,
Region / Play Type 2012 2011 2012 2012 2011 2012
(in MBOE) (in BOEPD)
Texas 944 816 901 10,265 8,869 9,792
Cotton Valley/Other 216 270 216 2,352 2,940 2,345
Haynesville Shale 96 147 104 1,041 1,603 1,130
Eagle Ford (1) 632 398 581 6,872 4,326 6,317
Appalachia 7 362 107 78 3,933 1,165
Mid-Continent 266 372 289 2,892 4,044 3,136
Mississippi 203 239 208 2,209 2,602 2,256
Totals 1,421 1,789 1,504 15,444 19,449 16,348
Pro Forma Totals(2) 1,421 1,442 1,403 15,444 15,671 15,245

Total and Daily Equivalent Production for the Year Ended December 31,
Region / Play Type 2012 2011 2010 2012 2011 2010
(in MBOE) (in BOEPD)
Texas 3,671 2,976 2,304 10,029 8,152 6,311
Cotton Valley/Other 882 1,367 1,253 2,411 3,745 3,432
Haynesville Shale 454 756 1,051 1,241 2,073 2,879
Eagle Ford (1) 2,334 852 --- 6,377 2,335 ---
Appalachia 784 1,511 1,733 2,143 4,138 4,748
Mid-Continent 1,211 2,180 2,557 3,309 5,973 7,005
Mississippi 847 1,092 1,274 2,314 2,993 3,490
Totals 6,513 7,759 7,867 17,794 21,257 21,553
Pro Forma Totals(2) 5,773 5,897 5,539 15,776 16,157 15,176

(1) Initial production from the Eagle Ford Shale commenced in February 2011.
(2) Pro forma to exclude production from the Appalachian assets sold in July 2012, Mid-Continent assets sold in August 2011 and Gulf Coast assets sold in January 2010.
Note - Numbers may not add due to rounding.

The production in the fourth quarter of 2012 and full-year 2012 exceeded the upper end of our previously provided guidance. As shown in the table above, on a pro forma basis to exclude production from assets sold in 2011 and 2012, production in the fourth quarter of 2012 was 1.4 MMBOE, or 15,444 BOEPD, compared to 1.4 MMBOE, or 15,671 BOEPD, in the prior year quarter and 1.4 MMBOE, or 15,245 BOEPD, in the third quarter of 2012. As a percentage of total equivalent production, oil and NGL volumes were 56 percent in the fourth quarter of 2012, compared to 37 percent in the prior year quarter and 52 percent in the third quarter of 2012.

As shown in the table above, on a pro forma basis to exclude production from assets sold in 2010, 2011 and 2012, production in 2012 was 5.8 MMBOE, or 15,776 BOEPD, compared to 5.9 MMBOE, or 16,157 BOEPD in 2011, and 5.5 MMBOE, or 15,176 BOEPD, in 2010. The slight decrease from 2011 to 2012 was due to natural gas production declines associated with discontinued natural gas drilling, largely offset by increased crude oil production from the Eagle Ford Shale.

Proved Reserves

As set forth in the table below, proved reserves were 113.5 MMBOE at year-end 2012, as compared to 130.3 MMBOE at year-end 2011, pro forma to exclude 16.9 MMBOE of Appalachian reserves sold in July 2012 (reported proved reserves at year-2011 were 147.2 MMBOE). The 13 percent decrease in pro forma proved reserves was due to a 161 Bcf (26.9 MMBOE), or 28 percent, decrease in natural gas proved reserves, partially offset by a 10.0 MMBOE, or 28 percent, increase in oil and natural gas liquid (NGL) proved reserves. In the Eagle Ford Shale play, proved reserves increased by 16.1 MMBOE, or 161 percent, from 10.0 MMBOE at year-end 2011 to 26.1 MMBOE at year-end 2012.

Proved Reserves at December 31, 2011(3)
Oil, NGLs and
Oil Equivalent Condensate Natural Gas
Reserves Reserves Reserves
(MMBOE) (MMBbls) (Bcf)
Proved reserves at December 31, 2011 147.2 35.6 669.9
2012 production (6.5 ) (3.1 ) (20.3 )
2012 extensions, discoveries and other additions 18.3 16.0 13.4
2012 revisions (28.7 ) (2.9 ) (154.4 )
2012 purchases (sales) of reserves in place, net (16.9 ) 0.0 (101.2 )
Proved reserves at December 31, 2012 113.5 45.5 407.5
Percentage of equivalent reserves 100.0 % 40.1 % 59.9 %
Proved developed reserves at December 31, 2011
71.6 16.5 330.6
Percentage of proved reserves
48.6
%
46.3
% 49.3
%
Proved developed reserves at December 31, 2012
47.0 18.7 169.4
Percentage of proved reserves
41.4
% 41.1
% 41.6
%
Present value of future net cash flows before

income taxes ($mil.)(3)
$692.5

(3) The estimated reserves and present value were based on pricing assumptions for Henry Hub natural gas of $2.76 per MMBtu and West Texas Intermediate crude oil of $94.71 per barrel. These compare to prices of $4.12 per MMBtu and $96.19 per barrel, respectively, at December 31, 2011. Both prices exclude the effects of hedged production. One barrel of oil or NGLs is assumed to be equivalent to six Mcf of natural gas. MMBbls equals millions of barrels of liquids.
Note - Numbers may not add due to rounding.

The PV-10 value of the proved reserves at year-end 2012 was approximately $692 million (see statement regarding non-GAAP measures below). This PV-10 value was based on a Henry Hub (HH) price of $2.76 per million British thermal units (MMBtu) for natural gas and a West Texas Intermediate (WTI) price of $94.71 per barrel for oil, each of which represents the unweighted arithmetic average of the first-day-of-the-month prices during the 12-month period ending on December 31, 2012.

Excluding all PUD wells with negative PV-10 value, the PV-10 value for our proved reserves was $839 million. The estimated year-end 2012 proved reserves included proved developed reserves of 46.5 MMBOE, with a PV-10 value of $628 million, and PUD reserves of 66.5 MMBOE, with a PV-10 value of $64 million (excluding all PUD wells with negative PV-10 value, the PV-10 value of PUD reserves was $211 million). During 2012, we added 18.3 MMBOE of proved reserves from extensions, discoveries, purchases and other additions in the Eagle Ford Shale play.

For the 12-month period ended December 31, 2011, the average HH price for natural gas was $4.12 per MMBtu and the average WTI price for oil was $96.19 per barrel. As a result of the declines in natural gas and NGL prices, together with the situation that we will not be able to develop a portion of our PUD reserves within a five-year time period required under the reserve rules of the Securities and Exchange Commission (SEC), we had 28.7 MMBOE of negative revisions, in the Selma Chalk, Marcellus Shale, Haynesville Shale, Cotton Valley and Granite Wash plays.

Operational Update

Eagle Ford Shale

Net production from the Eagle Ford Shale was 6,872 BOEPD in the fourth quarter of 2012, compared to 6,317 BOEPD in the third quarter of 2012. During the fourth quarter of 2012, we drilled ten (9.0 net) operated wells in the Eagle Ford Shale, all of which were successful. Since late October, we have completed ten (9.0 net) Eagle Ford Shale wells. This brings the total number of on-line wells to 66 (55.1 net), with one (0.9 net) well waiting on completion, two wells being drilled in the Eagle Ford Shale and one horizontal exploratory well being drilled in the Pearsall Shale in Gonzales County.

As previously disclosed, we have initiated the process and are actively seeking a 40 percent working interest partner for our Lavaca County acreage. We expect to have this process completed late in the first quarter. In addition, beginning in 2013, we will initiate the use of pad drilling, which we believe will decrease costs and improve fracture efficiency.

Set forth below are the initial results and statistics for certain Eagle Ford Shale wells drilled and completed to date.

30-Day Average Gross
Peak Gross Daily Daily Production
Production Rates(4)
Rates(4)
Lateral Frac Cumulative Days On Oil Equivalent Choke Oil Equivalent
Well Name Length Stages Production Production Rate Rate Size Rate Rate
Feet BOE Days BOPD BOEPD Inches BOPD BOEPD
New Wells On-Line
Neuse #1H 4,650 19 43,080 125 633 667 13/64” 430 459
Henning #2H 3,153 13 54,094 98 920 1,002 14/64” 753 822
Smith #1H(5)
4,459 18 39,864 91 730 943 16/64” 487 629
Kusak #1H 4,453 18 39,532 70 656 779 18/64” 543 726
Leal #1H(5)
4,201 17 38,120 64 619 832 13/64” 514 725
Matias #1H(5)
4,453 20 27,502 49 899 1,013 12/64” 508 652
Miller #1H 4,502 23 17,736 46 871 931 35/64” 409 430
Freytag #1H(5)
4,952 25 20,928 33 1,071 1,195 14/64” 580 689
Kleihege #1H(5)
5,155 26 10,478 21 484 629 16/64” 400 515
Arledge Ranch #1H 4,150 21 13,666 18 1,015 1,117 16/64” --- ---
Raab #1H(5)
5,450 22 --- --- 808 1,046 17/64” --- ---
Barraza #1H(5)
3,952 16 --- --- 574 680 15/64” --- ---
R. Washington #1H 3,702 19 --- --- 744 805 15/64” --- ---
Averages (13 newest wells) 4,402 20 27,845 56 771 895 16/64” 514 627
Averages (6 newest Gonzales wells) 4,102 19 33,622 71 807 884 19/64” 534 609
Averages (7 newest Lavaca wells) 4,660 21 23,031 44 741 905 15/64” 498 642
Averages (59 wells)(6)
4,006 17 84,057 337 882 972 16/64” 579 651
Averages (47 Gonzales wells)(6)
3,856 16 93,309 393 906 984 17/64” 589 649
Averages (12 Lavaca wells)(6)
4,594 20 47,822 120 789 926 14/64” 540 660
Other Wells
Targac #1H(5,7)
Technik #1H(5,7)
Fojtik #1H(5,7)
Cannonade Ranch #50H(8)

(4) Wellhead rates only; the natural gas associated with these wells is yielding approximately 145 barrels of NGLs per million cubic feet. BOPD is defined as barrels of oil per day.
(5) Wells located in Lavaca County; all other wells are located in Gonzales County.
(6) Seven wells (six in Gonzales County and one in Lavaca County) had operational issues and/or shorter laterals and fewer frac stages. As a result, production data for these seven wells have been excluded.
(7) The Targac #1H well is waiting on completion. The Technik #1H and Fojtik #1H are currently being drilled.
(8) The Cannonade Ranch #50H well is a horizontal exploratory well targeting the Pearsall Shale and is currently being drilled.

Derivatives Update

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. More

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