We need information cocerning the fair market value of oil and gas lease in fayette county tx. Many people in this area are quick to sign their land for $200.00 per acre for 3 years with the leaser having the option to continue the lease for another $200.00 for the next 2 years. We’re asking is this a fair market value and is the length of time (5 yrs) is too long to tie up the land. A .187 royality is also being offered should there be any drilling. We were told by our family lawyer to hold off as the activity in Fayette county will pick up alot during the next 5 years. We are located in Schulenburg,Tx.
I know for about two years running their land department had a payroll of nearly 1.5m a month. This went on for about two years. Wish I would have been the owner of that land company getting a kickback from someone internally at PV.
Jim Clarke & associates ???
the amount of wells etc.. is all on their 2nd quarter presentation which is on their website...they do not release employee headcount info.....
have not heard of any VP's or execs cut loose...and they have many...
I have no way to back this up; but, about 2 years ago, in a conversation I had with a very reliable source that was deeply involved in this leasing process told me that Penn had over 200 landmen working in our immediate area. I'm sure that was the peak; but, that is a whale of a lot of people working an area and a monster payroll to support. At the time they were one of the best things going for area mineral owners, at least South of I-10.
Figure a lot of those land people / brokers were contract staff - easily laid off when they are not needed anymore
Penn Virginia: All Signs Point To Bankruptcy
Aug. 3, 2015 1:33 PM ET | 13 comments | About: Penn Virginia Corporation (PVA), Includes: COP by: Tim McAleenan Jr.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Summary
- Penn Virginia has not been profitable since 2008.
- The company has lost over $400 million since the start of 2014.
- The senior bond holders charge high interest rates and will ensure that the current common stock holders will get nothing after bankruptcy.
Penn Virginia (NYSE:PVA), headquartered in Pennsylvania, has been in business since 1882. Usually, companies with that kind of staying power rarely go into bankruptcy unless there is a severe economic crisis in the country. But it seems that it merely took a decline in the price of oil to the $50 range to push this company to the brink of insolvency.
The problem with the company is a long series of mismanagement that has led the company to purchase low-quality exploratory wells in Pennsylvania's Marcellus Shale, and absolutely terrible natural gas interests in the Haynesville Shale and Cotton Valley Sands of East Texas that hemorrhage cash. The company bandies about the assets it owns-115 million barrels of oil equivalent, 738 productive wells, and 224,000 acres of leasehold and royalty interests-but the company repeatedly fails to mention that these assets generate losses even in good times.
People who look at Penn Virginia's losses of $400 million over the past twelve months might conclude that is the price you must pay for exploring and producing natural gas during a downturn in the commodities cycle. But that kind of logic ignores the fact that the company's ownership interests in the Marcellus Shale, Haynesville Shale, and Cotton Valley Sands are so inferior that they cannot even generate profits in the good times.
The Brent oil average in 2011 was a tad bit over $111 per barrel. You would think that this would be an environment where every oil exploration company would be profitable. But no, that was not the case with Penn Virginia. This company still managed to lose $2.54 per share, or a little over $100 million. With a company like Conoco (NYSE:COP), we only need to see oil rise to above $75 or so per barrel for the E&P firm to start making profits again. Conoco shareholders have reason to be optimistic for the long-term future.
But that is not the case for Penn Virginia. Even if the price of oil were to double, it would still be losing money. That is not the kind of asset you want to own, because it requires an exceptionally strong commodities market for Penn Virginia to even generate satisfactory returns.
The company's balance sheet looks atrocious. It carries $1.2 billion in debt, and hasn't generated a profit since the top of the energy market in 2008. Worst of all, as the price of the stock has plummeted from a high of $81 per share in 2008 to the current price that approaches $1, the company has engaged in massive dilution that precludes the possibility of any meaningful recovery.
During the last moment of profitability in 2008, Penn Virginia had 41 million shares outstanding. Now the company has more than 70 million shares outstanding. Even if prices were to recover, the permanent capital impairment that results from a near doubling of the share count is so severe that any kind of potential recovery is unlikely.
The problem with struggling companies is that they often have to make desperate decisions during the downturns in the economic cycle that ensure eventual ruin. If you ever have a moment, check out page 43 and 44 of the company's annual report (and if not, I'll just summarize it for you). You will see the company mention that, of its $1.2 billion debt load, it has $300 million in senior notes that are due in 2019 and $775 million in senior notes that are due in 2020.
These notes are the reasons why the owners of the common stock are almost assured of getting nothing when the company goes bankrupt. On the 2019 notes, Penn Virginia must pay an interest rate of 7.25% on the $300 million in debt. And on the 2020 notes, the company must pay 8.5% interest on the $775 million notes. The reason why I feel confident that this company will go bankrupt is because it is paying between 7.25% and 8.5% in interest on a billion dollars while simultaneously losing $400 million per year so that it will have to borrow even more, at presumably higher rates given the company's deteriorating condition, just to make the payments on its exorbitant debts.
And once Penn Virginia does go bankrupt, the shareholders will find themselves in trouble. In typical bankruptcy cases, companies are able to realize about 45% of their current assets when they sell their goods. With $2.2 billion in assets, Penn Virginia stands to realize about $990 million when it actually sells the goods. It has $245 million in current liabilities, so the figure will decline to $745 million available. When I mentioned earlier that the notes are classified as "senior", the consequence is that those creditors will stand to collect the $1 billion they are owed before we even reach the common stock holders.
And none of these figures take into account the expected cost of legal fees to execute the bankruptcy, which will be substantial. When you only have $745 million net of sales being fought over by creditors that are owed $1 billion, it is a perfect recipe for common stockholders to receive a total wipeout coming out of the bankruptcy. Remember, the entire $1 billion would need to be paid to the 2019 and 2020 senior debt holders before any of the common stock holders would get a crack at claiming ownership from the asset sales.
On Thursday's conference call, the Penn Virginia management team mentioned that the company had considered selling the company but couldn't find any "credible" buyers. I call this the "Countrywide" principle. Just as Bank of America learned that buying an asset for pennies on the dollar can end up costing you billions, no one wants to acquire Penn Virginia now that it is cheap because the assets are low-quality and the current debt burdens are an extraordinary liability.
I suppose there is always the possibility of a greater fool theory in which the company is purchased at a premium, but that is gambling instead of making an investment decision based on probabilities. Penn Virginia loses $400+ million per year, and hasn't turned a profit since 2008. Oil prices could double, and the company still wouldn't be profitable. There has been massive share dilution, and the debt payments to the 2019 and 2020 senior debt holders are serviced at high interest rates. There is nothing in the fundamentals to suggest that this company is not marching towards bankruptcy.
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Penn Virginia (PVA) Engages Jefferies as Advisor for Eagle Ford-Related Transactions
Penn Virginia Corporation (NYSE: PVA) today announced that it has engaged Jefferies LLC to provide financial advice generally and to act as its exclusive financial advisor in connection with asset-level financing transactions with investors related to the Company's Eagle Ford assets. As part of its general advisory services, Jefferies will also help the Company evaluate strategic alternatives with respect to its Eagle Ford assets and their development and will provide the Company with other financial advice and financial planning assistance.
Penn Virginia Corporation (NYSE: PVA) 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.
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Website
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Industry
Oil & Energy
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Type
Public Company
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Headquarters
Four Radnor Corporate Center, Suite 200 100 Matsonford Road Radnor, PA 19087 United States
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Company Size
51-200 employees
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Founded
1882
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Operating Expenses
As discussed below, second quarter 2015 total direct operating expenses, excluding share-based compensation and non-recurring expenses, decreased by $2.3 million to $32.1 million, or $14.99 per BOE produced, from $34.4 million, or $15.45 per BOE produced, in the first quarter of 2015.
- Lease operating expense decreased by $0.7 million to $10.9 million, or $5.10 per BOE, from $11.6 million, or $5.20 per BOE, due to lower volume-based costs, partially offset by higher workover costs.
- Gathering, processing and transportation expense decreased by $1.1 million to $6.4 million, or $2.98 per BOE, from $7.5 million, or $3.37 per BOE, due primarily to lower production volumes.
- Production and ad valorem taxes increased by $0.3 million to $5.0 million, or 6.0% of product revenues, from $4.7 million, or 6.4% of product revenues, due to higher oil prices.
- Recurring G&A expense decreased by $0.8 million to $9.8 million, or $4.59 per BOE, from $10.6 million, or $4.77 per BOE. The decrease in recurring G&A expense was due to lower salary and benefits costs associated with reduced headcount, partially offset by higher third party consulting costs.
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G&A is General and Administrative (Office Overhead) which should be the total expenses for those working in offices.
* Salaries and other employee costs
* Insurance
* Office space
* Utilities
* Office Equipment
etc
That $9.8 million on the G&A line works out to over $100,000 per day for the Second Quarter.
What $100,000 per days equates to:
100 employees X $1,000 (salary, insurance, office space, utilities etc)
Their gross wells in the Eagle Ford appears to be 111 and Net Wells at 69.
Their near term drilling program won't be enough to offset the decline curves on the existing shale wells, so they are in an extremely bad situation.
At the bottom of the web page with the Second Quarter results, they have the name of a VP for Corporate Development. They have yet to implement an aggressive plan to reduce expenses such as that type of position.
There was a question on the other Fayette blog about Penn and possible take over candidates so I thought it might be interesting to see the progression.
I referred to the $8 purchase offer on one of my other posts; but, didn't go into detail about the possible offer. I know this offer was over a month ago; however, it is interesting to see where Penn was one month ago and see where they are today. Plus it is interesting to see who the offering candidate was.
http://investcorrectly.com/20150707/lone-star-value-management-penn-virginia-corporation-pva/
Is anyone getting leases this summer (2015)? Are lease expires and we have not heard of anyone being renewed.
It would be helpful to know who you're currently leased with ? And if in fact it is not renewed .
I would think that any new leasing will be very area dependent based on drilling results in the area and subsurface knowledge.
Stepping out into new areas for drilling is probably not on the radar for most companies
Not much to to talk about; but, I just heard an interesting bit of information that might be somewhat of an uplift to those of us that frequent the MRF. The Saudis are borrowing something like $27 billion dollars because they haven't been able to meet all their dollar demands at these lower oil prices. Don't believe the Saudis are going the way of Greece just yet since we've been told time and time again that they have billions upon billions socked away; but, with cheap money available, maybe they don't want to touch their's just yet. Too early to tell if this is some kind of a signal or not; but, I like the sound of it anyway.
With respect to the plasma "frac'ing", this approach is only to be used to address near well bore (a few feet away) damage and issues and will not come anywhere close to replacing the "conventional' fracture stimulation technology that is required to frac large areas to create economic wells in formations like the Eagle Ford.
Oil prices have dipped back down to around $45 per barrel this past week. Natural gas prices have skidded back to around $2.75 per mcf. Last fall the pundits were saying that oil prices would be back to $80 per barrel "by mid summer 2015". Well, folks, we're here, and "there ain't no $80 oil anywhere in sight". Natural gas has hovered between $2.75 and $3.25 for about the past 3-4 years, so it appears to be more stable than oil in the long term. Only five (5) applications for drilling permits for Fayette County drilling have been filed between May 1, 2015 and July 31, 2015 (per Texas Railroad Commission website), and one of those applications is for a salt water disposal well! And two of the remaining four permits are to drill development wells (a second or subsequent well in a spacing unit or on a large lease where a successful well has already been drilled). All of this said, signing a lease is a negotiation process. Anyone can alter the terms being offered, using give-and-take strategy.
Hypothetically, if my land were in Fayette County and was asked to sign a 5 year lease, the first thing I would want to do is tell them I want it limited to 3 years, not 5. I would tell them that, to get 5 years, they have to bump the bonus to $350 an acre. If they come back with $300, I'd tell them yes, only if they bump the royalty up to 1/5 or 20% from the 3/16 or 18.75% they are offering and drop the option to extend. And if the land is less than 10 acres I would tell them they have to add a clause saying that in order to pool my under-10 acre tract they must include all of it in the pooled unit or none of it. If it's more than 10 acres in size, I would say the clause has to say they must pool at least half of it or pool none of it. If they are willing to limit the lease to 3 years they can get the option to extend, but I would tell them that the extension bonus is $50 more than the original bonus.
Bottom line? Right now on my own land if it was in Fayette County I would sign a lease only to get the best signing bonus rate, and extension rate, but wouldn't take less than 20% royalty rate. If by some sudden, unexpected turn of events oil prices suddenly skyrocket (did I just see a flying pig??) the higher royalty and Pugh Clause addition would be my hedge. But the chances are lower right now that a successful well is going to be drilled in Fayette County in the next 3 years with oil expected to remain under $60/barrel for probably that long, natural gas languishing at $2.75, and capital expense (drilling) budgets drying up faster than the Mohave after a 5-minute pop-up rain. But that's just me, and if horses were wishes, burglars would hide. ; }
I wouldnt aign a lease for any of the terms you just mentioned. Talk about selling yourself short.