Summary
- Penn Virginia gets a good price for its production due to a mid-70s oil percentage and modest differentials.
- It should also be able to deliver positive cash flow with low $50s oil in Q4 2019 and beyond.
- Leverage is also in the reasonable range at 1.6x.
- Despite this, Penn Virginia's shares are trading at very low levels, as it is valued at only 2.7x EBITDAX.
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Penn Virginia (PVAC) has some advantages including its oil dominant production (mid-70s percent oil) along with solid differentials for both oil and natural gas. It also has a reasonable amount of leverage (projected at 1.6x) and doesn't have any debt maturities for several years. It should also be able to generate positive cash flow while maintaining production levels in 2020.
Despite these relatively good attributes, it is trading at only 2.7x projected unhedged 2020 EBITDAX, which makes it one of the cheapest producers.
Eagle Ford Prices
Eagle Ford oil prices remain decent, although LLS and MEH are expected to have a smaller premium to WTI compared to in 2019. The current 2020 strip for LLS is a $3.01 premium to WTI, while the 2020 strip for MEH involves a $2.48 premium to WTI.
As a result, I am currently modelling that Penn Virginia will realize around $1.25 less than WTI in 2020. As a comparison, Penn Virginia realized $2.50 above WTI in Q1 2019 and $2.70 above WTI in Q2 2019. LLS averaged $6.70 above WTI in Q1 2019 and $7.34 above WTI in Q2 2019, indicating that Penn Virginia typically realizes around $4.00 or $4.50 below LLS for its oil.
2020 Outlook
The 2020 strip for WTI oil is currently around $53.50, while LLS is around $57.50. In this scenario, Penn Virginia would realize around $52.25 for its oil.
Assuming that Penn Virginia can average 28,800 BOEPD (74% oil) in 2020 (roughly its expected Q4 2019 production level), it would then generate around $440 million in oil and gas revenue at current strip prices. Natural gas and NGL prices remain pretty weak, but Penn Virginia has a relatively high oil percentage.
