Penn Virginia (PVAC) Update - Oct 6

[dan_s]

I will be updating my forecast/valuation model for PVAC (now Ranger Oil Corp.) today. This one has a lot of upside for us. Post Merger PVAC will have a production mix of approximately 70% crude oil, 16% natural gas and 14% NGLs. Their current two rig drilling program should result in Q4 production over 40,000 Boepd.

Penn Virginia Closes Merger with Lonestar Resources, Rebranding to Ranger Oil Corporation
OCTOBER 06, 2021
-- Provides Updated Plans for Combined Company --
-- Continued Focus on Efficiency, Returns and Free Cash Flow Generation --

HOUSTON, Oct. 06, 2021 (GLOBE NEWSWIRE) -- Penn Virginia Corporation (“Penn Virginia” or the "Company") (NASDAQ: PVAC) today announced it closed the acquisition of Lonestar Resources US Inc. (“Lonestar”) and plans to rename the combined company Ranger Oil Corporation ("Ranger", “Ranger Oil” or “the Company”). The Company also announced plans for future operational activity, changes to the composition of its Board of Directors, and a reset of certain Lonestar hedges. The Company maintains focus on maximizing operational and capital efficiency, generating superior returns, and building on its consistent track record of free cash flow generation, which it has sustained every quarter since fourth quarter 2019.

Rebranding to Ranger Oil Corporation

Reflecting its focus on safe and efficient oil and natural gas operations in Texas, Penn Virginia intends to officially rebrand as Ranger Oil Corporation and, effective October 18, 2021, begin trading under the NASDAQ ticker symbol of ROCC. The rebranding is expected to be fully complete prior to year-end 2021.

Darrin Henke, President and Chief Executive Officer of the Company, commented, "In a very short time, we have significantly increased the scope and scale of the Company, amplifying its free cash flow generation and return potential. We’ve combined the asset bases of Penn Virginia, Rocky Creek Resources and Lonestar, creating a consolidated asset position producing almost 40,000 barrels of oil equivalent per day with over 140,000 net acres strategically positioned in the core of the Eagle Ford play in South Texas. We now own high-quality inventory approximating 750 locations, approaching two decades of inventory at our current drilling pace.” < "Running Room" is one of the keys for my valuation multiples.

“Additionally, we’ve made significant changes to our management team, assembling a set of highly experienced team members including myself as CEO, along with our Chief Financial Officer, Senior Vice President of Development, and numerous other seasoned professionals throughout the Company. These changes have driven a step change in recent asset, operational and financial performance over the last several quarters. Wells spud in 2020 and 2021 have exceeded DeGolyer & MacNaughton’s type curves by approximately 15% cumulatively since they were brought onto production. Our most recent Bloodstone two-well pad generated a combined IP-30 rate of over 4,850 boe/d. Since the beginning of 2020 through the first half of 2021, we had the highest EBITDA margin per boe of any public U.S. independent oil and gas company.”

“In addition to our strategic and operational achievements, we transformed our balance sheet over the past year by bringing in substantial equity capital from an experienced oil and gas equity group, issuing senior unsecured notes to extend maturities, and amending and expanding our credit facility borrowing base while reducing the balance borrowed on the facility. This resulted in our Company having an estimated 1.5x pro-forma LTM leverage. We’ve announced seven consecutive quarters of free cash flow through June 30 of this year and project Ranger to produce over $200 million of free cash flow in 2022 at current strip pricing.” < My PVAC forecast model (prior to this press release) shows the Company generating over $530 million of operating cash flow in 2022, which means they can increase their D&C capital program to $330 million next year, up from $230 million this year.

Rusty Kelley, Senior Vice President and Chief Financial Officer, added “Over the past year and a half, we have consistently committed to certain principles along with operational and financial goals designed to deliver superior returns with reduced risk. We’ve now achieved all of our first phase goals as Darrin set forth, and believe we now stand at the beginning of another phase of significant fundamental value creation. We believe the combination of low leverage, consistent free cash flow, increasing operational and financial efficiencies, and deep inventory provides the Company with a variety of avenues for superior performance. We plan to continue our disciplined approach to potential consolidation opportunities while maintaining a pristine balance sheet with substantial liquidity, including our commitment to achieving a 1.0x leverage ratio in the first half of 2022. Upon achievement of our target leverage ratio, we intend to communicate and initiate our strategy around shareholder accretive uses of our robust cash flow profile. We also intend to drive further operational efficiencies including longer laterals, increased wells per pads, enhanced completion techniques and shared facilities. Lastly, we plan to further establish ourselves as a leader in ESG-related results. We have already been recognized as having among the lowest emissions for operators in the Eagle Ford, and we plan to target additional enhancements as we integrate the Lonestar assets. In addition, the Company will continue fostering its diverse and inclusive environment and increase our community engagement efforts.”

“Above all, Ranger Oil is committed to its stakeholders across its capital structure to a relentless focus on cash-on-cash returns, capital discipline, prudent risk management, continuous operational improvement and a spirit of stewardship across our operating areas and the communities where we work. We are incredibly proud of what has been accomplished by our team, but even more excited to demonstrate what we are in the process of accomplishing in the near future for our shareholders.”

Edward Geiser, Chairman of the Board of the Company and Managing Partner of Juniper Capital commented, “Juniper Capital congratulates the Ranger Oil team for its recent accomplishments and remains a committed long term equity partner of the Company. The recent operational, financial and strategic achievements continue to validate and bolster our investment thesis in partnering with the Company, and we look forward to the ongoing performance that Ranger Oil and its management team have planned as they execute their strategy in the core of one of the most prolific oil basins in North America.”

Development Pace Update

Prior to the Lonestar merger, the Company was operating a two-rig continuous development program, with Lonestar operating an approximate half-rig program. Ranger Oil remains committed to maintaining capital and operational discipline; thus, the Company currently anticipates maintaining a two-rig program going forward. During the fourth quarter 2021, we intend to proceed with the existing development operations planned for both Penn Virginia and Lonestar, which includes the continuation of the two currently operating rigs and ongoing completion activities. Based on this pace of development, capital expenditures for the fourth quarter of 2021 are anticipated to be approximately $65-$75 million, and such development program is expected to generate significant free cash flow during this period. Due to ongoing operational efficiencies in both drilling and completion techniques, the ability to extend lateral length across the combined acreage position, targeting of high working interest acreage and increased wells per pad, the Company believes a two-rig program in 2022 can achieve results approximating a 2.5 rig development scenario but with more efficient capital deployment. This enhanced level of capital efficiency, along with the synergies we anticipate realizing from the Lonestar combination, are expected to materially accelerate the Company's free cash flow generation in 2022 at current strip pricing.

Hedge Portfolio Restructuring

In conjunction with the closing of the Lonestar merger, the Company is assuming the swapped hedge volumes held by Lonestar and resetting the majority of these swaps to reflect current market pricing. This reset is not anticipated to materially impact the Company’s leverage metrics; however, it is anticipated to increase its future Adjusted EBITDAX and free cash flow. The Company believes this change more properly reflects for stakeholders the robust earnings and cash flow profile of the Company while maintaining a strong balance sheet and ample liquidity. For additional detail around the restructured hedge portfolio, please refer to our investor presentation located on our website www.Rangeroil.com.

Board of Director Changes

In connection with the Lonestar closing, Darin G. Holderness has resigned from the Company's Board of Directors (the “Board”). Richard Burnett, former Chairman of the Board of Directors for Lonestar, has been appointed to the Company's Board to fill the vacancy. Mr. Burnett will also serve as Chairman of the Audit Committee.

"Darin has been a key member of our Board, including acting as Chairman for over three years, and we are deeply grateful for the valuable insight and keen business acumen he has contributed to the Company," said Mr. Henke. "On behalf of the entire Board, I would like to thank Darin for his dedicated service and wish him continued success.”

“We are also very pleased to welcome Ricky to our Board. We believe his extensive background in finance and accounting complemented by his comprehensive industry experience will prove very valuable as we continue to execute on our strategy of creating long-term value for our shareholders through best-in-class operations."

About Ranger Oil Corporation

Ranger Oil is a pure-play independent oil and gas company engaged in the development and production of oil, NGLs, and natural gas, with operations in the Eagle Ford shale in South Texas. For more information, please visit our website at www.Rangeroil.com. The information on the Company's website is not part of this release.

[dan_s]

PVAC is currently trading at $30.93. I have updated my forecast/valuation model and I am raising my valuation by $6 to $46. You can download my forecast model directly from the EPG website home page.

TipRanks: 9/29/2021
Penn Virginia price target raised to $40 from $34 at Truist Financial
"Truist analyst Neal Dingmann raised the firm's price target on Penn Virginia to a "Street-high" $40 from $34 and keeps a Buy rating on the shares. The company is set to close its Lonestar acquisition next week, raising its market cap to more comparable level relative to its peers, but its earnings multiple still reflects much lessor known operators, the analyst tells investors in a research note. Penn Virgina's solid contiguous acreage and strong operations along with higher future prices should lead to industry leading low leverage that will help the company to build further scale, Dingmann adds."

Basis for my increased valuation (still only 5X annualized operating cash flow per share).
> Super strong balance sheet.
> Strong Management and BOD.
> Lots of "running room" with ~750 low-risk / high-return development drilling locations; most in the Tier One area of the Eagle Ford.
> Significant increase in operating cash flow (per my forecast) from $78.9 million in Q3 to $128.1 million in Q4 and $551.3 million in 2022.
> Free cash flow should increase from approximately $90 million in 2021 to over $200 million in 2022.
> They have improved their hedges with only ~30% of oil hedged with collars that have ceilings of $52.10. Another 50% is hedged at over $72.35. Much better hedges now in place for 2022, so if WTI averages $70/bbl next year their realized price for oil should be $67/bbl.
> Plus, the Company gets a premium for their production of about $2/bbl for oil sold into the LLS market and access to good markets for ngas and ngls.

MY TAKE after going to the new Ranger Oil Corp. website and reviewing their fresh presentation.
> They are evaluating more bolt-on acquisitions that are likely to push 2022 production much higher than my forecast.
> They have plenty of FCF and liquidity to fund a growth by acquisition strategy and a 2 or 3 drilling rig program.
> A high percentage of their leasehold is held by production.
> My 2022 forecast is based on much lower commodity prices than we have today. This is an "Oil Company". If WTI does average over $80/bbl in 2022, my valuation will likely go to $60/share.

[Fraser921]

>In conjunction with the closing of the Lonestar merger, the Company is assuming the swapped hedge volumes held by Lonestar and resetting the majority of these swaps to reflect current market pricing.

I like the idea of a reset, take the hit now,numbers in future will be a lot better

Bought some today, TY Dan!

[dan_s]

A table of the current hedges is shown in their new Ranger Oil Corp. presentation and at the bottom of my forecast model. Most of the "Bad Hedges" expire at the end of December, 2021.

[CreativeEquity]

I am new here and had some trouble looking this up.

Does "held by production" mean there are no other leases encumbering the property ?

[Fraser921]

As I understand it, when an oil company drills on land they need to have a lease with the property owner. They pay an upfront fee. They have to drill a well in a certain amount of time or the lease expires. If they drill the well, the lease is in effect, and the property is referred to as "held by production" The owner also gets royalties from the production

That obviously is a good thing as the oil company can keep drilling on the property acquired

[dan_s]

Yes, "held by production" "HBP" just means that the drilling obligation under the lease has been met and now the operating company holds the lease for as long as the wells on the leased acreage are producing. The cost of HBP leases and the cost of the wells and facilities on them are depleted based on the units of production method. Most of the upstream companies in our model portfolios use the "Full Cost Method", so all costs associated with HBP leases go into the "Full Cost Pool" and are depleted as one big asset.

HBP acreage is much more valuable. Companies with lots of HBP acreage that contain lots of development drilling locations are prime takeover targets.

Leases that have not been drilled are an obligation and usually require that annual delay rentals be paid to the mineral owner. Those leases will expire at some point if a well is not completed on them and revert back to the mineral owner. Most onshore leases have primary terms of 3 to 5 years.

PVAC has a lot of HBP acreage and a lot (~750) very valuable development drilling locations.

[CreativeEquity]

Thanks for the help, I appreciate it. I moved a big chunk of my capital from mining to energy early last month and I am still get up to speed with the industry terminology and concepts. EPG and especially the people behind it have been a fantastic resource.

[dan_s]

Tell your friends. We need more members.