Penn Virginia Reports Second Quarter 2020 Results

HOUSTON, Aug. 06, 2020 (GLOBE NEWSWIRE) -- Penn Virginia Corporation ("Penn Virginia" or the "Company") (NASDAQ:PVAC) today announced its financial and operational results for the second quarter 2020.

Recent Significant Highlights

  • Generated net cash provided by operating activities of $56.4 million and free cash flow ("FCF")(1) of $6.6 million for the second quarter of 2020 and expects to generate significant FCF(1) for 2020;
  • Produced 18,888 barrels of oil per day ("BOPD") and 24,617 barrels of oil equivalent per day ("BOEPD") for the second quarter of 2020;
  • Realized oil price for the second quarter of 2020 of $23.97 per barrel and $50.37 per barrel including hedge settlements;
  • Reported net loss of $94.7 million (includes a non-cash impairment of oil and gas properties of $35.5 million and non-cash unrealized losses on derivatives of $79.6 million), or $6.24 per share, and adjusted net income(2) of $19.6 million, or $1.29 per diluted share, for the second quarter of 2020;
  • Generated adjusted EBITDAX(3) of $66.4 million for the second quarter of 2020;
  • Reduced accounts payable by approximately $45 million in the second quarter of 2020;
  • Estimated proved reserves were 123.1 million barrels of oil equivalent ("MMBOE") with a standardized measure of $936.8 million and an SEC PV-10 value(4) of $967.9 million as of August 1, 2020;
  • Estimated proved developed reserves were 54.7 MMBOE with a standardized measure of $705.6 million and PV-10 value(4) of $708.7 million at SEC pricing and $726.0 million (at strip pricing as of August 5, 2020 – see Appendix); and
  • Recorded a mark-to-market value of the Company's commodity hedge position of approximately $32 million as of August 5, 2020.

"Our second quarter results represent another outstanding achievement for Penn Virginia," said John A. Brooks, President and Chief Executive Officer of Penn Virginia. "We posted strong realized pricing in part due to our ability to store production. This storage provided us the option to delay selling our production until prices had recovered from their record lows. Our realized hedge book gains also contributed significantly to our high realized price of over $50 per barrel. The second quarter represents the third consecutive quarter in which we have been free cash flow positive. I would like to extend my thanks to the employees of Penn Virginia for their ongoing efforts to work hard while we take efforts to keep them healthy and safe. They have kept us operating efficiently and are largely responsible for the solid second quarter results."

Mr. Brooks added, "Looking ahead, we expect to generate positive free cash flow for the remainder of the year and plan to use that free cash flow to continue to reduce debt. We will remain focused on capital discipline, preservation of our strong balance sheet, and cash on cash returns."

Second Quarter 2020 Operating Results

Total production for the second quarter of 2020 was 2.24 MMBOE, or 24,617 BOEPD (77% crude oil). During the second quarter of 2020, the Company did not spud any wells but turned to sales three gross (2.8 net) wells. 

Second Quarter 2020 Financial Results 

Operating expenses were $97.9 million (includes a non-cash impairment of oil and gas properties of $35.5 million), or $43.72 per barrel of oil equivalent ("BOE"), in the second quarter of 2020. Total cash direct operating expenses, which consist of lease operating expenses ("LOE"), gathering, processing, and transportation ("GPT") expenses, production and ad valorem taxes, and cash general and administrative ("G&A") expenses, were $24.4 million, or $10.87 per BOE, in the second quarter of 2020.  Total G&A expenses for the second quarter of 2020 were $3.56 per BOE, which included $1.0 million of non-cash share-based compensation.  For the second quarter of 2020, adjusted cash G&A expenses(5), which excludes non-cash share-based compensation, were $3.14 per BOE. LOE was $4.06 per BOE for the second quarter of 2020.

Net loss for the second quarter of 2020 was $94.7 million (includes a non-cash impairment of oil and gas properties of $35.5 million and non-cash unrealized losses on derivatives of $79.6 million), or $6.24 per share, compared to a net income of $51.6 million, or $3.40 per diluted share, in the second quarter of 2019.  Adjusted net income(2) was $19.6 million, or $1.29 per diluted share, in the second quarter of 2020 versus $31.5 million, or $2.08 per diluted share in the second quarter of 2019.

Adjusted EBITDAX(3) was $66.4 million in the second quarter of 2020, compared to $86.7 million in the second quarter of 2019, down primarily due to the effect of lower oil prices.

During the second quarter of 2020, the Company incurred $10.7 million of capital expenditures, of which 95% was associated with drilling and completion capital.

As of June 30, 2020, the Company had a net debt to LTM Adjusted EBITDAX ratio of approximately 1.65x(6).

Acreage

As of June 30, 2020, the Company had approximately 99,000 gross (86,500 net) acres.  Approximately 92% of Penn Virginia's acreage is held by production.

Proved Reserves

As of August 1, 2020, Penn Virginia's total proved reserves were approximately 123.1 MMBOE, of which 54.7 MMBOE were proved developed ("PD") reserves. The proved reserves were calculated in accordance with the Securities and Exchange Commission ("SEC") guidelines using the first day of the month prices for the last 12 months, resulting in pricing of $45.78 per barrel for crude oil and $2.06 per MMBtu for natural gas.

The Company's standardized measure of total proved reserves was $936.8 million, and the standardized measure of PD reserves was $705.6 million as of August 1, 2020. The value of the Company's total proved reserves, utilizing the SEC price guidelines, discounted at 10% and before tax ("PV-10")(4), was $967.9 million as of August 1, 2020. 

The PV-10 value(4) of the Company's PD reserves utilizing the SEC price guidelines was $708.7 million as of August 1, 2020. Using strip pricing as of August 5, 2020 (see the Appendix of this release for pricing information), the PV-10(4) of the Company's PD reserves was $726.0 million before giving effect to hedges.

As of August 1, 2020, Penn Virginia had cash of $10.5 million and total debt of $534.4 million. The ratio of the PV-10(4) of the Company's PD reserves using strip pricing as of August 5, 2020, after giving effect to the Company's hedge value of approximately $32 million, to the Company's net debt(7) at August 1, 2020 of approximately $523.9 million, is approximately 1.45x(8).

Outlook

The table below sets forth the Company's operational and financial guidance:

 3Q 2020 
   
Production (BOPD) 17,000 – 19,000 
   
Capital Expenditures (millions)  $11 – $15 
   

Guidance reflects completion of the Company’s five remaining drilled uncompleted ("DUC") wells during the third quarter of 2020.

Second Quarter 2020 Conference Call

A conference call and webcast discussing second quarter 2020 financial and operational results is scheduled for Friday, August 7, 2020 at 10:00 a.m. ET. Prepared remarks will be followed by a question and answer period. Investors and analysts may participate via phone by dialing (844) 707-6931 (international: (412) 317-9248) five to 10 minutes before the scheduled start time, or via webcast by logging on to the Company's website, www.pennvirginia.com, at least 15 minutes before the scheduled start time to download supporting materials and install audio software, as necessary. The webcast can also be accessed at https://services.choruscall.com/links/pvc200807.html.

An on-demand replay of the webcast will be available on the Company's website beginning shortly after the webcast. The replay will also be available from August 7, 2020 through August 14, 2020 by dialing (877) 344-7529 (international (412) 317-0088) and entering the passcode 10146140.

About Penn Virginia Corporation

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

Cautionary Statements Regarding Guidance

The estimates and guidance presented in this release are based on assumptions of current and future capital expenditure levels, prices for oil, natural gas, and NGLs, impact of hedges, available liquidity, indications of supply and demand for oil, well results, and operating costs. The guidance provided in this release does not constitute any form of guarantee or assurance that the matters indicated will be achieved. While we believe these estimates and the assumptions on which they are based are reasonable as of the date on which they are made, they are inherently uncertain and are subject to, among other things, significant business, economic, operational, and regulatory risks, and uncertainties, some of which are not known as of the date of the statement. Guidance and estimates, and the assumptions on which they are based, are subject to material revision. Actual results may differ materially from estimates and guidance. Please read the "Forward-Looking Statements" section below, as well as "Risk Factors" in our annual report on Form 10-K and our quarterly reports on Form 10-Q, which are incorporated herein.

Forward-Looking Statements 

This communication contains certain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements regarding future financial or operating performance and other statements that are not historical facts are forward-looking statements, and such statements include,  words such as "anticipate," "forward," "outlook," "expects," "intends," "plans," "believes," "future," "potential," "may," "possible," "should," "would," "could," "allow" and variations of such words or similar expressions, including the negative thereof, to identify forward-looking statements. Because such statements include assumptions, risks, uncertainties, and contingencies, actual results may differ materially from those expressed or implied by such forward-looking statements. These risks, uncertainties and contingencies include, but are not limited to, the following: our ability to realize the desired benefits of hedges and predict commodity price changes; the effect of commodity and financial derivative arrangements with other parties, and counterparty risk related to the ability of these parties to meet their future obligations; any further decline in, sustained depression in and volatility of expected and realized commodity prices for oil, NGLs, and natural gas; our ability to comply with our credit agreement and maintain or increase our borrowing base; our liquidity; the uncertainties inherent in projecting future rates of production for our wells and the extent to which actual production differs from that estimated in our proved oil and gas reserves; actions by third parties, including suppliers and customers; the impact of the COVID-19 pandemic and the actions taken by regulators and third parties in response to such pandemic, the related economic downturn and the related substantial decline in demand for oil and natural gas; and other risks set forth in our filings with the SEC. Strip pricing is a forecast that speaks only as of the date published and is not necessarily indicative of actual or realized prices, which may be materially different. Additional information concerning these and other factors can be found in our press releases and public filings with the SEC. Many of the factors that will determine our future results are beyond the ability of management to control or predict. The unprecedented nature of the current pandemic and economic downturn makes it more difficult for management to determine risks and the magnitude of the impact of risks known or unknown to management. Readers should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof. The statements in this communication speak only as of the date of communication. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable law.

Footnotes

  1. Free cash flow is a non-GAAP financial measure. Definitions of non-GAAP financial measures and reconciliations of non-GAAP financial measures to the closest GAAP-based financial measures appear at the end of this release.
  2. Adjusted net income is a non-GAAP financial measure. Definitions of non-GAAP financial measures and reconciliations of non-GAAP financial measures to the closest GAAP-based financial measures appear at the end of this release.
  3. Adjusted EBITDAX is a non-GAAP financial measure. Definitions of non-GAAP financial measures and reconciliations of non-GAAP financial measures to the closest GAAP-based financial measures appear at the end of this release.
  4. PV-10 value is a non-GAAP measure reconciled to Standardized Measure and is defined at the end of this release.
  5. Adjusted Cash G&A expense is a non-GAAP financial measure. Definitions of non-GAAP financial measures and reconciliations of non-GAAP financial measures to the closest GAAP-based financial measures appear at the end of this release.
  6. Net Debt to LTM Adjusted EBITDAX is a ratio of the Company's Net Debt to LTM Adjusted EBITDAX, which are non-GAAP measures defined and reconciled at the end of this release.
  7. Net debt is a non-GAAP financial measure reconciled to Principle Amount of Long-Term Debt at the end of this release.
  8. For information to calculate the ratio of PV-10 value of the Company's proved developed reserves using strip pricing after giving effect to the Company's hedge position, to the Company's net debt, see table at the end of this release.

PENN VIRGINIA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
and SELECTED OPERATING STATISTICS - unaudited
(in thousands, except per share, production and price data)

  Three Months Ended Six Months Ended
  June 30, March 31, June 30, June 30,
  2020 2020 2019 2020 2019
Revenues          
Crude oil $41,197  $86,308  $114,031  $127,505  $208,843 
Natural gas liquids (NGLs) 1,578  1,893  3,502  3,471  9,050 
Natural gas 2,020  2,690  5,290  4,710  9,567 
Total product revenues 44,795  90,891  122,823  135,686  227,460 
Gain (loss) on sales of assets, net 8  6  16  14  41 
Other revenues, net 679  482  (72) 1,161  494 
Total revenues 45,482  91,379  122,767  136,861  227,995 
Operating expenses          
Lease operating 9,094  10,532  10,362  19,626  21,366 
Gathering, processing and transportation 5,593  5,444  6,408  11,037  10,337 
Production and ad valorem taxes 2,630  6,154  7,579  8,784  13,271 
General and administrative 7,035  6,374  5,215  13,409  11,242 
Total cash direct operating expenses 24,352  28,504  29,564  52,856  56,216 
Share-based compensation - equity classified awards 951  856  1,017  1,807  2,055 
Depreciation, depletion and amortization 37,135  40,718  44,298  77,853  83,168 
Impairment of oil and gas properties 35,509      35,509   
Total operating expenses 97,947  70,078  74,879  168,025  141,439 
Operating income (loss) (52,465) 21,301  47,888  (31,164) 86,556 
Other income (expense)          
Interest expense, net (8,536) (8,180) (9,056) (16,716) (18,534)
Derivatives (34,349) 151,119  13,603  116,770  (54,414)
Other, net (55) (8) 8  (63) 114 
Income (loss) before income taxes (95,405) 164,232  52,443  68,827  13,722 
Income tax benefit (expense) 690  (1,138) (818) (448) (794)
Net income (loss) $(94,715) $163,094  $51,625  $68,379  $12,928 
           
Net income (loss) per share:          
Basic $(6.24) $10.76  $3.42  $4.51  $0.86 
Diluted $(6.24) $10.76  $3.40  $4.48  $0.85 
           
Weighted average shares outstanding:          
Basic 15,167  15,152  15,106  15,159  15,102 
Diluted 15,167  15,160  15,162  15,268  15,174 
           
           
  Three Months Ended Six Months Ended
  June 30, March 31, June 30, June 30,
  2020 2020 2019 2020 2019
Production          
Crude oil (MBbls) 1,719  1,881  1,821  3,599  3,473 
NGLs (MBbls) 303  307  389  610  704 
Natural gas (MMcf) 1,311  1,474  1,947  2,784  3,478 
Total (MBOE) 2,240  2,433  2,534  4,674  4,756 
Average daily production (BOEPD) 24,617  26,740  27,845  25,679  26,278 
           
Prices          
Crude oil ($ per Bbl) $23.97  $45.90  $62.63  $35.42  $60.14 
NGLs ($ per Bbl) $5.21  $6.16  $9.01  $5.69  $12.85 
Natural gas ($ per Mcf) $1.54  $1.83  $2.72  $1.69  $2.75 
Aggregate ($ per BOE) $20.00  $37.35  $48.47  $29.03  $47.82 
           
Prices - Adjusted for derivative settlements          
Crude oil ($ per Bbl) $50.37  $54.15  $59.02  $52.34  $57.76 
Natural gas ($ per Mcf) $1.79  $1.90  $2.72  $1.85  $2.75 
Aggregate ($ per BOE) $40.41  $43.78  $45.87  $42.16  $46.08 
                     

PENN VIRGINIA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - unaudited
(in thousands)

  June 30, December 31,
  2020 2019
Assets    
Current assets $186,288  $88,339 
Net property and equipment 1,099,838  1,120,425 
Other noncurrent assets 9,590  9,474 
Total assets $1,295,716  $1,218,238 
     
Liabilities and shareholders' equity    
Current liabilities 130,507  129,274 
Other noncurrent liabilities 21,436  13,191 
Total long-term debt, net 553,234  555,028 
Total shareholders' equity 590,539  520,745 
Total liabilities and shareholders' equity $1,295,716  $1,218,238 
         

PENN VIRGINIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - unaudited
(in thousands)

 Three Months Ended Six Months Ended
 June 30, March 31, June 30, June 30,
 2020 2020 2019 2020 2019
Cash flows from operating activities          
Net income (loss)$(94,715) $163,094  $51,625  $68,379  $12,928 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:                   
Depreciation, depletion and amortization37,135  40,718  44,298  77,853  83,168 
Impairment of oil and gas properties35,509      35,509   
Derivative contracts:                  
Net (gains) losses34,349  (151,119) (13,603) (116,770) 54,414 
Cash settlements and premiums received (paid), net59,146  (269) (8,301) 58,877  (3,907)
Deferred income tax (benefit) expense(786) 2,320  818  1,534  2,030 
Gain on sales of assets, net(8) (6) (16) (14) (41)
Non-cash interest expense1,714  823  827  2,537  1,748 
Share-based compensation (equity-classified)951  856  1,017  1,807  2,055 
Other, net6  8  13  14  26 
Changes in operating assets and liabilities(16,879) 16,048  8,425  (831) 1,941 
Net cash provided by operating activities56,422  72,473  85,103  128,895  154,362 
Cash flows from investing activities          
Capital expenditures(50,812) (62,015) (89,455) (112,827) (175,941)
Proceeds from sales of assets, net8  75  11  83  29 
Net cash used in investing activities(50,804) (61,940) (89,444) (112,744) (175,912)
Cash flows from financing activities                   
Proceeds from credit facility borrowings  46,000  20,000  46,000  32,000 
Repayment of credit facility borrowings(40,000) (9,000) (5,000) (49,000) (13,000)
Debt issuance costs paid(72)   (2,518) (72) (2,518)
Other, net1,068      1,068   
Net cash provided by (used in) financing activities(39,004) 37,000  12,482  (2,004) 16,482 
Net increase (decrease) in cash and cash equivalents(33,386) 47,533  8,141  14,147  (5,068)
Cash and cash equivalents - beginning of period55,331  7,798  4,655  7,798  17,864 
Cash and cash equivalents - end of period$21,945  $55,331  $12,796  $21,945  $12,796 
                    

PENN VIRGINIA CORPORATION
CERTAIN NON-GAAP FINANCIAL MEASURES - unaudited

Readers are reminded that non-GAAP measures are merely a supplement to, and not a replacement for, or superior to financial measures prepared according to GAAP. They should be evaluated in conjunction with the GAAP financial measures. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies.

Special Note About Presentation
Effective with our reporting for the period ended March 31, 2020, and for future periods, the Company is changing the manner in which settlements from derivatives are presented in the Non-GAAP financial measures "Adjusted net income" and "Adjusted EBITDAX." Previously, our presentations of such settlements were based upon the actual amount of cash paid or received during the periods presented. Because derivative financial instruments settle in cash during the month immediately following the month for which the underlying production is hedged, there exists a potential for confusion regarding our actual derivative-adjusted financial performance in the reporting period. In order to mitigate the potential for any confusion and to align our reporting with what we believe to be the dominant presentation methodology regarding such Non-GAAP financial metrics in our industry, we will present our oil derivative settlements in our Non-GAAP financial measures "Adjusted net income" and "Adjusted EBITDAX" on a realized basis whereby such settlements are matched to the periods for which the underlying production is hedged. We have applied the aforementioned presentation methodology to all prior periods presented herein.

Reconciliation of GAAP "Net income" to Non-GAAP "Adjusted net income"
Adjusted net income is a non-GAAP financial measure that represents net income adjusted to include net realized settlements of derivatives and exclude the effects, net of income taxes, of non-cash changes in the fair value of derivatives, impairment of oil and gas properties, net gains and losses on the sales of assets, acquisition, divestiture and strategic transaction costs, other net items and income tax effect of adjustments. We believe that Non-GAAP adjusted net income and non-GAAP adjusted net income per share amounts provide meaningful supplemental information regarding our operational performance. This information facilitates management's internal comparisons to the Company's historical operating results as well as to the operating results of our competitors. Since management finds this measure to be useful, the Company believes that our investors can benefit by evaluating both non-GAAP and GAAP results. Adjusted net income non-GAAP is not a measure of financial performance under GAAP and should not be considered as a measure of liquidity or as an alternative to net income.

 Three Months Ended Six Months Ended
 June 30, March 31, June 30, June 30,
 2020 2020 2019 2020 2019
 (in thousands, except per share amounts)
Net income (loss)$(94,715) $163,094  $51,625  $68,379  $12,928 
Adjustments for derivatives:         
Net losses (gains)34,349  (151,119) (13,603) (116,770) 54,414 
Realized settlements, net45,285  15,699  (6,584) 60,984  (8,273)
Impairment of oil and gas properties35,509      35,509   
Gain on sales of assets, net(8) (6) (16) (14) (41)
Acquisition, divestiture and strategic transaction costs    76    800 
Other, net         
Income tax effect of adjustments(833) 948    132   
Adjusted net income$19,587  $28,616  $31,498  $48,220  $59,828 
Net income (loss), per diluted share$(6.24) $10.76  $3.40  $4.48  $0.85 
Adjusted net income, per diluted share$1.29  $1.89  $2.08  $3.16  $3.94 
                    

Reconciliation of GAAP "Net income" to Non-GAAP "Adjusted EBITDAX"
Adjusted EBITDAX represents net income before interest expense, income taxes, impairment of oil and gas properties, depreciation, depletion and amortization expense and share-based compensation expense, further adjusted to include the net realized settlements of derivatives and exclude the effects of gains and losses on sales of assets, non-cash changes in the fair value of derivatives, and special items including acquisition, divestiture, and strategic transaction costs and other items. We believe this presentation is commonly used by investors and professional research analysts for the valuation, comparison, rating, investment recommendations of companies within the oil and gas exploration and production industry. We use this information for comparative purposes within our industry. Adjusted EBITDAX is not a measure of financial performance under GAAP and should not be considered as a measure of liquidity or as an alternative to net income (loss). Adjusted EBITDAX as defined by Penn Virginia may not be comparable to similarly titled measures used by other companies and should be considered in conjunction with net income (loss) and other measures prepared in accordance with GAAP, such as operating income or cash flows from operating activities. Adjusted EBITDAX should not be considered in isolation or as a substitute for an analysis of Penn Virginia's results as reported under GAAP.

 Three Months Ended LTM Ended
 June 30, March 31, June 30, June 30,
 2020 2020 2019 2020
 (in thousands, except per unit amounts)
Net income (loss)$(94,715) $163,094   $51,625   $126,040  
Adjustments to reconcile to Adjusted EBITDAX:       
Interest expense, net8,536  8,180  9,056  33,993 
Income tax (benefit) expense(690) 1,138  818  1,791 
Impairment of oil and gas properties35,509      35,509 
Depreciation, depletion and amortization37,135  40,718  44,298  169,254 
Share-based compensation expense (equity-classified)951  856  1,017  3,834 
(Gain) loss on sales of assets, net(8) (6) (16) 22 
Adjustments for derivatives:       
Net losses (gains)34,349  (151,119) (13,603) (103,053)
Realized settlements, net45,285  15,699  (6,584) 58,756 
Adjustment for special items:       
Acquisition, divestiture and strategic transaction costs    76   
Other, net      232 
Adjusted EBITDAX$66,352   $78,560   $86,687   $326,378  
Net income (loss) per BOE$(42.28) $67.02   $20.37   $12.20  
Adjusted EBITDAX per BOE$29.62   $32.28   $34.21   $31.59  
                

Reconciliation of GAAP "General and administrative expenses" to Non-GAAP "Adjusted cash general and administrative expenses"
Adjusted cash general and administrative expenses is a supplemental non-GAAP financial measure that excludes certain non-recurring expenses and non-cash share-based compensation expense. We believe that the non-GAAP measure of Adjusted cash general and administrative expenses is useful to investors because it provides readers with a meaningful measure of our recurring G&A expenses and provides for greater comparability period-over-period.

 Three Months Ended Six Months Ended
 June 30, March 31, June 30, June 30,
 2020 2020 2019 2020 2019
 (in thousands, except per unit amounts)
General and administrative expenses - direct$7,035  $6,374  $5,215  $13,409  $11,242 
Share-based compensation - equity-classified awards951  856  1,017  1,807  2,055 
GAAP General and administrative expenses7,986  7,230  6,232  15,216  13,297 
Less: Share-based compensation - equity-classified awards(951) (856) (1,017) (1,807) (2,055)
Significant special charges:         
Acquisition, divestiture and strategic transaction costs    (76)   (800)
Adjusted cash-based general and administrative expenses$7,035  $6,374  $5,139  $13,409  $10,442 
GAAP General and administrative expenses per BOE$3.56  $2.97  $2.46  $3.26  $2.80 
Adjusted cash general and administrative expenses per BOE$3.14  $2.62  $2.03  $2.87  $2.20 
                    

Definition and Explanation of Free Cash Flow
Free Cash Flow is a non-GAAP financial measure that management believes illustrates our ability to generate cash flows from our business that are available to be returned to our providers of financing capital represented primarily by our debt holders as we do not currently have a dividend or share repurchase program. We present Free Cash Flow as the excess (deficiency) of Discretionary cash flow over Capital additions, net. Discretionary cash flow is defined as Adjusted EBITDAX (as defined and reconciled above) less interest expense and debt issue costs and adjustments for income taxes (paid) refunded and changes for working capital. Capital additions represent our committed capital expenditure and acquisition transactions, net of any proceeds from the sales or disposition of assets. Free Cash Flow is also defined as net cash provided by operating activities less net cash used in investing activities and debt issuance costs paid. We believe Free Cash Flow is commonly used by investors and professional research analysts for the valuation, comparison, rating, investment recommendations of companies in many industries. Free Cash Flow should be considered as a supplement to net income as a measure of performance and net cash provided by operating activities as a measure of our liquidity.

 Three Months Ended Six Months Ended Twelve Months Ended
 June 30, 2020 June 30, 2020 June 30, 2020
 (in thousands)
Adjusted EBITDAX, as reported$66,352  $144,912  $326,377 
Interest expense, as reported, less non-cash interest(7,524) (15,568) (33,146)
Income taxes refunded2,471  2,471  4,942 
Debt issue costs paid(72) (72) (170)
Working capital and other, net(43,902) (24,740) (49,338)
Discretionary cash flows17,325  107,003  248,665 
      
Capital expenditures, as reported(10,719) (89,939) (253,630)
Acquisitions    (6,516)
Proceeds from asset sales8  83  269 
Sales and use tax refunds applied to capital additions    961 
Capital additions, net(10,711) (89,856) (258,916)
Non-GAAP Free cash flow$6,614  $17,147  $(10,251)
      
GAAP Net cash provided by operating activities$56,422  $128,895  $294,727 
GAAP Net cash used in investing activities(50,804) (112,744) (305,876)
Debt issuance costs paid(72) (72) (170)
Other, net$1,068  $1,068  $1,068 
Non-GAAP Free cash flow$6,614  $17,147  $(10,251)
      
Net debt at beginning of period$544,069  $554,602  $527,204 
Less: Net debt at end of period(537,455) (537,455) (537,455)
Non-GAAP Free cash flow$6,614  $17,147  $(10,251)
            

Net Debt
Net debt, excluding unamortized discount and debt issuance costs is a non-GAAP financial measure that is defined as total principal amount of long-term debt less cash and cash equivalents. The most comparable financial measure to net debt, excluding unamortized discount and debt issuance costs under GAAP is principal amount of long-term debt. Net debt is used by management as a measure of our financial leverage. Net debt, excluding unamortized discount and debt issuance costs should not be used by investors or others as the sole basis in formulating investment decisions as it does not represent the Company's actual indebtedness.

  August 1, 2020 June 30, 2020 December 31, 2019 March 31, 2020 June 30, 2019
  (in thousands)
Credit Facility $334,400  $359,400  $362,400  $399,400  $340,000 
Second lien term loan, excluding unamortized discount and issue costs 200,000  200,000  200,000  200,000  200,000 
Cash and cash equivalents (10,542) (21,945) (7,798) (55,331) (12,796)
Net Debt $523,858  $537,455  $554,602  $544,069  $527,204 
                     

Reconciliation of GAAP "Standardized Measure of Discounted Future Net Cash Flows" to Non-GAAP "PV-10"
Non-GAAP PV-10 value is the estimated future net cash flows from estimated proved reserves discounted at an annual rate of 10 percent before giving effect to income taxes. The standardized measure of discounted future net cash flows is the after-tax estimated future cash flows from estimated proved reserves discounted at an annual rate of 10 percent, determined in accordance with generally accepted accounting principles (GAAP). We use non-GAAP PV-10 value as one measure of the value of our estimated proved reserves and to compare relative values of proved reserves amount exploration and production companies without regard to income taxes. We believe that securities analysts and rating agencies use PV-10 value in similar ways. Our management believes PV-10 value is a useful measure for comparison of proved reserve values among companies because, unlike standardized measure, it excludes future income taxes that often depend principally on the characteristics of the owner of the reserves rather than on the nature, location, and quality of the reserves themselves. We also believe that PV10 estimates using strip pricing can be used within the industry and by creditors and securities analysts to evaluate estimated net cash flows in the current commodity price environment (using futures prices) rather than SEC pricing.

 August 1,
 2020
 (in thousands)
Standardized measure of future discounted cash flows - Proved reserves$936,792 
Present value of future income taxes discounted at 10% - Proved reserves 31,099 
SEC PV-10 - Proved reserves$967,891 
    

Reconciliation of SEC PV-10 and Adjusted PV-10 (non-GAAP) – Proved Developed Reserves

 August 1,
 2020
 (in thousands)
Standardized measure of future discounted cash flows (proved reserves)$936,792 
Less: Future discounted cash flows attributable to proved undeveloped reserves (231,186)
Standardized measure of future discounted cash flows (proved developed reserves) 705,606 
Add: Present value of future income taxes attributable to proved developed reserves discounted at 10% 3,104 
PV-10 of proved developed reserves 708,710 
Add: Adjustment for strip pricing as of August 5, 2020 for proved developed reserves 17,269 
Adjusted PV-10 of proved developed reserves$725,979 
  

NYMEX pricing used in the calculation of PV-10 value at strip pricing as of August 5, 2020.

Year Oil per barrel
WTI - Price
 Natural Gas (per MMBtu)
HHub - Price
2020 $42.97 $2.540
2021 $44.48 $2.766
2022 $45.51 $2.550
2023 $46.31 $2.460
2024 $47.03 $2.504
2025 $47.93 $2.578
       

The table below sets forth the calculation of the ratio of PV-10 of proved developed reserves adjusted for strip pricing and commodity hedge value to net debt.

Net debt (7) (August 1, 2020) $524 million
   
PV-10 of Proved Developed Reserves (August 1, 2020) Adjusted for Strip Pricing (August 5, 2020) $726 million
Mark-to-Market of Commodity Hedges (August 5, 2020) $32 million
Ratio 1.45x
   

Contact

Clay Jeansonne
Investor Relations
Ph: (713) 722-6540
E-Mail: invest@pennvirginia.com

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