SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ----------- to -------------------
PENN VIRGINIA CORPORATION
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 23-1184320
- -----------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 MATSONFORD ROAD SUITE 200
RADNOR, PA 19807
(Address of principal executive offices) (Zip Code)
(610) 687-8900
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Number of shares of common stock of registrant
outstanding at November 5, 1997: 8,274,089
<PAGE>
<TABLE>
PENN VIRGINIA CORPORATION
INDEX
<CAPTION>
PAGE
PART I Financial Information:
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the
three and nine months ended September 30, 1997 and 1996 1
Condensed Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Cash Flows for
the three and nine months ended September 30, 1997
and 1996 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
<PAGE>
<TABLE>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- --------------------
1997 1996 1997 1996
--------- -------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Natural gas $ 4,091 $ 4,322 $ 13,995 $ 14,025
Oil and condensate 149 198 540 603
Natural gas royalties 341 429 1,203 1,397
Coal royalties 2,859 1,525 8,598 4,910
Timber 539 188 1,349 458
Dividends 662 721 1,985 2,132
Other income 90 128 689 665
------- ------- -------- -------
Total revenues $ 8,731 $ 7,511 $ 28,359 $ 24,190
Expenses:
Operating expenses $ 1,001 $ 819 $ 2,741 $ 2,329
Exploration expenses 472 210 812 457
Taxes other than income 455 592 1,775 1,905
General and administrative 1,727 1,882 5,604 5,265
Depreciation, depletion,
Amortization 1,534 1,669 4,661 4,912
------- ------- -------- --------
Total expenses $ 5,189 $ 5,172 $ 15,593 $ 14,868
Operating Income $ 3,542 $ 2,339 $ 2,766 $ 9,322
Other (Income) Expense:
Interest expense $ 568 $ 491 $ 1,682 $ 1,094
Gain on sale of property (22) (2) (54) (24)
Other income (985) (1,429) (2,869) (3,340)
-------- ------- -------- --------
Income before income tax $ 3,981 $ 3,279 $ 14,007 $ 11,592
Income tax expense 892 583 3,047 2,102
------- ------ ------- -------
Net Income $ 3,089 $ 2,696 $ 10,960 $ 9,490
------- ------- -------- --------
Net Income per share,
primary (Note 2) 0.36 0.31 1.29 1.10
------- ------- ------- ------
Weighted average shares
outstanding (in thousands)
(Note 2) 8,274 8,682 8,311 8,620
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
<TABLE>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
September 30, December 31,
------------- ------------
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,070 $ 1,893
Accounts receivable 3,551 4,856
Current portion of long-term
notes receivable 1,238 1,512
Current deferred income taxes 776 776
Recoverable income taxes 871
Inventories 235 218
Prepaid expenses 126 210
-------- --------
Total current assets 6,996 10,336
-------- --------
Investments 113,831 97,368
Long-term notes receivable 4,578 5,720
Oil and gas properties; wells
and equipment, using the
successful efforts method of
accounting 146,738 138,184
Other property, plant and equipment 42,198 33,218
Less: Accumulated depreciation,
depletion and amortization (60,731) (56,110)
--------- --------
Total property, plant and equipment 128,205 115,292
-------- --------
Intangible assets, net of amortization 508 498
Other assets 311 300
Total assets $ 254,429 $ 229,514
----------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
<TABLE>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
September 30, December 31,
------------- ------------
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments on long-term debt $ 2,025 $ 2,025
Accounts payable 1,892 1,812
Accrued expenses 3,523 5,543
Deferred liabilities 279 279
Taxes on income 332 8
------- -------
Total current liabilities 8,051 9,667
------- -------
Other liabilities 5,272 5,366
Deferred income taxes 39,936 32,859
Long-term debt 32,709 21,233
------- -------
Total liabilities 85,968 69,125
------- -------
Commitments and contingencies - -
Minority interest 166 178
------- -------
166 178
Shareholders' equity
Preferred stock of $100 par value-
authorized 100,000 shares; none issued - -
Common stock of $6.25 par value-
authorized 16,000,000 shares, issued
8,901,434 shares and 4,450,717 shares
in 1997 and 1996, respectively (Note 2) 55,634 27,817
Other paid in capital (Note 2) 8,396 36,138
Retained earnings 48,619 43,240
-------- --------
112,649 107,195
Less: 627,345 shares in 1997
and 109,477 in 1996
of common stock held in treasury,
at cost (Note 2) 14,023 5,575
Pension liability 774 774
Unearned compensation - ESOP 1,700 1,850
Add: Net unrealized investment
holding gain 72,143 61,215
------- -------
Total shareholders' equity 168,295 160,211
Total liabilities and shareholders'
equity $254,429 $229,514
-------- --------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
<TABLE>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
(Dollars in thousands)
<CAPTION>
Three Months
Ended September 30,
--------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net Income $ 3,089 $ 2,696
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, and amortization 1,534 1,669
Gain on sale of property, plant and equipment (22) (3)
Deferred income taxes 735 282
Other (473) (916)
Decrease in current assets 1,067 656
Increase (Decrease) in current liabilities (714) 2,247
(Increase) Decrease in other assets (35) (132)
Increase (Decrease) in other liabilities (46) (1,173)
Decrease in minority interest (4) (5)
-------- --------
Net Cash provided by
operating activities $ 5,131 $ 5,321
-------- --------
Cash flows from investing activities:
Proceeds from the sale of securities $ - $ 3,000
Proceeds from notes 1,018 591
Proceeds from sale of fixed assets 23 143
Capital expenditures (4,622) (12,353)
--------- ---------
Net Cash used in investing activities $ (3,581) $ (8,619)
Cash flows from financing activities:
Dividends paid $ (1,861) $ (1,957)
Proceeds from long-term debt borrowings 1,800 3,679
Repayment of long-term debt principal (1,925) (3,575)
Purchase of treasury stock (386) -
Issuance of stock 481 -
---------- ---------
Net Cash provided by (used in)
financing activities $ (1,891) $ (1,853)
---------- ---------
Net increase (decrease) in cash
and cash equivalents $ (341) $ (5,151)
Cash and cash equivalents-beginning balance 1,411 9,626
--------- -------
Cash and cash equivalents-ending balance $ 1,070 $ 4,475
--------- --------
Supplemental disclosures of cash
flow information:
Cash paid to date for:
Interest $ 516 $ 337
Income taxes 100 598
<CAPTION>
Nine Months
Ended September 30,
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net Income $ 10,960 $ 9,490
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, and amortization 4,661 4,912
Gain on sale of property, plant and equipment (54) (25)
Deferred income taxes 1,192 (372)
Other (1,795) (2,527)
Decrease in current assets 2,243 1,623
Increase (Decrease) in current liabilities (1,613) 2,791
(Increase) Decrease in other assets (79) (129)
Increase (Decrease) in other liabilities (94) (1,901)
Decrease in minority interest (12) (12)
-------- -------
Net Cash provided by
operating activities $ 15,409 $13,850
-------- -------
Cash flows from investing activities:
Proceeds from the sale of securities $ 350 $ 3,000
Proceeds from notes 3,518 3,371
Proceeds from sale of fixed assets 92 168
Capital expenditures (17,808) (25,138)
--------- --------
Net Cash used in investing activities $ (13,848) $(18,599)
Cash flows from financing activities:
Dividends paid $ (5,582) $ (5,825)
Proceeds from long-term debt borrowings 20,313 22,804
Repayment of long-term debt principal (8,892) (11,400)
Purchase of treasury stock (8,728) -
Issuance of stock 505 652
---------- ---------
Net Cash provided by (used in)
financing activities $ (2,384) $ 6,231
---------- ---------
Net increase (decrease) in cash
and cash equivalents $ (823) $ 1,482
Cash and cash equivalents-beginning balance 1,893 $ 2,993
--------- -------
Cash and cash equivalents-ending balance $ 1,070 $ 4,475
--------- --------
Supplemental disclosures of cash
flow information:
Cash paid to date for:
Interest $ 1,693 $ 605
Income taxes 556 2,279
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
PENN VIRGINIA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
- -----------------------------------------------------------------
(1) ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements
of Penn Virginia Corporation and its subsidiaries (the "Company")
have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and SEC
regulations. These statements involve the use of estimates and
judgments where appropriate. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. These
financial statements should be read in conjunction with the
Company's consolidated financial statements and footnotes
included in the Company's December 31, 1996 annual report on Form
10-K. Operating results for the nine months ended September 30,
1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997.
(2) STOCK SPLIT
On July 22, 1997, the Board of Directors declared a two-for-
one stock split on the Company's common stock effected in the
form of a stock dividend to holders of record on August 1, 1997.
The number of common shares issued at September 30, 1997, after
giving effect to the split was 8,901,434 (4,450,717 common shares
before the split). All share and per share data have been
restated to reflect the stock split.
(3) SECURITIES
The cost, gross unrealized holding gains or losses and
market value for available-for-sale securities at September 30,
1997 were as follows (in thousands):
<TABLE>
<CAPTION>
Gross Unrealized Market
Cost Holding Gain Value
----- ---------------- ------
<S> <C> <C> <C>
Available-for-Sale:
Norfolk Southern Corporation $2,839 $110,984 $113,823
Blue Diamond Coal Company 3 5 8
------ -------- --------
$2,842 $110,989 $113,831
</TABLE>
(4) ACQUISITIONS
In January 1997, the Company acquired a property in Virginia
consisting of 6,500 acres and the mining rights to an additional
13,100 acres. The property contains an estimated 10.5 million
recoverable tons of high quality metallurgical and steam coal.
Production from the property is ongoing at an annual rate of
approximately 1.2 million tons. The purchase price of this
property was approximately $7.0 million.
In February 1997, Penn Virginia acquired approximately 7.5
million tons of recoverable coal on approximately 4,700 acres
adjacent to the Company's Kentucky properties. The coal is high
quality, low sulfur coal suitable for the steam market.
Production from the property is anticipated to begin in 1998. The
purchase price of this property was approximately $1.9 million.
(5) LEGAL
The Company is involved in various legal proceedings arising
in the ordinary course of business. While the ultimate results of
these cannot be predicted with certainty, Company management
believes these claims will not have a material effect on the
Company's financial position, liquidity or operations.
(6) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share" which establishes new standards for
computing and presenting earnings per share. The provisions of
the statement are effective for fiscal years ending after
December 15, 1997. If the provisions of SFAS No. 128 had been
adopted in the third quarter of 1997 and 1996, basic and diluted
earnings per share would not have been materially different from
primary and fully diluted earnings per share, respectively, as
calculated in accordance with Accounting Principles Board Opinion
No. 15 "Earnings per Share."
(7) HEDGING ACTIVITIES
The Company is currently party to derivative financial
instruments to manage its exposure to gas price volatility. The
derivative financial instruments, which are placed with a major
financial institution the Company believes is a minimum credit
risk, take the form of swaps with purchased options. These
derivative financial instruments are designated as hedges and
realized gains and losses from the Company's price risk
management activities are recognized in gas revenues when the
associated production occurs.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Third quarters of 1997 and 1996 Compared.
Penn Virginia reported 1997 third quarter earnings of $3.1
million or $0.36 per share compared with $2.7 million or $0.31
per share for the third quarter of 1996. On a consolidated basis,
revenues increased $0.6 million in the third quarter of 1996.
This increase was a result of increases in coal revenues of $1.5
million, increases in timber revenues of $0.4 million offset by
increases in general and administrative and interest expenses.
General and administrative expenses increased in the third
quarter of 1997 due to increases in salaries and related employee
benefits, as well as fees paid to list the Company's shares of
common stock for trading on the New York Stock Exchange. Interest
expense increased $0.4 million in the third quarter of 1997 as a
result of increased bank borrowings under the credit facility.
In the first quarter of 1997 the Company sold 750,000 shares
of Westmoreland Coal Company (Westmoreland) stock. The sale had
no significant effect on 1997 earnings as the Company impaired
its investment in Westmoreland stock in 1996.
Results of Operations - Nine Months of 1997 and 1996 Compared.
Penn Virginia reported 1997 nine months earnings of $11.0
million or $1.29 per share compared with $9.5 million or $1.10
per share for the nine months of 1996. On a consolidated basis,
revenues increased $4.2 million, primarily as a result of
production increases in the coal segment and enhanced timber
production. Operating expenses were up $0.4 million in the nine
months of 1997 compared with 1996. This increase is a result of
increased gathering rates in the oil and gas segment in addition
to increased timber operating costs as the Company contracted
timber harvesting in 1997. General and administrative expenses
increased $0.3 million due to increases in personnel costs, as
well as fees paid to list the Company's shares of common stock
for trading on the New York Stock Exchange. Interest expense
increased $0.7 million as a result of increased bank borrowings
under the credit facility primarily due to the completion of two
coal acquisitions and the purchase of treasury stock. Income
taxes increased $0.9 million due to an increase in income before
tax and a change in the annual effective tax rate from
approximately 18 percent in 1996 to 22 percent in 1997.
In the first quarter of 1997 Penn Virginia sold 750,000
shares of Westmoreland stock. This sale had no significant effect
on 1997 earnings as the Company impaired its investment in
Westmoreland stock in 1996.
The Company operates in two business segments: oil and gas
and coal. The oil and gas segment explores for, develops and
produces crude oil and natural gas in Western Virginia, Southern
West Virginia and Eastern Kentucky. The coal segment includes
Penn Virginia's mineral rights to coal reserves, its timber and
land assets. The Company also owns mineral rights to oil and gas
reserves. Selected operating and financial data by segment is
presented below.
Oil and Gas
Operating income for the oil and gas segment was $5.2 million for
the third quarter year to date of 1997 compared with $5.9 million
for the third quarter year to date of 1996. Operational and
financial data for the Company's oil and gas segment for the 1997
and 1996 three and nine months ended September 30 is summarized
in the following tables:
<TABLE>
<CAPTION>
Operations Summary
-------------------------
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<C> <S> <S> <S> <S>
Production
Natural gas (MMcf)-Working Interest 1,654 1,669 5,149 4,980
Natural gas (MMcf)-Royalty Interest 139 168 433 515
Oil and condensate (MBbls) 9 12 30 35
Production, MMcfe 1,847 1,909 5,762 5,705
Average Realized Prices
Natural gas ($/Mcf)- Working Interest $ 2.47 $ 2.59 $ 2.72 $ 2.82
Natural gas ($/Mcf)- Royalty Interest 2.45 2.55 2.78 2.71
Oil and condensate ($/Bbl) 16.56 16.50 18.00 17.23
Average Costs (per MMcfe)
Lease operating $ 0.48 $ 0.41 $ .43 $ 0.39
Exploration expenses 0.19 0.04 0.10 0.04
Taxes other than on income 0.20 0.25 0.27 0.27
General and administrative 0.33 0.34 0.34 0.33
Depreciation, depletion and
amortization 0.75 0.85 0.73 0.84
----- ----- ----- -----
Total costs $ 1.95 $ 1.89 $ 1.87 $ 1.87
</TABLE>
<PAGE>
Approximately 40 percent of the Company's 1997 working interest
natural gas production was sold at market prices, with the
remaining 60 percent sold under fixed-price term contracts. The
Company will, when circumstances warrant, hedge the price
received for market-sensitive production through the use of swaps
with purchased options. Gains and losses from hedging activities
are included in natural gas revenues when the hedged production
occurs. In the third quarter of 1997, the Company recognized a
$57,000 loss on hedging activities. Year-to-date the Company has
recognized losses of $0.2 million on hedging activities. The
Company had no comparable hedging activities in 1996. The
following table shows the effect of hedging activities on the
Company's working interest natural gas prices:
<TABLE>
<CAPTION>
Hedging Summary
-------------------
Three Months
Ended September 30,
-------------------
1997 1996
--------- ---------
<C> <S> <S>
Natural gas prices ($/Mcf):
Actual price received for production $ 2.50 $ -
Effect of hedging activities (0.03) -
------- -----
Average price $ 2.47 $ -
<CAPTION>
Nine Months
Ended September 30,
-------------------
1997 1996
-------- --------
<C> <S> <S>
Natural gas prices ($/Mcf):
Actual price received for production $ 2.76 $ -
Effect of hedging activities (0.04) -
------- -----
Average price $ 2.72 $ -
</TABLE>
<TABLE>
<CAPTION>
Financial Summary
-------------------
Three Months
Ended September 30,
-------------------
1997 1996
-------- --------
(Dollars in thousands)
<C> <S> <S>
Revenues:
Natural gas sales $ 4,091 $ 4,322
Oil and gas royalties 341 429
Oil and condensate 149 198
Other income 54 113
-------- --------
Total revenues $ 4,635 $ 5,062
Expenses:
Operating expenses $ 890 $ 785
Exploration expenses 350 78
Taxes other than income 371 473
General and administrative 610 653
Depreciation and depletion 1,383 1,617
-------- --------
Total expenses 3,604 3,606
-------- --------
Operating Income $ 1,031 $ 1,456
-------- --------
<CAPTION>
Nine Months
Ended September 30,
-------------------
1997 1996
-------- --------
(Dollars in thousands)
<C> <S> <S>
Revenues:
Natural gas sales $ 13,995 $ 14,025
Oil and gas royalties 1,203 1,397
Oil and condensate 540 603
Other income 299 604
--------- -------
Total revenues $ 16,037 $ 16,629
--------- ---------
Expenses:
Operating expenses $ 2,482 $ 2,232
Exploration expenses 584 253
Taxes other than income 1,569 1,546
General and administrative 1,983 1,867
Depreciation and depletion 4,198 4,783
-------- --------
Total expenses 10,816 10,681
-------- --------
Operating Income $ 5,221 $ 5,948
-------- --------
</TABLE>
Results of Operations - Third quarters of 1997 and 1996 Compared.
Natural Gas. Natural gas sales were $4.1 million in the third
quarter of 1997 compared with $4.3 million for the third quarter
of 1996. The average price received by the Company for its
working interest gas was $2.47 per thousand cubic feet (Mcf)
compared with $2.59 per Mcf for the same period of 1996. Gas
volumes were virtually unchanged in the third quarter of 1997
compared with the third quarter of 1996.
Oil and Condensate. Oil sales decreased $49,000 (25 percent) in
the third quarter of 1997 compared with the same period of 1996.
Prices per barrel were higher, averaging $16.56 per barrel (Bbl)
for third quarter of 1997 compared with $16.50 per Bbl for 1996.
As shown on the table above, production was down approximately 25
percent in the third quarter of 1997 compared with the third
quarter of 1996.
Oil and Gas Royalties. Oil and gas royalties decreased $88,000
(21 percent) in the third quarter of 1997 compared with the same
period of 1996. This variance resulted from a decrease in natural
gas volumes of 29 million cubic feet (MMcf) and a decrease in the
average realized gas prices as shown in the operations summary
above.
Other Income. Other income decreased $59,000 (52 percent) in the
third quarter of 1997 compared with the same period of 1996. This
decrease is a result of lower gathering and compression fees
received by the Company due to decreases in production.
Operating Expenses. Operating expenses for the third quarter of
1997 were $890,000 compared with $785,000 for the third quarter
of 1996. This increase is largely a result of increased gathering
rates on the Columbia and CNG natural gas systems partially
offset by decreases in compressor rentals.
Exploration Expenses. Exploration expenses increased $272,000
(349 percent) in the third quarter of 1997 compared with the same
period of 1996. This increase is a result of two dry holes the
Company drilled in 1997.
<PAGE>
Taxes other than Income. Taxes other than on income decreased
$102,000 (22 percent) in the third quarter of 1997 compared to
the same period in 1996. This decrease results from a decline in
oil and gas revenues for the quarter compared with 1996.
General and Administrative. General and administrative expenses
decreased $43,000 (7 percent) in the third quarter of 1997
compared with the third quarter in 1996.
Depreciation and Depletion. Depreciation and depletion expense
decreased $234,000 (14 percent) from $1,617,000 in the third
quarter of 1996 to $1,383,000 in the third quarter 1997.
Increases in reserve estimates at December 31, 1996 have resulted
in declines of depletion rates in various fields. The rate
decreased from $0.85 per MMcfe in the third quarter of 1996 to
$0.75 per MMcfe in the third quarter of 1997.
Results of Operations - Nine Months of 1997 and 1996 Compared.
Natural Gas Sales. Natural gas sales decreased from $14,025,000
in the first nine months of 1996 to $13,995,000 in the first nine
months of 1997. This slight decrease of two percent is a result
of an increase in volume offset by a decrease in pricing. The
natural gas sales volumes for the first nine months of 1997 were
5,149 MMcf compared with 4,980 MMcf for the first nine months of
1996. The average price received by the Company for its working
interest gas was $2.72 per Mcf compared with $2.82 per Mcf for
the same period of 1996.
Oil and Condensate Sales. Oil sales decreased $63,000 (10
percent) for the first nine months of 1997 compared with the
first nine months of 1996. This decrease resulted from a
reduction in volume of five MBbls offset by an increase in price
per Bbl. The price per Bbl for the first nine months of 1997 was
$18.00 compared with $17.23 per Bbl for the first nine months of
1996.
Oil and Gas Royalties. Oil and gas royalties decreased $194,000
(32 percent) in the first nine months of 1997 compared with the
same period in 1996. This decrease resulted from a decline in
volume of 82 MMcf offset by an increase in price from $2.71 per
Mcf in the first nine months of 1996 compared with $2.78 per Mcf
in the first nine months of 1997.
Other Income. Other income decreased $305,000 (51 percent) in
the first nine months of 1997 compared with the same period in
1996. In the first nine months of 1996, the Company recognized an
additional $189,000 related to the Company's natural gas contract
claim settlement with Columbia Gas Transmission Company in 1995.
Operating Expenses. Operating expenses for the first nine months
of 1997 were $2,482,000, which is an increase of $250,000 (11
percent) compared with the first nine months of 1996. This
increase is largely a result of increased gathering rates on the
Columbia and CNG natural gas systems. On an MMcfe basis,
operating expenses increased from $0.39 cents in the first nine
months of 1996 to $0.43 cents in the first nine months of 1997.
Exploration Expenses. Exploration expenses increased $331,000
(131 percent) for the first nine months of 1997 compared with the
first nine months of 1996. This increase is a result of two dry
holes the Company drilled in 1997.
Taxes other than Income. Taxes other than on income for the
first nine months of 1997 were virtually unchanged.
General and Administrative. General and administrative expenses
increased $116,000 in the first nine months of 1997 compared with
the first nine months of 1996. This 16 percent increase is
primarily a result of salary and related employee benefits
expense increases. Legal, audit and training costs were also up
over the comparable period in 1996.
Depreciation and Depletion. Depreciation and depletion expense
decreased $585,000 (12 percent) from $4,783,000 in the first nine
months of 1996 compared with $4,198,000 in the first nine months
of 1997. Increases in reserve estimates at December 31, 1996 have
resulted in declines of depletion rates in various fields. The
rate decreased from $0.84 per MMcfe in the first nine months of
1996 to $0.73 per MMcfe in the first nine months of 1997.
<PAGE>
Coal
Operating income for the coal segment was $8.2 million for the
nine months of 1997 compared with $3.7 million for the nine
months of 1996. Operational and financial data for the Company's
coal segment for the 1997 and 1996 third quarter and nine months
year to date is summarized in the following tables:
<TABLE>
<CAPTION>
Operations Summary
---------------------------
Three Months Nine Months
Ended Ended
September 30, September 30,
------------ -------------
1997 1996 1997 1996
------ ----- ----- -----
<C> <S> <S> <S> <S>
Production
Coal tons (000's) 1,351 752 3,989 2,358
Timber (Mbf) 2,436 1,038 5,937 2,576
Average Realized Prices
Coal royalties ($/ton) $ 2.12 $ 2.03 $ 2.16 $ 2.08
Timber ($/Mbf) 204 181 209 165
Average Costs (per ton)
Lease operating $ 0.08 $ 0.04 $ 0.07 $ 0.04
Exploration expenses 0.09 0.18 0.06 0.09
Taxes other than on income 0.05 0.14 0.03 0.12
General and administrative 0.30 0.47 0.29 0.42
Depreciation, depletion and
amortization 0.09 0.04 0.10 0.04
------ ------ ------ ------
Total costs $ 0.61 $ 0.87 $ 0.55 $ 0.71
</TABLE>
<TABLE>
<CAPTION>
Financial Summary
--------------------------------
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- ---------------
1997 1996 1997 1996
------- ------- ------- -------
(Dollars in thousands)
<C> <S> <S> <S> <S>
Revenues:
Coal royalties $ 2,859 $ 1,525 $ 8,598 $ 4,910
Timber sales 539 188 1,349 458
Other income 35 16 390 61
------- ------- ------- -------
Total revenues 3,433 1,729 10,337 5,429
------- ------- ------- -------
Expenses:
Operating expenses $ 112 $ 32 $ 260 $ 97
Exploration expenses 121 132 227 204
Taxes other than income 61 103 123 286
General and administrative 400 357 1,141 1,000
Depreciation and depletion 123 31 383 94
------- ------- ------- -------
Total expenses 817 655 2,134 1,681
------- ------- ------- -------
Operating Income $ 2,616 $ 1,074 $ 8,203 $ 3,748
------- ------- ------- -------
</TABLE>
Results of Operations - Third quarters of 1997 and 1996 Compared.
Coal Royalties. Coal royalties increased $1,334,000 (87 percent)
in the third quarter of 1997 compared with the same period in
1996. This increase is due to the gradual restoration of the
Company's Virginia property to its former levels of production
and the production increases realized from the Company's Buchanan
property acquired in January 1997. The average realization per
ton increased from $2.04 in the third quarter of 1996 to $2.12 in
the third quarter of 1997.
Timber. Timber sales increased $351,000 (187 percent) in the
third quarter of 1997 compared with the third quarter of 1996.
Volume sold increased from 1,038 thousand board feet (Mbf) in the
third quarter of 1996 to 2,436 per Mbf in the third quarter of
1997. This increase was primarily due to timber harvested from
the Company's Bull Creek property acquired in July 1996 and
timber harvested in advance of expected mining operations.
<PAGE>
Other Income. Other income increased $19,000 (119 percent) for
the third quarter of 1997 compared with the third quarter of
1996. This increase was related to wheelage and rental income
from the newly acquired properties.
<PAGE>
Operating Expenses. Operating expenses increased $80,000 (250
percent) from $32,000 in the third quarter of 1996 to $112,000 in
the third quarter of 1997. This increase is a result of a change
in the method of selling timber. The Company has contracted the
harvesting of a portion of its timber and has negotiated the sale
of this timber directly with the mill. This sales method has the
effect of increasing both the price per Mbf and the operating
costs.
Exploration Expenses. Exploration expenses were $121,000 for the
third quarter of 1997, which is a decrease of eight percent from
the comparable 1996 time period. This decrease in the third
quarter is a result of timing related to Company's core drilling
program.
Taxes other than Income. Taxes other than on income decreased
$42,000 (41 percent) from $103,000 in the third quarter of 1996
to $61,000 in the third quarter of 1997. This decrease is a result
of an overall decline in the amount of property and franchise taxes
the Company recognizes.
General and Administrative. General and administrative expenses
increased $43,000 (12 percent) from $357,000 in the third quarter
of 1996 to $400,000 in the third quarter of 1997. This increase
relates to salary and employee benefit increases and an increase
in legal fees.
Depreciation and Depletion. Depreciation and depletion increased
$92,000 (297 percent) from $31,000 in the third quarter of 1996
to $123,000 in the third quarter of 1997. This increase was due
to the production of reserves relinquished by Westmoreland and
production from the Buchanan property acquired in January 1997.
Results of Operations - Nine Months of 1997 and 1996 Compared.
Coal Royalties. Coal royalties increased $3.7 million (75
percent) in the first nine months of 1997 compared with the same
period in 1996. This increase is primarily due to the gradual
restoration of the Company's Virginia property to its former
levels of production and production from the Company's Buchanan
property acquired in January 1997. The average realization per
ton increased from $2.08 in the first nine months of 1996 to
$2.16 in the first nine months of 1997.
Timber. Timber sales increased $891,000 (195 percent) in the
first nine months of 1997 compared with the first nine months of
1996. Volume sold increased to 5,937 Mbf in the first nine months
of 1997 compared with 2,576 Mbf in the first nine months of 1996.
This 130 percent increase in volume is due primarily to timber
harvested from the Company's Bull Creek property acquired in July
1996 and timber harvested in advance of expected mining
operations. The average realized price per Mbf also increased
from $165 per Mbf in the first nine months of 1996 to $209 per
Mbf in the first nine months of 1997.
Other Income. Other income increased $329,000 (539 percent) for
the first nine months of 1997 compared with the first nine months
of 1996. This increase is related to bonuses paid by new lessees
to secure leases on the Company's Virginia coal properties.
Operating Expenses. Operating expenses increased $163,000 (168
percent) for the first nine months of 1997 compared with first
nine months of 1996. This is related to a change in the Company's
method of selling timber. The Company has contracted the
harvesting of some of its timber and has negotiated the sale of
timber products directly with the mill. This sales method has the
effect of increasing both the price per Mbf and the operating
costs.
Exploration Expenses. Exploration expenses increased $23,000 (11
percent) for the first nine months of 1997 compared with the
first nine months of 1996. This increase resulted from an earlier
start of the Company's coal core drilling program which began in
the winter due to milder weather conditions.
Taxes other than Income. Taxes other than on income decreased
$163,000 (57 percent) in the first nine months of 1997 compared
with the first nine months of 1996. This decrease is a result of
an overall decline in the amount of property and franchise taxes
the Company recognizes.
General and Administrative. General and administrative expenses
increased $141,000 (14 percent) in the first nine months of 1997
compared with the first nine months of 1996. This increase is a
result of personnel additions and salary and related employee
benefit expense increases. Legal costs are also higher due to
additional leasing on the property offset by a decrease in
consulting fees. On a unit basis however, general and
administrative expense declined from $0.42 per ton in the nine
months of 1996 to $0.29 per ton in the nine months of 1997.
Depreciation and Depletion. Depreciation and depletion increased
$289,000 (307 percent) in the first nine months of 1997 compared
with the first nine months of 1996. The depletion rate per ton
increased from $0.04 to $0.10. This increase was due to the
production of reserves relinquished by Westmoreland and
production from the Buchanan coal property acquired in January
1997.
<PAGE>
Capital Expenditures, Capital Resources and Liquidity
Capital Expenditures.
In the first nine months of 1997, capital expenditures totaled
$13.2 million compared with $12.6 million in the first nine
months of 1996. The Company successfully completed two coal
reserve acquisitions in 1997. In January, a transaction was
completed for a property in Virginia. The Company acquired 10.5
million tons of high quality metallurgical coal reserves which
have been leased to an operator and are actively being mined and
sold under contract by the operator. The purchase price was
approximately $7.0 million. In February, the Company acquired 7.5
million tons of coal contiguous to its existing Virginia reserves
for approximately $1.9 million. The reserves have been leased to
an operator, with production by the operator expected to begin in
1998.
In the oil and gas segment the Company has had capital
expenditures totaling approximately $8.8 million in the first
nine months of 1997. The Company has drilled 33 gross (26.4 net)
wells in the first nine months of the year. Of these, 17 gross
(12.5 net) are on line and producing. The Company expects to
drill over 60 wells in 1997, with approximately 15 to 20 wells in
exploratory areas.
Capital Resources and Liquidity.
Net cash provided by operating activities was $10.3 million in
the first nine months of 1997 compared with $8.5 million in the
first nine months of 1996. The Company's borrowings increased
from $23.2 million at the end of 1996 to $34.8 million at
September 30, 1997. During the third quarter of 1997, the Company
renegotiated its $50 million senior unsecured revolving credit
facility with a group of banks, increasing the borrowing base
from $50 million to $75 million (Item 6). This combination
enabled the Company to complete two coal acquisitions in January
and February, pay a quarterly dividend of $0.225 per share to
acquire $8.7 million (210,308 shares) of the Company's common
stock. The Company purchased the 210,308 shares when Interkohle
Beteiligungsgesellschaft mbH (VEBA) sold its approximate twenty
percent holding of Penn Virginia's outstanding common stock. The
VEBA shares were broadly distributed to various financial
institutions and mutual funds. The Board of Directors and senior
management also participated in the purchase.
The Company has entered into six fixed-price term agreements with
respect to a portion of its natural gas production to limit
exposure to price fluctuations. Presently, the Company has sold
approximately 9,000 net Mcf per day at a weighted average price
in excess of $2.80 per Mcf. These physical sales cover various
periods from October 1997 to December 1998. Additionally, the
Company entered into two natural gas derivative transactions. The
financial instruments executed provide a price floor to limit
downside price risk and a market participation price that allows
the Company to receive the benefit of a price upturn. One
financial transaction is for 5,000 MMBtu per day with a floor of
approximately $2.10 per MMBtu and market re-opener at $2.48 per
MMBtu with a term from May 1997 through October 1999. The second
transaction is also for 5,000 MMBtu per day with a floor of
approximately $2.10 per MMBtu and market re-opener at $2.35 per
MMBtu with a term from November 1997 through October 1999.
The Company also holds an investment in Norfolk Southern common
stock. At September 30, 1997, the Company had an unrealized
holding gain of approximately $111.0 million.
The Company experienced a set back in the development of its Bull
Creek property which was acquired in July of 1996, when the
construction and mining company that leased the reserves filed
for Chapter 11 bankruptcy protection in the third quarter.
Although no mining had begun on the property, it was scheduled to
start in early 1998 with an expected annual production of
approximately one million tons. The Company anticipates that a
new operator will take over operations, but the timing of the
transition in uncertain.
Forward-Looking Statements.
Statements included in this report which are not historical facts
(including any statements concerning plans and objectives of
management for future operations or economic performance, or
assumptions related thereto) are forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended, and Section 27A of the Securities Act of
1933, as amended. In addition, Penn Virginia and its
representatives may from time to time make other oral or written
statements which are also forward-looking statements.
Such forward-looking statements include, among other things,
statements regarding development activities, capital
expenditures, acquisitions and dispositions, drilling and
exploration programs, expected commencement dates of coal mining
or oil and gas production, projected quantities of future oil and
gas production by Penn Virginia, projected quantities of future
coal production by the Company's lessees producing coal from
reserves leased from Penn Virginia, costs and expenditures as
well as projected demand or supply for coal and oil and gas,
which will affect sales levels, prices and royalties realized by
Penn Virginia.
These forward-looking statements are made based upon
management's current plans, expectations, estimates, assumptions
and beliefs concerning future events impacting Penn Virginia and
therefore involve a number of risks and uncertainties. Penn
Virginia cautions that forward-looking statements are not
guarantees and that actual results could differ materially from
those expressed or implied in the forward-looking statements.
Important factors that could cause the actual results of
operations or financial condition of Penn Virginia to differ
include, but are not necessarily limited to: the cost of finding
and successfully developing oil and gas reserves; the cost of
finding new coal reserves; the ability to acquire new oil and gas
and coal reserves on satisfactory terms; the price for which such
reserves can be sold; the volatility of commodity prices for oil
and gas and coal; the risks associated with having or not having
price risk management programs; Penn Virginia's ability to lease
new and existing coal reserves; the ability of Penn Virginia's
lessees to produce sufficient quantities of coal on an economic
basis from Penn Virginia's reserves; the ability of lessees to
obtain favorable contracts for coal produced from Penn Virginia
reserves; Penn Virginia's ability to obtain adequate pipeline
transportation capacity for its oil and gas production;
competition among producers in the coal and oil and gas
industries generally and in the Appalachian Basin in particular;
the extent to which the amount and quality of actual production
differs from estimated recoverable coal reserves
<PAGE>
and proved oil and gas reserves; unanticipated geological
problems; availability of required materials and equipment; the
occurrence of unusual weather or operating conditions including
force majeure or events; the failure of equipment or processes to
operate in accordance with specifications or expectations; delays
in anticipated start-up dates; environmental risks affecting the
drilling and producing of oil and gas wells or the mining of coal
reserves; the timing of receipt of necessary governmental
permits; labor relations and costs; accidents; changes in
governmental regulation or enforcement practices, especially with
respect to environmental, health and safety matters, including
with respect to emissions levels applicable to coal-burning power
generators; risks and uncertainties relating to general domestic
and international economic (including inflation and interest
rates) and political conditions; the experience and financial
condition of lessees of coal reserves, joint venture partners and
purchasers of reserves in transactions financed by Penn Virginia,
including their ability to satisfy their royalty, environmental,
reclamation and other obligations to Penn Virginia and others;
changes in financial market conditions; changes in the market
prices or value of the marketable securities owned by Penn
Virginia, including the price of Norfolk Southern common stock
and other risk factors detailed in Penn Virginia's Securities and
Exchange commission filings. Many of such factors are beyond
Penn Virginia's ability to control or predict. Readers are
cautioned not to put undue reliance on forward-looking
statements.
While Penn Virginia periodically reassesses material trends
and uncertainties affecting Penn Virginia's results of operations
and financial condition in connection with the preparation of
Management's Discussion and Analysis of Results of Operations and
Financial Condition and certain other sections contained in Penn
Virginia's quarterly, annual or other reports filed with the
Securities and Exchange Commission, Penn Virginia does not intend
to publicly review or update any particular forward-looking
statement, whether as a result of new information, future events
or otherwise.
<PAGE>
PART II Other information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended
September 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
PENN VIRGINIA CORPORATION
Date: November 14, 1997 By: /s/ Steven W. Tholen
-------------------------------
Steven W. Tholen, Vice President,
Chief Financial Officer
Date: November 14, 1997 By: /s/ Ann N. Horton
-------------------------------
Ann N. Horton, Controller
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,070
<SECURITIES> 0
<RECEIVABLES> 3,551
<ALLOWANCES> 0
<INVENTORY> 235
<CURRENT-ASSETS> 6,996
<PP&E> 188,936
<DEPRECIATION> 60,731
<TOTAL-ASSETS> 254,429
<CURRENT-LIABILITIES> 8,051
<BONDS> 0
0
0
<COMMON> 55,634
<OTHER-SE> 112,661
<TOTAL-LIABILITY-AND-EQUITY> 254,429
<SALES> 15,884
<TOTAL-REVENUES> 28,359
<CGS> 2,741
<TOTAL-COSTS> 2,741
<OTHER-EXPENSES> 12,852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,682
<INCOME-PRETAX> 14,007
<INCOME-TAX> 3,047
<INCOME-CONTINUING> 10,960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,960
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.29
</TABLE>
