Does this make Penn Virginia a turnaround play? Let’s find out.
Not as Bad as It Seems
Penn Virginia delivered a 36% annual jump in revenue in the first quarter of 2019. What’s more, the company’s non-GAAP earnings of $2.25 per share blew past Wall Street’s expectations by a massive margin of $0.44 per share.
This impressive financial performance during the quarter was a result of a massive spike in Penn Virginia’s production. The company delivered production of 24,692 barrels of oil equivalent per day during the first quarter, 74% of which was crude oil. Penn Virginia reports that its first-quarter production level was 53% higher than the year-ago period.
More importantly, Penn Virginia’s production was strong enough to offset the weak oil and gas prices it witnessed during the quarter. The company’s average realized price of crude oil came in at $57.39 per barrel, down from $63.23 per barrel a year ago.
Penn Virginia’s consolidated average realized price for the quarter stood at $47.08 per barrel of oil equivalent as compared to $52.99 in the year-ago period. As a result of the weak pricing, Penn Virginia’s operating income increased just 13.8% year over year despite the tremendous production jump.
So investors are clearly worried that Penn Virginia will fall prey to weak oil prices during the quarter.
What Does the Future Look Like?
Penn Virginia believes that it can deliver 25% to 30% production growth in 2019 by deploying a two-rig drilling program. The annual production increase will be achieved at a capital expenditure between $345 million and $365 million.
By comparison, Penn Virginia’s capital expense last year stood at $419 million. So it is quite clear that the company will be able to increase its production efficiently this year, which should allow it to offset the impact of weak oil prices to some extent.
Analysts, for instance, estimate that the company will be able to deliver a 13% increase in revenue for 2019. However, its earnings per share are expected to shrink to $9.02 from $9.19 in the year-ago period.
So the only way Penn Virginia can deliver an improved performance this year is if oil prices pick up the pace. The good part is that WTI crude oil is breaking out once again as the U.S. and China are trying to resolve the trade standoff.
A resolution to the trade war will be beneficial for the oil industry as it will boost demand. Oil Price.com reports that:
So Penn Virginia could prove to be a solid bet for investors in case oil prices start recovering once again, as the company is making the right moves from an operational point of view.
The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.