Penn Virginia Adds Coal Reserves - Analyst Blog

Penn Virginia Resource Partners L.P. (PVR), through its subsidiary, Penn Virginia Operating Company LLC, has agreed to buy certain mineral rights and royalty interests in associated oil and gas properties in Kentucky and Tennessee from Begley Properties LLC. The company has agreed to pay roughly $97.25 million for the Kentucky and Tennessee assets. 

As part of the agreement, Penn Virginia will acquire mineral rights in roughly 102 million tons of coal reserves and resources. The mineral estate to be acquired presently has 14 active producing underground and surface mines spread over an area of 126,000 acres. The estate has 10 principal coal lessees operating the mines.  Additionally, Penn Virginia will acquire oil and gas royalty interests including  the entire stake in 158 oil and gas wells.

The mineral estate primarily produces steam coal, which is sold to major electric utilities and other industrial customers in the southeastern United States. Presently, the estate has about 75% of the expected production for the next 5 years under permit. 

The acquisition of the Begley properties will provide significant geographic synergies with Penn Virginia's current assets in the Central Appalachia coal region. The transaction will contribute to the diversification of the partnership's lessee base and will increase access to strategic rail shipping facilities to service southeast utility markets. 

Penn Virginia expects the Begley acquisition to be accretive to distributable cash flow per unit for the partnership's unitholders within the first year following the closing of the acquisition. Penn Virginia expects to close the acquisition by year-end 2010 or early in the first quarter of 2011, pending customary closing.

The partnership also expects to complete the Begley acquisition before the closing of its previously announced merger transaction with Penn Virginia GP Holdings L.P. (PVG">PVG). The PVR-PVG merger is now expected to close in the first calendar quarter of 2011.

Penn Virginia Resource GP LLC, PVR's general partner, fully supports the acquisition. The general partner has agreed to permanently forego $525,000 per year in incentive distributions otherwise payable by Penn Virginia to the general partner in connection with the acquisition. This support would become effective following Penn Virginia's issuance of equity to finance the acquisition.

Radnor, Pennsylvania-based Penn Virginia Resource manages coal and natural resource properties as well as natural gas gathering and processing businesses. The partnership's coal properties are located in Central and Northern Appalachia, Illinois Basin and San Juan Basin.

Penn Virginia Resources currently has a short-term Zacks #3 Rank (Hold). However, we maintain our long-term Underperform recommendation on the stock. We prefer other names in the space like Cloud Peak Energy Inc. (CLD">CLD), with a short term Zacks #2 Rank (Buy).

 
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