-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MGKFMooJgKPCmo5CYZ3PNckkuon5UBhY+Log2xvuoFjHSTN7T5FRdEcjCulHHIlq 6A5HFiAlr3DiY1HJzZ/vUw== 0000077159-99-000038.txt : 19990326 0000077159-99-000038.hdr.sgml : 19990326 ACCESSION NUMBER: 0000077159-99-000038 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENN VIRGINIA CORP CENTRAL INDEX KEY: 0000077159 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 231184320 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13283 FILM NUMBER: 99572080 BUSINESS ADDRESS: STREET 1: 100 MATSONFORD ROAD SUITE 200 STREET 2: ONE RADNOR CORPORATE CENTER CITY: RADNOR STATE: PA ZIP: 19087 BUSINESS PHONE: 6106878900 MAIL ADDRESS: STREET 1: 800 BELLEVUE 200 S BROAD ST CITY: PHILADELPHIA STATE: PA ZIP: 19102 FORMER COMPANY: FORMER CONFORMED NAME: VIRGINIA COAL & IRON CO DATE OF NAME CHANGE: 19670501 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K __X__ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1998 or _____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-753 __________________________________ PENN VIRGINIA CORPORATION One Radnor Corporate Center, Suite 200 100 Matsonford Road Radnor, PA 19087 Registrant's telephone number, including area code: (610) 687-8900 Incorporated in I.R.S Employer Identification Number VIRGINIA 23-1184320 Securities registered pursuant to section 12(b) of the Act: None Securities Registered pursuant to Section 12(g) of the Act: Title of Each Class Name of Exchange on which registered ___________________ ____________________________________ Common Stock, $6.25 Par Value New York Stock Exchange 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______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. _____________ The aggregate market value of the voting stock held by non-affiliates of the Corporation at March 5, 1999 was $141,754,832, based on the closing price of $16.9375 per share. As of that date, 8,369,289 shares of common stock were issued and outstanding. The number of shareholders of record of the registrant was 847 as of March 5, 1999. _____________________________ DOCUMENTS INCORPORATED BY REFERENCE: Part Into Which Incorporated ------------------ (1) Proxy Statement for Stockholder Meeting on Part III May 4, 1999 -1- Penn Virginia Corporation and Subsidiaries Part I 1. Business 2. Properties 3. Legal 4. Submission of matters to a vote of security holders Part II 5. Market for Registrant's Common Equity and Related Stockholder Matters 6. Selected Financial Data 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8. Financial Statements and Supplementary Data 9. Changes in and disagreements with accountants on accounting and financial disclosure Part III 10. Directors and Executive Officers of the Registrant 11. Executive Compensation 12. Security Ownership of Certain Beneficial Owners and Management 13. Certain Relationships and related Transactions Part IV 14. Exhibits, Financial Schedules and Reports on Form 8-K -2- Part 1 ITEM 1 - BUSINESS General Penn Virginia Corporation ("Penn Virginia" or the "Company"), is a Virginia corporation founded in 1882. The Company is engaged in the exploration, development and production of oil and natural gas and the collection of royalties and overriding royalty interests on various oil and gas properties; the leasing of coal mineral rights and the collection of related royalties. Penn Virginia explores for, develops and produces crude oil, condensate and natural gas in the Appalachian Basin. Its oil and gas operations are concentrated in western Virginia, southern West Virginia and eastern Kentucky. The Company had proved reserves of 341,000 barrels of oil and condensate and 163.9 billion cubic feet of natural gas at December 31, 1998. The Company owned mineral rights to 384.7 million tons of recoverable coal reserves located in Virginia, West Virginia and Kentucky at December 31, 1998. Its coal reserves include both surface and underground mineable seams. The reserves are generally high quality, low-sulfur bituminous coal and are leased to various operators. Financial Information The Company operates in two primary business segments: (1) oil and gas and (2) coal and land. Financial information concerning the Company's business segments can be found in Note 14 (Segment Information) of the Notes to the Consolidated Financial Statements of Penn Virginia Corporation which is included in this report. Oil and Gas Overview Penn Virginia's oil and gas properties are concentrated in western Virginia, southern West Virginia and eastern Kentucky. At December 31, 1998, the Company had 165.9 Bcfe of proved reserves (163.9 Bcf of natural gas) including 151.0 Bcfe of working interests and 14.9 Bcfe of royalty interests. Oil and Gas Production During 1998, 30,000 barrels of oil and condensate and 8.1 Bcf of natural gas, net to the Company's interest, were produced compared with 38,000 barrels and 7.8 Bcf in 1997. Prices received by the Company were $11.17 and $17.39 per barrel and $2.54 and $2.81 per Mcf for oil and gas in 1998 and 1997, respectively. Exploration and Development The Company drilled 49.6 net wells in 1998 of which 40.0 were development and 9.6 were exploratory. A total of 3.5 net wells were dry holes and 1.0 net exploratory well was being evaluated and tested at year-end. The successful wells drilled in 1998, including five wells under evaluation at December 31, 1997, contain 14.3 Bcfe of proved reserves. -3- Transportation The Company transports its natural gas to market on various gathering, transmission and pipeline systems owned primarily by third parties. The Company's natural gas is gathered principally by Consolidated Natural Gas "CNG" and Columbia Natural Resources "CNR". Penn Virginia completed a by-pass pipeline in 1998 that reduced the amount of gas gathered by the two primary providers to 37 percent from 45 percent in 1997. Interruptible gathering rates have increased in recent years as pipelines have implemented the mandatory unbundling of gathering services (Federal Energy Regulatory Commission Order 636) from other transportation services. CNG's interruptible gathering rates will increase from 15.4 cents to 19.4 cents per MMbtu effective for 1999. CNR's interruptible gathering rates will increase from 26 cents to 27 cents per MMbtu effective February 1, 1999. Penn Virginia's natural gas production is transported to market primarily on two major transmission systems. Columbia Gas Transmission and CNG Transmission transport 63 percent and 31 percent, respectively, of the Company's natural gas production. Production could be adversely affected by shutdowns of the pipelines for maintenance or replacement as pipeline flexibility is limited. Marketing Penn Virginia sold its natural gas using the spot market, commodity derivative contracts and fixed price physical contracts in 1998. From time to time, the Company enters into commodity derivative contracts or fixed price physical contracts to mitigate the risk associated with the volatility of natural gas prices. In April 1997, Penn Virginia executed a contract for a participating forward swap for 5,000 Mmbtu's per day with a floor price of $2.10 per MMbtu and a re-entry price of $2.48 per MMbtu for the period of May 1997 through October 1999. In September 1997, the Company completed a second participating forward swap for an additional 5,000 Mmbtu's per day with a floor price of $2.10 per MMbtu and a re-entry price of $2.35 per MMbtu for the period of November 1997 through October 1999. Penn Virginia may use additional contracts to reduce the risk of price fluctuations in 1999 and beyond. For additional information, see "Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations " Oil and Gas." Coal and Land Operations Overview Penn Virginia owned 135,000 acres of coal and timber bearing land in Virginia, West Virginia and Kentucky at December 31, 1998. Coal is mined by several operators according to long-term lease agreements which generally require royalty payments to Penn Virginia based on a minimum annual payment, a minimum dollar royalty per ton and/or a percentage of the coal's selling price. The Company's timber assets consist of various hardwoods, primarily red oak, white oak, yellow poplar and black cherry. The Company owns 203 million board feet of standing saw timber. Coal Production Several operators mined 5.3 million tons of coal from Penn Virginia's properties in 1998 and paid an average royalty rate of $2.19 per ton compared with 5.4 million tons mined in 1997 at an average royalty rate of $2.14 per ton. -4- West Virginia At December 31, 1998, the Company's recoverable coal reserves in West Virginia were estimated at 91 million tons which produced 0.8 million royalty tons during 1998. At December 31, 1998, the Company had seven lessees, among five separate operators, which were actively mining. The Company added a satellite office in Charleston, West Virginia in late 1997 to increase lessee participation and search for additional acquisition opportunities. In 1998, Penn Virginia purchased 4,480 acres of coal and timber property for $3.3 million. The acquired property contains 9.9 million tons of high quality metallurgical coal reserves and is contiguous to other properties the Company owns. Virginia At December 31, 1998, the Company's recoverable coal reserves in Virginia were estimated at 294 million tons. During 1998, operators mined 4.5 million tons of coal in Virginia and paid an average royalty rate of $2.12 per ton, compared with 4.1 million tons of coal in 1997 at an average royalty rate of $2.12 per ton. At December 31, 1998, the Company's Virginia properties had 17 operators actively mining a total of 24 separate lease locations. In 1998, the Company acquired 5.0 million tons of coal reserves for $3.0 million in a noncash transaction involving the cancellation of a long-term note receivable. Timber Production The Company sold 8.0 million board feet in 1998 for an average price of $198 per Mbf, compared with 7.9 million board feet at an average price of $206 per Mbf in 1997. The Company's timber resources are managed primarily on a sustained yield basis using various regeneration and intermediate stand improvement techniques. The sustained yield essentially allows for the harvest of an amount equal to the annual growth of timber within the stand. Timber is also harvested in advance of mining to prevent loss of the resource. Timber is sold in competitive bid sales involving individual parcels and also on a contract basis, where Penn Virginia pays independent contractors to harvest timber while the Company directly markets the product. Investments The Company holds equity investments, primarily in Norfolk Southern Corporation. In the third quarter of 1997, Norfolk Southern Corporation declared a three for one stock split and the shares held by the Company increased from 1,102,400 shares to 3,307,200 shares. The Company received dividends of $2.6 million in 1998 and 1997 associated with its equity holdings in Norfolk Southern Corporation. 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 recorded an impairment of its investment in Westmoreland stock in 1996. The fair value of the Company's equity portfolio at December 31, 1998 was $104.8 million compared with $100.9 million at December 31, 1997. See Note 3 (Investments and Other Income) of the Notes to the Consolidated Financial Statements for additional information. -5- Risks Associated with Business Activities General Government Regulations Penn Virginia's operating segments are subject to extensive rules and regulations promulgated by various federal, state and local government agencies. Failure to comply with such rules and regulations can result in substantial penalties. The regulatory burden increases the Company's cost of doing business and affects its profitability. Although the Company believes it is in material compliance with all rules, regulations and laws, there can be no assurance that new interpretations of existing rules, regulations and laws will not adversely affect the Company's business and operations. Competition The energy industry is highly competitive. Many of the Company's competitors are large, well-established companies with substantially larger operating staffs, greater capital resources and established long-term strategic positions. Oil and Gas Prices Penn Virginia's revenues, profitability and future rate of growth are highly dependent on the prevailing prices for oil and gas, which are affected by numerous factors that are generally beyond the Company's control. Crude oil prices are generally determined by global supply and demand. Natural gas prices are influenced by national and regional supply and demand. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Company's revenues, profitability and cash flow and could, under certain circumstances, result in an impairment of the Company's oil and gas properties. Exploratory Drilling Both development and exploratory drilling involve risks. However, exploratory drilling involves greater risks of dry holes or failure to find commercial quantities of hydrocarbons. The Company anticipates the number of exploratory prospects drilled in the short- and long-term may increase, compared with historical amounts. Consequently, it is likely that the Company will experience increased levels of exploration expense in 1999 and beyond. Transportation Penn Virginia's natural gas production is transported to market primarily on two major transmission systems. Columbia Gas Transmission and CNG Transmission transport 63 percent and 31 percent, respectively, of the Company's natural gas production. Production can be adversely affected by shutdowns of the pipelines for maintenance or replacement, as pipeline flexibility is limited. -6- Coal and Land Operating Risks Penn Virginia's coal royalty stream is impacted by several factors, which the Company generally cannot control. The number of tons mined annually is determined by an operator's mining efficiency, labor availability, geologic conditions, financial stability, ability to market coal and ability to arrange reliable transportation to the end-user. Coal emissions are regulated by various federal and state agencies which affect the quality of coal that can be burned within compliance guidelines. Investments The value of the Company's investment portfolio is subject to market price fluctuations. Employees Penn Virginia had 63 employees at December 31, 1998. The Company considers its relations with its employees to be good. -7- Executive Officers of the Company Below is a list of executive officers of the Company including their ages and positions held. Each officer is elected annually by the Board of Directors and serves at the pleasure of the Board of Directors. Office NAME Age Office Held Since - ------------------------------------------------------------------------------ A. James Dearlove 51 President and Chief Executive Officer 1996 Steven W. Tholen 48 Vice President and Chief Financial Officer 1995 Keith D. Horton 45 Vice President, Eastern Operations 1996 James O. Idiaquez 51 Vice President, Corporate Development 1998 Nancy M. Snyder 46 Corporate Secretary and General Counsel 1997 Ann N. Horton 40 Principal Accounting Officer and Controller 1995 A. James Dearlove - Mr. Dearlove is the President and Chief Executive Officer. He has served in various capacities with the Company since 1977 including Vice President since 1986, Senior Vice President since 1992 and President since 1994. Mr. Dearlove was elected to the Company's Board of Directors effective February 6, 1996. He was appointed Chief Executive Officer in May 1996. He also serves as director of the Powell River Project and the National Council of Coal Lessors. Steven W. Tholen - Mr. Tholen is a Vice President and the Chief Financial Officer. He joined the Company in 1995. Previously, he served in various capacities at Cabot Oil and Gas Corporation, most recently as Treasurer. Keith D. Horton - Mr. Horton was elected Vice President, Eastern Operations in February 1999 and has served as an executive officer for the Company since 1996. He also serves as President of the Company's coal and land management subsidiary. He has served in various capacities with the Company since 1981. Mr. Horton serves as Chairman of the Central Appalachian Section of the Society of Mining Engineers. He also serves as a director of the Virginia Mining Association, Powell River Project and the Virginia Coal Council. James O. Idiaquez - Mr. Idiaquez has served as Vice President, Corporate Development for the Company since October 1998. From 1978 to 1998, Mr. Idiaquez served in various management capacities, including corporate planning and acquisitions and divestitures, with Burlington Resources, Inc. and The Louisiana Land & Exploration Company. Nancy M. Snyder - Ms. Snyder has served as Corporate Secretary and General Counsel since joining the Company in 1997. Previously, Ms. Snyder was in private and firm practices in the areas of general corporate and securities law. Ann N. Horton - Mrs. Horton has served as Principal Accounting Officer and Controller of the Company since 1995. She has served in various capacities with the Company and its Subsidiaries since 1981. -8- The following terms have the meanings indicated below when used in this report. Bbl - means a standard barrel of 42 U.S. gallons liquid volume. Bcf - means one billion cubic feet Bcfe - means one billion cubic feet equivalent with one barrel of oil or condensate converted to six thousand cubic feet of natural gas based on the estimated relative energy content Gross - acre or well means an acre or well in which a working interest is owned Mbbl - means one thousand barrels Mbf - means one thousand board feet Mcf - means one thousand cubic feet MMbtu - means one million British thermal units MMcf - means one million cubic feet Net - acres or wells is determined by multiplying the gross acres or wells by the working interest in those gross acres or wells Proved Reserves - means those estimated quantities of crude oil, condensate and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known oil and gas reservoirs under existing economic and operating conditions -9- ITEM 2 - PROPERTIES Facilities Penn Virginia Corporation is headquartered in Radnor, Pennsylvania with additional offices in Duffield, Virginia; Charleston, West Virginia; Kingsport, Tennessee; and Houston, Texas. The Company believes their leased properties are adequate for current needs. Title to Properties Penn Virginia believes it has satisfactory title to all of its properties in accordance with standards generally accepted in the oil and gas and coal industries. As is customary in the oil and gas industry, the Company makes only a cursory review of title to farmout acreage and to undeveloped oil and gas leases upon execution of any contracts. Prior to the commencement of drilling operations, a thorough title examination is conducted and curative work is performed with respect to significant defects. To the extent title opinions or other investigations reflect defects, Penn Virginia cures such title defects. If the Company was unable to remedy or cure any title defect of a nature such that it would not be prudent to commence drilling operations on a property, the Company could suffer a loss of its investment in the property. Penn Virginia has obtained title opinions on substantially all of its producing properties and believes that it has satisfactory title to such properties in accordance with standards generally accepted in the oil and gas industry. Prior to completing an acquisition of producing oil and gas leases, the Company obtains title opinions on all material leases. Penn Virginia's oil and gas properties are subject to customary royalty interests, liens for current taxes and other burdens that the Company believes do not materially interfere with the use of or affect the value of such properties. Oil and Gas Production and Pricing The following table sets forth production, sales prices and production costs with respect to the Company's properties for the years ended December 31, 1998, 1997 and 1996.
1998 1997 1996 ------ ----- ----- Production Oil and condensate (Mbbls) 30 38 47 Natural gas (MMcf) 8,056 7,755 7,483 Average sales price Oil and condensate ($/Bbl) $11.17 $17.39 $18.43 Natural gas ($/Mcf) 2.54 2.81 2.84 Production cost Operating cost per Mcfe $ 0.46 $ 0.42 $ 0.39 Production taxes per Mcfe 0.28 0.26 0.26 ----- ------ ------ Total production cost per Mcfe $ 0.74 $ 0.68 $ 0.65 Hedging Summary Natural gas prices ($/Mcf): Actual price received for production $ 2.61 $ 2.87 $ 2.82 Effect of hedging activities (.07) (.06) - ----- ------ ------ Average price $ 2.54 $ 2.81 $ 2.82
-10- Proved Reserves Penn Virginia had proved reserves of 341,000 barrels of crude oil and condensate and 163.9 Bcf of natural gas at December 31, 1998. The present value of the estimated future cash flows discounted at 10 percent (Pre-tax SEC PV10 Value) at December 31, 1998 was $81 million. At December 31, 1998, the Company had 263 gross (141 net) proved undeveloped drilling locations.
Natural Pre-tax Oil and Natural Gas SEC PV10 Condensate Gas Equivalents Value (Mbbls) (Bcf) (Bcfe) ($MM) ---------- -------- ----------- --------- 1998 Developed 313 118 120 $ 73 Undeveloped 28 46 46 8 --------------------------------------- Total 341 164 166 $ 81 1997 Developed 364 110 112 $110 Undeveloped 60 61 61 31 --------------------------------------- Total 424 172 173 $141 1996 Developed 390 105 107 $137 Undeveloped 64 70 71 49 --------------------------------------- Total 454 175 178 $186
The standardized measure of discounted future net cash flows, which represents the present value of future net revenues after income taxes discounted at ten percent, was $76 million, $119 million and $153 million at December 31, 1998, 1997 and 1996, respectively. The weighted average prices used to determine proved reserves at December 31, 1998, 1997 and 1996 were ($/Bbl) $9.70, $15.50 and $23.25, respectively for oil and condensate and ($/Mcf) $2.14, $3.11 and $3.74, respectively for natural gas. In accordance with the Securities and Exchange Commission's guidelines, the engineers' estimates of future net revenues from the Company's properties and the pre-tax SEC PV10 value thereof are made using oil and natural gas sales prices in effect at the dates of such estimates. The prices are held constant throughout the life of the properties except where such guidelines permit alternate treatment, including the use of fixed and determinable contractual price escalations. Net proved oil and gas reserves at December 31, 1998 and 1997, were estimated by Wright and Company, Inc. of Brentwood, Tennessee. Net proved oil and gas reserves as of December 31, 1996 were estimated by the Company's engineers and reviewed by Williamson Petroleum Consultants, Inc. of Houston, Texas. Prices for natural gas and, to a lesser extent, oil are subject to substantial seasonal fluctuations and prices for each are subject to substantial fluctuations as a result of numerous other factors. See "Item 7 - Management's Discussion and Analysis." Proved reserves are the estimated quantities of natural gas and condensate that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the Company. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgement. The quantities of oil and natural gas that are ultimately recovered, production and operating costs, the amount of timing of future development expenditures and future oil and natural -11- gas sales prices may all differ from those assumed in these estimates. Therefore, the pre-tax SEC PV10 value amounts shown above should not be construed as the current market value of the estimated oil and natural gas reserves attributable to the Company's properties. The information set forth in the foregoing tables includes revisions of certain volumetric reserve estimates attributable to proved properties included in the preceding year's estimates. Such revisions are the result of additional information from subsequent completions and production history from the properties involved or the result of a decrease (or increase) in the projected economic life of such properties resulting from changes in production prices. Acreage The following table sets forth the Company's developed and undeveloped acreage at December 31, 1998. The Company's acreage is concentrated in the Appalachia Basin, specifically western Virginia, southern West Virginia and eastern Kentucky. Gross Acreage Net Acreage ------------- ----------- (in thousands) Developed 312 160 Undeveloped 190 94 ------------------ Total 502 254 Gross Wells Drilled The following table sets forth the gross number of exploratory and development wells drilled during the last three years. The number of wells drilled means the number of wells spud at any time during the respective year. Productive wells means either wells which were producing or which were capable of commercial production.
1998 1997 1996 ------------------ Exploratory Productive 15 31 10 Dry 1 3 4 Under Evaluation 2 2 - ------------------ Total 18 36 14
1998 1997 1996 ------------------ Development Productive 56 53 50 Dry 3 1 1 ------------------ Total 59 54 51
Of the 12 gross wells under evaluation at the end of 1997, 10 were productive and two remain under evaluation. -12- Net Wells Drilled The following table sets forth the number of net exploratory and development wells. Net wells equal the number of gross wells multiplied by Penn Virginia's working interest in each of the gross wells.
1998 1997 1996 ------------------- Exploratory Productive 8.1 16.0 7.1 Dry 0.5 2.0 3.1 Under Evaluation 1.0 1.0 - -------------------- Total 9.6 19.0 10.2
1998 1997 1996 ------------------- Development Productive 37.0 42.0 37.3 Dry 3.0 1.0 1.0 -------------------- Total 40.0 43.0 38.3
Of the 6.0 net wells under evaluation at the end of 1997, 5.0 were productive and 1.0 remains under evaluation. Productive Wells The number of productive oil and gas wells in which Penn Virginia had an interest at December 31, 1998 is set forth below. Productive wells are producing wells or wells capable of commercial production.
Operated Wells Non-Operated Wells Total -------------- ------------------ --------------- Gross Net Gross Net Gross Net ------ ---- ------ ------ ------ --- -13- Coal and Land Penn Virginia's coal reserves and timber assets at December 31, 1998 covered 135,000 acres, including fee acreage, in Virginia, West Virginia and Kentucky. The coal reserves are in various surface and underground seams. Penn Virginia's recoverable coal reserves are estimated at 385 million tons as of December 31, 1998. Recoverable coal reserves mean coal that is economically mineable using existing equipment and methods under federal and state laws now in effect. Reserve estimates are adjusted annually for production, unmineable areas, acquisitions and sales of coal in place. The majority of the Company's reserves are high in energy content, low in sulfur and suitable for either the steam or metallurgical markets. The amount of coal a lessee can profitably mine at any given time is subject to several factors and may be substantially different from "recoverable reserves." Included among the factors that influence profitability are the existing market price, coal quality and operating costs. The Company's timber assets consist of various hardwoods, primarily red oak, white oak, yellow poplar, and black cherry. At December 31, 1998, the Company owned 203 million board feet of standing saw timber. Coal Reserves The following table sets forth the coal reserves that are owned by the Company. The reserves are estimated internally by the Company's engineers.
1998 1997 1996 ----------------------- (in millions) Beginning of year 379.8 357.6 227.1 Production (5.3) (5.4) (3.4) Additions, deletions, revisions 10.2 27.6 133.9 ----------------------- End of year 384.7 379.8 357.6
-14- ITEM 3 - LEGAL PROCEEDINGS 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. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1998. PART II ITEM 5 - MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Common Stock Market Prices And Dividends High and low stock prices and dividends for the last two years were:
1998 1997 -------------------------- ----------------------------- Sales Price Cash Sales Price Cash ---------------- Dividends --------------- Dividends High Low Paid High Low Paid - ---------------------------------------------------------------------------- Quarter Ended: March 31 $29-1/4 $26-7/8 $0.225 $23-3/8 $21-1/2 $0.225 June 30 $30 $25-7/8 $0.225 $25-5/8 $20-3/8 $0.225 September 30 $26-11/32 $21-1/8 $0.225 $31 $23-7/8 $0.225 December 31 $23-1/2 $18-3/8 $0.225 $30-3/4 $26-15/16 $0.225 Stock market prices and dividends for 1997 have been restated to reflect the two-for-one split of the Company's common stock effective August 15, 1997. The Company's common stock is traded on the New York Stock Exchange under the symbol PVA. Prior to September 1997, the Company's common stock was traded on the NASDAQ under the symbol PVIR. -15- ITEM 6 - SELECTED FINANCIAL DATA
Five Year Selected Financial Data
Year Ended December 31, 1998 1997 1996 -------------------------------- (in thousands except per share data) Revenues $ 38,255 $ 41,404 $ 34,133 Operating income 10,266 18,719 13,212 Net income $ 9,591 $ 16,018 $ 13,040 Per common share: Net income, basic $ 1.15 $ 1.93 $ 1.51 Net income, diluted 1.13 1.88 1.50 Dividends paid $ 0.90 $ 0.90 $ 0.90 Weighted average shares outstanding 8,310 8,302 8,694 Total assets $256,931 $247,230 $229,514 Long-term debt $ 37,967 $ 31,903 $ 21,233 Stockholders' equity $170,259 $163,704 $160,211 Year Ended December 31, 1995( 1994 (in thousands except per share data) Revenues $ 38,890 $ 33,711 Operating income 5,855 10,712 Net income $ 10,084 $ 13,501 Per common share: Net income, basic $ 1.18 $ 1.58 Net income, diluted 1.18 1.58 Dividends paid $ 0.90 $ 1.00 Weighted average shares outstanding 8,538 8,560 Total assets $206,001 $199,259 Long-term debt $ 12,700 $ 9,250 Stockholders' equity $147,357 $137,446 All weighted average share and per share data have been restated to reflect the two-for-one split of the Company's common stock in August 1997. Earnings per share data have been restated for all periods presented to give effect for the adoption of Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share."
-16- SUMMARIZED QUARTERLY FINANCIAL DATA
Quarterly financial data for 1998 and 1997 were as follows: 1998 ------ Quarters Ended --------------- (in thousands, except per share data) Mar.31 June 30 Sept.30 Dec. 31 Revenues $9,064 $9,978 $9,798 $9,415 Operating Income (loss) 3,760 4,266 4,335 (2,095) Net income (loss) $3,152 $3,666 $3,442 $ (669) Net income per share, basic $ 0.38 $ 0.44 $ 0.41 $(0.08) Net income per share, diluted $ 0.37 $ 0.43 $ 0.41 $(0.08) Weighted average shares outstanding 8,278 8,291 8,308 8,354 Quarterly financial data for 1998 and 1997 were as follows: 1997 Quarters Ended (in thousands, except per share data) Mar. 31 June 30 Sept. 30 Dec. 31 Revenues $10,250 $9,413 $8,754 $12,987 Operating Income (loss) 5,470 3,786 3,564 5,899 Net income (loss) $ 4,726 $3,145 $3,089 $ 5,058 Net income per share, basic $ 0.55 $ 0.38 $ 0.36 $ 0.61 Net income per share, diluted $ 0.55 $ 0.37 $ 0.35 $ 0.59 Weighted average shares outstanding 8,620 8,270 8,274 8,274 All weighted average share and per share data have been restated to reflect the two-for-one split of the Company's common stock in August 1997. The sum of the quarters may not equal the total of the respective years net income per share due to changes in the weighted average shares outstanding throughout the year. Earnings per share data have been restated for all periods presented to give effect for the adoption of SFAS No. 128 "Earnings Per Share." Operating income for fourth quarter of 1998 included a noncash charge relating to impairments of certain oil and gas properties of $4.6 million ($3.7 million after tax) primarily due to a decline in commodity prices and a restructuring charge of $0.6 million ($0.4 million after tax).
-17- ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations The following review of operations and financial condition of Penn Virginia Corporation and subsidiaries should be read in conjunction with the Consolidated Financial Statements and Notes thereto. Overview Penn Virginia's net income for 1998 was $9.6 million with operating income of $10.3 million. The comparable 1997 results were net income of $16.0 million and operating income of $18.7 million. The Company's 1998 financial performance was adversely impacted by a noncash charge relating to impairments of certain oil and gas properties of $4.6 million ($3.7 million after tax) primarily due to a decline in commodity prices and a restructuring charge of $0.6 million ($0.4 million after tax). Additionally, a $2.0 million gain on the sale of oil and gas properties was included in 1997 revenues. During 1998, Penn Virginia took steps to strengthen its competitive posture which included streamlining management, opening an office in Houston, Texas, and increasing its asset base. These improvements coupled with the Company's strong financial position could provide numerous opportunities. Historically, Penn Virginia has focused most of its operations in the eastern United States and particularly in Appalachia. However, the Company believes continued growth opportunities, especially in oil and natural gas, will be enhanced by a presence outside the Appalachian Basin. In the fourth quarter of 1998, the Company opened a regional office in Houston, Texas for the purpose of establishing a meaningful, non-Appalachian presence in oil and natural gas. The Company continued its aggressive drilling program in 1998 by drilling 77 gross (49.6 net) wells. The successful wells, including wells under evaluation at the end of 1997, resulted in the addition of 14.3 Bcfe of proved developed producing reserves, replacing 174 percent of 1998 production. In 1998, Penn Virginia produced a record 8.2 Bcfe of oil and natural gas, which was a marginal increase over 1997. The Company acquired 4.5 Bcfe of proved oil and natural gas reserves for $3.4 million in 1998. In addition, 14,000 net acres were added to the Company's lease position as part of its program to add additional drilling locations and exploratory opportunities. Coal production from the properties owned by Penn Virginia remained relatively constant at 5.3 million tons in 1998, despite production being lost due to a lost sales contract by a lessee, unexpected financial difficulties by a lessee, which have been resolved, and some unusually long permitting delays. In 1998, Penn Virginia acquired a strategically important block of high quality, recoverable coal and other assets for $3.0 million. The newly acquired tract is contiguous to the Company's river-based Bull Creek property and the two together are referred to as the Coal River properties. Penn Virginia expended $3.2 million in 1998 to build a unit train loadout facility, which is expected to be completed in March 1999. The facility will accommodate 100 rail car unit trains which can be loaded in approximately four hours, thus generating substantial savings for two of the Company's lessees due to increased efficiency. The capability to load large trains rapidly is important to the Company's Virginia lessees in terms of their ability to compete. The Company intends to lease the facility to a third party operator and receive a throughput fee for use of the loadout. -18- Goals and Strategy Penn Virginia's primary goal is to increase shareholder wealth. The Company intends to grow but only if such growth results in adding real economic value. The Company believes growth in economic value will ultimately be reflected in the price of its stock. The components of a value-added strategy include growth, margin management, value enhancement, and divestiture. Penn Virginia intends to increase reserves, production, and value over a commodity price cycle. Managing margins includes mitigating the low points of a price cycle through hedging and an aggressive management of costs primarily through an emphasis on improvements in productivity. Value enhancement activities include pursuing competitive advantages that increase the value of existing assets and improve the opportunities to make successful acquisitions. Finally, selective divestiture of declining or non-strategic assets and redeployment of the capital resources is an important part of the Company's management of its long-term asset portfolio. Penn Virginia's long-term oil and gas strategy is to add to its base of proved reserves through a combination of low-risk development drilling, moderate-risk exploratory drilling and property acquisitions. The Company targets acquisition candidates with significant development and exploration opportunities and/or the potential to consolidate operations, reduce operating costs per unit of production as well as accelerate cash flow. To facilitate its strategy and based on the current industry environment, the Company opened an office in Houston, Texas during the fourth quarter of 1998 with the primary goal of acquiring oil and gas properties outside the Appalachia Basin. Expanding its oil and gas business outside of Appalachia is part of the Company's long-term plan and recently, quality acquisition opportunities have become available at prices which the Company believes will enable it to execute its value-adding strategy. The Houston office is staffed with two experienced oil and gas acquisition professionals. Currently, the Company is searching for acquisitions which have characteristics of being predominately natural gas, stacked pay targets with upside exploration, exploitation and development potential primarily in the onshore Gulf Coast, Arkoma, east Texas and Anadarko basins. Penn Virginia's coal and land strategy is to maximize coal production from its properties for the long term by leasing reserves to a diversified mix of quality operators. Timber production is coordinated to facilitate coal mining activities. The Company is continuing to search for beneficial coal and land asset acquisitions. Penn Virginia's investment in Norfolk Southern Corporation is considered an important financial asset but not a strategic asset. -19- Results of Operations Consolidated Net Income Penn Virginia's 1998 net income was $9.6 million, compared with $16.0 million in 1997 and $13.0 million in 1996. Net income for 1998 included a noncash charge relating to impairments of certain oil and gas properties of $4.6 million ($3.7 million after tax) primarily due to a decline in commodity prices and a restructuring charge of $0.6 million ($0.4 million after tax). Income before income taxes includes a gain of approximately $2.0 million on the sale of non-strategic oil and gas properties in November 1997. Income before income taxes in 1996 includes a $3.3 million loss from the sale of the Company's investment in Westmoreland Coal Company common stock and $0.6 million gain for the settlement of the abrogation of natural gas sales contracts by Columbia Energy Company. Selected Financial Data
1998 1997 1996 ------ ------ ------ (in millions, except share data) Revenues $ 38.3 $ 41.4 $ 34.1 Operating costs and expenses 28.0 22.7 20.9 Operating income 10.3 18.7 13.2 Net income 9.6 16.0 13.0 Earnings per share, basic 1.15 1.93 1.51 Earnings per share, diluted 1.13 1.88 1.50
-20- Oil and Gas 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 Company also owns mineral rights to oil and gas reserves. Selected Financial and Operating Data
1998 1997 1996 ------------------------------- (in millions, except as noted) Revenues Oil and condensate $ 0.3 $ 0.7 $ 0.9 Natural gas sales 18.9 20.2 19.3 Royalty income 1.6 1.6 1.1 Gain on the sale of property - 2.0 - Other 0.3 0.4 1.1 ---------------------------- Total Revenues 21.1 24.9 23.1 Expenses Lease operating expenses 3.8 3.4 3.1 Exploration expenses 0.5 1.4 0.4 Taxes other than income 2.3 2.1 2.0 General and administrative 3.2 2.7 2.7 ---------------------------- Operating Expenses 9.8 9.6 8.2 Depreciation, depletion and amortization 6.4 5.9 6.6 Impairment of properties 4.6 - - ---------------------------- Total Expenses 20.8 15.5 14.8 ---------------------------- Operating Income (Loss) $ 0.3 $ 9.4 $ 8.3 Production Oil and condensate (MBbls) 30 38 47 Natural gas (Bcf) 7.4 7.2 6.8 Royalty natural gas (Bcf) 0.6 0.6 0.7 Prices Oil and condensate ($/Bbl) $ 11.17 $ 17.39 $ 18.43 Natural gas ($/Mcf) 2.55 2.81 2.84 Royalty natural gas ($/Mcf) 2.45 2.89 2.66 Hedging Summary Natural gas prices ($/Mcf): Actual price received for production $ 2.61 $ 2.87 $ 2.82 Effect of hedging activities (.07) (.06) - ----------------------------- Average price $ 2.54 $ 2.81 $ 2.82
The oil and gas segment had operating income of $0.3 million in 1998 compared with $9.4 million in 1997 and $8.3 million in 1996. Revenues. Revenues for the oil and gas segment decreased $3.8 million, or 15 percent, from 1997 to 1998. The change resulted from a 10 percent decrease in average natural gas prices recognized by the Company, offset by a -21- three percent increase in production. Additionally, a $2.0 million gain on the sale of oil and gas properties was included in 1997 revenues. Oil and gas revenues increased $1.8 million, or eight percent, from 1996 to 1997 primarily due to the $2.0 million gain on the sale of oil and gas properties in 1997. The Company received an average of $2.81 per Mcf for its working interest gas in 1997 compared with $2.84 per Mcf in 1996. The Company, from time to time, hedges 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. The Company recognized a loss of $0.5 million in 1998 and 1997 on hedging activities. The Company had no comparable hedging activities in 1996. Operating expenses. Oil and gas operating expenses increased $0.2 million, or two percent, in 1998. In the fourth quarter of 1998, the Company's management approved a plan to reduce administrative and operational overhead costs in its oil and gas subsidiary. In connection with such a plan, the Company recorded a pre-tax charge to general and administrative expense totaling $0.6 million related to severance costs for six employees and a lease cancellation penalty. As of February 28, 1999, the Company had paid out $0.1 relating to severance and expects all remaining costs to be paid out by June 30, 1999. Lease operating expenses increased $0.4 million as a result of increased production and additional operating expenses associated with the Company's new coalbed methane wells. These increases were offset by a $0.9 million decline in exploration expenses due to a reduction in dry hole costs and other preliminary field costs incurred by the Company in 1997. Exploration expenses were the primary factor for the $1.4 million increase in 1997, compared with 1996, due to dry hole costs for five exploratory wells in 1997 relating to the Company's aggressive drilling program. Depreciation, depletion and amortization. Oil and gas depreciation, depletion and amortization increased $0.5 million to $6.4 million in 1998, compared with $5.9 million in 1997. The change was attributable to the decrease in natural gas pricing used in the 1998 year end reserve reports, which caused negative reserve revisions and consequently, a higher depletion rate using the units-of-production method. Depreciation, depletion and amortization was $5.9 million in 1997, representing a decrease of $0.7 million from the 1996 amount of $6.6 million. Impairment of oil and gas properties. In accordance with SFAS No. 121, the Company reviews its oil and gas properties for impairment whenever events and circumstances indicate a decline in the recoverability of their carrying value. In the fourth quarter of 1998, the Company estimated the expected future cash flows of its oil and gas properties and compared such future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount was recoverable. For those oil and gas properties which the carrying amount exceeded the estimated undiscounted future cash flows, an impairment was determined to exist; thus, the Company adjusted the carrying amount of the respective oil and gas properties to their fair value as determined by discounting their estimated future cash flows. The factors used to determine fair value included, but were not limited to, estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures and a discount rate commensurate with the Company's internal rate of return on its oil and gas properties. As a result, the Company recognized a noncash pre-tax charge of $4.6 million ($3.7 million after tax) related to its oil and gas properties in the fourth quarter of 1998. -22- Coal and Land The coal and land segment includes Penn Virginia's mineral rights to coal reserves, its timber assets and its land assets. Selected Financial and Operating Data
1998 1997 1996 --------------------------- (in millions except as noted) Revenues Coal royalties $ 11.5 $ 11.6 $ 7.0 Timber 1.7 1.8 0.8 Gain on the sale of property 0.1 0.1 - Other 1.2 0.4 0.4 ------------------------ Total Revenues 14.5 13.9 8.2 Expenses Operating costs 0.2 0.3 0.1 Exploration expenses 0.5 0.3 0.4 Taxes other than income 0.4 0.3 0.3 General and administrative 2.2 1.8 1.5 ------------------------ Operating Expenses 3.3 2.7 2.3 Depreciation, depletion and amortization 0.6 0.5 0.2 ------------------------ Total Expenses 3.9 3.2 2.5 ------------------------ Operating Income $ 10.6 $ 10.7 $ 5.7 ------------------------ Production Royalty coal tons produced (millions) 5.3 5.4 3.4 Timber sales (millions of board feet) 8.0 7.9 4.0 Prices Royalty per ton of coal produced $ 2.19 $ 2.14 $ 2.07 Timber sales price per Mbf $ 198 $ 206 $ 183
Revenues. Revenues for the coal and land segment were $14.5 million in 1998, $13.9 million in 1997 and $8.2 million in 1996, representing a four percent increase from 1997 to 1998 and 70 percent increase from 1996 to 1997. The $0.6 million increase from 1997 to 1998 primarily resulted from a $0.8 million receipt for the sale of coal reserves as a result of a power line relocation which was recognized in other operating income. The Company, from time to time, receives restitution for circumstances that inhibit mining reserves in a certain location. The increase of 70 percent from 1996 to 1997 was, in part, a result of new leases on the Company's Wise property (primarily the Virginia acreage formerly leased to Westmoreland Coal Company). These additional leases were signed in 1996 and early 1997 and produced an additional 935,000 tons from this property. In early 1997, the Company also acquired additional coal reserves, which provided royalties on an additional 881,000 tons in 1997. -23- Operating expenses. Coal and land operating expenses increased 22 percent in 1998 to $3.3 million, compared with $2.7 million in 1997 and $2.3 million in 1996. The $0.6 million increase from 1997 to 1998 primarily resulted from a $0.4 increase in general and administrative due to personnel additions related to the opening of an office in Charleston, West Virginia during the last half of 1997. Furthermore, unexpected legal costs were incurred during 1998 to protect the Company's interests relating to a lease termination by a lessee and a lessee bankruptcy. The $0.4 million increase from 1996 to 1997 was attributable to an additional $0.3 million incurred in general and administrative expense necessitated from the segment's growth. Corporate and Other Dividends. Dividend income of $2.6 million in 1998 remained constant, compared with $2.6 million in 1997 and $2.8 million in 1996. Penn Virginia's holdings primarily consist of 3,307,200 (1997 post-split) shares of Norfolk Southern Corporation. Impairment of investment. In the fourth quarter of 1996, the Company sold 598,600 shares of its Westmoreland Coal Company common stock to various purchasers. In December 1996, Westmoreland Coal Company filed for Chapter 11 bankruptcy causing Penn Virginia to write down its investment in the remaining 755,811 shares held at year-end resulting in a $1.9 million charge. Proved Reserves Oil and Gas. Penn Virginia added 14.3 Bcfe of proved developed oil and gas reserves from its 77 gross (49.6 net) well drilling program in 1998. The drilling program replaced 174 percent of 1998 production at a finding and development cost of $0.76 per Mcfe of proved developed reserves. During the last four years, the Company's drilling program has replaced 164 percent of production with proved developed reserves at a weighted average finding and development cost of $0.92 per Mcfe. The Company acquired 4.5 Bcfe of proved oil and gas reserves (3.7 Bcfe of proved developed reserves) during 1998 for $3.4 million. The acquisition cost was $0.76 per proved Mcfe or $0.92 per proved developed Mcfe. Approximately 2.2 Bcfe of the proved reserves acquired were royalty interests. Penn Virginia's total proved reserves at year-end 1998 declined 8.2 Bcfe to 165.9 Bcfe primarily due to the decline in prices for oil and natural gas. Without the price-related declines, proved reserves would have been up 5.2 Bcfe to 179.3 Bcfe. Proved developed reserves increased 7.6 Bcfe to 120.0 Bcfe. Proved undeveloped reserves declined 15.8 Bcfe to 45.9 Bcfe. Proved undeveloped reserves of 7.9 Bcfe were drilled and converted to proved developed reserves during 1998. At year-end 1998, proved developed reserves comprised 72 percent of the Company's total proved reserves, compared with 65 percent at year-end 1997. The Company has 141 net proved undeveloped drilling locations at year-end 1998, compared with 206 locations at year-end 1997. Coal Land Management. Penn Virginia's recoverable coal reserves were 385 million tons at year end 1998, compared with 380 million tons at year-end 1997. The Company purchased 15 millon tons of coal reserves during 1998. Recoverable coal reserves means coal that is economically mineable using existing equipment and methods under federal and state laws now in effect. Approximately 65 percent of the Company's high quality metallurgical coal reserves are classified as post year 2000 compliance or near-compliance coals. -24- Market Risk Marketable Equity Securities. At December 31, 1998, the Company's marketable equity securities, consisting primarily of Norfolk Southern Corporation, were recorded at their fair value of $104.8 million, including net unrealized gains of $102.0 million. The fair value of the Company's marketable equity securities is significantly affected by market price fluctuations. See Note 3 of the Notes to Consolidated Financial Statements. Interest Rate Risk. The carrying value of Penn Virginia's debt approximates fair value. At December 31, 1998, the Company had $38.0 million of long-term debt, primarily represented by an unsecured revolving credit facility (the "Revolver") totaling $37.1 million. The Revolver matures in August 2000 and interest is calculated at a floating-rate based on current market rates. The Revolver bears interest at LIBOR, CD rate or the base rate at the option of the Company, plus a percentage based on the percentage of the borrowing base outstanding. As a result, the Company's 1999 interest costs will fluctuate based on short-term interest rates relating to the Revolver. Hedging Activities. Penn Virginia's price risk program permits the utilization of agreements and financial instruments (such as futures, forward and option contracts and swaps) to mitigate the price risks associated with fluctuations in natural gas prices as they relate to the Company's anticipated production. These financial instruments are designated as hedges and accounted for on the accrual basis with gains and losses being recognized based on the type of contract and exposure being hedged. Realized gains and losses on natural gas financial instruments designated as hedges of anticipated transactions are treated as deferred charges or credits, as applicable, on the balance sheet until recognized. Net gains and losses on such financial instruments, including accrued gains or losses upon maturity or termination of the contract, are recognized in operating income. In April 1997, Penn Virginia executed a contract for a participating forward swap for 5,000 Mmbtu's per day with a floor price of $2.10 per MMbtu and a re-entry price of $2.48 per MMbtu for the period of May 1997 through October 1999. In September 1997, the Company completed a second participating forward swap for an additional 5,000 Mmbtu's per day with a floor price of $2.10 per MMbtu and a re-entry price of $2.35 per MMbtu for the period of November 1997 through October 1999. The Company hedged 41 percent of its 1998 production and recognized an opportunity cost of $0.5 million, which offset oil and gas revenues. To date, the Company has not hedged crude oil prices. The Company will constantly review and may alter its hedged positions. Capital Resources and Liquidity Cash flows from Operating Activities Funding for the Company's activities has historically been provided by operating cash flows and bank borrowings. Net cash provided from operating activities was $19.2 million in 1998, compared with $19.7 million in 1997 and $18.5 million in 1996. The Company's consolidated cash balance decreased to $0.2 million in 1998 from $0.8 million in 1997. -25- Cash flows from Investing Activities The Company used $18.3 million in investing activities in 1998, compared with $15.8 million in 1997 and $20.0 million in 1996. Capital expenditures, including acquisitions and noncash items, totaled $23.6 million, compared with $23.2 million in 1997 and $29.2 million in 1996. During 1998, the Company successfully completed a $3.0 million noncash repurchase of coal reserves previously sold to an operator under an installment sale. The following table sets forth capital expenditures, including acquisitions and noncash items, made by the Company during the periods indicated.
Year ended December 31, 1998 1997 1996 ---- ---- ---- (in thousands) Oil and gas Acquisitions $ 3,557 $ 163 $ 439 Development 8,527 10,446 7,173 Exploration 1,534 3,061 2,337 Support equipment and facilities 171 114 132 Coal and land Acquisitions 6,260 9,203 19,015 Support equipment and facilities 3,532 199 60 Other 42 6 62 ------- ------- ------- Total capital expenditures $23,623 $23,192 $29,218 ======= ======= =======
The Company drilled 37.0 net successful development wells, 8.1 net successful exploratory wells and 3.5 net dry holes in 1998 compared with 42.0 net successful development wells, 11.0 exploratory wells and 3.0 net dry holes in 1997. In addition, the Company drilled 1.0 and 6.0 net exploratory wells, which were being evaluated and tested at year end 1998 and 1997, respectively. Of the 6.0 net wells under evaluation at the end of 1997, 5.0 were productive and 1.0 remains under evaluation. In 1998, the coal and land segment acquired 9.9 million tons of high quality metallurgical coal reserves for cash. Additionally, the Company acquired 5.0 million tons of coal reserves in a noncash transaction involving the cancellation of a long-term note receivable. The coal and land segment expended $3.2 million in 1998 relating to a unit train loadout facility, which is expected to be completed by the end of March 1999. The loadout will permit unit trains to load numerous cars of coal in a limited time frame, thus generating substantial savings due to increased efficiency. The Company intends to lease the facility to a third party operator and receive a throughput fee for use of the loadout. Capital expenditures before lease and proved property acquisitions for 1999 are expected to be $11 to $13 million including $10 to $12 million for the oil and gas segment and $1.0 million for the coal and land segment. The Company plans to drill approximately 30 to 40 development wells and 10 to 20 exploratory wells. Management continually reviews the Company's drilling expenditures and may increase, decrease or reallocate amounts based on industry conditions. Penn Virginia is actively seeking coal acquisitions as well as oil and gas acquisitions both in its traditional area of interest, Appalachia, and in other areas of the U.S. The Company opened an office in Houston, Texas during the fourth quarter of 1998 with the primary purpose of acquiring oil and gas properties outside of Appalachia. With its 18 percent debt to capitalization ratio at December 31, 1998, the Company has the ability to increase debt to fund potential acquisitions. In addition, the Company has 3.3 million shares of Norfolk Southern Corporation common stock, which had a pre-tax value at year-end 1998 of $104.8 million, which can be used to fund acquisitions. In 1998, the Company received payments on long-term coal notes of $2.3 million and $0.1 million from the sale of oil and gas properties. -26- Management believes its cash flow from operations, portfolio of investments and sources of debt financing are sufficient to fund its 1999 planned capital expenditure program. Cash flows from Financing Activities Net cash provided (used) by financing activities was $(1.5) million in 1998 compared with $(5.0) million in 1997 and $0.4 million in 1996. Penn Virginia had additional debt capacity of $37.9 million at December 31, 1998 under a committed revolving credit facility (the "Revolver") with a group of major U.S. banks. The Revolver contains financial covenants requiring the Company to maintain certain levels of net worth, debt-to-capitalization and dividend limitation restrictions, among other requirements. The outstanding balance on the Revolver was $37.1 million and $31.0 million at December 31, 1998 and 1997, respectively. Management believes its portfolio of investments and sources of funding are sufficient to meet short- and long-term liquidity needs not funded by cash flows from operations. Other Issues Year 2000. Historically, most computer systems, including microprocessors embedded into field equipment and other machinery, utilized software that recognized a calendar year by its last two digits. Beginning in the year 2000, these systems will require modification to recognize a calendar year by four digits. Accordingly, the Company continues to investigate the extent to which its currently installed information technology and non-information technology systems will be affected by what is commonly known as the "Year 2000" problem and is implementing a plan to take reasonable steps to prevent its mission critical functions from being impaired by the Year 2000 problem. The phrase "computer equipment and software" includes what is commonly considered technology systems, including accounting, data processing, telephones and other systems. Non-information technology systems include alarm systems, metering devices, monitors for field operation and other systems. The Company is utilizing resources to test, reprogram, modify and/or replace both systems, as necessary. Evaluation, testing and replacement should be completed by July 1999. The Company has also been inquiring and has received verbal or written assurances from the vast majority of its providers as to their progress in addressing Year 2000 issues and that such providers expect to be year 2000 compliant in all material respects. The Company expects to complete communications with remaining providers by July 1999. Based on information known at this time, the Company expects to be Year 2000 compliant in all material respects in a timely manner and does not believe that Year 2000 compliance will have a material adverse effect on the Company. The total costs for the Year 2000 compliance review, evaluation, assessment and remediation efforts are not expected to be in excess of $100,000. Of this amount, less than $10,000 has been incurred through December 31, 1998. The Company is in the initial stages of developing a Year 2000 contingency plan. The Company believes a more comprehensive and effective contingency plan will be developed once potential concerns are evaluated and risk has been fully assessed. The contingency plan, which is to be completed by October 1999, will place the majority of its emphasis on primary concerns that would inhibit operations or record keeping. The costs of Year 2000 compliance and the dates on which the Company plans to complete modifications and replacements are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. -27- Accounting for Derivative Instruments and Hedging Activities. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to changes in the fair value of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. SFAS No. 133 is effective as of the beginning of fiscal years ending after June 15, 1999 with earlier application allowed as of the beginning of any quarter beginning after issuance. Penn Virginia intends to adopt SFAS No. 133 in the last half of 1999 and, under present conditions, does not expect adoption to have a significant impact on the Company's financial position, results of operations or liquidity. Environmental Matters Penn Virginia's operating segments are subject to various environmental hazards. Several federal, state and local laws, regulations and rules govern the environmental aspects of the Company's business. Noncompliance with these laws, regulations and rules can result in substantial penalties or other liabilities. The Company does not believe its environmental risks are materially different from those of comparable companies or that cost of compliance will have a material adverse effect on profitability, capital expenditures, cash flows or competitive position. There is no assurance that changes in or additions to laws, regulations or rules regarding the protection of the environment will not have such an impact. The Company believes it is materially in compliance with environmental laws, regulations and rules. In conjunction with the leasing of property to coal operators, all environmental and reclamation liabilities are the responsibility of the lessees. However, if the lessee is not financially capable of fulfilling those obligations, there is a possibility the appropriate authorities would attempt to assign those liabilities to the landowner. The Company would vigorously contest such an assignment. 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. -28- 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 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. -29- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PENN VIRGINIA CORPORATION March 24, 1999 By: /S/ Steven W. Tholen _________________________________ (Steven W. Tholen, Vice President and Chief Financial Officer) March 24, 1999 By: /S/ Ann N. Horton _________________________________ (Ann N. Horton, Controller and Principal Accounting Officer) Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. /S/ Lennox K. Black Chairman of the Board March 24, 1999 ______________________________ and Director (Lennox K. Black) /S/ Richard A. Bachmann Director March 24, 1999 ______________________________ (Richard A. Bachmann) /S/ John D. Cadigan Director March 24, 1999 ______________________________ (John D. Cadigan) /S/ A. James Dearlove Director and March 24, 1999 ______________________________ Chief Executive Officer (A. James Dearlove) /S/ Robert Garrett Director March 24, 1999 _____________________________ (Robert Garrett) /S/ Peter B. Lilly Director March 24, 1999 _____________________________ (Peter B. Lilly) /S/ Marsha R. Perelman Director March 24, 1999 _____________________________ (Marsha R. Perelman) /S/ Joe T. Rye Director March 24, 1999 _____________________________ (Joe T. Rye) /S/ John A. H. Shober Director March 19, 1999 _____________________________ (John A. H. Shober) /S/ Frederick C. Witsell, Jr. Director March 24, 1999 _____________________________ (Frederick C. Witsell, Jr.) -30- ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Penn Virginia Corporation and Subsidiaries Index to Financial Section Management's Report on Financial Information 32 Reports of Independent Public Accountants 33 Financial Statements and Supplementary Data 34
-31- Management's Report on Financial Information Management of Penn Virginia Corporation is responsible for the preparation and integrity of the financial information included in this annual report. The financial statements have been prepared in accordance with generally accepted accounting principles, which involve the use of estimates and judgments where appropriate. The corporation has a system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded against loss or unauthorized use and to produce the records necessary for the preparation of financial information. The system of internal control is supported by the selection and training of qualified personnel, the delegation of management authority and responsibility, and dissemination of policies and procedures. There are limits inherent in all systems of internal control based on the recognition that the costs of such systems should be related to the benefits to be derived. We believe the corporation's systems provide this appropriate balance. The corporation's independent public accountants, Arthur Andersen LLP, have developed an understanding of our accounting and financial controls and have conducted such tests as they consider necessary to support their opinion on the financial statements. Their report contains an independent, informed judgment as to the corporation's reported results of operations and financial position. The Board of Directors pursues its oversight role for the financial statements through the Audit Committee, which consists solely of outside directors. The Audit Committee meets regularly with management, the internal auditor and Arthur Andersen LLP, jointly and separately, to review management's process of implementation and maintenance of internal controls, and auditing and financial reporting matters. The independent and internal auditors have unrestricted access to the Audit Committee. A. James Dearlove Steven W. Tholen President and Vice President and Chief Executive Officer Chief Financial Officer -32- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Penn Virginia Corporation: We have audited the accompanying consolidated balance sheets of Penn Virginia Corporation (a Virginia corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Penn Virginia Corporation and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Arthur Andersen LLP Houston, Texas February 28, 1999 -33- PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 1998 1997 1996 ---- ---- ---- (in thousands, except share data) Revenues Oil and condensate $ 335 $ 661 $ 866 Natural gas 18,899 20,179 19,347 Natural gas royalties 1,583 1,648 1,776 Coal royalties 11,548 11,617 7,009 Timber 1,711 1,765 810 Dividends 2,646 2,646 2,750 Gain on the sale of property 72 1,983 29 Other 1,461 905 1,546 ------- ------- ------- 38,255 41,404 34,133 Expenses: Operating expenses 3,968 3,703 3,194 Exploration expenses 1,189 1,753 805 Taxes other than income 2,788 2,431 2,443 General and administrative 8,234 8,240 7,637 Loss on the sale of property 7 9 11 Impairment of oil and gas properties 4,641 - - Depreciation, depletion and amortization 7,162 6,549 6,831 ------ ------- ------- 27,989 22,685 20,921 Operating Income 10,266 18,719 13,212 Other (income) expense: Interest expense 2,017 2,317 1,389 Interest income (3,421) (3,534) (3,957) Impairment of investment - - 1,917 (Gain) loss on sale of securities (14) (50) 1,405 Other (269) (301) (1,633) -------- ------- -------- Income from operations before income taxes 11,953 20,287 14,091 Income tax expense 2,362 4,269 1,051 ------- ------- ------- Net Income $ 9,591 $16,018 $13,040 ======= ======= ======= Net income per share, basic $ 1.15 $ 1.93 $ 1.51 Net income per share, diluted $ 1.13 $ 1.88 $ 1.50 Weighted average shares outstanding 8,310 8,302 8,634 The accompanying notes are an integral part of these consolidated financial statements. -34-
PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, 1998 1997 ----- ---- (in thousands, except share data) Assets Current assets Cash and cash equivalents $ 225 $ 831 Accounts receivable 5,682 7,404 Current portion of long-term notes receivable 364 2,414 Current deferred income taxes 577 696 Other 680 544 -------- -------- Total current assets 7,528 11,889 Investments (Note 3) 104,819 100,885 Long-term notes receivable (Note 4) 3,079 4,195 Oil and gas properties, wells and equipment, using the successful efforts method of accounting 157,558 148,487 Other property, plant and equipment 52,455 42,626 Less: Accumulated depreciation, depletion and amortization 68,745 61,677 -------- -------- Total property, plant and equipment (Note 5) 141,268 129,436 Other assets 237 825 -------- -------- Total assets $256,931 $247,230 ======== ======== Liabilities and Shareholders' Equity Current liabilities Current maturities of long-term debt (Note 6) $ 31 $ 2,025 Accounts payable 1,397 1,828 Accrued expenses 5,039 5,885 Deferred income - 279 Taxes on income 576 144 -------- -------- Total current liabilities 7,043 10,161 Other liabilities (Note 10) 2,875 4,822 Deferred income taxes 38,787 36,640 Long-term debt (Note 6) 37,967 31,903 -------- -------- Total liabilities 86,672 83,526 Commitments and contingencies Shareholders' equity Preferred stock of $100 par value - Authorized 100,000 shares; issued none - - Common stock of $6.25 par value - Authorized 16,000,000 shares; issued 8,921,866 shares in 1998 and 8,901,434 in 1997 55,762 55,634 Other paid-in-capital 8,441 8,431 Retained earnings 53,924 51,813 Accumulated other comprehensive income 65,985 63,500 -------- -------- 184,112 179,378 Less: 555,050 shares in 1998 and 627,108 in 1997 of common stock held in treasury, at cost 12,403 14,024 Unearned compensation - ESOP 1,450 1,650 -------- -------- Total shareholders' equity 170,259 163,704 -------- -------- Total liabilities and shareholders' equity $256,931 $247,230 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
-35- PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except share data)
Other Shares Common Paid-in Outstanding Stock Capital ------------ ------ ------- Balance at December 31, 1995 4,262,240 $27,734 $35,858 Dividends paid - - - Contribution to ESOP 58,824 - - Exercise of stock options 20,176 83 266 Allocation of ESOP shares - - 14 Net income - - - Other comprehensive income, net of tax - - - --------- -------- -------- Balance at December 31, 1996 4,341,240 27,817 36,138 Two-for-one common stock split 4,341,240 27,817 (27,817) Dividends paid - - - Exercise of stock options 12,464 - 9 Purchase of treasury stock (420,618) - - Allocation of ESOP shares - - 101 Net income - - - Other comprehensive income, net of tax - - - --------- -------- -------- Balance at December 31, 1997 8,274,326 55,634 8,431 Dividends paid - - - Stock issued as compensation 5,357 - 26 Exercise of stock options 87,133 128 (114) Allocation of ESOP shares - - 98 Net income - - - Other comprehensive income, net of tax - - - --------- -------- -------- Balance at December 31, 1998 8,366,816 $55,762 $ 8,441 ========= ======= ========= Accumulated Other Retained Comprehensive Treasury Earnings Income Stock -------- ------------- --------- Balance at December 31, 1995 $37,978 $53,715 $ (7,928) Dividends paid (7,778) - - Contribution to ESOP - - 2,661 Exercise of stock options - - (308) Allocation of ESOP shares - - - Net income 13,040 - - Other comprehensive income, net of tax - 6,726 - ------- -------- -------- Balance at December 31, 1996 43,240 60,441 (5,575) Two-for-one common stock split - - - Dividends paid (7,445) - - Exercise of stock options - - 279 Purchase of treasury stock - - (8,728) Allocation of ESOP shares - - - Net income 16,018 - - Other comprehensive income, net of tax - 3,059 - ------- -------- -------- Balance at December 31, 1997 51,813 63,500 (14,024) Dividends paid (7,480) - - Stock issued as compensation - - 120 Exercise of stock options - - 1,501 Allocation of ESOP shares - - - Net income 9,591 - - Other comprehensive income, net of tax - 2,485 - ------- -------- -------- Balance at December 31, 1998 $53,924 $ 65,985 $ (12,403) ======= ======== ========= Unearned Total Compensation Stockholders' Comprehensive ESOP Equity Income ------------ ------------- ------------- Balance at December 31, 1995 $ - $147,357 Dividends paid - (7,778) Contribution to ESOP (2,000) 661 Exercise of stock options - 41 Allocation of ESOP shares 150 164 Net income - 13,040 $ 13,040 Other comprehensive income, net of tax - 6,726 6,726 ------- -------- -------- Balance at December 31, 1996 (1,850) 160,211 $ 19,766 ======== Two-for-one common stock split - - Dividends paid - (7,445) Exercise of stock options - 288 Purchase of treasury stock - (8,728) Allocation of ESOP shares 200 301 Net income 16,018 $ 16,018 Other comprehensive income, net of tax - 3,059 3,059 ------- -------- -------- Balance at December 31, 1997 (1,650) 163,704 $ 19,077 ======== Dividends paid - (7,480) Stock issued as compensation - 146 Exercise of stock options - 1,515 Allocation of ESOP shares 200 298 Net income - 9,591 $ 9,591 Other comprehensive income, net of tax - 2,485 2,485 ------- -------- -------- Balance at December 31, 1998 $ (1,450) $170,259 $ 12,076 ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements. -36-
PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, 1998 1997 1996 ---- ---- ---- (in thousands) Cash flows from operating activities: Net income $9,591 $16,018 $13,040 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation, depletion and amortization 7,162 6,549 6,831 Impairment of oil and gas properties 4,641 - - Impairment of investment - - 1,917 (Gain) loss on the sale of securities (14) (50) 1,405 Gain on the sale of property, plant and equipment (65) (1,983) (18) Deferred income taxes 923 2,169 (369) Dry hole expense 58 949 16 Interest income (3,336) (2,833) (3,957) Other 597 175 176 ------- ------- ------- 19,557 20,994 19,041 Changes in operating assets and liabilities: Accounts receivable 1,721 (2,548) (932) Other current assets (136) (116) 2,157 Accounts payable and accrued expenses (1,277) 358 591 Deferred income (279) - (260) Taxes on income 432 136 (350) Other assets and liabilities and investments (781) 881 (1,765) ------- ------- ------- Net cash flows provided by operating activities 19,237 19,705 18,482 ------- ------- ------- Cash flows from investing activities: Proceeds from the sale of securities 17 - 3,448 Proceeds from the sale of property, plant and equipment 79 3,957 190 Payments received on long-term notes receivable 2,253 3,456 5,621 Producing properties acquired (3,351) (82) (250) Lease acquisitions (3,512) (9,284) (19,204) Capital expenditures (13,806) (13,826) (9,764) ------- ------- ------ Net cash flows used in investing activities (18,320) (15,779) (19,959) ------- ------- ------- Cash flows from financing activities: Dividends paid (7,480) (7,445) (7,778) Proceeds from long-term borrowings 9,100 19,513 24,128 Repayment of long-term borrowings (5,100) (8,917) (16,625) Purchases of treasury stock - (8,728) - Issuance of stock 1,957 589 652 ------- ------- ------ Net cash flows provided by (used in) financing activities (1,523) (4,988) 377 ------- ------- ------ Net decrease in cash and cash equivalents (606) (1,062) (1,100) Cash and cash equivalents - beginning of year 831 1,893 2,993 ------- ------- ------ Cash and cash equivalents - end of year $ 225 $ 831 $ 1,893 ======= ======= ======= Supplemental disclosures: Cash paid during the year for: Interest $ 2,065 $ 2,243 $ 1,449 Income taxes $ 1,100 $ 930 $ 2,468 Noncash investing activities: Note receivable exchanged for: Other property, plant and equipment $ 2,954 $ - $ - Deferred revenue $ 1,296 $ - $ - The accompanying notes are an integral part of these consolidated financial statements.
-37- PENN VIRGINIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Operations Penn Virginia Corporation ("Penn Virginia" or the "Company") is an Appalachia energy company. Penn Virginia explores for, develops and produces crude oil, condensate and natural gas in western Virginia, southern West Virginia and eastern Kentucky. The Company owns the land and mineral rights to recoverable coal reserves and timber located in Virginia, West Virginia and Kentucky. The coal reserves are leased to various operators who mine and market the coal. Penn Virginia collects royalties based on the production and sale of reserves. Timber is sold in competitive bid sales involving individual parcels and also on a contract basis, where Penn Virginia pays independent contractors to harvest timber while the Company directly markets the product. 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Penn Virginia Corporation and all wholly-owned subsidiaries. The Company owns and operates its oil and gas properties and manages its coal reserves through its wholly- owned subsidiaries. The Company accounts for its ownership interest in oil and gas properties using the proportionate consolidation method, whereby the Company's share of assets, liabilities, revenues and expenses is included in the appropriate classification in the financial statements. Intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments have been reflected that are necessary for a fair presentation of the consolidated financial statements. Certain amounts have been reclassified to conform to the current year's presentation. 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. All weighted average share and per share data have been restated to reflect the stock split, except where noted. New Accounting Standards In 1998, the Company adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information," which established standards for reporting and disclosing information about operating segments of an enterprise. The adoption of this statement did not change the operating segments the Company formerly disclosed under SFAS No. 14 "Financial Reporting of Segments of a Business Enterprise." In 1998, the Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132 revised standards for disclosing information relating to SFAS No. 87, "Employers' Accounting for Pensions" and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The adoption of this statement did not have an effect on the Company's financial position or results of operations. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to changes in the fair value of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an -38- unrecognized firm commitment, an available-for-sale security, or a foreign currency denominated forecasted transaction. SFAS No. 133 is effective as of the beginning of fiscal years ending after June 15, 1999 with earlier application allowed. Penn Virginia intends to adopt SFAS No. 133 in 2000 and, under present conditions, does not expect adoption to have a significant impact on the Company's financial position, results of operations or liquidity. Use of Estimates Preparation of the accompanying consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Investments Investments consist of equity securities. The Company classifies its equity securities as available-for-sale. Available-for-sale securities are recorded at fair value based upon market quotations. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. A decline in the market value of any available-for-sale security below cost that is deemed other than temporary, is charged to earnings in the period it occurs resulting in the establishment of a new cost basis for the security. Dividend income is recognized when earned. Realized gains and losses for securities classified as available-for-sale are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Notes Receivable Notes receivable are recorded at cost, adjusted for amortization of discounts or accretion of premium. Discounts and premiums are amortized over the life of the notes receivable using the effective interest rate method. Oil and Gas Properties The Company uses the successful efforts method of accounting for its oil and gas operations. Under this method of accounting, costs to acquire mineral interests in oil and gas properties, to drill and equip development wells including development dry holes, and to drill and equip exploratory wells that find proved reserves are capitalized. Capitalized costs of producing oil and gas fields are amortized using the unit-of-production method based on estimates of proved oil and gas reserves on a field-by-field basis. Oil and gas reserve quantities represent estimates only and there are numerous uncertainties inherent in the estimation process. Actual future production may be materially different from amounts estimated and such differences could materially affect future amortization of proved properties. Estimated costs (net of salvage value) of plugging and abandoning oil and gas wells are reported as additional depreciation and depletion expense using the units-of- production method. The costs of unproved leaseholds are capitalized pending the results of exploration efforts. Unproved leaseholds costs are amortized over the average holding period of five years. In addition, certain unproved leasehold costs are assessed periodically, on a property-by-property basis, and a loss is recognized to the extent, if any, the cost of the property has been impaired. As unproved leaseholds are determined to be productive, the related costs are transferred to proved leaseholds. Exploratory costs including exploratory dry holes, annual delay rental and geological and geophysical costs are charged to expense when incurred. -39- Other Property, Plant and Equipment Property, plant and equipment are carried at cost and include expenditures for new facilities and for improvements which substantially increase the productive lives of existing plant and equipment. Maintenance and repair costs are expensed as incurred. Depreciation of plant and equipment is generally computed using the straight-line method over their estimated useful lives, varying from 3 years to 20 years. Coal in place is depleted at a rate based upon the cost of the mineral properties and estimated recoverable tonnage therein. When an asset is retired or sold, its cost and related accumulated depreciation are removed from the accounts. The difference between undepreciated cost and proceeds from disposition is recorded as gain or loss. Impairment of Long-Lived Assets In accordance with SFAS No.121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets To Be Disposed Of", the Company reviews its long-lived assets to be held and used, including oil and gas properties accounted for using the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. SFAS No.121 requires an impairment loss be recognized when the carrying amount of an asset exceeds the sum of the undiscounted estimated future cash flows. In this circumstance, the Company recognizes an impairment loss equal to the difference between the carrying value and the fair value of the asset. Fair value is estimated to be the present value of expected future net cash flows, utilizing a risk-adjusted rate of return. Concentration of Credit Risk Substantially all of the Company's accounts receivable at December 31, 1998 result from oil and gas sales and joint interest billings to third party companies in the oil and gas industry. This concentration of customers and joint interest owners may impact the Company's overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions. In determining whether or not to require collateral from a customer or joint interest owner, the Company analyzes the entity's net worth, cash flows, earnings and credit ratings. Receivables are generally not collateralized. Historical credit losses incurred by the Company on receivables have not been significant. Fair Value of Financial Instruments The Company's financial instruments consist of cash and cash equivalents, marketable securities, natural gas swaps, accounts receivable, notes receivables, accounts payable and long-term debt. The carrying values of cash, marketable securities, accounts receivables and payables, and long-term debt approximate fair value. See Note 4 for a discussion of notes receivable. The Company periodically enters into derivative financial instruments to mitigate its exposure to natural 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 natural gas revenues when the associated production occurs. The fair value of open derivative financial instruments at December 31, 1998 was determined by comparing the New York Mercantile Exchange forward prices at year-end with the appropriate location differential adjustment to the contractual prices designated in the derivative financial instruments. The Company's derivative financial instruments mature monthly through October 1999. The fair values of the Company's open derivative contracts at December 31, 1998 and 1997 were $0.1 million and $(1.7) million, respectively. Oil and Gas Revenues Gas revenues generally are recorded using the entitlement method in which the Company recognized its ownership interest in natural gas production as revenue. If the Company's sales exceed its ownership share of production, the differences are recorded as deferred revenue. Natural gas balancing receivables are recorded when the Company's ownership share of production exceeds sales. At December 31, 1998 the Company's receivables included $0.9 million of natural gas imbalances. -40- Royalties Coal royalty income is recognized on the basis of tons sold and the corresponding revenue from those sales. All coal leases are based on an annual minimum payment due or a percentage of the gross sales price. Oil and natural gas royalties are recorded on the basis of volume sold. Income Tax The Company accounts for income taxes in accordance with the provisions SFAS No. 109, "Accounting for Income Taxes." This statement requires a company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in a company's financial statements or tax returns. Using this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates. 3. Investments and Other Income The cost, gross unrealized holding gains and fair value of available-for- sale securities were as follows (in thousands):
Gross Unrealized Holding Fair Cost Gains Value ---- ---------- ----- At December 31, 1998 Available-for-sale Norfolk Southern Corporation $ 2,839 $101,958 $104,797 Other - 22 22 -------- -------- -------- $ 2,839 $101,980 $104,819 ======== ======== ======== At December 31, 1997 Available-for-sale Norfolk Southern Corporation $ 2,839 $ 98,031 $100,870 Other 3 13 16 -------- -------- -------- $ 2,842 $ 98,044 $100,886 ======== ======== ========
Related dividend income is as follows (in thousands): For the years ended December 31 1998 1997 1996 --------- ------- --------- Norfolk Southern Corporation $ 2,646 $ 2,646 $ 2,470 Other - - 280 -------- -------- -------- $ 2,646 $ 2,646 $ 2,750 ======== ======== ========
The Company owned 3,307,200 shares of Norfolk Southern Corporation stock at December 31, 1998. The closing stock price for Norfolk Southern Corporation was $31.6875 and $30.50 per share at December 31, 1998 and 1997, respectively. A three-for-one stock split was declared by Norfolk Southern Corporation in 1997. -41- 4. Notes Receivable The Company has a note receivable related to the sale of approximately 60 million tons of coal reserves in 1986. The note, originally discounted at 9.5 percent, requires fixed quarterly payments with a maturity date of July 2005. During 1998, the Company exchanged a note receivable, net of deferred revenue, for other property and equipment in which no gain or loss was recognized. Maturities of notes receivable are as follows (in thousands): December 31, 1998 1997 ------- ------- Current $ 364 $ 2,414 Due after one year through five years 1,853 1,928 Thereafter 1,226 2,267 ------- ------- $ 3,443 $ 6,609 ======= ======= The fair value of the Company's notes receivable at December 31, 1998 and 1997 was approximately $5.3 million and $5.1 million, respectively. 5. Property, Plant and Equipment
Property, plant and equipment includes (in thousands): December 31, 1998 1997 Oil and gas properties $157,558 $148,487 Other property, plant and equipment: Land 694 694 Timber 188 188 Coal properties 45,176 38,917 Other plant and equipment 6,397 2,827 -------- -------- 210,013 191,113 Less: Accumulated depreciation, depletion and amortization (68,745) (61,677) -------- -------- Net property, plant and equipment $141,268 $129,436 ======== ========
In accordance with SFAS No. 121, the Company reviews its oil and gas properties for impairment whenever events and circumstances indicate a decline in the recoverability of their carrying value. In the fourth quarter of 1998, the Company estimated the expected future cash flows of its oil and gas properties and compared such future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount was recoverable. For certain oil and gas properties, the carrying amount exceeded the estimated undiscounted future cash flows; thus, the Company adjusted the carrying amount of the respective oil and gas properties to their fair value as determined by discounting their estimated future cash flows. The factors used to determine fair value included, but were not limited to, estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures and a discount rate commensurate with the Company's internal rate of return on its oil and gas properties. As a result, the Company recognized a noncash pre-tax charge of $4.6 million ($3.7 million after tax) related to its oil and gas properties in the fourth quarter of 1998. There were no impairments of oil and gas properties in 1997 or 1996. -42- 6. Long-Term Debt
Long-term debt consists of the following (in thousands): December 31, 1998 1997 ------- ------- Revolving credit, variable rate of 6.3% at December 31, 1998, due in 2000 $ 37,100 $ 31,000 Senior notes, 8.83%, due May 10, 1998 - 2,000 Other 898 928 -------- -------- 37,998 33,928 Less: current maturities (31) (2,025) -------- -------- Total long-term debt $ 37,967 $ 31,903 ======== ========
Revolving Credit In 1996, the Company entered into an agreement with a group of major U.S. banks for a $50 million unsecured revolving credit facility (the "Revolver") with a final maturity of August 2000. During 1997, the Company increased the revolving credit facility to $75 million. The Revolver bears interest at LIBOR, CD rate or the base rate at the option of the Company plus a percentage based on the percentage of the borrowing base outstanding. The financial covenants require the Company to maintain certain levels of net worth, debt-to-capitalization and dividend limitation restrictions, among other requirements. At December 31, 1998, the Company was in compliance with all of its convenants. Senior Notes In May 1991, the Company issued $10 million of its 7-year 8.83% Senior Notes to an institutional investor in a private placement offering. The 8.83% Senior Notes required annual principal payments and were repaid in May 1998. The aggregate maturities applicable to outstanding debt at December 31, 1998 are as follows (in thousands): 1999 $ 31 2000 37,134 2001 37 2002 40 2003 42 Thereafter 714 -43- 7. Accrued Expenses
Accrued expenses are summarized as follows (in thousands): December 31, 1998 1997 ------- ------- Pension $ 453 $ 468 Compensation 594 487 Accrued lease - 208 Accrued oil and gas royalties 392 519 Taxes other than income 873 678 Postretirement health care 841 719 Accrued restructuring charges 552 - Other 1,334 2,806 ------- ------- $ 5,039 $ 5,885 ======= =======
In the fourth quarter of 1998, the Company's management approved a plan to reduce administrative and operational overhead costs in its oil and gas subsidiary. In connection with such a plan, the Company recorded a pre-tax charge to general and administrative expense totaling $0.6 million related to severance costs for six employees and a lease cancellation penalty. As of February 28, 1999, the Company had paid out $0.1 million relating to severance and expects all remaining costs to be paid out by June 30, 1999. 8. Income Taxes The provision for income taxes from continuing operations is comprised of the following (in thousands):
Year ended December 31, 1998 1997 1996 ---- ---- ---- Current income taxes Federal $ 1,341 $ 1,677 $ 1,013 State 98 423 542 ------- ------- ------- Total current 1,439 2,100 1,555 ------- ------- ------- Deferred income taxes Federal 901 2,438 (553) State 22 (269) 49 ------- ------- ------- Total deferred 923 2,169 (504) ------- ------- ------- Total income tax expense $ 2,362 $ 4,269 $ 1,051 ======= ======= =======
-44- The difference between the reported income tax expense and income tax expense computed by multiplying income from continuing operations before income taxes by the blended federal and state statutory income tax rate is as follows (in thousands):
Year ended December 31, 1998 1997 1996 ------- ------ ------ Computed at blended federal statutory tax rate $4,150 $7,100 $4,932 State income taxes, net of federal income tax effect 524 100 384 Dividends received deduction (648) (648) (674) Non-conventional fuel source credit (1,525) (1,510) (1,769) Adjustment to prior year provisions - (200) (1,244) Percentage depletion (350) (416) - Contribution to funded postretirement benefit plan - - (420) Other 211 (157) (158) ------ ------ ------- Total income tax expense $2,362 $4,269 $1,051 ====== ====== ======
Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the net deferred tax liability consist of the following (in thousands): December 31, 1998 1997 ------ ------ Deferred tax liabilities: Notes receivable $ 1,143 $ - Investments 35,693 34,316 Oil and gas properties 16,860 14,508 Other 1,024 1,478 ------- ------- Total deferred tax liabilities 54,720 50,302 ------- ------- Deferred tax assets: Notes receivable - (1,647) Other property, plant, and equipment (7,123) (4,059) Accrued expenses (954) (1,233) Other long-term liabilities (954) (1,122) Alternative minimum tax credit carryforwards (6,560) (5,340) State tax loss carryforwards (881) (661) Postretirement benefit contribution carryforward (38) (296) ------- ------- Total deferred tax assets (16,510) (14,358) ------- ------- Net deferred tax liability $38,210 $35,944 ======= ======= Deferred tax assets-current $ (577) $ (696) Deferred tax liabilities-noncurrent 38,787 36,640 ------- ------- $38,210 $35,944 ======= =======
As of December 31, 1998, the Company had available for federal income tax purposes, alternative minimum tax credits of approximately $6.6 million which can be carried forward indefinitely as a credit against the regular tax liability. The Company has various state tax loss carryforwards of $10.4 million which, if unused, will expire from 2009 to 2013. The Company has a carryforward of excess contributions to a funded postretirement benefit plan of $0.1 million which have no expiration date. -45- 9. Pension Plans and Other Postretirement Benefits The Company and its wholly-owned subsidiaries provided a noncontributory, defined benefit pension plan and early retirement programs (the "Plans") for eligible employees. Benefits were based on the employee's average annual compensation and years of service. Pension expense amounted to $19,000, $160,000 and $527,000 in 1998, 1997 and 1996, respectively. Benefits accrued by the Company's employees under the defined benefit plan were frozen effective June 30, 1996. In connection with the freezing of such benefits the Company recognized a charge of $228,000 in 1996. The freezing of the defined benefit plan may result in reduced future annual net periodic pension expense. The Company sponsors a defined benefit postretirement plan that covers employees hired prior to January 1, 1991 who retire from active service. The plan provides medical benefits for the retirees and dependents and life insurance for the retirees. The medical coverage is noncontributory for retirees who retired prior to January 1, 1991 and may be contributory for retirees who retire after December 31, 1990. A reconciliation of the changes in the benefit obligations and fair value of assets for the two years ended December 31, 1998 and 1997 and a statement of the funded status at December 31, 1998 and 1997 is as follows (in thousands):
Pension Postretirement ---------------- ------------------ 1998 1997 1998 1997 ------- ------- ------- ------- Reconciliation of benefit obligation: Obligation - beginning of year $11,474 $11,752 $ 3,665 $ 4,083 Service cost - - 15 18 Interest cost 792 812 213 261 Benefits paid (1,143) (1,175) (297) (258) Actuarial (gain) loss 578 85 (484) (439) ------- ------- ------- ------- Obligation - end of year 11,701 11,474 3,112 3,665 ------- ------- ------- ------- Reconciliation of fair value of plan assets: Fair value - beginning of year 9,653 8,179 1,615 1,620 Actual return on plan assets 1,604 2,220 387 261 Employer contributions 442 516 - - Participant contributions - - 3 1 Benefit payments (1,143) (1,175) (298) (257) Administrative expenses (88) (87) (9) (10) ------- ------- ------- ------- Fair value - end of year 10,468 9,653 1,698 1,615 ------- ------- ------- ------ Funded status: Funded status - end of year (1,233) (1,821) (1,414) (2,050) Unrecognized transition (asset) obligation 30 33 - - Unrecognized prior service cost 60 67 - - Unrecognized (gain) loss (351) (196) 53 874 ------- ------- ------- ------ Net amount recognized $(1,494) $(1,917) $(1,361) $(1,176) ======= ======= ======= =======
-46- The following table provides the amounts recognized in the statements of financial position at December 31, 1998 and 1997 (in thousands):
Pension Postretirement ---------------- ------------------ 1998 1997 1998 1997 ------- ------- ------- ------- Prepaid benefit cost $ 569 $ 250 $ - $ - Accrued benefit liability (2,619) (2,618) (1,361) (1,176) Other long-term assets 91 100 - - Accumulated other comprehensive income 465 351 - - ------- ------- ------- ------- Obligation - end of year $(1,494) $(1,917) $(1,361) $(1,176) ======= ======= ======= =======
The following table provides the components of net periodic benefit cost for the plans for the two years ended December 31, 1998 and 1997 (in thousands):
Pension Postretirement ---------------- ------------------ 1998 1997 1998 1997 ------- ------- ------- ------- Service cost $ 80 $ 70 $ 15 $ 18 Interest cost 792 812 213 261 Expected return on plan assets (869) (736) (43) (49) Amortization of prior service cost 6 6 - - Amortization of transitional obligation 4 3 - - Recognized actuarial loss 6 5 - 60 ------- ------- ------- ------- Obligation - end of year $ 19 $ 160 $ 185 $ 290 ===== ====== ====== ======
The assumptions used in the measurement of the Company's benefit obligation were as follows:
Pension Postretirement ---------------- ------------------ 1998 1997 1998 1997 ------- ------- ------- ------- Discount rate 6.75% 7.25% 6.75 % 7.25 % Expected return on plan assets 9.50 9.50 3.00 3.00
Since the benefits accrued under the defined benefit plan were frozen effective June 1996, it is not necessary to assume a rate of compensation increase. For measurement purposes, an 8.5 percent annual rate increase in the per capita cost of covered health care benefits was assumed for 1998. The rate is assumed to decrease gradually to 5.5 percent for 2004 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for postretirement benefits. A one percent change in assumed health care cost trend rates would have the following effects for 1998 (in thousands):
One percent One percent increase decrease ----------- ----------- Effect on total of service and interest cost components $ 9 $ (8) Effect on postretirement benefit obligation 141 (127)
-47- 10. Other Liabilities Other liabilities are summarized in the following table (in thousands):
December 31, 1998 1997 -------- -------- Postretirement health care $ 520 $ 457 Deferred income 842 2,121 Pension 1,409 2,062 Other 104 182 ------- ------- $ 2,875 $ 4,822 ======= =======
11. Earnings Per Share The following is a reconciliation of the numerators and denominators used in the calculation of basic and diluted earnings per share ("EPS") for income from continuing operations for the years ended December 31, 1998, 1997 and 1996.
1998 ----------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ----------- (in thousands, except per share amounts) Basic EPS: Income from continuing operations $ 9,591 8,310 $ 1.15 Dilutive Securities: Stock options - 153 ------- ----- Diluted EPS: Income from continuing operations $ 9,591 8,463 $ 1.13 ======= ===== 1997 ----------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ----------- (in thousands, except per share amounts) Basic EPS: Income from continuing operations $ 16,018 8,302 $ 1.93 Dilutive Securities: Stock options - 198 -------- ----- Diluted EPS: Income from continuing operations $ 16,018 8,500 $ 1.88 ======== ===== 1996 ----------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ----------- (in thousands, except per share amounts) Basic EPS: Income from continuing operations $ 13,040 8,634 $ 1.51 Dilutive Securities: Stock options - 60 -------- ----- Diluted EPS: Income from continuing operations $ 13,040 8,694 $ 1.50 ======== =====
12. Stock Option and Stock Ownership Plans Stock Option Plans On May 2, 1995, the 1994 Stock Option Plan (1994 Plan) and the 1995 Directors' Stock Option Plan (1995 Plan) were approved by the shareholders. The Company also has outstanding stock options under another stock option plan, the 1980 Incentive Stock Option Plan (1980 Plan) which has expired. Under these plans, incentive and nonqualified stock options may be granted to key employees and officers of the Company and nonqualified stock options may be granted to directors of the Company. Under the 1980 Plan, some options were granted with stock appreciation rights (SARs); however, none of the options outstanding at December 31, 1998 have SARs. Options granted under the 1980, 1994 and 1995 Plans (collectively known as the "Plans") may be exercised at any time after twelve months and prior to ten years following the grant, subject to special rules that apply in the event of death, retirement and/or termination of an optionee. The exercise price of all options granted under the Plans is at fair market value of the Company's stock on the date of the grant. Of the 1,735,700 options that were granted under the Plans, 772,300 options have been exercised, forfeited or have expired. At December 31, 1998, options totaling 962,800 remain outstanding. The Company, from time to time, grants nonqualified stock options to individual directors. At December 31, 1998, 40,000 options from the individual grants remain outstanding. -48- The following table summarizes information with respect to the common stock options awarded under the Plans and grants described above. The stock option table for 1996 reflects shares and weighted average exercise prices on pre- stock split basis.
1998 --------------------------- Shares Under Weighted Avg. Options Exercise Price Outstanding, Beginning of year 1,036,500 $ 18.19 Effect of Stock Split - $ - Granted-Options 80,600 $ 25.06 Exercised-Options 96,901 $ 18.53 Cancelled 17,399 $ 21.56 Outstanding, End of year 1,002,800 $ 18.65 Weighted average of fair value of options granted during the year $ 8.50 1997 --------------------------- Shares Under Weighted Avg. Options Exercise Price Outstanding, Beginning of year 397,950 $ 33.63 Effect of Stock Split 397,950 $ 16.82 Granted-Options 281,600 $ 22.10 Exercised-Options 34,000 $ 16.25 Cancelled 7,000 $ 28.50 Outstanding, End of year 1,036,500 $ 18.19 Weighted average of fair value of options granted during the year $ 7.50 1996 --------------------------- Shares Under Weighted Avg. Options Exercise Price Outstanding, Beginning of year 251,450 $ 34.73 Effect of Stock Split - - Granted-Options 207,200 $ 33.48 Exercised-Options 20,000 $ 32.57 Cancelled 40,700 $ 40.17 Outstanding, End of year 397,950 $ 33.63 Weighted average of fair value of options granted during the year $ 10.05 The following table summarizes certain information regarding stock options outstanding at December 31, 1998:
Options Outstanding Options Exercisable ---------------------------------------- ------------------------- Weighted Avg. Range of Number Remaining Weighted Avg. Number Weighted Avg Exercise Outstanding Contractual Exercise Exercisable Exercise Price at 12/31/98 Life Price at 12/31/98 Price - ---------- ----------- -------------- ------------ ----------- ------------ $15 to $18 658,800 6.5 $16.46 658,800 $16.46 $21 to $24 284,000 6.8 $22.00 254,000 $22.05 $25 to $30 60,000 9.3 $26.85 10,000 $25.38
The Company applies the intrinsic value method for reporting compensation expense pursuant to Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" to its stock-based compensation plans. The Company recognized $0.1 million in compensation expense related to its stock- based compensation plan in 1998; however, no amounts were recognized in 1997 or 1996. Had compensation expense for the Company's stock-based compensation plans been determined in accordance with the fair value method pursuant to SFAS No. 123 "Accounting for Stock-Based Compensation", the Company's proforma net income and earnings per share would have been as follows:
1998 1997 1996 ------ ------- ------- Net Income (in thousands) $9,022 $14,208 $12,032 Earnings per share, basic $1.09 $ 1.71 $ 1.39 Earnings per share, diluted $1.07 $ 1.67 $ 1.38 -49- The fair value of the options granted during 1998 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: a) dividend yield of 3.4 percent to 4.2 percent b) expected volatility of 37.7 percent to 38.8 percent, c) risk-free interest rate of 4.7 percent to 5.7 percent and d) expected life of eight years. The fair value of the options granted during 1997 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: a) dividend yield of 3.6 percent to 4.1 percent b) expected volatility of 36.8 percent, c) risk-free interest rate of 6.2 percent to 6.7 percent and d) expected life of 10 years. The fair value of the options granted during 1996 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: a) dividend yield of 5.3 percent to 5.5 percent b) expected volatility of 40.2 percent to 41.2 percent, c) risk-free interest rate of 5.7 percent to 7.6 percent and d) expected life of 10 years. The effects of applying SFAS No. 123 in this proforma disclosure are not indicative of future amounts. Employees' Stock Ownership Plan In February 1996, the Board of Directors extended the Employees' Stock Ownership Plan ("ESOP"). All Employees with one year of service are participants. The ESOP is designed to enable employees of the Company to accumulate stock ownership. While there will be no employee contributions, participants will receive an allocation of stock which has been contributed by the Company. Compensation costs are reported when such shares are released to employees. The ESOP borrowed $2.0 million from the Company in 1996 and used the proceeds to purchase treasury stock. Under the terms of the ESOP, the Company will make annual contributions over a 10-year period. At December 31, 1998, the unearned portion of the ESOP ($1.5 million) was recorded as a contra-equity account entitled "Unearned Compensation-ESOP." Shareholder Rights Plan On February 11, 1998, the Board of Directors adopted a Shareholder Rights Plan designed to prevent an acquirer from gaining control of the Company without offering a fair price to all shareholders. Each Right entitles the holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, $100 par value, at a price of $100 subject to adjustment. The Rights are not exercisable or transferable apart from the common stock until ten days after a person or affiliated group has acquired fifteen percent or more, or makes a tender offer for fifteen percent or more, of the Company's common stock. Each Right will entitle the holder, under certain circumstances (such as a merger, acquisition of fifteen percent or more of common stock of the Company by the acquiring person, or sale of fifty percent or more of the Company's assets or earning power), to acquire at half the value, either common stock of the Company, a combination of cash, other property, or common stock or other securities of the Company, or common stock of the acquiring person. Any such event would also result in any rights owned beneficially by the acquiring person or its affiliates becoming null and void. The Rights expire February 11, 2008 and are redeemable at any time until ten days following the time an acquiring person acquires fifteen percent or more of the Company's common stock at $0.001 per Right. -50- Accumulated Other Comprehensive Income In the first quarter of 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income," which requires the display of comprehensive income and its components in the financial statements. Comprehensive income represents certain changes in equity during the reporting period, including net income and other comprehensive income, which includes, but is not limited to, unrealized gains from marketable securities and futures contracts, foreign currency translation adjustments and minimum pension liability adjustments. Reclassification adjustments represent gains or losses from investments realized in net income for each respective year. For the years ended December 31, 1998, 1997 and 1996, the components of accumulated other comprehensive income are as follows (in thousands):
Net Accumulated unrealized Minimum other holding gain - pension comprehensive investments liability income --------------- --------- ------------- Balance at December 31, 1995 $54,614 $(899) $53,715 Unrealized holding gains, net of tax of $ 2,391 4,442 - 4,442 Reclassification adjustments, net of tax of $1,163 2,159 - 2,159 Pension plan adjustment, net of tax of $67 - 125 125 ------- ----- ------- Balance at December 31, 1996 61,215 (774) 60,441 Unrealized holding gains, net of tax of $1,370 2,546 - 2,546 Reclassification adjustment, net of tax of $17 (33) - (33) Pension plan adjustment, net of tax of $294 - 546 546 ------- ----- ------- Balance at December 31, 1997 63,728 (228) 63,500 Unrealized holding gains, net of tax of $1,383 2,568 - 2,568 Reclassification adjustment, net of tax of $5 (9) - (9) Pension plan adjustment, net of tax of $40 - (74) (74) ------- ----- ------- Balance at December 31, 1998 $66,287 $(302) $65,985 ======= ====== =======
-51- 14. Segment Information Penn Virginia's operations are classified into two operating segments: Oil and Gas - crude oil and natural gas exploration, development and production. Coal and Land - the leasing of mineral rights and subsequent collection of royalties and the development and harvesting of timber.
Corporate Oil and Gas Coal and Land and Other Consolidated ----------- ------------- ---------- ------------ (in thousands) December 31, 1998 Revenues $ 21,108 $14,500 $ 2,647 $ 38,255 Operating income (loss) 256 10,619 (609) 10,266 Identifiable assets 102,698 63,424 90,809 256,931 Depreciation, depletion and amortization 6,460 589 113 7,162 Capital expenditures 13,789 9,792 42 23,623
Corporate Oil and Gas Coal and Land and Other Consolidated ----------- ------------- ---------- ------------ (in thousands) December 31, 1997 Revenues $ 24,868 $ 13,891 $ 2,645 $ 41,404 Operating income (loss) 9,405 10,692 (1,378) 18,719 Identifiable assets 99,073 46,950 101,207 247,230 Depreciation, depletion and amortization 5,920 516 113 6,549 Capital expenditures 13,784 9,402 6 23,192
Corporate Oil and Gas Coal and Land and Other Consolidated ----------- ------------- ---------- ------------ (in thousands) December 31, 1996 Revenues $ 23,119 $ 8,264 $ 2,750 $ 34,133 Operating income (loss) 8,332 5,754 (874) 13,212 Identifiable assets 90,657 38,696 100,161 229,514 Depreciation, depletion and amortization 6,576 196 59 6,831 Capital expenditures 10,081 19,076 61 29,218
Operating income is total revenue less operating expenses. Operating income does not include certain other income items, gain (loss) on sale of securities, unallocated general corporate expenses, interest expense and income taxes. Identifiable assets are those assets used in the Company's operations in each segment. Corporate assets are principally cash and marketable securities. For the year ended December 31, 1998, one customer of the oil and gas segment accounted for $4.8 million, or 13 percent, of the Company's consolidated revenues. -52- 15. Commitments and Contingencies Rental Commitments Minimum rental commitments under all non-cancelable operating leases, primarily real estate, in effect at December 31, 1998 were as follows (in thousands): Year ending December 31, - ------------------------ 1999 $1,009 2000 318 2001 94 2002 76 2003 74 Thereafter 68 ------ Total minimum payments $1,639 ====== Legal The Company is involved, from time to time, 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. -53- 16. Supplementary Information on Oil and Gas Producing Activities (Unaudited) The following supplementary information regarding the oil and gas producing activities of Penn Virginia is presented in accordance with the requirements of the Securities and Exchange Commission (SEC) and the SFAS No. 69 "Disclosures about Oil and Gas Producing Activities". The amounts shown include Penn Virginia's net working and royalty interests in all of its oil and gas operations. Capitalized Costs Relating to Oil and Gas Producing Activities
Year Ended December 31, 1998 1997 1996 ------- -------- --------- (in thousands) Proved properties $ 49,126 $ 45,775 $ 46,744 Unproved properties 1,408 1,202 1,267 Wells, equipment and facilities 104,404 99,055 87,832 Support equipment 2,620 2,455 2,341 -------- ------- -------- 157,558 148,487 138,184 Accumulated depreciation and depletion (62,545) (56,099) (51,086) -------- ------- -------- Net capitalized costs $ 95,013 $ 92,388 $ 87,098 ======== ======== ========
Costs Incurred in Certain Oil and Gas Activities
Year Ended December 31, 1998 1997 1996 ------- -------- --------- (in thousands) Proved property acquisition costs $ 3,351 $ 73 $ 250 Unproved property acquisition costs 206 90 189 Exploration costs 2,022 3,346 2,604 Development costs and other 8,698 10,560 7,305 -------- ------- -------- Total costs incurred $ 14,277 $ 14,069 $ 10,348 ======== ======== ========
Results of Operations for Oil and Gas Producing Activities The following schedule includes results solely from the production and sale of oil and gas and includes revenues from a natural gas contract settlement and charges for property impairments. It excludes general and administrative expenses and gains or losses on property dispositions. The income tax expense is calculated by applying the statutory tax rates to the revenues after deducting costs, which include depletion allowances and giving effect to oil and gas related permanent differences and tax credits. Costs Incurred in Certain Oil and Gas Activities
Year Ended December 31, 1998 1997 1996 ------- -------- --------- (in thousands) Revenues $ 20,817 $ 22,488 $ 21,989 Other oil and gas revenue - - 611 Production costs 4,746 5,425 5,113 Exploration costs 488 1,439 402 Depreciation and depletion 6,695 5,920 6,576 Impairment of oil and gas properties 4,641 - - -------- --------- -------- 4,247 9,704 10,509 Income tax expense 1,062 2,807 981 -------- --------- -------- Results of operations $ 3,185 $ 6,897 $ 9,528 ======== ======== ======== -54- Oil and Gas Reserves The following schedule presents the estimated oil and gas reserves owned by Penn Virginia. This information includes Penn Virginia's royalty and net working interest share of the reserves in western Virginia, southern West Virginia and eastern Kentucky. Net proved oil and gas reserves at December 31, 1998 and 1997 were estimated by Wright and Company, Inc. of Brentwood, Tennessee. Net proved oil and gas reserves at December 31, 1996 were estimated by the Company's engineers and were reviewed by Williamson Petroleum Consultants, Inc. of Houston, Texas. All reserves are located in the United States. There are many uncertainties inherent in estimating proved reserve quantities, and projecting future production rates and the timing of future development expenditures. In addition, reserve estimates of new discoveries are more imprecise than those of properties with a production history. Accordingly, these estimates are subject to change as additional information becomes available. Proved oil and gas reserves are the estimated quantities of crude oil, condensate and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions at the end of the respective years. Proved developed oil and gas reserves are those reserves expected to be recovered through existing equipment and operating methods.
Net quantities of proved reserves and proved developed reserves during the periods indicated are set forth in the tables below:
Oil and Natural Proved Developed and Condensate Gas Undeveloped Reserves: (MBbls) (MMcf) ---------- -------- December 31, 1995 431 170,261 Revisions of previous estimates 70 7,861 Extensions, discoveries and other additions - 4,579 Production (47) (7,483) Purchase of reserves - 230 ---- ------- December 31, 1996 454 175,448 Revisions of previous estimates 10 (10,538) Extensions, discoveries and other additions 3 17,848 Production (38) (7,755) Purchase of reserves - 304 Sale of reserves in place (5) (3,745) December 31, 1997 424 171,562 Revisions of previous estimates (53) (11,978) Extensions, discoveries and other additions - 7,885 Production (30) (8,056) Purchase of reserves - 4,495 Sale of reserves in place - (35) ---- ------- December 31, 1998 341 163,873 ==== ======= Proved Developed Reserves: December 31, 1996 390 105,113 ==== ======= December 31, 1997 364 110,259 ==== ======= December 31, 1998 313 118,146 ==== =======
-55- The following table sets forth the standardized measure of the discounted future net cash flows attributable to the Company's proved oil and gas reserves. Future cash inflows were computed by applying year-end prices of oil and gas to the estimated future production of proved oil and gas reserves. Natural gas prices were escalated only where existing contracts contained fixed and determinable escalation clauses. Natural gas prices were also adjusted to give effect for financial hedge contracts in place at year end. Contractually provided natural gas prices in excess of estimated market clearing prices were used in computing the future cash inflows only if the Company expects to continue to receive higher prices under legally enforceable contract terms. Future prices actually received may differ from the estimates in the standardized measure. Future production and development costs represent the estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, assuming continuation of existing economic conditions. Future income tax expenses were computed by applying statutory income tax rates to the difference between pre-tax net cash flows relating to the Company's proved oil and gas reserves and the tax basis of proved oil and gas properties. In addition, the effects of statutory depletion in excess of tax basis, available net operating loss carryforwards and alternative minimum tax credits were used in computing future income tax expense. The resulting annual net cash inflows were then discounted using a 10 percent annual rate.
December 31, 1998 1997 1996 --------- --------- -------- (in thousands) Future cash inflows $354,567 $539,781 $666,658 Future production costs 123,007 144,129 163,477 Future development costs 26,128 36,537 38,639 -------- -------- -------- 205,432 359,115 464,542 Future income tax expense 28,031 70,033 100,285 -------- -------- -------- Future net cash flows 177,401 289,082 364,257 10% annual discount for estimated timing of cash flows 101,737 169,987 210,966 -------- -------- -------- Standardized measure of discounted future net cash flows $ 75,664 $119,095 $153,291 ======== ======== ========
Changes in Standardized Measure of Discounted Future Net Cash Flows
Year Ended December 31, 1998 1997 1996 --------- -------- -------- (in thousands) Sales of oil and gas, net of production costs $(16,071) $(17,063) $(16,876) Net changes in prices and production costs (57,646) (35,686) 59,168 Extension, discoveries and additions, net of costs 4,906 14,318 3,932 Development costs incurred during the period 5,289 3,070 5,456 Revisions of previous quantity estimates (6,735) (9,036) 9,412 Purchase of minerals-in-place 2,896 270 275 Sale of minerals-in-place (26) (4,990) - Accretion of discount 14,059 17,548 11,719 Net change in income taxes 12,006 701 (4,150) Other changes (2,109) (3,328) (3,879) -------- -------- -------- Net increase (decrease) (43,431) (34,196) 65,057 Beginning of year 119,095 153,291 88,234 -------- -------- -------- End of year $ 75,664 $119,095 $153,291 ======== ======== ======== -56- ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEMS 10, 11, 12 AND 13 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY, EXECUTIVE OFFICERS OF THE COMPANY, EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Except for information concerning executive officers of the Company included as an unnumbered item in Part 1, in accordance with General Instruction G(3), reference is hereby made to the Company's definitive proxy statement to be filed within 120 days after the end of the fiscal year covered by this report. -57- PART IV ITEM 14 - EXHIBITS AND REPORTS ON FORM 8-K (a) Financial Statements 1. Financial Statements - The financial statements filed herewith are listed in the Index to Financial Statements on page 28 of this report. 2. All schedules are omitted because they are not required, inapplicable or the information is included in the consolidated financial statements or the notes thereto. 3. Exhibits (3.1) Amended and restated articles of incorporation of the Company. (3.2) Amended bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's current report on Form 8-K filed with the Securities and Exchange Commission on February 23, 1998. (Commission File No. 0-753)). (4.1) Rights Agreement dated as of February 11, 1998 between Penn Virginia Corporation and American Stock Transfer & Trust Company, as Agent (incorporated by reference to Exhibit 1.1 to the Company's Registration Statement on Form 8-A filed with Securities and Exchange Commission on February 20, 1998. (Commission File No. 0-753)). (10.1) Credit Agreement dated August 21, 1996 between Penn Virginia Corporation and Chase Bank of Texas (formerly Texas Commerce Bank National Association), as Agent (incorporated by reference to Exhibit 4 to the Company's quarterly report on Form 10-Q filed for the quarter ended September 30, 1996 (Commission File No. 0-753)). (10.2) First Amendment to Credit Agreement dated as of May 1, 1997 between Penn Virginia Corporation and Texas Commerce Bank National Association, as Agent (incorporated by reference on Form 8-K filed on December 5,1997 (Commission File No. 0-753)). (10.3) Copies of various other long-term debt instruments and agreements of the Company are not filed pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, and the Company agrees to furnish copies of such debt instruments and agreements to the Commission upon request. (10.4) Penn Virginia Corporation and Affiliated Companies Employees' Stock Ownership Plan, as amended (incorporated by reference to Exhibit 19 to the Company's Annual Report on Form 10-K for the year ended December 31, 1986 (Commission File No. 0-753)). (10.5) Penn Virginia Corporation 1980 Incentive Stock Option Plan (incorporated by reference to Appendix 5 of the Prospectus comprising part of the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 13, 1982 ( Registration No. 2-77500)). (10.6) Form of agreement to evidence stock options and stock appreciation rights granted under the Penn Virginia Corporation 1980 Incentive Stock Option Plan ( incorporated by reference to Exhibit 15.1(b) to the Company's Registration Statements on Form S-8 filed with the Securities and Exchange commission on May 13, 1982 ( Registration No. 2-77500)). (10.7) Amendment No. 1 to Penn Virginia Corporation 1980 Incentive Stock Option Plan (incorporated by reference to Exhibit 19.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987 (Commission File No. 0-753)). (10.8) Penn Virginia Corporation and Affiliated Companies' Employees' Retirement/Savings Plan (incorporated by reference to Exhibit 18(b) to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 13, 1991 (Registration No. 33-40430)). (10.9) The Company has adopted a policy concerning severance benefits for certain senior officers of the Company. The description of such policy is incorporated herein by reference to the description of such policy contained in the Company's definitive Proxy Statement dated March 31, 1997. (10.10) Penn Virginia Corporation 1994 Stock Option Plan ( incorporated by reference to Annex A of the Company's definitive Proxy Statement dated March 28, 1995 (Commission File No. 0-753)). (10.11) Penn Virginia Corporation 1995 Directors' Stock Option Plan (incorporated by reference to Annex B of the Company's definitive Proxy Statement dated March 28, 1995 (Commission File No. 0- 753)). (21) Subsidiaries of the Company. (23.1) Consent of Arthur Andersen LLP -58- (b) Reports on Form 8-K The Company has not filed any reports on Form 8-K (27) Financial Data Schedule. (Exhibit 27 is submitted as an exhibit only in the electronic format of this Annual Report on Form 10-K submitted to the Securities and Exchange Commission.) -59-
EX-21 2 EXHIBIT 21 PENN VIRGINIA CORPORATION SUBSIDIARIES OF REGISTRANT
NAME PERCENTAGES STATE - ---- ----------- ----- Penn Virginia Holding Corp. 100% Delaware Penn Virginia Coal Company 100% Virginia Penn Virginia Equities Corporation 100% Delaware Penn Virginia Oil & Gas Corporation 100% Virginia Savannah Land Company 100% Delaware Concord Land Company 100% Delaware Paragon Coal Corporation 100% Virginia
EX-23.2 3 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 28, 1999, included in the Annual Report of Penn Virginia Corporation on Form 10-K for the year ended December 31, 1998, into Penn Virginia Corporation's previously filed Registration Statements Nos. 2- 67355, 2-77500, 33-40430, 33-59647 and 33-59651 on Form S-8. ARTHUR ANDERSEN LLP Houston, Texas March 24, 1999 EX-27 4 ART. 5 FOR 4TH QUARTER 10-Q
5 1000 YEAR DEC-31-1998 DEC-31-1998 225 0 5,682 0 0 7,528 210,013 68,745 256,931 7,043 0 0 0 55,762 114,497 256,931 34,076 38,255 3,968 3,968 24,021 0 2,017 11,953 2,362 9,591 0 0 0 9,591 1.15 1.13
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