-----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, TTeFdhhWb5WQ6UXKs/YEZfLD3MTQqz3qIw2k3IGg9eYofM2iywXc+Y4Fnni/JbqA CJI3SUom46gnPMusfJBQGg== 0000077159-01-000002.txt : 20010226 0000077159-01-000002.hdr.sgml : 20010226 ACCESSION NUMBER: 0000077159-01-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010223 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: 1552961 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 0001.txt 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, 2000 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 February 14, 2001 was $280,018,348, based on the closing price of $32.90 per share. As of that date, 8,511,196 shares of common stock were issued and outstanding. The number of shareholders of record of the registrant was 778 as of February 14, 2001. DOCUMENTS INCORPORATED BY REFERENCE: Part Into Which Incorporated (1) Proxy Statement for Stockholder Meeting on May 1, 2001 PartIII Penn Virginia Corporation and Subsidiaries Part I 1.Business 2.Properties 3.Legal Proceedings 4.Submission of Matters to a Vote of Security Holders Part II 5.Market for the Company's Common Stock 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 Statement Schedules and Reports on Form 8-K 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 as well as 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 eastern and southern portions of the United States. The Company had proved reserves of 71,000 barrels of oil and condensate and 174 billion cubic feet of natural gas at December 31, 2000. The Company owned mineral rights to 480 million tons of mineable and merchantable coal reserves located in central Appalachia at December 31, 2000. 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 royalty and land management. Financial information concerning the Company's business segments can be found in Note 15 (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 located in the eastern and southern portions of the United States. At December 31, 2000, the Company had 175 Bcfe of proved reserves (174 Bcf of natural gas) including 132 Bcfe of working interests and 43 Bcfe of royalty interests. Oil and Gas Production During 2000, 31,000 barrels of oil and condensate and 11,645 MMcf of natural gas, net to the Company's interest, were produced compared with 32,000 barrels and 8,679 MMcf in 1999. Average prices received by the Company were $26.84 and $14.47 per barrel and $3.95 and $2.46 per Mcf for oil and gas in 2000 and 1999, respectively. Exploration and Development The Company drilled 109 gross (79.1 net) wells in 2000 of which 100 gross (76.2 net) were development and nine gross (2.9 net) were exploratory. A total of five gross (1.3 net) exploratory wells were non-productive and three gross (1.4 net) wells are under evaluation. The Company is still evaluating the unproved properties associated with the December 1999 purchase of a 20 percent working interest in a Texas onshore gulf coast exploration project. The project covers 35,000 acres and evidences Penn Virginia's strategy to expand and diversify its oil and gas operations outside of the eastern United States through strategic acquisitions, drilling and exploration. Gathering Penn Virginia transports its natural gas to market on various gathering and transmission pipeline systems owned primarily by third parties. The Company's natural gas was gathered principally by Dominion Energy, Inc. "Dominion" (formerly Consolidated Natural Gas) and Columbia Natural Resources "CNR". These two primary providers gathered 35 percent and 38 percent of the Company's natural gas for 2000 and 1999, respectively. Interruptible gathering rates have increased over the years as pipelines have implemented the mandatory unbundling of gathering services (Federal Energy Regulatory Commission Order 636) from other transportation services. Dominion's interruptible gathering rates were 19.4 cents per MMbtu for 2000 and, effective January 1, 2001, were changed to a 9.3 percent volumetric retainage. CNR's interruptible gathering rate was 32 cents per MMbtu in 2000; however, the Company does not expect to incur any gathering expense from CNR in 2001 as a result of the divestiture of non-strategic oil and gas properties in December 2000. Transportation The majority of Penn Virginia's natural gas production is transported to market primarily on three major transmission systems. Columbia Gas Transmission, Dominion and Duke transported 45 percent, 30 percent and 19 percent, respectively, of the Company's 2000 natural gas production. The volume transported by Columbia Gas Transmission is expected to decrease in 2001 due to the divestiture of non-strategic oil and gas properties in December 2000. Production could be adversely affected by shutdowns of the pipelines for maintenance or replacement as pipeline flexibility is limited. Marketing Penn Virginia generally sells its natural gas using the spot market and short-term fixed price physical contracts. 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. Natural gas pricing was extremely volatile in 2000. In April and May of 2000, the Company entered into several physical contracts that totaled 9,289 MMcf per day for the remainder of 2000. The volumes under contract accounted for 20 percent of Penn Virginia's 2000 production at a price of $3.39 per Mcf. The Company has one contract remaining that expires in March 2001 covering 18 percent of anticipated first quarter production at $3.12 per Mcf. In January 2001, the Company hedged 13 percent of its anticipated production for the second and third quarters of 2001 through a basis hedge and a costless collar with a floor of $4.95 per Mcf and a ceiling of $7.16 per Mcf. Additionally, basis hedges covering an additional 11 percent of anticipated production for the same periods were executed. Gains and losses from hedging activities are included in natural gas revenues when the hedged production occurs. The Company recognized a loss of $0.4 million in 1999 and $0.7 million in 1998 on hedging activities with no gain or loss recognized in 2000. Effective January 1, 2001, the Company will account for its derivative activities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 133, as amended by SFAS 137 and SFAS 138. See Note 2 (New Accounting Standards) in the financial statements. Coal Royalty and Land Management Operations Overview Penn Virginia owned 163,000 acres of coal- and timber-bearing land in central Appalachia at December 31, 2000. The Company earns coal royalty revenue, based on long-term lease agreements, from 19 coal mining operators. Coal royalty revenue is based on a minimum annual payment, a minimum dollar royalty per ton and/or a percentage of the coal's selling price. The Company does not operate coal mines. The Company's timber assets consist of various hardwoods, primarily red oak, white oak, yellow poplar and black cherry. Penn Virginia owns an estimated 177 million board feet of standing saw timber. The Company's timber inventory only includes timber that can be harvested and is greater than 12 inches in diameter. Coal Production Lessees mined 12.5 million tons of coal from Penn Virginia's properties in 2000 and paid an average royalty of $1.94 per ton, compared with 8.6 million tons mined in 1999 at an average royalty of $2.07 per ton. At December 31, 2000, the Company's mineable and merchantable coal reserves in central Appalachia were estimated at 480 million tons. At December 31, 2000, the Company's central Appalachia properties had 19 operators actively mining a total of 31 separate lease locations. Timber Production The Company sold 8.5 MMbf in 2000 for an average price of $257 per Mbf, compared with 9.0 MMbf at an average price of $206 per Mbf in 1999. Timber is harvested in advance of lessee mining to prevent loss of the resource. Timber is sold in competitive bid sales involving individual parcels and also on a contract basis, whereby Penn Virginia pays independent contractors to harvest timber while the Company directly markets the product. Corporate and Other Investments The Company holds available-for-sale securities, primarily in Norfolk Southern Corporation. The Company's 3,307,200 common shares of Norfolk Southern Corporation (NYSE symbol: NSC) generated dividends of $2.6 million in 2000, 1999 and 1998. Penn Virginia received a quarterly dividend of $0.20 per share in 2000, 1999 and 1998; however, in January 2001, Norfolk Southern Corporation reduced its quarterly dividend to $0.06 per share. The fair value of the Company's equity portfolio at December 31, 2000 was $44.1 million compared with $67.8 million at December 31, 1999. See Note 4 (Investments and Dividend Income) of the Notes to the Consolidated Financial Statements for additional information. Risks Associated with Business Activities General Government Regulations Each of Penn Virginia's businesses is 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. In April and May of 2000, the Company entered into several physical contracts that totaled 9,289 MMcf per day for the remainder of 2000. The volumes under contract accounted for 20 percent of Penn Virginia's 2000 production at a price of $3.39 per Mcf. The Company has one contract remaining that expires in March 2001 covering 18 percent of anticipated first quarter production at $3.12 per Mcf. In January 2001, the Company hedged 13 percent of its anticipated production for the second and third quarters of 2001 through a basis swap and a costless collar with a floor of $4.95 per Mcf and a ceiling of $7.16 per Mcf. Additionally, basis swaps covering an additional 11 percent of anticipated production for the same periods were executed. Gains and losses from hedging activities are included in natural gas revenues when the hedged production occurs. The Company recognized a loss of $0.4 million in 1999 and $0.7 million in 1998 on hedging activities with no gain or loss recognized in 2000. Effective January 1, 2001, the Company will account for its derivative activities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 133, as amended by SFAS 137 and SFAS 138. See Note 2 (New Accounting Standards) in the financial statements. 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 than does development drilling. 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 2001 and beyond. Transportation The majority of Penn Virginia's natural gas production is transported to market primarily on three major transmission systems. Columbia Gas Transmission, Dominion and Duke transported 45 percent, 30 percent and 19 percent, respectively, of the Company's 2000 natural gas production. The volume transported by Columbia Gas Transmission is expected to decrease in 2001 due to the divestiture of non-strategic oil and gas properties in December 2000. Production could be adversely affected by shutdowns of the pipelines for maintenance or replacement as pipeline flexibility is limited. Coal Royalty and Land Management 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, access to capital, 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. Corporate and Other Investments The value of the Company's investment portfolio is subject to market price fluctuations. Employees Penn Virginia had 68 employees at December 31, 2000. The Company considers its relations with its employees to be good. 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 53 President and Chief Executive Officer 1996 James O.Idiaquez 53 Executive Vice President and Chief Financial Officer 2000 Keith D. Horton 47 Executive Vice President 2000 H. Baird Whitehead 50 Executive Vice President 2001 Nancy M. Snyder 48 Vice President, General Counsel and Secretary 1997 Ann N. Horton 42 Vice President and Principal Accounting Officer 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, Senior Vice President and, most recently, 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. James O. Idiaquez - Mr. Idiaquez is an Executive Vice President and Chief Financial Officer. He was appointed to these positions in December 2000. He previously served as Vice President- Corporate Development for the Company from October 1998 to December 2000. From 1978 to 1998, Mr. Idiaquez served in various management capacities, including corporate planning and acquisitions and divestitures, with The Louisiana Land & Exploration Company and Burlington Resources, Inc. Keith D. Horton - Mr. Horton serves as President of the Company's coal and land management subsidiary and has served as an executive officer for the Company since 1996. He was appointed Executive Vice President in December 2000. He has served in various capacities with the Company since 1981 and was elected to the Company's Board of Directors on December 6, 2000. Mr. Horton serves as a director of the Virginia Mining Association, Powell River Project, Virginia Coal Council and the Central Appalachian Section of the Society of Mining Engineers. H. Baird Whitehead - Mr. Whitehead is an Executive Vice President. He joined the Company in January 2001. He serves as President of the Company's oil and gas subsidiary. Previously he was employed for the past 20 years at Cabot Oil & Gas Corporation in various management positions, most recently as Senior Vice President. Nancy M. Snyder - Ms. Snyder has served as Corporate Secretary and General Counsel since joining the Company in 1997. She was appointed as a Vice President of the Company in December 2000. 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 was appointed as a Vice President of the Company in December 2000. She has served in various capacities with the Company and its subsidiaries since 1981. 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 MMbf - means one million board 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 owned 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 ITEM 2 - PROPERTIES Facilities Penn Virginia Corporation is headquartered in Radnor, Pennsylvania with additional offices in Duffield, Virginia; Charleston, West Virginia; and Houston, Texas. The Company believes its 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 royalty and land management 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. 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 or affect the value of such properties. Of the 163,000 acres of coal and timber bearing land, Penn Virginia owns 70 percent in fee and 30 percent in mineral. Additionally, the Company leases over 25,000 acres of coal andtimber bearing land from third parties. 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, 2000, 1999 and 1998. 2000 1999 1998 Production Oil and condensate (Mbbls) 31 32 30 Natural gas (MMcf) 11,645 8,679 8,056 Average sales price Oil and condensate ($/Bbl) $26.84 $14.47 $11.17 Natural gas ($/Mcf) 3.95 2.46 2.54 Production cost Lease operating expense per Mcfe $0.38 $0.46 $0.46 Lease production taxes per Mcfe 0.24 0.25 0.28 Total production cost per Mcfe $0.62 $0.71 $0.74 Hedging Summary Natural gas prices ($/Mcf): Actual price received for production $3.95 $2.50 $2.61 Effect of derivative hedging activities - (.04) (.07) Average price $3.95 $2.46 $2.54 Proved Reserves
Penn Virginia had proved reserves of 71,000 barrels of crude oil and condensate and 174 Bcf of natural gas at December 31, 2000. The present value of the estimated future cash flows discounted at 10 percent (Pre-tax SEC PV10 Value) at December 31, 2000 was $644 million. At December 31, 2000, the Company had 150 gross (74 net) proved undeveloped drilling locations. Natural Pre-tax Oil and Natural Gas SEC PV10 Condensate Gas Equivalents Value (Mbbls) (Bcf) (Bcfe) ($MM) 2000 Developed 71 146 147 $540 Undeveloped - 28 28 104 Total 71 174 175 $644 1999 Developed 326 138 140 $116 Undeveloped 33 47 47 20 Total 359 185 187 $136 1998 Developed 313 118 120 $ 73 Undeveloped 28 46 46 8 Total 341 164 166 $ 81
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 $467 million, $119 million and $76 million at December 31, 2000, 1999 and 1998, respectively. The year-end weighted average prices used to determine proved reserves at December 31, 2000, 1999 and 1998 were ($/Bbl) $23.31, $21.78 and $9.70, respectively, for oil and condensate and ($/Mcf) $9.91, $2.69 and $2.14, respectively, for natural gas. Natural gas prices have declined significantly since December 31, 2000. If the average price received for 2000 ($26.84 per Bbl and $3.95 per Mcf) had been used to calculate the standardized measure at December 31, 2000, the pre-tax discounted future net cash flows would have been $235 million. For information on the changes in standardized measure of discounted future net cash flows, see "Note 17. Supplementary Information on Oil and Gas Producing Activities (Unaudited)" in "Item 8. - Financial Statements and Supplementary Data." 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 date 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 for the three years ended December 31, 2000 were estimated by Wright and Company, Inc. Prices for oil and gas 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 of Financial Condition and Results of Operations." 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 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, 2000. The Company's acreage is located in the eastern and southern portions of the United States. Gross Acreage Net Acreage (in thousands) Developed 752 624 Undeveloped 112 47 Total 864 671
Wells Drilled The following table sets forth the gross and net 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. Net wells equal the number of gross wells multiplied by Penn Virginia's working interest in each of the gross wells. Productive wells represent either wells which were producing or which were capable of commercial production. 2000 1999 1998 Development Gross Net Gross Net Gross Net Productive 99 75.3 61 38.1 56 37.0 Non-productive 1 0.9 2 2.0 3 3.0 100 76.2 63 40.1 59 40.0 Exploratory Productive 1 0.2 16 9.2 15 8.1 Non-productive 5 1.3 3 1.5 3 1.5 Under evaluation 3 1.4 - - - - 9 2.9 19 10.7 18 9.6 Total 109 79.1 82 50.8 77 49.6
Productive Wells The number of productive oil and gas wells in which Penn Virginia had a working interest at December 31, 2000 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 Natural gas 476 445 380 51 856 496
In addition to the above working interest wells, Penn Virginia owns royalty interests in 1,783 gross wells. Coal Royalty and Land Management Penn Virginia's coal reserves and timber assets at December 31, 2000 covered 188,000 acres, including fee and leased acreage,in central Appalachia. The coal reserves are in various surface and underground seams. Penn Virginia's mineable and merchantable coal reserves are estimated at 480 million tons as of December 31, 2000. Mineable and merchantable coal reserves means 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 "mineable and merchantable 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, 2000, the Company owned an estimated 177 million board feet of standing saw timber. Coal Reserves The following table sets forth the coal reserves that are owned and leased by the Company. The reserves are estimated internally by the Company's engineers. 2000 1999 1998 (in million tons) Beginning of year 488.4 384.7 379.8 Production (12.5) (8.6) (5.3) Additions, deletions, revisions 4.1 112.3 10.2 End of year 480.0 488.4 384.7
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 2000. PART II ITEM 5 - MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Common Stock Market Prices And Dividends High and low closing stock prices and dividends for the last two years were: 2000 1999 Cash Cash Sales Price Dividends Sales Price Dividends High Low Paid High Low Paid Quarter Ended: March 31 $18.12 $15.81 $0.225 $20.75 $16.69 $0.225 June 30 $26.88 $16.38 $0.225 $21.69 $17.31 $0.225 September 30 $28.94 $21.50 $0.225 $23.06 $20.50 $0.225 December 31 $33.19 $25.56 $0.225 $21.00 $16.13 $0.225
The Company's common stock is traded on the New York Stock Exchange under the symbol PVA. ITEM 6 - SELECTED FINANCIAL DATA Five Year Selected Financial Data Year Ended December 31, 2000 1999 1998 1997 1996 (in thousands except per share data) Revenues (a) $81,203 $47,417 $38,252 $39,421 $34,104 Operating Income 40,841 20,435 10,201 16,745 13,194 Net Income (b) 39,265 14,504 9,591 16,018 13,040 Per Common share: Net income, basic $4.76 $1.73 $1.15 $1.93 $1.51 Net income, diluted $4.69 1.71 1.13 1.88 1.50 Dividends paid $0.90 $0.90 $0.90 $0.90 $0.90 Weighted average shares 8,241 8,406 8,310 8,302 8,694 outstanding, basic Weighted average shares 8,371 8,480 8,463 8,500 8,694 outstanding, diluted Total assets $268,766 $274,011 $256,931 $247,230 $229,514 Long-term debt $47,500 $ 78,475 $37,967 $31,903 $21,233 Shareholders'equity $171,162 $154,343 $170,259 $163,704 $160,211
(a) Certain reclassifications have been made to conform to the current year presentation. (b) Net income in 2000 included a $23.9 million ($14.2 million after tax) gain on the sale of certain oil and gas properties. SUMMARIZED QUARTERLY FINANCIAL DATA Quarterly financial data for 2000 and 1999 were as follows: 2000 1999 Quarters Ended Quarters Ended (in thousands, except per share data) Mar31 June30 Sept30 Dec31(b) Mar31 June30 Sept30 Dec 31 Revenues (c) $16,574 $19,277 $21,359 $23,993 $9,561 $10,515 $12,393 $14,948 Operating Income 8,273 10,223 11,454 10,891 3,835 4,042 5,430 7,128 Net income $5,343 $6,182 $7,202 $20,538 $2,915 $3,165 3,945 $4,479 Net income per share (a) Basic $ 0.65 $0.75 $0.88 $2.46 $0.35 $0.38 $0.47 0.53 Diluted $ 0.65 $0.74 $0.85 $2.38 $0.35 $0.37 $0.46 0.53 Weighted average shares outstanding: Basic 8,222 8,193 8,213 8,353 8,371 8,410 8,423 8,423 Diluted 8,222 8,325 8,473 8,622 8,448 8,490 8,532 8,445
(a) The sum of the quarters may not equal the total of the respective year's net income per share due to changes in the weighted average shares outstanding throughout the year. (b) Net income for fourth quarter of 2000 included a $23.9 million ($14.2 million after tax) gain on the sale of certain oil and gas properties. (c) Certain reclassifications have been made to conform to the current year presentation. 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 2000 was $39.3 million or $4.69 per share (diluted) with operating income of $40.8 million and revenues of $81.2 million. The comparable 1999 results were net income of $14.5 million or $1.71 per share (diluted), operating income of $20.4 million and revenues of $47.4 million. The results for 2000 reflected the sale of non-strategic natural gas properties located primarily in Kentucky and West Virginia. Excluding the $23.9 million ($14.2 million after tax) gain on the sale, net income would have been $25.1 million for 2000, a 73 percent increase over 1999. The 2000 increases were a direct result of an increase in price the Company received for its natural gas production and an increase in production attributable to the acquisition of certain natural gas properties in Mississippi, West Virginia and Kentucky as well as higher levels of coal royalties. Management is committed to expanding its natural gas operations over the next several years through a combination of exploitation and exploration of existing properties and acquisitions of new properties. During 2000, the Company acquired natural gas properties in West Virginia and eastern Kentucky at a cost of $34.7 million. At December 31, 2000, the properties had proved reserves of approximately 33 billion cubic feet (Bcf) in addition to significant drilling potential. The Company continued to develop the property it acquired in July 1999 in Mississippi for $13.7 million by drilling 41 gross wells (37.7 net) in 2000. The acquisition, which was 99 percent natural gas, added 23.3 Bcfe in proved reserves and provided numerous future drilling locations. The Company drilled seven gross (1.4 net) exploratory wells in a Texas onshore gulf coast exploration project, of which one gross (0.2 net) well was successful, four gross (0.8 net) wells were non-productive and two gross (0.4 net) wells are under evaluation. The Company is still evaluating the unproved properties associated with the 20 percent working interest in the project. 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. The Company continued its ambitious drilling program in 2000 by drilling 109 gross (79.1 net) wells. In 2000, Penn Virginia produced a record 11.8 Bcfe of oil and natural gas, which was a 33 percent increase over 1999. Penn Virginia participates in the coal industry exclusively through its royalty ownership. The Company leases the rights to mine its coal reserves to various operators who pay a minimum annual payment, a minimum dollar royalty per ton and/or a percentage of the sales price. Since the Company does not mine the coal, the coal royalty and land management segment has relatively high margins. Coal royalty and land management segment revenues increased $9.8 million, or 45 percent, to an all- time high of $31.9 million in 2000. The increase was attributable to acquisitions, enhanced production from lessees due to the completion of the unit train loadout facility and start-up operations from other lessees. The Company continues to diversify its coal customer base by adding additional lessees and by searching for additional coal reserve acquisition opportunities. The Company had its first full year of usage for the $5.2 million state-of-the-art coal loadout facility in Virginia completed in April 1999. The facility accommodates 100 rail car unit trains which can be loaded in approximately four hours, thus generating substantial savings for the Company's lessees. The loadout is primarily utilized by the Company's lessees and provides them a competitive advantage by reducing delivery costs to their principal customers. The loadout facility transshipped 2.5 million tons in 2000, generating $1.9 million in fees. Additionally, the loadout facility has accelerated the cash flow received by the Company, primarily due to increased production from lessees. Other infrastructure projects are underway or being evaluated. In September 1999, Penn Virginia completed a $30 million acquisition which included over 90 million tons of high quality coal reserves, as well as oil and gas leases, timber assets, a short line railroad and a coal loading dock on the Kanawha River. The acquisition covers over 24,000 acres and complements the existing asset base of the Company's Coal River Properties in West Virginia. At December 31, 2000, the Company owned 3,307,200 shares of Norfolk Southern common stock, which decreased in price from $20.50 per share at December 31, 1999 to $13.31 per share, reducing the value of the investment by $23.7 million, or $15.4 million after tax. Penn Virginia received a quarterly dividend of $0.20 per share in 2000, 1999 and 1998; however, in January 2001, Norfolk Southern Corporation reduced its quarterly dividend to $0.06 per share. Results of Operations Consolidated Net Income Penn Virginia's 2000 net income was $39.3 million, compared with $14.5 million in 1999 and $9.6 million in 1998. Revenues for 2000 were $81.2 million, a 71 percent increase over 1999 and a 112 percent increase over 1998. Significant factors for the increase in 2000 include (a) increased natural gas production resulting from an acquisition in May 2000, (b) a substantial increase the average price received for natural gas and (c) higher levels of coal royalties and fees received in connection with the coal loading facility. In addition, a gain of $23.9 million ($14.2 million after tax) was recognized in December 2000 for the sale of mature oil and gas properties located primarily in Kentucky and West Virginia. The increase in net income for 1999 was a direct result of increased production of natural gas and higher levels of coal royalties. Net income for 1998 included a non-cash 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). Net income includes a gain of approximately $23.9 million ($14.2 million after tax) on the sale of non-strategic oil and gas properties in December 2000. Selected Financial Data 2000 1999 1998 (in millions, except share data) Revenues $81.2 $47.4 $38.3 Operating costs and expenses 40.4 27.0 28.1 Operating income 40.8 20.4 10.2 Net income 39.3 14.5 9.6 Earnings per share, basic 4.76 1.73 1.15 Earnings per share, diluted 4.69 1.71 1.13
Certain reclassifications have been made to conform to the current year presentation. Oil and Gas Segment The oil and gas segment explores for, develops and produces crude oil and natural gas in the eastern and southern portions of the United States. The Company also owns mineral rights to oil and gas reserves. Selected Financial and Operating Data 2000 1999 1998 (in thousands, except as noted) Revenues Oil and condensate $ 832 $ 463 $ 335 Natural gas 46,019 21,384 20,482 Other 656 1,095 289 Total Revenues 47,507 22,942 21,106 Expenses Lease operating expenses 4,562 4,090 3,761 Exploration expenses 5,080 1,699 488 Taxes other than income 2,809 2,165 2,343 General and administrative 2,656 2,148 3,153 Cash Operating Expenses 15,107 10,102 9,745 Depreciation, depletion and amortization 9,883 6,951 6,460 Impairment of properties - - 4,641 Total Operating Expenses 24,990 17,053 20,846 Operating Income $22,517 $5,889 $ 260 Production Oil and condensate (MBbls) 31 32 30 Natural gas (MMcf) 11,645 8,679 8,056 Prices Oil and condensate ($/Bbl) $26.84 $14.47 $11.17 Natural gas ($/Mcf) 3.95 2.46 2.54 Production cost Operating cost per Mcfe $0.38 $0.46 $0.46 Production taxes per Mcfe 0.24 0.25 0.28 Total production cost per Mcfe $0.62 $0.71 $0.74 Hedging Summary Natural gas prices ($/Mcf): Actual price received for production $3.95 $2.50 $2.61 Effect of derivative hedging activities - (.04) (.07) Average price $3.95 $ 2.46 $2.54
Year Ended December 31, 2000 Compared to Year Ended December 31,1999 Revenues. Oil and gas revenues increased $24.6 million to $47.5 million in 2000 from 1999 primarily due to a $24.6 million increase in natural gas sales. Natural gas sales increased 115 percent to a record $46.0 million due to a 34 percent increase in production coupled with a 61 percent increase in the average price received per Mcf. The Company's $34.7 million acquisition of mineral interests in May 2000 represents 1,111 MMcf of the 2,966 MMcf increase in natural gas production. The development of Penn Virginia's $13.7 million acquisition in July 1999 accounted for 1,511 of the increase with the remainder attributable to drilling success in Appalachia. Natural gas prices were extremely volatile in 2000. In April and May of 2000, the Company entered into several physical contracts that totaled 9,289 MMcf per day for the remainder of 2000. The volumes under contract accounted for 20 percent of Penn Virginia's 2000 production at a price of $3.39 per Mcf. The Company had one contract remaining that expires in March 2001 covering 18 percent of anticipated first quarter production at $3.12 per Mcf. 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 $0.4 million in 1999 and $0.7 million in 1998 on hedging activities with no gain or loss recognized in 2000. Effective January 1, 2001, the Company will account for its derivative activities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 133, as amended by SFAS No. 137 and SFAS No. 138. See Note 2 (New Accounting Standards) in the financial statements. Operating expenses. Production costs, consisting of lease operating expense and taxes other than income, increased from $6.3 million in 1999 to $7.4 million in 2000. Production costs decreased from $0.71 per Mcfe in 1999 to $0.62 per Mcfe in 2000. A decrease, on a Mcfe basis, of $0.06 resulted from the Company's May 2000 acquisition of royalty interest for $34.7 million. The remainder of the decrease is attributable to the low operating costs associated with the increased production from the Company's 1999 acquired properties in Mississippi. These decreases, on a Mcfe basis, were offset by an increase in severance taxes related to increased average prices received in 2000. Exploration expenses increased from $1.7 million in 1999 to $5.1 million in 2000. The $5.1 million in 2000 consists of $1.7 million in seismic expenditures, charges relating to five gross (1.3 net) nonproductive, exploratory wells and unproved leasehold costs. Penn Virginia's increased seismic expenditures for the year, compared with $0.3 million in 1999, represents a continued effort to establish the Company's balanced exploratory program. General and administrative ("G&A") expenses increased to $2.7 million in 2000 from $2.1 million in 1999; however, G&A expenses decreased to $0.22 per Mcfe in 2000 from $0.24 Mcfe in 1999. The decrease of $0.02 per Mcfe is attributable to increased production from acquisitions and an accelerated drilling program, offset by additional staffing necessary to accomplish those objectives. Oil and gas depreciation, depletion and amortization increased to $9.9 million, or $0.84 per Mcfe, in 2000 from $7.0 million, or $0.78 per Mcfe, in 1999. The increase is primarily to the Company's acquisitions in July 1999 and May 2000. Other non-operating income. Gain on the sale of properties includes $23.9 million ($14.2 million after tax) related to the sale of mature oil and gas properties located primarily in Kentucky and West Virginia. Proceeds from the December 2000 sale totaled $54.3 million, after closing adjustments. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Revenues. Oil and gas revenues increased $1.9 million, or nine percent, from 1998 to 1999 primarily due to a $0.8 million increase in natural gas sales and a $0.8 million increase in other income. Natural gas production increased eight percent, offset by a three percent decrease in average price per Mcf. The production increase is a result of an acquisition in Mississippi and the Company's 1999 drilling program. Other operating income increased $0.8 million primarily due to $0.4 million received for the final settlement of a 1995 contract dispute and $0.2 million for reimbursement of lost production caused by third party pipeline damages. Operating expenses. Production costs, consisting of lease operating expense and taxes other than income, increased from $6.1 million in 1998 to $6.3 million in 1999. On a Mcfe basis, production costs decreased from $0.74 per Mcfe in 1998 to $0.71 per Mcfe in 1999. The decrease on a Mcfe basis resulted from less tax being paid due to the relocation of the offices of the oil and gas segment. Exploration expenses increased from $0.5 million in 1998 to $1.7 million in 1999. The increase is attributable to charges relating to seven gross (3.5 net) nonproductive, exploratory wells and preliminary field costs incurred in 1999. Additionally, the Company's exploration program included $0.3 million in seismic expenditures. General and administrative expenses decreased from $3.2 million in 1998 to $2.1 million in 1999. The decrease primarily relates to the Company's 1998 plan to reduce administrative and operational overhead costs in its oil and gas subsidiary. In connection with the plan, the Company recorded a pre-tax charge to general and administrative expense totaling $0.6 million in 1998 related to severance costs for six employees and a lease cancellation penalty. The Company completed its restructuring plan in August 1999. There were no adjustments to the liability recorded in 1998 that resulted in an adjustment to net income in 1999. Oil and gas depreciation, depletion and amortization increased to $7.0 million in 1999 but remained relatively constant on a unit basis at $0.79 per Mcfe in 1999, compared with $6.4 million, or $0.78 per Mcfe, in 1998. 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 a risk- adjusted rate of return. 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. Coal Royalty and Land Management Segment 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 2000 1999 1998 (in thousands, except as noted) Revenues Coal royalties $24,308 $17,836 $10,774 Timber 2,388 1,948 1,711 Other 4,355 2,046 2,014 Total Revenues 31,051 21,830 14,499 Expenses Operating costs 3,066 784 276 Exploration expenses 394 268 549 Taxes other than income 663 506 352 General and administrative 3,047 2,623 2,184 Cash Operating Expenses 7,170 4,181 3,361 Depreciation, depletion and amortization 2,047 1,269 589 Total Operating Expenses 9,217 5,450 3,950 Operating Income $21,834 $16,380 $10,549 Production Royalty coal tons produced by lessees (thousands) 12,536 8,603 5,278 Timber sales (Mbf) 8,545 9,020 7,981 Prices Royalty per ton $1.94 $2.07 $2.04 Timber sales price per Mbf $ 257 $ 206 $ 198
Certain reclassifications have been made to conform to the current year presentation. Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 Revenues. Coal royalty and land management segment revenues were $31.1 million in 2000 and $21.8 million in 1999, representing a 42 percent increase. Coal royalties increased $6.5 million in 2000 primarily due to a $30 million acquisition in September 1999 and increased production from additional lessees. Coal royalties from the acquisition were $1.5 million higher in 2000 because the Company included a full year of operations in 2000 versus three months in 1999. The remainder of the increase was attributable to a full year of operation for the Company's unit train loadout, infrastructure additions by two lessees, four additional mines added by lessees and increased production from numerous lessees due to improved conditions in the coal industry. Timber revenues increased $440,000, or 23 percent, to $2.4 million in 2000; however, timber harvested decreased from 9,020 Mbf in 1999 to 8,545 in 2000. The average price received by the Company increased from $206 per Mbf in 1999 to $257 per Mbf in 2000. These variances are justified by the harvesting of Penn Virginia's higher quality hardwoods in 2000. Other operating income increased to $4.4 million in 2000 compared with $2.0 million in 1999. Rail car rental, dock rental and various land rentals related to the acquisition in September 1999 accounted for $1.2 million of the increase. Additionally, $603,000 of the increase was attributable to Penn Virginia's unit train loadout facility which had a full year of operation in 2000 versus nine months in 1999. The remainder of the increase is primarily due to $589,000 of additional lease forfeitures received in 2000. Lease forfeitures are recognized as revenue by the Company when lessees fail to meet their minimum required coal production for a specified time period; consequently, their non- recoupable minimums would be forfeited and recognized as income by the Company. Expenses. Total operating expenses for the coal royalty and land management segment increased 69 percent to $9.2 million from $5.5 million in 1999. Operating expenses increased from $784,000 in 1999 to $3.1 million in 2000. The September 1999 coal royalty acquisition accounted for $2.2 million of the 2000 increase due to (a) $1.4 million in additional lease expense relating to newly acquired coal reserves, (b) increased expense of $573,000 attributable to the leasing of rail cars, and (c) continuing environmental maintenance of $213,000 to comply with governmental agency requirements. Exploration expenses increased $126,000 due to additional core drilling and evaluation of samples primarily relating to Penn Virginia's 1999 acquired coal properties. Taxes other than income increased $157,000, or 31 percent, to $663,000 for 2000 due to property taxes associated with the September 1999 acquisition. General and administrative expenses, on a per ton basis, decreased to $0.24 in 2000 versus $0.30 in 1999. The decrease is primarily attributable to increased production offset by additional staffing needs resulting from the September 1999 coal royalty acquisition. Depreciation, depletion and amortization increased from $1.3 million, or $0.15 per ton, in 1999 to $2.0 million, or $0.16 per ton, in 2000. The slight increase, on a per ton basis, is due to the Company's September 1999 acquisition of coal reserves in West Virginia. Other non-operating income. Gain on the sale of property was $897,000 in 2000 primarily due to the sale of a small block of coal reserves in eastern Kentucky. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Revenues. Coal royalty and land management segment revenues increased 51 percent to $21.8 million in 1999 compared with $14.5 million in 1998. The $7.5 million increase in 1999 was attributable to enhanced production from existing lessees due to the completion of the unit train loadout, start-up operations for some lessees and acquisitions. Operating expenses. The coal royalty and land management segment's operating expenses increased $1.5 million, or 37 percent, to $5.5 million, compared with $4.0 million in 1998. Operating expenses increased $0.5 million primarily due to additional lease expense relating to the September 1999 coal royalty acquisition. Exploration expenses decreased $0.3 million to $0.2 million in 1999 primarily due to increased 1998 costs incurred to maintain a mine on a terminated lease. General and administrative expenses increased $0.4 million in 1999 due to legal fees incurred by the Company to pursue the potential recovery of coal reserves and the addition of three additional employees in the Charleston, West Virginia office relating to the Company's September 1999 acquisition. Depreciation, depletion and amortization increased from $0.6 million to $1.3 million. The increase is attributable to an increase in coal royalty tons produced by existing lessees, the Company's September 1999 acquisition of coal reserves in West Virginia and the unit train loadout's first year of operation. Corporate and Other Dividends. Dividend income of $2.6 million in 2000 remained constant, compared with $2.6 million in 1999 and 1998. However, in January 2001, Norfolk Southern Corporation reduced its quarterly dividend from $0.20 per share to $0.06 per share. Penn Virginia's holdings primarily consist of 3,307,200 shares of Norfolk Southern Corporation. Reserves Oil and Gas Reserves Penn Virginia's total proved reserves at year-end 2000 were 174.6 Bcfe, compared with 187.4 Bcfe at 1999 year- end. The decrease is attributable to the sale of mature oil and gas properties, partially offset by acquisitions and extensions, discoveries and other additions. Proved developed reserves increased 6.1 Bcfe, or four percent, to 146.4 Bcfe. At year-end 2000, proved developed reserves comprised 84 percent of the Company's total proved reserves, compared with 75 percent at year- end 1999. The Company has 74 net proved undeveloped drilling locations at year-end 2000, compared with 139 locations at year- end 1999. The Company acquired 35.9 Bcfe of proved oil and gas reserves, primarily consisting of royalty interest, during 2000 for $36.0 million. In December 2000, the Company received $54.3 million, after closing adjustments, for the sale of mature oil and gas properties in Kentucky and West Virginia, which contained 66.6 Bcfe of proved oil and gas reserves. Penn Virginia's comparative reserve replacement measures are as follows: 2000 1999 Finding and development cost (a) Current year $ 0.82 $ 2.17 Three year weighted average 1.56 4.03 Reserve replacement cost (b) Current year $ 0.92 $ 0.96 Three year weighted average 1.08 1.51 Reserve replacement percentage (c) Current year 556 % 342 % Three year weighted average 332 % 152 %
Finding and development cost, reserve replacement cost and reserve replacement percentage are not measures presented in accordance with generally accepted accounting principles ("GAAP") and are not intended to be used in lieu of GAAP presentation. These measures are commonly used by financial statement users as a measurement to determine the performance of a Company's oil and gas activities. (a) Finding and development cost is calculated by dividing 1) costs incurred in certain oil and gas activities less proved property acquisitions, by 2) reserve extensions, discoveries and other additions and revisions. (b) Reserve replacement cost is calculated by dividing 1) costs incurred in certain oil and gas activities, including acquisitions, by 2) reserve purchases, extensions, discoveries and other additions and revisions. (c) Reserve replacement percentage is calculated by dividing 1) reserve purchases, revisions, extensions, discoveries and other additions, by 2) oil and gas production. Mineable and Merchantable Coal Reserves Penn Virginia's mineable and merchantable coal reserves were 480 million tons at December 31, 2000, compared with 488 million tons in 1999. The Company collected royalties for 12.5 million tons in 2000. Mineable and merchantable coal reserves means coal that is economically mineable using existing equipment and methods under federal and state laws now in effect. Market Risk Marketable Equity Securities. At December 31, 2000, the Company's marketable equity securities, consisting primarily of Norfolk Southern Corporation common stock, were recorded at their fair value of $44.1 million, including net unrealized gains of $41.2 million. The closing stock price for Norfolk Southern Corporation was $13.31 and $20.50 per share at December 31, 2000 and 1999, respectively. At February 1, 2000, the closing price for Norfolk Southern Corporation was $16.55. The fair value of the Company's marketable equity securities is significantly affected by market price fluctuations. See Note 4 of the Notes to Consolidated Financial Statements. Interest Rate Risk. The carrying value of Penn Virginia's debt approximates fair value. At December 31, 2000, the Company had $47.5 million of long-term debt represented by an unsecured revolving credit facility (the "Revolver"). The Revolver matures in June 2003 and is governed by a borrowing base calculation that is redetermined semi-annually. The Company has the option to elect interest at (i) Libor plus a Eurodollar margin ranging from 100 to 150 basis points, based on the percentage of the borrowing base outstanding or (ii) the greater of the prime rate or federal funds rate plus 50 basis points. As a result, the Company's 2001 interest costs will fluctuate based on short-term interest rates relating to the Revolver. Price Risk Management. Penn Virginia's price risk program permits the utilization of fixed-price contracts 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 contracts and/or 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. Through December 31, 2000, 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 concurrently with the hedged transaction. Effective January 1, 2001, the Company accounts for its derivative activities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 133, as amended by SFAS No. 137 and SFAS No. 138. See Note 2 (New Accounting Standards) in the financial statements. SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, alters the reporting by companies that use derivative instruments. The new rule, which went into effect January 1, 2001, requires companies to recognize derivatives as assets or liabilities in their balance sheets and to measure them at "fair value." Penn Virginia, from time to time, hedges in the form of "costless collars." The options establish a price "collar" around the gas. The hedging strategy is costless because the purchase of the "put" options to sell gas at the floor price was offset by the sale of the "call" option on Penn Virginia gas at the ceiling price. If the price of gas falls, Penn Virginia's expected revenue stream from producing properties also declines; however, the value of the "put" option increases. In accounting for cash flow hedges under SFAS No. 133, part of the change in option value would be reported as an operating gain or loss in Penn Virginia's quarterly income statement (the gain or loss will be reversed in future quarters as the true value of the option diminishes to zero at the expiration date.) Consequently, if the price of gas (and Penn Virginia's expected revenue stream) rises, the cost to unwind the call option increases, creating an operating loss. As a result, the Company's earnings could experience increased volatility over the term of the costless collar. Natural gas pricing was extremely volatile in 2000. In April and May of 2000, the Company entered into several physical contracts that totaling 9,289 MMcf per day for the remainder of 2000. The volumes under contract accounted for 20 percent of Penn Virginia's 2000 production at a price of $3.39 per Mcf. The Company had one contract remaining that expires in March 2001 covering 18 percent of anticipated first quarter production at $3.12 per Mcf. This physical contract is not considered to be a derivative instrument under SFAS No. 133, as amended, as such contracts qualify for the normal purchase and sale exception. In January 2001, the Company hedged 13 percent of its anticipated production for the second and third quarters of 2001 through a basis swap and a costless collar with a floor of $4.95 per Mcf and a ceiling of $7.16 per Mcf. Additionally, basis swaps covering an additional 11 percent of anticipated production for the same periods were executed. 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 $41.7 million in 2000, compared with $25.1 million in 1999 and $19.4 million in 1998. The Company's consolidated cash balance remained constant at $0.7 million in 2000 and 1999. Cash flows from Investing Activities The Company used $3.3 million in investing activities in 2000, compared with $58.7 million in 1999 and $18.3 million in 1998. Capital expenditures, including acquisitions and noncash items, totaled $59.4 million, compared with $60.7 million in 1999 and $23.6 million in 1998. Capital expenditures in 2000 were partially offset from the sale of certain oil and gas properties totaling $55.2 million after closing adjustments. The following table sets forth capital expenditures, including acquisitions and noncash items, made by the Company during the periods indicated. Year ended December 31, 2000 1999 1998 Oil and gas (in thousands) Acquisitions $36,916 $16,620 $3,557 Development 18,317 9,189 8,527 Exploration 3,200 2,587 1,534 Support equipment and facilities 244 209 171 Coal royalty and land management Lease acquisitions - 30,094 6,260 Support equipment and facilities 485 1,861 3,532 Other 281 91 42 Total capital expenditures $59,443 $60,651 $23,623
The Company drilled 75.3 net successful development wells, 0.2 net successful exploratory wells and 2.6 net non-productive wells in 2000, compared with 38.1 net successful development wells, 9.2 net successful exploratory wells and 2.0 net non-productive wells in 1999. Management is committed to expanding its natural gas operations over the next several years through a combination of exploitation, exploration and acquisition of new properties. During 2000, the Company acquired proved natural gas properties in Appalachia at a cost of $36.0 million, including a $34.7 million acquisition of royalty interests in West Virginia and eastern Kentucky. The properties had proved reserves of 35.9 Bcfe at December 31, 2000 in addition to significant drilling potential. The Company continued to develop the property it acquired in July 1999 in Mississippi by drilling 41 gross wells (37.7 net) in 2000. The acquisition, which was 99 percent natural gas, added 23.3 Bcfe in proved reserves and provided numerous future drilling locations. The Company drilled seven gross (1.4 net) exploratory wells in a Texas onshore gulf coast exploration project, of which one gross (0.2 net) well was successful, four gross (0.8 net) wells were non-productive and two gross (0.4 net) wells are under evaluation. The Company is still evaluating the unproved properties associated with the 20 percent working interest in the project. Capital expenditures for 2001, before lease and proved property acquisitions, are expected to be $43 to $50 million including $41 to $47 million for the oil and gas segment and $2 to $3 million for the coal royalty and land management segment. In addition, Penn Virginia plans to invest an additional $2 to $3 million in seismic. The Company plans to drill approximately 180 to 200 gross (120 to 140 net) wells. Management continually reviews the Company's drilling expenditures and may increase, decrease or reallocate amounts based on industry conditions. Management believes its cash flow from operations, portfolio of investments and sources of debt financing are sufficient to fund its 2001 planned capital expenditure program. In September 1999, the Company completed an acquisition which included over 90 million tons of high quality coal reserves as well as oil and gas leases, timber assets, a short line railroad and a coal loading dock on the Kanawha River in West Virginia. The $30 million acquisition complements the Company's existing Coal River Properties located on the inland river system in West Virginia. The Company continues to diversify its coal customer base by adding additional lessees and by searching for additional coal reserve acquisition opportunities. Cash flows from Financing Activities Net cash provided (used) by financing activities was $(38.4) million in 2000, compared with $34.0 million in 1999 and $(1.7) million in 1998. Penn Virginia has a $150 million unsecured revolving credit facility (the "Revolver") with a final maturity of June 2003. 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 $47.5 million and $77.7 million at December 31, 2000 and 1999, 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 In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, 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 unrecognized firm commitment, an available-for-sale security, or a foreign currency denominated forecasted transaction. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the Company's statement of income. The adoption of SFAS No. 133 on January 1, 2001 did not have a material impact on the Company's financial position or results of operations. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements' ("SAB No. 101"). SAB No. 101, as amended, summarizes the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. The adoption of SAB No. 101 on October 1, 2000 did not have a material effect on the Company's financial position or results of operations. 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. The Company evaluates the financial capability of each lessee prior to the leasing of property. Forward-Looking Statements Statements included in this report which are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto) are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. In addition, Penn Virginia and its representatives may from time to time make other oral or written statements which are also forward-looking statements. Such forward-looking statements include, among other things, statements regarding development activities, capital expenditures, acquisitions and dispositions, drilling and exploration programs, expected commencement dates of coal mining or oil and gas production, projected quantities of future oil and gas production by Penn Virginia, projected quantities of future coal production by the Company's lessees producing coal from reserves leased from Penn Virginia, costs and expenditures as well as projected demand or supply for coal and oil and gas, which will affect sales levels, prices and royalties realized by Penn Virginia. These forward-looking statements are made based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events impacting Penn Virginia and therefore involve a number of risks and uncertainties. Penn Virginia cautions that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause the actual results of operations or financial condition of Penn Virginia to differ include, but are not necessarily limited to: the cost of finding and successfully developing oil and gas reserves; the cost of finding new coal reserves; the ability to acquire new oil and gas and coal reserves on satisfactory terms; the price for which such reserves can be sold; the volatility of commodity prices for oil and gas and coal; the risks associated with having or not having price risk management programs; Penn Virginia's ability to lease new and existing coal reserves; the ability of Penn Virginia's lessees to produce sufficient quantities of coal on an economic basis from Penn Virginia's reserves; the ability of lessees to obtain favorable contracts for coal produced from Penn Virginia reserves; Penn Virginia's ability to obtain adequate pipeline transportation capacity for its oil and gas production; competition among producers in the coal and oil and gas industries generally and in the Appalachian Basin in particular; the extent to which the amount and quality of actual production differs from estimated mineable and merchantable 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 review or update any particular forward-looking statement, whether as a result of new information, future events or otherwise. 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 February 14, 2001 By: /s/ James O. Idiaquez (James O. Idiaquez, Vice President and Chief Financial Officer) February 14, 2001 By: /s/ Ann N. Horton (Ann N. Horton, Vice President 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/ Robert Garrett Chairman of the Board February 20, 2001 (Robert Garrett) and Director /s/ Richard A. Bachmann Director February 20, 2001 (Richard A. Bachmann) /s/ Lennox K. Black Director February 20, 2001 (Lennox K. Black) /s/ John D. Cadigan Director February 20, 2001 (John D. Cadigan) /s/ A. James Dearlove Director and February 14, 2001 (A. James Dearlove) Chief Executive Officer /s/ Keith D. Horton Director and February 20, 2001 (Keith D. Horton) Executive Vice President /s/ Peter B. Lilly Director February 14, 2001 (Peter B. Lilly) /s/ Marsha R. Perelman Director February 14, 2001 (Marsha R. Perelman) /s/ Joe T. Rye Director February 14, 2001 (Joe T. Rye) /s/ John A. H. Shober Director February 20, 2001 (John A. H. Shober) ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Penn Virginia Corporation and Subsidiaries Index to Financial Section Management's Report on Financial Information 31 Reports of Independent Public Accountants 32 Financial Statements and Supplementary Data 33 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 James O. Idiaquez President and Executive Vice President and Chief Executive Officer Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Penn Virginia Corporation: We have audited the accompanying consolidated balance sheets of Penn Virginia Corporation (a Virginia corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Houston, Texas February 9, 2001 PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share data)
Year Ended December 31, 2000 1999 1998 Revenues Oil and condensate $ 832 $ 463 $ 335 Natural gas 46,019 21,384 20,482 Coal royalties 24,308 17,836 10,774 Timber 2,388 1,948 1,711 Dividends 2,646 2,646 2,646 Other 5,010 3,140 2,304 81,203 47,417 38,252 Expenses Lease operating expenses 7,629 4,873 4,037 Exploration expenses 5,660 2,146 1,189 Taxes other than income 3,648 2,795 2,788 General and administrative 11,398 8,775 8,234 Impairment of oil and gas properties - - 4,641 Depreciation, depletion and amortization 12,027 8,393 7,162 40,362 26,982 28,051 Operating Income 40,841 20,435 10,201 Other income (expense) Interest expense (7,878) (3,298) (2,017) Interest income 1,458 1,354 3,421 Gain on the sale of properties 24,795 280 65 Other 14 63 283 Income from operations before income taxes 59,230 18,834 11,953 Income tax expense 19,965 4,330 2,362 Net Income $ 39,265 $14,504 $9,591 Net income per share, basic $4.76 $1.73 $1.15 Net income per share, diluted $4.69 $1.71 $1.13 Weighted average shares outstanding, basic 8,241 8,406 8,310 Weighted average shares outstanding, diluted 8,371 8,480 8,463
The accompanying notes are an integral part of these consolidated financial statements. PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data) December 31, 2000 1999 Assets Current assets Cash and cash equivalents $ 735 $ 657 Accounts receivable 12,926 6,880 Current portion of long-term notes receivable 981 816 Current deferred income taxes - 155 Other 652 813 Total current assets 15,294 9,321 Investments 44,080 67,816 Long-term notes receivable 2,427 3,518 Property and Equipment Oil and gas properties (successful efforts method) 174,504 185,048 Other property and equipment 83,534 82,772 258,038 267,820 Less: Accumulated depreciation, depletion and amortization 52,922 76,553 Net property and equipment 205,116 191,267 Other assets 1,849 2,089 Total assets $ 268,766 $274,011 Liabilities and Shareholders' Equity Current liabilities Current maturities of long-term debt $ 740 $ 34 Accounts payable 2,609 1,570 Accrued liabilities 7,154 5,470 Current deferred income taxes 136 - Taxes on income 7,296 - Total current liabilities 17,935 7,074 Other liabilities 5,486 5,854 Deferred income taxes 26,683 28,265 Long-term debt 47,500 78,475 Commitments and contingencies (Note 16) Shareholders' equity Preferred stock of $100 par value- Authorized 100,000 shares; none issued - - Common stock of $6.25 par value - 16,000,000 shares authorized; 8,921,866 shares issued 55,762 55,762 Paid-in capital 8,100 8,096 Retained earnings 92,718 60,860 Accumulated other comprehensive income 26,606 42,017 183,186 166,735 Less: 524,108 shares in 2000 and 498,238 in 1999 of common stock held in treasury, at cost 10,974 11,142 Unearned compensation - ESOP 1,050 1,250 Total shareholders' equity 171,162 154,343 Total liabilities and shareholders' equity $268,766 $ 274,011
The accompanying notes are an integral part of these consolidated financial statements. PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except share data) Accumulated Other Shares Common Paid-in Retained Comprehensive Outstanding Stock Capital Earnings Income Balance at 12/31/97 8,274,326 $ 55,634 $8,431 $51,813 $63,500 Dividends paid ($0.90 per share) - - - (7,480) - Stock issued as compensation 5,357 - 26 - - Exercise of stock options 87,133 128 (114) - - Allocation of ESOP shares - - 98 - - Net income - - - 9,591 - Other comprehensive income, net of tax - - - - 2,485 Balance at 12/31/98 8,366,816 55,762 8,441 53,924 65,985 Dividends paid ($0.90 per share) - - - (7,568) - Stock issued as compensation 7,878 - (13) - - Exercise of stock options 48,934 - (365) - - Allocation of ESOP shares - - 33 - - Net income - - - 14,504 - Other comprehensive loss, net of tax - - - - (23,968) Balance at 12/31/99 8,423,628 55,762 8,096 60,860 42,017 Dividends paid ($0.90 per share) - - - (7,407) - Purchase of treasury stock (363,430) - - - - Stock issued as compensation 11,163 - - - - Exercise of stock options 326,397 - (63) - - Allocation of ESOP shares - - 67 - - Net income - - - 39,265 - Other comprehensive loss, net of tax - - - - (15,411) Balance at 12/31/2000 8,397,758 $55,762 $8,100 $92,718 $26,606
Continued from above table Unearned Total Treasury Compensation Stockholders' Comprehensive Stock ESOP Equity Income (Loss) Balance at 12/31/97 $(14,024) $(1,650) $163,704 $19,077 Dividends paid ($0.90/share) - - (7,480) Stock issued as compensation 120 - 146 Exercise of stock options 1,501 - 1,515 Allocation of ESOP shares - 200 298 Net income - - 9,591 $ 9,951 Other comprehensive income, net of tax _ _ 2,485 2,485 Balance at 12/31/98 (12,403) (1,450) 170,259 12,076 Dividends paid ($0.90/share) - - (7,568) Stock issued as compensation 176 - 163 Exercise of stock options 1,085 - 720 Allocation of ESOP shares - 200 233 Net income - - 14,504 $14,504 Other comprehensive loss, net of tax - - (23,968) (23,968) Balance at 12/31/99 (11,142) (1,250) 154,343 $ (9,464) Dividends paid ($0.90/share) - - (7,407) Purchase of treasury stock (6,761) - (6,761) Stock issued as compensation 226 - 226 Exercise of stock options 6,703 - 6,640 Allocation of ESOP shares _ 200 267 Net income - - 39,265 $ 39,265 Other comprehensive loss, net of tax - - (15,411) (15,411) Balance at 12/31/2000 $(10,974) $ (1,050) $171,162 $ 23,854
The accompanying notes are an integral part of these consolidated financial statements PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year ended December 31, 2000 1999 1998 Cash flows from operating activities: Net income $39,265 $14,504 $9,591 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation, depletion and amortization 12,027 8,393 7,162 Impairment of oil and gas properties - - 4,641 Gain on the sale of property and equipment (24,795) (280) (65) Deferred income taxes 7,006 2,805 923 Tax benefit from stock option exercises 1,049 86 170 Dry hole and unproved leasehold expense 3,154 1,115 58 Other 140 (1,284) (2,753) 37,846 25,339 19,727 Changes in operating assets and liabilities: Accounts receivable (6,046) (1,198) 1,721 Other current assets 161 (133) (136) Accounts payable and accrued liabilities 2,723 604 (1,277) Taxes on income 7,296 (576) 432 Other assets and liabilities (240) 1,105 (1,060) Net cash flows provided by operating activities 41,740 25,141 19,407 Cash flows from investing activities: Proceeds from the sale of securities - - 17 Proceeds from the sale of property & equipment 55,208 299 79 Payments received on long-term notes receivable 926 1,670 2,253 Proved properties acquired (35,999) (13,921) (3,351) Lease acquisitions (788) (32,793) (3,512) Capital expenditures (22,656) (13,937 (13,806) Net cash flows used in investing activities (3,309) (58,682) (18,320) Cash flows from financing activities: Dividends paid (7,407) (7,568) (7,480) Proceeds from borrowings 33,240 44,500 9,100 Repayment of borrowings (63,509) (3,990) (5,100) Purchases of treasury stock (6,761) - - Issuance of stock 6,084 1,031 1,787 Net cash flows provided by (used in) financing activities (38,353) 33,973 (1,693) Net increase (decrease) in cash and cash equivalents 78 432 (606) Cash and cash equivalents-beginning of year 657 225 831 Cash and cash equivalents - end of year $ 735 $657 $ 225 Supplemental disclosures: Cash paid during the year for: Interest $8,304 $2,980 $2,065 Income taxes $4,614 $2,100 $1,100 Noncash investing activities: Note receivable for sale of property and equipment $ - $ 1,255 $ - Note receivable exchanged for: Other property and equipment $ - $ - $2,954 Other liabilities $ - $ - $1,296 The accompanying notes are an integral part of these consolidated financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Operations Penn Virginia Corporation ("Penn Virginia" or the "Company") explores for, develops and produces crude oil, condensate and natural gas in the eastern and southern portions of the United States. The Company owns land and mineral rights to mineable and merchantable coal reserves and timber located in central Appalachia. The coal reserves are leased to various operators who mine and market the coal. Penn Virginia collects royalties based on the lessee's 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 undivided oil and gas properties and manages its coal reserves through its wholly-owned subsidiaries. The Company accounts for its undivided 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. New Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, 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 unrecognized firm commitment, an available-for-sale security, or a foreign currency denominated forecasted transaction. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the Company's statement of income. The adoption of SFAS No. 133 on January 1, 2001 did not have a material impact on the Company's financial position or results of operations. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements' ("SAB No. 101"). SAB No. 101, as amended, summarizes the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. The adoption of SAB No. 101 on October 1, 2000 did not have a material effect on the Company's financial position or results of operations. Use of Estimates Preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States 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 publicly traded 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. Discounts 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 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. Other Property and Equipment Other property and equipment is carried at cost and includes expenditures for additions and improvements, which substantially increase the productive lives of existing assets. Maintenance and repair costs are expensed as incurred. Depreciation of property 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 mineable and merchantable 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 The Company reviews its long-lived assets to be held and used, including proved 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. An impairment loss must be recognized when the carrying amount of an asset exceeds the sum of the undiscounted estimated future cash flows. In this circumstance, the Company would recognize 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 from proved reserves, utilizing a risk-adjusted rate of return. Concentration of Credit Risk Substantially all of the Company's accounts receivable at December 31, 2000 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, 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 5 for a discussion of notes receivable. Price Risk Management Activities The Company, from time to time, 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. Through December 31, 2000, the derivative financial instruments were designated as hedges and realized gains and losses from the Company's price risk management activities were recognized in natural gas revenues when the associated production occurs. Effective January 1, 2001, any derivative financial instruments will be accounted for in accordance with SFAS 133, as amended by SFAS 137 and SFAS 138. The fair value of open derivative financial instruments is 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 had no outstanding derivative financial instruments at December 31, 2000 or 1999. The fair value of the Company's open derivative contracts at December 31, 1998 was $0.1 million. Revenues Oil and Gas Natural gas revenues generally are recorded using the entitlement method in which the Company recognizes its ownership interest in natural gas production as revenue. Each working interest owner in a well generally has the right to a specific percentage of production, although actual production sold may differ from an ownership percentage. Using entitlement accounting, a receivable is recorded when under-production occurs and deferred revenue is recognized when over-production occurs. Coal Royalties Coal royalty income is recognized on the basis of tons sold by the Company's lessees and the corresponding revenue from those sales. All coal leases are based on minimum annual payment, a minimum dollar royalty per ton and/or a percentage of the gross sales price. Timber Timber is sold in competitive bid sales involving individual parcels and also on a contract basis, whereby Penn Virginia pays independent contractors to harvest timber while the Company directly markets the product. Timber income is recognized when the timber has been sold. Income Tax The Company accounts for income taxes in accordance with the provisions of 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. Acquisitions and Dispositions In May 2000, Penn Virginia successfully completed the purchase of proved natural gas reserves in West Virginia and Kentucky for $34.7 million, after closing adjustments. Additionally, in September 1999, the Company completed the purchase of fee mineral and lease rights for coal reserves and related assets in West Virginia for $30 million. Both acquisitions were funded by borrowings from the Company's revolving credit facility (the "Revolver") and accounted for at fair value. The operations have been included in the Company's statement of income as of the closing date. The following unaudited pro forma results of operations have been prepared as though the acquisitions had been completed on January 1, 1999. The unaudited pro forma results of operations for the years ended December 31, 2000 and 1999 are as follows (in thousands, except share data): 2000 1999 (Unaudited) Revenues $83,546 $56,290 Netincome $39,729 $15,229 Net income per share, diluted $ 4.75 $1.80
In December 2000, the Company sold oil and gas properties located in Kentucky and West Virginia. Proceeds from the sale totaled $54.3 million, after closing adjustments, and the Company recognized a gain of $23.9 million ($14.2 million after tax.) 4. Investments and Dividend Income The cost, gross unrealized holding gains and fair value of available-for-sale securities were as follows (in thousands): Gross Unrealized Holding Fair At December 31, 2000 Cost Gains Value Available-for-sale Norfolk Southern Corporation $2,839 $41,188 $44,027 Other - 53 53 $ 2,839 $41,241 $44,080 At December 31, 1999 Available-for-sale Norfolk Southern Corporation $2,839 $64,959 $67,798 Other - 18 18 $ 2,839 $64,977 $67,816
The Company owned 3,307,200 shares of Norfolk Southern Corporation stock at December 31, 2000. Dividend income from the Company's investment in Norfolk Southern Corporation was $2.6 million for each of the three years ended December 31, 2000, 1999 and 1998. The closing stock price for Norfolk Southern Corporation was $13.31 and $20.50 per share at December 31, 2000 and 1999, respectively. 5. Notes Receivable The Company's notes receivable are collateralized by property and equipment. During 1999, the Company received a $1.3 million note receivable for a portion of the proceeds relating to a property and equipment sale. Maturities of notes receivable are as follows (in thousands): December 31, 2000 1999 Current $ 981 $ 816 Due after one year through five years 2,427 2,876 Thereafter - 642 $ 3,408 $4,334
The fair value of the Company's notes receivable at December 31, 2000 and 1999 was $6.1 million and $6.9 million, respectively. 6. Property and Equipment Property and equipment includes (in thousands): December 31, 2000 1999 Oil and gas properties $174,504 $185,048 Other property and equipment: Land 1,809 1,813 Timber 188 188 Coal properties 72,952 73,081 Other equipment 8,585 7,690 258,038 267,820 Less: Accumulated depreciation and depletion (52,922) (76,553) Net property and equipment $205,116 $191,267
In accordance with SFAS No. 121, the Company reviews its proved oil and gas properties and other long-lived assets 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 or other long-lived assets in 2000 or 1999. 7. Long-Term Debt Long-term debt consists of the following (in thousands): December 31, 2000 1999 Revolving credit, variable rate of 8.1% at December 31, 2000, due in 2003 $47,500 $77,650 Line of credit 740 - Other - 859 48,240 78,509 Less: current maturities (740) (34) Total long-term debt $47,500 $78,475
The aggregate maturities applicable to outstanding debt at December 31, 2000 are $0.7 million in 2001 and $47.5 million in 2003. Revolving Credit Facility The Company has an unsecured revolving credit facility (the "Revolver") with a group of major U.S. banks. In 2000, the Revolver was increased from $120 million to $150 million. The Revolver is governed by a borrowing base calculation and will be redetermined semi-annually. The Company has the option to elect interest at (i) Libor plus a Eurodollar margin ranging from 100 to 150 basis points, based on the percentage of the borrowing base outstanding or (ii) the greater of the prime rate or federal funds rate plus 50 basis points. The Revolver allows for issuance of letters of credit which are limited to no more than $10 million. The financial covenants require the Company to maintain levels of net worth, debt-to-capitalization and dividend limitation restrictions. The Company is currently in compliance with all of its covenants. Line of Credit The Company has a $5 million line of credit with a financial institution due in December 2001, renewable annually. The Company has an option to elect either a fixed rate LIBOR loan, floating rate LIBOR loan or base rate loan. 8. Accrued Liabilities Accrued expenses are summarized as follows (in thousands): December 31, 2000 1999 Post employment benefits $ 317 $ 343 Compensation 1,421 715 Accrued oil and gas royalties 2,027 752 Taxes other than income 1,013 878 Gas imbalances 1,310 570 Accrued drilling costs 197 1,086 Other 869 1,126 $ 7,154 $5,470
9. Income Taxes The provision for income taxes from continuing operations is comprised of the following (in thousands): Year ended December 31, 2000 1999 1998 Current income taxes Federal $10,463 $1,525 $1,341 State 2,496 - 98 Total current 12,959 1,525 1,439 Deferred income taxes Federal 6,951 2,426 901 State 55 379 22 Total deferred 7,006 2,805 923 Total income tax expense $19,965 $ 4,330 $ 2,362
The difference between the taxes computed by applying the statutory tax rate to income from operations before income taxes and the Company's reported income tax expense is as follows (in thousands): Year ended December 31, 2000 1999 1998 Computed at federal statutory tax rate $20,731 $6,592 $4,150 State income taxes, net of federal income tax benefit 1,658 246 78 Dividends received deduction (648) (648) (648) Non-conventional fuel source credit (1,570) (1,471) (1,525) Percentage depletion (234) (414) (350) Other, net 28 25 657 Total income tax expense $19,965 $4,330 $2,362
The principal components of the Company's net deferred income tax liability is as follows (in thousands): December 31, 2000 1999 Deferred tax assets: Other long-term liabilities $1,908 $1,936 Alternative minimum tax credits 2,258 7,329 State tax loss carryforwards 925 938 Other 560 565 Total deferred tax assets 5,651 10,768 Deferred tax liabilities: Notes receivable (891) (1,169) Investments (14,437) (22,745) Oil and gas properties (14,789) (12,012) Other property and equipment (2,142) (1,823) Other (211) (1,129) Total deferred tax liabilities (32,470) (38,878) Net deferred tax liability (26,819) (28,110) Less: Net current deferred income tax asset (liability) (136) 155 Net non-current deferred tax liability $(26,683) $(28,265)
As of December 31, 2000, the Company had available for federal income tax purposes, alternative minimum tax credits of approximately $2.3 million which can be carried forward indefinitely as a credit. The Company has various state tax loss carryforwards of $11.5 million which, if unused, will expire from 2009 to 2020. 10.Pension Plans and Other Post-retirement Benefits The Company and its wholly-owned subsidiaries provided a noncontributory, defined benefit pension plan, which was frozen in 1996, and early retirement programs (the "Plans") for eligible employees. Benefits were based on the employee's average annual compensation and years of service. The Company sponsors a defined benefit post-retirement 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, 2000 and 1999 and a statement of the funded status at December 31, 2000 and 1999 is as follows (in thousands): Pension Post-retirement 2000 1999 2000 1999 Reconciliation of benefit obligation: Obligation - beginning of year $10,612 $11,701 $2,936 $3,112 Service cost 43 80 11 14 Interest cost 763 749 209 206 Benefits paid (1,087) (1,083) (324) (366) Actuarial (gain) loss 113 (754) 21 (129) Other 23 (81) - 99 Obligation - end of year 10,467 10,612 2,853 2,936 Reconciliation of fair value of plan assets: Fair value - beginning of year 10,594 10,468 1,578 1,698 Actual return on plan assets 223 982 (301) 221 Employer contributions 259 271 25 26 Participant contributions - - 5 8 Benefit payments (1,087) (1,083) (324) (366) Administrative expenses (48) (44) (8) (9) Fair value - end of year 9,941 10,594 975 1,578 Funded status: Funded status - end of year (526) (18) (1,878) (1,358) Unrecognized transition obligation 23 26 - - Unrecognized prior service cost 48 55 86 92 Unrecognized (gain) loss (308) (1,189) 118 (249) Net amount recognized $(763) $(1,126) $(1,674) $(1,515)
The following table provides the amounts recognized in the statements of financial position at December 31, 2000 and 1999 (in thousands): Pension Post-retirement 2000 1999 2000 1999 Accrued benefit liability $(1,199) $(1,542) $(1,674) $(1,515) Other long-term assets 71 81 - - Accumulated other comprehensive income 365 335 - - Obligation - end of year $(763) $(1,126) $(1,674) $(1,515)
The following table provides the components of net periodic benefit cost for the plans for the two years ended December 31, 2000 and 1999 (in thousands): Pension Post-retirement 2000 1999 2000 1999 Service cost $ 43 $80 $11 $14 Interest cost 763 749 209 206 Expected return on plan assets (963) (949) (42) (47) Amortization of prior service cost 6 6 6 7 Amortization of transitional obligation 3 4 - - Recognized actuarial (gain) loss (21) 13 - - Net periodic benefit cost $ (169) $ (97) $184 $ 180
The assumptions used in the measurement of the Company's benefit obligation were as follows: Pension Post-retirement 2000 1999 2000 1999 Discount rate 7.50% 7.50% 7.50% 7.50 % Expected return on plan assets 9.50 9.50 3.00 3.00
Since the benefits accrued under the defined benefit plan were frozen in 1996, it is not necessary to assume a rate of compensation increase. For measurement purposes, a 7.5 percent annual rate increase in the per capita cost of covered health care benefits was assumed for 2000. 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 post-retirement benefits. A one percent change in assumed health care cost trend rates would have the following effects for 2000 (in thousands): One percent One percent increase decrease Effect on total of service and interest cost components $ 9 $ (8) Effect on post-retirement benefit obligation 126 (114)
11. Other Liabilities Other liabilities are summarized in the following table (in thousands): December 31, 2000 1999 Post-retirement health care $1,497 $1,312 Deferred income 2,749 2,793 Pension 1,059 1,402 Other 181 347 $ 5,486 $5,854
12. 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 net income for the three years ended December 31, 2000 (in thousands, except share data.) 2000 1999 1998 Net income $39,265 $14,504 $9,591 Weighted average shares, basic 8,241 8,406 8,310 Dilutive securities: Stock options 130 74 153 Weighted average shares, diluted 8,371 8,480 8,463 Net income per share, basic $ 4.76 $ 1.73 $ 1.15 Net income per share, diluted $ 4.69 $ 1.71 $ 1.13
Antidilutive stock options are precluded from the computation of diluted EPS; however, such options could potentially dilute basic EPS in the future. 13.Stock Option and Stock Ownership Plans Stock Option Plans The Company has several stock option plans (collectively known as the "Stock Option Plans") which allow incentive and nonqualified stock options to be granted to key employees and officers of the Company and nonqualified stock options to be granted to directors of the Company. Options granted under the Stock Option Plans may be exercised at any time after one year 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 Stock Option Plans is at the fair market value of the Company's stock on the date of the grant. The following table summarizes information with respect to the common stock options awarded under the Stock Option Plans and grants described above. 2000 1999 1998 Shares Weighted Shares Weighted Shares Weightd Under Avg.Exercise Under Avg.Exercise Under Avg.Exercise Options Price Options Price Options Price Outstanding, Beginning of year 1,014,500 $18.74 1,002,800 $18.65 1,036,500 $18.19 Granted 46,300 $16.65 91,800 $20.27 80,600 $25.06 Exercised 326,397 $17.13 49,000 $16.44 96,901 $18.53 Cancelled 9,000 $18.99 31,100 $23.84 17,399 $21.56 Outstanding, End of year 725,403 $19.38 1,014,500 $18.74 1,002,800 $18.65 Weighted average of fair value of options granted during the year $5.02 $6.02 $8.50
The following table summarizes certain information regarding stock options outstanding at December 31, 2000: Options Outstanding Options Exercisable Range of Number Weighted Avg. Weighted Number Weighted Exercise Outstanding Remaining Avg. Exercisable Avg. Price at Contractual Exercise at Exercise 12/31/00 Life Price 12/31/00 Price $15 to $19 382,203 6.5 $16.78 343,403 $16.61 $20 to $24 298,100 6.4 $21.59 298,100 $21.92 $25 to $30 45,100 6.9 $26.77 45,100 $26.77
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. 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 pro forma net income and earnings per share would have been as follows: 2000 1999 1998 Net Income (in thousands) $39,092 $14,111 $ 9,022 Earnings per share, basic $ 4.74 $ 1.68 $ 1.09 Earnings per share, diluted $ 4.67 $ 1.66 $ 1.07
The fair value of the options granted during 2000 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: a) dividend yield of 5.2 percent to 5.4 percent, b) expected volatility of 37.0 percent, c) risk- free interest rate of 6.9 percent to 7.0 percent and d) expected life of eight years. The fair value of the options granted during 1999 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: a) dividend yield of 4.4 percent to 4.6 percent, b) expected volatility of 38.6 percent, c) risk- free interest rate of 4.8 percent to 4.9 percent and d) expected life of eight years. 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 effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. Employees' Stock Ownership Plan In 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 are no employee contributions, participants 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, 2000, the unearned portion of the ESOP approximately ($1.1 million) was recorded as a contra-equity account entitled "Unearned Compensation-ESOP." Shareholder Rights Plan In February 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 in February 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. 14. Accumulated Other Comprehensive Income 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 minimum pension liability adjustments. Reclassification adjustments represent gains or losses from investments realized in net income for each respective year. For the three years ended December 31, 2000, the components of accumulated other comprehensive income are as follows (in thousands): Accumulated Net unrealized Minimum other holding gain - pension comprehensive investments liability income Balance at December 31, 1997 $63,728 $ (228) $63,500 Unrealized holding gain, 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 Unrealized holding gain, net of tax of $12,951 (24,052) - (24,052) Pension plan adjustment, net of tax of $46 - 84 84 Balance at December 31, 1999 42,235 (218) 42,017 Unrealized holding loss, net of tax of $8,308 (15,429) - (15,429) Pension plan adjustment, net of tax of $10 - 18 18 Balance at December 31, 2000 $ 26,806 $(200) $26,606
15. 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 Royalty and Land Management - the leasing of mineral rights and subsequent collection of royalties and the development and harvesting of timber. Coal Royalty and Land Corporate Oil and Gas Management and Other Consolidated (in thousands) December 31, 2000 Revenues $47,507 $31,051 $2,645 $81,203 Operating income (loss) 22,517 21,834 (3,510) 40,841 Total assets 142,613 80,923 45,230 268,766 Depreciation, depletion and amortization 9,883 2,047 97 12,027 Capital expenditures 58,677 485 281 59,443
Coal Royalty and Land Corporate Oil and Gas Management and Other Consolidated (in thousands) December 31, 1999 Revenues $22,942 $21,830 $2,645 $47,417 Operating income (loss) 5,889 16,380 (1,834) 20,435 Total assets 120,954 83,975 69,082 274,011 Depreciation, depletion and amortization 6,951 1,269 173 8,393 Capital expenditures 28,605 31,955 91 60,651 December 31, 1998 Revenues $21,106 $14,499 $2,647 $38,252 Operating income (loss) 260 10,549 (608) 10,201 Total 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
Revenues for the oil and gas segment in 2000 include a $23.9 million gain on a property sale. 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, 2000, two customers of the oil and gas segment accounted for $13.6 million, or 13 percent, and $10.5 million, or 10 percent, respectively, of the Company's consolidated net revenues. For the year ended December 31, 1999, two customers of the oil and gas segment accounted for $9.6 million, or 20 percent, and $6.9 million, or 13 percent, respectively, of the Company's consolidated net revenues. 16. Commitments and Contingencies Rental Commitments Minimum rental commitments under all non-cancelable operating leases, primarily real estate, in effect at December 31, 2000 were as follows (in thousands): Year ending December 31, 2001 $ 454 2002 420 2003 346 2004 246 2005 77 Total minimum payments $ 1,543 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 proceedings 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. 17. 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 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, 2000 1999 1998 (in thousands) Proved properties $64,107 $41,084 $35,842 Unproved properties 2,425 3,959 1,408 Wells, equipment and facilities 105,283 137,176 117,688 Support equipment 2,689 2,829 2,620 174,504 185,048 157,558 Accumulated depreciation and depletion (43,720) (69,495) (62,545) Net capitalized costs $ 130,784 $ 115,553 $ 95,013
Costs Incurred in Certain Oil and Gas Activities Year Ended December 31, 2000 1999 1998 (in thousands) Proved property acquisition costs $35,999 $14,069 $3,351 Unproved property acquisition costs 917 2,551 206 Exploration costs 5,125 3,171 2,022 Development costs and other 18,561 9,398 8,698 Total costs incurred $ 60,602 $29,189 $14,277
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 a noncash charge 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. Year Ended December 31, 2000 1999 1998 (in thousands) Revenues $46,851 $21,847 $20,817 Production costs 7,097 5,092 4,746 Exploration costs 5,080 1,699 488 Depreciation and depletion 9,883 6,951 6,460 Impairment of oil and gas properties - - 4,641 24,791 8,105 4,482 Income tax expense 8,354 1,864 1,062 Results of operations $ 16,437 $ 6,241 $ 3,420
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 oil and gas properties. Net proved oil and gas reserves for the three years ended December 31, 2000 were estimated by Wright and Company, Inc. 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: Proved Developed and Undeveloped Oil and Reserves Condensate Natural Gas (MBbls) (MMcf) MMcfe December 31, 1997 424 171,562 174,106 Revisions of previous estimates (53) (11,978) (12,296) Extensions, discoveries and - 7,885 7,885 other additions Production (30) (8,056) (8,236) Purchase of reserves - 4,495 4,495 Sale of reserves in place - (35) (35) December 31, 1998 341 163,873 165,919 Revisions of previous estimates 31 2,106 2,292 Extensions, discoveries and - 4,661 4,661 other additions Production (32) (8,679) (8,871) Purchase of reserves 19 23,237 23,351 December 31, 1999 359 185,198 187,352 Revisions of previous estimates 107 (1,893) (1,251) Extensions, discoveries and 19 30,987 31,101 other additions Production (31) (11,645) (11,831) Purchase of reserves 11 35,879 35,945 Sale of reserves in place (394) (64,279) (66,643) December 31, 2000 71 174,247 174,673 Proved Developed Reserves: December 31, 1998 313 118,146 120,024 December 31, 1999 326 138,283 140,239 December 31, 2000 71 145,930 146,356
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. 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 materially differ from current prices or the prices used 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, 2000 1999 1998 (in thousands) Future cash inflows $1,727,923 $505,685 $354,567 Future production costs 205,385 151,220 123,007 Future development costs 19,981 30,431 26,128 Future net cash flows before income tax 1,502,557 324,034 205,432 Future income tax expense 422,485 58,068 28,031 Future net cash flows 1,080,072 265,966 177,401 10% annual discount for estimated timing of cash flows 612,679 146,703 101,737 Standardized measure of discounted future net cash flows $467,393 $119,263 $75,664
Changes in Standardized Measure of Discounted Future Net Cash Flows Year Ended December 31, 2000 1999 1998 (in thousands) Sales of oil and gas, net of production costs $(39,754) $(16,755) $(16,071) Net changes in prices and production costs 313,355 32,111 (57,646) Extensions, discoveries & other additions 123,223 4,090 4,906 Development costs incurred during the period 16,001 5,330 5,289 Revisions of previous quantity estimates (4,604) 1,709 (6,735) Purchase of minerals-in-place 121,979 20,438 2,896 Sale of minerals-in-place (41,456) - (26) Accretion of discount 13,628 8,116 14,059 Net change in income taxes (159,220) (11,526) 12,006 Other changes 4,978 86 (2,109) Net increase (decrease) 348,130 43,599 (43,431) Beginning of year 119,263 75,664 119,095 End of year $ 467,393 $ 119,263 75,664
As required by SFAS No. 69, "Disclosures about Oil and Gas Producing Activities," changes in standardized measure relating to sales of reserves are calculated using prices in effect as of the beginning of the period and changes in standardized measure relating to purchases of reserves are calculated using prices in effect at the end of the period. Accordingly, the changes in standardized measure for purchases and sales of reserves reflected above do not necessarily represent the economic reality of such transactions. See the disclosure of "Costs incurred in Certain Oil and Gas Activities" and the statements of cash flows in the financial statements. Natural gas prices have declined significantly since December 31, 2000; consequently, the discounted future net cash flows would be significantly reduced if the standardized measure was calculated in the first quarter of 2001. 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. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES 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 30 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) Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999). (3.2) Articles of Amendment of Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999). (3.3) Amended bylaws of the Company. (4) 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) Amended and restated Credit Agreement dated July 30, 1999, as amended by that certain First Amendment Agreement dated as of May 31, 2000, among Penn Virginia Corporation and Chase Manhattan Bank (formerly known as Chase Bank of Texas National Association), as Agent (the "Agent") and First Union National Bank, First National Bank of Chicago, PNC Bank National Association and Royal Bank of Canada (collectively, the "Banks"). (10.2) New Bank Agreement dated as of November 30, 2000 among Penn Virginia Corporation and the Banks. (10.3) 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)). (10.4) 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)). (10.5) 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 27, 2001. (10.6) Penn Virginia Corporation 1994 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999). (10.7) Penn Virginia Corporation 1995 Directors' Stock Option Plan, as amended. (10.8) Penn Virginia Corporation 1999 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999). (21) Subsidiaries of the Company. (23.1) Consent of Arthur Andersen LLP. (b) Reports on Form 8-K On January 12, 2001, Penn Virginia Corporation filed a report on Form 8-K. The report involved a divestiture on December 29, 2000 and was filed under "Item 2. Acquisition or Disoposition of Assets." EXHIBIT 3.3 AMENDED BYLAWS OF PENN VIRGINIA ARTICLE 1 SHAREHOLDERS Section 1. Meetings. A. Annual Meeting. Unless otherwise fixed by the board of directors the annual meeting of shareholders for the election of directors and for other business shall be held on the first Tuesday of May in each year or, if that day is a legal holiday, on the first subsequent business day. B. Special Meetings. Special meetings of the shareholders may be called at any time by the chief executive officer, or a majority of the board of directors. C. Place. Meetings of the shareholders shall be held at such place in Philadelphia, Pennsylvania or elsewhere, as may be fixed by the board of directors in the notice of meeting. D. Adjournments. A Public Announcement of an adjournment of an annual or special meeting shall not commence a new time period for the giving of shareholder notices provided herein. For purposes of these Bylaws, "Public Announcement" includes without limitation (i) a press release reported by the Dow Jones News, Associated Press or a comparable national news service, or (ii) a document filed with the Securities and Exchange Commission. E. Organization. The Chairman of the Board of Directors, or, in the absence of the Chairman of the Board of Directors, such other officer or board member as the Board of Directors may designate, shall preside at each meeting of shareholders and may adjourn the meeting from time to time. The Secretary or an Assistant Secretary shall act as secretary of the meeting and keep a record of the proceedings thereof. The Board of Directors of the Company shall be entitled to make such rules or regulations for the conduct of meetings of shareholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures, and to do all such acts as, in the judgement of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including without limitation, establishing an agenda or order of business for the meeting, establishing rules and procedures for maintaining order at the meeting and the safety of those present, limiting the participation in such meeting to shareholders of record of the Company and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restricting entry to the meeting after the time fixed for the commencement thereof, limiting the time allotted to questions or comments by participants, and regulating the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless, and to the extent, determined by the Board of Directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with the rules of parliamentary procedure. Section 2. Notice. Written notice of the time and place of all meetings of shareholders and of the purpose of each special meeting of shareholders shall be given to each shareholder entitled to vote thereat at least ten days before the date of the meeting, unless a greater period of notice is required by law in a particular case. Section 3. Voting. A. Voting Rights. Except as otherwise provided herein, or in the Articles of Incorporation, or by law, every shareholder shall have the right at every shareholders' meeting to one vote for every share standing in his name on the books of the Company which is entitled to vote at such meeting. Every shareholder may vote either in person or by proxy. B. Election of Directors. At each annual meeting the shareholders shall elect at least seven but not more than ten directors who shall constitute the entire Board. C. Nomination of Directors. Nominations for the election of directors may be made by the Board of Directors or by any shareholder (a "Nominator") entitled to vote in the election of directors. Such nominations, other than those made by the Board of Directors, shall be made in writing pursuant to timely notice delivered to or mailed and received by the Secretary of the Company as set forth in this Section 3C. To be timely in connection with an annual meeting of shareholders, a Nominator's notice, setting forth the name and address of the person to be nominated, shall be delivered to or mailed and received at the principal executive offices of the Company not less than 90 days nor more than 180 days prior to the earlier of the date of the meeting or the corresponding date on which the immediately preceding year's annual meeting of shareholders was held; provided, however, that with respect to the annual meeting of shareholders to be held in 1998, notice by the shareholder to be timely must be delivered not later than the tenth day following the day on which Public Announcement of the date of such meeting is first made by the Company. To be timely in connection with any election of a director at a special meeting of the shareholders, a Nominator's notice, setting forth the name and address of the person to be nominated, shall be delivered to or mailed and received at the principal executive offices of the Company not later than the close of business on the tenth day following the day on which notice of the date of the meeting was mailed or Public Announcement of such meeting was made, whichever first occurs. At such time, the Nominator shall also submit written evidence, reasonably satisfactory to the Secretary of the Company, that the Nominator is a shareholder of the Company and shall identify in writing (i) the name and address of the Nominator, (ii) the number of shares of each class of capital stock of the Company of which the Nominator is the beneficial owner, (iii) the name and address of each of the persons, if any, with whom the Nominator is acting in concert and (iv) the number of shares of capital stock of which each such person with whom the Nominator is acting in concert is the beneficial owner pursuant to which the nomination or nominations are to be made. At such time, the Nominator shall also submit in writing (i) the information with respect to each such proposed nominee that would be required to be provided in a proxy statement prepared in accordance with Regulation 14A under the Securities Exchange Act of 1934, as amended, and (ii) a notarized affidavit executed by each such proposed nominee to the effect that, if elected as a member of the Board of Directors, he will serve and that he is eligible for election as a member of the Board of Directors. Within 30 days (or such shorter time period that may exist prior to the date of the meeting) after the Nominator has submitted the aforesaid items to the Secretary of the Company, the Secretary of the Company shall determine whether the evidence of the Nominator's status as a shareholder submitted by the Nominator is reasonably satisfactory and shall notify the Nominator in writing of such determination. If the Secretary of the Company finds that such evidence is not reasonably satisfactory, or if the Nominator fails to submit the requisite information in the form or within the time indicated, such nomination shall be ineffective for the election at the meeting at which such person is proposed to be nominated. The presiding person at each meeting of shareholders shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine and so declare, the nomination shall be disregarded. The requirements of this Section 3C shall be in addition to any other requirements imposed by these Bylaws, by the Company's Articles of Incorporation or by law and in no event shall the periods specified herein be in derogation of other time periods required by law. Section 4. Quorom The presence, in person or by proxy, of the holders of a majority of the outstanding shares of stock of the Company entitled to vote at a meeting shall constitute a quorum. If a quorum is not present, no business shall be transacted except to adjourn to a future time. Section 5. Shareholder Proposals. No proposal by a shareholder may be voted upon at a meeting of shareholders unless the proposing shareholder shall have delivered or mailed in a timely manner (as set forth herein) and in writing to the Secretary of the Company (A) notice of such proposal, (B) the text of the proposed alteration, amendment or repeal, if such proposal relates to a proposed change to the Company's Articles of Incorporation or Bylaws, (C) evidence reasonably satisfactory to the Secretary of the Company of such shareholder's status as such and of the number of shares of each class of capital stock of the Company of which such shareholder is the beneficial owner, (D) a list of the names and addresses of other beneficial owners of shares of the capital stock of the Company, if any, with whom such shareholder is acting in concert, and the number of shares of each class of capital stock of the Company beneficially owned by each such beneficial owner and (E) an opinion of counsel, which counsel and the form and substance of which opinion shall be reasonably satisfactory to the Board of Directors of the Company, to the effect that the Articles of Incorporation or Bylaws resulting from the adoption of such proposal would not be in conflict with the laws of the Commonwealth of Virginia if such proposal relates to a proposed change to the Company's Articles of Incorporation or Bylaws. To be timely in connection with an annual meeting of shareholders, a shareholder's notice and other aforesaid items shall be delivered to or mailed and received at the principal executive offices of the Company not less than 90 nor more than 180 days prior to the earlier of the date of the meeting or the corresponding date on which the immediately preceding year's annual meeting of shareholders was held; provided, however, that with respect to the annual meeting of shareholders to be held in 1998, notice by the shareholder to be timely must be delivered not later than the tenth day following the day on which Public Announcement of the date of such meeting is first made by the Company. To be timely in connection with the voting on any such proposal at a special meeting of the shareholders, a shareholder's notice and other aforesaid items shall be delivered to or mailed and received at the principal executive offices of the Company not later than the close of business on the tenth day following the day on which such notice of date of the meeting was mailed or Public Announcement was made whichever first occurs. Within 30 days (or such shorter period that may exist prior to the date of the meeting) after such shareholder shall have submitted the aforesaid items to the Secretary of the Company, the Secretary shall determine whether the items to be ruled upon by the Secretary are reasonably satisfactory and shall notify such shareholder in writing of such determination. If such shareholder fails to submit a required item in the form or within the time indicated, or if the Secretary determines that the items to be ruled upon by the Secretary are not reasonably satisfactory, then such proposal by such shareholder may not be voted upon by the shareholders of the Company at such meeting of shareholders. The presiding person at each meeting of shareholders shall, if the facts warrant, determine and declare at the meeting that a proposal was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine and so declare the proposal shall be disregarded. The requirements of this Section 5 shall be in addition to any other requirements imposed by these Bylaws, by the Company's Articles of Incorporation or by law and in no event shall the periods specified herein be in derogation of other time periods required by law. ARTICLE 2 DIRECTORS Section 1. Term of Office. Each director elected at an annual meeting of the shareholders shall hold office until the next annual meeting, unless properly removed or disqualified, and until such further time as his successor is elected and has qualified. Section 2. Powers. The business of the Company shall be managed by the board of directors which shall have all powers conferred by law and these bylaws. The board of directors shall elect, remove or suspend officers, determine their duties and compensations, and require security in such amounts as it may deem proper. Section 3. Meetings. A. Regular Meetings. Regular meetings shall be held at such times as the board shall designate by resolution. Notice of regular meetings need not be given. B. Special Meetings. Special meetings of the board may be called at any time by the chief executive officer and shall be called by him upon the written request of one-third of the directors. Written notice of the time, place and the general nature of the business to be transacted at each special meeting shall be given to each director at least three days before such meeting. C. Place. Meetings of the board of directors shall be held at such place as the board may designate or as may be designated in the notice calling the meeting. Section 4. Quorum. A majority of the number of directors in office immediately before the meeting begins shall constitute a quorum for the transaction of business at any meeting and, except as provided in Article VII, the acts of a majority of the directors present at any meeting at which a quorum is present shall be the acts of the board of directors. Section 5. Vacancies. Vacancies in the board of directors shall be filled by vote of a majority of the remaining members of the board though less than a quorum. Such election shall be for the balance of the unexpired term or until a successor is duly elected by the shareholders and has qualified. ARTICLE 3 BOARD COMMITTEES Section 1. Executive Committee. The board of directors by resolution of a majority of the number of directors then in office may designate three or more directors to constitute an executive committee, which, to the extent provided in such resolution, shall have and may exercise all the authority of the board of directors except to approve an amendment of the Company's articles of incorporation or a plan of merger or consolidation. If an executive committee is so designated it will elect one of its members to be its chairman. Section 2. Compensation and Benefits Committee. The board of directors by resolution of a majority of the number of directors then in office may designate three or more outside directors to constitute a compensation and benefits committee, which shall have such power and authority as may be provided in such resolution. Section 3. Other Committees. The board of directors by resolution of a majority of the number of directors then in office may create or disband other committees, as deemed to be proper. ARTICLE 4 OFFICERS Section 1. Election. At its first meeting after each annual meeting of the shareholders, the board of directors shall elect a president, treasurer and secretary, and such other officers as it deems advisable. Any two or more offices may be held by the same person except the offices of president and secretary. Section 2. Chairman and President. A. Chairman. The chairman shall preside at all meetings of the board and of the shareholders. If so designated by the board of directors, the chairman shall be the chief executive officer. B. President. The president shall be either the chief executive officer or the chief operating officer of the Company, as designated by the board of directors. The president shall have such duties as the board of directors and the chairman of the Company shall prescribe. Section 3. Other Officers. The duties of the other officers shall be those usually related to their offices, except as otherwise prescribed by resolution of the board of directors. Section 4. General. In the absence of the chairman and president, the person who has served longest as vice president or any other officer designated by the board shall exercise the powers and perform the duties of the chief executive officer or chief operating officer or both. The chief executive officer or any officer or employee authorized by him may appoint, remove or suspend agents or employees of the Company and may determine their duties and compensation. ARTICLE 5 INDEMNIFICATION Section 1. Right to Indemnification. Subject to Section 3, the Company shall indemnify any person who was or is a party or threatened to be a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, and whether formal or informal, and whether or not by or in the right of the corporation, by reason of the fact that he is or was a director or officer of the Company, or, while a director or officer of the Company, is or was serving at the request of the Company as a director, officer, partner, trustee, administrator, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, for expenses (including attorney's fees), judgments, fines, penalties, including any excise tax assessed with respect to an employee benefit plan, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, to the fullest extent and manner permitted by the Virginia Corporation Law as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than permitted prior to such amendment). Section 2. Advance of Expenses. Subject to Section 3, expenses incurred by a director or officer of the Company in defending a civil or criminal action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company. Section 3. Procedure for Determining Permissibility. The procedure for determining the permissibility of indemnification pursuant to Article 5 (including the advance of expenses), shall be that set forth in Section 13.1-701.B of the Virginia Corporation Law, provided that, if there has been a change in control of the Company between the time of the action or failure to act giving rise to the claim for indemnification and such claim, then at the option of the person seeking indemnification, the permissibility of indemnification shall be determined by special legal counsel selected jointly by the Company and the person seeking indemnification. The reasonable expenses of any director or officer in prosecuting a successful claim for indemnification, and the fees and expenses of any special legal counsel engaged to determine permissibility of indemnification, shall be borne by the Company. Section 4. Contractual Obligation; Inuring of Benefit. The obligations of the Company to indemnify a person under this Article V, including the obligation to advance expenses, shall be considered contractual obligations of the Company to such person, subject only to the determination of permissibility as set forth in the preceding Section, and no modification or repeal of any provision of this Article V shall affect, to the detriment of such person, the obligations of the Company in connection with a claim based on any act or failure to act occurring before such modification or repeal. The obligations of the Company to indemnify a person under this Article V, including the obligation to advance expenses, shall inure to the benefit of the heirs, executors and administrators of such person. Section 5. Insurance and Other Indemnification. The board of directors of the Company shall have the power but shall not be obliged to (a) purchase and maintain, at the Company expense, insurance on behalf of the Company and its director, officers, employees and agents against liabilities asserted against any of them, including the Company's obligations to indemnify and advance expenses, to the extent that power to do so is not prohibited by applicable law, and (b) give other indemnification to the extent not prohibited by applicable law. ARTICLE 6 CERTIFICATES OF STOCK Section 1. Share Certificates. Every shareholder of record shall be entitled to a share certificate representing the shares held by him. Every share certificate shall bear the corporate seal and the signature of the president or a vice president and the secretary or an assistant secretary or treasurer of the Company. Section 2. Transfers. Shares of stock of the Company shall be transferable on the books of the Company only by the registered holder or by duly authorized attorney. A transfer shall be made only upon surrender of the share certificate. Any restrictions which are deemed to be imposed on the transfer of the Company's securities by the Shareholder Rights Agreement dated as of February 11, 1998 between the Company and American Stock Transfer & Trust Company, as it may be amended from time to time, or by any successor or replacement rights plan or agreement, are hereby authorized. ARTICLE 7 AMENDMENTS These bylaws may be changed at any regular or special meeting of the board of directors by the vote of a majority of the number of directors in office immediately before the meeting or at any annual or special meeting of shareholders by the vote of the shareholders entitled to vote as required by law. Notice of any such meeting of shareholders shall set forth the proposed change or a summary thereof. EXHIBIT 10.2 FIRST AMENDMENT AGREEMENT This First Amendment Agreement dated as of May 31, 2000 (this "Amendment") is among Penn Virginia Corporation, a Virginia corporation ("Borrower"), the Subsidiaries of the Borrower, the lenders listed on the signature pages hereto ("Banks"), and Chase Bank of Texas, National Association, a national banking association, as Agent. Reference is made to the Amended and Restated Credit Agreement dated as of July 30, 1999 among the Borrower, the Banks and the Agent (the "Agreement"). In consideration of the mutual covenants contained herein, the Borrower, the Banks and the Agent agree as set forth herein. 1. Amendments to the Agreement. 1.1 Definitions. (a) The definitions of Consolidated Tangible Net Worth and Total Commitment in Section 1.1 of the Agreement are hereby amended to read as follows: "Consolidated Tangible Net Worth" shall mean, with respect to the Borrower and its Restricted Subsidiaries, at any time, the Consolidated Equity of the Borrower, at such time, less the Borrower's Consolidated Intangible Assets with a value of greater than $1,000,000 at such time; provided that, the calculation of Consolidated Tangible Net Worth shall not give effect to any unrealized gain or loss recognized under GAAP after the date of the First Amendment Agreement attributable to Capital Stock owned by the Borrower, including but not limited to Norfolk Common Stock. For purposes of this definition, "Intangible Assets" shall mean the amount (to the extent reflected in determining Consolidated Equity) of all unamortized debt discount and expense, unamortized deferred charges, good will, patents, trademarks, service marks, trade names, copyrights and organization expenses. "Total Commitment" shall mean the amount listed as the "Total Commitment" on Schedule 1.1, as the same may be reduced from time to time pursuant to Section 2.9. (b) The following definitions are hereby added to Section 1.1 of the Agreement in the appropriate alphabetical order: "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or nonvoting) of capital stock, partnership interests (whether general or limited), company interests, membership interests or other ownership interests in or issued by such Person. "First Amendment" means the First Amendment Agreement dated as of May 31, 2000 among the Borrower, the Banks party thereto, and the Agent. 1.2 Section 3.5. Section 3.5 of the Agreement is hereby amended to read as follows: SECTION 3.5. Interim Total Borrowing Base. During the period from the date of the First Amendment through and including November 30, 2000, the Total Borrowing Base is $135,000,000 unless redetermined in accordance with Section 3.4. The determination of the Total Borrowing Base for Borrowing Base Periods starting after November 30, 2000 shall be governed by Article III. 1.3 Section 7.2(c). The Agreement is hereby amended by adding after Section 7.2(b) the following Section 7.2(c): (c) The Borrower and its Subsidiaries may purchase any Capital Stock of the Borrower if the aggregate of such purchases made from the date of the First Amendment is less than $500,000 and if, at the time such purchase is made, (i) no payment of principal, interest, fees or other amount required hereunder or under the Loan Documents has become due and has not been paid, (ii) no Default or Event of Default (other than as described in clause (i) of this proviso) has occurred, is continuing and has not been waived by the Majority Banks (or if required under Section 10.1, all of the Banks) has occurred or would occur as a result of the making of such purchase, (iii) no Borrowing Base Deficiency exists or is reasonably expected to exist as of the next Determination Date, and (iv) after giving effect to the proposed purchase, the Borrower is in compliance with covenants contained in Section 7.15 as of (and as if the most recently ended Fiscal Quarter of the Borrower had ended on) the date such purchase is made. 1.4 Section 8.1(c). Section 8.1(c) of the Agreement is hereby amended to read as follows: (c) The Borrower or any Subsidiary of the Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 6.1(c), 6,1(d)(ii), 6.11 or Article VII, other than Section 7.15(a) or 7.15(b), of this Credit Agreement; or 1.5 Schedule 1.1. Schedule 1.1 of the Agreement is hereby replaced with the Schedule 1.1 attached to this Amendment. 2. Miscellaneous. 2.1 Amendments, Etc. No amendment or waiver of this Amendment or consent to any departure by the Borrower therefrom is effective unless completed in accordance with Section 10.1 of the Agreement. 2.2 Governing Law. This Amendment and the Agreement as amended hereby are governed by and construed in accordance with the laws of the State of Texas. 2.3 Preservation. Except as modified by this Amendment, all of the terms, provisions, covenants, warranties and agreements of the Agreement (including, without limitation, its exhibits and schedules thereto) or any of the other documents executed in connection with the Agreement remain in full force and effect. Unless otherwise defined herein, capitalized terms that are defined in the Agreement are used herein as therein defined. 2.4 Execution in Counterparts. This Amendment may be executed in any number of counterparts which are deemed to be an original and all of which taken together constitute one and the same agreement. 2.5 Bank Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank and based on documents and information it deems appropriate, made its own credit analysis and decision to enter into this Amendment and to agree to the various matters set forth herein and will continue to make its own credit decisions in taking or not taking action under the Agreement as amended hereby. 2.6 Representations. The Borrower and each Subsidiary of the Borrower represent and warrant to the Agent and the Banks that: (i) The representations and warranties in Article V of the Agreement and, in all material respects, in each of the other Loan Documents to which the Borrower or such Subsidiary is a party, are true and correct on and as of the date hereof as though made on and as of the date hereof, and (ii) No event or state of affairs which could reasonably be expected to result in a Material Adverse Effect has occurred since the fiscal year end of the Fiscal Year for which audited financial statements conforming to the requirements of Section 6.1(b) of the Agreement have been delivered to the Banks pursuant to Section 6.1(b). (iii) No event has occurred and is continuing which constitutes a Default or an Event of Default. (iv) No new material litigation (other than Existing Litigation) is pending or, to the best knowledge of the Borrower after due inquiry, threatened against the Borrower or any Subsidiary and no material adverse development has occurred in any Existing Litigation. 2.7 Authority, etc. The Borrower represents and warrants to the Agent and the Banks that (i) the Borrower and each of its Subsidiaries is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation, (ii) the execution, delivery and performance of this Amendment by the Borrower and its Subsidiaries are within the power and authority of the Borrower and its Subsidiaries and have been duly authorized by all necessary action and the performance of the Agreement, as amended hereby, by the Borrower is within the power and authority of the Borrower and has been duly authorized by all necessary action, (iii) the execution, delivery and performance of the Amendment by the Borrower and its Subsidiaries and the performance of the Agreement, as amended hereby, by the Borrower do not contravene (A) the Borrower's or any of its Subsidiaries' certificate of incorporation or bylaws or similar formation or organizational documents, (B) any order, writ, injunction or decree, or (C) law or any agreement binding on or affecting the Borrower or any Subsidiary of the Borrower, and will not result in or require the creation or imposition of any Lien prohibited by the Agreement, (iv) this Amendment has been duly executed and delivered by the Borrower and its Subsidiaries, (v) this Amendment and the Agreement, as amended hereby, are legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with its terms and this Amendment is the legal, valid and binding obligation of each Subsidiary, enforceable against each Subsidiary in accordance with its terms, except, in each case, as such enforceability may be limited by any applicable bankruptcy, reorganization, insolvency, moratorium or similar law affecting creditors' rights generally, and (v) no authorization, consent, license or approval of, or other action by, and no notice to or filing with, any governmental authority, regulatory body or other Person is required for the due execution, delivery and performance of this Amendment or the performance of the Agreement, as amended hereby. 2.8 Default. Without limiting any other event which may constitute an Event of Default, in the event any representation or warranty set forth herein shall be incorrect or misleading in any material respect when made, such event shall constitute an "Event of Default" under the Agreement, as amended hereby. 2.9 Effectiveness. This Amendment will become effective as of May 31, 2000 subject to the following conditions precedent: (a) The Agent shall have received, duly authorized, executed and delivered by each Person that is shown to be a party thereto, in form and substance satisfactory to the Banks, each of the following: (i) this Amendment and a Note payable to the order of Royal Bank of Canada in the amount of $30,000,000 and substantially in the form of Exhibit D to the Agreement; (ii) a certificate of the Secretary or Assistant Secretary of the Borrower, dated the date of this Amendment, certifying (x) that attached thereto are copies of the documents generally described in (y) below which were delivered in connection with the Agreement and that such documents are in full force and effect, are true and correct, and are the only such documents relating to the subject matter set forth therein, or (y) as to (aa) the adoption and continuing effect of resolutions of the board of directors of the Borrower authorizing the transactions contemplated hereby and by the Agreement; (bb) no amendments, modifications, changes or alterations to, or revocation, repeal or supersession of (A) the Articles of Incorporation of the Borrower and (B) the Bylaws of the Borrower, and (cc) the incumbency of all officers of the Borrower who will execute or have executed any document or instrument required to be delivered hereunder, containing the signature of same; (iii) a certificate of the Secretary or Assistant Secretary of each Subsidiary Guarantor, dated the date of this Amendment and certifying (x) that attached thereto are copies of the documents described in (y) below which were delivered in connection with the Agreement and that such documents are in full force and effect, are true and correct, and are the only such documents relating to the subject matter set forth therein, or (y) as to (aa) the adoption and continuing effect of resolutions of the board of directors of such Subsidiary Guarantor authorizing the transactions contemplated hereby and by the Agreement; (bb) no amendments, modifications, changes or alterations to, or revocation, repeal or supersession of (A) the Articles (or Certificate, as the case may be) of Incorporation of such Subsidiary Guarantor and (B) the Bylaws of such Subsidiary Guarantor and (cc) the incumbency of all officers of such Subsidiary Guarantor who will execute or have executed any document or instrument required to be delivered hereunder, containing the signature of same; (iv) with respect to the Borrower, a certificate of existence and good standing from the Secretary of State of the State of Virginia dated no more than 5 days prior to the date of this Amendment; (v) an opinion of the Borrower's Counsel in form and substance satisfactory to the Majority Banks; (vi) such information regarding the Borrowing Base Assets as the Agent or any Bank may reasonably request; (vii) such financial information, regarding the Borrower or any of its Subsidiaries as the Agent or any Bank may reasonably request. All of such financial statements and financial information shall be satisfactory to the Banks; (viii) for its account and for the account of each Bank, as applicable, all fees and expenses due and payable on or before the Effective Date and invoiced to the Borrower in writing prior to the Effective Date; (ix) a Federal Reserve Form U-1, as the case may be, with respect to the Commitment of Royal Bank of Canada; and (x) such other certificates, opinions, documents and instruments relating to the transactions contemplated hereby as may have been reasonably requested by the Agent or any Bank. (b) payment of all fees and expenses due and payable under the Agreement or any other agreements executed in connection therewith. (c) Such other conditions precedent which the Agent may reasonably have requested or required. 2.10 Consent. Each of the Subsidiaries hereby (a) consents to and agrees to the terms of this Amendment, (b) agrees that (i) none of its obligations and none of the Banks' or the Agent's rights and remedies with respect to the undersigned is released, impaired or affected thereby, (ii) no guaranty agreement provided by the undersigned is released, impaired or affected thereby or by the foregoing, and (iii) this consent shall not be construed as requiring the consent or agreement of the undersigned in any circumstance, (c) ratifies and confirms all provisions of all Loan Documents executed by the undersigned and all documents pertaining thereto or referred to therein, and (d) agrees that none of its obligations, none of the Banks' or the Agent's rights and remedies and no guaranty agreement would be released, impaired or affected if the undersigned had not executed this consent. 2.11 FINAL AGREEMENT OF THE PARTIES. THIS AMENDMENT (INCLUDING THE SCHEDULE HERETO), THE AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS TO WHICH THE BORROWER OR ANY OF ITS SUBSIDIARIES AS A PARTY CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE FINAL AGREEMENT OF THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as a Bank and as Agent By:_________________________________________ Name: Title: FIRST UNION NATIONAL BANK, as a Bank and as Syndication Agent By:_________________________________________ Name: Title: THE FIRST NATIONAL BANK OF CHICAGO, as a Bank and as Documentation Agent By:_________________________________________ Name: Title: PNC BANK, NATIONAL ASSOCIATION By:_________________________________________ Name: Title: BORROWER: PENN VIRGINIA CORPORATION By:________________________________________ Name:______________________________________ Title:______________________________________ SUBSIDIARIES: PENN VIRGINIA COAL COMPANY By:________________________________________ Name: Title: PENN VIRGINIA HOLDING CORP. By:________________________________________ Name: Title: PENN VIRGINIA OIL & GAS CORPORATION By: ________________________________________ Name: Title: PENN VIRGINIA EQUITIES CORPORATION By: ________________________________________ Name: Title: SCHEDULE 1.1 Bank Name and Address Amount of Commitment Chase Bank of Texas, National Association $30,000,000 600 Travis St., CTH-20-86 Houston, Texas 77002 Attention: Robert C. Mertensotto Vice President Telephone No.: (713) 216-4147 Telecopy No.: (713) 216-4117 First Union National Bank $ 30,000,000 c/o First Union Corporation 1001 Fannin Street, Suite 2255 Houston, Texas 77002 Attention: Russell Clingman Telephone No.: (713) 346-2716 Telecoy No.: (713) 650-6354 Bank One/First Chicago Capital Markets, Inc. $ 30,000,000 One First National Plaza, MS 0362 Chicago, Illinois 60670-0362 Attention: Jim Gummell Telephone No.: (312) 732-5785 Telecopy No.: (312) 732-3055 PNC Bank, N.A. $ 30,000,000 One PNC Plaza 249 Fifth Avenue Mail Stop PI-POPP-03-3 Pittsburgh, Pennsylvania 15222 Attention: Andy Mitrey Telephone No.: (412) 762-9064 Telecopy No.: (412) 762-2571 ___________________ $ 30,000,000 Address: ___________________ ___________________________ Attention:___________________ Telephone No.: ______________ Telecopy No.:_______________ Total Commitment $150,000,000 EXHIBIT 10.7 PENN VIRGINIA CORPORATION Amended and Restated 1995 Directors' Stock Option Plan 1. Purpose. The purposes of the Plan are to attract and retain the services of experienced and knowledgeable directors and to encourage eligible directors of Penn Virginia Corporation to acquire a proprietary and vested interest in the growth and performance of the Company, thus enhancing the value of the Company for the benefit of its shareholders. 2. Definitions. As used in the Plan, the following terms shall have the meanings set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Code" means the Internal Revenue Code of 1986, as amended. (c) "Common Stock" means the common stock, par value $6.25 per share, of the Company. (d) "Company" means Penn Virginia Corporation. (e) "Eligible Director" means each director of the Company. (f) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (g) "Fair Market Value" means with respect to the Common Stock on any given date the closing stock market price for a Share (as reported by the New York Stock Exchange, any other exchange on which the Shares are listed or any other recognized stock quotation service), or in the event that there shall be no closing stock price on such date, the closing stock price on the date nearest preceding such date. (h) "Grant Date" means the date on which an Option or Share is granted. (i) "Option" means any right granted to an Optionee allowing such Optionee to purchase Shares at such price or prices and during such period or periods as are set forth in the Plan. All Options shall be non-qualified options. (j) "Option Agreement" means a written instrument evidencing an Option granted hereunder and signed by an authorized representative of the Company and the Optionee. (k) "Optionee" means an Eligible Director who receives an Option under the Plan. (l) "Shares" means shares of Common Stock. 3. Administration. Subject to the terms of the Plan, the Board shall have the power to interpret the provisions and supervise the administration of the Plan. 4. Shares Subject to the Plan. (a) Total Number. Subject to adjustment as provided in this Section, the total number of Shares which may be granted or as to which Options may be granted under the Plan shall be 200,000 Shares. Any Shares issued pursuant to a grant of Shares or pursuant to Options granted hereunder may consist, in whole or in part, of authorized and unissued Shares or treasury Shares. (b) Reduction in Number of Shares Available. (i) The grant of an Option shall reduce the number of Shares which may be granted or as to which Options may be granted by the number of Shares subject to such Option. (ii) Any Shares issued by the Company through the assumption or substitution of outstanding grants of an acquired company shall not reduce the Shares available for grants under the Plan. (c) Increase in Number of Shares Available. The lapse, expiration, cancellation, or other termination of an Option that has not been fully exercised shall increase the number of Shares as to which Options may be granted by the number of Shares that have not been issued upon exercise of such Option. (d) Other Adjustments. The total number and kind of Shares available under the Plan, the number and kind of Shares subject to outstanding Options, and the exercise price for such Options shall be appropriately adjusted by the Board for: (i) any increase or decrease in the number of outstanding Shares resulting from a stock dividend, subdivision, combination of Shares, reclassification, or other change in corporate structure or capitalization affecting the Shares. (ii) any conversion of the Shares into or exchange of the Shares for other shares as a result of any merger or consolidation (including a sale of assets), or (iii) any other event such that an adjustment is made reasonably necessary to maintain the proportionate interest of the Optionee. 5. Grant of Shares and Options. On February 8, 1995, or, with respect to any person who was not an Eligible Director on such date, on the date such person becomes an Eligible Director, each Eligible Director shall be granted an Option to acquire 10,000 Shares. Thereafter, on the first business day of each year from 1996 through 2002, inclusive, each Eligible Director on such date shall be granted an Option to acquire an additional 200 Shares. In addition, except as otherwise agreed, effective on and after October 25, 2000 through the termination of the Plan each Eligible Director shall receive 1,000 Shares issuable on the date of the Company's annual meeting; $2,500 payable quarterly, at the Eligible Director's option, either in cash or Shares; and $1,000 in meeting fees ($1,250 for the committee chairman) for each Board and committee meeting attended by the Eligible Director which shall be paid, at the Eligible Director's option, in cash or Shares. 6. General Terms Regarding Option Grants. The following provisions shall apply to each Option: (a) Option Price. The purchase price per Share purchasable under an Option shall be 100% of the Fair Market Value of a Share on the Grant Date. (b) Option Period. Each Option granted shall expire 10 years from its Grant Date, and shall be subject to earlier termination as hereinafter provided. (c) Service Period. Each Option granted under the Plan shall become exercisable by the Optionee only after the completion of one year of Board service immediately following the Grant Date. Exercise of any or all previously granted Options shall not be required. (d) Transfer and Exercise. No Option shall be transferable by the Optionee except by will or the laws of descent and distribution. In the event of the death of an Optionee, the Option, if otherwise exercisable by the Optionee at the time of such death, may be exercised within six months after such Optionee's death by the person to whom such right has passed by will or the laws of descent and distribution. (e) Method of Exercise. Any Option may be exercised, after the completion of one year of Board service following the Grant Date, by the Optionee in whole or in part at such time or times and by such methods as the Board may specify, including by Cashless Exercise (as defined in Section 9(f)). The applicable Option Agreement may provide that the Optionee may make payment of the Option price in cash, Shares, or such other consideration as the Board may specify, or any combination thereof, having a Fair Market Value on the exercise date equal to the total Option price. (f) Issuance of Certificates; Payment of Cash. Only whole Shares shall be issuable upon exercise of Options. Any right to a fractional Share shall be satisfied in cash. Upon payment to the Company of the Option price, the Company shall deliver to the Optionee a certificate for the number of whole Shares and a check for the Fair Market Value on the date of exercise of the fractional share to which the Optionee is entitled. 7. Change in Control. (a) Effect of Change in Control. Notwithstanding anything in the Plan to the contrary, other than the initial shareholder approval requirement set forth in Section 10, and subject to any applicable pooling-of-interest accounting rules, in the event of a Change in Control of the Company, the Options granted under Section 5 shall vest and become immediately exercisable; provided, however, that at least six months shall elapse from the Grant Date of an Option to the date of disposition of any Shares issued upon exercise of such Option. In the event of a Change in Control of the Company as defined in Section 7(b)(iii), the Company may provide in any agreement with respect to such merger or consolidation that the surviving corporation shall grant options to the Optionees to acquire shares in such corporation with respect to which the excess of the fair market value of the share of such corporation immediately after the consummation of such merger or consolidation over the option price shall not be less than the excess of the Fair Market Value of the Shares over the Option price of Options, immediately prior to the consummation of such merger or consolidation. (b) Definition. For purposes of the Plan, a "Change in Control of the Company" shall be deemed to have occurred if: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee of other fiduciary holding securities under an employee benefit plan of the Company or any company owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes, after the effective date of the Plan, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the effective date of the Plan), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in any of clauses (i), (iii) and (iv) of this Section 7(b)) whose election by the Board or whose nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason (other than retirement) to constitute at least a majority thereof; (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 75% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. 8. Amendments and Termination. (a) Board Authority. The Board may amend, alter, or terminate the Plan, but no amendment, alteration, or termination shall be made (i) that would impair or adversely affect the rights of an Optionee under an Option theretofore granted, without the Optionee's consent, or (ii) without the approval of the shareholders if such approval is necessary to comply with any tax or regulatory requirement, including for these purposes any approval requirement that is a prerequisite for exemptive relief from Section 16(b) of the Exchange Act, or if the proposed alteration or amendment would increase the aggregate number of Shares that may be issued pursuant to the Plan (other than pursuant to Section 4 (d) hereof); provided, however that no provision of the Plan that (i) permits Eligible Directors to receive Options, (ii) states the amount or price of Options to be granted to Eligible Directors, (iii) specifies the timing of grants of Options to Eligible Directors, or (iv) sets forth a formula that determines the amount, price or timing of grants of Options to Eligible Directors, shall be amended more frequently than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. (b) Prior Shareholder and Optionee Approval. Anything herein to the contrary notwithstanding, in the event that amendments to the Plan are required in order that the Plan or any other stock- based compensation plan of the Company comply with the requirements of Rule 16b-3 issued under the Exchange Act, as amended from time to time, or any successor rule promulgated by the Securities and Exchange Commission related to the treatment of benefit and compensation plans under Section 16 of the Exchange Act, the Board is authorized to make such amendments without the consent of Optionees or the shareholders of the Company. 9. General Provisions. (a) Compliance with Regulations. All certificates for Shares issued and delivered under the Plan pursuant to a grant of Shares or pursuant to the exercise of any Option shall be subject to such stock transfer orders and other restrictions as the Board may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed, and any applicable federal or state securities law, and the Board may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. The Company shall not be required to issue or deliver any Shares under the Plan prior to the completion of any registration or qualification of such Shares under any federal or state law, or under any ruling or regulation of any governmental body or national securities exchange, that the Board in its sole discretion shall deem to be necessary or appropriate. (b) Other Plans. Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required by applicable law or the rules of any stock exchange on which the Common Stock is then listed; and such arrangements may be either generally applicable or applicable only in specific cases. (c) Withholding of Taxes. Each Optionee shall pay to the Company, upon the Company's request, all amounts necessary to satisfy the Company's federal, state and local tax withholding obligations, if any, with respect to the grant or exercise of any Option. (d) Conformity With Law. If any provision of the Plan is or becomes or is deemed invalid, illegal, or unenforceable in any jurisdiction, or would disqualify the Plan or any Option under any law deemed applicable by the Board, such provision shall be construed or deemed amended in such jurisdiction to conform to applicable laws or if it cannot be construed or deemed amended without, in the determination of the Board, materially altering the intent of the Plan, it shall be stricken and the remainder of the Plan shall remain in full force and effect. (e) Insufficient Shares. In the event there are insufficient Shares remaining to satisfy all of the Share or Option grants under Section 5 made on the same day, such grants shall be reduced pro-rata. (f) An Optionee may exercise and pay for Shares purchased upon the exercise of an Option through the use of a brokerage firm to make payment to the Company of the option price and any taxes required by law to be withheld upon exercise of the Option either from the proceeds of a loan to the Optionee from the brokerage firm or from the proceeds of the sale of Shares issued pursuant to the exercise of the Option, and upon receipt of such payment the Company shall deliver the shares issuable under the Option exercised to such brokerage firm (a "Cashless Exercise"). Notwithstanding anything stated to the contrary in the Plan, the date of exercise of a Cashless Exercise shall be the date on which the broker executes the sale of exercised Shares or, if no sale is made, the date the broker receives the exercise loan notice from the Optionee to pay the Company for the exercised Shares. 10. Effective Date and Termination. The Plan shall become effective upon approval by the Company's shareholders and, with respect to new grants, shall terminate on the second business day of 2002. With respect to outstanding Options, the Plan shall terminate on the date on which all outstanding Options have expired or terminated. The Board shall submit the Plan to the shareholders of the Company for their approval at the 1995 annual meeting of shareholders unless such shareholders' approval shall have been obtained prior to such meeting. Any Option granted before the approval of the Plan by the shareholders of the Company shall be expressly conditioned upon, and any Option shall not be exercisable until, such approval on or prior to the date of the 1995 annual meeting of such shareholders. If such shareholder approval is not received at or before the 1995 annual meeting, the Board shall have the right to terminate the Plan, in which case all Options granted under the Plan shall expire. 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 Penn Virginia Energy Co. 100% Virginia Concord Land Company 100% Delaware Kanawha Rail Corp. 100% Virginia Paragon Coal Corporation 100% Virginia Savannah Land Company 100% Delaware
EXHIBIT 23.1 As independent public accountants, we hereby consent to the incorporation of our report dated February 9, 2001, included in the Annual Report of Penn Virginia Corporation on Form 10-K for the year ended December 31, 2000, into Penn Virginia Corporation's previously filed Registration Statements Nos. 33- 49438, 33-96465, 33-59651 and 33-96463 on Form S-8. ARTHUR ANDERSEN LLP Houston, Texas February 21, 2001 -----END PRIVACY-ENHANCED MESSAGE-----