Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2015

Our unaudited Condensed Consolidated Financial Statements include the accounts of Penn Virginia and all of our subsidiaries. Intercompany balances and transactions have been eliminated. Our Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Preparation of these statements involves the use of estimates and judgments where appropriate. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of our Condensed Consolidated Financial Statements have been included. Our Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes included in our Annual Report on Form 10-K for the year ended December 31, 2014. Operating results for the nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. Certain amounts for the 2014 periods have been reclassified to conform to the current year presentation. These reclassifications have no impact on our previously reported results of operations, balance sheet or cash flows.

Going Concern Presumption and Management’s Plans

These unaudited Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and other commitments in the normal course of business. We have incurred net losses in each of the three years ending December 31, 2014, and reported a net loss attributable to common shareholders of $(129.5) million for the nine months ended September 30, 2015. While we were in compliance with the covenants of our revolving credit agreement (the “Revolver”) as of September 30, 2015, based on our current operating forecast and capital structure, we do not believe we will be able to comply with all of the covenants under the Revolver during the next twelve months. We are also dependent on obtaining additional debt and/or equity financing to continue our planned principal business operations. These factors raise substantial doubt about our ability to continue as a going concern.

Management’s plans in regard to these matters consist principally of restructuring our debt or seeking additional debt or equity funding from outside sources. We are actively working to address these matters, however, there can be no assurance that our efforts will be successful. The Condensed Consolidated Financial Statements do not include any adjustments that may result from the outcome of this uncertainty.

Our primary sources of liquidity include cash from operating activities, borrowings under the Revolver, proceeds from the sales of assets and, from time to time, proceeds from capital market transactions, including the offering of debt and equity securities. Our cash flows from operating activities are subject to significant volatility due to changes in commodity prices for our crude oil, NGL and natural gas products, as well as variations in our production. Due primarily to the substantial decline in commodity prices over the last twelve months, our liquidity has been adversely impacted. We have taken several actions thus far and are in the process of pursuing others in order to enhance our liquidity, de-lever our balance sheet and mitigate the impact of lower commodity prices on our operations, as follows:


•	We reduced the number of contracted drilling rigs operating in the Eagle Ford to one in August 2015 and negotiated certain completion services for lower costs through an extended period (see Note 12). We also adjusted our drilling and well stimulation design resulting in lower overall drilling and completion costs.


•	We sold all of our assets in East Texas for net proceeds of approximately $73 million in August 2015 (see Note 3).


•	We suspended the payment of dividends on our convertible preferred stock in September 2015 (see Note 13).


•	We sold certain non-core properties in the southwestern portion of our Eagle Ford acreage for net proceeds of approximately $13 million in October 2015 (see Note 3).


•	We reduced our employee headcount by approximately 16 percent from year-end 2014 levels through administrative and operations restructuring initiatives taken in May and October 2015.


•	We engaged Jefferies LLC (“Jefferies”) to advise us with respect to asset-level financing transactions and various financing and debt restructuring options (see Note 12).

While we have substantially reduced our capital expenditures program, we will be challenged in the first half of 2016 to maintain our currently contemplated drilling program as anticipated receipts from our derivative portfolio will decline as existing hedges expire and significant interest payment requirements on our senior subordinated notes become due in April and May of 2016. Moreover, unless we can access additional capital, we will likely be forced to further curtail or suspend our currently contemplated drilling program in 2016.

Without a refinancing or some restructuring of our debt obligations, we anticipate that we will exceed the debt leverage covenant under the Revolver at the end of the first quarter of 2016. We could request a waiver of this covenant or we could refinance the Revolver; however, there is no assurance that the bank lenders will grant such a waiver or that we could refinance the Revolver on acceptable terms or at all. If no waiver were granted, we would be in default under the Revolver and, if such default were not waived, all amounts outstanding under the Revolver and our senior notes would need to be immediately repaid. The obligation to repay all such amounts could force us to seek bankruptcy protection.

Consequently, as noted above, we are currently working with Jefferies to pursue a number of strategic financing and debt restructuring alternatives, including, but not limited to, debt and equity financing and joint venture financing, among others. There can be no assurance that any of these alternatives will be successful on acceptable terms or at all.

New Accounting Pronouncements

Effective January 2015, we adopted the provisions of ASU No. 2015–03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015–03”) on a retrospective basis. ASU 2015–03 requires that debt issuance costs be presented as a direct reduction to the face amount of the underlying debt instruments to which they are attributable. Accordingly, we have presented the debt issuance costs, net of amortization, associated with our outstanding senior notes, which were formerly presented as a component of Other assets, as a reduction to Long-term debt (see Note 7) for all periods presented. Issuance costs associated with the Revolver continue to be presented, net of amortization, as a component of Other assets (see Note 10) as clarified by ASU 2015–15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements–Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update) (“ASU 2015–15”).

In 2014, the FASB issued ASU No. 2014–09, Revenue from Contracts with Customers (“ASU 2014–09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014–09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015–14, Deferral of the Effective Date, that defers by one year the effective date of ASU 2014–09 to fiscal years beginning after December 17, 2017, or calendar year 2018 for us. The standard permits the use of either the retrospective or cumulative effect transition method upon adoption. We are evaluating the effect that ASU 2014–09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of ASU 2014–09 on our ongoing financial reporting.

Subsequent Events

Management has evaluated all activities of the Company through the date upon which our Condensed Consolidated Financial Statements were issued and concluded that, except for the sale of non-core properties in the southwestern portion of our Eagle Ford acreage referenced above and in Note 3, no subsequent events have occurred that would require recognition in our Condensed Consolidated Financial Statements or disclosure in the Notes to Condensed Consolidated Financial Statements.

Fair Value Measurements

We apply the authoritative accounting provisions for measuring fair value of both our financial and nonfinancial assets and liabilities. Fair value is an exit price representing the expected amount we would receive upon the sale of an asset or that we would expect to pay to transfer a liability in an orderly transaction with market participants at the measurement date.

Fair Value, Measurements, Recurring

Schedule of Policies [Line Items]

Fair Value Measurements

We used the following methods and assumptions to estimate fair values for the financial assets and liabilities described below:

•

Commodity derivatives: We determine the fair values of our commodity derivative instruments based on discounted cash flows derived from third-party quoted forward prices for West Texas Intermediate crude oil and NYMEX Henry Hub gas closing prices as of the end of the reporting periods. We generally use the income approach, using valuation techniques that convert future cash flows to a single discounted value. Each of these is a level 2 input.


•	Assets of SERP: We hold various publicly traded equity securities in a Rabbi Trust as assets for funding certain deferred compensation obligations. The fair values are based on quoted market prices, which are level 1 inputs.


•	Deferred compensation – SERP obligations: Certain of our deferred compensation obligations are ultimately to be settled in cash based on the underlying fair value of certain assets, including those held in the Rabbi Trust. The fair values are based on quoted market prices, which are level 1 inputs.

Fair Value, Measurements, Nonrecurring

Schedule of Policies [Line Items]

Fair Value Measurements

The most significant non-recurring fair value measurements utilized in the preparation of our Condensed Consolidated Financial Statements are those attributable to the recognition and measurement of asset impairments and the initial determination of AROs. The factors used to determine fair value for purposes of recognizing and measuring asset impairments include, but are not limited to, estimates of proved and probable reserves, future commodity prices, the timing of future production and capital expenditures and a discount rate commensurate with the risk reflective of the lives remaining for the respective oil and gas properties. Because these significant fair value inputs are typically not observable, we have categorized the amounts as level 3 inputs.

The determination of the fair value of AROs is based upon regional market and facility specific information. The amount of an ARO and the costs capitalized represent the estimated future cost to satisfy the abandonment obligation using current prices that are escalated by an assumed inflation factor after discounting the future cost back to the date that the abandonment obligation was incurred using a rate commensurate with the risk, which approximates our cost of funds. Because these significant fair value inputs are typically not observable, we have categorized the initial estimates as level 3 inputs.