Chapter 11 Proceedings

On May 12, 2016 (the “Petition Date”), we and eight of our subsidiaries including Penn Virginia Holding Corp.; Penn Virginia MC Corporation; Penn Virginia MC Energy L.L.C.; Penn Virginia MC Operating Company L.L.C.; Penn Virginia Oil & Gas Corporation; Penn Virginia Oil & Gas GP LLC; Penn Virginia Oil & Gas LP LLC; and Penn Virginia Oil & Gas, L.P. (collectively the “Chapter 11 Subsidiaries”) filed voluntary petitions (In re Penn Virginia Corporation, et al, Case No. 16-32395) seeking relief under Chapter 11 of Title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of Virginia (the “Bankruptcy Court”). Prior to the Petition Date we had engaged Kirkland & Ellis LLP (“K&E”), Jefferies LLC (“Jefferies”) and Alvarez and Marsal North America, LLC (“A&M”) and appointed R. Seth Bullock, Managing Director at A&M, to act as our Chief Restructuring Officer in our efforts to restructure and evaluate various strategic alternatives. In connection with our bankruptcy proceedings, we have continued our engagements with these professional service firms.

Debtors-In-Possession. We and the Chapter 11 Subsidiaries are currently operating our business as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code. The Bankruptcy Court has granted all “first day” motions filed by us and the Chapter 11 Subsidiaries, which were designed primarily to minimize the impact of the Chapter 11 proceedings on our normal day-to-day operations, our customers, regulatory agencies, including taxing authorities, and employees. As a result, we are not only able to conduct normal business activities and pay all associated obligations for the post-petition period, we are also authorized to pay and have paid (subject to limitations applicable to payments of certain pre-petition obligations) pre-petition employee wages and benefits, pre-petition amounts owed to certain lienholders, amounts due to taxing authorities for production and other related taxes and funds belonging to third parties, including royalty and working interest holders. During the pendency of the Chapter 11 case, all transactions outside the ordinary course of our business require the prior approval of the Bankruptcy Court.

Automatic Stay. Subject to certain specific exceptions under the Bankruptcy Code, the Chapter 11 filings automatically stayed most judicial or administrative actions against us and the Chapter 11 Subsidiaries as well as efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. As a result, for example, most creditor actions to obtain possession of property from us or any of the Chapter 11 Subsidiaries, or to create, perfect or enforce any lien against our property or any of the Chapter 11 Subsidiaries, or to collect on or otherwise exercise rights or remedies with respect to a pre-petition claim are stayed.

Restructuring Support Agreement. Immediately prior to the Petition Date, the holders (the “Ad Hoc Committee”) of approximately 86 percent of the $1,075 million principal amount of our 7.25% Senior Notes due 2019 (the “2019 Senior Notes”) and 8.50% Senior Notes due 2020 (the “2020 Senior Notes” and, together with the 2019 Senior Notes, the “Senior Notes”) agreed, pursuant to a restructuring support agreement (the “RSA”), to support a plan under which all of our Senior Notes are converted to equity in the reorganized company. Under the RSA, holders of the Senior Notes and certain unsecured creditors are to receive their pro rata share of 100 percent of the reorganized company’s common stock (“New Common Stock”) in exchange for their claims, subject only to dilution as a result of a proposed new management incentive program, any fees payable in New Common Stock under the terms of the Backstop Commitment Agreement (see “Backstop Commitment Agreement” below) and New Common Stock issued in the Rights Offering (see “Rights Offering” below). The RSA includes an agreed timeline for the Chapter 11 proceedings that, if met, would result in our emergence from bankruptcy during the third quarter of 2016.

Creditors Committee. On May 25, 2016, the United States Trustee for the Eastern District of Virginia (the “U.S. Trustee”) appointed the Official Committee of Unsecured Claimholders (the “UCC”) pursuant to section 1102 of the Bankruptcy Code. In addition to professional fees and other costs incurred that are attributable to the services provided by K&E, Jefferies, A&M and other representatives, we are responsible for the reasonable costs, as approved by the Bankruptcy Court, incurred by the UCC, the Ad Hoc Committee and the holders (the “RBL Lenders”) of 100 percent of the claims attributable to our pre-petition revolving credit agreement (as amended, the “RBL”), during the course of the Chapter 11 proceedings. These post-petition costs, as well as administrative fees charged by the U.S. Trustee, have been reported in “Reorganization items, net” in our Condensed Consolidated Statement of Operations as described above. Similar costs that were incurred during the pre-petition periods have been reported in “General and administrative” expenses.

Ad Hoc Equity Committee. In June 2016, a group of holders of approximately 3 percent of our common stock (the “Ad Hoc Equity Holders”) filed a motion with the U.S. Trustee requesting that the U.S. Trustee appoint an official committee of equity holders, which the U.S. Trustee denied. Subsequently, in July 2016, the Ad Hoc Equity Holders filed with the Bankruptcy Court, among other motions, a motion requesting that the Bankruptcy Court appoint an official committee of equity holders. A hearing on this motion is scheduled for August 4, 2016.

Plan of Reorganization. On June 28, 2016, we and the Chapter 11 Subsidiaries filed with the Bankruptcy Court the First Amended Joint Chapter 11 Plan of Reorganization of Penn Virginia Corporation and its Debtor Affiliates (the “Plan”), as well as the Disclosure Statement for the First Amended Joint Chapter 11 Plan of Penn Virginia Corporation and its Debtor Affiliates (the “Disclosure Statement”). The Bankruptcy Court has authorized us to solicit acceptances for the Plan and approved the Disclosure Statement and other related solicitation materials and procedures necessary to solicit approval or objections to the Plan. We are currently in the process of soliciting votes with respect to the Plan. The Plan is supported by us, the RBL Lenders, the Ad Hoc Committee and the UCC. A hearing to consider confirmation of the Plan is scheduled to be held on August 11, 2016 in the Bankruptcy Court (the “Confirmation Hearing”).

If the Plan is ultimately confirmed by the Bankruptcy Court, we and the Chapter 11 Subsidiaries would exit bankruptcy pursuant to the terms of the Plan. Under the Plan, the claims against and interests in us and the Chapter 11 Subsidiaries are grouped into classes based, in part, on their respective priority. The Plan provides that, upon emergence from bankruptcy:


•	the approximately $1,122 million of indebtedness, including accrued interest, attributable to our Senior Notes and certain other unsecured claims will be exchanged for approximately 43.4 percent of the New Common Stock;


•	holders of claims arising under the debtor-in-possession (“DIP”) credit facility (the “DIP Facility”) (see “Debtor-In-Possession Financing” below) will be paid in full from cash on hand and proceeds from the Exit Facility (see “Exit Facility” below) and the Rights Offering;


•	holders of claims arising under the RBL will be paid in full from cash on hand and proceeds from the Exit Facility and the Rights Offering;


•	the Ad Hoc Committee will receive a backstop fee which represents approximately 3.2 percent of the New Common Stock;


•	holders of the Senior Notes and Republic Midstream, LLC (“Republic Midstream”) will be entitled to participate in the Rights Offering; and


•	our current preferred stock and common stock will be canceled, extinguished and discharged.

The Plan also provides that the new board of directors of the reorganized company will be announced at or before the Confirmation Hearing.

The Plan is subject to acceptance by certain holders of claims against us and the Chapter 11 Subsidiaries and confirmation by the Bankruptcy Court. The Plan is accepted by a class of claims entitled to vote if at least one-half in number and two-thirds in dollar amount of claims actually voting in the class have voted to accept the Plan.

Under certain circumstances set forth in the Bankruptcy Code, the Bankruptcy Court may confirm a plan even if such plan has not been accepted by all impaired classes of claims and equity interests. In particular, a plan may be compelled on a rejecting class if the proponent of the plan demonstrates, among other things, that (1) no class junior to the rejecting class is receiving or retaining property under the plan and (2) no class of claims or interests senior to the rejecting class is being paid more than in full.

Executory Contracts. Subject to certain exceptions, under the Bankruptcy Code, we and the Chapter 11 Subsidiaries may assume, assign, or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and fulfillment of certain other conditions. The rejection of an executory contract or unexpired lease is generally treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves us and the Chapter 11 Subsidiaries of performing their future obligations under such executory contract or unexpired lease but may give rise to a general unsecured claim against us or the applicable Chapter 11 Subsidiaries for damages caused by such rejection. The assumption of an executory contract or unexpired lease generally requires us and the Chapter 11 Subsidiaries to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Any description of the treatment of an executory contract or unexpired lease with us or any of the Chapter 11 Subsidiaries, including any description of the obligations under any such executory contract or unexpired lease, is qualified by and subject to any rights we have with respect to executory contracts and unexpired leases under the Bankruptcy Code.

On July 21, 2016, we and the Chapter 11 Subsidiaries filed a motion (the “9019 Motion”) to approve a settlement with Republic Midstream and Republic Midstream Marketing, LLC (“Republic Marketing” and, together with Republic Midstream, collectively, “Republic”) pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure and to authorize the assumption of certain amended agreements with Republic pursuant to section 365 of the Bankruptcy Code. As set forth in detail in the 9019 Motion, the settlement with Republic provides for the material modification of the agreements with Republic and certain claims, guarantees, and payments in favor of Republic. The hearing to consider the 9019 Motion is scheduled for August 4, 2016.

Potential Claims. We and the Chapter 11 Subsidiaries have filed with the Bankruptcy Court Schedules and Statements setting forth, among other things, our and each of the Chapter 11 Subsidiaries’ assets and liabilities. The Schedules and Statements, which are subject to the assumptions disclosed in connection therewith, may be subject to further amendment or modification. Certain holders of pre-petition claims were required to file proofs of claim by June 30, 2016 (the “Bar Date”). Certain other parties, including taxing authorities and other governmental agencies, are provided additional time beyond the Bar Date to file proofs of claim.

Claims received by the Bar Date are currently in the process of being reviewed and reconciled with our and the Chapter 11 Subsidiaries’ books and records. Differences between amounts scheduled by us and the Chapter 11 Subsidiaries and claims by creditors will be investigated and resolved in connection with the claims resolution process. In light of the expected number of creditors, the claims resolution process may take considerable time to complete and may continue after our emergence from bankruptcy. Accordingly, the ultimate number and amount of allowed claims is not presently known, nor can the ultimate recovery with respect to allowed claims be presently ascertained.

Chapter 11 Filing Impact on Creditors and Shareholders. Under the priority requirements established by the Bankruptcy Code, unless creditors agree otherwise, pre-petition liabilities to creditors and post-petition liabilities must be satisfied in full before the holders of our existing preferred stock and common stock are entitled to receive any distribution or retain any property under a plan of reorganization. The ultimate recovery to creditors, if any, will not be determined until confirmation and implementation of the Plan. The outcome of the Chapter 11 proceedings remains uncertain at this time and, as a result, we cannot accurately estimate the amounts or value of distributions that creditors may receive. We expect that our preferred stock and common stock will receive no distribution with respect to their interests.

Debtor-In-Possession Financing. In connection with the pre-petition negotiations of the RSA, certain holders of the RBL agreed to provide a DIP Facility to us and the Chapter 11 Subsidiaries pursuant to the terms of a DIP credit agreement. The DIP Facility was approved by the Bankruptcy Court and provides for a multi-draw term loan in the aggregate amount of up to $25 million. Pursuant to the Plan, any amounts outstanding under the DIP Facility will be paid in full in cash upon emergence. As of June 30, 2016, we have not drawn any amounts from the DIP Facility, and we do not expect to do so prior to emergence.

Backstop Commitment Agreement. On May 10, 2016, we entered into a backstop commitment agreement (the “Backstop Commitment Agreement”) with the parties thereto (collectively, the “Backstop Parties”), pursuant to which the Backstop Parties, which are holders of the Senior Notes, will provide a $50.0 million commitment to backstop the proposed Rights Offering to be conducted in connection with the Plan. Under the Backstop Commitment Agreement, we have agreed to pay the Backstop Parties, on the closing date of the transactions contemplated by the Backstop Commitment Agreement, a commitment premium equal to 6.0 percent of the Rights Offering Amount (as defined below) (the “Commitment Premium”). If the transactions contemplated by the Backstop Commitment Agreement are consummated, the Commitment Premium will be payable in shares of common stock of the reorganized company. We will also be required to pay, in cash, a termination fee equal to 4.0 percent of the Rights Offering Amount upon the occurrence of certain termination events as set forth in the Backstop Commitment Agreement. Pursuant to the Backstop Commitment Agreement, we will also be required to (A) reimburse the Backstop Parties (i) for reasonable and documented fees and expenses of counsel, consultants and a financial advisor, and any other advisors or consultants as may be reasonably determined by the holder of our Senior Notes who are party to the RSA (the “Consenting Noteholders”) and the Backstop Parties, and (ii) for filing fees, if any, required by antitrust laws and reasonable and documented expenses in connection with the transactions contemplated by the Backstop Commitment Agreement and (B) indemnify the Backstop Parties under certain circumstances for losses arising out of the Backstop Commitment Agreement, the Plan and the transactions contemplated thereby.

Rights Offering. In accordance with the Plan, the Backstop Commitment Agreement, and the proposed procedures for the conduct of the Rights Offering (the “Rights Offering Procedures”), we will offer eligible creditors, including the Backstop Parties, shares of New Common Stock of the reorganized company upon emergence from Chapter 11 for an aggregate purchase price of $50 million (the “Rights Offering Amount”). Pursuant to the Backstop Commitment Agreement, the Backstop Parties have agreed to purchase all shares of New Common Stock that are not duly subscribed for pursuant to the Rights Offering at a per share purchase price equal to $45,100,000 divided by the total number of shares of common stock of the reorganized company outstanding as of emergence (without giving effect to the common stock issued or issuable under the Rights Offering or in respect of the Commitment Premium).

The rights to purchase common stock in the Rights Offering, any shares issued upon exercise thereof, and all shares issued to the Backstop Parties pursuant to the Backstop Commitment Agreement, will be issued in reliance upon the exemption from registration under the Securities Act of 1933 (the “Securities Act”) provided by Section 4(a)(2) thereof and/or Regulation D thereunder. As a condition to the closing of the transactions contemplated by the Backstop Commitment Agreement, we will enter into a registration rights agreement with certain of the Backstop Parties entitling such Backstop Parties to request that we register their securities for sale under the Securities Act at various times.

The Backstop Commitment Agreement and Rights Offering Procedures have been filed with, and are subject to the approval of, the Bankruptcy Court. The Backstop Parties’ commitments to backstop the Rights Offering, and the other transactions contemplated by the Backstop Commitment Agreement, are conditioned upon the satisfaction of all conditions to the effectiveness of the Plan, and other applicable conditions precedent set forth in the Backstop Commitment Agreement. The issuances of common stock pursuant to the Rights Offering and the Backstop Commitment Agreement are conditioned upon, among other things, confirmation of the Plan by the Bankruptcy Court, and will be effective upon our emergence from Chapter 11.

Restrictions on Trading of Our Equity Securities to Protect Our Use of Net Operating Losses. The Bankruptcy Court has issued a final order pursuant to Sections 105(a), 362(a)(3) and 541 of the Bankruptcy Code enabling us and the Chapter 11 Subsidiaries to avoid limitations on the use of our tax net operating loss carryforwards and certain other tax attributes by imposing certain notice procedures and transfer restrictions on the trading of our equity securities. In general, the order applies to any person that, directly or indirectly, beneficially owns (or would beneficially own as a result of a proposed transfer) at least 4.50 percent of either our outstanding common stock or preferred stock (a “Substantial Stockholder”), and requires that each Substantial Stockholder file with the Bankruptcy Court and serve us with notice of such status. Under the order, prior to any proposed acquisition or disposition of equity securities that would result in an increase or decrease in the amount of our equity securities owned by a Substantial Stockholder, or that would result in a person or entity becoming a Substantial Stockholder, such person or entity is required to file with the Bankruptcy Court and notify us of such acquisition or disposition. We have the right to seek an injunction from the Bankruptcy Court to prevent certain acquisitions or sales of our common stock or preferred stock if the acquisition or sale would pose a material risk of adversely affecting our ability to utilize such tax attributes.

Risks Associated with Chapter 11 Proceedings. For the duration of our Chapter 11 proceedings, our operations and our ability to develop and execute our business plan are subject to the risks and uncertainties associated with the Chapter 11 process as described in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q. Because of these risks and uncertainties, the description of our operations, properties and capital plans may not accurately reflect our operations, properties and capital plans following the Chapter 11 process.

Liabilities Subject to Compromise. As described above in Note 2, our Condensed Consolidated Balance Sheet as of June 30, 2016 includes “Liabilities subject to compromise,” which represent liabilities that we anticipate will be allowed as claims in our bankruptcy case. These amounts include amounts related to the anticipated rejection of various executory contracts and unexpired leases. Additional amounts may be included in “Liabilities subject to compromise” in future periods if additional executory contracts and unexpired leases are rejected. Conversely, to the extent that such executory contracts or unexpired leases are not rejected and are instead assumed, certain liabilities characterized as subject to compromise may be converted to post-petition liabilities. Because the nature of many of the potential claims has not yet been finally determined at this time, the magnitude of such claims is not reasonably estimable at this time. Such claims or changes in claims may be material.

Differences between liabilities we have included in “Liabilities subject to compromise” on our Condensed Consolidated Balance Sheet as of June 30, 2016 and the claims filed by the Bar Date, or to be filed subsequently, will be investigated and resolved in connection with the claims resolution process. We will continue to evaluate these liabilities throughout the Chapter 11 proceedings and adjust amounts as necessary. Such adjustments may be material.

The following table summarizes the components of “Liabilities subject to compromise” included on our Consolidated Balance Sheet as of June 30, 2016 (in thousands):



Senior Notes	$	1,075,000
Interest on Senior Notes	47,213
Firm transportation obligation	12,719
Compensation – related	9,733
Deferred compensation	4,605
Defined benefit pension obligations	1,221
Postretirement health care benefit obligations	883
Trade accounts payable	1,892
Litigation claims	1,092
Other accrued liabilities	3,997
	$	1,158,355

Reorganization Items. As described above in Note 2, our Condensed Consolidated Statements of Operations for the periods ended June 30, 2016 includes “Reorganization items, net,” which reflects costs associated with the Chapter 11 proceedings, principally professional fees, and the costs associated with the DIP Facility. In future periods and in connection with the claims resolution process, we anticipate recording adjustments to “Liabilities subject to compromise” which will be included as a component of “Reorganization items, net,” as necessary.

The following table summarizes the components included in “Reorganization items, net” in our Condensed Consolidated Statements of Operations for the periods ended June 30, 2016 (in thous