Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

Our Consolidated Financial Statements include the accounts of Penn Virginia and all of its subsidiaries. Intercompany balances and transactions have been eliminated.

Use of Estimates

Preparation of our Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in our Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include certain asset and liability valuations as further described in these Notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Derivative Instruments

From time to time, we utilize derivative instruments to mitigate our financial exposure to commodity price and interest rate volatility. The derivative instruments, which are placed with financial institutions that we believe are of acceptable credit risk, generally take the form of collars and swaps. All derivative transactions are subject to our risk management policy, which has been reviewed and approved by our board of directors.

All derivative instruments are recognized in our Consolidated Financial Statements at fair value. The fair values of our derivative instruments are determined based on discounted cash flows derived from quoted forward prices. Our derivative instruments are not formally designated as hedges. We recognize changes in fair value in earnings currently as a component of the Derivatives caption in our Consolidated Statements of Operations. We have experienced and could continue to experience significant changes in the amount of derivative gains or losses recognized due to fluctuations in the value of these commodity derivative contracts, which fluctuate with changes in commodity prices and interest rates.

Oil and Gas Properties

We apply the full cost method of accounting for our oil and gas properties which we adopted effective with our adoption of Fresh Start Accounting. Under this method, all productive and nonproductive costs incurred in the exploration, development and acquisition of oil and gas reserves are capitalized. Such costs may be incurred both prior to and after the acquisition of a property and include lease acquisitions, geological and geophysical, or seismic, drilling, completion and equipment costs. Internal costs incurred that are directly attributable to exploration, development and acquisition activities undertaken by us for our own account, and which are not attributable to production, general corporate overhead or similar activities are also capitalized. Future development costs are estimated on a property-by-property basis based on current economic conditions and are amortized as a component of depreciation, depletion and amortization (“DD&A”).

Unproved properties not being amortized include unevaluated leasehold costs and associated capitalized interest. These costs are reviewed quarterly to determine whether or not and to what extent proved reserves have been assigned to a property or if an impairment has occurred due to lease expirations, general economic conditions and other factors, in which case the related costs along with associated capitalized interest are reclassified to the proved oil and gas properties subject to DD&A.

At the end of each quarterly reporting period, the unamortized cost of our oil and gas properties, net of deferred income taxes, is limited to the sum of the estimated discounted future net revenues from proved properties adjusted for costs excluded from amortization and related income taxes (a “Ceiling Test”). The estimated discounted future net revenues are determined using the prior 12-month’s average price based on closing prices on the first day of each month, adjusted for differentials, discounted at 10%. The calculation of the Ceiling Test and provision for DD&A are based on estimates of proved reserves. There are significant uncertainties inherent in estimating quantities of proved reserves and projecting future rates of production, timing and plan of development.

For the periods prior to the Emergence Date, we applied the successful efforts method of accounting for our oil and gas properties. Under this method, costs of acquiring properties, costs of drilling successful exploration wells and development costs were capitalized. Seismic costs, delay rentals and costs to drill exploratory wells that did not find proved reserves were expensed as oil and gas exploration. We carried the costs of exploratory wells as assets if the wells had found a sufficient quantity of reserves to justify its completion as a producing well and as long as we were making sufficient progress assessing the reserves and the economic and operating viability of the project. For certain projects, it may have taken us more than one year to evaluate the future potential of the exploratory well and make determinations of their economic viability. Our ability to move forward on projects was dependent on gaining access to transportation or processing facilities or obtaining permits and government or partner approval, the timing of which was beyond our control. In such cases, exploratory well costs remained suspended as long as we were actively pursuing access to the necessary facilities or receiving such permits and approvals and believed that they would be obtained. We assessed the status of suspended exploratory well costs on a quarterly basis.

Depreciation, Depletion and Amortization

DD&A of our oil and gas properties is computed using the units-of-production method. We apply this method by multiplying the unamortized cost of our proved oil and gas properties, net of estimated salvage plus future development costs, by a rate determined by dividing the physical units of oil and gas produced during the period by the total estimated units of proved oil and gas reserves at the beginning of the period.

DD&A of our proved properties while we applied the successful efforts method during the Predecessor periods was computed using the units-of-production method. Historically, we adjusted our depletion rate throughout the year as new data became available.

Other Property and Equipment

Other property and equipment consists primarily of gathering systems and related support equipment. Property and equipment are carried at cost and include expenditures for additions and improvements which increase the productive lives of existing assets. Maintenance and repair costs are charged to expense as incurred. Renewals and betterments, which extend the useful life of the properties, are capitalized.

We compute depreciation and amortization of property and equipment using the straight-line balance method over the estimated useful life of each asset as follows: Gathering systems – fifteen to twenty years and Other property and equipment – three to twenty years.

Impairment of Long-Lived and Other Assets

Impairment of Long-Lived Assets

While we applied the successful efforts method of accounting for our oil and gas properties during the Predecessor periods, we reviewed our assets for impairment when events or circumstances indicated a possible decline in the recoverability of the carrying value of the properties. If the carrying value of the asset was determined to be impaired, we reduced the asset to its fair value. Fair value may have been estimated using comparable market data, a discounted cash flow method, or a combination of the two. In the discounted cash flow method, estimated future cash flows were based on management’s expectations for the future and included estimates of future production, commodity prices based on published forward commodity price curves as of the date of the estimate, operating and development costs, intent to develop properties and a risk-adjusted discount rate.

We reviewed oil and gas properties for impairment periodically when events and circumstances indicated a decline in the recoverability of the carrying value of such properties, such as a downward revision of the reserve estimates or lower commodity prices. We estimated the future cash flows expected in connection with the properties and compared such future cash flows to the carrying amounts of the properties to determine if the carrying amounts were recoverable. Performing the impairment evaluations required use of judgments and estimates since the results were dependent on future events. Such events included estimates of proved and unproved reserves, future commodity prices, the timing of future production, capital expenditures and intent to develop properties, among others.

The costs of unproved leaseholds, including associated interest costs for the period activities were in progress to bring projects to their intended use, were capitalized pending the results of exploration efforts. Unproved properties whose acquisition costs were insignificant to total oil and gas properties were amortized in the aggregate over the lesser of five years or the average remaining lease term and the amortization was charged to exploration expense. We assessed unproved properties whose acquisition costs were relatively significant, if any, for impairment on a stand-alone basis. As exploration work progressed and the reserves on properties were proved, capitalized costs of these properties became subject to depreciation and depletion. If the exploration work was unsuccessful, the capitalized costs of the properties related to the unsuccessful work was charged to exploration expense. The timing of any write-downs of any significant unproved properties depended upon the nature, timing and extent of future exploration and development activities and their results.

Asset Retirement Obligations

We recognize the fair value of a liability for an asset retirement obligation (“ARO”) in the period in which it is incurred. Associated asset retirement costs are capitalized as part of the carrying cost of the asset. Our AROs relate to the plugging and abandonment of oil and gas wells and the associated asset is recorded as a component of oil and gas properties. After recording these amounts, the ARO is accreted to its future estimated value, and the additional capitalized costs are depreciated over the productive life of the assets. Both the accretion of the ARO and the depreciation of the related long-lived assets are included in the DD&A expense caption in our Consolidated Statements of Operations.

Income Taxes

We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Using this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates. In assessing our deferred tax assets, we consider whether a valuation allowance should be recorded for some or all of the deferred tax assets which may not be realized. The ultimate realization of deferred tax assets is assessed at each reporting period and is dependent upon the generation of future taxable income and our ability to utilize tax credits and operating loss carryforwards during the periods in which the temporary differences become deductible. We also consider the scheduled reversal of deferred tax liabilities and available tax planning strategies. We recognize interest attributable to income taxes, to the extent they arise, as a component of interest expense and penalties as a component of income tax expense.

We are subject to ongoing tax examinations in numerous domestic jurisdictions. Accordingly, we may record incremental tax expense based upon the more-likely-than-not outcomes of uncertain tax positions. In addition, when applicable, we adjust the previously recorded tax expense to reflect examination results when the position is effectively settled. Our ongoing assessments of the more-likely-than-not outcomes of the examinations and related tax positions require judgment and can increase or decrease our effective tax rate, as well as impact our operating results. The specific timing of when the resolution of each tax position will be reached is uncertain.

Revenue Recognition

Revenue Recognition and Associated Costs

Share-Based Compensation

Our stock compensation plans permit the grant of incentive and nonqualified stock options, common stock, deferred common stock units, restricted stock and restricted stock units to our employees and directors. We measure the cost of employee services received in exchange for an award of equity-classified instruments based on the grant-date fair value of the award. Compensation cost associated with the liability-classified awards is measured at the end of each reporting period and recognized based on the period of time that has elapsed during the applicable performance period.

Fair Value of Financial Instruments, Policy [Policy Text Block]

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.

We use a hierarchy that prioritizes the inputs we use to measure fair value into three distinct categories based upon whether such inputs are observable in active markets or unobservable. We classify assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. Our methodology for categorizing assets and liabilities that are measured at fair value pursuant to this hierarchy gives the highest priority to unadjusted quoted prices in active markets and the lowest level to unobservable inputs as outlined below.

Fair value measurements are classified and disclosed in one of the following three categories:


•	Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 1 inputs generally provide the most reliable evidence of fair value.


•	Level 2: Quoted prices in markets that are not active or inputs, which are observable, either directly or indirectly, for substantially the full term of the asset or liability.


•	Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Fair Value, Measurements, Recurring

Schedule of Policies [Line Items]

Fair Value of Financial Instruments, Policy [Policy Text Block]

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

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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 WTI and LLS crude oil 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.