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Penn Virginia Misses Overall

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Penn Virginia Resource Partners announced its first quarter 2012 earnings per unit of 20 cents per unit as oppose to 48 cents per unit in the year ago quarter reflecting a downsurge of 58.3%. This decline was factored by decrease in coal and natural resource management activities.

The earnings fell short of Zacks Consensus Estimate by 12 cents per unit.

The partnership’s GAAP loss per unit was reported at $1.39 per unit in the first quarter compared to GAAP EPS of 17 cents per unit in the prior year’s period.

The disparity in pro forma and GAAP earnings of $1.59 per unit can be attributed to impairment costs of $1.57 per unit, unrealized derivative losses of 6 cents and one-time cash receipt of 4 cents per unit.

Total Revenue Performance

Overall revenue in the first quarter of 2012 posted a decline of 3% to $246.4 million compared to $254.0 million in the prior-year quarter. This is on account of lower coal royalty volumes and fall in natural gas prices.

Revenue also fell below Zacks Consensus Estimate by $47.6 million.

Segmental highlights

Natural Gas Midstream: Revenue followed a flat trajectory in this segment compared to the year ago quarter. The positive effects include increase in production volumes from the Marcellus and Panhandle systems. This was offset by negative impacts of lower natural gas prices owing to warm winter and lack in drilling activities in the Fort Worth Basin.

Coal and Natural Resource Management: This division capped lower revenue in the first quarter to $39.4 million versus $45.4 million in the year ago quarter indicating a significant fall by 13%.

Despite growth in the coal royalty per ton in the reported quarter by 3.8% coal royalty tons fell to 8.1 million tons compared to 9.9 million in the year-on-year quarter due to high temperatures in the winter season.

Others: Revenue from this segment witnessed a downsurge by 14.6% from the year \-ago quarter.

Update on Acquisitions and Expansion

Construction activities in the Marcellus Shale system have been completed followed by its joint venture project with Aqua America Inc. (WTR - Snapshot Report) which has commenced its operation in the first quarter of 2012. Add to this, expansion of processing capacity of Antelope Hills plant was completed and Phase II expansion is currently in progress and expected to come into operation by second quarter of 2012.

Operational Update

Total operating expenses significantly surged by 58.3% from $216.0 million in the prior year quarter. The major contributor to this increase was operating costs which rose by 23% from the year ago quarter.

EBITDA (Earnings Before Interest, Tax and Depreciation) fell by $6.2 million to $53.0 million from $59.2 million in the year ago quarter.

The partnership firm registered an operating loss of $95.7 million versus an operating income of $38.0 million in the year-ago quarter. This shortfall was on account of momentous escalation in operating expenses.

Financial Screening

Cash and cash equivalents of the partnership as of March 31, 2012, were $7.5 million, down from $8.6 million as of December 31, 2011.

Cash flow from operating activities of the partnership as of March 31, 2012 was $45.1 million, significantly lower than $55.0 million as of March 31, 2011. 

Borrowings were at $617.0 million as of March 31, 2012 increased by $102.0 million from $515.0 million as of March 31, 2011.

Quarterly cash distribution of 52 cents per unit is payable on May 14, 2012 to unitholders of record at the close of business on May 8, 2012. In the first quarter of 2011 cash distribution was 48 cents per share indicating an 8.3% increase over the year-ago quarter.

Guidance

The partnership’s guidance for 2012 includes EBITDA to be in the range of $260-$280 million and full year 2012 distributable cash flow, net of maintenance and replacement capital, within the scale of $160-$180 million is unchanged from previous announcements. 

Peer Update

CONSOL Energy Inc. (CNX - Analyst Report) a competitor of Penn Virginia Resource Partners announced its first quarter 2012 earnings of 42 cents per unit declining by half compared to 84 cents per unit in the preceding year’s quarter. Earnings were below Zacks Consensus Estimate of 56 cents per unit.

The company posted a $38.3 million decline in revenue in the first quarter of 2012 from $1,465.3 million in the year-ago quarter. Revenue surpassed Zacks Consensus Estimate of $1,403.0 million.

Our View

Penn Virginia continues to underperform, with its earnings per unit missing our projection over the last four quarters. The depressed natural gas prices and decline in coal royalty volumes are affecting the performance of the partnership.

Despite this downfall the partnership is optimistic in regards to its future growth potential. The partnership is continuing to make investments for expansion of its domestic projects during 2012 especially in the Marcellus, Panhandle and Antelope systems.

Based in Radnor, Pennsylvania, Penn Virginia Resource Partners, L.P. is involved in the management of coal and natural resource properties; and gathering and processing of natural gas in the United States.

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