Penn Virginia Closes Asset Sale

Coal and natural gas management partnership, Penn Virginia Resource Partners, LP (PVR - Analyst Report) completed its sale of Crossroads Systems to DCP Midstream Partners, LP (DPM - Snapshot Report) for roughly $63 million. The facility is involved in natural gas gathering and processing operations.

The system is situated in the southeastern portion of Harrison County in East Texas. The unit’s assets consist of an 80 million cubic feet per day cryogenic processing plant with approximately 8 miles of gas gathering pipe and around 20 miles of Natural Gas Liquids (NGL) pipeline. Crossroads System also has a 50% ownership in a roughly 11-mile residue gas pipeline.

Penn Virginia decided to sell its East Texas unit as these assets no longer fit with its long-term strategy of diversifying and expanding the midstream business. The deal will enable the partnership to divert its capital to higher return core growth projects in the Marcellus Shale and Panhandle facility in the Texas and Oklahoma areas. In the first quarter of 2012, the natural gas midstream business accounted for 84% of total revenue, higher than the year-ago share of 81.3% owing to volume growth in the Marcellus Shale and Panhandle facilities.

Besides divesting assets, the partnership often engages in periodic high profile acquisitions to widen its revenue base. Recent deals include the purchase of Chief Gathering LLC and an agreement with four Marcellus Shale natural gas producers to extend the partnership’s natural gas pipeline in Lycoming County. These activities are expected to strengthen Penn Virginia’s market share and enhance its pipeline portfolio. The midstream business is expected to gain steadily from coal to natural gas switching, particularly in the electric power sector, owing mainly to much cheaper gas prices.

Penn Virginia’s closest competitor Console Energy Inc. (CNX - Analyst Report) also recently sold its non-performing Northern River Powder Basin operations to Cloud Peak Energy (CLD - Snapshot Report) in an all-cash agreement of $170 million. The company will retain 8% production royalty on roughly 200 million tons of permitted fee coal which bring its overall asset divestitures for 2012 to $224 million.

Going forward, the partnership expects EBITDA for fiscal 2012 in the range of $260–$280 million with distributable cash flow, net of maintenance and replacement capital to remain unchanged in the range of $160–$180 million. Besides, its healthy balance sheet and flexible liquidity will enable Penn Virginia to engage in multiple projects smoothly and effectively.

Penn Virginia presently retains a Zacks#3 Rank which translates to a short-term Hold rating. The Zacks Consensus Estimates for the second quarter and fiscal 2012 are currently pegged at 21 cents per share and 95 cents per share, respectively.

Based in Radnor Pennsylvania, the partnership is involved in the management of coal and natural resource properties; and gathering and processing of natural gas in the United States.