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Penn Virginia Resource Partners L.P. ([url=]PVR[/url]) reported third quarter 2011 operating results and raised its quarterly cash distribution to 50 cents per unit. Penn Virginia’s adjusted third-quarter earnings were 29 cents per unit, below the Zacks Consensus estimate of 42 cents and the year-ago earnings of 49 cents.

Total Revenue

Penn Virginia Resource’s total operating revenue of $308.4 million for the third quarter improved 38.4% from $222.8 million reported in the year-ago period, driven by higher revenue contribution from its Natural Gas Midstream and Coal and Natural Resource Management segments.

Segmental Results

Coal and Natural Resource Management Segment: Revenues at this segment improved 17% year over year to $47.5 million, mainly due to production and higher average coal royalties. The rise in coal royalty revenue in the quarter resulted from an 11.8% increase in coal royalty tons sold and a 5.4% improvement in the price realized per ton sold. The Middle Fork assets that were acquired in January 2011 contributed $3.2 million in coal royalties and 0.5 million tons of coal production to third quarter 2011 results.

Operating income for the coal and natural resource management segment increased 13% to $29.8 million from $26.4 million in the prior year quarter.

Natural Gas Midstream Segment: Revenue from this segment in the third quarter was $259.7 million versus $180.2 million in the year-ago period, implying a growth of 44%. System throughput volumes during the quarter increased 27.9% from last year to 504 million cubic feet (MMcf) as a result of new business on the Panhandle systems and the Marcellus shale region.

Financial Update

Penn Virginia Resource continues to manage its financial position well, ending the year with $363.4 million remaining under its revolving credit facility and cash and cash equivalents of $13.9 million.

Cash from operating activities for the September quarter summed $50 million. Distributable cash flow (DCF) for the quarter was $36.1 million.

Penn Virginia Resource spent roughly $66.9 million for internal growth projects in the quarter, including $35.6 million in the Marcellus Shale.

Cash Distribution

The board of directors of the general partner of Penn Virginia Resource has declared a quarterly cash distribution of 50 cents per unit, payable on November 14, 2011, to unit holders of record as on November 7, 2011. The distribution equates to an annualized rate of $2.00 per unit, representing a 2.0% increase over the prior quarter distribution and a 6.4% increase over the third quarter of 2010.


For 2011, Penn Virginia Resource expects EBITDA to come in the range of $240-$250 million. Distributable cash flow for the year is expected to be in the $135-$145 million range, net of maintenance and replacement capital.

Penn Virginia Resource expects to invest approximately $180-$200 million in internal growth capital in 2011, including $120 million in the Marcellus Shale.

Our View

Radnor, Pennsylvania-based Penn Virginia Resource manages coal and natural resource properties as well as natural gas gathering and processing businesses. The partnership’s coal properties are located in Central and Northern Appalachia, Illinois and San Juan Basins.

Penn Virginia Resources currently has a short-term Zacks #3 Rank (Hold). We maintain our long-term Neutral recommendation on the stock. The partnership stands at par with its closest peer Cloud Peak Energy Inc. ([url=]CLD[/url]) and Peabody Energy Corp. ([url=]BTU[/url]), on the basis of our short-term rank.

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