Penn Virginia Resource Partners L.P. (PVR) reported first quarter adjusted earnings of 48 cents per unit, outperforming the Zacks Consensus Estimate by 12 cents. However, adjusted earnings in the quarter was short of 53 cents earned in the year-ago quarter.
GAAP earnings of Penn Virginia Resource for the first quarter of 2010 were 17 cents per unit compared with 22 cents recorded in the year-ago period. GAAP earnings in the quarter included non-cash derivative charges for the period.
Total Revenue
Penn Virginia Resource’s total operating revenue of $253.5 million for the first quarter of 2011 came in above the Zacks Consensus Estimate of $228 million. Revenues in the quarter also improved 22.8% from $206.5 million reported in the year-ago period, driven by better revenues earned at its Natural Gas Midstream and Coal and Natural Resource Management segments.
Segmental Results
Coal and Natural Resource Management Segment: Revenues at this segment improved 35% year over year to $45.4 million, mainly due to increased revenue and higher coal royalties. The coal royalty revenues rose 38.3% from the year-ago period to $39 million or $3.94 per ton. In the first quarter, coal royalty tons were 9.9 million tons compared to 8.2 million tons.
Natural Gas Midstream Segment: Revenue from this segment in the first quarter was $206.3 million versus $170.6 million in the year-ago period, implying a growth of 20.9%. System throughput volumes during the quarter increased 36.4% to 420 million cubic feet per day (MMcf/d), from 308 MMcf/d in the year-ago quarter, as a result of additional volumes from new business in the Marcellus Shale region and additional activity on the Panhandle and Crossroads systems.
Operational Update
Total operating expenses of Penn Virginia Resource in the quarter were $215.5 million versus $179.7 million in the year-ago period, implying a growth of 19.9%. The increase in net operating expense is attributable to a 20% spike in cost of gas purchased, 27% increase in operating expenses, 11.9% increase in general and administrative expenses and a 19% increase in depreciation, depletion and amortization.
Despite the increase in operating expenses, Penn Virginia Resource saw a 42% growth in operating income, recording $38 million in the reported quarter versus $26.8 million in first quarter 2010. Interest expenses of Penn Virginia Resource during the quarter were $10.9 million versus $5.8 million a year ago.
Other Developments
During the first quarter, Penn Virginia Resource completed the merger with its general partner, which simplified its corporate structure, eliminated the obligation to pay incentive distributions, and reduce the cost of capital. These events are extremely important to the growth of the partnership’s business, and each contributed to the strong financial results during the first quarter.
Financial Update
Penn Virginia Resource continues to manage its financial position well, ending the first quarter with $333.4 million remaining under its revolving credit facility and with cash and cash equivalents of $14.5 million.
Penn Virginia Resource spent $21.7 million on internal growth projects during the first quarter of 2011, including $12.9 million in the Marcellus Shale.
On April 19, 2011, PVR amended its existing revolving credit facility to increase its borrowing capacity under the facility to $1.0 billion, reducing its LIBOR and Base Rate margins by 50 basis points (0.50%), and extend the term to April 2016.
Cash Distribution
Penn Virginia Resource declared a quarterly cash distribution of cents 48 per unit payable on May 13, 2011 to unitholders of record as of May 6, 2011. The distribution equates to an annualized rate of $1.92 per unit, and represents a 2.1% increase over both the prior quarter and first quarter of 2010.
Guidance
Based on Penn Virginia Resource’s first quarter performance and current outlook, the partnership updated its financial guidance for 2011. Penn Virginia Resource now expects EBITDA in the $230 – $240 million range. Distributable cash flow for the full-year 2011 is expected in the range of $140 – $150 million.
Furthermore, Penn Virginia Resource expects to invest a total of $150 million for internal growth capital during 2011, including nearly $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 Basin and San Juan Basin. The partnership primarily competes with CONSOL Energy Inc. (CNX) and Massey Energy Co. (MEE).
Penn Virginia Resource currently has a short-term Zacks #5 Rank (Strong Sell). We maintain our long-term Neutral recommendation on the stock.
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