Penn Virginia Resource Partners L.P. (PVR) reported third quarter adjusted earnings of 25 cents per unit, 5 cents below both the Zacks Consensus estimate and the year-ago earnings of 30 cents.
GAAP earnings of Penn Virginia Resource for the third quarter of 2010 were 9 cents per unit compared with 24 cents recorded in the year-ago period. GAAP earnings in the quarter included non-cash derivative gains for the period.
Total Revenue
Penn Virginia Resource’s total operating revenue of $222.8 million for the third quarter of 2010 came in above the Zacks Consensus Estimate of $207 million. Revenue in the quarter also improved 43% from $155.6 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 15% year over year to $40.4 million, mainly due to higher coal royalty revenue. The coal royalty revenues rose 17% from the year-ago period due to a 15% increase in average coal royalties per ton to $4.10 in the quarter. The higher coal prices during the quarter contributed to the increase in coal royalties.
Natural Gas Midstream Segment: Revenue from this segment in the third quarter of 2010 was $182.4 million versus $120.4 million in the year-ago period, implying a growth of 51.5%. System throughput volumes during the quarter increased 22% to 36.2 billion cubic feet (Bcf), from 29.8 Bcf in the year-ago quarter, as a result of additional volumes on the Crossroads and Panhandle systems and new business in the Pennsylvania Marcellus shale region.
Operational Update
Operating expenses of Penn Virginia Resource in the quarter were $190.5 million versus $127.8 million in the year-ago period, implying a growth of 49%. The increase in operating expense is attributable mainly to a 55% spike in expenses at the Natural Gas Midstream segment, while expenses at the Coal and Natural Resource Management segment remained almost flat in the quarter.
Despite the increase in operating expenses, Penn Virginia Resource notched a 16.2% growth in operating income, recording $32.3 million in the reported quarter versus $27.8 million in third quarter 2009.
Interest expenses of Penn Virginia Resource during the quarter were $10.6 million versus $6.5 million a year ago. The 63% increase in expenses was due to the refinancing of short-term borrowings under the credit facility with the issuance of $300.0 million of long term debt in April 2010.
Other Developments
During the third quarter, Penn Virginia Resource announced that it will merge with its general partner Penn Virginia GP Holdings L.P. (PVG), which holds a 37.6% stake in the partnership. Following the merger, Penn Virginia Resource will own Penn Virginia GP, entirely.
Also, the partnership commenced the construction of its previously announced pipeline in the Marcellus Shale, which is anchored with a contract with Range Resources. Management expects both of these developments to position PVR well for the future.
Financial Update
Penn Virginia Resource continues to manage its financial position well, ending the third quarter with $483.4 million remaining under its revolving credit facility and with cash and cash equivalents of $13.1 million.
Cash from operating activities at the end of the third quarter 2010 was $54.0 million versus $42.9 million in the year-ago period. Distributable cash flow (DCF) for the quarter summed to $33.9 million as compared to $37.2 million last year.
Total capital expenditure of Penn Virginia Resource during the third quarter was $35.2 million, out of which $0.2 million was allocated to the Coal and Natural Resource Management segment and $35.0 million to the Natural Gas Midstream segment.
Cash Distribution
The board of directors of the general partner of Penn Virginia Resource declared a third quarter cash distribution of 47 cents per unit, payable on November 12, 2010, to unit holders of record as on November 8, 2010. The distribution equates to an annualized rate of $1.88 per unit.
Guidance
For 2010, Penn Virginia Resource has guided coal royalty volumes in the range of 33.0–34.0 million tons, with average coal royalties per ton expected in the range of $3.80 to $3.90. Other revenue for 2010 is expected in the $21.0–$22.0 million range. System throughput volumes are expected in the range of 340–350 million cubic feet (MMcf) per day.
For 2010, cash operating expenses at the Coal and Natural Resource Management segment and at the Natural Gas Midstream segment are expected at approximately $26.0–$27.0 million and $56.0–$60.0 million, respectively.
For 2010, capital expenditure for the Coal and Natural Resource Management segment is expected to be approximately $21.0–$23.5 million. At the Natural Gas Midstream segment, capital expenditure is expected to be in the range of $124.0–$136.0 million.
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