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Penn Virginia Corporation

Penn Virginia Corporation


3 Radnor Corporate Center, Suite 230
100 Matsonford Road
Radnor, Pennsylvania 19087-4564
U.S.A.
Telephone: (610) 687-8900
Fax: (610) 687-3688
Web site: http://www.pennvirginia.com

Public Company
Incorporated:
1882 as Virginia Coal & Iron Co.
Employees: 229
Sales: $673.9 million (2005)
Stock Exchanges: New York
Ticker Symbol: PVA
NAIC: 211111 Crude Petroleum and Natural Gas Extraction

Penn Virginia Corporation is an energy company involved in the exploration and production of natural gas and oil. Through Penn Virginia Resource Partners, L.P. (PVR), spun off in 2001, the Radnor, Pennsylvania-based company also participates in the natural gas midstream business (processing, storage, and transportation) and the leasing of coal reserves for royalty payments. It also derives income by leasing coal preparation and loading facilities to lessees and other parties. Coal reserves are found in Appalachia (Kentucky and West Virginia), the Illinois Basin in Kentucky, and the San Juan Basin in New Mexico. Penn Virginia owns a 39 percent stake in PVR and serves as general partner.

Penn Virginia's oil and gas reserves are mostly located in the Appalachian, Mississippi, east Texas, and inland Gulf Coast areas. Penn Virginia is a public company listed on the New York Stock Exchange.

19TH-CENTURY ROOTS

Penn Virginia was incorporated in Virginia in 1882 as the Virginia Coal & Iron Co. (VC&I) by Philadelphia, Pennsylvania, businessman John Leisenring, Jr., whose family's ties to the U.S. coal industry reached back to the earliest days. His grandfather, Johann Conrad Leisenring, immigrated to the Lehigh Valley of Pennsylvania in 1748, buying a 150-acre farm that was located in the middle of a major anthracite coal field. Unfortunately, anthracite coal, unlike bituminous coal, refused to ignite, making it worthless as a fuel. John Leisenring's father, John Leisenring, Sr., was born on his grandfather's farm in 1793 and in his early 20s moved to Philadelphia where he married and struggled to make a career as a leather tanner. In the meantime, efforts were being made to find a way to ignite anthracite coal, and by sheer accident it was learned that rather than scratching and poking it as with bituminous coal, anthracite simply needed to be placed in a closed furnace and provided with a bottom draft. It would then ignite and become an excellent source of fuel, suitable for such industrial purposes as iron making.

Unable to succeed in Philadelphia, Leisenring returned to the Lehigh Valley in 1816 to start a tannery with his cousin. It would be located a mere three miles from Mauch Chunk, a company town of the Lehigh Coal and Navigation Co. (LC&N) that was in the heart of the emerging anthracite coal industry. Around 1827 John Leisenring, Sr., sold his interest in the tannery and took over the management of a Mauch Chunk hotel (and later became owner), which emerged as a nerve center of the community and put him in a position of prominence in the community. Three of his children married the offspring of LC&N executives, and John Leisenring, Jr., an engineer by training, was then able to take advantage of his family's web of connections to forge an illustrious career in the coal industry that would carry on for four generations. Known as the "Boy Wonder of Anthracite," Leisenring became involved in a number of coal mining partnerships starting in 1854.

The land that formed the basis for Virginia Coal & Iron was located in the southwest corner of Virginia, close to the Kentucky and Tennessee borders. In the late 1870s and early 1880s it was being touted for its iron ore deposits by a former Confederate general, John D. Imboden, who was trying to scare up investors to help him develop the remote area. He was able to pique the interest of Abraham and Christian Tinstman, a pair of coal and iron operators who in 1880 had sold Leisenring major coal deposits around Connellsville, Pennsylvania. The Tinstman brothers became even more interested when Imboden discovered a rich vein of bituminous coal in the Virginia parcel. With the coming of steel, the Tinstman brothers were less interested in the iron ore than the coal deposits, and they made Imboden their agent in purchasing some 27,000 acres in 1880. They then formed Tinsalia Coal & Iron Co. and acquired another 40,000 acres and bought a majority interest in a railroad that would be able to bring the coal they mined to market. Unnerved by the cost of building the railroad and developing the property, the Tinstman brothers sold their interests in Tinsalia to Edward K. Hyndman, who had served as the middleman in the Connellsville sale to Leisenring and his associates. Hyndman brought the Virginia holdings to the attention of John Leisenring and in 1881 succeeded in selling Tinsalia and some additional lands totaling 70,000 acres plus the railroad to Leisenring and his group. Virginia Coal & Iron Co. was then created to hold these assets.

John Leisenring died of Bright's disease at the age of 65 in 1884, leaving his son Edward in charge of his business interests, aided by several relations, including brother-in-law Dr. John S. Wentz. In 1889 the Leisenring group was outmaneuvered by Henry Clay Frick and forced to sell their Connellsville properties to him at cost, some $3 million. To this point VC&I was nothing more than a real estate holding company, but the Leisenrings decided to invest the money they received to develop the property. They soon discovered that the bituminous coal they possessed produced excellent coke, far better than the Connellsville coke, much to the chagrin of Frick whose machinations had forced them to focus on their Virginia acreage. Before the railroads could arrive and open the land to more competitors, the Leisenring group quickly bought more land in the region, which would in short order become honeycombed with mining operations. However, VC&I, by virtue of being first and quick to act, became the dominant force in the area. Stonega Coke & Coal Co. was formed in 1902 to serve as VC&I's operational arm and in that same year the company opened its first mines and coke ovens.

Upon Edward Leisenring's death in 1894, Dr. Wentz took charge of the family's Virginia interests, which would become even more valuable with the rise of electricity. Steam coal was used to fuel the new power plants, and the VC&I land held abundant supplies of it. While VC&I owned the land and remained in the background, Stonega C&C under Dr. Wentz's leader-ship began to expand. In 1910 it acquired Keokee Consolidated Coke Co. and between 1916 and 1917 he assembled a major position in Westmoreland Coal Company. Formed in 1854 in the wake of the Pennsylvania Railroad linking Philadelphia to Pittsburgh, Westmoreland was the oldest surviving bituminous coal company in the United States.

COMPANY PERSPECTIVES


We are engaged in the exploration, development and production of crude oil and natural gas primarily in the Appalachian, Mississippi, east Texas and Gulf Coast onshore areas of the United States. We also collect royalties on various oil and gas properties in which we own a mineral fee interest.

After Dr. Wentz died in 1918, his son, Colonel Daniel Wentz, succeeded him and headed the family operations until his sudden death in 1926. A trusted associate, Otis Mouser, took over while 31-year-old E. B. (Ted) Leisenring, Sr., Ned's son, became vice-president of most of the operations. Three years later Ted Leisenring succeeded Mouser when he died. Also in 1929 Westmoreland's president died and the management of that concern was turned over to Stonega. As a result, Leisenring became president of Stonega, Westmoreland, and VC&I. His son, E. B. (Ted) Leisenring, Jr., would come to work for the family interests in 1949 at the age of 23. He was not seasoned enough, however, to take over for his father when he fell ill two years later, and Ralph H. Knode, a Daniel Wentz protégé, was placed in charge. The elder Leisenring died in 1952, and his son assumed the presidency of Stonega in 1959. Two years later Ted, Jr., became president of VC&I as well as Westmoreland. He quickly moved to consolidate Stonega and Westmoreland in order to become a bigger player in the coal industry. In 1962 VC&I acquired a 52 percent stake in Westmoreland, and in 1964 Westmoreland was merged into Stonega, which was then rechristened Westmoreland Coal Company in order to keep alive the oldest name in the coal industry.

ADOPTION OF PENN VIRGINIA NAME: 1967

Now a land, mineral rights, and investment company, VC&I changed its name to Penn Virginia Corporation in 1967. John Leisenring, Sr., had made a habit of creating separate companies and partnerships for all of his mining ventures, creating multiple firewalls in case one of the companies failed, but his great grandson consolidated most of those holdings in order to gain efficiency. In 1972 he attempted to merge Penn Virginia and Westmoreland, and when that failed he instead effected a more complete separation. It would prove to be an important maneuver when Westmoreland lapsed into bankruptcy in the 1990s. Despite the lack of legal connections, Westmoreland and Penn Virginia were linked together through family ties, as Ted Leisenring, Jr., served as the chief executive officer of both companies for many years. Although they had separate boards of directors, they shared corporate offices.

After the organizational changes in the 1960s, Penn Virginia expanded its purview somewhat, yet delivered dependable profits and dividends to its shareholders, giving it a reputation as a widow-and-orphan stock. Penn Virginia's main business was to acquire good coal reserves to lease out to others, but along the way it picked up other assets and developed other royalty streams. In 1967 it formed Wheelwright Corp. to produce fly ash aggregate used in making concrete. In 1973 Viall-Ohio Fly Ash Co. was acquired to supplement these operations. The following year Penn Virginia expanded its interests in aggregates by acquiring Limestone Products Corp., then in 1976 bought Pennsylvania Crusher Corp. to become involved in the manufacture of crushing machinery. More manufacturing assets were added in 1978 with the acquisition of Vibranetics Inc., maker of vibrating feeders, bins, and dischargers. Then, in 1980 Penn Virginia paid $10 million for Merrick Scale Manufacturing, a New Jersey maker of dynamic weighing and material handling technology.

Penn Virginia divested its equipment-manufacturing units in 1982 and sold Limestone Products Corp. to its managers in 1993. A more enduring line of business was natural gas, which could be found on the original Virginia acreage. In some cases drilling took place through the coal mines. Moreover, Penn Virginia began adding other gas and oil assets. Abington, Virginia-based Controlled Resources Oil & Gas Corp. was acquired in 1981. In the early 1990s, following a downturn in the energy sector that took place in the late 1980s, Penn Virginia added more assets. In 1994 CD&G Development Corp. was acquired. The Pikeville, Kentucky, exploration company brought with it 116 oil and gas wells and considerable reserves. Natural gas properties in southern West Virginia were bought from United Meridian Corp. in 1995. Penn Virginia did not lose site of its original business, however, and added coal reserves as well. In 1996 alone Penn Virginia added some 220 million tons of coal reserves, which were then leased to more than a dozen operators. For the year 1996 Penn Virginia reported revenues of $34.1 million and net income of $13 million.

KEY DATES


1882:
Company is formed as Virginia Coal & Iron Co.
1896:
Mining operations are launched.
1967:
Name is changed to Penn Virginia Corporation.
1982:
Equipment-manufacturing operations are sold.
1999:
Expansion beyond Appalachia begins.
2001:
Penn Virginia Resource Partners (PVR) is spun off.
2004:
PVR acquires Cantera Resource Holdings LLC.

NEW YORK STOCK EXCHANGE LISTING: 1997

In July 1997 Penn Virginia engineered a two-for-one stock split, increasing the number of available shares in preparation for joining the New York Stock Exchange two months later. Because the price of energy assets was high, Penn Virginia refrained from making any large acquisitions, content to pursue a few small buys. At the same time, the company invested $4.7 million to build a unit train loadout facility in Virginia to help lessees to quickly load coal and make them more competitive with larger coal operators. Penn Virginia also began taking steps to expand beyond its core Appalachia area by opening an office in Houston, Texas, to pursue oil and gas opportunities in other regions of the country. In July 1999 the first non-Appalachia asset was acquired, a Mississippi natural gas property. Later in the year Penn Virginia took a 20 percent position in a Texas onshore gulf coast exploration project. Also in 1999 the company formed joint ventures to explore for natural gas in Appalachia, and added 94 million tons of coal reserves in West Virginia by acquiring property that also included oil and gas leases and timber assets.

Because of a market shortage in natural gas, and to a lesser extent coal, the company was eager to add to its holdings both in and outside of Appalachia as the new century dawned. In 2000 it paid $34.7 million to acquire more than 500,000 acres of natural gas properties in West Virginia and eastern Kentucky. Even more changes were in store for 2001. Penn Virginia gained $54.7 million when it sold an interest in Norfolk Southern Company, a small railroad, the stock of which it had picked up in 1963. It also spun off 48 percent of Penn Virginia Resource Partners, a newly formed coal royalty-based master limited partnership which took with it Penn Virginia's coal reserves, timber, and related assets. The initial public offering of stock netted the parent company $142 million. The financial flexibility Penn Virginia gained in these transactions allowed it to virtually eliminate debt while completing the $112 million purchase of Synergy Oil & Gas, which expanded the company's position in the southwestern oil and gas business.

Penn Virginia's portfolio of assets and clean balance sheet attracted the attention of legendary corporate raider T. Boone Pickens, Jr., in 2002, who made a bid of nearly $330 million to buy the company, but the offer was rejected and he ultimately bowed out. Penn Virginia's management also resisted pressure from dissident shareholders who were displeased with the Synergy acquisition and the purchase of additional coal reserves. Management persevered in its approach in 2002, when PVR paid $12 million for 16 million tons of northern West Virginia coal reserves, and later in the year added 120 million tons of coal reserves from Peabody Energy Corporation. More acquisitions followed in 2003, including the addition of natural gas and oil reserves in south Texas, Mississippi, and Kansas. Management's growth strategy, despite the doubts of critics, was paying off. Revenues increased from $111 million in 2002 to $181.3 million in 2003, while net income increased from $12.1 million to $28.5 million.

PVR added to its coal interests in 2004 by acquiring a half interest in the Tennessee and Virginia coal-handling facilities owned by Massey Energy Co. Also in 2004 PVR agreed to acquire the midstream oil and natural gas assets of Cantera Resource Holdings LLC in Oklahoma and Texas for $191 million in cash. The deal closed in early 2005. Sales increased to $228 million in 2004 and net income improved to $33.4 million. Penn Virginia was well positioned to benefit from record energy prices, as revenues ballooned to $673.9 million in 2005 and net income almost doubled to $62.1 million. The company continued to expand its geographical reach and buildup in reserves in 2006. In June of that year it paid $71.5 million in cash to acquire Tulsa, Oklahoma-based Crow Creek Holding Corporation, adding to its proven reserves of oil and natural gas by 11 percent.

Ed Dinger

PRINCIPAL SUBSIDIARIES

Penn Virginia Holding Corp.; Penn Virginia Oil & Gas Corporation; Penn Virginia Oil & Gas, L.P.; Penn Virginia Resources GP, LLC; Penn Virginia Resource Partners, L.P. (40%); Kanawha Rail Corp.

PRINCIPAL COMPETITORS

Cabot Oil & Gas Corporation; Equitable Resources, Inc.; Peabody Energy Corporation.

FURTHER READING

Gray, Tom, "For Supplier, Two Fuels Are Better Than One," Investor's Business Daily, March 6, 2001, p. A12.

Lowe, Benjamin Y., "Corporate Raider Acquires 7.6 Percent of Radnor, Pa., Oil, Gas, Coal Firm," Philadelphia Inquirer, March 7, 2001.

Mason, Todd, "Hedge Fund Wants Chief Executive to Resign from Radnor, Pa.-based Energy Firm," Philadelphia Inquirer, March 12, 2003.

Parker, Akweli, "High Prices Add to Success of Philadelphia-Area Natural Gas Producer," Philadelphia Inquirer, April 27, 2001.

Rottenberg, Dan, In the Kingdom of Coal, New York: Routledge, 2003, 327 p.

Stets, Dan, "Sister-Company Status Adds Up to Steady Profits for Penn Virginia," Philadelphia Inquirer, June 21, 1988, p. 24.

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