Investment decisions

Penn Virginia / Ranger Oil options strategy in a nutshell

Penn Virginia is an oil producer in the Eagle Ford. It is backed by Juniper Capital a PE group that specialised in Energy, and recently, it has been very active in the M&A segment.

Penn Virginia has a good management team that follows a prudent hedging strategy. It has allowed them to be cash flow positive for 8 quarters in a row.

Penn Virginia / Ranger Oil Hedges strategy 2021/2022

Now, there are producing 38MBoepd. Around 70% of them is oil. If we compare the current hedge schedule to the one 3 and 6 months ago, we can spot how quick the prices move up. It means that Penn Virginia continues hedging and taking advantage of the current environment. We think that it is not necessary that the oil prices will continue going up to make money with PVAC. Each day that the WTI price is >$75 it allows Penn Virginia to continue hedging into 2023/2024 at a very beneficial price. Moreover, PVAC sells its oil at a small premium (MEH) to WTI.

We estimate OPEX around $16.45 per barrel (including LOE, G&A, Interest expenses, ad-valorem taxes and GPT expenses) and CAPEX around $23 dollars per barrel. Consequently, at these prices, margins are huge.

Capital structure and future M&A activity

Its capital structure is composed of 30% debt and 70% equity (at current prices). 

Penn Virginia / Ranger Oil capital structure

Having a look at the capital structure we see that it makes sense to continue its M&A activity, which we expect to happen in the coming months.

Penn Virginia has recently changed its name to Ranger Oil. This change comes after the acquisition of Lonestar Resources (25MBoepd + 13MBoepd). This acquisition was closed the last 5th October. Apart from it, Penn Virginia has also closed the acquisition of Rocky Creek this summer.

Penn Virginia options trades

Thanks to its astonishing 84% annual volatility, Penn Virginia is a perfect candidate to make some money selling puts. Moreover, it has good fundamentals and it is set for growth in this environment. We have PVAC in our portfolio and we are also taking advantage of its stock movements to make additional gains with options.

In the last months, we have been selling and buying puts in $15, $17.5, $20 and $22.5 with premiums around $2.5-4 expiring in January & April 2022.

From the macroeconomic point of view, it makes sense that the oil prices remain high in the foreseeable future because It has been a lack of investment in the sector for the last 4-5 years which has accentuated during the Covid crisis. Apart from it, Penn Virginia is a company with a good Balance Sheet and good management. It could continue growing in the coming months.

All of these will further support the price in the range it is trying today (around $30), which makes our well rewarded bets at $20-22.5 attractive

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