James Dearlove, president and chief executive officer of Penn Virginia Corp., didn't evade the question when asked at the recent John S. Herold Inc. conference about his exit strategy. The company has received pressure from a pair of shareholder activists to sell. "There are some shareholders who have their own exit strategy for the company, and want us to act on it," he said. "The company is not for sale. The other directors and I have a fiduciary responsibility to maximize returns for all of our investors. We would act on a good offer if it were made. Right now, however, the company is not for sale." The 120-year-old company was an Appalachian gas producer, with between 400,000 and 500,000 acres of holdings, until this past decade when it bought a privately held Gulf Coast gas producer. The third leg of its growth platform is coalbed methane, which springs from its Appalachian coal exposure. "The niche is to be exposed to oil and gas on one hand and coal on the other, with no need for reinvestment," Dearlove explained. "That exposes us to more commodity price cycles and keeps our portfolio diverse." In 2001, Penn Virginia formed Penn Virginia Resource Partners LP for its approximately 500 million tons of high-quality coal reserves. The master limited partnership has entered into 40 long-term leases with more than 20 third-party mine operators for the right to mine their reserves in exchange for royalty payments. The lessees produced 15.3 million tons of coal last year. "Our strategy going forward is to grow all three segments," said Dearlove. "We don't plan to become a 'me-too' Gulf Coast gas producer. We plan to increase our low-risk drilling and exploit coalbed methane. We're also going to break the mold in coal. We plan to make our coal business grow beyond Appalachia. We see opportunities in the Midwest and in Utah. Our Appalachian holdings represent about 8% of the region's 6 billion total tons of coal, so there's still room for us to play there too."
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