With oil prices firmly divorced from natural gas and providing more exciting growth potential for the near future, it's already become a well-worn trend that US independents are looking for liquids.

As analysts at Houston's Tudor Pickering Holt said it perhaps too simply some time ago: "Oil good, gas bad."

But slamming on the brakes and changing direction after 20 years of natural gas-focused operations predictably has created some severe share-price whiplash for a few independents moving to boost their oil prospects.

One recent example is venerable Penn Virginia of Radnor, Pennsylvania, a company that traces its heritage back to 1880 while spending the last year in a dedicated transition.

"We are a company that is in transition and now focused on oil-type plays," explained Baird Whitehead, chief operating officer and heir-apparent to James Dearlove who retires in May after 15 years as CEO.

Outlining Penn Virginia's movement toward that goal April 13 during a presentation to analysts at the annual conference of the Independent Petroleum Association of America, Whitehead also felt compelled to stress his view that shares of Penn Virginia also are "significantly undervalued."

He told the conference: "We have a good story. We have an oil play that continues to grow. I wanted to show you how undervalued we are at this time."

After trading as high as $29.25 a year ago, Penn Virginia's share price took a dive last summer into the $15-range where it has been mired ever since, closing April 14 at $14.89, just above a 52-week low of $13.38.

Like Whitehead, analysts who follow the company still like the "story" of a longer term, liquids-lashed Lazarus rising from its tradition as a natural gas producer based on the company's position in the nation's white-hot Eagle Ford Shale oil play of South Texas.

Penn Virginia plans to boost its oil and liquids component from a historical share of 18% to 26% this year, with Whitehead noting he expects liquids to contribute 30% of production by the fourth quarter.

At the same time, however, the company plans to remain opportunistic with its natural gas holdings while awaiting a rebound in prices for that commodity and seeking a joint venture partner to help with its position in Pennsylvania's Marcellus Shale.

Penn Virginia has allocated 75% of this year's $345 million capital budget to oil projects, with three rigs expected to drill 29 Eagle Ford wells.

"We think the transition is going well," said Stifel Nicolaus analyst Amir Arif in an interview. But he agreed that the share-price plunge stems from the company's transition.

"It's related to the shift of any company going from conventional assets to shale assets and doesn't matter if it is oil or gas," he said. "They are stuck in the middle of this transition, which is capital intensive."

Arif said Penn Virginia has been spending a lot of money without much new production to show for it, yet. He had been predicting continued pressure on Penn Virginia shares since November, citing a slowdown while the company reallocated drilling equipment for its transition and cut spending by 42% to get the new program under way.

"Looking further out," Arif wrote in a November 4 report, "we think the move will be beneficial as it accelerates development of the Marcellus and Eagle Ford."

He noted that the company's initial decline occurred as it moved to divest partnerships and exit some natural gas provinces that left it dependent on its conventional holdings in Oklahoma's Granite Wash play, which presented problems for several independent operators late last year.

Those Granite Wash issues prompted Canaccord Genuity analyst John Gerdes to begin his coverage of Penn Virginia January 11 by urging investors to "sell."

As an example of transition whiplash, however, Gerdes shifted gears February 25 and upgraded the company to "hold" based on what he described as Penn Virginia's "aggressive shift toward liquids development."

Key to Gerdes' change-of-heart was the company's release of results from its first Eagle Ford well, which tested at what he called "an impressive" oil-equivalent rate of 1,200 b/d.

Penn Virginia now boasts control of 13,000 acres in the Eagle Ford's "oil window," according to Whitehead's latest presentation, noting that had risen from 10,200 acres just a couple of weeks before.

"We continue to actively lease and realize we need to get bigger," he told analysts April 13. He said the company has signed a gas-processing agreement for the Eagle Ford and noted that Penn Virginia could "give the gas away in the Eagle Ford and still generate a return" from the oil.

With no shortage of born-again liquids independents to compete for investor attention, however, the new, oil-focused Penn Virginia remains an uncertain name pending continued progress in the Eagle Ford and successful creation of a joint venture to target gas opportunities in the Marcellus.

And the company's share stagnation experiences navigating the channels of such a fundamental transition emerge as an example for other E&Ps as they ponder similar shifts. 

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