NEW YORK (AP) -- Shares of Penn Virginia declined in Monday morning trading as an analyst lowered his rating for the oil and gas company following its announcement that it is buying some property and wells in Texas from Magnum Hunter Resources Corp. for about $400 million to help it expand in the oil- and gas-rich Eagle Ford Shale.
THE SPARK: Penn Virginia made the Eagle Ford Shale announcement on Wednesday. The acquisition gives the Radnor, Pa. company about 40,600 mineral acres in Texas near current holdings. After the deal closes — scheduled for next month — Penn Virginia will have 117 producing wells in the Eagle Ford Shale. Penn Virginia is funding the acquisition with debt, equity and available cash, and it plans to sell $400 million in debt due 2020 to help pay for the purchase.
THE ANALYSIS: Amir Arif of Stifel Nicolaus cut Penn Virginia to "Hold" from "Buy." In a client note, the analyst said that the Eagle Ford Shale deal gives Penn Virginia a more levered balance sheet. Arif said that there's also not enough upside between the company's current stock price — having closed at $4.10 on Friday — and his fair value range of $5 to $5.50 to justify the risk profile and near-term possibility that the stock could move lower depending on how the transaction is financed.
A representative for Penn Virginia did not immediately respond to an email seeking comment.
SHARE ACTION: Penn Virginia Corp.'s stock fell 30 cents, or 7.3 percent, to $3.80 in morning trading. The shares have traded in a 52-week range of $3.56 to $7.74. The stock is up 6.8 percent since making the Eagle Ford Shale announcement. For the year to date, the shares are down 7 percent.