Penn Virginia (PVA)

Corporate and Other

Our corporate and other results consist of corporate operating expenses, interest expense, derivative gains and losses and minority interest.

Corporate Operating Expenses. Corporate operating expenses primarily consist of general and administrative expenses other than from our oil and gas segment and the PVR coal and natural resource management and PVR natural gas midstream segments. Corporate operating expenses increased by $1.1 million, or 17%, from $6.4 million in the three months ended March 31, 2007 to $7.5 million in the same period of 2008 primarily due to increased general and administrative expenses resulting from wage increases, increased consulting expenses and the recognition of additional stock-based compensation expenses.

Interest Cost. Our consolidated interest cost is comprised of the following:

Our interest expense increased by $1.4 million, or 45%, from $3.2 million in the three months ended March 31, 2007 to $4.6 million in the same period of 2008. Our oil and gas segment also capitalized $1.0 million of capitalized interest in the three months ended March 31, 2007, compared to $0.5 million in the same period of 2008. The borrowings for both periods funded the preparation of unproved oil and gas properties for their development. This increase in interest cost is primarily due to the change in our average debt balance, which increased from $242.0 million at March 31, 2007 to $374.5 million at March 31, 2008.

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PVR’s interest expense increased by $1.4 million, or 39%, from $3.5 million in the three months ended March 31, 2007 to $4.9 million in the same period of 2008. PVR also capitalized $0.5 million of interest costs in the three months ended March 31, 2008 related to the construction of its natural gas gathering facility in East Texas. PVR had no capitalized interest in the three months ended March 31, 2007. This increase in interest cost is primarily due to the increase in PVR’s average debt balance, which increased from $221.8 million at March 31, 2007 to $412.5 million at March 31, 2008.

Derivatives. Our derivative activity is summarized below:

Minority Interest. Minority interest represents PVG’s net income allocated to the limited partner units owned by the public. In the three months ended March 31, 2008 and 2007, minority interest reduced our consolidated income from operations by $20.0 million and $9.3 million. The increase in minority interest was primarily due to the increase in PVG’s net income from $7.7 million in the three months ended March 31, 2007 to $16.8 million in the same period of 2008 and the increase in PVR’s net income from $16.4 million in the three months ended March 31, 2007 to $34.5 million in the same period of 2008.

Corporate and Other

FACE="Times New Roman" SIZE="2">Corporate and other primarily represents corporate functions.

Corporate and Other

Our corporate and other results consist of corporate operating expenses, interest expense, derivative gains and losses and minority interest.

Corporate Operating Expenses. Corporate operating expenses primarily consist of general and administrative expenses other than from our oil and gas segment and the PVR coal and natural resource management and PVR natural gas midstream segments. Corporate operating expenses increased by $12.4 million, or 72%, from $17.2 million in 2006 to $29.6 million in 2007 primarily due to increased general and administrative expenses resulting from wage increases, increased consulting expenses and the recognition of additional stock-based compensation expenses. Corporate operating expenses increased by $4.8 million, or 40%, from $12.2 million in 2005 to $17.2 million in 2006 primarily due to increased general and administrative expenses resulting from wage increases, new personnel and the recognition of $1.4 million for stock option expense upon adoption of SFAS No. 123(R), Share-Based Payment, on January 1, 2006.

Interest Expense. Interest expense increased by $12.0 million, or 49%, from $24.8 million in 2006 to $36.8 million in 2007 primarily due to interest incurred on additional borrowings under the Revolver to finance the acquisitions of oil and gas properties and additional drilling and development in our current oil and gas properties, partially offset by a $1.5 million decrease in PVR’s interest expense in 2007. Interest expense increased by $9.5 million, or 62%, from $15.3 million in 2005 to $24.8 million in 2006 primarily due to interest incurred on additional borrowings under the Revolver and the PVR Revolver to finance 2006 acquisitions and a general increase in interest rates. We capitalized interest costs amounting to $3.7 million, $3.2 million and $3.5 million in 2007, 2006 and 2005 because the borrowings funded the preparation of unproved properties for their development and construction of facilities. PVR capitalized interest costs amounting to $0.8 million in 2007 because the borrowings funded the construction natural gas processing plants. PVR capitalized interest costs amounting to $0.3 million in 2006 related to the construction of a coal services facility in October 2006. PVR had no capitalized interest in 2005.

Derivatives. Derivative losses increased by $66.8 million, or 343%, from a $19.5 million gain in 2006 to a $47.3 million loss in 2007. The derivative losses in 2007 consisted of a $43.6 million unrealized loss for mark-to-market adjustments and a $3.7 million realized loss. Derivative gains increased by $34.4 million, or 232%, from a $14.9 million loss in 2005 to a $19.5 million gain in 2006. The derivative gains in 2006 consisted of a $19.0 million unrealized gain for mark-to-market adjustments and a $0.5 million unrealized gain for changes in hedge effectiveness.

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Minority Interest. Minority interest represents PVG’s net income allocated to the limited partner units owned by the public. In 2007 and 2006, minority interest reduced our consolidated income from operations by $30.2 million and $43.0 million. The decrease in minority interest was primarily due to the decrease in PVG’s net income from $32.0 million in 2006 to $29.2 million in 2007 and the decrease in PVR’s net income from $73.9 million in 2006 to $56.6 million in 2007. The decrease in minority interest was also due to an increase in distributions PVG receives on account of its incentive distribution rights, or IDRs, in PVR. PVR paid to PVG distributions with respect to its IDRs of $11.6 million and $4.3 million in 2007 and 2006.

Corporate and Other

Corporate and other results primarily consist of oversight and administrative functions.

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Expenses. Corporate operating expenses increased by $3.6 million, or 109%, from $3.3 million in the three months ended September 30, 2006 to $6.9 million in the three months ended September 30, 2007, and by $9.2 million, or 88%, from $10.4 million in the nine months ended September 30, 2006 to $19.4 million in the nine months ended September 30, 2007. These increases were primarily related to increased general and administrative expenses, which included higher payroll costs as a result of wages increases, new personnel and the granting of stock-based compensation in 2007. In addition, PVG also incurred general and administrative expenses in the three months and nine months ended September 30, 2007, which were not incurred in the same periods in 2006.

Interest Expense. Interest expense increased by $3.7 million, or 53%, from $7.1 million in the three months ended September 30, 2006 to $10.8 million in the same period in 2007. Interest expense increased by $8.6 million, or 50%, from $17.3 million in the nine months ended September 30, 2006 to $25.9 million in the same period in 2007. The increases in both periods were primarily due to interest incurred on additional borrowings under the Revolver to finance the acquisition of our Mid-Continent oil and gas properties, as well as additional drilling and development on our current oil and gas properties, partially offset by a $0.6 million and $1.9 million decrease in PVR’s interest expense for the three months and nine months ended September 30, 2007. PVR used the proceeds from the sale of common units and Class B units in December 2006 to pay down $114.6 million of the PVR Revolver. We capitalized interest costs amounting to $0.6 million and $0.9 million in the three months ended September 30, 2007 and 2006 and $2.5 million and $1.8 million in the nine months ended September 30, 2007 and 2006 because the borrowings funded the preparation of unproved oil and gas properties for their development.

Derivatives. Derivative losses increased by $22.4 million, or 125%, from a $17.9 million gain in the three months ended September 30, 2006 to a $4.5 million loss in the same period in 2007. The derivative losses in the three months ended September 30, 2007 consisted of a $10.7 million loss on natural gas midstream derivatives, partially offset by a $6.2 million gain on oil and gas derivatives. Derivative losses increased by $33.4 million, or 294%, from a $11.4 million gain in the nine months ended September 30, 2006 to a $22.0 million loss in the same period in 2007. The derivative losses in the nine months ended September 30, 2007 consisted of a $1.1 million loss on oil and gas derivatives and a $20.9 million loss on natural gas midstream derivatives. The increases in both periods were primarily due to valuation adjustments of unrealized derivative positions using mark-to-market accounting.

Corporate and Other

Corporate and other results primarily consist of oversight and administrative functions.

Expenses. Corporate operating expenses increased by $2.3 million, or 61%, from $3.8 million in the three months ended June 30, 2006 to $6.1 million in the three months ended June 30, 2007, and by $5.4 million, or 76%, from $7.1 million in the six months ended June 30, 2006 to $12.5 million in the six months ended June 30, 2007. These increases were primarily related to increased general and administrative expenses, which included higher payroll costs as a result of wages increases, new personnel and the granting of stock-based compensation in 2007.

Interest Expense. Interest expense increased from $5.4 million in the three months ended June 30, 2006 to $8.3 million in the same period in 2007, or 54%. Interest expense increased from $10.2 million for the six months ended June 30, 2006 to $15.0 million in the same period in 2007, or 48%. The increases in interest expense in both periods were primarily due to interest incurred on additional borrowings under the Revolver to finance the acquisition of our Mid-Continent oil and gas properties, as well as additional drilling and development on our current oil and gas properties, partially offset by a $0.8 million and $1.3 million decrease in PVR’s interest expense for the three months and six months ended June 30, 2007. PVR used the proceeds from the sale of common units and Class B units in December 2006 to pay down $114.6 million of the PVR Revolver. We capitalized interest costs amounting to $1.0 million and $0.5 million for the three months ended June 30, 2007 and 2006, and $1.9 and $0.9 million for the six months ended June 30, 2007 and 2006, because the borrowings funded the preparation of unproved oil and gas properties for their development.

Derivatives. Derivative losses decreased to $0.9 million for the three months ended June 30, 2007 from $6.4 million for the same period in 2006, or 86%. The derivative losses for the three months ended June 30, 2007 consisted of a $6.7 million gain on oil and gas derivatives and a $7.6 million loss on natural gas midstream derivatives. Derivative losses increased to $17.6 million for the six months ended June 30, 2007 from $6.5 million for the same period in 2006, or 169%. The derivative losses for the six months ended June 30, 2007 consisted of a $7.4 million loss on oil and gas derivatives and a $10.2 million loss on natural gas midstream derivatives. The changes in both periods were primarily due to mark-to-market adjustments.

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Corporate and Other

Corporate and other results primarily consist of oversight and administrative functions.

Expenses. Corporate operating expenses increased by $3.1 million from $3.2 million in the three months ended March 31, 2006 to $6.3 million in the three months ended March 31, 2007. The increase was primarily related to increased general and administrative expenses, which included higher payroll costs as a result of wage increases, new personnel and the recognition of stock option expense upon adoption of SFAS No. 123(R), Share-Based Payment.

Interest Expense. Interest expense increased by $1.9 million, primarily due to interest incurred on additional borrowings under the Revolver to finance the acquisition of our Mid-Continent oil and gas properties, as well as additional drillings and development on our current oil and gas properties. This increase in interest expense was partially offset by a $0.6 million decrease in PVR’s interest expense. PVR used the proceeds from the sale of common units and Class B units in December 2006 to pay down $114.6 million of the PVR Revolver. We capitalized interest costs amounting to $0.9 million and $0.4 million in the quarters ended March 31, 2007 and 2006 because the borrowings funded the preparation of unproved oil and gas properties for their development.

Derivative Losses. Derivative losses of $16.7 million for the three months ended March 31, 2007 consisted of a $14.1 million loss on oil and gas segment derivatives and a $2.6 million loss on natural gas midstream derivatives for settlements and mark-to-market adjustments. Derivative losses of $0.2 million for the three months ended March 31, 2006 consisted of a $5.9 million gain on oil and gas segment derivatives and a $6.1 million loss on natural gas midstream derivatives for settlements and mark-to-market adjustments.

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Corporate and Other

Corporate and other results primarily consist of oversight and administrative functions.

Expenses. Corporate operating expenses increased by $4.6 million from $12.3 million in 2005 to $16.9 million in 2006. The increase was primarily related to increased general and administrative expenses which included higher payroll costs as a result of wage increases, new personnel and the recognition of $1.4 million for stock option expense upon adoption of SFAS No. 123(R), Share-Based Payment, on January 1, 2006. Corporate operating expenses increased by $1.5 million from $10.8 million in 2004 to $12.3 million in 2005. The increase was primarily related to increased general and administrative expenses which included higher payroll costs as a result of wage increases and new personnel and changes in director compensation.

Interest Expense. Interest expense increased by $9.5 million from $15.3 million in 2005 to $24.8 million in 2006. Interest expense increased by $7.6 million from $7.7 million in 2004 to $15.3 million in 2005. The increase in both periods was primarily due to interest incurred on additional borrowings under the Revolver and the PVR Revolver to finance 2005 and 2006 acquisitions and a general increase in interest rates. We capitalized interest costs amounting to $3.2 million, $3.5 million and $2.0 million in 2006, 2005 and 2004 because the borrowings funded the preparation of unproved properties for their intended use.

Derivatives. Because during the first quarter of 2006 a large portion of our natural gas derivatives and NGL derivatives no longer qualified for hedge accounting and to increase clarity in our consolidated financial statements, we elected to discontinue hedge accounting prospectively for our remaining commodity derivatives beginning May 1, 2006. Consequently, from that date forward, we began recognizing mark-to-market gains and losses in earnings currently, rather than deferring such amounts in accumulated other comprehensive income (shareholders’ equity). The net mark-to-market loss on our outstanding derivatives at April 30, 2006, which was included in accumulated other comprehensive income, will be reported in future earnings through 2008 as the original hedged transactions settle. This change in reporting will have no impact on our reported cash flows, although future results of operations will be affected by the potential volatility of mark-to-market gains and losses which fluctuate with changes in NGL, oil and gas prices.

Net derivative gains were $19.5 million for 2006 and included a $19.0 million unrealized gain for mark-to-market adjustments and a $0.5 million unrealized gain for changes in hedge effectiveness. The

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unrealized gain due to changes in fair market value was associated with derivative contracts that we no longer accounted for using hedge accounting and represented changes in the fair value of our open contracts during the period. The unrealized gain for changes in hedge effectiveness was associated with hedging contracts that we accounted for using hedge accounting under SFAS No. 133. Derivative losses of $14.9 million for 2005 included a $13.9 million unrealized loss for mark-to-market adjustments on certain PVR derivative agreements, a $0.7 million unrealized loss for mark-to-market adjustments on a natural gas basis swap for which we elected not to use hedge accounting and a $0.3 million net unrealized loss for changes in effectiveness of open commodity price hedges related to the natural gas midstream segment and the oil and gas segment. The $13.9 million unrealized loss primarily represented the change in market value of derivative agreements between the time PVR entered into the agreements in January 2005 and the time the derivative agreements qualified for hedge accounting after closing the acquisition of the natural gas midstream business in March 2005.

Corporate and Other

Corporate and other results primarily consist of oversight and administrative functions.

Expenses. Corporate operating expenses increased by $0.5 million from $2.8 million in the third quarter of 2005 to $3.3 million in the third quarter of 2006. Corporate operating expenses increased by $1.9 million from $8.5 million for the nine months ended September 30, 2006 to $10.4 million for the nine months ended September 30, 2005. The increase was primarily related to increased general and administrative expenses which included higher payroll costs as a result of wage increases, new personnel and the recognition of stock option expense upon adoption of SFAS No. 123(R), Share-Based Payment.

Interest Expense. Interest expense increased by $2.9 million from $4.2 million in the third quarter of 2005 to $7.1 million in the third quarter of 2006. Interest expense increased by $6.2 million from $11.1 million in the nine months ended September 30, 2005 to $17.3 million in the nine months ended September 30, 2006. The increase in both periods was primarily due to interest incurred on additional borrowings under the Revolver and the PVR Revolver to finance 2005 and 2006 acquisitions and a general increase in interest rates. We capitalized interest costs amounting to $0.9 million and $1.1 million for the three months ended September 30, 2006 and 2005 and $1.8 million and $2.4 million for the nine months ended September 30, 2006 and 2005 because the borrowings funded the preparation of unproved properties for their intended use.

Derivatives. As a result of price volatility resulting from the 2005 hurricane season, a large portion of our natural gas derivatives and NGL derivatives no longer qualified for hedge accounting. Because of this non-qualification to increase clarity in our consolidated financial statements, we elected to discontinue hedge accounting prospectively for our remaining commodity derivatives beginning May 1, 2006. Consequently, from that date forward, we began recognizing mark-to-market gains and losses in earnings currently, rather than deferring such amounts in accumulated other comprehensive income (shareholders’ equity). The net mark-to-market loss on our outstanding derivatives at April 30, 2006, which was included in accumulated other comprehensive income, will be reported in our future earnings through 2008 as the original hedged transactions occur. This change in reporting will have no impact on our reported cash flows, although our future results of operations will be affected by mark-to-market gains and losses which fluctuate with changes in oil and gas prices.

Derivative gains were $11.4 million for the nine months ended September 30, 2006 and included a $10.9 million unrealized gain for mark-to-market adjustments and a $0.5 million unrealized gain for changes in hedge effectiveness. The unrealized loss due to changes in fair market value was associated with derivative contracts that we no longer accounted for using hedge accounting and represented changes in the fair value of our open contracts during the period. The unrealized loss for changes in hedge effectiveness was associated with hedging contracts that we accounted for using hedge accounting under SFAS No. 133. Derivative losses for the nine months ended

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September 30, 2005 included a $13.9 million unrealized loss representing the change in market value of derivative agreements between the time PVR entered into the agreements in January 2005 and the time the derivative agreements qualified for hedge accounting after closing the acquisition of the natural gas midstream business in March 2005.

Corporate and Other

Corporate and other results primarily consist of oversight and administrative functions.

Expenses. Corporate operating expenses increased by $0.6 million from $3.2 million in the second quarter of 2005 to $3.8 million in the second quarter of 2006. Corporate operating expenses increased by $1.5 million from $5.6 million for the six months ended June 30, 2006, to $7.1 million for the six months ended June 30, 2005. The increase was primarily related to increased general and administrative expenses which included higher payroll costs as a result of wage increases, new personnel and the recognition of stock option expense upon adoption of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment.

Interest Expense. Interest expense increased by $1.9 million from $3.5 million in the second quarter of 2005 to $5.4 million in the second quarter of 2006. Interest expense increased by $3.3 million from $6.9 million in the six months ended June 30, 2005, to $10.2 million in the six months ended June 30, 2006. The increase in both periods was primarily due to interest incurred on additional borrowings under the Revolver and the PVR Revolver to finance 2005 and 2006 acquisitions. We capitalized interest costs amounting to $0.5 million and $0.7 million for the three months ended June 30, 2006 and 2005, and $0.9 million and $1.3 million for the six months ended June 30, 2006 and 2005, because the borrowings funded the preparation of unproved properties for their intended use.

Derivatives. Because a large portion of our natural gas derivatives and NGL derivatives no longer qualify for hedge accounting and to increase clarity in our financial statements, we elected to discontinue hedge accounting prospectively for our remaining commodity derivatives beginning May 1, 2006. Consequently, from that date forward, we recognize mark-to-market gains and losses in earnings currently, rather than deferring such amounts in accumulated other comprehensive income (shareholders’ equity). The net mark-to-market loss on our outstanding derivatives at April 30, 2006, included in accumulated other comprehensive income will be reported in future earnings through 2008 as the original hedged transactions occur. This change in reporting will have no impact on our reported cash flows, although future results of operations will be affected by mark-to-market gains and losses which fluctuate with volatile oil and gas prices.

Hedge ineffectiveness is associated with hedging contracts that we accounted for using hedge accounting under SFAS No. 133. The unrealized loss due to changes in fair market value for the three months and six months ended June 30, 2006, is associated with derivative contracts that we no longer account for using hedge accounting and represents changes in the fair value of our open contracts during the period. The $13.9 million unrealized loss due to changes in fair market value for the six months ended June 30, 2005, represents the change in market value of derivative agreements between the time PVR entered into the agreements in January 2005 and the time they qualified for hedge accounting after closing the Cantera Acquisition in March 2005.

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     Corporate and Other

          Corporate and other results primarily consist of oversight and administrative functions.

          Expenses.  Corporate operating expenses increased $0.8 million from $2.5 million in the first quarter of 2005 to $3.3 million in the first quarter of 2006.  The increase was primarily related to increased general and administrative expenses which included higher payroll costs as a result of wage increases, new personnel and the recognition of stock option expense upon adoption of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment.

          Interest Expense.  Interest expense increased primarily due to interest incurred on additional borrowings under the PVR Revolver to finance 2005 acquisitions. We capitalized interest costs amounting to $0.4 million and $0.6 million in the quarters ended March 31, 2006 and 2005, because the borrowings funded the preparation of unproved properties for their intended use.

          Derivative Losses.  Non-cash derivative losses of $0.2 million for the three months ended March 31, 2006, consisted of a $5.9 million gain on oil and gas segment derivatives and a $6.1 million loss on natural gas midstream derivatives.  The derivative losses primarily resulted from mark-to-market adjustments on certain derivatives that no longer qualified for hedge accounting.  The $14.3 million in derivative losses for the three months ended March 31, 2005, primarily represented the change in the market value of derivative agreements between the time we entered into the agreements in January 2005 and the time they qualified for hedge accounting after closing the Cantera Acquisition in March 2005.  Beginning in the first quarter of 2006, changes in market value of the derivative agreements are charged to earnings.

          For the three months ended March 31, 2006, in addition to the $0.2 million derivative losses discussed above, we recognized a net derivative loss of $1.0 million which is reflected primarily in natural gas midstream revenues, natural gas revenues, oil and condensate revenues and cost of midstream gas purchased.  We made net cash disbursements of $3.3 million on derivative settlements during the three months ended March 31, 2006.

     Corporate and Other

          Corporate and other results primarily consist of oversight and administrative functions.

Corporate and Other

The Corporate and Other segment primarily consists of miscellaneous revenue from rail car rental fees and oversight and administrative functions.