The following discussion and analysis of the financial condition and results of operations of Penn Virginia Corporation and its subsidiaries ("Penn Virginia," "we," "us" or "our") should be read in conjunction with our consolidated financial statements and the accompanying notes in Item 8, "Financial Statements and Supplementary Data."

Overview of Business

We are an independent oil and gas company primarily engaged in the development, exploration and production of natural gas and oil in various domestic onshore regions including East Texas, the Mid-Continent, Appalachia, Mississippi and the Gulf Coast. We also indirectly own partner interests in PVR, which is engaged in the coal and natural resource management and natural gas midstream businesses. Our ownership interests in PVR are held principally through our general partner interest and our 77% limited partner interest in PVG. As of December 31, 2008, PVG owned an approximately 37% limited partner interest in PVR and 100% of the general partner of PVR, which holds a 2% general partner interest in PVR and all of the IDRs.

We are engaged in three primary business segments: (i) oil and gas, (ii) coal and natural resource management and (iii) natural gas midstream. We operate our oil and gas segment and PVR operates the coal and natural resource management and natural gas midstream segments. Our operating income was $256.8 million in 2008, compared to $192.6 million in 2007 and $170.5 million in 2006. Our segments' contributions to operating income in 2008 were as follows:

• the oil and gas segment contributed $170.6 million, or 66%;

• the PVR coal and natural resource management segment contributed $96.3 million, or 37%; and

• the PVR natural gas midstream segment contributed $18.9 million, or 7%.

These contributions to operating income were partially offset by $29.0 million of intercompany eliminations and corporate expenses, or 10%.

The following table presents a summary of certain financial information relating to our segments for the years ended December 31, 2008, 2007 and 2006:

                                                  PVR Coal and
                                                    Natural            PVR
                                      Oil and       Resource       Natural Gas     Eliminations
                                        Gas        Management       Midstream       and Other         Consolidated
                                                                     (in thousands)
For the Year Ended December 31,
2008:
Revenues                             $ 469,330   $      153,327   $     728,253   $     (130,059 )   $    1,220,851
Operating costs and expenses           146,515           26,226         650,145         (102,858 )          720,028
Impairments                             19,963               -           31,801               -              51,764
Depreciation, depletion and
amortization                           132,276           30,805          27,361            1,794            192,236

Operating income (loss)              $ 170,576   $       96,296   $      18,946   $      (28,995 )   $      256,823


For the Year Ended December 31,
2007:
Revenues                             $ 303,241   $      111,639   $     437,806   $          264     $      852,950
Operating costs and expenses           109,449           20,138         370,070           28,560            528,217
Impairments                              2,586               -               -                -               2,586
Depreciation, depletion and
amortization                            87,223           22,690          18,822              788            129,523

Operating income (loss)              $ 103,983   $       68,811   $      48,914   $      (29,084 )   $      192,624


For the Year Ended December 31,
2006:
Revenues                             $ 235,956   $      112,981   $     404,910   $           82     $      753,929
Operating costs and expenses            86,369           19,138         358,440           16,716            480,663
Impairments                              8,517               -               -                -               8,517
Depreciation, depletion and
amortization                            56,237           20,399          17,094              487             94,217

Operating income (loss)              $  84,833   $       73,444   $      29,376   $      (17,121 )   $      170,532

We have grown by making acquisitions in all three of our business segments and by organic growth on our and PVR's properties. Readily available access to debt and equity capital and credit availability have been and continue to be critical factors in our and PVR's ability to grow. The current deterioration in global financial markets and the consequential adverse effect on credit availability is adversely impacting our and PVR's access to new capital and credit availability. Depending on the longevity and ultimate severity of this deterioration, our and PVR's ability to make acquisitions may be significantly adversely affected, as may PVR's ability to make cash distributions to its limited partners and to PVG, the owner of its general partner. See Item 1A, "Risk Factors."

Oil and Gas Segment

We have a geographically diverse asset base with core areas of operation in the East Texas, Mid-Continent, Appalachian, Mississippi and Gulf Coast regions of the United States. As of December 31, 2008, we had proved natural gas and oil reserves of approximately 916 Bcfe, of which 82% were natural gas and 51% were proved developed.

As of December 31, 2008, 97% of our proved reserves were located in primarily longer-lived, lower-risk basins in East Texas, the Mid-Continent, Appalachia and Mississippi, which comprised 43%, 15%, 19% and 15% of the proved reserves. Our Gulf Coast properties, representing 3% of proved reserves, are shorter-lived and have higher impact exploratory prospects. In 2008, we produced 46.9 Bcfe, a 16% increase compared to 40.6 Bcfe in 2007, with East Texas, the Mid-Continent, Appalachia, Mississippi and the Gulf Coast comprising 29%, 16%, 25%, 16% and 16% of total production volumes. In the three years ended December 31, 2008, we drilled 785 gross (544.4 net) wells, of which 94% were successful in producing natural gas in commercial quantities. For a more detailed discussion of our reserves and production, see Item 2, "Properties."

The primary development play types that our oil and gas operations are focused on include: (i) the horizontal Lower Bossier (Haynesville) Shale and vertical Cotton Valley plays in East Texas, (ii) the horizontal Granite Wash, horizontal Hartshorne CBM and the Woodford Shale plays in the Mid-Continent,
(iii) multi-lateral horizontal CBM and Marcellus Shale plays in Appalachia and
(iv) the predominantly horizontal Selma Chalk play in Mississippi.

We have grown our reserves and production primarily through development and exploratory drilling, complemented to a lesser extent by making strategic acquisitions. In 2008, we replaced 604% of our 2008 production entirely through the

drillbit by adding approximately 283 Bcfe of proved reserves from extensions, discoveries and additions, net of revisions. In 2008, capital expenditures in our oil and gas segment were $641.7 million, of which $481.4 million, or 75%, was related to development drilling, $23.8 million, or 4%, was related to exploratory drilling, $95.5 million, or 15%, was related to leasehold acquisitions and $36.8 million, or 6%, was related to pipelines, gathering and facilities.

As of December 31, 2008, we owned 1.2 million net acres of leasehold interests, approximately 37% of which were undeveloped. We have identified approximately 1,400 proved undeveloped locations and over 2,800 additional potential drilling locations, of which approximately half are located in East Texas and the Mid-Continent. Many of our proved undeveloped locations and additional potential drilling locations are direct offsets or extensions from existing production. We believe our existing undeveloped acreage position represents over 10 years of drilling opportunities based on our historical drilling rate.

Our operations include both conventional and unconventional developmental drilling opportunities, as well as some exploratory prospects. In the East Texas play, we drilled 102 gross (76.4 net) wells in 2008, including 93 gross (68.4 net) successful wells. We recently shifted our focus to the Lower Bossier (Haynesville) Shale play, which we believe has increased proved reserves and production levels. In Appalachia, we drilled 75 gross (33.1 net) wells in 2008, including 18 gross (9.0 net) horizontal CBM locations and 71 gross (30.6 net) successful locations. In the Selma Chalk play in Mississippi, we drilled 29 gross (28.6 net) wells in 2008, including 28 gross (27.6 net) successful horizontal wells. We also have unconventional development programs in the Mid-Continent and some higher-impact exploratory prospects in the Gulf Coast. In the Mid-Continent region, we drilled 75 gross (37.7 net) wells in 2008, including 29 gross (23.9 net) successful CBM locations.

Our aggressive growth profile in our oil and gas segment has been accomplished primarily by drilling oil and natural gas wells in our operating areas and, to a lesser extent, by making acquisitions of both producing properties and undeveloped leases. This growth profile has required us to spend capital in excess of our cash flow from operations, and readily available access to debt and equity capital were and continue to be a critical factor in our ability to grow. The current deterioration in global financial markets and the consequential adverse effect on credit availability is adversely impacting access to new capital and expanded credit availability. We currently have internal cash flows and available credit facility borrowings that we believe supports growth through 2009. However, depending on the longevity and ultimate severity of the global financial and credit markets deterioration, we may ultimately need to limit our capital spending to more closely mirror internally generated cash flow, which may materially adversely effect how aggressively we can grow. See Item 1A, "Risk Factors."

In addition, our revenues, profitability and future rate of growth are highly dependent on the prevailing prices for oil and natural gas, which are affected by numerous factors that are generally beyond our control. Crude oil prices are generally determined by global supply and demand. Natural gas prices are influenced by national and regional supply and demand. A substantial or extended decline in the price of oil or natural gas could have a material adverse effect on our revenues, profitability and cash flow and could, under certain circumstances, result in an impairment of some of our oil and natural gas properties. Our future profitability and growth are also highly dependent on the results of our exploratory and development drilling programs.

PVR Coal and Natural Resource Management Segment

As of December 31, 2008, PVR owned or controlled approximately 827 million tons of proven and probable coal reserves in Central and Northern Appalachia, the San Juan Basin and the Illinois Basin. PVR enters into long-term leases with experienced, third-party mine operators, providing them the right to mine PVR's coal reserves in exchange for royalty payments. PVR actively works with its lessees to develop efficient methods to exploit its reserves and to maximize production from PVR's properties. PVR does not operate any mines. In 2008, PVR's lessees produced 33.7 million tons of coal from its properties and paid PVR coal royalties revenues of $122.8 million, for an average royalty per ton of $3.65. Approximately 86% of PVR's coal royalties revenues in 2008 were derived from coal mined on PVR's properties under leases containing royalty rates based on the higher of a fixed base price or a percentage of the gross sales price. The balance of PVR's coal royalties revenues for the respective periods was derived from coal mined on PVR's properties under leases containing fixed royalty rates that escalate annually.

Coal royalties are impacted by several factors that PVR generally cannot control. The number of tons mined annually is determined by an operator's mining efficiency, labor availability, geologic conditions, access to capital, ability to market coal and ability to arrange reliable transportation to the end-user. New legislation or regulations have been or may be adopted which may have a significant impact on the mining operations of PVR's lessees or its customers' ability to use coal and which may require PVR, its lessees or its lessees' customers to change operations significantly or incur substantial costs. See Item 1A, "Risk Factors."

To a lesser extent, coal prices also impact coal royalties revenues. Generally, as coal prices change, PVR's average royalty per ton also changes because the majority of PVR's lessees pay royalties based on the gross sales prices of the coal mined. Most of PVR's coal is sold by its lessees under contracts with a duration of one year or more; therefore, changes to PVR's average royalty occur as its lessees' contracts are renegotiated.

PVR also earns revenues from other land management activities, such as selling standing timber, leasing fee-based coal-related infrastructure facilities to certain lessees and end-user industrial plants, collecting oil and gas royalties and from coal transportation, or wheelage, fees.

The future impact of the current deterioration of the global economy, including financial and credit markets, on coal production levels and prices is uncertain. Depending on the longevity and ultimate severity of the deterioration, demand for coal may decline, which could adversely effect production and pricing for coal mined by PVR's lessees, and, consequently, adversely effect the royalty income received by PVR and its ability to make cash distributions to its limited partners and to PVG, the owner of PVR's general partner.

PVR Natural Gas Midstream Segment

PVR's natural gas midstream segment is engaged in providing natural gas processing, gathering and other related services. As of December 31, 2008, PVR owned and operated natural gas midstream assets located in Oklahoma and Texas, including five natural gas processing facilities having 300 MMcfd of total capacity and approximately 4,069 miles of natural gas gathering pipelines. PVR's natural gas midstream business earns revenues primarily from gas processing contracts with natural gas producers and from fees charged for gathering natural gas volumes and providing other related services. In addition, PVR owns a 25% member interest in Thunder Creek, a joint venture that gathers and transports CBM in Wyoming's Powder River Basin. PVR also owns a natural gas marketing business, which aggregates third-party volumes and sells those volumes into intrastate pipeline systems and at market hubs accessed by various interstate pipelines.

In 2008, system throughput volumes at PVR's gas processing plants and gathering systems, including gathering-only volumes, were 98.7 Bcf, or approximately 270 MMcfd. In 2008, 27% and 13% of PVR's natural gas midstream segment revenues and 16% and 8% of our total consolidated revenues were related to two of PVR's natural gas midstream customers, Conoco, Inc. and Louis Dreyfus Energy Services.

PVR continually seeks new supplies of natural gas to both offset the natural declines in production from the wells currently connected to its systems and to increase system throughput volumes. New natural gas supplies are obtained for all of PVR's systems by contracting for production from new wells, connecting new wells drilled on dedicated acreage and contracting for natural gas that has been released from competitors' systems. In 2008, PVR's natural gas midstream segment made aggregate capital expenditures of $333.3 million, primarily related to PVR's 25% member interest acquisition of Thunder Creek, the Lone Star acquisition, PVR's acquisition of pipeline assets in the Anadarko Basin of Oklahoma and Texas and PVR's capacity expanding capital expenditures related to the Spearman and Crossroads plants. For a more detailed discussion of PVR's acquisitions and investments, see "- Acquisitions and Divestitures."

Revenues, profitability and the future rate of growth of the PVR natural gas midstream segment are highly dependent on market demand and prevailing NGL and natural gas prices. Historically, changes in the prices of most NGL products have generally correlated with changes in the price of crude oil. NGL and natural gas prices have been subject to significant volatility in recent years in response to changes in the supply and demand for NGL products and natural gas market uncertainty. The current deterioration in global economy, including financial and credit markets, will likely result in a decrease in worldwide demand for oil and domestic demand for natural gas and NGLs. Depending on the longevity and ultimate severity of the deterioration, NGL production from PVR's processing plants could decrease and adversely effect its natural gas midstream processing income and PVR's ability to make cash distributions to its limited partners and to PVG, the owner of PVR's general partner.

Eliminations and Other

Eliminations and other primarily represents elimination of intercompany sales, corporate functions such as interest expense and income tax expense, and the oil and gas segment derivatives.

Ownership of and Relationship with PVG and PVR

Penn Virginia, PVG and PVR are publicly traded on the NYSE under the symbols "PVA," "PVG" and "PVR." As of December 31, 2008, we owned the general partner of PVG and an approximately 77% limited partner interest in PVG. PVG

also owns an approximately 37% limited partner interest in PVR and 100% of the general partner of PVR, which holds a 2% general partner interest in PVR and all of the IDRs. We directly owned an additional 0.1% limited partner interest in PVR as of December 31, 2008. Because PVG controls the general partner of PVR, the financial results of PVR are included in PVG's consolidated financial statements. Because we control the general partner of PVG, the financial results of PVG are included in our consolidated financial statements. However, PVG and PVR function with capital structures that are independent of each other and us, with each having publicly traded common units and PVR having its own debt instruments. PVG does not currently have any debt instruments. While we report consolidated financial results of PVR's coal and natural resource management and natural gas midstream businesses, the only cash we received from those businesses is in the form of cash distributions we received from PVG and PVR in respect of our partner interests in each of them.

In conjunction with the initial public offering of PVG, we contributed our general partner interest, IDRs and most of our limited partner interest in PVR to PVG in exchange for the general partner interest and a limited partner interest in PVG. We are currently entitled to receive quarterly cash distributions from PVG and PVR on our limited partner interests in PVG and PVR. As a result, we received total distributions of $44.0 million and $29.8 million from PVG and PVR in the years ended December 31, 2008 and 2007 as shown in the following table:

                                                           Year Ended
                                                          December 31,
                                                         2008       2007
                                                         (in thousands)
           Penn Virginia GP Holdings, L.P.             $ 43,435   $ 29,200
           Penn Virginia Resource Partners, L.P. (1)        583        640

           Total                                       $ 44,018   $ 29,840

(1) Includes PVR distributions for restricted units held by employees and directors.

We have historically received increasing distributions from our partner interests in PVG and PVR. Based on PVG's and PVR's current annualized distribution rates of $1.52 and $1.88 per unit, we would receive aggregate annualized distributions of $46.3 million in respect of our partner interests in the year ended December 31, 2009. As a result of PVR's 2008 unit offering, we recognized a gain in shareholders' equity and PVG recognized gains in its partners' capital. See Note 3 - "Summary of Significant Accounting Policies" and Note 6 - "PVR Unit Offering" in the Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data."

Prior to PVG's initial public offering in December 2006, we indirectly owned common units representing an approximately 37% limited partner interest in PVR, as well as the sole 2% general partner interest and all of the IDRs in PVR. We received total distributions from PVR of $28.6 million in 2006, allocated among our limited partner interest, general partner interest and IDRs as shown in the following table:

                                                    Year Ended
                                                   December 31,
                                                       2006
                                                  (in thousands)
                  Limited partner interest        $        23,039
                  General partner interest (2%)             1,254
                  IDRs                                      4,273

                  Total                           $        28,566

Acquisitions and Divestitures

Oil and Gas Segment

In July 2008, we completed the sale of certain unproved oil and gas acreage in Louisiana for cash proceeds of $32.0 million and recognized a $30.5 million gain on that sale.

In October 2007, we acquired lease rights to property covering 4,800 acres located in East Texas, with estimated proved reserves of 21.9 Bcfe. The purchase price was $44.9 million in cash and was funded with long-term debt under the Revolver.

In October 2007, we sold to PVR oil and gas royalty interests associated with leases of property in eastern Kentucky and southwestern Virginia with estimated proved reserves of 8.7 Bcfe at January 1, 2007. The sale price was $31.0 million in cash, and the proceeds of the sale were used to repay borrowings under the Revolver. The gain on the sale and the related depletion expenses have been eliminated in the consolidation of our financial statements.

In September 2007, we sold non-operated working interests in oil and gas properties located in eastern Kentucky and southwestern Virginia, with estimated proved reserves of 13.3 Bcfe. The sale price was $29.1 million in cash, and the proceeds of the sale were used to repay borrowings under the Revolver. We recognized a gain of $12.4 million on the sale, which is reported in the revenues section of our consolidated statements of income.

In August 2007, we acquired lease rights to property covering approximately 22,700 acres located in eastern Oklahoma, with estimated proved reserves of 18.8 Bcfe. The purchase price was $47.9 million in cash and was funded with long-term debt under the Revolver.

In July 2007, we acquired lease rights to property covering approximately 4,000 acres located in East Texas, with estimated proved reserves of 19.5 Bcfe. The purchase price was $22.0 million in cash and was funded with long-term debt under the Revolver.

In June 2006, we acquired 100% of the capital stock of Crow Creek Holding Corporation, or Crow Creek. Crow Creek was a privately owned independent exploration and production company with operations primarily in the Oklahoma portions of the Arkoma and Anadarko Basins. Crow Creek's assets included estimated net proved reserves of 42.7 Bcfe, approximately 85% of which were natural gas. The purchase price was $71.5 million in cash and was funded with long-term debt under the Revolver.

PVR Coal and Natural Resource Management Segment

In May 2008, PVR acquired fee ownership of approximately 29 million tons of coal reserves and approximately 56 million board feet of hardwood timber in western Virginia and eastern Kentucky. The purchase price was $24.5 million in cash and was funded with long-term debt under PVR's revolving credit facility, or the PVR Revolver.

In September 2007, PVR acquired fee ownership of approximately 62,000 acres of forestland in northern West Virginia. The purchase price was $93.3 million in cash and was funded with long-term debt under the PVR Revolver.

In June 2007, PVR acquired a combination of fee ownership and lease rights to approximately 51 million tons of coal reserves, along with a preparation plant and coal handling facilities. The property is located on approximately 17,000 acres in western Kentucky. The purchase price was $42.0 million in cash and was funded with long-term debt under the PVR Revolver.

In May 2006, PVR acquired lease rights to approximately 69 million tons of coal reserves. The reserves are located on approximately 20,000 acres in southern West Virginia. The purchase price was $65.0 million in cash and was funded with long-term debt under the PVR Revolver.

PVR Natural Gas Midstream Segment

In July 2008, PVR completed the Lone Star acquisition. Lone Star's assets are located in the southern portion of the Fort Worth Basin of North Texas and include approximately 129 miles of gas gathering pipelines and approximately 240,000 acres dedicated by active producers. The Lone Star acquisition expanded the geographic scope of the PVR natural gas midstream segment into the Barnett Shale play in the Fort Worth Basin. PVR acquired this business for approximately $164.3 million and a liability of $4.7 million, which represents the fair value of a $5.0 million guaranteed payment, plus contingent payments of $30.0 million and $25.0 million. Funding for the acquisition was provided by $80.7 million of borrowings under the PVR Revolver, 2,009,995 PVG common units (which PVR purchased from two of our subsidiaries for $61.8 million) and 542,610 newly issued PVR common units. The contingent payments will be triggered if revenues from certain assets located in a defined geographic area reach certain targets by or before June 30, 2013 and will be funded in cash or PVR common units, at PVR's election.

In April 2008, PVR acquired a 25% member interest in Thunder Creek, a joint venture that gathers and transports CBM in Wyoming's Powder River Basin. The purchase price was $51.6 million in cash, after customary closing adjustments, and was funded with long-term debt under the PVR Revolver.

In June 2006, PVR completed the acquisition of approximately 115 miles of gathering pipelines and related compression facilities in Texas and Oklahoma. These assets are contiguous to PVR's Panhandle System. The purchase price was $14.7 million and was funded with cash. Subsequently, PVR borrowed $14.7 million under the PVR Revolver to replenish the cash used for the acquisition.

Liquidity and Capital Resources

Although results are consolidated for financial reporting, Penn Virginia, PVG . . .