Heres Why Penn Virginia Corporations Stock Is Down 12% Today

By Markets Fool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

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What: Penn Virginia's stock dropped by more than 12% after the company issued its outlook for 2015. The oil driller is really dialing back its spending, which will slow down its oil production growth. That, along with lower oil prices today, sent shares tumbling.

So what: Penn Virginia is dramatically cutting its capex plan to $295 million-$345 million in 2015. That's up to 63% lower than the company spent last year, but it will still push its production up 10%-20% higher in 2015. The company is cutting back on spending because it wants to ensure that it maintains a healthy level of liquidity during the oil market downturn.

While this is a prudent move in light of the downturn in the price of oil investors see this as a sign of weakness. That's because its cutting spending by more than the 50% average we've seen by most other small oil drillers. Further, Penn Virginia had been rapidly growing its oil production as it used its premier position in the Eagle Ford Shale to fuel 40%-plus oil production growth last year, but that growth rate is being sliced by more than half in 2015. That's making investors less enthused by its prospects for future growth, especially given where the price of oil is right now.

Now what: While investors might not like Penn Virginia's decision to pull back spending, it's really the right thing to do. The world is oversupplied with oil right now so there's no reason for Penn Virginia to add to that glut by continuing to rapidly grow its oil production. The oil under its acreage in the Eagle Ford shale isn't going anywhere so it makes sense to leave it in the ground until the price of oil improves.

The article Heres Why Penn Virginia Corporations Stock Is Down 12% Today originally appeared on Fool.com.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.