UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 (Mark
One)
 
 x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
  For
      the quarterly period ended
              March
      31, 2010
 
 or
 
  ̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 
 For
      the transition period from
              
              toCommission
      File Number:
              1-33171
 
 PENN
      VIRGINIA GP HOLDINGS, L.P.(Exact
      name of registrant as specified in its
charter)
 
 Delaware
              
              20-5116532(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)
 
 FOUR
      RADNOR CORPORATE CENTER, SUITE 200
                  100
      MATSONFORD ROAD
                  RADNOR,
      PA 19087(Address
      of principal executive offices)
                (Zip
      Code)(610)
      687-8900(Registrant’s
      telephone number, including area code)THREE
      RADNOR CORPORATE CENTER, SUITE 300
                  100
      MATSONFORD ROAD
                  RADNOR,
      PA 19087(Former
      name, former address and former fiscal year, if changed since last
      report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.  x
Yes   ̈
No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


Yes  ̈  No   ̈





Indicate
by a check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.


Large
accelerated filer  ̈      Accelerated
filer x


Non-accelerated
filer  ̈ (Do not
check if a smaller reporting company)    Smaller reporting
company  ̈





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


 ̈ Yes  x No





As of May
5, 2010, 39,074,500 common units representing limited partner interests were
outstanding.











PENN
VIRGINIA GP HOLDINGS, L.P. AND SUBSIDIARIES





INDEX





PagePART I.
              Financial InformationItem 1.
              Financial StatementsCondensed
      Consolidated Statements of Income for the Three
      Months Ended March 31, 2010 and 2009
              1Condensed
      Consolidated Balance Sheets as of March 31,
      2010 and December 31, 2009
              2Condensed
      Consolidated Statements of Cash Flows for the Three Months
      Ended March 31, 2010 and 2009
              3Notes to Condensed
      Consolidated Financial Statements
              4Forward-Looking
      Statements
              14Item 2.
              Management’s Discussion and Analysis of Financial
      Condition and Results of OperationsOverview
      of Business
              16Liquidity
      and Capital Resources
              18Results
      of Operations
              24Environmental
      Matters
              29Critical
      Accounting Estimates
              30New
      Accounting Standards
              30Item 3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              31Item
      4.
              Controls
      and Procedures
              34PART II.
              Other InformationItem
      1A.
              Risk
      Factors
              35Item 6.
              Exhibits
              38










PART
I.    FINANCIAL INFORMATION





Item
1    Financial
Statements





PENN
VIRGINIA GP HOLDINGS, L.P. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME – unaudited


(in
thousands, except per unit data)





Three
      Months EndedMarch 31,2010
                
                
                2009RevenuesNatural
      gas midstream
                
                $
                170,609
                
                
                $
                117,379Coal
      royalties
                
                
                28,226
                
                
                
                30,630Coal
      services
                
                
                1,973
                
                
                
                1,888Other
                
                
                5,670
                
                
                
                6,862Total
      revenues
                
                
                206,478
                
                
                
                156,759ExpensesCost
      of midstream gas purchased
                
                
                141,795
                
                
                
                100,620Operating
                
                
                9,263
                
                
                
                8,890Taxes
      other than income
                
                
                1,518
                
                
                
                1,223General
      and administrative
                
                
                9,326
                
                
                
                8,133Depreciation,
      depletion and amortization
                
                
                17,818
                
                
                
                16,503Total
      expenses
                
                
                179,720
                
                
                
                135,369Operating
      income
                
                
                26,758
                
                
                
                21,390Other
      income (expense)Interest
      expense
                
                
                (5,835
                )
                
                
                (5,616
                )Other
                
                
                327
                
                
                
                329Derivatives
                
                
                (7,568
                )
                
                
                (7,161
                )Net
      income
                
                $
                13,682
                
                
                $
                8,942Less
      net income attributable to noncontrolling interests
                
                
                (5,257
                )
                
                
                (2,093
                )Net
      income attributable to Penn Virginia GP Holdings, L.P.
                
                $
                8,425
                
                
                $
                6,849Net
      income per unit attributable to Penn Virginia GP Holdings, L.P., basic and
      diluted
                
                $
                0.22
                
                
                $
                0.18Weighted
      average number of units outstanding, basic and diluted
                
                
                39,075
                
                
                
                39,075




The
accompanying notes are an integral part of these condensed consolidated
financial statements.


1





PENN
VIRGINIA GP HOLDINGS, L.P. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS – unaudited


(in
thousands)





March
      31,
                
                
                December
      31,2010
                
                
                2009AssetsCurrent
      assetsCash
      and cash equivalents
                
                $
                27,969
                
                
                $
                19,314Accounts
      receivable, net of allowance for doubtful accounts
                
                
                72,801
                
                
                
                82,321Derivative
      assets
                
                
                1,320
                
                
                
                1,331Other
      current assets
                
                
                4,672
                
                
                
                4,816Total
      current assets
                
                
                106,762
                
                
                
                107,782Property,
      plant and equipment
                
                
                1,171,250
                
                
                
                1,162,070Accumulated
      depreciation, depletion and amortization
                
                
                (277,306
                )
                
                
                (261,226
                )Net
      property, plant and equipment
                
                
                893,944
                
                
                
                900,844Equity
      investments
                
                
                87,159
                
                
                
                87,601Intangible
      assets, net
                
                
                82,043
                
                
                
                83,741Derivative
      assets
                
                
                283
                
                
                
                1,284Other
      long-term assets
                
                
                36,514
                
                
                
                37,811Total
      assets
                
                $
                1,206,705
                
                
                $
                1,219,063Liabilities
      and Partners’ CapitalCurrent
      liabilitiesAccounts
      payable
                
                $
                62,268
                
                
                $
                61,308Accrued
      liabilities
                
                
                8,901
                
                
                
                9,925Deferred
      income
                
                
                4,439
                
                
                
                3,839Derivative
      liabilities
                
                
                14,975
                
                
                
                11,251Total
      current liabilities
                
                
                90,583
                
                
                
                86,323Deferred
      income
                
                
                4,843
                
                
                
                5,482Other
      liabilities
                
                
                17,059
                
                
                
                17,270Derivative
      liabilities
                
                
                5,469
                
                
                
                4,285Long-term
      debt
                
                
                618,100
                
                
                
                620,100Partners’
      capitalPenn
      Virginia GP Holdings, L.P. partners’ capital
                
                
                243,192
                
                
                
                249,696Noncontrolling
      interests of subsidiaries
                
                
                227,459
                
                
                
                235,907Total partners’ capital
                
                
                470,651
                
                
                
                485,603Total
      liabilities and partners’ capital
                
                $
                1,206,705
                
                
                $
                1,219,063





The
accompanying notes are an integral part of these condensed consolidated
financial statements.





2





PENN
VIRGINIA GP HOLDINGS, L.P. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS – unaudited


(in
thousands)





Three Months Ended March
31,2010
                  
                  
                  2009Cash
      flows from operating activitiesNet
      income
                  
                  $
                  13,682
                  
                  
                  $
                  8,942Adjustments
      to reconcile net income to netcash
      provided by operating activities:Depreciation,
      depletion and amortization
                  
                  
                  17,818
                  
                  
                  
                  16,503Commodity
      derivative contracts:Total
      derivative losses
                  
                  
                  8,150
                  
                  
                  
                  7,615Cash
      settlements of derivatives
                  
                  
                  (1,646
                  )
                  
                  
                  2,836Non-cash
      interest expense
                  
                  
                  1,243
                  
                  
                  
                  491Equity
      earnings, net of distributions received
                  
                  
                  443
                  
                  
                  
                  (1,559
                  )Other
                  
                  
                  633
                  
                  
                  
                  (207
                  )Changes
      in operating assets and liabilitiesAccounts
      receivable
                  
                  
                  9,504
                  
                  
                  
                  16,058Accounts
      payable
                  
                  
                  (4,089
                  )
                  
                  
                  (13,805
                  )Accrued
      liabilities
                  
                  
                  (742
                  )
                  
                  
                  (1,199
                  )Deferred
      income
                  
                  
                  (39
                  )
                  
                  
                  (1,560
                  )Other
      asset and liabilities
                  
                  
                  3,565
                  
                  
                  
                  (456
                  )Net
      cash provided by operating activities
                  
                  
                  48,522
                  
                  
                  
                  33,659Cash
      flows from investing activitiesAcquisitions
                  
                  
                  (29
                  )
                  
                  
                  (1,256
                  )Additions
      to property, plant and equipment
                  
                  
                  (7,957
                  )
                  
                  
                  (17,050
                  )Other
                  
                  
                  272
                  
                  
                  
                  265Net
      cash used in investing activities
                  
                  
                  (7,714
                  )
                  
                  
                  (18,041
                  )Cash
      flows from financing activitiesDistributions
      to partners
                  
                  
                  (30,153
                  )
                  
                  
                  (29,988
                  )Proceeds
      from borrowings
                  
                  
                  10,000
                  
                  
                  
                  27,000Repayments
      of borrowings
                  
                  
                  (12,000
                  )
                  
                  
                  -Net
      proceeds from issuance of partners’ capital
                  
                  
                  -
                  
                  
                  
                  -Debt
      issuance costs and other
                  
                  
                  -
                  
                  
                  
                  (9,258
                  )Net
      cash used in financing activities
                  
                  
                  (32,153
                  )
                  
                  
                  (12,246
                  )Net
      increase in cash and cash equivalents
                  
                  
                  8,655
                  
                  
                  
                  3,372Cash
      and cash equivalents – beginning of period
                  
                  
                  19,314
                  
                  
                  
                  18,338Cash
      and cash equivalents – end of period
                  
                  $
                  27,969
                  
                  
                  $
                  21,710Supplemental
      disclosure:Cash
      paid for interest
                  
                  $
                  6,429
                  
                  
                  $
                  6,156





The
accompanying notes are an integral part of these condensed consolidated
financial statements.





3





PENN
VIRGINIA GP HOLDINGS, L.P. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – unaudited


March
31, 2010





1.
            Organization





Penn
Virginia GP Holdings, L.P. (the “Partnership,” “we,” “us” or “our”) is a
publicly traded Delaware limited partnership formed in June 2006 that owns
three types of equity interests in Penn Virginia Resource Partners, L.P.
(“PVR”), a publicly traded Delaware limited partnership.  As of March
31, 2010, the equity interests are (1) a 2% general partner interest in PVR,
which we hold through our 100% ownership interest in Penn Virginia Resource GP,
LLC, PVR’s general partner, (2) all of the incentive distribution rights
(“IDRs”) in PVR, which we hold through our 100% ownership interest in PVR’s
general partner and (3) an approximately 37% limited partner interest in
PVR.  With the IDRs, we receive an increasing percentage of PVR’s
quarterly distributions of available cash from operating surplus after certain
levels of cash distributions have been achieved.  Our only cash
generating assets consist of our equity interests in PVR.  Due to our
control of the general partner of PVR, the financial results of PVR are included
in our condensed consolidated financial statements.  However, PVR
functions with a capital structure that is independent of ours, consisting of
its own debt instruments and publicly traded common units.





Our
general partner is an indirect wholly owned subsidiary of Penn Virginia
Corporation (“Penn Virginia”).  On March 31, 2010, a subsidiary of
Penn Virginia sold 10 million of our common units that it beneficially owned in
an underwritten public offering.  As of March 31, 2010, Penn Virginia
and its subsidiaries owned an approximately 25.8% limited partner interest in
us, which was reduced to 22.6% on April 28, 2010 (see Note 13).





PVR
currently conducts operations in two business segments:  (i) coal and
natural resource management and (ii) natural gas midstream.




We,
through our ownership of the general partner of PVR, manage the operations and
activities of PVR.  Most of PVR’s personnel are employees of Penn
Virginia or its affiliates.  PVR’s general partner is liable for all
of PVR’s debts (to the extent not paid from PVR’s assets), except for
indebtedness or other obligations that are made specifically non-recourse to
us.




We do not
receive any management fee or other compensation for the management of
PVR.  We and our affiliates are reimbursed for expenses incurred on
PVR’s behalf.  These expenses include the costs of employee, officer
and director compensation and benefits properly allocable to PVR and all other
expenses necessary or appropriate to conduct the business of, and allocable to,
PVR.  PVR’s partnership agreement provides that PVR’s general partner
will determine the expenses that are allocable to PVR in any reasonable manner
determined by PVR in its sole discretion.




2.
            Basis
      of Presentation




Unless
otherwise indicated, for the purposes of our Condensed Consolidated Financial
Statements, the “Partnership,” “we,” “us” or “our” refers to Penn Virginia GP
Holdings, L.P. and subsidiaries.





All
dollar amounts presented in the tables to these Notes are in thousands unless
otherwise indicated.





Our
Condensed Consolidated Financial Statements include the accounts of the
Partnership, PVR and all of PVR’s wholly owned
subsidiaries.  Investments in non-controlled entities over which we
exercise significant influence are accounted for using the equity
method.  Intercompany balances and transactions have been eliminated
in consolidation.  Our Condensed Consolidated Financial Statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America.  These statements involve the use of
estimates and judgments where appropriate.  In the opinion of
management, all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation of our Condensed Consolidated Financial
Statements have been included.  Our Condensed Consolidated Financial
Statements should be read in conjunction with our consolidated financial
statements and footnotes included in our Annual Report on Form 10-K for the year
ended December 31, 2009.  Operating results for the three months ended
March 31, 2010 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2010.





4





Management
has evaluated all activities of the Partnership through the date upon which the
Condensed Consolidated Financial Statements were issued, and concluded that no
subsequent events have occurred that would require recognition in the Condensed
Consolidated Financial Statements, but disclosure is required in the Notes to
the Condensed Consolidated Financial Statements.  See Note 13 to the
Condensed Consolidated Financial Statements.





3.
              Fair Value
      Measurements




We apply
the authoritative accounting provisions for measuring fair value of both our
financial and nonfinancial assets and liabilities.  Fair value is an
exit price representing the expected amount we would receive to sell an asset or
pay to transfer a liability in an orderly transaction with market participants
at the measurement date.  We have followed consistent methods and
assumptions to estimate the fair values as more fully described in our Annual
Report on Form 10-K for the year ended December 31, 2009.




Our
financial instruments that are subject to fair value disclosure consist of cash
and cash equivalents, accounts receivable, accounts payable, derivatives and
long-term debt.  At March 31, 2010, the carrying values of all of
these financial instruments approximated fair value.  The fair value
of floating-rate debt approximates the carrying amount because the interest
rates paid are based on short-term maturities.




Recurring
Fair Value Measurements




Certain
assets and liabilities, including PVR’s derivatives, are measured at fair value
on a recurring basis in our Condensed Consolidated Balance Sheet.  The
following tables summarize the valuation of our assets and liabilities for the
periods presented:




Fair Value Measurements at March 31, 2010, UsingDescription
                  
                  Fair Value
                    Measurements at
                    March 31, 2010
                  
                  
                  Quoted Prices in
                    Active Markets for
                    Identical Assets
                    (Level 1)
                  
                  
                  Significant Other
                    Observable Inputs
                    (Level 2)
                  
                  
                  Significant
                    Unobservable
                    Inputs (Level 3)Interest
      rate swap assets - noncurrent
                  
                  $
                  186
                  
                  
                  $
                  -
                  
                  
                  $
                  186
                  
                  
                  $
                  -Interest
      rate swap liabilities – current
                  
                  
                  (7,445
                  )
                  
                  
                  -
                  
                  
                  
                  (7,445
                  )
                  
                  
                  -Interest
      rate swap liabilities - noncurrent
                  
                  
                  (3,128
                  )
                  
                  
                  -
                  
                  
                  
                  (3,128
                  )
                  
                  
                  -Commodity
      derivative assets - current
                  
                  
                  1,320
                  
                  
                  
                  -
                  
                  
                  
                  1,320
                  
                  
                  
                  -Commodity
      derivative assets - noncurrent
                  
                  
                  97
                  
                  
                  
                  -
                  
                  
                  
                  97
                  
                  
                  
                  -Commodity
      derivative liabilities - current
                  
                  
                  (7,530
                  )
                  
                  
                  -
                  
                  
                  
                  (7,530
                  )
                  
                  
                  -Commodity
      derivative liabilities - noncurrent
                  
                  
                  (2,341
                  )
                  
                  
                  -
                  
                  
                  
                  (2,341
                  )
                  
                  
                  -Total
                  
                  $
                  (18,841
                  )
                  
                  $
                  -
                  
                  
                  $
                  (18,841
                  )
                  
                  $
                  -





Fair Value Measurements at December 31, 2009, UsingQuoted Prices inFair Value
                  
                  
                  Active Markets for
                  
                  
                  Significant Other
                  
                  
                  SignificantMeasurements at
                  
                  
                  Identical Assets
                  
                  
                  Observable Inputs
                  
                  
                  UnobservableDescription
                  
                  December 31, 2009
                  
                  
                  (Level 1)
                  
                  
                  (Level 2)
                  
                  
                  Inputs (Level 3)Interest
      rate swap assets - noncurrent
                  
                  $
                  1,266
                  
                  
                  $
                  -
                  
                  
                  $
                  1,266
                  
                  
                  $
                  -Interest
      rate swap liabilities - current
                  
                  
                  (7,710
                  )
                  
                  
                  -
                  
                  
                  
                  (7,710
                  )
                  
                  
                  -Interest
      rate swap liabilities - noncurrent
                  
                  
                  (3,241
                  )
                  
                  
                  -
                  
                  
                  
                  (3,241
                  )
                  
                  
                  -Commodity
      derivative assets - current
                  
                  
                  1,331
                  
                  
                  
                  -
                  
                  
                  
                  1,331
                  
                  
                  
                  -Commodity
      derivative assets - noncurrent
                  
                  
                  18
                  
                  
                  
                  -
                  
                  
                  
                  18
                  
                  
                  
                  -Commodity
      derivative liabilities - current
                  
                  
                  (3,541
                  )
                  
                  
                  -
                  
                  
                  
                  (3,541
                  )
                  
                  
                  -Commodity
      derivative liabilities - noncurrent
                  
                  
                  (1,044
                  )
                  
                  
                  -
                  
                  
                  
                  (1,044
                  )
                  
                  
                  -Total
                  
                  $
                  (12,921
                  )
                  
                  $
                  -
                  
                  
                  $
                  (12,921
                  )
                  
                  $
                  -




We used
the following methods and assumptions to estimate the fair values:





•
            Commodity
      derivatives: The PVR natural gas midstream segment utilizes
      collar derivative contracts to hedge against the variability in the frac
      spread. PVR determines the fair values of its commodity derivative
      agreements based on discounted cash flows based on quoted
      forward




5





prices
for the respective commodities. Each of these is a level 2 input. PVR generally
uses the income approach, using valuation techniques that convert future cash
flows to a single discounted value. See Note 4 for the effects of the derivative
instruments on our Condensed Consolidated Statements of Income.


•
            PVR
      interest rate swaps: PVR uses an income approach using valuation
      techniques that connect future cash flows to a single discounted value.
      PVR estimates the fair value of the swaps based on published interest rate
      yield curves as of the date of the estimate. Each of these is a level 2
      input.




4.
            Derivative
      Instruments





PVR
Natural Gas Midstream Segment Commodity Derivatives





PVR
determines the fair values of its derivative agreements using third-party quoted
forward prices for the respective commodities as of the end of the reporting
period and discount rates adjusted for the credit risk of PVR’s counterparties
if the derivative is in an asset position and PVR’s own credit risk if the
derivative is in a liability position.  The following table sets forth
PVR’s commodity derivative positions as of March 31, 2010:





Average
                  
                  
                  
                  
                  
                  
                  
                  
                  Fair Value atVolume Per
                  
                  
                  
                  
                  
                  Weighted Average Price
                  
                  
                  March 31,Day
                  
                  
                  Swap Price
                  
                  
                  Put
                  
                  
                  Call
                  
                  
                  2010Crude
      Oil Collar
                  
                  (barrels)
                  
                  
                  
                  
                  
                  ($
      per barrel)Second
      Quarter 2010 through Fourth Quarter 2010
                  
                  
                  1,750
                  
                  
                  
                  
                  
                  $
                  68.86
                  
                  
                  $
                  80.54
                  
                  
                  $
                  (3,309
                  )First
      Quarter 2011 through Fourth Quarter 2011
                  
                  
                  400
                  
                  
                  
                  
                  
                  $
                  75.00
                  
                  
                  $
                  98.50
                  
                  
                  $
                  35Natural
      Gas Purchase Swap
                  
                  (MMBtu)
                  
                  
                  ($
      per MMBtu)Second
      Quarter 2010 through Fourth Quarter 2010
                  
                  
                  7,100
                  
                  
                  $
                  5.885
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (3,133
                  )First
      Quarter 2011 through Fourth Quarter 2011
                  
                  
                  6,500
                  
                  
                  $
                  5.796
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (1,043
                  )Ethane
      Swap
                  
                  (gallons)
                  
                  
                  ($
      per gallon)Second
      Quarter 2010
                  
                  
                  72,000
                  
                  
                  $
                  0.735
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  1,062NGL
      - Natural Gasoline Collar
                  
                  (gallons)
                  
                  
                  
                  
                  
                  
                  ($
      per gallon)Third
      Quarter 2010 through Fourth Quarter 2010
                  
                  
                  42,000
                  
                  
                  
                  
                  
                  
                  $
                  1.55
                  
                  
                  $
                  2.03
                  
                  
                  $
                  (212
                  )First
      Quarter 2011 through Fourth Quarter 2011
                  
                  
                  95,000
                  
                  
                  
                  
                  
                  
                  $
                  1.57
                  
                  
                  $
                  1.94
                  
                  
                  $
                  (2,025
                  )Settlements
      to be received in subsequent period
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  171





PVR
Interest Rate Swaps





PVR has
entered into interest rate swaps (the “PVR Interest Rate Swaps”) to establish
fixed interest rates on a portion of the outstanding borrowings under its
revolving credit facility (the “PVR Revolver”).  The following table
sets forth the positions of the PVR Interest Rate Swaps for the periods
presented:




Notional
      Amounts
                    
                    
                    Swap
      Interest Rates (1)
                    
                    Fair
      ValueTerm
                    
                    (in
      millions)
                    
                    
                    Pay
                    
                    Receive
                    
                    March
      31, 2010
                    
                    
                    December
      31, 2009Until
      March 2010
                    
                    $
                    310.0
                    
                    
                    
                    3.54
                    %
                    LIBOR
                    
                    $
                    -
                    
                    
                    $
                    (2,479
                    )March
      2010 - December 2011
                    
                    $
                    250.0
                    
                    
                    
                    3.37
                    %
                    LIBOR
                    
                    $
                    (10,999
                    )
                    
                    $
                    (8,456
                    )December
      2011 - December 2012
                    
                    $
                    100.0
                    
                    
                    
                    2.09
                    %
                    LIBOR
                    
                    $
                    612
                    
                    
                    $
                    1,252







(1)
References to LIBOR represent the 3-month rate.




During
the first quarter of 2009, PVR discontinued hedge accounting for all of the PVR
Interest Rate Swaps. Accordingly, subsequent fair value gains and losses for the
PVR Interest Rate Swaps are recognized in the Derivatives caption on our
Condensed Consolidated Statements of Income. As of March 31, 2010, a $0.8
million




6





loss
remained in accumulated other comprehensive income (“AOCI”) related to the PVR
Interest Rate Swaps.  The $0.8 million loss will be recognized in
interest expense when the original forecasted transaction occurs.




PVR
reported a (i) net derivative liability of $10.4 million at March 31, 2010 and
(ii) loss in AOCI of $0.8 million as of March 31, 2010 related to the PVR
Interest Rate Swaps.  In connection with periodic settlements, PVR
reclassified a total of $0.6 million of net hedging losses on the PVR Interest
Rate Swaps from AOCI to interest expense during the three months ended March 31,
2010.  See the "Financial Statement Impact of Derivatives" section below
for the impact of the PVR Interest Rate Swaps on our Condensed Consolidated
Financial Statements.




Financial
Statement Impact of Derivatives




The
following table summarizes the effects of PVR’s derivative activities, as well
as the location of the gains and losses, on our Condensed Consolidated
Statements of Income for the periods presented:




Location
      of gain (loss)on
      derivatives recognized
                  
                  Three
      Months Ended March 31,in
      income
                  
                  2010
                  
                  
                  2009Derivatives
      not designated as hedging instruments:Interest
      rate contracts  (1)
                  Interest
      expense
                  
                  
                  (582
                  )
                  
                  
                  (825
                  )Interest
      rate contracts
                  Derivatives
                  
                  
                  (3,130
                  )
                  
                  
                  (1,114
                  )Commodity
      contracts
                  Derivatives
                  
                  
                  (4,438
                  )
                  
                  
                  (6,047
                  )Total
      increase (decrease) in net income resulting from
    derivatives
                  
                  
                  $
                  (8,150
                  )
                  
                  $
                  (7,986
                  )Realized
      and unrealized derivative impact:Cash
      received (paid) for commodity and interest rate contract
      settlements
                  Derivatives
                  
                  
                  (1,646
                  )
                  
                  
                  2,836Cash
      paid for interest rate contract settlements
                  Interest
      expense
                  
                  
                  -
                  
                  
                  
                  (370
                  )Unrealized
      derivative losses (2)
                  
                  
                  
                  (6,504
                  )
                  
                  
                  (10,452
                  )Total
      increase (decrease) in net income resulting from
    derivatives
                  
                  
                  $
                  (8,150
                  )
                  
                  $
                  (7,986
                  )









(1)
            This
      represents PVR Interest Rate Swap amounts reclassified out of AOCI and
      into earnings. During 2008 and 2009 PVR discontinued cash flow hedge
      accounting for various PVR Interest Rate Swaps at different times. Prior
      to the first quarter of 2009, PVR discontinued cash flow hedge accounting
      for the remaining PVR Interest Rate Swaps. During the three months ended
      March 31, 2009, PVR reclassified $0.4 million out of AOCI relating to
      actual hedge settlements accounted for under hedge accounting. During the
      three months ended March 31, 2010 and 2009 PVR reclassified $0.6 million
      and $0.8 million out of AOCI relating to PVR Interest Rate Swaps no longer
      designated for cash flow hedge
accounting.


(2)
            This
      activity represents unrealized gains in the natural gas midstream, cost of
      midstream gas purchased,  interest expense and derivatives
      captions on our Condensed Consolidated Statements of
    Income.





The
following table summarizes the fair value of PVR’s derivative instruments, as
well as the locations of these instruments, on our Condensed Consolidated
Balance Sheets for the periods presented:




Fair values as of March 31, 2010
                                          
                                          
                                          Fair values as of December 31, 2009Balance Sheet Location
                                          
                                          DerivativeAssets
                                          
                                          
                                          Derivative
                                            Liabilities
                                          
                                          
                                          Derivative
                                            Assets
                                          
                                          
                                          Derivative
                                            LiabilitiesDerivatives
      not designated as hedging instruments:Interest
      rate contracts
                                          Derivative
      assets/liabilities - current
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          7,445
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          7,710Interest
      rate contracts
                                          Derivative
      assets/liabilities - noncurrent
                                          
                                          
                                          186
                                          
                                          
                                          
                                          3,128
                                          
                                          
                                          
                                          1,266
                                          
                                          
                                          
                                          3,241Commodity
      contracts
                                          Derivative
      assets/liabilities - current
                                          
                                          
                                          1,320
                                          
                                          
                                          
                                          7,530
                                          
                                          
                                          
                                          1,331
                                          
                                          
                                          
                                          3,541Commodity
      contracts
                                          Derivative
      assets/liabilities - noncurrent
                                          
                                          
                                          97
                                          
                                          
                                          
                                          2,341
                                          
                                          
                                          
                                          18
                                          
                                          
                                          
                                          1,044Total
      derivatives not designated as hedging instruments
                                          
                                          $
                                          1,603
                                          
                                          
                                          $
                                          20,444
                                          
                                          
                                          $
                                          2,615
                                          
                                          
                                          $
                                          15,536Total
      fair value of derivative instruments
                                          
                                          
                                          $
                                          1,603
                                          
                                          
                                          $
                                          20,444
                                          
                                          
                                          $
                                          2,615
                                          
                                          
                                          $
                                          15,536





See Note
3 for a description of how the above-described financial instruments are
valued.




The
following table summarizes PVR’s interest expense, including the effect of the
PVR Interest Rate Swaps, for the periods presented:




7





Three Months Ended March
31,Source
                  
                  2010
                  
                  
                  2009Interest
      on Revolver
                  
                  $
                  3,869
                  
                  
                  $
                  4,277Debt
      issuance costs and other
                  
                  
                  1,384
                  
                  
                  $
                  591Capitalized
      interest
                  
                  
                  -
                  
                  
                  
                  (77
                  )Interest
      rate swaps
                  
                  
                  582
                  
                  
                  
                  825Total
      interest expense
                  
                  $
                  5,835
                  
                  
                  $
                  5,616





As of
March 31, 2010, neither PVR nor we actively traded derivative
instruments.  In addition, as of March 31, 2010, neither PVR nor we
owned derivative instruments containing credit risk contingencies.




5.
            Equity
      Investments




In
accordance with the equity method of accounting, PVR recognized earnings of $2.2
million and $1.6 million for the three months ended March 31, 2010 and 2009,
with a corresponding increase in the investment. The joint ventures generally
pay quarterly distributions on their cash flow.  PVR
received $2.7 million for three months ended March 31, 2010 and no distributions
for the same period of 2009.  Equity earnings related to the 50%
interest in Coal Handling Solutions LLC are included in coal services revenues
on the Condensed Consolidated Statements of Income, and equity earnings related
to the 25% interest in Thunder Creek Gas Services LLC and 50% interest in
Crosspoint Pipeline LLC are recorded in other revenues on the Condensed
Consolidated Statements of Income.  The equity investments for all
joint ventures are included in the equity investments caption on the Condensed
Consolidated Balance Sheets.




Summarized
financial information of unconsolidated equity investments is as follows for the
periods presented:




March
      31,
                        
                        
                        December
      31,2010
                        
                        
                        2009Current
      assets
                        
                        $
                        36,243
                        
                        
                        $
                        32,996Noncurrent
      assets
                        
                        $
                        210,818
                        
                        
                        $
                        214,463Current
      liabilities
                        
                        $
                        6,862
                        
                        
                        $
                        4,898Noncurrent
      liabilities
                        
                        $
                        5,367
                        
                        
                        $
                        5,392Three Months Ended March
31,2010
                        
                        
                        2009Revenues
                        
                        $
                        16,959
                        
                        
                        $
                        14,632Expenses
                        
                        $
                        8,917
                        
                        
                        $
                        8,411Net
      income
                        
                        $
                        8,042
                        
                        
                        $
                        6,221





6.
            Noncontrolling
      Interests




The
following is a reconciliation of the carrying amount of partners’ capital
attributable to us, partners’ capital attributable to the noncontrolling
interests in PVR and total partners’ capital:




8





Penn Virginia GP
                    Holdings, L.P.
                    Unitholders
                  
                  
                  Noncontrolling
                    Interests
                  
                  
                  Total
                  
                  
                  Comprehensive
                    Income (Loss)Balance
      at December 31, 2009
                  
                  $
                  249,696
                  
                  
                  $
                  235,907
                  
                  
                  $
                  485,603Distributions
      paid
                  
                  
                  (14,848
                  )
                  
                  
                  (15,305
                  )
                  
                  
                  (30,153
                  )Unit
      based compensation
                  
                  
                  -
                  
                  
                  
                  937
                  
                  
                  
                  937Change
      in ownership
                  
                  
                  (309
                  )
                  
                  
                  309
                  
                  
                  
                  -Comprehensive
      income:Net
      income
                  
                  
                  8,425
                  
                  
                  
                  5,257
                  
                  
                  
                  13,682
                  
                  
                  
                  13,682Reclassification
      adjustments for derivative activities
                  
                  
                  228
                  
                  
                  
                  354
                  
                  
                  
                  582
                  
                  
                  
                  582Balances
      at March 31, 2010
                  
                  $
                  243,192
                  
                  
                  $
                  227,459
                  
                  
                  
                  470,651
                  
                  
                  $
                  14,264Balance
      at December 31, 2008
                  
                  $
                  269,542
                  
                  
                  $
                  268,981
                  
                  
                  
                  538,523Distributions
      paid
                  
                  
                  (14,848
                  )
                  
                  
                  (15,140
                  )
                  
                  
                  (29,988
                  )Comprehensive
      income:Net
      income
                  
                  
                  6,849
                  
                  
                  
                  2,093
                  
                  
                  
                  8,942
                  
                  
                  
                  8,942Unrealized
      losses on derivative activities
                  
                  
                  (198
                  )
                  
                  
                  (308
                  )
                  
                  
                  (506
                  )
                  
                  
                  (506
                  )Reclassification
      adjustments for derivative activities
                  
                  
                  323
                  
                  
                  
                  502
                  
                  
                  
                  825
                  
                  
                  
                  825Balances
      at March 31, 2009
                  
                  $
                  261,668
                  
                  
                  $
                  256,128
                  
                  
                  $
                  517,796
                  
                  
                  $
                  9,261





7.
            Cash
      Distributions




The
following table reflects the allocation of total cash distributions paid by us
during the periods presented:




Three Months Ended March
31,Unitholders
                  
                  2010
                  
                  
                  2009Public
      unitholders
                  
                  $
                  7,219
                  
                  
                  $
                  3,419Penn
      Virginia Corporation
                  
                  
                  7,629
                  
                  
                  
                  11,429Total
      cash distributions paid
                  
                  $
                  14,848
                  
                  
                  $
                  14,848Total
      cash distributions paid per unit
                  
                  $
                  0.38
                  
                  
                  $
                  0.38




On May
21, 2010, we will pay a $0.39 per unit quarterly distribution to unitholders of
record on May 3, 2010.  This per unit distribution is a $0.01 per unit
increase from the previous distribution paid on February 19, 2010.




8.    Related-Party
Transactions





General
and Administrative




Penn
Virginia charges us and PVR for certain corporate administrative expenses which
are allocable to us and PVR and its subsidiaries.  When allocating
general corporate expenses, consideration is given to property and equipment,
payroll and general corporate overhead.  Any direct costs are paid by
us or PVR, as applicable.  Total corporate administrative expenses
charged to us, PVR and PVR’s subsidiaries totaled $1.3 million and $1.7 million
for the three months ended March 31, 2010 and 2009.  Of these amounts,
Penn Virginia charged us $0.1 million and $0.2 million for the three months
ended March 31, 2010 and 2009 and charged PVR $1.2 million and $1.5 million for
the three months ended March 31, 2010 and 2009.  These costs are
reflected in the general and administrative expenses caption on our Condensed
Consolidated Statements of Income.  At least annually, our management
performs an analysis of general corporate expenses based on time allocations of
shared employees and other pertinent factors.  Based on this analysis,
our management believes that the allocation methodologies used are
reasonable.





Accounts
Payable—Affiliate




Amounts
payable to related parties totaled $4.7 million and $1.1 million as of March 31,
2010 and December 31, 2009.  These amounts are primarily due to a
wholly owned subsidiary of Penn Virginia, Penn Virginia Oil & Gas, L.P.
(“PVOG LP”), and are related to the natural gas gathering and processing
agreement between PVR East Texas Gas Processing, LLC (“PVR East Texas”), PVR’s
wholly owned subsidiary, and PVOG LP.  See “—




9





Gathering
and Processing Revenues.”  These balances are included in the accounts
payable caption on our Condensed Consolidated Balance Sheets.




Marketing
Revenues




PVOG LP
and Connect Energy Services, LLC (“Connect Energy”), a wholly owned subsidiary
of PVR, are parties to a Master Services Agreement effective September 1,
2006.  Pursuant to the Master Services Agreement, Connect Energy
markets all of PVOG LP’s oil and gas production in Arkansas, Louisiana, Oklahoma
and Texas for a fee equal to 1% of the net sales price (subject to specified
limitations) received by PVOG LP for such production.  The Master
Services Agreement has a primary term of five years and automatically renews for
additional one-year terms until terminated by either party.  Under the
Master Services Agreement, PVOG LP paid fees to Connect Energy of $0.4 million
for both the three months ended March 31, 2010 and 2009.  These
marketing revenues are included in the other revenues caption on our Condensed
Consolidated Statements of Income.




Gathering
and Processing Revenues




PVR East
Texas and PVOG LP are parties to a Gas Gathering and Processing Agreement
effective April 1, 2007.  Pursuant to this agreement, PVR East Texas
gathers and processes all of PVOG LP’s current and future gas production in
certain areas of the Bethany Field in East Texas and redelivers the natural gas
liquids (“NGLs”) to PVOG LP for a $0.3115 per million British thermal units
(MMBtu) service fee (with an annual CPI adjustment).  The Gas
Gathering and Processing Agreement has a primary term ending August 31,
2021 and automatically renews for additional one-year terms until terminated by
either party.  PVR East Texas began gathering and processing PVOG LP’s
gas in June 2008.  Pursuant to the Gas Gathering and Processing
Agreement, PVOG LP paid fees to PVR East Texas of $0.7 million for both the
three months ended March 31, 2010 and 2009.  These gathering and
processing revenues are recorded in the natural gas midstream revenues caption
on our Condensed Consolidated Statements of Income.




Gas
Purchases and Sales




In
addition to the gathering and processing by PVR East Texas, PVOG LP sells the
processed natural gas and NGLs to Connect Energy at PVR’s Crossroads Plant,
Connect Energy transports them to the marketing location, and then Connect
Energy resells such gas or NGLs to third parties. The sales price received by
PVOG LP from Connect Energy for such gas or NGLs equals the sales price received
by Connect Energy for such gas or NGLs from the third parties. For the three
months ended March 31, 2010 and 2009, PVOG LP received and recognized revenue of
$ 18.2 million and $21.2 million from Connect Energy in connection with such
sales. For the three months ended March 31, 2010 and 2009, PVR recorded $18.2
million and $21.2 million of natural gas midstream revenue and $18.2 million and
$21.2 million for the cost of midstream gas purchased related to the purchase of
natural gas from PVOG LP and the subsequent sale of that gas to third parties.
We take title to the gas prior to transporting it to third parties.




9.
            Unit-Based
      Compensation





The Penn
Virginia Resource GP, LLC Fifth Amended and Restated Long-Term Incentive Plan
(the “PVR LTIP”) permits the grant of common units, deferred common units,
restricted units and phantom units to employees and directors of its general
partner and its affiliates.  PVR recognized compensation expense of
$1.4 million and $1.4 million for the three months ended March 31, 2010 and 2009
related to the granting of common and deferred common units under the PVR LTIP
and the vesting of restricted units and phantom units granted under the PVR
LTIP.  Common units and deferred common units granted under the PVR
LTIP are immediately vested, and PVR recognizes compensation expense related to
those grants on the grant date.  Restricted units and phantom units
granted under the PVR LTIP vest over a three-year period, with one-third vesting
in each year, and PVR recognizes compensation expense related to those grants on
a straight-line basis over the vesting period.  In 2010, 205,319
phantom unit grants were made under the PVR LTIP at a weighted average
grant-date fair value of $23.15.




The PVG
GP, LLC Amended and Restated Long-Term Incentive Plan (the “PVG LTIP”) likewise
permits the grant of common units, deferred common units, restricted units and
phantom units to employees and directors of our general partner and
affiliates.  We recognized compensation expense of $0.1 million for
both the three months ended March 31, 2010 and 2009 related to the granting of
deferred common units under the PVG LTIP.




10





Our and
PVR’s compensation expenses are recorded in the general and administrative
expenses caption on our Condensed Consolidated Statements of
Income.




10.
            Commitments
      and Contingencies





Legal





We and
PVR are involved, from time to time, in various legal proceedings arising in the
ordinary course of business.  While the ultimate results of these
proceedings cannot be predicted with certainty, our management believes that
these claims will not have a material effect on our financial position or
results of operations.




Environmental
Compliance





As of
March 31, 2010 and December 31, 2009, PVR’s environmental liabilities were $1.0
million, which represents PVR’s best estimate of the liabilities as of those
dates related to its coal and natural resource management and natural gas
midstream businesses.  PVR has reclamation bonding requirements with
respect to certain unleased and inactive properties.  Given the
uncertainty of when a reclamation area will meet regulatory standards, a change
in this estimate could occur in the future.




Mine
Health and Safety Laws





There are
numerous mine health and safety laws and regulations applicable to the coal
mining industry.  However, since PVR does not operate any mines and
does not employ any coal miners, PVR is not subject to such laws and
regulations.  Accordingly, we have not accrued any related
liabilities.




Customer
Credit Risk




For the
three months ended March 31, 2010, two PVR natural gas midstream segment
customers accounted for $31.8 million and $21.7 million, or 15% and 11%, of our
total consolidated revenues.  At March 31, 2010, 23% of our
consolidated accounts receivable related to these customers.




11.
            Segment
      Information





Our
operating segments represent components of our business about which separate
financial information is available and is evaluated regularly by the chief
operating decision maker, or decision-making group, in assessing performance.
Our decision-making group consists of PVR’s Chief Executive Officer and other
senior officers. This group routinely reviews and makes operating and resource
allocation decisions among PVR’s coal and natural resource management operations
and PVR’s natural gas midstream operations. Accordingly, our reportable segments
are as follows:




•
            PVR Coal and Natural Resource
      Management  — The PVR coal and natural resource
      management segment primarily involves the management and leasing of coal
      properties and the subsequent collection of royalties. PVR’s coal reserves
      are primarily located in Kentucky, Virginia, West Virginia, Illinois and
      New Mexico. 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.


•
            PVR Natural Gas
      Midstream  —  The PVR natural gas midstream segment is
      engaged in providing natural gas processing, gathering and other related
      services. PVR owns and operates natural gas midstream assets located in
      Oklahoma and Texas. PVR’s natural gas midstream business derives 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 Gas Services, LLC, a joint
venture




11




that
gathers and transports coalbed methane 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.


•
            The
      corporate and other caption primarily represents corporate
      functions.





The
following tables present a summary of certain financial information relating to
our segments for the periods presented:




Revenues
                                                                  
                                                                  
                                                                  Operating incomeThree Months Ended March
31,
                                                                  
                                                                  
                                                                  Three Months Ended March
31,2010
                                                                  
                                                                  
                                                                  2009
                                                                  
                                                                  
                                                                  2010
                                                                  
                                                                  
                                                                  2009Coal
      and natural resource management
                                                                  
                                                                  $
                                                                  33,560
                                                                  
                                                                  
                                                                  $
                                                                  38,252
                                                                  
                                                                  
                                                                  $
                                                                  20,361
                                                                  
                                                                  
                                                                  $
                                                                  24,974Natural
      gas midstream
                                                                  
                                                                  
                                                                  172,918
                                                                  
                                                                  
                                                                  
                                                                  118,507
                                                                  
                                                                  
                                                                  
                                                                  7,385
                                                                  
                                                                  
                                                                  
                                                                  (3,047
                                                                  )Corporate
      and other
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  (988
                                                                  )
                                                                  
                                                                  
                                                                  (537
                                                                  )Consolidated
      totals
                                                                  
                                                                  $
                                                                  206,478
                                                                  
                                                                  
                                                                  $
                                                                  156,759
                                                                  
                                                                  
                                                                  $
                                                                  26,758
                                                                  
                                                                  
                                                                  $
                                                                  21,390Interest
      expense
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  (5,835
                                                                  )
                                                                  
                                                                  
                                                                  (5,616
                                                                  )Other
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  327
                                                                  
                                                                  
                                                                  
                                                                  329Derivatives
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  (7,568
                                                                  )
                                                                  
                                                                  
                                                                  (7,161
                                                                  )Consolidated
      net income
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  $
                                                                  13,682
                                                                  
                                                                  
                                                                  $
                                                                  8,942Additions to property and
                                                                    equipment
                                                                  
                                                                  
                                                                  DD&A expenseThree Months Ended March
31,
                                                                  
                                                                  
                                                                  Three Months Ended March
31,2010
                                                                  
                                                                  
                                                                  2009
                                                                  
                                                                  
                                                                  2010
                                                                  
                                                                  
                                                                  2009Coal
      and natural resource management
                                                                  
                                                                  $
                                                                  32
                                                                  
                                                                  
                                                                  $
                                                                  1,300
                                                                  
                                                                  
                                                                  $
                                                                  7,326
                                                                  
                                                                  
                                                                  $
                                                                  7,394Natural
      gas midstream
                                                                  
                                                                  
                                                                  7,954
                                                                  
                                                                  
                                                                  
                                                                  17,006
                                                                  
                                                                  
                                                                  
                                                                  10,492
                                                                  
                                                                  
                                                                  
                                                                  9,109Consolidated
      totals
                                                                  
                                                                  $
                                                                  7,986
                                                                  
                                                                  
                                                                  $
                                                                  18,306
                                                                  
                                                                  
                                                                  $
                                                                  17,818
                                                                  
                                                                  
                                                                  $
                                                                  16,503Total assets atMarch 31,
                                                                  
                                                                  
                                                                  December 31,2010
                                                                  
                                                                  
                                                                  2009Coal
      and natural resource management
                                                                  
                                                                  $
                                                                  569,821
                                                                  
                                                                  
                                                                  $
                                                                  574,258Natural
      gas midstream
                                                                  
                                                                  
                                                                  626,187
                                                                  
                                                                  
                                                                  
                                                                  633,802Corporate
      and other
                                                                  
                                                                  
                                                                  10,697
                                                                  
                                                                  
                                                                  
                                                                  11,003Consolidated
      totals
                                                                  
                                                                  $
                                                                  1,206,705
                                                                  
                                                                  
                                                                  $
                                                                  1,219,063





12.
              New
      Accounting Standards





In
January 2010, the Financial Accounting Standards Board issued guidance on
increased fair-value measurement disclosures. The guidance requires us to make
new disclosures about recurring or nonrecurring fair-value measurements
including significant transfers into and out of level 1 and level 2 fair-value
measurements and information on purchases, sales, issuances, and settlements on
a gross basis in the reconciliation of level 3 fair-value measurements. The
guidance also clarified existing fair-value measurement disclosure about the
level of disaggregation, inputs, and valuation techniques. Except for the detail
level 3 roll forward disclosures, this guidance is effective for annual and
interim reporting beginning in the first quarter of 2010. The new disclosures
about purchases, sales, issuances and settlements in the roll forward activity
for level 3 fair-value measurements are effective for interim and annual
reporting beginning in the first quarter of 2011.




In June
of 2009, an amendment was issued providing guidance regarding the consolidation
of variable interest entities (“VIE”).  It requires reporting entities
to evaluate former qualified special purpose entities for consolidation, changes
the approach to determining a VIE’s primary beneficiary from a quantitative
assessment to a qualitative assessment designed to identify a controlling
financial interest, and increases the frequency of required reassessment to
determine whether a company is the primary beneficiary of a VIE.  It
also clarifies, but does not significantly change, the characteristics that
identify a VIE.  This guidance requires additional year-end and
interim disclosures for public and nonpublic companies.  This
amendment was effective for annual and interim reporting periods beginning after
November 15, 2009.  The adoption of this guidance had no impact on our
financial statements.





12





13.    Subsequent
Event





In April
2010, PVR sold $300.0 million of unsecured senior notes due on April 15, 2018
(the “PVR Senior Notes”) with an annual interest rate of 8.25% which is payable
semi-annually in arrears on April 15 and October 15 of each year. The PVR Senior
Notes were sold at par, equating to an effective yield to maturity of
approximately 8.25%. The net proceeds from the sale of the PVR Senior Notes of
approximately $292.6 million, after deducting fees and expenses of approximately
$7.4 million, were used to repay borrowings under the PVR Revolver. PVR may
redeem some or all of the PVR Senior Notes at any time on or after April 15,
2014 at the redemption prices set forth in the Supplemental Indenture governing
the PVR Senior Notes and prior to such date at a “make-whole” redemption price.
PVR may also redeem up to 35% of the PVR Senior Notes prior to April 15, 2013
with cash proceeds received from certain equity offerings. If PVR sells certain
assets and does not reinvest the proceeds or repay senior indebtedness or if PVR
experiences a change of control, they must offer to repurchase the PVR
Senior Notes. The PVR Senior Notes are senior to any subordinated indebtedness,
and are effectively subordinated to all of PVR’s secured indebtedness including
the PVR Revolver to the extent of the collateral securing that indebtedness. The
obligations under the PVR Senior Notes are fully and unconditionally guaranteed
by PVR’s current and future subsidiaries, which are also guarantors under the
PVR Revolver.




Subsequent
to the March 31, 2010 sale of 10 million of our common units by Penn
Virginia, the underwriters of the sale exercised their option to purchase
an additional 1.25 million of our common units.  This
reduced Penn Virginia’s limited partner ownership interest in us to
22.6%.  We did not receive any of the proceeds from this option
exercise.




13




Forward-Looking
Statements




Certain
statements contained herein that are not descriptions of historical facts are
“forward-looking” statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended, or Exchange Act. Because such statements include risks,
uncertainties and contingencies, actual results may differ materially from those
expressed or implied by such forward-looking statements. These risks,
uncertainties and contingencies include, but are not limited to, the
following:
  
 ·
              the volatility of commodity
      prices for natural gas,natural gas liquids, or NGLs and
    coal;
 
 ·
              PVR’s
      ability to access external sources of
capital;
 
 ·
              any
      impairment writedowns of PVR’s
assets;
 
 ·
              the
      relationship between natural gas, NGL and coal
  prices;
 
 ·
              the
      projected demand for and supply of natural gas, NGLs and
    coal;
 
 ·
              competition
      among producers in the coal industry generally and among natural gas
      midstream companies;
 
 ·
              the
      extent to which the amount and quality of actual production of PVR’s coal
      differs from estimated recoverable coal
  reserves;
 
 ·
              PVR’s
      ability to generate sufficient cash from its businesses to maintain and
      pay the quarterly distribution to its general partner and its
      unitholders;
 
 ·
              the
      experience and financial condition of PVR’s coal lessees and natural gas
      midstream customers, including PVR’s lessees’ ability to satisfy their
      royalty, environmental, reclamation and other obligations to PVR and
      others;
 
 ·
              operating
      risks, including unanticipated geological problems, incidental to PVR’s
      coal and natural resource management or natural gas midstream
      business;
 
 ·
              PVR’s
      ability to acquire new coal reserves or natural gas midstream assets and
      new sources of natural gas supply and connections to third-party pipelines
      on satisfactory terms;
 
 ·
              PVR’s
      ability to retain existing or acquire new natural gas midstream customers
      and coal lessees;
 
 ·
              the
      ability of PVR’s lessees to produce sufficient quantities of coal on an
      economic basis from PVR’s reserves and obtain favorable contracts for such
      production;
 
 ·
              the
      occurrence of unusual weather or operating conditions including force
      majeure events;
 
 ·
              delays
      in anticipated start-up dates of PVR’s lessees’ mining operations and
      related coal infrastructure projects and new processing plants in the PVR
      natural gas midstream segment’s
business;
 
 ·
              environmental
      risks affecting the mining of coal reserves or the production, gathering
      and processing of natural gas;
 
 ·
              the
      timing of receipt of necessary governmental permits by PVR or its
      lessees;
 
 ·
              hedging
      results;
 
 ·
              accidents;
 
 ·
              changes
      in governmental regulation or enforcement practices, especially with
      respect to environmental, health and safety matters, including with
      respect to emissions levels applicable to coal-burning power
      generators;
 
 ·
              uncertainties
      relating to the outcome of current and future litigation regarding mine
      permitting;
 
 ·
              risks
      and uncertainties relating to general domestic and international economic
      (including inflation, interest rates and financial and credit markets) and
      political conditions (including the impact of potential terrorist
      attacks); and·
              other
      risks set forth in Item 1A of this report and in our Annual Report on
      Form 10-K for the year ended December 31,
2009.


14




Additional
information concerning these and other factors can be found in our press
releases and public periodic filings with the Securities and Exchange
Commission, including our Annual Report on Form 10-K for the year ended December
31, 2009. Many of the factors that will determine our future results are beyond
the ability of management to control or predict. Readers should not place undue
reliance on forward-looking statements, which reflect management’s views only as
of the date hereof. We undertake no obligation to revise or update any
forward-looking statements, or to make any other forward-looking statements,
whether as a result of new information, future events or otherwise.


15





Item
2    Management’s Discussion and Analysis
of Financial Condition and Results of Operations




The
following discussion and analysis of the financial condition and results of
operations of Penn Virginia GP Holdings, L.P. and its subsidiaries (the
“Partnership,” “we,” “us” or “our”) should be read in conjunction with our
Condensed Consolidated Financial Statements and Notes thereto in Item
1.  All dollar amounts presented in the tables that follow are in
thousands unless otherwise indicated.





Overview
of Our Business




General




We are a
publicly traded Delaware limited partnership formed by Penn Virginia
Corporation, or Penn Virginia, in June 2006.  Our only cash generating
assets consist of our interests in Penn Virginia Resource Partners, L.P., or
PVR, which consist of the following:




·
            a
      2% general partner interest in PVR, which we hold through our 100%
      ownership interest in Penn Virginia Resource GP, LLC, PVR’s general
      partner;




·
            all
      of the incentive distribution rights, or IDRs, in PVR, which we hold
      through our 100% ownership interest in PVR’s general partner;
      and




·
            19,587,049
      common units of PVR, representing an approximately 37% limited partner
      interest in PVR.





All of
our cash flows are generated from the cash distributions we receive with respect
to the PVR equity interests we own.  PVR is required by its
partnership agreement to distribute, and it has historically distributed within
45 days of the end of each quarter, all of its cash on hand at the end of each
quarter, less cash reserves established by its general partner in its sole
discretion to provide for the proper conduct of PVR’s business or to provide for
future distributions.  While we, like PVR, are structured as a limited
partnership, our capital structure and cash distribution policy differ
materially from those of PVR.  Most notably, our general partner does
not have an economic interest in us and is therefore not entitled to receive any
distributions from us, and our capital structure does not include
IDRs.  Accordingly, our distributions are allocated exclusively to our
common units.




Because
we control the general partner of PVR, the financial results of PVR are included
in our condensed consolidated financial statements.  However, we and
PVR both function with capital structures that are independent of each other,
with both of us having publicly traded common units and PVR having its own debt
instruments.  We do not have any debt instruments on a stand-alone
basis.




Financial
Presentation




We
reflect our ownership interest in PVR on a consolidated basis, which means that
our financial results are combined with PVR’s financial results.  The
approximately 61% limited partner interest in PVR that we do not own, after the
effect of IDRs, is reflected as noncontrolling interests in our results of
operations.  We have no separate operating activities apart from those
conducted by PVR, and our cash flows currently consist of distributions from PVR
on the partner interests, including the IDRs, that we
own.  Accordingly, the discussion and analysis of our financial
position and results of operations in this “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” reflects the operating
activities and results of operations of PVR.




Overview
of PVR’s Business




PVR is a
publicly traded Delaware limited partnership formed by Penn Virginia in 2001
that is principally engaged in the management of coal and natural resource
properties and the gathering and processing of natural gas in the United
States.




Key
Developments




16





During
the three months ended March 31, 2010, the following general business
developments and corporate actions had an impact, or will have impact, on the
financial reporting of PVR’s results of operations.  A discussion of
these key developments follows:




2010
Commodity Prices





The
average commodity prices for natural gas, crude oil and natural gas liquids, or
NGLs, increased for the three months ended March 31, 2010 from the same period
of 2009. NGLs refer to ethane, propane, iso butane, normal butane and pentane.
The pricing of these commodities directly and indirectly drive PVR’s
earnings.




Coal
royalties, which accounted for 84% of the PVR coal and natural resource
management segment revenues for the three months ended March 31, 2010 and 80%
for the same period in 2009, were lower as compared to 2009. Realized coal
royalty per ton by region were slightly higher than 2009, but decreases in
production in the higher royalty rate regions offset these higher royalty
rates.  PVR continues to benefit from long-term contract prices our
lessees previously negotiated with their customers. However, the state of the
global economy, including financial and credit markets, has reduced worldwide
demand for coal with resultant price declines. Depending on the longevity of the
market deterioration, demand for coal may continue to decline, which could
adversely affect production and pricing for coal mined by PVR’s
lessees.




Revenues,
profitability and the future rate of growth of PVR’s 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 demand.
As part of PVR’s risk management strategy, PVR uses derivative financial
instruments to economically hedge NGLs sold and natural gas purchased. PVR’s
derivative financial instruments include costless collars and swaps. Based upon
current volumes, PVR has entered into hedging arrangements covering
approximately 60% and 58% of its commodity-sensitive volumes in 2010 and 2011.
PVR generally targets hedging 50% to 60% of its commodity-sensitive volumes
covering a two-year period.




PVR
Midstream Agreement with Range Resources





On March
10, 2010, PVR Midstream and Range Resources Corporation, or Range, entered into
an agreement to construct and operate gas gathering pipelines and compression
facilities servicing Range in the Marcellus Shale development in
Pennsylvania.





PVR
Midstream and Range have agreed to an area of mutual interest, or AMI, that
covers parts of Lycoming, Tioga and Bradford Counties in north central
Pennsylvania, in which the producer currently holds a substantial acreage
position.  Within this AMI, PVR Midstream will construct gathering
trunklines, smaller-diameter field gathering lines and compression facilities
required to gather production from the AMI.  The agreement provides
significant firm gathering capacity in the system, and PVR Midstream will be
compensated for the gathering and compression services provided through a
combination of firm reservation charges and additional fees based on delivered
volumes.  Excess capacity on the system and the location within a core
area of Marcellus Shale development may provide opportunities for PVR Midstream
to develop additional revenues by providing gathering and compression services
to other third-party producers in the area.





PVR
Midstream’s total capital investment in this system is anticipated to be in
the  range of $170 to $200 million and is expected to be expended
between 2010 and 2015, with $35 to $40 million planned for 2010.




PVR
Midstream Agreement to Construct Gas Gathering and Compression
Facilities





On March
1, 2010, PVR Midstream entered into an agreement to construct and operate gas
gathering pipelines and compression facilities servicing a private firm’s
Marcellus Shale natural gas production in Wyoming County,
Pennsylvania.  Pursuant to the terms of the agreement, PVR Midstream
will construct a gathering pipeline and compression facilities with the
potential for additional system extensions.  PVR Midstream’s 2010
capital investment in this system is anticipated to be in the  range
of $6 to $7 million, with potential future system extensions costing up to an
additional  $10 million.




17





Penn
Virginia Sale of PVG Units





On March
31, 2010, Penn Virginia sold 10 million of our common units,
constituting approximately 26% of our common units.  Following such
sale, Penn Virginia owned the general partner interest in us and approximately
25.8% of our common units.  Subsequent to the March 31, 2010 sale, the
underwriters of the sale exercised their option to purchase an additional
1.25 million of our common units reducing Penn Virginia’s limited partner
ownership interest in us to 22.6%.  We did not receive any of the
proceeds from this option exercise.





Changes
in Our Management




In
connection with Penn Virginia’s reduction of its limited partner interest in us,
we implemented certain changes in management, as described below.




On March
8, 2010, A. James Dearlove resigned from his position as Chief Executive Officer
of Penn Virginia Resource GP, LLC, or PVR GP, PVR's general partner, and on
March 9, 2010, he resigned from his position as President and Chief Executive
Officer of PVG GP, LLC, or PVG GP, our general partner.  On March
8, 2010, the board of directors of PVR GP appointed William H. Shea, Jr. to the
position of Chief Executive Officer of PVR GP, and on March 9, 2010 the board of
directors of PVG GP appointed Mr. Shea to the positions of President and Chief
Executive Officer of PVG GP.




On March
23, 2010, Frank A. Pici resigned from his position as Vice President and Chief
Financial Officer of PVR GP, and his position as Vice President and Chief
Financial Officer of PVG GP.  On March 23, 2010, the board of
directors of PVR GP appointed Robert B. Wallace to the position of Executive
Vice President and Chief Financial Officer of PVR GP, and the board of directors
of PVG GP appointed Mr. Wallace to the position of Executive Vice President and
Chief Financial Officer of PVG GP.




On March
31, 2010, A. James Dearlove, Frank A. Pici and Nancy M. Snyder each resigned
from their positions as directors on the board of directors of PVR
GP.  On March 31, 2010, Mr. Shea was appointed as a director on the
board of directors of PVR GP and on the board of directors of PVG
GP.




PVR
Senior Notes Offering




In April
2010, PVR sold $300.0 million of unsecured senior notes due on April 15, 2018,
or PVR Senior Notes, with an annual interest rate of 8.25% which is payable
semi-annually in arrears on April 15 and October 15 of each year. The PVR Senior
Notes were sold at par, equating to an effective yield to maturity of
approximately 8.25%. The net proceeds from the sale of the PVR Senior Notes of
approximately $292.6 million, after deducting fees and expenses of approximately
$7.4 million, were used to repay borrowings under the PVR Revolver. PVR may
redeem some or all of the PVR Senior Notes at any time on or after April 15,
2014 at the redemption prices set forth in the Supplemental Indenture governing
the PVR Senior Notes and prior to such date at a “make-whole” redemption price.
PVR may also redeem up to 35% of the PVR Senior Notes prior to April 15, 2013
with cash proceeds received from certain equity offerings.  If PVR
sells certain assets and does not reinvest the proceeds or repay senior
indebtedness or if PVR experiences a change of control, PVR must offer to
repurchase the PVR Senior Notes. The PVR Senior Notes are senior to any
subordinated indebtedness, and are effectively subordinated to all of PVR’s
secured indebtedness including PVR's revolving credit facility, or PVR
Revolver, to the extent of the collateral securing that indebtedness. The
obligations under the PVR Senior Notes are fully and unconditionally guaranteed
by PVR’s current and future subsidiaries, which are also guarantors under the
PVR Revolver.


Liquidity
and Capital Resources




We rely
exclusively on distributions from PVR to fund our general and administrative
costs of being a public company. On an ongoing basis, PVR generally satisfies
its working capital requirements and funds its capital expenditures using cash
generated from its operations, borrowings under the PVR Revolver and proceeds
from PVR equity offerings. PVR funds its debt service obligations and
distributions to unitholders solely using cash generated from its operations.
PVR believes that the cash generated from its operations and its borrowing
capacity will be sufficient to meet its working capital requirements and
anticipated capital expenditures (other than major capital improvements or
acquisitions). PVR believes that the cash generated from its operations will be
sufficient to meet its scheduled debt payments under the PVR Revolver and its
distribution payments.




PVR’s
ability to satisfy its obligations and planned expenditures will depend upon its
future operating performance, which will be affected by prevailing economic
conditions in the coal industry and natural gas midstream market, some of which
are beyond PVR’s control.




Cash
Flows




18




The
following table summarizes our cash flows statements for the periods
presented:
  Three Months Ended March
31,2010
                    
                    
                    2009Cash
      flows from operating activities:Net
      income contribution
                    
                    $
                    13,682
                    
                    
                    $
                    8,942Adjustments
      to reconcile net income to net cash provided by operating activities
      (summarized)
                    
                    
                    26,641
                    
                    
                    
                    25,679Net
      changes in operating assets and liabilities
                    
                    
                    8,199
                    
                    
                    
                    (962
                    )Net
      cash provided by operating activities
                    
                    
                    48,522
                    
                    
                    
                    33,659Net
      cash used in investing activities
                    
                    
                    (7,714
                    )
                    
                    
                    (18,041
                    )Net
      cash used in financing activities
                    
                    
                    (32,153
                    )
                    
                    
                    (12,246
                    )Net
      increase in cash and cash equivalents
                    
                    $
                    8,655
                    
                    
                    $
                    3,372
 
 Cash
Flows From Operating Activities
  Changes
to our working capital and to our current ratio are largely affected by net cash
provided by PVR’s operating activities. Net cash provided by PVR’s operating
activities primarily came from the following sources:
  PVR
coal and natural resource management segment:
 •
              the
      collection of coal royalties;
 •
              the
      sale of standing timber;
 •
              the
      collection of coal transportation, or wheelage,
  fees;
 •
              distributions
      received from PVR’s equity investees;
and
 •
              settlements
      from the PVR Interest Rate Swaps.
  PVR
natural gas midstream segment:
 •
              the
      collection of revenues from natural gas processing contracts with natural
      gas producers;
 •
              the
      collection of revenues from PVR’s natural gas marketing business;
      and
 •
              settlements
      from PVR’s natural gas midstream commodity
  derivatives.
  PVR uses
the cash provided by operating activities in the PVR coal and natural resource
management segment and the PVR natural gas midstream segment in the following
ways:
 •
              operating
      expenses, such as core-hole drilling costs and repairs and maintenance
      costs;
 •
              taxes
      other than income, such as severance and property
  taxes;
 •
              general
      and administrative expenses, such as office rentals, staffing costs and
      legal fees;
 •
              interest
      on debt service obligations;
 •
              capital
      expenditures;
 •
              repayments
      of borrowings; and
 •
              distributions
      to PVR’s partners.
  On a
stand-alone basis, our working capital and current ratio are primarily affected
by cash distributions that we pay to our partners.
  The
overall increase in net cash provided by operating activities in the three
months ended March 31, 2010 as compared to the same period in 2009 was driven by
an increase in the PVR natural gas midstream segment’s gross
margin.  Higher commodity prices for natural gas as well as NGLs
increased PVR’s margins even though lower throughput volumes were experienced
for the comparative periods.  The increase was partially offset by a
decrease in operating income, before depreciation, depletion and amortization
(“DD&A”) expense from the PVR coal and natural resource management segment
primarily due to decreases in coal royalties and minimum rental
forfeitures.
  Cash
Flows From Investing Activities
  19
  We do not
own any property, plant and equipment on a stand-alone basis, nor did we have
investing activities on a stand-alone basis for the three months ended March 31,
2010 and 2009. Net cash used by PVR in investing activities were primarily for
capital expenditures. The following table sets forth PVR’s capital expenditures
programs, by segment, for the periods presented:
  Three Months Ended
                      March 31,2010
                    
                    
                    2009Coal
      and natural resource managementAcquisitions
                    
                    $
                    29
                    
                    
                    $
                    1,256Other
      property and equipment expenditures
                    
                    
                    3
                    
                    
                    
                    44Total
                    
                    
                    32
                    
                    
                    
                    1,300Natural
      gas midstreamExpansion
      capital expenditures
                    
                    
                    7,400
                    
                    
                    
                    11,200Other
      property and equipment expenditures
                    
                    
                    1,857
                    
                    
                    
                    3,282Total
                    
                    
                    9,257
                    
                    
                    
                    14,482Total
      capital expenditures
                    
                    $
                    9,289
                    
                    
                    $
                    15,782
  PVR’s
capital expenditures for the three months ended March 31, 2010 and 2009
consisted primarily of natural gas midstream expansion capital used to increase
its operational footprint in its Panhandle System.
  Cash
Flows From Financing Activities
  During
the three months ended March 31, 2010, PVR had net repayments of outstanding
borrowings of $2.0 million under the PVR Revolver.  During the same
period of 2009, PVR had net borrowings of $27.0 million used to finance
expansion projects.  Our quarterly distributions to partners were
$30.2 million and $30.0 million for the three months ended March 31, 2010 and
1009.
  Certain
Non-GAAP Financial Measures
  We use
non-GAAP measures to evaluate our business and performance.  None of
these measures should be considered an alternative to, or more meaningful than,
net income, operating income, cash flows from operating activities or any other
measure of financial performance or liquidity presented in accordance with GAAP,
or as indicators of our operating performance or liquidity.
  The
following tables present the calculation of distributable cash to us and
reconciliation of net income attributable to us with respect to the periods
presented:
  20
  Three
      Months EndedMarch 31,2010 (a)
                                        
                                        
                                        2009Calculation of Non-GAAP "Distributable
      cash"Distributable
      cash:Cash
      distributions received from PVR associated with:2%
      general partner interest
                                        
                                        $
                                        498
                                        
                                        
                                        $
                                        497General
      partner incentive distribution rights
                                        
                                        
                                        6,046
                                        
                                        
                                        
                                        6,035PVR
      common units
                                        
                                        
                                        9,206
                                        
                                        
                                        
                                        9,206Total
      cash received from PVR
                                        
                                        
                                        15,750
                                        
                                        
                                        
                                        15,738Deduct:  Net
      expenses of PVG on a stand-alone basis (b)
                                        
                                        
                                        (969
                                        )
                                        
                                        
                                        (526
                                        )Cash
      reserve for working capital
                                        
                                        
                                        458
                                        
                                        
                                        
                                        (364
                                        )Distributable
      cash (c)
                                        
                                        $
                                        15,239
                                        
                                        
                                        $
                                        14,848Cash
      distributions paid to partners of PVGTo
      Penn Virginia Corporation
                                        
                                        $
                                        3,930
                                        
                                        
                                        $
                                        11,429To
      public unitholders
                                        
                                        
                                        11,309
                                        
                                        
                                        
                                        3,419Total
      cash distributions paid
                                        
                                        $
                                        15,239
                                        
                                        
                                        $
                                        14,848Distribution
      per limited partner unit (paid in subsequent period)
                                        
                                        $
                                        0.39
                                        
                                        
                                        $
                                        0.38Weighted-average
      units outstanding, basic and diluted
                                        
                                        
                                        39,075
                                        
                                        
                                        
                                        39,075Three
      Months EndedMarch 31,2010
                                        
                                        
                                        2009Reconciliation of GAAP "Net income" to Non-GAAP
      "Net incomeas adjusted"Net
      income attributable to PVG
                                        
                                        $
                                        8,425
                                        
                                        
                                        $
                                        6,849Adjustments
      for derivatives:Derivative
      losses included in net income
                                        
                                        
                                        8,150
                                        
                                        
                                        
                                        7,615Cash
      receipts (payments) to settle derivatives for period
                                        
                                        
                                        (1,646
                                        )
                                        
                                        
                                        2,836Impact
      of adjustments on noncontrolling interests (d)
                                        
                                        
                                        (2,334
                                        )
                                        
                                        
                                        (2,310
                                        )Net
      income attributable to PVG, as adjusted (e)
                                        
                                        $
                                        12,595
                                        
                                        
                                        $
                                        14,990Net
      income attributable to PVG, as adjusted, per limited partner
      unit,basic
      and diluted
                                        
                                        $
                                        0.32
                                        
                                        
                                        $
                                        0.38
  
 (a)
              The
      three months ended March 31, 2010 column represents cash distributions
      expected to be received from PVR and cash distributions expected to be
      paid to our unitholders in May
2010.
 (b)
              Estimated
      net expenses of PVG, which represent general and administrative expenses,
      partially offset by interest
income.
 (c)
              Distributable
      cash represents cash distributions received from PVR, minus our net
      expenses, minus cash reserve for working capital.  Distributable
      cash is presented because we believe it is a useful adjunct to net income
      under GAAP.  Distributable cash is a significant liquidity
      metric which is an indicator of our ability to pay quarterly cash
      distributions to our limited partners.  Distributable cash is
      also the quantitative standard used throughout the investment community
      with respect to publicly traded partnerships.  Distributable
      cash is not a measure of financial performance under GAAP and should not
      be considered as an alternative to cash flows from operating, investing or
      financing activities, as an indicator of cash flows, as a measure of
      liquidity or as an alternative to net
income.
 (d)
              Noncontrolling
      interests in net income adjusts for the effects of incentive distribution
      rights and reflects the noncontrolling interests percentage of net income.
      The ratio of net income and net
  21
  income
attributable to noncontrolling interests calculated on a GAAP basis was used to
estimate the impact of adjustments on noncontrolling interests.  A pro
forma calculation of net income attributable to noncontrolling interests was not
performed.
 (e)
              Net
      income as adjusted represents net income adjusted to exclude the effects
      of non-cash changes in the fair value of derivatives, and adjustments for
      an estimate of the related noncontrolling interests.  We believe
      this presentation  is commonly used by investors and
      professional research analysts in the valuation, comparison, rating and
      investment recommendations of companies in the  natural gas
      midstream industry.  We use this information for comparative
      purposes within the industry.  Net income as adjusted is not a
      measure of financial performance under GAAP and should not be considered
      as a measure of liquidity or as an alternative to net
    income.
  Sources
of Liquidity
 
 Long-Term
Debt
  As of
March 31, 2010, we had no outstanding borrowings other than the borrowings of
PVR discussed below, which are included in our Condensed Consolidated Financial
Statements.
  PVR Revolver.  As
of March 31, 2010, net of outstanding borrowings of $618.1 million and letters
of credit of $1.6 million, PVR had remaining borrowing capacity of $180.3
million on the PVR Revolver.  After giving effect to the PVR Senior
Notes offering noted below, PVR’s remaining borrowing capacity is $472.9
million.  The PVR Revolver matures in December 2011 and is available
to PVR for general purposes, including working capital, capital expenditures and
acquisitions, and includes a $10.0 million sublimit for the issuance of letters
of credit.  The interest rate under the PVR Revolver fluctuates based
on the ratio of PVR’s total indebtedness-to-EBITDA.  Interest is
payable at a base rate plus an applicable margin of up to 1.25% if PVR selects
the base rate borrowing option or at a rate derived from the London Interbank
Offered Rate, or LIBOR, plus an applicable margin ranging from 1.75% to 2.75% if
PVR selects the LIBOR-based borrowing option.  The weighted average
interest rate on borrowings outstanding under the PVR Revolver during the three
months ended March 31, 2010 was approximately 2.5%.  PVR does not have
a public rating for the PVR Revolver.  A discussion of the applicable
covenants and related compliance with respect to the PVR Revolver is provided in
the discussion of Financial Condition that follows.
 
 PVR Interest Rate
Swaps.  PVR has entered
into the PVR Interest Rate Swaps to establish fixed rates on a portion of the
outstanding borrowings under the PVR Revolver. The following table sets forth
the PVR Interest Rate Swap positions as of March 31, 2010:
  Notional
      Amounts
                    
                    
                    Swap Interest Rates (1)Term
                    
                    (in millions)
                    
                    
                    Pay
                    
                    ReceiveMarch
      2010 - December 2011
                    
                    $
                    250.0
                    
                    
                    
                    3.37
                    %
                    LIBORDecember
      2011 - December 2012
                    
                    $
                    100.0
                    
                    
                    
                    2.09
                    %
                    LIBOR
  
 (1) 
References to LIBOR represent the 3-month rate.
  The PVR
Interest Rate Swaps extend one year past the maturity of the current PVR
Revolver. After considering the applicable margin of 2.25% in effect as of March
31, 2010 the total interest rate on the $250 million portion of the PVR Revolver
borrowings covered by the PVR Interest Rate Swaps was 5.62% as of March 31,
2010.
  PVR Senior
Notes.In April 2010, PVR sold $300.0 million of unsecured
senior notes due on April 15, 2018 with an annual interest rate of 8.25% which
is payable semi-annually in arrears on April 15 and October 15 of each year. The
PVR Senior Notes were sold at par, equating to an effective yield to maturity of
approximately 8.25%. The net proceeds from the sale of the PVR Senior Notes of
approximately $292.6 million, after deducting fees and expenses of approximately
$7.4 million, were used to repay borrowings under the PVR Revolver. PVR may
redeem some or all of the PVR Senior
  22
  Notes at
any time on or after April 15, 2014 at the redemption prices set forth in the
Supplemental Indenture governing the PVR Senior Notes and prior to such date at
a “make-whole” redemption price. PVR may also redeem up to 35% of the PVR Senior
Notes prior to April 15, 2013 with cash proceeds received from certain equity
offerings.  If PVR sells certain assets and does not reinvest the
proceeds or repay senior indebtedness or if PVR experiences a change of
control, PVR must offer to repurchase the Senior Notes. The PVR Senior Notes are
senior to any subordinated indebtedness, and are effectively subordinated to all
of PVR’s secured indebtedness including the PVR Revolver to the extent of the
collateral securing that indebtedness. The obligations under the PVR Senior
Notes are fully and unconditionally guaranteed by PVR’s current and future
subsidiaries, which are also guarantors under the PVR Revolver.
  Financial
Condition
  Covenant
Compliance
  The terms
of the PVR Revolver require PVR to maintain financial covenants. These covenants
are as follows:
  •
              Total
      debt to consolidated EBITDA may not exceed 5.25 to 1.0. EBITDA, which is a
      non-GAAP measure, is generally defined in the PVR Revolver as PVR’s net
      income plus interest expense (net of interest income), depreciation,
      depletion and amortization expenses, and non-cash hedging activity and
      impairments.
 •
              Consolidated
      EBITDA to interest expense may not be less than 2.5 to
  1.0.
  As of
March 31, 2010 and through the date of this filing, PVR was in compliance with
all of the PVR Revolver’s covenants. The following table summarizes the actual
results of PVR’s covenant compliance for the period ended March 31,
2010:
  Description
      of Covenant
                    
                    Covenant
                    
                    
                    Actual
                      ResultsDebt
      to EBITDA
                    
                    
                    5.25
                    
                    
                    
                    3.28EBITDA
      to interest expense
                    
                    
                    2.50
                    
                    
                    
                    7.62
  In the
event that PVR would be in default of its covenants under the PVR Revolver, PVR
could appeal to the banks for a waiver of the covenant default. Should the banks
deny PVR’s appeal to waive the covenant default, the outstanding borrowings
under the PVR Revolver would become payable upon demand and would be
reclassified to the current liabilities section of the Condensed Consolidated
Balance Sheets. The PVR Revolver prohibits PVR from making distributions to its
partners if any potential default, or event of default, as defined in the PVR
Revolver, occurs or would result from the distributions.
  In
addition, the PVR Revolver contains various covenants that limit PVR’s ability
to incur indebtedness, grant liens, make certain loans, acquisitions and
investments, make any material change to the nature of PVR’s business or enter
into a merger or sale of PVR’s assets, including the sale or transfer of
interests in PVR’s subsidiaries.
  Future
Capital Needs and Commitments
  Currently,
we have no capital requirements. In the future, we may decide to facilitate PVR
acquisitions and other capital expenditures by the issuance of debt or
equity.
  After
giving effect to the PVR Senior Notes offering noted above, PVR believes that
its remaining borrowing capacity of approximately $472.9 million will be
sufficient for its 2010 capital needs and commitments. PVR’s short-term cash
requirements for operating expenses and quarterly distributions to us, as the
owner of PVR’s general partner, and unitholders are expected to be funded
through operating cash flows. In 2010, PVR anticipates making capital
expenditures, excluding acquisitions, of approximately $105.0 million, including
anticipated maintenance capital of $16.0 million to $18.0 million. The majority
of the 2010 capital expenditures are expected to be incurred in the
PVR
  23
  natural
gas midstream segment. PVR intends to fund these capital expenditures with a
combination of operating cash flows and borrowings under the PVR Revolver.
Long-term cash requirements for acquisitions and other capital expenditures are
expected to be funded by operating cash flows, borrowings under the PVR Revolver
and the issuances of additional debt and equity securities if available under
commercially acceptable terms.
  Part of
PVR’s long-term strategy is to increase cash available for distribution to PVR’s
unitholders by making acquisitions and other capital expenditures. PVR’s ability
to make these acquisitions and other capital expenditures in the future will
depend largely on the availability of debt financing and on PVR’s ability to
periodically use equity financing through the issuance of new common units.
Future financing will depend on various factors, including prevailing market
conditions, interest rates and PVR’s financial condition and credit
rating.
  Results
of Operations
 
 Consolidated
Review
  The
following table presents summary consolidated results for the periods
presented:
  Three Months Ended March 31,2010
                        
                        
                        2009Revenues
                        
                        $
                        206,478
                        
                        
                        $
                        156,759Expenses
                        
                        
                        179,720
                        
                        
                        
                        135,369Operating
      income
                        
                        
                        26,758
                        
                        
                        
                        21,390Other
      income (expense)
                        
                        
                        (13,076
                        )
                        
                        
                        (12,448
                        )Net
      income
                        
                        $
                        13,682
                        
                        
                        $
                        8,942Net
      income attributable to noncontrolling interests
                        
                        
                        (5,257
                        )
                        
                        
                        (2,093
                        )Net
      income attributable to Penn Virginia GP Holdings, L.P.
                        
                        $
                        8,425
                        
                        
                        $
                        6,849
  The
following table presents a summary of certain financial information relating to
our segments for the periods presented:
  PVR
                      Coal and Natural
                      Resource
                      Management
                    
                    
                    PVR
                      Natural Gas
                      Midstream
                    
                    
                    Corporate and
                      Other
                    
                    
                    ConsolidatedFor
      the Three Months Ended March 31, 2010:Revenues
                    
                    $
                    33,560
                    
                    
                    $
                    172,918
                    
                    
                    $
                    -
                    
                    
                    $
                    206,478Cost
      of midstream gas purchased
                    
                    
                    -
                    
                    
                    
                    (141,795
                    )
                    
                    
                    -
                    
                    
                    
                    (141,795
                    )Operating costs and expenses
                    
                    
                    (5,873
                    )
                    
                    
                    (13,246
                    )
                    
                    
                    (988
                    )
                    
                    
                    (20,107
                    )Depreciation,
      depletion and amortization
                    
                    
                    (7,326
                    )
                    
                    
                    (10,492
                    )
                    
                    
                    -
                    
                    
                    
                    (17,818
                    )Operating income
      (loss)
                    
                    $
                    20,361
                    
                    
                    $
                    7,385
                    
                    
                    $
                    (988
                    )
                    
                    $
                    26,758For
      the Three Months Ended March 31, 2009:Revenues
                    
                    $
                    38,252
                    
                    
                    $
                    118,507
                    
                    
                    $
                    -
                    
                    
                    $
                    156,759Cost
      of midstream gas purchased
                    
                    
                    -
                    
                    
                    
                    (100,620
                    )
                    
                    
                    -
                    
                    
                    
                    (100,620
                    )Operating costs and expenses
                    
                    
                    (5,884
                    )
                    
                    
                    (11,825
                    )
                    
                    
                    (537
                    )
                    
                    
                    (18,246
                    )Depreciation,
      depletion and amortization
                    
                    
                    (7,394
                    )
                    
                    
                    (9,109
                    )
                    
                    
                    -
                    
                    
                    
                    (16,503
                    )Operating income
      (loss)
                    
                    $
                    24,974
                    
                    
                    $
                    (3,047
                    )
                    
                    $
                    (537
                    )
                    
                    $
                    21,390
  24
  PVR
Coal and Natural Resource Management Segment
  Three
Months Ended March 31, 2010 Compared with Three Months Ended March 31,
2009
 
 The
following table sets forth a summary of certain financial and other data for the
PVR coal and natural resource management segment and the percentage change for
the periods presented:
  Three Months Ended
                                    March 31,
                                  
                                  
                                  Favorable
                                  
                                  
                                  %2010
                                  
                                  
                                  2009
                                  
                                  
                                  (Unfavorable)
                                  
                                  
                                  ChangeFinancial HighlightsRevenuesCoal
      royalties
                                  
                                  $
                                  28,226
                                  
                                  
                                  $
                                  30,630
                                  
                                  
                                  $
                                  (2,404
                                  )
                                  
                                  
                                  (8
                                  )%Coal
      services
                                  
                                  
                                  1,973
                                  
                                  
                                  
                                  1,888
                                  
                                  
                                  
                                  85
                                  
                                  
                                  
                                  5
                                  %Timber
                                  
                                  
                                  1,305
                                  
                                  
                                  
                                  1,317
                                  
                                  
                                  
                                  (12
                                  )
                                  
                                  
                                  (1
                                  )%Oil
      and gas royalty
                                  
                                  
                                  744
                                  
                                  
                                  
                                  703
                                  
                                  
                                  
                                  41
                                  
                                  
                                  
                                  6
                                  %Other
                                  
                                  
                                  1,312
                                  
                                  
                                  
                                  3,714
                                  
                                  
                                  
                                  (2,402
                                  )
                                  
                                  
                                  (65
                                  )%Total
      revenues
                                  
                                  
                                  33,560
                                  
                                  
                                  
                                  38,252
                                  
                                  
                                  
                                  (4,692
                                  )
                                  
                                  
                                  (12
                                  )%ExpensesCoal
      royalties
                                  
                                  
                                  1,456
                                  
                                  
                                  
                                  1,224
                                  
                                  
                                  
                                  (232
                                  )
                                  
                                  
                                  (19
                                  )%Other
      operating
                                  
                                  
                                  515
                                  
                                  
                                  
                                  883
                                  
                                  
                                  
                                  368
                                  
                                  
                                  
                                  42
                                  %Taxes
      other than income
                                  
                                  
                                  475
                                  
                                  
                                  
                                  425
                                  
                                  
                                  
                                  (50
                                  )
                                  
                                  
                                  (12
                                  )%General
      and administrative
                                  
                                  
                                  3,427
                                  
                                  
                                  
                                  3,352
                                  
                                  
                                  
                                  (75
                                  )
                                  
                                  
                                  (2
                                  )%Depreciation,
      depletion and amortization
                                  
                                  
                                  7,326
                                  
                                  
                                  
                                  7,394
                                  
                                  
                                  
                                  68
                                  
                                  
                                  
                                  1
                                  %Total
      expenses
                                  
                                  
                                  13,199
                                  
                                  
                                  
                                  13,278
                                  
                                  
                                  
                                  79
                                  
                                  
                                  
                                  1
                                  %Operating
      income
                                  
                                  $
                                  20,361
                                  
                                  
                                  $
                                  24,974
                                  
                                  
                                  $
                                  (4,613
                                  )
                                  
                                  
                                  (18
                                  )%Other dataCoal
      royalty tons by regionCentral
      Appalachia
                                  
                                  
                                  3,929
                                  
                                  
                                  
                                  4,658
                                  
                                  
                                  
                                  (729
                                  )
                                  
                                  
                                  (16
                                  )%Northern
      Appalachia
                                  
                                  
                                  1,038
                                  
                                  
                                  
                                  1,057
                                  
                                  
                                  
                                  (19
                                  )
                                  
                                  
                                  (2
                                  )%Illinois
      Basin
                                  
                                  
                                  1,082
                                  
                                  
                                  
                                  1,261
                                  
                                  
                                  
                                  (179
                                  )
                                  
                                  
                                  (14
                                  )%San
      Juan Basin
                                  
                                  
                                  2,194
                                  
                                  
                                  
                                  1,772
                                  
                                  
                                  
                                  422
                                  
                                  
                                  
                                  24
                                  %Total
                                  
                                  
                                  8,243
                                  
                                  
                                  
                                  8,748
                                  
                                  
                                  
                                  (505
                                  )
                                  
                                  
                                  (6
                                  )%Coal
      royalties revenues by regionCentral
      Appalachia
                                  
                                  $
                                  18,530
                                  
                                  
                                  $
                                  21,683
                                  
                                  
                                  $
                                  (3,153
                                  )
                                  
                                  
                                  (15
                                  )%Northern
      Appalachia
                                  
                                  
                                  1,950
                                  
                                  
                                  
                                  1,951
                                  
                                  
                                  
                                  (1
                                  )
                                  
                                  
                                  (0
                                  )%Illinois
      Basin
                                  
                                  
                                  2,942
                                  
                                  
                                  
                                  3,241
                                  
                                  
                                  
                                  (299
                                  )
                                  
                                  
                                  (9
                                  )%San
      Juan Basin
                                  
                                  
                                  4,804
                                  
                                  
                                  
                                  3,755
                                  
                                  
                                  
                                  1,049
                                  
                                  
                                  
                                  28
                                  %$
                                  28,226
                                  
                                  
                                  $
                                  30,630
                                  
                                  
                                  $
                                  (2,404
                                  )
                                  
                                  
                                  (8
                                  )%Less
      coal royalties expenses (1)
                                  
                                  
                                  (1,456
                                  )
                                  
                                  
                                  (1,224
                                  )
                                  
                                  
                                  (232
                                  )
                                  
                                  
                                  (19
                                  )%Net
      coal royalties revenues
                                  
                                  $
                                  26,770
                                  
                                  
                                  $
                                  29,406
                                  
                                  
                                  $
                                  (2,636
                                  )
                                  
                                  
                                  (9
                                  )%Coal
      royalties per ton by region ($/ton)Central
      Appalachia
                                  
                                  $
                                  4.72
                                  
                                  
                                  $
                                  4.66
                                  
                                  
                                  $
                                  0.06
                                  
                                  
                                  
                                  1
                                  %Northern
      Appalachia
                                  
                                  
                                  1.88
                                  
                                  
                                  
                                  1.85
                                  
                                  
                                  
                                  0.03
                                  
                                  
                                  
                                  2
                                  %Illinois
      Basin
                                  
                                  
                                  2.72
                                  
                                  
                                  
                                  2.57
                                  
                                  
                                  
                                  0.15
                                  
                                  
                                  
                                  6
                                  %San
      Juan Basin
                                  
                                  
                                  2.19
                                  
                                  
                                  
                                  2.12
                                  
                                  
                                  
                                  0.07
                                  
                                  
                                  
                                  3
                                  %$
                                  3.42
                                  
                                  
                                  $
                                  3.50
                                  
                                  
                                  $
                                  (0.08
                                  )
                                  
                                  
                                  (2
                                  )%Less
      coal royalties expenses (1)
                                  
                                  
                                  (0.17
                                  )
                                  
                                  
                                  (0.14
                                  )
                                  
                                  
                                  (0.03
                                  )
                                  
                                  
                                  (21
                                  )%Net
      coal royalties revenues
                                  
                                  $
                                  3.25
                                  
                                  
                                  $
                                  3.36
                                  
                                  
                                  $
                                  (0.11
                                  )
                                  
                                  
                                  (3
                                  )%
  
  (1)
              PVR’s
      coal royalties expense is incurred primarily in the Central Appalachian
      region.
  25
  Revenues
  Coal
royalties revenues decreased due to a shift in production mix to lower royalty
leases, primarily to fixed rate leases in the San Juan Basin from the higher
royalty Central Appalachian region.  The average royalty rates
received in all regions was relatively consistent for the comparative
periods.
 
 Coal
production decreased due to lower longwall mining operations in the Central
Appalachian region as operations moved onto adjacent reserves and the closure of
a mine in the Illinois Basin due to adverse geological
conditions.  These production decreases were partially offset by
production increases in the San Juan Basin resulting from the start up of a mine
during 2009 and improved mining conditions.
  Other
revenues, which consisted primarily of wheelage fees, forfeiture income and
management fees, decreased due to forfeited minimum rentals recognized in the
first quarter of 2009 for a property that was not mined in the statutory time
period.
  Expenses
  Coal
royalties expenses increased due to an increase in mining activity by PVR’s
lessees from subleased properties in the Central Appalachian region where PVR’s
coal royalties expense is primarily incurred.  Mining activity on
PVR’s subleased property fluctuates between periods due to the proximity of
PVR’s property boundaries and those of other mineral owners.
  Operating
expenses decreased due to the timing of core hole drilling and other geological
studies of coal seams and reserves.
  DD&A
expenses were relatively consistent for the comparative periods.  On a
per ton basis, coal depletion increased to $0.62 per ton in the first quarter of
2010 from $0.57 per ton in the first quarter of 2009.  The increase in
depletion rates was offset by the decrease in production.
  26
  PVR
Natural Gas Midstream Segment
 
 Three
Months Ended March 31, 2010 Compared with Three Months Ended March 31,
20009
 
 The
following table sets forth a summary of certain financial and other data for the
PVR natural gas midstream segment and the percentage change for the periods
presented:
 
 Three Months Ended March
31,
                          
                          
                          Favorable2010
                          
                          
                          2009
                          
                          
                          (Unfavorable)
                          
                          
                          % ChangeFinancial HighlightsRevenuesResidue
      gas
                          
                          $
                          94,896
                          
                          
                          $
                          81,194
                          
                          
                          $
                          13,702
                          
                          
                          
                          17
                          %Natural
      gas liquids
                          
                          
                          66,643
                          
                          
                          
                          30,606
                          
                          
                          
                          36,037
                          
                          
                          
                          118
                          %Condensate
                          
                          
                          6,736
                          
                          
                          
                          2,903
                          
                          
                          
                          3,833
                          
                          
                          
                          132
                          %Gathering,
      processing and transportation fees
                          
                          
                          2,334
                          
                          
                          
                          2,676
                          
                          
                          
                          (342
                          )
                          
                          
                          (13
                          )%Total
      natural gas midstream revenues (1)
                          
                          
                          170,609
                          
                          
                          
                          117,379
                          
                          
                          
                          53,230
                          
                          
                          
                          45
                          %Equity
      earnings in equity investment
                          
                          
                          1,683
                          
                          
                          
                          1,119
                          
                          
                          
                          564
                          
                          
                          
                          50
                          %Producer
      services
                          
                          
                          626
                          
                          
                          
                          9
                          
                          
                          
                          617
                          
                          
                          
                          6856
                          %Total
      revenues
                          
                          
                          172,918
                          
                          
                          
                          118,507
                          
                          
                          
                          54,411
                          
                          
                          
                          46
                          %ExpensesCost
      of midstream gas purchased (1)
                          
                          
                          141,795
                          
                          
                          
                          100,620
                          
                          
                          
                          (41,175
                          )
                          
                          
                          (41
                          )%Operating
                          
                          
                          7,292
                          
                          
                          
                          6,783
                          
                          
                          
                          (509
                          )
                          
                          
                          (8
                          )%Taxes
      other than income
                          
                          
                          1,043
                          
                          
                          
                          798
                          
                          
                          
                          (245
                          )
                          
                          
                          (31
                          )%General
      and administrative
                          
                          
                          4,911
                          
                          
                          
                          4,244
                          
                          
                          
                          (667
                          )
                          
                          
                          (16
                          )%Depreciation
      and amortization
                          
                          
                          10,492
                          
                          
                          
                          9,109
                          
                          
                          
                          (1,383
                          )
                          
                          
                          (15
                          )%Total
      operating expenses
                          
                          
                          165,533
                          
                          
                          
                          121,554
                          
                          
                          
                          (43,979
                          )
                          
                          
                          (36
                          )%Operating
      income
                          
                          $
                          7,385
                          
                          
                          $
                          (3,047
                          )
                          
                          $
                          10,432
                          
                          
                          
                          342
                          %Operating StatisticsSystem
      throughput volumes (MMcf)
                          
                          
                          27,725
                          
                          
                          
                          32,280
                          
                          
                          
                          (4,555
                          )
                          
                          
                          (14
                          )%Daily
      throughput volumes (MMcfd)
                          
                          
                          308
                          
                          
                          
                          359
                          
                          
                          
                          (51
                          )
                          
                          
                          (14
                          )%Gross
      margin
                          
                          $
                          28,814
                          
                          
                          $
                          16,759
                          
                          
                          $
                          12,055
                          
                          
                          
                          72
                          %Cash
      impact of derivatives
                          
                          
                          780
                          
                          
                          
                          3,792
                          
                          
                          
                          (3,012
                          )
                          
                          
                          (79
                          )%Gross
      margin, adjusted for impact of derivatives
                          
                          $
                          29,594
                          
                          
                          $
                          20,551
                          
                          
                          $
                          9,043
                          
                          
                          
                          44
                          %Gross
      margin ($/Mcf)
                          
                          $
                          1.04
                          
                          
                          $
                          0.52
                          
                          
                          $
                          0.52
                          
                          
                          
                          100
                          %Cash
      impact of derivatives ($/Mcf)
                          
                          
                          0.03
                          
                          
                          
                          0.12
                          
                          
                          
                          (0.09
                          )
                          
                          
                          (75
                          )%Gross
      margin, adjusted for impact of derivatives ($/Mcf)
                          
                          $
                          1.07
                          
                          
                          $
                          0.64
                          
                          
                          $
                          0.43
                          
                          
                          
                          67
                          %
  
  (1)
              In
      the three months ended March 31, 2010 and 2009, PVR recorded $18.2 million
      and $21.2 million of natural gas midstream revenues and $18.2 million and
      $21.2 million for the cost of midstream gas purchased related to the
      purchase of natural gas from Penn Virginia Oil & Gas, L.P. and the
      subsequent sale of that gas to third parties.  PVR take title to
      the gas prior to transporting it to third parties.  These
      transactions do not impact the gross
margin.
 
 Gross
Margin
  Gross
margin is the difference between PVR’s natural gas midstream revenues and PVR’s
cost of midstream gas purchased. Natural gas midstream revenues included residue
gas sold from processing plants after NGLs were removed, NGLs sold after being
removed from system throughput volumes received, condensate collected and sold
and gathering and other fees primarily from natural gas volumes connected to
PVR’s gas processing plants. Cost of midstream gas purchased consisted of
amounts payable to third-party producers for natural gas purchased under
percentage-of-proceeds and gas purchase/keep-whole contracts.
  27
  The gross
margin increase was a result of higher commodity pricing and higher
fractionation, or frac, spreads partially offset by decreased system throughput
volumes.  Frac spreads are the difference between the price of NGLs
sold and the cost of natural gas purchased on a per MMBtu basis.  Not
all of PVR’s system throughput volumes are processed through gas processing
plants as some of PVR’s systems are only gathering facilities.  Of the
systems with gas processing capabilities, PVR's processed volumes remained
relatively consistent for the comparative periods.  Processed volumes
at PVR’s Crossroads facility increased due to the addition of new producer gas,
which was offset by a decrease in processed volumes at PVR’s other processing
facilities due to lack of producer drilling and natural declines of natural gas
production.
  PVR
generated a majority of its gross margin from contractual arrangements under
which the gross margin is exposed to increases and decreases in the price of
natural gas and NGLs. As part of PVR’s risk management strategy, PVR uses
derivative financial instruments to economically hedge NGLs sold and natural gas
purchased. On a per Mcf basis, adjusted for the impact of PVR commodity
derivative instruments, PVR’s gross margin increased by $0.43, or 67% as
compared to the three months ended March 31, 2009. This favorable increase was
moderately impacted by commodity derivatives as a result of higher commodity
prices during the first quarter of 2010.
  Revenues
Other Than Gross Margin
  Equity
earnings in equity investment have grown due to mainline volume increases in the
Powder River Basin.  Producer services revenues increased due to the
relative increase in commodity prices.
  Expenses
  Operating
expenses increased due to PVR’s prior and current years’ acquisitions, expansion
projects, compressor rentals and labor costs. Increased costs for compressor
rentals and labor costs were incurred due to expanding PVR’s footprint in the
Panhandle System.
  Taxes
other than income increased due to higher property taxes. The increase in
property taxes was a result of PVR’s acquisitions and plant
expansions.
  General
and administrative expenses increased due to increased staffing and related
benefit costs.
  Depreciation
and amortization expenses increased primarily due to PVR’s acquisitions and
capital expansions on the Panhandle System, including the Sweetwater plant
acquisition and Spearman plant construction.
  Other
 
 Our other
results consist of interest expense and derivative gains and
losses.  The following table sets forth a summary of certain financial
data for our other results for the periods presented:
 
 Three Months Ended March
31,2010
                    
                    
                    2009Operating
      income
                    
                    $
                    26,758
                    
                    
                    $
                    21,390Other
      income (expense)Interest
      expense
                    
                    
                    (5,835
                    )
                    
                    
                    (5,616
                    )Other
                    
                    
                    327
                    
                    
                    
                    329Derivatives
                    
                    
                    (7,568
                    )
                    
                    
                    (7,161
                    )Net
      income
                    
                    $
                    13,682
                    
                    
                    $
                    8,942
 
 Interest
Expense.  Interest expense is comprised of the following for
the periods presented:
  28
  Three Months Ended March
31,Source
                      
                      2010
                      
                      
                      2009Interest
      on Revolver
                      
                      $
                      3,869
                      
                      
                      $
                      4,277Debt
      issuance costs and other
                      
                      
                      1,384
                      
                      
                      $
                      591Capitalized
      interest
                      
                      
                      -
                      
                      
                      
                      (77
                      )Interest
      rate swaps
                      
                      
                      582
                      
                      
                      
                      825Total
      interest expense
                      
                      $
                      5,835
                      
                      
                      $
                      5,616
  Interest
expense incurred on borrowings under the PVR Revolver for the three months ended
March 31, 2010 decreased from the comparative period in 2009 due to lower
interest rates.  This decrease was more than offset by the effects of
an increase in PVR’s weighted average borrowings due to PVR’s capital spending
program and an increase in non-cash interest expense related to debt issuance
costs incurred in March 2009.  The PVR Interest Rate Swaps, which
establish fixed interest rates on a portion of the outstanding borrowings under
the PVR Revolver, have also increased the total interest expense.
  Derivatives.  PVR’s
results of operations and operating cash flows were impacted by changes in
market prices affecting fair values for NGL, crude oil and natural gas prices,
as well as the PVR Interest Rate Swaps.
  Commodity
markets are volatile, and as a result, PVR’s hedging activity results can vary
significantly.  PVR’s results of operations are affected by the
volatility of changes in fair value, which fluctuate with changes in NGL, crude
oil and natural gas prices.  PVR determines the fair values of its
commodity derivative agreements based on discounted cash flows based on quoted
forward prices for the respective commodities.  The discounted cash
flows utilize discount rates adjusted for the credit risk of PVR’s
counterparties for derivatives in an asset position and PVR’s own credit risk
for derivatives in a liability position.
  During
the first quarter of 2009, PVR discontinued hedge accounting for all of the PVR
Interest Rate Swaps.  Accordingly, subsequent fair value gains and
losses for the PVR Interest Rate Swaps are recognized in the derivatives caption
on our Condensed Consolidated Statements of Income.
  PVR’s
derivative activity for the periods presented is summarized below:
  Three Months Ended March
31,2010
                    
                    
                    2009PVR
      Interest Rate Swap unrealized derivative loss
                    
                    $
                    (704
                    )
                    
                    $
                    (158
                    )PVR
      Interest Rate Swap realized derivative loss
                    
                    
                    (2,426
                    )
                    
                    
                    (956
                    )Natural
      gas midstream commodity unrealized derivative loss
                    
                    
                    (5,218
                    )
                    
                    
                    (9,839
                    )Natural
      gas midstream commodity realized derivative gain
                    
                    
                    780
                    
                    
                    
                    3,792Total
      derivative loss
                    
                    $
                    (7,568
                    )
                    
                    $
                    (7,161
                    )
 
 Environmental
Matters
  PVR’s
operations and those of its coal lessees are subject to environmental laws and
regulations adopted by various governmental authorities in the jurisdictions in
which these operations are conducted.  The terms of PVR’s coal
property leases impose liability on the relevant lessees for all environmental
and reclamation liabilities arising under those laws and
regulations.  The lessees are bonded and have indemnified PVR against
any and all future environmental liabilities.  PVR regularly visits
its coal properties to monitor lessee compliance with environmental laws and
regulations and to review mining activities.  PVR’s management
believes that its operations and those of its lessees comply with existing laws
and regulations and does not expect any environment-related material adverse
impact on its financial condition or results of operations.
  As of
March 31, 2010 and December 31, 2009, PVR’s environmental liabilities were $1.0
million, which represents PVR’s best estimate of the liabilities as of those
dates related to its coal and natural resource management and natural gas
midstream businesses.  PVR has reclamation bonding requirements with
respect to certain unleased and inactive properties.  Given the
uncertainty of when a reclamation area will meet regulatory standards, a change
in this estimate could occur in the future.
  29
  Critical
Accounting Estimates
  The
process of preparing financial statements in accordance with accounting
principles generally accepted in the United States of America requires our
management to make estimates and judgments regarding certain items and
transactions.  It is possible that materially different amounts could
be recorded if these estimates and judgments change or if the actual results
differ from these estimates and judgments.  Our most critical
accounting estimates which involve the judgment of our management were
fully disclosed in our Annual Report on Form 10-K for the year ended December
31, 2009 and remained unchanged as of March 31, 2010.
  New
Accounting Standards
  See Note
12 to the Condensed Consolidated Financial Statements for a description
of new accounting standards.
  30
  Item
3    Quantitative and Qualitative
Disclosures About Market Risk
 
 Market
risk is the risk of loss arising from adverse changes in market rates and
prices.  The principal market risks to which PVR is exposed are as
follows:
  ·
              Price
      Risk
  ·
              Interest
      Rate Risk
  ·
              Customer
      Credit Risk
  As a
result of PVR’s risk management activities as discussed below, PVR is also
exposed to counterparty risk with financial institutions with whom PVR enters
into these risk management positions.  Sensitivity to these risks has
heightened due to the deterioration of the global economy, including financial
and credit markets.
  PVR has
completed a number of acquisitions in recent years.  In conjunction
with PVR’s accounting for these acquisitions, it was necessary for PVR to
estimate the values of the assets acquired and liabilities assumed, which
involved the use of various assumptions. The most significant assumptions, and
the ones requiring the most judgment, involve the estimated fair values of
property, plant and equipment, and the resulting amount of goodwill, if any.
Changes in operations, further decreases in commodity prices, changes in the
business environment or further deteriorations of market conditions could
substantially alter management’s assumptions and could result in lower estimates
of values of acquired assets or of future cash flows. If these events occur, it
is reasonably possible that we could record a significant impairment loss on our
Condensed Consolidated Statements of Income.
  Price
Risk
  PVR’s
price risk management program permits the utilization of derivative financial
instruments (such as futures, forwards, option contracts and swaps) to seek to
mitigate the price risks associated with fluctuations in natural gas, NGL and
crude oil prices as they relate to the PVR natural gas midstream
segment.  The derivative financial instruments are placed with major
financial institutions that PVR believes are of acceptable credit
risk.  The fair values of PVR’s price derivative financial instruments
are significantly affected by fluctuations in the prices of natural gas, NGLs
and crude oil.
  At March
31, 2010, PVR reported a net commodity derivative liability related to the PVR
natural gas midstream segment of $8.5 million that is with six counterparties
and is substantially concentrated with four of those
counterparties.  This concentration may impact PVR’s overall credit
risk, either positively or negatively, in that these counterparties may be
similarly affected by changes in economic or other conditions.  PVR
neither paid nor received collateral with respect to its derivative
positions.  No significant uncertainties related to the collectability
of amounts owed to PVR exist with regard to these counterparties.
  For the
three months ended March 31, 2010, PVR reported net derivative losses of $7.6
million.  Because PVR no longer uses cash flow hedge accounting for
its commodity derivatives, we recognize changes in fair value in earnings
currently in the derivatives caption on the Condensed Consolidated Statements of
Income.  PVR has experienced and could continue to experience
significant changes in the estimate of derivative gains or losses recognized due
to fluctuations in the value of its commodity derivative
contracts.  PVR’s results of operations are affected by the volatility
of unrealized gains and losses and changes in fair value, which fluctuate with
changes in natural gas, crude oil and NGL prices.  These fluctuations
could be significant in a volatile pricing environment.  See Note 4 to
the Condensed Consolidated Financial Statements for a further description of our
derivatives program.
  The
following table lists PVR’s commodity derivative agreements and their fair
values as of March 31, 2010:
  31
  Average
                            
                            
                            
                            
                            
                            
                            
                            
                            Fair
      Value atVolume Per
                            
                            
                            
                            
                            
                            Weighted Average Price
                            
                            
                            March
      31,Day
                            
                            
                            Swap Price
                            
                            
                            Put
                            
                            
                            Call
                            
                            
                            2010Crude
      Oil Collar
                            
                            (barrels)
                            
                            
                            
                            
                            
                            ($
      per barrel)Second
      Quarter 2010 through Fourth Quarter 2010
                            
                            
                            1,750
                            
                            
                            
                            
                            
                            $
                            68.86
                            
                            
                            $
                            80.54
                            
                            
                            $
                            (3,309
                            )First
      Quarter 2011 through Fourth Quarter 2011
                            
                            
                            400
                            
                            
                            
                            
                            
                            $
                            75.00
                            
                            
                            $
                            98.50
                            
                            
                            $
                            35Natural
      Gas Purchase Swap
                            
                            (MMBtu)
                            
                            
                            ($
      per MMBtu)Second
      Quarter 2010 through Fourth Quarter 2010
                            
                            
                            7,100
                            
                            
                            $
                            5.885
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            $
                            (3,133
                            )First
      Quarter 2011 through Fourth Quarter 2011
                            
                            
                            6,500
                            
                            
                            $
                            5.796
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            $
                            (1,043
                            )Ethane
      Swap
                            
                            (gallons)
                            
                            
                            ($
      per gallon)Second
      Quarter 2010
                            
                            
                            72,000
                            
                            
                            $
                            0.735
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            $
                            1,062NGL
      - Natural Gasoline Collar
                            
                            (gallons)
                            
                            
                            
                            
                            
                            
                            ($
      per gallon)Third
      Quarter 2010 through Fourth Quarter 2010
                            
                            
                            42,000
                            
                            
                            
                            
                            
                            
                            $
                            1.55
                            
                            
                            $
                            2.03
                            
                            
                            $
                            (212
                            )First
      Quarter 2011 through Fourth Quarter 2011
                            
                            
                            95,000
                            
                            
                            
                            
                            
                            
                            $
                            1.57
                            
                            
                            $
                            1.94
                            
                            
                            $
                            (2,025
                            )Settlements
      to be received in subsequent period
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            $
                            171$
                            (8,454
                            )
  PVR
estimates that a $5.00 per barrel increase in the crude oil price would decrease
the fair value of PVR’s crude oil collars by $2.5 million.  PVR
estimates that a $5.00 per barrel decrease in the crude oil price would increase
the fair value of PVR’s crude oil collars by $2.2 million.  PVR
estimates that a $1.00 per MMBtu increase in the natural gas price would
increase the fair value of PVR’s natural gas purchase swap by $4.1
million.  PVR estimates that a $1.00 per MMBtu decrease in the natural
gas price would decrease the fair value of PVR’s natural gas purchase swap by
$4.1 million. PVR estimates that a $0.10 per gallon increase in the natural
gasoline (an NGL) price would decrease the fair value of PVR’s natural gasoline
collar by $3.0 million. PVR estimates that a $0.10 per gallon decrease in the
natural gasoline price would increase the fair value of PVR’s natural gasoline
collar by $2.8 million.  PVR estimates that a $0.05 per gallon
increase in the ethane (an NGL) price would decrease the fair value of PVR’s
ethane swap by $0.3 million. PVR estimates that a $0.10 per gallon decrease in
the ethane price would increase the fair value of PVR’s ethane swap by $0.3
million.
  PVR
estimates that, excluding the effects of derivative positions described above,
for every $1.00 per MMBtu increase or decrease in the natural gas price, PVR’s
natural gas midstream gross margin and operating income for the remainder of
2010 would increase or decrease by $3.8 million.  In addition, PVR
estimates that for every $5.00 per barrel increase or decrease in the crude oil
price, PVR’s natural gas midstream gross margin and operating income for the
remainder of 2010 would increase or decrease by $5.9 million.  This assumes
that natural gas prices, crude oil prices and inlet volumes remain constant at
anticipated levels.  These estimated changes in PVR’s gross margin and
operating income exclude potential cash receipts or payments in settling these
derivative positions.
  Interest
Rate Risk
  As of
March 31, 2010, PVR had $618.1 million of outstanding indebtedness under the PVR
Revolver, which carries a variable interest rate throughout its
term.  PVR entered into the PVR Interest Rate Swaps to establish fixed
interest rates on a portion of the outstanding borrowings under the PVR
Revolver.  From March 2010 to December 2011, the notional amounts of
the PVR Interest Rate Swaps total $250.0 million, or 40.4% of PVR’s outstanding
indebtedness under the PVR Revolver as of March 31, 2010, with PVR paying a
weighted average fixed rate of 3.37% on the notional amount, and the
counterparties paying a variable rate equal to the three-month
LIBOR.  From December 2011 to December 2012, the notional amounts of
the PVR Interest Rate Swaps total $100.0 million, or 16.1% of PVR’s outstanding
indebtedness under the PVR Revolver as of March 31, 2010, with PVR paying a
weighted average fixed rate of 2.09% on the notional amount, and the
counterparties paying a variable rate equal to the three-month
LIBOR.  The PVR Interest Rate Swaps extend one year past the current
maturity of the PVR Revolver.  A 1% increase in short-term interest
rates on the floating rate debt outstanding under the PVR Revolver (net of
amounts fixed through the PVR Interest Rate Swaps) as of March 31, 2010 would
cost PVR approximately $3.7 million in additional interest expense per
year.
  32
  During
the first quarter of 2009, PVR discontinued hedge accounting for all of the PVR
Interest Rate Swaps. Accordingly, subsequent fair value gains and losses for the
PVR Interest Rate Swaps are recognized in earnings currently. Therefore, PVR’s
results of operations are affected by the volatility of changes in fair value,
which fluctuates with changes in interest rates. These fluctuations could be
significant. See Note 4 to the Condensed Consolidated Financial Statements for a
further description of PVR’s derivatives program.
  Customer
Credit Risk
  We are
exposed to the credit risk of PVR’s natural gas midstream customers and coal
lessees.  For the three months ended March 31, 2010, two of PVR’s
natural gas midstream segment customers accounted for $31.8 million and $21.7
million, or 15% and 11%, of our total consolidated revenues.  At March
31, 2010, 23% of our consolidated accounts receivable related to these
customers.  No significant uncertainties related to the collectability of
amounts owed to PVR exist in regard to these two natural gas midstream
customers.
  This
customer concentration increases PVR’s exposure
to credit risk on its accounts receivables, because the financial insolvency of
any of these customers could have a significant impact on PVR’s results of
operations.If PVR’s natural gas midstream customers or coal
lessees become financially insolvent, they may not be able to continue to
operate or meet their payment obligations to PVR.  Any material losses
as a result of customer or lessee defaults could harm and have an adverse effect
on PVR’s business, financial condition or results of
operations.  Substantially all of PVR’s trade accounts receivable are
unsecured.
  To
mitigate the risks of nonperformance by its natural gas midstream customers, PVR
performs ongoing credit evaluations of its existing customers.  PVR
monitors individual customer payment capability in granting credit arrangements
to new customers by performing credit evaluations, seek to limit credit to
amounts PVR believes the customers can pay and maintains reserves PVR believes
are adequate to cover exposure for uncollectible accounts.  As of
March 31, 2010, no receivables were collateralized, and PVR had a $0.6 million
allowance for doubtful accounts, of which the majority related to the PVR
natural gas midstream segment.
  33
  Item
4    Controls and
Procedures
 
 (a)  Disclosure
Controls and Procedures
  Under the
supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, we performed an evaluation of
the design and operation of our disclosure controls and procedures (as defined
in Rule 13a-15(e) of the Exchange Act) as of March 31, 2010.  Our
disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported accurately and on a
timely basis.  Based on that evaluation, our Chief Executive Officer
and our Chief Financial Officer concluded that, as of March 31, 2010, such
disclosure controls and procedures were effective.
  (b)  Changes
in Internal Control Over Financial Reporting
 
 No
changes were made in our internal control over financial reporting during our
last fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
  34
  PART
II.    OTHER INFORMATION
 
 Item
1A    Risk
Factors
  Concerns
about the environmental impacts of fossil-fuel emissions, including perceived
impacts on global climate change, are resulting in increased regulation of
emissions of greenhouse gases in many jurisdictions and increased interest in
and the likelihood of further regulation, which could significantly affect PVR’s
coal royalties revenues.
  Global
climate change continues to attract considerable public and scientific
attention. Several widely publicized scientific reports have engendered
widespread concern about the impacts of human activity, especially fossil fuel
combustion, on global climate change. Legislative attention in the United States
is being paid to global climate change and to reducing greenhouse gas emissions,
particularly from coal combustion by power plants. Such legislation was
introduced in Congress in the last several years to reduce greenhouse gas
emissions in the United States and further proposals or amendments are likely to
be offered in the future. In anticipation of the endangerment finding of the
Environmental Protection Agency, or the EPA, regarding greenhouse gas emissions
(which was finalized in December 2009), the agency proposed two sets of rules
regarding possible future regulation of greenhouse gas emissions under the Clean
Air Act. Enactment of laws, passage of regulations regarding greenhouse gas
emissions by the United States or some of its states, or other actions to limit
carbon dioxide emissions could result in electric generators switching from coal
to other fuel sources. This may adversely affect the use of and demand for
fossil fuels, particularly coal. Also, in 2009, the EPA announced that it will
consider whether to reclassify byproducts of coal combustion as hazardous waste.
It is not possible to determine with certainty the potential permitting
requirements or performance standards that may be imposed on the disposal of
coal combustion byproducts by future regulations or lawsuits. If rules are
adopted to regulate the management and disposal of these by-products, they could
add additional costs to the use of coal as a fuel and may encourage power plant
operators to switch to a different fuel.
  Delays
in PVR’s lessees obtaining mining permits and approvals, or the inability to
obtain required permits and approvals, could have an adverse effect on PVR’s
coal royalties revenues.
  Mine
operators, including PVR’s lessees, must obtain numerous permits and approvals
that impose strict conditions and obligations relating to various environmental
and safety matters in connection with coal mining. The permitting rules are
complex and can change over time. For example, on March 26, 2010, the EPA
announced a proposal to exercise its Section 404(c) “veto” power with
regard to the Spruce No. 1 Surface Mine in West Virginia, which was
previously permitted in 2007. This would be the first time the EPA’s
Section 404(c) “veto” power would be applied to a previously permitted
project. Moreover, on April 1, 2010, the EPA issued interim final guidance
substantially revising the environmental review of Section 402 and
Section 404 permits by state and federal agencies. As an example of the
significance of this guidance, the EPA also published on April 1, 2010 a
proposed determination to prohibit, restrict or deny a permit issued under
Section 404 to Mingo Logan Coal Company for the discharge of dredged fill
in connection with the construction of various fills and sedimentation ponds. Of
course, this guidance has just been issued and it remains to be seen how it will
be applied by the EPA and whether it will be subject to judicial challenge by
affected states or private parties. These initiatives have extended the time
required to obtain permits for coal mining and PVR anticipates further delays in
obtaining permits and that the costs associated with obtaining and complying
with those permits will increase substantially. It is possible that some
projects may not be able to obtain these permits because of the manner in which
these rules are being interpreted and applied. Limitations on PVR’s lessees’
ability to conduct their mining operations due to the inability to obtain or
renew necessary permits, or due to uncertainty, litigation or delays associated
with the eventual issuance of these permits, could have an adverse effect on
PVR’s coal royalties revenues.
  PVR’s
lessees’ mining operations are subject to extensive and costly laws and
regulations, which could increase operating costs and limit PVR’s lessees’
ability to produce coal, which could have an adverse effect on PVR’s coal
royalties revenues.
  PVR’s
lessees are subject to numerous and detailed federal, state and local laws and
regulations affecting coal mining operations, including laws and regulations
pertaining to employee health and safety, permitting and licensing requirements,
air quality standards, water pollution, plant and wildlife protection,
reclamation and restoration of mining properties after mining is completed, the
discharge of materials into the environment, surface subsidence from underground
mining and the effects that mining has on groundwater quality and availability.
Numerous
  35
  governmental
permits and approvals are required for mining operations. PVR’s lessees are
required to prepare and present to federal, state or local authorities data
pertaining to the effect or impact that any proposed exploration for or
production of coal may have upon the environment. The costs, liabilities and
requirements associated with these regulations may be significant and
time-consuming and may delay commencement or continuation of exploration or
production operations. Recent mining accidents in West Virginia and Kentucky
have received national attention and instigated responses at the state and
national level that are likely to result in increased scrutiny of current safety
practices and procedures at all mining operations, particularly underground
mining operations. Moreover, workplace accidents, such as the April 5,
2010, Upper Big Branch Mine, West Virginia incident, may result in more
stringent enforcement as well as the development of new laws and regulations.
The possibility exists that new laws or regulations (or judicial interpretations
of existing laws and regulations) may be adopted in the future that could
materially affect PVR’s lessees’ mining operations, either through direct
impacts such as new requirements impacting PVR’s lessees’ existing mining
operations, or indirect impacts such as new laws and regulations that discourage
or limit coal consumers’ use of coal. Any of these direct or indirect impacts
could have an adverse effect on PVR’s coal royalties revenues.
  Because
of extensive and comprehensive regulatory requirements, violations during mining
operations are not unusual in the industry and, notwithstanding compliance
efforts, PVR does not believe violations by its lessees can be eliminated
completely. Failure to comply with these laws and regulations may result in the
assessment of administrative, civil and criminal penalties, the imposition of
cleanup and site restoration costs and liens and, to a lesser extent, the
issuance of injunctions to limit or cease operations. PVR’s lessees may also
incur costs and liabilities resulting from claims for damages to property or
injury to persons arising from their operations. If PVR’s lessees are required
to pay these costs and liabilities and if their financial viability is affected
by doing so, then their mining operations and, as a result, PVR’s coal royalties
revenues, could be adversely affected.
  Expanding
the PVR natural gas midstream business by constructing new gathering systems,
pipelines and processing facilities subjects PVR to construction
risks.
  One of
the ways PVR may grow the PVR natural gas midstream business is through the
construction of additions to existing gathering, compression and processing
systems. The construction of a new gathering system or pipeline, the expansion
of an existing pipeline through the addition of new pipe or compression and the
construction of new processing facilities involve numerous regulatory,
environmental, political and legal uncertainties beyond PVR’s control and
require the expenditure of significant amounts of capital. PVR’s access to such
capital is currently adversely impacted by the state of the global economy,
including financial and credit markets. If PVR does undertake these projects,
they may not be completed on schedule, or at all, or at the anticipated cost.
Moreover, PVR’s revenues may not increase immediately upon the expenditure of
funds on a particular project. For example, the construction of gathering
facilities requires the expenditure of significant amounts of capital, which may
exceed PVR’s estimates. Generally, PVR may have only limited natural gas
supplies committed to these facilities prior to their construction. Moreover,
PVR may construct facilities to capture anticipated future growth in production
in a region in which anticipated production growth does not materialize. As a
result, there is the risk that new facilities, including the facilities PVR is
constructing in the Marcellus Shale formation in north central Pennsylvania
under PVR’s contract with Range Resources Corporation, or Range, may not be
able to attract enough natural gas to achieve its expected investment return,
which could have a material adverse effect on PVR’s business, results of
operations or financial condition.
  Federal
and/or state legislation and regulatory initiatives relating to hydraulic
fracturing could result in increased costs and additional operating restrictions
or delays in the exploitation of the Marcellus Shale formation, which may
adversely affect the supply of natural gas to our planned Marcellus Shale
system.
  The
United States Congress is currently considering legislation to amend the Safe
Drinking Water Act to eliminate an existing exemption for hydraulic fracturing
activities. Similar legislation is under consideration in various states,
including New York, and state environmental agencies may impose new requirements
on these practices under existing laws. Hydraulic fracturing involves the
injection of water, sand and additives under pressure into rock formation to
stimulate natural gas production. Range and other producers who are active in
the Marcellus Shale formation use hydraulic fracturing to produce commercial
quantities of natural gas and oil from shale formations such as the Marcellus
Shale. Depending on the legislation that may ultimately be enacted or the
regulations that may be adopted at the federal and/or state levels, exploration
and production activities that entail
  36
  hydraulic
fracturing could be subject to additional regulation and permitting
requirements, which could include public review and possibly even rights to
challenge permitting. Individually or collectively, such new legislation or
regulation could lead to operational delays or increased operating costs and
could result in additional burdens that could increase the costs and delay the
development of unconventional gas resources from shale formations which are not
commercial without the use of hydraulic fracturing. In this case, the ability of
such producers to supply our planned Marcellus Shale system with natural gas may
be diminished, which could, in turn, adversely affect our revenues.
  37
  Item 6
                          Exhibits10.1
                          Employment
      Agreement between Robert B. Wallace and Penn Virginia Resource GP, LLC
      dated March 23, 2010 (incorporated by reference to Exhibit 10.1 to Penn
      Virginia Resource Partners, L.P.’s Current Report on Form 8-K filed on
      March 24, 2010).10.2
                          Amended
      and Restated Employment Agreement between William H. Shea, Jr. and Penn
      Virginia Resource GP, LLC dated March 23, 2010 (incorporated by reference
      to Exhibit 10.2 to Penn Virginia Resource Partners, L.P.’s Current Report
      on Form 8-K filed on March 24, 2010).10.3
                          Underwriting
      Agreement dated March 26, 2010, among Penn Virginia GP Holdings, L.P., PVG
      GP, LLC and Penn Virginia Resource LP Corp. and Barclays Capital Inc, UBS
      Securities LLC, Wells Fargo Securities, LLC and Credit Suisse Securities
      (USA) LLC, as representatives of the several underwriters listed therein
      (incorporated by reference to Exhibit 1.1 to the Registrant’s Current
      Report on Form 8-K filed on March 31, 2010).12.1
                          Statement
      of Computation of Ratio of Earnings to Fixed Charges
      Calculation.31.1
                          Certification
      Pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a), as Adopted
      Pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002.31.2
                          Certification
      Pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a), as Adopted
      Pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002.32.1
                          Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.32.2
                          Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002.
  38
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
 PENN
      VIRGINIA GP HOLDINGS, L.P.By:
                      PVG
      GP, LLCDate:
                      May
      6, 2010
                      
                      By:
                      /s/ Robert B. WallaceRobert
      B. WallaceExecutive
      Vice President and Chief Financial OfficerDate:
                      May
      6, 2010
                      
                      By:
                      /s/ Forrest W. McNairForrest
      W. McNairVice
      President and
Controller
  39