PDC Energy (PDCE) Update - June 13

[dan_s]

This morning Stifel published a fresh report on PDCE. They have raised it to a BUY with a price target of $57/share.

Key Points

Stifel: "Our $57.00 target is based on a 30% discount to NAV which uses $57.86/bbl WTI in 2019, normalizing to a $65.00/bbl long-term price. Risks
to target price include commodity price, well performance, reserve assumptions, availability of capital, and regulatory/environmental risks."

Stifel's Forecast
Year / EPS / CFPS
2019: $2.88 / $13.70
2020: $5.64 / $17.15

Front End Loaded 2019 Plan
A LBRT crew will be released shortly as the 2H19 plan contemplates 2/0 rigs/frac crews in the
Delaware Basin compared to 3/1 in 1H19. The company will also place its HAL completion crew
in Wattenberg on holiday during Nov and Dec. The crew is one of the most efficient in the country,
averaging 16-18 stages per day. Delaware production is expected to increase sequentially in
2Q19 and 3Q19 before declining in 4Q19. Corporate wide volumes are expected to grow in
2Q19, by a greater amount in 3Q19, and flat in 4Q19, before declining in 1Q20.

Tweaking Production Estimates
Based on the expected timing of completions, we raise our 3Q19 and 3Q20 production estimates
and lower them for 4Q19 and 1Q20. Our 2019 production growth estimate of 20% remains
unchanged while our 2020 estimate of 11% is up from our prior forecast of 9%. Our 2Q19 capex
estimate of $265MM is 10% above consensus while our 3Q19/4Q19 estimates of $153MM/
$135MM are 15%/17% below.

Midstream Sale
PDCE recently sold its oil gathering system in Block 4 in Reeves County, TX, to Oryx Midstream
Services for $37MM with potential for up to another $15MM if turn-in-line (TIL) incentives (above
PDCE's plan) are met. The transaction, which has no volumes commitments, closed in May
2019 as did the company's previously announced $125MM water midstream divestiture to Water
Bridge. PDCE's $182MM gas infrastructure sale to Eagle Claw is expected to close shortly. The
Oryx transaction could lead to another agreement for PDCE's central area where it is currently
trucking oil. The water agreement will move disposal to the north, out of a region that has
experienced seismic activity. Proceeds from the midstream sales will pay off the revolver while
expected 2H19 free cash flow will be used to fund a $200MM stock buyback. Management is
not concerned about retiring the company's 2021 convertible notes at this point.

Wattenberg Operations
Year-to-date, the company has plugged about half of its 2019 target of 300 vertical wells.
Management noted that a competitor has been plugging wells without a rig by pumping cement
directly down production tubing. PDCE may follow this cost saving technique if it remains
successful. Management sees no issues in getting permits. Aside from a small area within an
urban development that can be reached from surface locations outside of the development,
PDCE's DJ Basin acreage is located in rural areas within Weld County. The company is
operating 3 Ensign electric rigs that are capable of running off power from the grid. One rig is
using oil based mud while the other 2 are drilling with water-based mud. Thus far, the benefits
of the oil based mud have not outweighed the extra cost. Large pads of ~20 wells are yielding
efficiencies as 4 to 5 wells are typically completed simultaneously.