PDC Energy (PDCE) Update - August 8
Posted: Thu Aug 08, 2019 1:54 pm
I have updated my forecast/valuation model for PDCE and it will be posted to the EPG website late today.
I am lowering my valuation $9/share to $58, but there is really no fundamental reason to do so. It is just the "geopolitical" risk of having most of their producing assets in Colorado that keeps a lid on the stock price.
In a nutshell:
> Most of their producing assets are in Colorado's DJ Basin.
> In 2018 their production increased 26.2% year-over-year. Based on their updated guidance PDC's production s/b up 22% to 24% this year.
> Their 2019 exit rate s/b approximately 145,000 Boepd (40.5% crude oil).
> Natural gas and NGL prices are depressed in the DJ Basin because of insufficient midstream processing and transportation. These problems s/b resolved within six months.
> Despite low gas and NGL prices, which should improve over the next six month, PDC should generate more than $850 million in cash flow from operations this year. That compares to their capital expenditure budget of $810 to $840 million. Free Cash Flow s/b over $50 million in 2H 2019.
> Based on my 2020 forecast, PDC should generate $1.1 to $1.2 Billion in cash flow from operations next year. < Based on 13.2% YOY production growth and $60/bbl WTI price. I'm assuming PDC's average gas price will be $2.00 in 2020 and NGL will average $16.00 < both are lower than they received in 2018.
First Call's price target is $50.52 today.
I am lowering my valuation $9/share to $58, but there is really no fundamental reason to do so. It is just the "geopolitical" risk of having most of their producing assets in Colorado that keeps a lid on the stock price.
In a nutshell:
> Most of their producing assets are in Colorado's DJ Basin.
> In 2018 their production increased 26.2% year-over-year. Based on their updated guidance PDC's production s/b up 22% to 24% this year.
> Their 2019 exit rate s/b approximately 145,000 Boepd (40.5% crude oil).
> Natural gas and NGL prices are depressed in the DJ Basin because of insufficient midstream processing and transportation. These problems s/b resolved within six months.
> Despite low gas and NGL prices, which should improve over the next six month, PDC should generate more than $850 million in cash flow from operations this year. That compares to their capital expenditure budget of $810 to $840 million. Free Cash Flow s/b over $50 million in 2H 2019.
> Based on my 2020 forecast, PDC should generate $1.1 to $1.2 Billion in cash flow from operations next year. < Based on 13.2% YOY production growth and $60/bbl WTI price. I'm assuming PDC's average gas price will be $2.00 in 2020 and NGL will average $16.00 < both are lower than they received in 2018.
First Call's price target is $50.52 today.