PDC Energy (PDCE) Price Target Raised

[dan_s]

Stifel morning report April 9:

Raising Target
We are raising our price target to $70 from $65 based primarily on lower well costs
and 2017 guidance. At today's Analyst Day presentation, management indicated
that recent SRL Niobrara completed well costs averaged $2.5mn, 9% below our
prior forecast of $2.75mn. The change causes us to raise our risked NAV estimate
10% to $70/share.
We are also raising our 2017 y/y production growth estimate to 20% from 7%
based on PDCE's "modest price recovery case" guidance. The change boosts our
2017 EPS/CFPS 43%/10%. The company trimmed its 2016 budget 2% at the
midpoint to $410-$440mn due to lower well costs and rescheduling of completions.

Increased Density Potential
Management is planning most of its future Wattenberg development on 20-24
wells/section spacing, implying upside to our NAV estimate (20 wells/section).
Eleven wells at the Becker Ranch pad spaced at a 22-well/section equivalent are
tracking above PDCE's 3-stream 440 MBoe SRL Middle Core type curve after 100
days online. The 26-well/section equivalent Rieder pad, located near
the Wattenberg Middle and Outer Core, is tracking between the company's Middle
and Outer Core type curves, in-line with internal expectations.

Improving Well Performance
PDCE increased its 3-stream SRL and MRL Middle Core type curve 11% and 14%
to 490 and 685 MBoe. Better completion techniques, including plug and perf, and
frac diverters are yielding higher production rates of 10-20% and 5-10%,
respectively.

Regulatory Discount Could Narrow
Management is confident that four ballot initiatives, including a mandatory 2,500-ft
setback from structures, will be defeated.

Reiterate Buy
The shares are valued at a 6% discount to our peer group (based on EV/2017 EBITDA and price/NAV) despite
the company's exceptional balance sheet (debt/TTM EBITDA of 0.9x), strong hedge book, and solid assets.

My valuation of PDCE is $88.00/share.