PDC Energy (PDCE) Q4 Results - Feb 28

[dan_s]

PDC's 4th quarter production and cash flow from operations came in higher than my forecast. Only negative that I see is that their production was a more "gassy" than I forecast. I am working on the forecast/valuation model now. - Dan

This morning (Feb. 28) Gabriele Sorbara at Williams Capital published a new report on PDCE. He rates it a BUY with a $55/share valuation.

DENVER, Feb. 27, 2019 (GLOBE NEWSWIRE) -- PDC Energy, Inc. ("PDC" or the "Company") (PDCE) today reported its 2018 full-year and fourth quarter operating and financial results and provided detailed 2019 guidance and preliminary 2020 outlook.

2018 Highlights

Full-year net cash from operating activities of approximately $890 million, a 49 percent increase compared to 2017.

Year-over-year production increase of 26 percent to 40.2 million barrels of oil equivalent (“MMBoe”) or approximately 110,000 Boe per day with a December exit rate of approximately 130,000 Boe per day.

Oil production of 17.0 million barrels (“MMBbls”), representing 42 percent of total production and a 32 percent increase from 2017.

Strengthened financial position including 2018 year-end liquidity of approximately $1.3 billion and a year-end leverage ratio, as defined by the Company’s revolving credit agreement, of 1.4 times compared to 1.9 times at year-end 2017.

Increase in year-end proved reserves of approximately 20 percent to 545 MMBoe, with all-sources reserve replacement of approximately 330 percent.

Added high-value Kersey inventory and consolidated Prairie Area of the Wattenberg Field through a strategic acreage trade that significantly enhances operational efficiencies through increased working interests and longer-laterals while reducing anticipated surface footprint.
CEO Commentary

President and Chief Executive Officer, Bart Brookman commented, “I’m very pleased with our team’s ability to exit 2018 on such a strong note and deliver a great fourth quarter. Our operating results underscore the value and potential of our high-quality portfolio. We have built tremendous momentum and established the foundation needed to execute upon what we deem to be a tremendous multi-year outlook.

“Our board and management remain aligned and focused on creating long-term shareholder value through capital discipline, free cash flow generation and returns-based investment, as seen in our approximate $150 million, or 15 percent reduction in capital investments in our 2019 capital plan compared to 2018. Our entire team is firmly committed to this operating philosophy and we expect to generate substantial free cash flow in excess of $100 million in 2020 in a $50 WTI environment. Further, we plan improvements to our executive compensation plan to reflect these corporate priorities through the institution of two new corporate metrics: cash flow per debt-adjusted share and free cash flow as a percent of total capital investment. These metrics, coupled with our existing capital efficiency, LOE and G&A per Boe and production metrics, will help us remain laser-focused on cost management while running a sustainable business model designed to create maximum long-term value for our shareholders.”

[dan_s]

PDC uses the Successful Efforts method of accounting and they have a lot of their oil hedged. This is why their quarterly reported net income has and will continue to flop all over the place. That is why you definitely need to focus on their cash flow from operations and production growth.

PDC's cash flow from operations per share:
2017A = $8.81
2018A = $12.22 with YOY production growth of 26.2%
2019E = $14.19 based on the midpoint for their production guidance (~22% YOY growth)
2020E = $17.99 my forecast and $17.09 First Call's forecast, which includes several very low estimates that are based on much lower oil prices than the strip price of oil today.

I have updated my forecast/valuation model for Q4 results and the company's guidance. My valuation stays at $74.00/share, but it should be higher. I am using just 5X operating cash flow to value the stock because of the "geopolitical risk" of most of their production being in Colorado. There are a growing number of "wackos" in Colorado that want to shut down all drilling operations. So far, the sane citizens are out-voting them.

PS: Per their year-end reserve report, PDC's proven reserves (just P1) have a PV10 value of $78.25/share.