PDC Energy (PDCE) Update - Oct 1

[dan_s]

PDCE sold off today on this news. Q3 production lower than expected, but IMO today's selloff was overdone. This company is generating a lot of FCF from operations. Read the last sentence first. I will update my forecast/valuation model on Saturday. My valuation will still be around $80/share.
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DENVER, Sept. 30, 2021 (GLOBE NEWSWIRE) -- PDC Energy, Inc. (“PDC” or the “Company”) (Nasdaq:PDCE) today provided several Company updates including preliminary third quarter operating results and revised 2021 full-year guidance. Further, the Company announced its third quarter earnings call, scheduled for Thursday, November 4, 2021.

2021 Third Quarter Highlights:

Anticipate total daily production between 197,000 and 200,000 barrels of oil equivalent (“BOE”) per day and daily oil production between 63,000 and 65,000 barrels (“Bbls”) per day.


Reduced total debt by $200 million through the September 2021 settlement of the Company’s 2021 Convertible Notes. PDC expects to exit the third quarter with less than $1.2 billion of total net debt and a leverage ratio of approximately 0.8x.

Full-Year 2021 Updated Guidance Highlights:

Anticipated total production near the bottom of the previous range of 190,000 to 195,000 Boe per day and oil production of 60,000 to 63,000 Bbls per day, below the previous range of 64,000 to 66,000 Bbls per day.


Anticipate second half 2021 adjusted free cash flow (“FCF”), a non-U.S. GAAP metric defined below, of more than $500 million assuming estimated third quarter price realizations and $70 per Bbl WTI oil, $5 per Mcf NYMEX natural gas and $30 NGL realizations in the fourth quarter.


Expect oil and gas capital investments between $550 to $600 million, unchanged from prior guidance.

PDC’s estimated third quarter production results of approximately 197,000 to 200,000 BOE per day and 63,000 to 65,000 Bbls per day represent sequential increases from the second quarter of approximately three percent and eight percent, respectively. Prior third quarter expectations were five to ten percent sequential growth in daily total production and 15 to 20 percent sequential growth in daily oil production. The lower-than-expected third quarter results are primarily due to less than anticipated Delaware Basin production as a result of tighter than optimal well spacing.

In 2021, PDC turned-in-line 18 Delaware Basin wells, which were drilled in 2019 and the first half of 2020 at average spacing of 14 to 16 wells per undeveloped section equivalent. PDC’s 2021 Delaware Basin drilling program reflects more relaxed spacing assumptions of approximately eight wells per undeveloped section equivalent, which should equate to increased productivity per-well and higher per-section net present value. The majority of the Company’s anticipated 2022 turn-in-lines reflect the more relaxed spacing design as they were drilled in 2021. The Company is currently evaluating and testing additional early-stage artificial lift methods as well as the potential impact to its basin-wide inventory as a result of more relaxed spacing, though it is expected to decrease compared to year-end 2020.

The Company anticipates fourth quarter 2021 daily total production and oil production to represent an increase of more than ten percent compared to the fourth quarter of 2020, resulting in anticipated full-year production towards the low-end of the previously guided range of 190,000 to 195,000 Boe per day. The Company’s full-year oil production guidance has been reduced to between 60,000 and 63,000 Bbls per day to reflect the aforementioned Delaware Basin well performance.

The Company’s multi-year outlook, including projected cumulative post-tax FCF of approximately $2.5 billion, debt reduction of approximately $1 billion, shareholder returns of more than $1 billion and capital investments between $600 and $650 million in 2022 and 2023 remain unchanged.

[dan_s]

Truist analyst Neal Dingmann lowered the firm's price target on PDC Energy to $63 from $67 but keeps a Buy rating on the shares.

The company's reduction in the production guidance was due to the effects of spacing too tightly in the Permian, with the management suggesting that a number of its Delaware wells declined more aggressively than internal expectations, the analyst tells investors in a research note. Dingmann adds however that while the production update was disappointing, the most important topic for PDC Energy remains permit approval in CO.

PDCE closed today at $43.38. < Less than 3X my adjusted operating cash flow forecast for 2021.

I have updated my forecast/valuation model for the fresh guidance from the company. Q3 production came in below expectations, but higher commodity prices make up for most of the revenue loss. My current valuation declines from $82 to $80 per share.

PDCE is still on track to generate over $900 million of free cash flow from operations this year and over $1.2 Billion of FCF in 2022 based on my forecast that assumes their realized commodity prices will be $61/bbl of crude oil, $3.25/mcf for natural gas and $23.50/bbl for NGLs. Based on today's strip prices, the commodity prices I am using for 2022 look too conservative.

My updated forecast/valuation model for PDCE will be posted to the EPG website on Saturday morning.