PDC Energy - Q3 Results

[dan_s]

Q3 production was 500 BOE per day above my forecast, but oil production was ~1,700 BOPD below my forecast. - Dan

DENVER, Nov. 06, 2017 (GLOBE NEWSWIRE) -- PDC Energy, Inc. ("PDC" or the "Company") (PDCE) today reported its 2017 third quarter operating and financial results.

Third Quarter 2017 Highlights

Production of 8.5 million barrels of oil equivalent (“MMBoe”), a 42 percent increase year-over-year; average daily production of approximately 92,500 barrels of oil equivalent (“Boe”).

Oil production of 3.4 million barrels (“MMBbls”), a 47 percent increase year-over-year.

Delaware Basin production averaged 12,845 Boe per day, a 28 percent increase from the second quarter of 2017.

Lease operating expense (“LOE”) of $2.98 in the third quarter of 2017 and $2.81 per Boe for the nine months ended September 30, 2017.

Announced strategic acreage trades and bolt-on acquisition in the Core Wattenberg Field, with expected closing dates in the fourth quarter of 2017.

Increased borrowing base to $1.1 billion in October 2017 while maintaining commitment level of $700 million; liquidity was approximately $836 million, including $136 million of cash as of September 30, 2017.

CEO Commentary

President and Chief Executive Officer, Bart Brookman commented, “The third quarter is a great example of PDC’s ability to generate value from a variety of sources. In addition to delivering impressive production growth of more than 40 percent year-over-year, we continued building operational momentum in the Delaware through strong well results in our Eastern and Central areas in the Wolfcamp A and B horizons. Of equal importance, we announced a strategic acreage trade and bolt-on acquisition in the Core Wattenberg that we expect to close in the fourth quarter. These transactions project to not only increase our inventory and consolidate our acreage position, but provide PDC with the ability to continue to shift its focus to drilling highly economic extended-reach lateral projects. Lastly, we managed to improve our balance sheet and increase our borrowing base in the quarter.”

[dan_s]

PDC Energy uses the "Successful Efforts" method of accounting, which is even more confusing for investors. Without going into the details, just remember that "cash pays the bills", so focus on Cash Flow From Operations when comparing a Successful Efforts company to a Full Cost company. On the forecast model find the RED BOX. It will tell you why I am so high on this company.

PDC is still on-track to finish the year with production growth of ~45% YOY. They should exit the year with production over 100,000 BOE per day. About 40% of their production is crude oil and ~23% us NGLs (NGL prices are going up faster than oil prices).

My forecast/valuation model assumes that production averages 115,000 BOE per day. The company has not yet provided guidance for 2018, but production has increased from ~71,000 to over 100,000 BOE per day this year, so I think it is a safe bet that they will end 2018 with production around 130,000 BOEPD.

The big reported Q3 loss was caused by non-cash impairment charges and the mark-to-market writedown on their hedges. Those are just timing differences which actually improve future reported earnings because they lower DD&A expense. A big increase in proven reserves at year-end should also lower the 2018 DD&A rate.

My valuation for PDCE is now $81.00/share, which compares to First Call's price target of $59.20.

PS: PDC has a strong balance sheet and an undrawn credit facility. Cash flow from operations in 2018 should fund most if not all of their 2018 drilling program