PDC Energy Q4 Results and Update

[dan_s]

PDC is the only Sweet 16 company that had a GAAP loss for 2017, but that is because they decided to write off a big chunk of Delaware Basin leasehold in Q3. The non-cash impairment charge was over $300 million. Q4 results were solid and YOY production growth was 44%. Initial guidance for 2018 is for production growth of another 20% to 25%.

In the last 3 months, 10 ranked analysts set 12-month price targets for PDCE. The average price target among the analysts is $70. Price targets range from $58 to $87. The higher valuations are on reports published since the company released Q4 results.

2018 Capital Investment Outlook, Financial Guidance and Transactions Update

In 2018, the Company anticipates capital investments between $850 million and $920 million to deliver total production of 38 to 42 MMBoe, or approximately 104,000 to 115,000 Boe per day. PDC's guidance now includes an improvement in Delaware drill times, resulting in additional planned spuds and turn-in-lines in the basin, as well as the external January 2018 announcement relating to the in-service date of major gas takeaway infrastructure of its primary Wattenberg midstream service provider. Production for the first quarter of 2018 is expected to be relatively flat compared to the fourth quarter of 2017, with larger sequential growth anticipated in the second through fourth quarters, culminating in a December exit rate of approximately 130,000 Boe per day. The Company now anticipates its 2018 commodity mix to include 42 to 45 percent crude oil, 19 to 22 percent NGLs and 32 to 35 percent natural gas.

Additionally, the Company has updated its internal commodity price forecast in an effort to more accurately reflect the current pricing environment. Assuming annual NYMEX pricing averaging approximately $57.50 per barrel oil and $3.00 per MMBtu natural gas, the Company's anticipates its 2018 capital investments will exceed its 2018 adjusted cash flows from operations by less than $90 million. The Company anticipates it will outspend adjusted cash flows from operations in the first half of the year, while operating in a cash flow positive environment in the second half. PDC currently expects to exit 2018 with a leverage ratio, as defined by its revolving credit facility, of 1.4 times.

[dan_s]

I have updated my forecast/valuation model for PDCE. I have increased my valuation by $2/share to $84.00.

My forecast assumes fairly flat production from Q4 to Q1, then rapid growth into an exit rate of 130,000 boepd at year-end (44% crude oil, 21% NGLs and 35% natural gas). Compared to the Permian Basin companies, I am using a low multiple of operating cash flow to value PDCE. If their Permian drilling program generates strong results, this one has a lot more upside.

One thing to keep in mind, for a company of this size it has a rather low share count. 66.5 million share.