PDC Energy (PDCE) Update - August 28

[dan_s]

PDC Energy (PDCE, $12.28, Buy; Target $22.00) -
CFPS and FCF beat, Recent Permits Counter the Short Thesis - Michael S. Scialla at Stifel

We view the release as positive. The positives include: i) a 3Q CFPS beat coupled with below consensus capex drove FCF 14% above consensus; ii) the company projects a ~4-year inventory of DUCs and permits at YE20; iii) the building unit density on 65% of PDCE's unpermitted Wattenberg drilling inventory is less than or equal to the 32 locations where it recently received permits. The negatives include: i) 4Q20 capex and oil production guidance were 15% above and 2% below consensus. While timing contributed to a 3Q capex beat and disappointing 4Q guide, better-than-expected 3Q production and costs allowed PDCE to reduce more debt than anticipated with FCF. In addition, recent permits counter a pervasive short thesis that assumes the COGCC's 2,000-ft setback rule has materially impaired PDCE's drilling inventory.