Energy Prospectus

PDC Energy, Inc. (PDCE)
Following Through on Lowering Leverage Along with Strong FCF Yield
What's Incremental To Our View by Neal Dingmann at Truist
12/29/2020
PDC has ample inventory capable of generating solid returns including nearly 200
DUCs to materially grow production though the company intends to ensure leverage
declines to <1x in the coming quarters by running a maintenance capital program.
While we would prefer a bit more growth and there is always some risk in CO politics,
PDC trades at the lowest multiple and offers the highest FCF yield of its peers making
the stock too good for us or a potential suitor to pass up. We believe the company will
start returning notable capital to investors by 2022 if still operating independently.
Raise Price Target to $27 from $17

More from Neal's report

Raise Price Target to $27
As with many of our operators, PDC remains laser focused on lowering leverage in the
near-term before turning its attention to shareholder returns and moderate growth in the
medium-to-long-term, conditional upon a sustained stability/recovery in commodity prices.
We currently forecast PDC will end 2021 with a leverage ratio of ~1x and exit 2022 with a
leverage ratio well below 1x. The notably low leverage is driven largely by our estimate of
ample FCF to the tune of ~$350MM next year based on our current price deck of $47.60/bbl
WTI and $2.98/Mcf HH (vs PDC guide of $300MM at $40/bbl WTI and $2.75/Mcf HH) and
$450MM+ in 2022. Looking forward into next year, a focus will continue to be on the evolution
of political developments in Colorado. Though the company previously disclosed it expects
to exit 2020 with ~275 approved well permits in the state, we will look for further details on
how November and December permitting transpired for PDC on its 4Q20 earnings call and
continue to monitor regulations in Colorado until further clarity on additional expenses or
hurdles fully manifest themselves. Adjusting our estimates to reflect our updated 4Q20-2022
estimates, we reiterate our Buy rating and raise our price target to $27 from $17. Our new
price target reflects our higher EBITDA estimates due to operational efficiencies among
other things and price target more in line with peers. Our new target is derived from a
forward EV/Truist Securities Est. EBITDAX multiple of 3.0x (2.5x prior), still representing a
~30% discount to the peer average of 4.2x, applied to our 2022E EBITDAX of $1,140MM
($1,072MM prior and consensus of $1,085MM).

Potential Catalysts:
• New notable Wattenberg wells announced during 4Q20 earnings
• Continued improvements in capital efficiencies leading to a 5-10% reduction in current
well costs of $400/ft in the DJ and $850/ft in the Delaware
• Permitting developments in Colorado vs the ~275 expected at YE 2020, as of PDC’s 3Q20
earnings call
• 2021 oil production increase of 7-13% vs 2020 exit rate