Energy Prospectus

PDCE's production in Q1 came in below my forecast thanks to weather related delays, but they are now back on track to more than 35% YOY production growth.

2016 First Quarter Highlights
•Production of 4.6 million barrels of oil equivalent (“MMBoe”), a 58% increase year-over-year; daily production of 50,216 barrels of oil equivalent (“Boe”).
•Crude oil production of 20,965 barrels (“Bbls”) per day, a 44% increase year-over-year and representing 42% of total production.
•Turned-in-line 47 gross operated wells, including 34 turn-in-lines in March 2016.
•Senior unsecured notes raised to ‘BB-’ from ‘B+’ by Standard & Poor’s; Corporate Rating at Moody’s and Standard & Poor’s affirmed at ‘B1’ and ‘B+’, respectively.
•Completed equity offering of approximately six million shares with net proceeds of approximately $297 million.

Bart Brookman, Chief Executive Officer and President, commented, “I am very pleased with the first quarter and our ability to deliver results in-line with our internal expectations despite weather-related challenges in late March. Our operations and marketing teams continue to focus on improving margins by driving down costs and reducing our oil differentials. Our balance sheet remains very strong following our March equity offering, and with 34 turn-in-lines late in the quarter, we are on track for a very solid first half of 2016 and expect to meet both our capital and production full-year guidance.”

I have updated my forecast model for PDCE and it will be available on the EPG website late today.

In my opinion, today's pullback in the share price creates a nice buying opportunity for us. Investors overreacted to the large reported loss caused by non-cash items like impairment, mark-to-market adjustment of their hedges and a large provision for a bad debt. Production came in below forecast, but the production is just being pushed forward into periods with higher oil & gas prices, that is a timing difference and a good thing. A big winter storm in March just caused completion delays. Over the next three quarters, PDCE's production will increase by 15,000 boepd.

PDCE sold 5.9 million shares of common stock in March to shore up their balance sheet, which was already strong. Cash flow from operations ($91 million in Q1) will be more than enough to cover this year drilling & completion budget of $425 million. The equity raise gives PDCE the cash to buy some bolt on leasehold that will strengthen their position in the Wattenberg Field.

Based on the midpoint of the company's production guidance, production will be up ~35% this year. Their strong hedge positions for both oil and gas, lock in increasing cash flows.

I have increased my valuation $5.00 to $93.00/share. This compares to First Call's Price Target of $70.11.