PDCE
Posted: Fri Dec 16, 2016 1:01 pm
Comments below from Wells Fargo Equity Research. Note that my current valuation of PDCE is $104.
PDC Energy Inc.
PDCE: The Permian Pivot
Summary: Hosted PDCE for dinner and meetings with institutional clients. In
attendance from PDCE were Mr. Lance Lauck, Executive VP, Business
Development and Strategy, and Mr. Mike Edwards, Senior Director, Investor
Relations. Meeting focus was on recent 2017 guidance, Permian development
plans and acreage/drilling results, service cost expectations, and infrastructure in
both the DJ and Delaware. Overall, on heels of a 25% move in the stock over the
last month, investors very receptive. Multiple re-rate has begun to happen, but in
order for valuation gap to continue to close, Permian execution needed. We are
updating our valuation range to $75-$85, from $60-$70.
2017 Guidance Came In Higher… Released on Monday, 2017 guidance came
in well above Street estimates on both total production and oil growth. Versus
prior outlook, management cited assumption of 7,500’ laterals versus 4,500’,
60% oil cut on recent Permian wells, and better DJ performance with higher
working interest following Noble acreage swap in Wattenberg.
…But Upside Potential Remains. Despite the robust outlook, upside
potential still remains to 2017 numbers. Recent well completions tracking well
above type curves in the Delaware and to a lesser extent the Wattenberg as well -
worth watching.
Permian Focus on Wolfcamp A. Acquisition officially closed this week, but
PDCE has been involved with recent completions. Recent well results on Eastern
acreage coming in at 60% oil cut, with wells tracking above type curve. Will run 2
rigs to begin 2017, with primary focus on Wolfcamp A and holding acreage.
Wattenberg Still the Backbone. 2/3 of 2017 capital allocated to Wattenberg,
with 3 rigs to start the year and adding 4th in 1H17. Recent completions on Noble
swap acreage outperforming type curves.
Liquidity and Balance Sheet Remain Strong, In Our View. Modeling net
leverage ratio of 1.4x at 2017YE, with liquidity of $900MM consisting of
$200MM of cash and $700MM undrawn revolver (current borrowing base).
2017 capital program fairly well protected with PDCE about half hedged on both
forecast crude (at average price of $48) and natural gas volumes (at $3.47).
Attractive Valuation & Inexpensive Growth, In Our View… PDCE shares
trading at 10.0x and 6.3x 2017 and 2018 EV/EBITDAX multiples, respectively.
Ranks #3 overall on multiple compression from 2017E to 2018E (excluding gas focused).
Based on implied DJ/Permian blended multiple (detailed within), there
is 7% upside potential on 2017 multiples but 37% based on 2018 multiples. If
PDCE can continue to execute and deliver strong Permian results, multiple likely
re-rates positively, in our view.
Valuation Range: $75.00 to $85.00 from $60.00 to $70.00
To formulate our valuation range, we use our NAV of $86.34 and risk by 10%. Risks
to our val range include potential for commodity price weakness and execution risk
in the Delaware Basin.
PDC Energy Inc.
PDCE: The Permian Pivot
Summary: Hosted PDCE for dinner and meetings with institutional clients. In
attendance from PDCE were Mr. Lance Lauck, Executive VP, Business
Development and Strategy, and Mr. Mike Edwards, Senior Director, Investor
Relations. Meeting focus was on recent 2017 guidance, Permian development
plans and acreage/drilling results, service cost expectations, and infrastructure in
both the DJ and Delaware. Overall, on heels of a 25% move in the stock over the
last month, investors very receptive. Multiple re-rate has begun to happen, but in
order for valuation gap to continue to close, Permian execution needed. We are
updating our valuation range to $75-$85, from $60-$70.
2017 Guidance Came In Higher… Released on Monday, 2017 guidance came
in well above Street estimates on both total production and oil growth. Versus
prior outlook, management cited assumption of 7,500’ laterals versus 4,500’,
60% oil cut on recent Permian wells, and better DJ performance with higher
working interest following Noble acreage swap in Wattenberg.
…But Upside Potential Remains. Despite the robust outlook, upside
potential still remains to 2017 numbers. Recent well completions tracking well
above type curves in the Delaware and to a lesser extent the Wattenberg as well -
worth watching.
Permian Focus on Wolfcamp A. Acquisition officially closed this week, but
PDCE has been involved with recent completions. Recent well results on Eastern
acreage coming in at 60% oil cut, with wells tracking above type curve. Will run 2
rigs to begin 2017, with primary focus on Wolfcamp A and holding acreage.
Wattenberg Still the Backbone. 2/3 of 2017 capital allocated to Wattenberg,
with 3 rigs to start the year and adding 4th in 1H17. Recent completions on Noble
swap acreage outperforming type curves.
Liquidity and Balance Sheet Remain Strong, In Our View. Modeling net
leverage ratio of 1.4x at 2017YE, with liquidity of $900MM consisting of
$200MM of cash and $700MM undrawn revolver (current borrowing base).
2017 capital program fairly well protected with PDCE about half hedged on both
forecast crude (at average price of $48) and natural gas volumes (at $3.47).
Attractive Valuation & Inexpensive Growth, In Our View… PDCE shares
trading at 10.0x and 6.3x 2017 and 2018 EV/EBITDAX multiples, respectively.
Ranks #3 overall on multiple compression from 2017E to 2018E (excluding gas focused).
Based on implied DJ/Permian blended multiple (detailed within), there
is 7% upside potential on 2017 multiples but 37% based on 2018 multiples. If
PDCE can continue to execute and deliver strong Permian results, multiple likely
re-rates positively, in our view.
Valuation Range: $75.00 to $85.00 from $60.00 to $70.00
To formulate our valuation range, we use our NAV of $86.34 and risk by 10%. Risks
to our val range include potential for commodity price weakness and execution risk
in the Delaware Basin.