PDC Energy, Inc. (“PDC”, the “Company”, “we” or “us”) (PDCE) today reported its 2016 capital budget and production forecast.
2016 Highlights
- Targeted cash flow neutrality with planned capital budget of $450 to $500 million.
- Anticipated annual production of 20.0 to 22.0 MMBoe, 35% to 40% year-over-year growth.
- Projected 2016 year-end debt to EBITDA of approximately 1.4x.
- Hedged approximately 50% of 2016 oil volumes and 62% of natural gas volumes at nearly $85 per barrel and $3.65 per Mcf, respectively.
- Continued improvements in capital efficiencies through anticipated reductions in drilling times and well costs, enhanced completion designs and extended reach lateral development.
CEO Commentary
Bart Brookman, President and Chief Executive Officer, commented, “Our ability to execute our 2015 plan has positioned us to carry a lot of momentum into 2016. Our drilling program remains extremely flexible and we are committed to continue delivering shareholder value in these challenging times through the development of our best-in-class assets and continued focus on our cost structure. The balance sheet and financial strength of the Company will remain our top priorities in 2016. We are extremely excited about the prospect of once again delivering peer leading production growth in a safe, responsible manner, while continuing to test new well designs and completion methods. With the continued hard work and dedication of our employees, we are positioned for another strong year at PDC.”
2016 Capital Plan and Production Guidance
PDC’s 2016 capital budget, of $475 million at the mid-point, is focused on continuing to provide value-driven production growth by exploiting the Company’s extensive inventory of high rate-of-return projects in the Wattenberg Field. Capital spending is expected to be weighted to the front half of 2016 as the Company completes in-process wells spud in 2015. The Company remains very flexible in terms of rig activity and capital deployment due to short-term rig contracts and held-by-production acreage.
PDC’s 2016 production guidance of 20.0 to 22.0 million barrels of oil equivalent (“MMBoe”), or 54,650 to 60,100 Boe per day, represents an increase of 35 to 40 percent over anticipated 2015 levels. The commodity mix is expected to be approximately 42 percent oil, 20 percent NGLs and 38 percent natural gas. The mix is slightly gassier than 2015 due to a number of higher GOR Inner Core Wattenberg wells being turned-in-line in the second half of 2015 and first half of 2016. The Company’s long-term commodity mix expectation remains approximately 45 percent oil and 65 percent liquids.
The majority of production growth in 2016 is expected to occur in the second and third quarters while the first and fourth quarters are expected to show relatively flat sequential quarter-over-quarter growth.
2016 Financial Positioning
PDC is projected to exit 2016 with a debt to EBITDA ratio of approximately 1.4 times and total liquidity of approximately $500 million, based upon its current $700 million borrowing base and the pricing assumptions described below. PDC’s $115 million of convertible notes mature in May 2016 and the Company has elected to redeem the face value of the notes in cash with excess value above the conversion price paid in PDC common stock.
Based on the mid-point of PDC’s production guidance, nearly 50 percent of 2016 expected crude oil volumes are hedged at approximately $85 per barrel and approximately 62 percent of anticipated gas volumes are hedged at nearly $3.65 per thousand cubic foot, including CIG basis swaps. The mark-to-market value of future hedges exceeds $250 million, as of November 30, 2015.
Using internal weighted-average NYMEX pricing of $53 per barrel of oil, $2.60 per Mcf of natural gas and NGL realizations of approximately 18% of NYMEX oil, the Company expects to outspend cash flow in the first half of the year and be cash flow positive in the second half. The Company anticipates the Wattenberg well-head oil differential to NYMEX to be under $8 per barrel in 2016. Using the mid-point of production guidance, a $10 per barrel change in oil price results in an approximate $40 million change to anticipated cash flow, as seen in the table below:
| 2016 Sensitivity Table(1) | |||
| Oil price per barrel (NYMEX) | $40 | $45 | $53 |
| Outspend (millions) | $70 | $47 | $10 |
| Year-end debt to EBITDA(2) | 1.7x | 1.6x | 1.4x |
| Year-end Liquidity (millions) | $445 | $465 | $505 |
(1) Assumes four rig program throughout 2016; Natural gas and NGL prices held constant at $2.60 per Mcf and 18% NYMEX Oil, respectively; (2) The Company maintains flexibility to adjust capital program downward in response to lower pricing environments
Wattenberg Operations Details
In 2016, the Company plans to spend approximately $440 million running a four-rig program in the Wattenberg Field after reducing its rig count from five in November 2015. The 2016 Wattenberg budget reflects a 13 percent reduction compared to 2015 and is comprised of nearly $380 million for drilling and completions and approximately $40 million for non-operated projects. The remainder of the budget is expected to be used for leasing, workover projects and capital improvements.
The Company plans to drill standard reach lateral (“SRL”), mid-length lateral (“ERL”) and extended reach lateral (“XRL”) wells in 2016. Reduced drill times, from spud-to-spud, have led to an approximate 25% increase in lateral feet drilled per rig-year compared to 2015. In 2016, the Company plans to spud and turn-in-line approximately 135 and 160 wells, respectively.
| 2016 Wattenberg Program Details | |||
| All numbers approximate | SRL | ERL | XRL |
| Lateral Length | 4,200′ | 6,900′ | 9,500′ |
| Drilling days (spud-to-spud) | 7 | 11 | 14 |
| % of 2016 spuds | 32% | 36% | 32% |
| % of 2016 TILs | 50% | 40% | 10% |
| Well cost (millions) | $2.9 | $3.9 | $5.0 |
Due to successful testing of new completion technologies in 2015, projected well costs are now inclusive of plug-and-perf technology and production guidance now includes an associated uplift from plug-and-perf completions of up to 15 percent. The Company plans to test the potential additive effect of AccessFrac with plug-and-perf completions but has not included any potential impact of such completions in its 2016 guidance.
Utica Operations Update
Early in 2016, PDC plans to spend approximately $34 million in the Utica to drill, complete and turn-in-line five wells. The planned activity will focus on further delineation of its southern acreage, determining the impact of well-orientation on productivity and testing improved capital efficiency of 10,000 foot laterals. All wells in the 2016 budget are expected to provide a rate-of-return in excess of the Company’s cost-of-capital. Approximately 20 percent of the 2016 Utica budget is allocated for land and selective lease renewals.
Upcoming Investor Conferences
PDC is scheduled to present at the following conferences: Wells Fargo’s 2015 Energy Symposium in New York on Wednesday, December 9, 2015; and the Capital One Energy Conference in New Orleans on Wednesday, December 9, 2015. An updated presentation will be posted to the Company’s website, www.pdce.com, prior to the start of each conference.
About PDC Energy, Inc.
PDC Energy, Inc. is a domestic independent exploration and production company that produces, develops, acquires and explores for crude oil, natural gas and NGLs with operations in the Wattenberg Field in Colorado and in the Utica Shale in southeastern Ohio. Its operations are focused on the liquid-rich horizontal Niobrara and Codell plays in the Wattenberg Field and the condensate and wet gas portion of the Utica Shale play. PDC is included in the S&P SmallCap 600 Index and the Russell 2000 Index of Companies.
