PDC Energy increases EURs 9% in core assets
A number of analyst notes were released following PDC Energy’s (ticker: PDCE) analyst day held in Denver this week discussing the companies impressive metrics. The company said that it has lowered completed well costs 2-4%, allowing the company to continue growing production while simultaneously lowering its projected 2016 capital budget.
PDC Energy’s updated guidance calls for production of 20-22 MMBOE, a 35% year-over-year increase, with a capital budget of $410-$440 million, down $10 million at its midpoint from the company’s previous guidance. PDCE expects to be roughly cash flow neutral and maintain debt-to-EBITDA of 1.1x-1.2x for the year.
In EnerCom’s E&P Weekly, PDC Energy has a net debt-to-TTM EBITDA of 1.5x for the week ended April 1, 2015. The company’s debt metrics strong in comparison to the entire E&P group in EnerCom’s universe, which have a median debt-to-EBITDA of 3.2x.
“A top-tier balance sheet and robust hedge position should allow PDCE to provide peer leading growth in 2016 with minimal outspend,” said a note from Stephens.
“Incremental data points (lower well costs, higher EURs, favorable guidance) were positive, in our view,” said Stifel following the analyst day. Management indicated that recent [short reach laterals] Niobrara completed well costs averaged $2.5 million, 9% below our prior forecast of $2.75 million,” prompting the firm to raise its price target for PDC Energy shares.
“The important takeaways in our mind are 1) increasing production … and 2) capital discipline,” said a note from Johnson Rice. “We would note that FY:18 volumes are expected to tick down y/y under the lowest growth scenario, however we believe that the overall 3-year outlook update was positive.”
PDC’s investor day webcast can be heard by clicking here.
Analyst Commentary
Stephens 04.08.2016
Following PDCE's Analyst Day, we have continued confidence in the Company's ability to efficiently develop its Wattenberg asset base while maintaining a strong financial position. A top-tier balance sheet and robust hedge position should allow PDCE to provide peer leading growth in 2016 with minimal outspend. Additionally, continued success in the Wattenberg has allowed the Company to recently decrease well costs and increase EURs. While developments continue to trend positively for PDCE, we reiterate our Equal-Weight rating and $58 price target primarily around valuation
SunTrust 04.08.2016
PDC appears to be one of the best positioned E&Ps if oil prices remain range-bound ($35-$45/Bbl). The 60%+ hedges also protect the company to the downside though the ~1,700 middle core locations would be drilled quicker if prices go much higher. Though PDC did not make any revolutionary announcements at their analyst day yesterday, the company did a good job of highlighting the solid Wattenberg inventory depth/quality that continues to improve from efficiencies/lower costs. Combined with solid growth potential/leverage, we see shares deserving of multiple expansion.
Johnson Rice & Company 04.08.2016
PDCE hosted an analyst day in Denver yesterday. The company laid out 11-14% increases in Middle Core EURs, 2-4% decreases in CWCs, and provided '17 guidance that on apples-to-apples capex numbers is better than expected (see pg 2 for a before/after variance). There were no significant negatives in our mind, as 1) the higher than expected gas cut (40% vs our 39%) still provides higher nominal oil production than expected, 2) Any talk of the company engaging in large M&A is likely overblown as meeting PDCE's hurdle (as good as Wattenberg, has PDP, accretive) is going to be close to impossible. We continue to like PDCE given its low multiples ('16 EV/EBITDA of 6.8x vs the group's 11.6x), slower CFPS shrink ('16/'15 CFPS shrink of 11% vs the group's 50%), and clean balance sheet (YE:16 debt/EBITDA of 0.9x vs the group's 4.6x).
BMO Capital Markets 04.08.2016
Our analyst day preview comment “Looking for Longevity” spoke to expectations the company would deliver greater visibility on the value capture plan in the DJ Basin, as well as present the resulting growth profile and state what it meant for the balance sheet. The company delivered as hoped, including the visibility part by sketching what 2017 and 2018 could look like under different commodity price scenarios, all of which were above our original estimates on production growth and cash flow generation. It came with a higher natural gas/NGL component, good or bad. (Note that BMO’s applied price deck of 2017E $51.50/$2.75 and 2018E $61.00/$3.00 sits roughly between the two cases presented by the company.) What we still struggle with is the multiple expansion that our model yields 2017/2016. We also struggle with the attention paid at the time of Thursday’s presentation to adding inventory via acquisition. We believe this diluted the company’s main message that middle core inventory was deep and wide enough on its own.
