PDC Energy (ticker: PDCE) is an independent natural gas and oil company that operates in Colorado within the liquid-rich Wattenberg Field and the Appalachian Basin including the emerging liquid-rich Utica Shale play in Ohio and the Marcellus Shale in West Virginia. Click here for the news release. The company’s transcript can be found here.
PDC Energy announced in their second quarter results and conference call an adjusted EPS/CFPS of $0.23/$1.50, below many investors’ estimates, as well as 1% decrease in production, 6% increase of per-unit production cost, an 8% increase interest expense and an 18% decrease in per-unit DD&A. We see the quarter as a period of adjustment as the company refines its operations to improve production levels in coming quarters.
Exiting second quarter the company drilled five of 11 planned Utica wells, and expects to have nine on line before year-end 2013.
The company and many of its competitors are experiencing mid-stream growing pains in the Wattenberg Field. Anadarko Petroleum (ticker: APC) reported in its second quarter results that high line pressures shut-in old vertical wells, causing a 7% sequential decline in the Wattenberg. Like the Marcellus, drilling ramp ups have a short-term, negative impact on everyone’s production volumes. More infrastructure is on the way, and PDC, who is the third largest leaseholder and producer in the field, will be a benefactor.
Production
Production for the second quarter came to be 23.8 MBOEPD, down 6% from the first quarter production results, but up 10% year-over-year. According to PDC, production from current and continuing operations (adjusted for the 2Q13 Piceance Basin/Northeast CO asset sale) increased 34% y/y. adjusting for sales and acquisitions of the company, Stifle estimates organic production growth to be 18% y/y.
Production for PDC was 58.3% natural gas, 28.9% oil and 12.8% NGLs. 54% liquid production came from continuing operations. Oil production decreased from 7.5 MBBLPD in the first quarter to 6.9 MBBLPD in the second quarter, a 9% reduction.
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Properties
Three wells in the Utica on the Stiers pad were completed and should be flowing to production by mid-August. PDC is expecting to have nine wells online by year end. In Washington County, the company voiced it was confident in the first two wells that are expected to be completed in the next few weeks. Johnson Rice & Company expects the two wells to be flowed in November or December as well as a new rig in the works in the Utica. However, the company has not updated its EUR of 500 to 750 MBOE in the Utica. In the Wattenberg, the company should be completing the Waste Management pad with 16 wells over the next month. The LaSalle plant is scheduled to be at full capacity (160 MMcfpd) by Q3’13.
In a new PDC presentation, the company adjusted its Codell EUR down to 345 MBOE. Johnson Rice wrote they would have put the over/under closer to 400 MBOE but the company’s 77% IRR at $90 BBL and $4 Mcf is “still amongst the best returns in the lower 48.”
Final Thoughts on PDC
PDC is the third largest leaseholder and producer in the Wattenberg Field. The company recently provided its views of the quality of its acreage on June 13, 2013, during a Stifel Nicholas bus tour. Ultimately, the future is dependent on many factors including the company’s CFPS multiple could expand/contract due to greater/fewer perceived risks, including leverage/liquidity, and inventory depth and commodity price sensitivity. The stock is up 66% for the year as of August 2, 2013. On an EV/2012 reserve metric, the stock trades at $2.05/Mcfe, or 39.9% below EnerCom’s 26-company U.S. small cap group. News from the company’s Utica shale play (as well as from other operators) will be a catalyst for the name.
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