Oil production up 47% YOY
PDC Energy (ticker: PDCE) announced third quarter results today, showing a net loss of $292.5 million, or ($4.44) per diluted share.
This loss was entirely due to PDC’s Western Delaware activities. As reported in the previous quarter, the company’s two exploratory wells in the Western portion of its acreage had diminished results, and were not judged to be competitive with the Central and Eastern locations. This led PDC to take an impairment on the Western properties. Not including the costs related to the Western Delaware, PDC earned a net $2.1 million in Q3.
PDC produced 92.5 MBOEPD in Q3, an increase of 5% compared to Q2 and 42% compared to Q3 2016. The company continues to shift toward oil production, as current oil output is up 47% year-over-year.
PDC continues to ramp up its Delaware Basin activity, drilling six wells and bringing four to sales. The company is currently operating three rigs in the basin, and plans to bring five wells to sales in Q4. The Lost Saddle well is the first Delaware well testing the company’s enhanced perforation completion design, and has seen success so far. PDC reports the well has had an average 30-day production rate of about 1,450 BOEPD, and is currently about 120% above the company’s type curve.
Source: PDC Investor Presentation
PDC spud 46 wells in the Wattenberg this quarter, and brought 39 on production. The company was able to reduce its Wattenberg rig count due to increased efficiencies, and is now running three rigs in the play. The company previously announced the acquisition of new acreage in the field, allowing it to focus its operations in three areas. PDC has announced it plans to bring 18 drilled uncompleted wells from its acquisition on to production in Q4, beginning the process of integrating the acreage.
Source: PDC Investor Presentation
Q&A from today’s Q3 earnings call
Q: Could you just talk to well costs more specifically, I guess within the Delaware Basin and as you move you know on to longer laterals going forward? What you’re seeing there as well service availability within the play?
PDCE: We continue to see the costs, I think in the range of what we’ve seen in the past. We’ve talked in the range of $8.5 million, $10.5 million, $12.5 million by lateral length in 1-mile, 1.5-mile and 2-miles laterals. And those are really targets for us yet, we’re not performing at that level. But when you look at what we’re doing, there are still a significant amount of science involved in what we’re doing, we’re doing about pilot holes logging, logging the horizontal portion of the wells themselves. So those three things all play into that cost, as well as we’re still drilling quite a few single well batteries and that really is an efficient process for working through. And we’re working out some of those – some of the surprises that happened early in a process like this as we go through the drilling process and in good you know pressure that we didn’t expect either less than or more than, so dealing with all of that, we’re targeting that – that range in the future I guess is the way to look at it.
When you talk about service costs overall, we’re seeing some stability in that right now. There’s still some small pieces that are moving out, but we’re actually seeing some more stability than we’ve seen in the past. And you look at rig count, it’s an indicator of how much the costs really are going to move and it’s kind of stabilizeD.
And then lastly, in terms of service availability, we’re getting what we believe is better and better service. We continue to shift contractors, service providers, and really that’s part of what gets you to that more optimum and effective approach in executing. So we’re making headway there and then I think consistency is what really gets you that. We get to work through some of that in order to get to a consistent level of – and I guess consistent and efficient level.
Q: Are you guys still pretty actively looking in the Wattenberg now and to go back and bolt-on, I think we understand the benefit of the longer laterals there. Do you still see more opportunity to kind of consolidate there and should we be thinking about that as we follow the company as Wattenberg being higher on the priority list now for future expansion?
PDCE: Let me start with the last part of that question. I don’t think we would put Wattenberg as a priority. I think we’ve got equal focus in both basins of looking for strategic bolt-on value-add probably modest size deals. And to answer your question, yes, there are some additional opportunities in the Wattenberg and we’re starting to see an increase flow of opportunities in the Delaware. We would like those to be close to our acreage bolt-on, give us additional capital efficiencies similar to the Bayswater acquisition and the two swaps that we announced.
I think the focus you can really expect is continue to look for small deals, ones that won’t stream the balance sheet. We’re not seeing heavy flow of those type of transactions, but there are some of those out there. But I think more importantly would be ongoing pursuit of swaps. And the swaps, when you look at the Kersey area, in the Wattenberg it is to really dissect that deal and show what value it has driven to the bottom line of the company is very difficult. But I can tell you when you look at our overall LOE per Boe, our cost efficiency in the basin, our operating efficiency for our operating team and this is really important, those consolidated batteries under our consent decree with the EPA and the efficiency of our teams to be able to monitor the emissions from those areas, all of that becomes much more efficient.
So we will continue to pursue those type of swaps. And I think the neat thing right now is our relationships with our peer operators is really strong in conducive to us really strong and conducive to us trying to find constructive ways for PDC and their benefit to strike on those deals.
