Total CapEx up to $970 million in 2018; new Wattenberg completion design allows $5 million worth of stages on a pad for $2.5 million

PDC Energy (ticker: PDCE) announced second quarter results last week, showing net losses of $160.3 million, or ($2.43) per share. Primarily due to derivative losses and an impairment to non-core acreage, this is well below the company’s Q2 2017 results, when PDC earned $41.3 million.

PDC produced 103 MBOEPD in Q2, up 20% from last year, primarily due to growth in the company’s Delaware position. PDC’s production from the basin reached 25 MBOEPD in Q2, up from 10 MBOEPD in Q2 2017. This outperformance has led PDC to increase its full-year production guidance, the company now expects to produce an average of 112.3 MBOEPD in 2018.

Steel costs

This increased production will not come without cost, however, and PDC is increasing its expected CapEx to about $970 million, up from previous guidance of $885 million. Several shifts have contributed to the higher spending, but service cost pressures dominate. In addition to the standard pressures of the tightening labor market, PDC mentions that steel costs are contributing to the increase in well costs. This makes PDC unique among major E&P companies, while many have increased yearly CapEx, PDC is the only one to identify increased steel costs as a primary driver of the change.

PDC Warns of Well Costs Rise on Steel Tariffs

New completion design allows PDC to frac one ‘extra’ well per pad

PDC continues to see benefits from its recent acreage moves, which gave the company a much more consolidated position in the Wattenberg.

The company is now able to drill longer wells, meaning it can produce from a larger area for only a small increase in spending. PDC is now also fracturing the heel of its wells, the portion of a well where the wellbore turns from vertical to horizontal.

PDC estimates the design changes require $250,000 in incremental capital. For reference, the company reports its long lateral wells cost about $5 million.

These two shifts mean PDC is able to complete five extra stages per well, a 10% increase in the average well. When this design is applied through a full pad of long lateral wells, PDC can complete 550 total stages, compared to the previous design’s 500 stages.

This new design, then, means that over an entire pad, PDC can complete a $5 million well’s worth of stages for $2.5 million.

PDC Warns of Well Costs Rise on Steel Tariffs

PDC also announced it has begun to evaluate a transaction regarding the company’s midstream assets in the Delaware. The company is still considering options, though, and a deal could take many forms.

PDC Warns of Well Costs Rise on Steel Tariffs

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