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PDC Talks Wattenberg Spacing Pilot; Improved Utica Design

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   |    Thursday,May 07,2015

PDC Energy, Inc. reported its 2015 first quarter financial and operating results.

2015 First Quarter Highlights:

• Production of 32,162 Boe per day; 41% increase year-over-year and 15% growth compared to fourth quarter of 2014.
• Crude oil production of 14,519 Bbls per day; 25% increase year-over-year and 16% growth compared to fourth quarter of 2014.
• Spud 34 gross operated wells and turned in line 20 gross operated wells.
• Completed equity offering of approximately four million shares with net proceeds of approximately $203 million.
• $700 million borrowing base reaffirmed by lenders in May 2015.

Bart Brookman, Chief Executive Officer and President, commented, "Our teams did a great job carrying the momentum from last year into 2015. First quarter production exceeded our expectations and is a great step toward meeting our full-year production guidance. As anticipated, first quarter production had a slightly higher gas percentage than our full-year guidance and we are very pleased with the growth in oil volumes we've seen quarter-over-quarter. Our operating teams continue to drive down capital costs, increase our drilling efficiencies and pursue several key technical projects that have the potential to further enhance our results. Lastly, our industry-leading hedge position and our solid balance sheet have us well-positioned to continue delivering shareholder value."

Operations Update

Wattenberg Field

The Company turned in line 20 gross operated wells in the Wattenberg Field during the first quarter of 2015 and average production from the field increased approximately 14% to 29,203 Boe per day compared to the fourth quarter of 2014. PDC's average wellhead oil differential in Wattenberg was approximately $9 per barrel for the first quarter of 2015. The Company's realized NGL price in the first quarter of 2015 was approximately 24% of NYMEX and its natural gas price was approximately 81% of NYMEX. The Company continues to test a series of downspacing and completion technologies.

Utica Shale

In the Utica Shale, first quarter 2015 production was 2,958 Boe per day, a 29% increase compared with the fourth quarter of 2014. Production from the Dynamite 4-well pad, which was turned in line late in the fourth quarter of 2014, has outperformed expectations to date and is the largest contributor to the increase in Utica production. Average wellhead oil differentials were $10 per barrel in the Utica during the first quarter of 2015. The Company expects to turn-in-line the Cole 4-well pad early in the second quarter of 2015.

Debt and Liquidity

At March 31, 2015, the Company had $610 million of debt outstanding consisting of $500 million of 7.75% senior notes due 2022 and $110 million, net of discounts, of 3.25% convertible senior notes due 2016. The Company was undrawn on its revolving credit facility. Liquidity as of March 31, 2015 was approximately $506 million, consisting of $68 million in cash and cash equivalents and $438 million of availability under its elected commitment of $450 million on its revolving credit facility, net an $11.7 million letter of credit related to a third-party transportation service. The liquidity amount excludes an additional $250 million available under the revolving credit facility on the Company's borrowing base of $700 million. On May 1, 2015, the lenders under the facility reaffirmed PDC's $700 million borrowing base, of which the Company elected to maintain a commitment amount of $450 million.

Financial Results

Net income for the first quarter of 2015 was $17.1 million, or $0.46 per diluted share, compared to a net loss of $2.1 million, or $0.06 per diluted share, for the first quarter of 2014. Adjusted net income, a non-U.S. GAAP financial measure defined below, was $7.0 million for the first quarter of 2015, compared to adjusted net income of $9.6 million for the comparable period of 2014. Net cash from operating activities was $81.9 million in the first quarter of 2015, compared to net cash from operating activities of $80.5 million in the first quarter of 2014. Adjusted cash flows from operations, a non-U.S. GAAP financial measure defined below, increased 6% to $74.0 million in the first quarter of 2015, compared to $69.7 million in the comparable period of 2014.

First quarter 2015 production increased 41% to 2.9 million barrels of oil equivalent ("MMBoe"), or 32,162 barrels of oil equivalent ("Boe") per day, compared to 2.1 MMBoe, or 22,805 Boe per day, in the first quarter of 2014. Daily production in the first quarter of 2015 increased 15% compared to 28,059 Boe per day in the fourth quarter of 2014. The increase in production over first quarter 2014 was primarily due to the addition of a fifth drilling rig in the Wattenberg Field in 2014, while the increase in production over the fourth quarter 2014 was due to successful horizontal development in the Wattenberg Field and Utica Shale.

Crude oil, natural gas and NGL sales, including the impact of net settlements on derivatives, increased 10% to $124.5 million in the first quarter of 2015 compared to $112.8 million for the same period last year. Crude oil, natural gas and NGLs sales decreased 38% to $74.1 million in the first quarter of 2015, compared to $120.0 million in the first quarter of 2014. The average sales price, excluding net settlements on derivatives, decreased 56% to $25.60 per Boe for the first quarter of 2015, compared to $58.47 per Boe for the same 2014 period.

Net commodity price risk management activities for the first quarter of 2015 resulted in a gain of $66.7 million, which was comprised of $50.4 million of positive net settlements on derivatives and a $16.3 million gain on net change in fair value of unsettled derivatives. Commodity price risk management activities for the first quarter of 2014 resulted in a net loss of $24.9 million, which was comprised of $7.2 million of negative net settlements on derivatives and a $17.7 million loss in net change in fair value of unsettled derivatives.

Production costs were $24.2 million, or $8.35 per Boe, for the first quarter of 2015, compared to $18.1 million, or $8.81 per Boe, for the first quarter of 2014. Lease operating expense ("LOE") for the first quarter of 2015 was $5.46 per Boe compared to $3.78 per Boe in the first quarter of 2014. The increase in LOE is primarily attributable to an estimated $3.0 million of environmental remediation projects planned in 2015. The Company does not anticipate these charges to be recurring and expects LOE on a per Boe basis to decrease over the course of the year as production levels continue to increase.

General and administrative expense ("G&A") was $18.7 million for the first quarter of 2015, down from $22.5 million for the first quarter of 2014. The decrease in G&A was primarily attributable to a $3.3 million litigation charge in the first quarter of 2014. G&A on a per Boe basis decreased 41% to $6.45 per Boe in the first quarter of 2015 from $10.96 in the first quarter of 2014.

Depreciation, depletion and amortization ("DD&A") expense related to crude oil and natural gas properties was $54.8 million, or $18.92 per Boe, in the first quarter of 2015, compared to $41.9 million, or $20.45 per Boe, in the first quarter of 2014. The DD&A expense increase in the first quarter of 2015 compared to the first quarter of 2014 was due to higher production volumes and was partially offset by a decrease in the per Boe DD&A rate.

Interest expense for the first quarter of 2015 was $11.7 million compared to $12.2 million for the first quarter of 2014. The decrease is primarily attributable to an increase in capitalized interest expense, partially offset by higher average borrowings on the Company's revolving credit facility during the quarter.

Capital expenditures for the first quarter of 2015, excluding carry-over of expenses related to prior periods, were $140.3 million compared to $124.8 million for the same 2014 period. The Company's drilling and completion schedule for 2015 is more heavily weighted to the first half of the year as the majority of costs associated with Utica completion activity and greater completion activity in the Wattenberg Field have led to a disproportionate level of spending in the first quarter 2015 compared to planned spending in the remaining 2015 quarters.