Quarterly / Earnings Reports | Second Quarter (2Q) Update

PDC Energy Details Q2 2019 Results

Share Print Bookmark    |    Thursday,August 08,2019

PDC Energy, Inc. reported its 2019 second quarter operating and financial results while announcing improvements to its 2019 capital efficiency by reducing its full-year capital investment guidance and increasing its full-year production guidance. 

Company Highlights:

• Lowered full-year capital investment guidance to a range of $810 to $840 million from $810 to $870 million, which includes reducing the Wattenberg rig count from three to two in September.
• Reduced corporate headcount in June by approximately 15 percent to more closely align with the updated operational plan, contributing to second half projected 2019 G&A expense between $2.60 and $2.80 per Boe.
• Increased full-year production to a range of 48 to 50 MMBoe, reflecting the benefit of increased operational efficiencies in both basins driving increased production in the first half of the year.
• Returned $125 million to shareholders through July with the repurchase of approximately 3.7 million shares via the previously announced $200 million stock repurchase program.
• Received approximately $264 million of cash in the second quarter from closing of all three Delaware midstream sales. An additional unconditional payment of $82 million is due June 2020.
• Received nearly $35 million through the sale of approximately 6,500 net Delaware acres that were scheduled to expire in 2019.

Second Quarter Highlights:

• Oil production of 4.9 MMBbls, or approximately 53,800 Bbls per day, a 24 percent increase from the second quarter of 2018 and a seven percent increase from the first quarter of 2019.
• Total production of 12.4 MMBoe, or approximately 136,500 Boe per day, a 32 percent increase from the second quarter of 2018 and a ten percent increase from the first quarter of 2019.
• LOE of $2.76 per Boe, a 20 percent improvement from the second quarter of 2018 and a 12 percent decrease from the first quarter of 2019.
• Further improved Delaware basin drill times, from spud to rig release, to an average of 23 days, a 33 percent, or 11 day improvement, from the second quarter of 2018.

President and Chief Executive Officer, Bart Brookman commented, "Throughout the second quarter, our operating teams continued to deliver improved drilling and completion efficiencies while building on the momentum created earlier in the year. The combination of lowering our full-year capital investment guidance while increasing our full-year production guidance enables PDC to generate in excess of $150 million of free cash flow in the second half of 2019. Additionally, the adjustments to our business plan clearly demonstrate our ability to execute on a strategy centered on delivering sustainable free cash flow in a volatile commodity price environment. Over the past several months, we have met extensively with our long-term shareholders and are confident our cost control measures, slowed Wattenberg development pace and return of capital all align with our long-term value proposition."

Operations Update

Production for the second quarter of 2019 was 12.4 million barrels of oil equivalent ("MMBoe"), or approximately 136,500 Boe per day, an increase of 32 percent from the second quarter of 2018 and ten percent from the first quarter of 2019. Oil production of 4.9 million barrels ("MMBbls") in the second quarter represents an increase of approximately 24 percent compared to the second quarter of 2018 and seven percent from the first quarter of 2019. Both total production and oil production growth, on a year-over-year and sequential basis, are largely attributable to increased operational efficiencies and the corresponding acceleration of planned turn-in-lines ("TILs") in both the Wattenberg and Delaware Basins. As a result, the Company has increased its full-year production range by one MMBoe at the mid-point to 48 to 50 MMBoe.

In Wattenberg, the Company spud 43 wells and TIL'd 27 wells with average working interests of 92 percent. The Company's completion crew has averaged approximately 17 stages per day in the first half of 2019, more than ten percent above initial 2019 expectations. The Company's Wattenberg activity year-to-date has largely focused on the western side of its Kersey acreage block, which has a slightly gassier production mix than average Kersey wells. Additionally, the Company now expects prolonged elevated Wattenberg line pressures in the second half of 2019 as a result of the slightly delayed processing capacity expansion from its primary third-party midstream provider. The cumulative impact is expected to result in a Wattenberg and total Company full-year oil mix of approximately 40 percent.

In the Delaware Basin, the Company spud ten wells and TIL'd eight wells with average working interests of approximately 92 percent. Second quarter production of 31,500 Boe per day was approximately 43 percent oil and represented 26 percent growth in total production and oil production compared to the first quarter of 2019. The Company's average second quarter drill times, in terms of spud to rig release, averaged 23 days, a 33 percent improvement from the second quarter of 2018 and 15 percent improvement from the first quarter of 2019. In June, the Company decreased its rig count from three to two, and in July, the Company released its completion crew. The Company expects to operate two drilling rigs for the remainder of 2019 and to resume completions in 2020.

Capital investments for the quarter were approximately $277 million and included $10 million of Delaware Basin midstream related capital. The Company anticipates a decrease to its projected cash flows from operations as compared to its previously released guidance for the full-year due to higher than expected natural gas and NGL differentials realized in the second quarter and projected in the second half of the year, as well as a slight decrease to projected oil volumes. The Company now projects full-year natural gas and NGL realizations, excluding transportation, gathering and processing expenses ("TGP"), to be approximately 40 to 45 percent and 20 to 25 percent of NYMEX pricing, respectively. This compares to prior estimates of 50 to 55 percent for natural gas and 30 to 35 percent for NGLs.

In order to generate free cash flow in 2019, the Company plans to decrease its Wattenberg rig count from three to two in September while maintaining its original completion activity of approximately 110 to 125 TILs. Due to operating efficiencies accelerating the timing of completions and TILs, the Company expects limited completion activity in the fourth quarter. As a result of these operating plan adjustments, as well as additional capital allocation decisions, the Company has lowered its full-year expected capital investments by $15 million at the mid-point to a range of $810 million to $840 million, excluding corporate capital. This plan is expected to deliver between $160 million and $190 million of free cash flow in the second half of 2019 with a production profile of flat to modest second half growth on a daily basis.

Stock Repurchase Program

Year-to-date, the Company has returned $125 million of capital to shareholders through the repurchase of approximately 3.7 million shares of common stock outstanding via its previously announced $200 million stock repurchase program (the "Program"). The remaining repurchases under the Program are currently expected to be conducted in open markets, at the Company's discretion and in compliance with safe harbor provisions. The Program has a target completion date of December 31, 2020 and can be modified or discontinued by the Board of Directors at any time. The Company projects to generate a sufficient level of free cash flow in the second half of 2019 and full-year 2020 to fund the Program while maintaining the ability to pursue additional future return of capital programs, depending on market conditions.

Oil and Gas Production, Sales and Operating Cost Data

Crude oil, natural gas and NGLs sales, excluding net settlements on derivatives, increased four percent to $339.0 million in the second quarter of 2019, compared to $325.9 million in the second quarter of 2018. The increase in sales was due to a 32 percent increase in total production offsetting a decrease in the sales price per Boe, excluding net settlements on derivatives, of 22 percent to $27.28 in the second quarter of 2019 from $34.74 in the comparable 2018 period. The decrease in sales price per Boe was driven by 42 percent and 27 percent decreases in the weighted-average NGL and natural gas sales prices, respectively, in the second quarter of 2019 compared to the second quarter of 2018. Including the impact of net settlements on derivatives and the change in fair value of unsettled derivatives, combined revenues increased 84 percent to $390.7 million from $212.5 million between periods.

The following table provides production and weighted-average sales price, by area, for the three and six months ended June 30, 2019 and 2018, excluding net settlements on derivatives and TGP:

Production costs for the second quarter of 2019, which include lease operating expenses ("LOE"), production taxes and TGP, were $69.1 million, or $5.57 per Boe, compared to $63.9 million, or $6.81 per Boe, for the comparable 2018 period. The 18 percent decrease in production costs per Boe between periods is largely attributable to a 20 percent decrease in LOE per Boe. Wattenberg LOE per Boe in the second quarter of 2019 was $2.46 compared to $3.29 in the second quarter of 2018. Delaware Basin LOE decreased between periods to $3.76 from $3.92 per Boe. The decreases were primarily attributable to the 32 percent company-wide production growth in the second quarter of 2019 compared to the second quarter of 2018.

The following table provides the components of production costs for the three and six months ended June 30, 2019 and 2018:

Financial Results

Net income for the second quarter of 2019 was $68.5 million, or $1.04 per diluted share, compared to net loss of $160.3 million, or $2.43 per diluted share, for the comparable 2018 period. The year-over-year difference was primarily attributable to a $160.3 million difference in fair value of unsettled derivatives, a $130.6 million decrease in impairments of property and equipment and a $33.6 million difference in gain on sale of properties and equipment. Adjusted net income for the second quarter, a non-GAAP financial measure defined below, was $22.5 million, or $0.34 per diluted share in 2019 compared to an adjusted net loss of $84.5 million, or $1.28 per diluted share in 2018.

Net cash from operating activities was $260.4 million in the second quarter of 2019, compared to $175.7 million in the comparable 2018 period. The increase between periods is primarily a result of an accounting treatment related to the divestiture of the Company's Delaware Basin midstream assets in the second quarter of 2019. Adjusted cash flows from operations, a non-GAAP financial measure defined below, were $207.0 million in the second quarter of 2019, compared to $199.3 million in the comparable 2018 period.

G&A was $42.8 million, or $3.45 per Boe, for the second quarter of 2019 compared to $37.2 million, or $3.97 per Boe in the comparable 2018 period. In June 2019, the Company reduced its current corporate headcount by approximately 15 percent while also reducing its future hiring plans. These changes were made to more closely align with the updated operating plan. The expenses for cash and non-cash severance, as well as shareholder activism expenses and the settlement of the Company's final partnership agreements, net a one-time insurance credit, totaled approximately $4.3 million, or $0.35 per Boe. Excluding these expenses would result in a normalized G&A per Boe of approximately $3.10 for the second quarter of 2019, a 15 percent decrease compared to the comparable 2018 period. In the second half of 2019, the Company estimates G&A per Boe of $2.60 to $2.80, assuming the mid-point of its updated production guidance range.

2019 Capital Investment Outlook and Financial Guidance

The following table summarizes the Company's updated 2019 financial guidance:

The Company projects to generate free cash flow in the third quarter as it expects a material reduction in capital investments compared to the second quarter, driven primarily through reduced Delaware Basin completion activity. Additionally, the Company projects its third quarter production volumes to reflect modest growth in each basin compared to the second quarter.

In 2020, the Company projects to generate between $100 million and $200 million of free cash flow after updating its assumptions to reflect an anticipated increase in natural gas and NGL price differentials, lower corporate cost structure and reduced Wattenberg rig count and projected oil volumes.