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PDC Energy First Quarter 2020 Results; Preliminary 2021 Outlook

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   |    Monday,May 11,2020

PDC Energy, Inc. announced its 2020 first quarter operating and financial results.

The Company also provided detailed commentary regarding its 2020 operating plan.

2020 First Quarter Highlights:

  • In May, the Company's semi-annual redetermination resulted in a borrowing base of $1.7 billion under its revolving credit facility with elected commitments remaining at $1.7 billion, resulting in total liquidity, as of April 30, 2020, of approximately $1.0 billion.

  • Net cash from operating activities of approximately $266 million and adjusted cash flows from operations, a non-U.S. GAAP metric defined below, of approximately $210 million. Both figures include approximately $20 million of general and administrative expense ("G&A") related to SRC deal costs.

  • Oil and gas capital investments of approximately $260 million.

  • Approximately $50 million of free cash flow deficit, a non-U.S. GAAP metric defined below as net cash flows from operating activities, before changes in working capital, less oil and gas capital investments. Free cash flow deficit for the quarter includes approximately $20 million of SRC deal costs.

  • Total production of 16.8 million barrels of oil equivalent ("MMBoe") or approximately 185,000 Boe per day and oil production of 5.9 million barrels ("MMBbls") or nearly 65,000 Bbls per day.

Full-Year 2020 Guidance Highlights:

  • Anticipated oil and gas capital investments between $500 and $600 million, representing a decrease of approximately 50 percent compared to PDC's initial guidance provided in February 2020.

  • Anticipate generating more than $125 million of free cash flow, a non-U.S. GAAP metric defined as net cash flows from operating activities, before changes in working capital, less oil and gas capital investments.

  • Anticipated total production of 170,000 to 180,000 Boe per day with expected oil production averaging between 60,000 and 65,000 Bbls per day.

  • Approximately $135 million to $140 million of G&A, including cash and non-cash stock-based compensation, but excluding SRC deal costs.

President and Chief Executive Officer Bart Brookman commented, "At PDC, we have a long-proven track record of prioritizing our financial strength through the conservative management of our balance sheet and the utilization of a systematic hedging program. This has proven time and again to be a prudent strategy, with the 2015 price correction serving as our most recent example. Today, the industry finds itself in unchartered waters due to a global pandemic and subsequent demand destruction forcing operators to make extremely difficult decisions. However, at PDC, the quality of our assets and our willingness to quickly and decisively alter our operating plan has once again positioned us to succeed in a time of extreme duress on the industry."

"The coming months will likely prove to be a dynamic time at PDC as we navigate our way through an incredibly fluid situation. Rest assured that our ability to generate free cash flow, with a commitment to maintaining low leverage metrics and preserving our balance sheet are expected to serve as true differentiating factors."

2021 Preliminary Outlook

The Company's preliminary 2021 Outlook contemplates total capital investment between $500 million and $600 million with approximately $100 million of projected free cash flow assuming $30 per Bbl WTI oil, $2.50 per Mcf NYMEX natural gas and NGL realizations of approximately $7.50 per barrel. Additionally, the Company projects to grow both total and oil production by five to ten percent compared to 2020 while further improving its cost structure as it projects G&A of approximately $120 million to $125 million, which includes approximately $25 million of stock-based compensation.

2020 Capital Investments and Financial Guidance

In response to the COVID-19 pandemic, decreased projected NYMEX oil prices and significantly widened differentials, the Company has modified its 2020 operating plan in order to maintain balance sheet strength, preserve adequate levels of liquidity and generate free cash flow. Planned 2020 capital investments of $500 million to $600 million represent a decrease of approximately 50 percent compared to its original guidance of $1.0 to $1.1 billion provided in February. The Company's first quarter investments of approximately $260 million represent nearly 50 percent of the revised guidance. Approximate investments for the remainder of the year are expected to be less than $150 million in the second quarter, less than $50 million in the third quarter and more than $100 million in the fourth quarter.

PDC projects to generate more than $125 million of free cash flow, assuming $15 per Bbl WTI in the second quarter, $25 per Bbl WTI oil in the second half of 2020 and $2 per MMbtu NYMEX natural gas with NGL realizations of approximately $5 per barrel for the remainder of the year. Additionally, the Company projects second quarter oil realizations to be less than 35 percent of NYMEX, with a modest recovery in the third quarter and fourth quarter realizations slightly less than that of the first quarter. Excluding SRC deal costs of approximately $20 million, the Company outspent adjusted cash flows by approximately $30 million in the first quarter. Based on the aforementioned significant deterioration to projected realizations, PDC anticipates cash flow neutrality in the second quarter before generating strong levels of free cash flow in the second half of the year.

In Wattenberg, the Company expects to invest approximately $450 million in 2020, a decrease of $300 million from its original guidance. PDC plans to operate one drilling rig for the remainder of the year, after reducing its rig count from three to one later this month. The Company plans to release its completion crew this month with the expectation of resuming completions in the fourth quarter, assuming pricing supports such a decision.

The Company anticipates investing approximately $100 million in the Delaware basin, down from an original estimate of $300 million provided in February. The 2020 Delaware basin capital program was recently completed for the year, with the expectation to spend less than $20 million on various leasing, non-operations projects and facility investments the remainder of the year.

Production for 2020 is expected to decrease approximately ten percent from 2019 pro forma levels to a range of 170,000 to 180,000 Boe per day, with anticipated oil production of 60,000 to 65,000 Bbls per day. The Company currently expects to curtail between 20 and 30 percent of its volumes in May, with additional curtailments likely in June. Based on current price, activity and curtailment assumptions, the Company expects second and third quarter volumes toward the bottom of its full-year range prior to an expected increase in the fourth quarter.

2020 G&A is expected to be between $135 and $140 million, representing a decrease of more than ten percent from the Company's original guidance provided in February. Updated G&A includes approximately $10 million in the first half of the year related to the integration of SRC and approximately $25 million for non-cash stock-based compensation. Additionally, the updated range reflects the impact of several payroll and non-payroll G&A cost saving initiatives, including: a 15 percent voluntary pay cut to the senior management team and Board of Directors, a reduction-in-force of approximately 15 percent and tiered pay cuts for many of the remaining employees. Additionally, the Company plans to begin a transitioned closure of its Bridgeport, WV, office in the third quarter, with a target completion date of early 2021. Updated G&A does not include approximately $20 million of deal costs associated with the SRC merger incurred in the first quarter.

Given the historic nature of current volatility in the commodity price market, all projections are subject to change throughout the year.

The table below provides additional 2020 financial guidance:

       
  Low   High
Production (MBoe/d) 170     180  
Capital Investments (millions) $ 500     $ 600  
       
Operating Expenses
LOE (millions) $ 180     $ 200  
TGP ($/Boe) $ 0.85     $ 1.00  
Production taxes (% of Crude oil, natural gas & NGLs sales) 6.5 %   7.5 %
G&A (millions) $ 135     $ 140  
               

 

Hedging Overview

In 2020, the Company has approximately 15.7 MMBbls of oil hedges at a weighted-average floor price of approximately $58 per Bbl. Excluding approximately 3.8 MMBbls of settled hedges in the first quarter, the Company's remaining swaps and costless collars represent approximately 75 percent of its projected oil volumes through year-end. Approximately 35 percent of the Company's estimated gas production between the second and fourth quarters are protected at approximately $2 per MMBtu. PDC's 2021 hedge positions protect nearly 30 percent of its estimated oil volumes and 35 percent of estimated natural gas volumes at weighted-average floor prices of approximately $50 per barrel and $2.35 per MMBtu, respectively.

The Company's hedging strategy is predicated on systematically layering in oil and natural gas swaps and costless collars, as well as evaluating basis swaps and physical hedges when appropriate.

Oil and Gas Production, Sales and Operating Cost Data

Crude oil, natural gas and NGLs sales, excluding net settlements on derivatives were $320 million, equivalent with 2019 levels of $321 million. Sales between periods were similar due to a 34 percent reduction in sales price to $19.02 from $28.63 being offset by a 50 percent increase in production. The decrease in sales price per Boe was driven by 17 percent, 53 percent and 50 percent decreases in weighted-average realized oil, natural gas and NGL prices, respectively; while the increase in production between periods was due to the merger with SRC. The combined revenue from crude oil, natural gas and NGLs sales and net settlements received on commodity derivative instruments was approximately $365 million in 2020 compared to approximately $310 million in 2019.

The following table provides weighted-average sales price, by area, for the three months ended March 31, 2020 and 2019, excluding net settlements on derivatives and transportation, gathering and processing expenses ("TGP"):

     
    Three Months Ended March 31,
    2020   2019   Percent
Change
 
               
Crude oil (MBbls)              
Wattenberg Field   4,926     3,571     37.9 %  
Delaware Basin   963     954     0.9 %  
Total   5,889     4,525     30.1 %  
               
Weighted-average price   $ 42.32     $ 51.06     (17.1 )%  
               
Natural gas (MMcf)              
Wattenberg Field   35,057     20,961     67.2 %  
Delaware Basin   6,290     4,690     34.1 %  
Total   41,347     25,651     61.2 %  
               
Weighted-average price   $ 0.96     $ 2.05     (53.2 )%  
               
NGLs (MBbls)              
Wattenberg Field   3,346     1,901     76.0 %  
Delaware Basin   719     514     39.9 %  
Total   4,065     2,415     68.3 %  
               
Weighted-average price   $ 7.78     $ 15.55     (50.0 )%  
               
Crude oil equivalent (MBoe)              
Wattenberg Field   14,115     8,965     57.4 %  
Delaware Basin   2,730     2,250     21.3 %  
Total   16,845     11,215     50.2 %  
               
Weighted-average price   $ 19.02     $ 28.63     (33.6 )%  
                         

Production costs for the first quarter of 2020, which include LOE, production taxes and TGP, were $82 million, or $4.84 per Boe, compared to $69 million, or $6.14 per Boe, in 2019. LOE per Boe improved six percent compared to the first quarter of 2019 while TGP improved 22 percent over the comparable period. Both improvements were related to increased volumes associated with the SRC merger.

The following table provides the components of production costs for the three months ended March 31, 2020 and 2019:

       
    Three Months Ended March 31,  
    2020   2019  
           
Lease operating expenses   $ 49.5     $ 35.2    
Production taxes   18.5     22.2    
Transportation, gathering and processing expenses   13.5     11.4    
Total   $ 81.5     $ 68.8    
     
     
    Three Months Ended March 31,
    2020   2019
         
Lease operating expenses per Boe   $ 2.94     $ 3.14  
Production taxes per Boe   1.10     1.98  
Transportation, gathering and processing expenses per Boe   0.80     1.02  
Total per Boe   $ 4.84     $ 6.14  
                 

Financial Results

Net loss for the first quarter of 2020 was approximately $466 million, or $4.94 per diluted share, compared to a net loss of $120 million, or $1.82 per diluted share in 2019. The year-over-year change was due an impairment of approximately $880 million in 2020 offsetting an increase of approximately $625 million in commodity price risk management gain between periods. Due to low prices, poor realizations and our current development plan, the Company has impaired proved and unproved properties in its Delaware basin asset. Adjusted net loss, a non-U.S. GAAP financial measure defined below, was $760 million in 2020 compared to an adjusted net income of $18 million in 2019. Excluding the aforementioned impairment resulted in an adjusted net loss of $92 million in 2020. The difference between adjusted net income (loss) between periods is primarily attributable to a change in value of both settled and unsettled derivatives associated with the dramatic decrease in the commodity price outlook between periods.

Net cash from operating activities for the first quarter of 2020 was approximately $266 million compared to $157 million in the comparable 2019 period. The year-over-year increase was primarily due to increased commodity derivative settlements and the change in our working capital, partially offset by increased operating costs. Adjusted cash flows from operations, a non-U.S. GAAP metric defined below, was approximately $210 million in the first quarter of 2020 compared to approximately $193 million in the comparable 2019 period. The year-over-year increase was primarily due to the factors mentioned above for changes in operating activities, without regard to changes in our working capital.

G&A, which includes cash and non-cash expense, was $62 million, or $3.69 per Boe, in the first quarter of 2020 compared to $40 million, or $3.53 per Boe, in 2019. First quarter 2020 G&A includes approximately $20 million, or $1.19 per Boe, of deal costs associated with the SRC merger, while 2019 G&A included approximately $3 million, or $0.25 per Boe, related to the Delaware midstream divestitures. Excluding these one-time expenses would have resulted in a 24 percent improvement in G&A to approximately $2.50 per Boe in 2020 from $3.28 per Boe in 2019.


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