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PDC Energy First Quarter 2021 Results

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   |    Thursday,May 06,2021

PDC Energy, Inc. announced its 2021 first quarter financial and operating results.

2021 First Quarter Highlights:

  • Net cash from operating activities of approximately $355 million, adjusted cash flows from operations, a non-U.S. GAAP metric defined below, of approximately $300 million and oil and gas capital investments of approximately $125 million.

  • Approximately $175 million of adjusted free cash flow ("FCF"), a non-U.S. GAAP metric defined below.

  • Reduced total net debt by approximately $230 million, resulting in an undrawn revolving credit facility, cash balance of approximately $60 million and total liquidity of $1.7 billion as of March 31, 2021.

  • Returned $22 million of capital to shareholders through the repurchase of approximately 600,000 shares of common stock outstanding.

  • Total production of 15.7 million barrels of oil equivalent ("MMBoe") or approximately 175,000 Boe per day and oil production of 4.9 million barrels ("MMBbls") or nearly 54,000 Bbls per day.

President and Chief Executive Officer Bart Brookman commented, "Once again, our results clearly reflect the company's priorities: sustainable free cash flow, debt reduction and shareholder returns. Since closing the SRC merger in early 2020, PDC has generated nearly $600 million of free cash flow while reducing debt by approximately $500 million. The Company's financial strength, combined with its focus on shareholder returns and operational excellence, make PDC's story particularly compelling."

Operations Update

In the first quarter of 2021, PDC invested approximately $125 million while delivering total production of 15.7 million Boe, or 175,000 Boe per day, and oil production of 4.9 million barrels, or 54,000 barrels per day. Total production and oil production represent sequential decreases of three percent and 11 percent on a daily basis, respectively, compared to the fourth quarter of 2020, and reflect the negative impact of adverse winter weather conditions in each February and March. The Company estimates a weather-related impact to total production and oil production of approximately 500,000 Boe and 200,000 barrels in the first quarter. In spite of the negative impact to volumes, the Company generated approximately $175 million of FCF in the quarter and paid down approximately $230 million of net debt while returning $22 million of capital to shareholders through the repurchase of approximately 600,000 shares of common stock outstanding.

In Wattenberg, the Company invested approximately $95 million to operate one drilling rig and one completion crew in the first quarter, resulting in 20 spuds and 34 turn-in-lines ("TILs"). Total production was 13.9 million Boe, or approximately 155,000 Boe per day, while oil production was approximately 4.2 million Bbls, or approximately 46,500 Bbls per day.

PDC exited the first quarter with approximately 200 drilled, uncompleted wells ("DUCs") and approximately 290 approved permits in-hand. The Company continues to successfully progress towards the submittal of two Oil and Gas Development Plans ("OGDP") and a Comprehensive Area Plan ("CAP") aimed at securing future drilling permits. The Spinney OGDP, consisting of eight wells is on track to be applied for in the second quarter, while the Kenosha OGDP, consisting of approximately 70 wells, is expected to be applied for late in the second quarter or early third quarter. Finally, the Company is in the process of completing its cumulative impact analysis and expects to submit its application for the Guanella CAP, consisting of approximately 450 wells, by the end of 2021. Additional information can be found in the Company's presentation, available at www.pdce.com.

In the Delaware Basin, PDC invested approximately $30 million to operate one drilling rig and a part-time completion crew, resulting in four spuds and zero TILs. Total production was 1.8 million Boe, or approximately 20,500 Boe per day, while oil production was approximately 700,000 Bbls, or approximately 7,500 Boe per day. Year-to-date, the Company is averaging approximately 17 days from spud to rig-release, representing a 20 percent improvement compared to 2021 guidance assumptions.

2021 Capital Investment and Financial Guidance

PDC's 2021 capital investment guidance of $500 million to $600 million remains unchanged as service cost inflation related to higher than anticipated crude oil prices has been relatively minor thus far. PDC is confident it can complete its 2021 operating program within the stated guidance range and is committed to demonstrating capital discipline and adjusting its operating cadence to stay within the range should service cost inflation and/or increases to expected non-operated activity warrant.

Further, in accordance with year-to-date commodity prices and expected pricing for the remainder of the year, the Company has adjusted its internal budget-related pricing to $55 per Bbl WTI, $2.50 per Mcf NYMEX natural gas and $15 NGL realizations. Under these assumptions, PDC now expects to generate more than $600 million of FCF and exit the year with a leverage ratio of approximately 1.0x.

Keeping percent realizations constant, the Company projects commodity price fluctuations to change its estimated adjusted cash flows from operations as follows:

2021 Estimated Commodity Price Sensitivity
Commodity Price Change: Adjusted Cash Flows from Operations Change
  (millions)
$5.00 change in NYMEX crude oil price $40
$0.25 change in NYMEX natural gas price $12
$1.00 change in composite NGLs price $15

In accordance with the increase to projected FCF, PDC has also increased its target 2021 debt reduction total to more than $350 million from more than $200 million, and its planned shareholder returns, consisting of stock repurchases and future dividend payments, to more than $150 million from more than $120 million. The remaining FCF is expected to flex between further debt reduction, additional shareholder returns and working capital needs as dictated by macro-level conditions such as commodity prices and PDC share price. PDC's plan to initiate a quarterly dividend, expected to commence mid-2021 with a target one to two percent annualized yield, remains unchanged.

The Company's expected total production range of 190,000 to 200,000 Boe per day, anticipated oil production range of 64,000 to 68,000 Bbls per day and projected year-over-year fourth quarter exit rate growth of ten to 15 percent also remain unchanged.

The table below provides additional 2021 financial guidance:

  Low   High
Production (MBoe/d) 190     200  
Capital investments (millions) $ 500     $ 600  
       
Operating Expenses      
Lease Operating expense ("LOE") (millions) $ 165     $ 175  
Transportation, Gathering & Processing expense ("TGP") ($/Boe) $ 1.40     $ 1.60  
Production Taxes (% of Crude oil, natural gas & NGLs sales) 6.5 %   7.5 %
General & Administrative expense ("G&A") (millions) $ 120     $ 125  
       
Estimated Price Realizations (excludes TGP)      
Crude oil (% of NYMEX) 95 %   98 %
Natural gas (% of NYMEX) 70 %   80 %

Quarterly Commentary

PDC expects to invest nearly $200 million in the second quarter of 2021 to operate a full-time drilling rig and completion crew in each basin, while delivering total production and oil production equating to five to ten percent sequential growth compared to the first quarter on a daily basis. Under its updated commodity price assumptions, the Company projects more than $75 million of FCF.

Multi-Year Outlook

The Company's planned capital investments and operating activity through 2023 remains unchanged. Assuming $55 per Bbl WTI, $2.50 per Mcf NYMEX natural gas and $15 NGL realizations, PDC now expects to generate more than $600 million of FCF in each of the next three years. The projected cumulative FCF of $1.8 to $2.0 billion equates to more than 50 percent of PDC's current market cap and more than 40 percent of the current enterprise value.

Under the same price assumptions, PDC's reinvestment rate equates to less than 50 percent of its adjusted cash flows from operations in the development of crude oil and natural gas. Further, the Company plans to pay down at least $850 million of total debt and return more than $650 million of capital to shareholders through its stock repurchase program and future dividend program.

The targets represent increases from prior projections of $600 million of debt reduction and $500 million of shareholder returns. Similar to 2021 expectations, remaining cash flows are expected to flex between further debt reduction, additional shareholder returns and working capital needs as dictated by macro-level conditions such as commodity prices and PDC share price.

Hedging Overview

In 2021, the Company has approximately 14.0 MMBbls of oil hedges at a weighted-average floor price of approximately $45 per Bbl. Excluding approximately 3.3 MMBbls of settled hedges in the first quarter, the Company's remaining swaps and costless collars represent approximately 60 percent of its projected oil volumes through year-end. Approximately 55 percent of the Company's estimated gas production between the second and fourth quarters are protected at approximately $2.45 per MMBtu. PDC has completed its base layer hedging for 2022 and begun layering in preliminary 2023 positions.

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.


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