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PDC Energy First Quarter 2022 Results

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   |    Thursday,May 05,2022

PDC Energy, Inc. announced its 2022 first quarter financial and operating results.

2022 First Quarter Highlights:

  • Net cash from operating activities of approximately $489 million, adjusted cash flows from operations, a non-U.S. GAAP metric defined below, of approximately $539 million and oil and gas capital investments of approximately $220 million.

  • Approximately $319 million of adjusted free cash flow ("FCF"), a non-U.S. GAAP metric defined below.

  • Returned $110 million of capital to shareholders through the repurchase of approximately 1.3 million shares of common stock outstanding and its base dividend.

  • Total production of 17.9 million barrels of oil equivalent ("MMBoe") or approximately 199,000 Boe per day and oil production of 5.9 million barrels ("MMBbls") or approximately 65,000 Bbls per day.

  • Executed definitive agreement to acquire Great Western Petroleum, LLC (the "Great Western Acquisition"), which is expected to close on May 6, 2022.

  • Reported an approximate 12% and 17% reduction in Greenhouse Gas ("GHG") and methane emissions, respectively in 2021.

President and Chief Executive Officer Bart Brookman commented, "PDC had a terrific start to 2022 in all facets of our business. We executed a definitive agreement to acquire Great Western Petroleum, LLC an accretive transaction to our financial, operational and emission metrics. Our operational teams continued to safely and efficiently implement our business plan by spudding 26 wells and turning in line another 49 - while simultaneously achieving strong production. In particular, I'm very proud of our Delaware Basin operations where production exceeded expectations. As a company, we are well on our way toward top tier financial results and shareholder returns. This past quarter, we increased our base dividend to a $1.00 annualized level and repurchased 1.3 million shares while also providing clarity around our shareholder return framework. We remain committed to returning at least 60% of our annual post base dividend free cash flow to shareholders. After we close the Great Western acquisition, expect a full update regarding our 2022 budget likely sometime by early June."

Operations Update

In the first quarter of 2022, PDC invested approximately $220 million while delivering total production of 17.9 million Boe, or 199,000 Boe per day, and oil production of 5.9 million barrels, or 65,000 barrels per day. Total production and oil production represent sequential decreases of six percent and five percent on a daily basis, respectively, compared to the fourth quarter of 2021, primarily due to timing and mixture of turn in line ("TILs") in the second half of 2021. Capital expenditures were higher than guidance due to increased spuds and completion stages as a result of efficiencies and certain higher than expected cost increases.

Wattenberg

In the Wattenberg field, the Company invested approximately $144 million to operate one drilling rig and one completion crew in the first quarter, resulting in 20 spuds and 40 TILs. The Company added a second rig in late March. Total production was 15.4 million Boe, or approximately 171,000 Boe per day, while oil production was approximately 4.8 million Bbls, or approximately 54,000 Bbls per day. PDC exited the first quarter with approximately 123 drilled, uncompleted wells ("DUCs") and approximately 180 approved permits in-hand.

The Company continues to make progress on securing additional permits. The Kenosha (~70 wells) Oil and Gas Development Plan ("OGDP") is on the Colorado Oil & Gas Conservation Commission ("COGCC") docket for June 8, 2022 for anticipated approval. As part of the normal process towards Completeness Determination, the Company received comments from the COGCC related to its Guanella Comprehensive Area Plan ("CAP") that the Company is evaluating as it works collaboratively with the COGCC and Weld County staff. Over the coming months, the Company expects to submit several additional OGDPs. Great Western recently received Form 2 COGCC approval to drill 10 wells on the Ocho pad in Adams County based on approved Form 2As that were previously approved. Great Western's Broe OGDP (~30 wells) has a tentative COGCC docket hearing in June.

Delaware Basin

In the Delaware Basin, PDC invested approximately $76 million to operate one drilling rig and a completion crew, resulting in six spuds and nine TILs. Total production was 2.5 million Boe, or approximately 28,000 Boe per day, while oil production was approximately 1.0 million Boe, or approximately 11,000 Boe per day. The Company has been encouraged with the results of its relaxed spacing and U Lateral program initial results on its 2022 TILs. The wells have been on flowback for approximately one to two months and have performed above expectations.

Q1 2022 Shareholder Returns and Financial Position

The Company returned $110 million of capital to shareholders through the repurchase of approximately 1.3 million shares of common stock outstanding and its $0.25 per share base quarterly dividend. The Company has a $1.25 billion share repurchase program authorized, which is expected to be utilized by year end 2023. The Company is expected to increase its base quarterly dividend to $0.35 per share after closing the Great Western Acquisition. In 2022, PDC is committed to returning a minimum of 60 percent of its quarterly post-dividend annual FCF to shareholders through the Company's share repurchase program and year-end special dividend, if needed.

The Company had $171 million cash on hand and an undrawn credit facility as of March 31, 2022. As part of its semi-annual redetermination, the borrowing base on the credit facility was recently increased 25% to $3.0 billion; the Company maintained its elected commitments of $1.5 billion. The leverage ratio was 0.4x at March 31, 2022. The Company expects to draw on its credit facility and use cash on hand to pay the cash portion and debt payoffs related to the Great Western Acquisition.

2022 Outlook

The Company intends to provide updated formal guidance on its typically guided financial and operational metrics by early June after closing the Great Western Acquisition and subsequent Board-approved budget. The outlook as provided on February 27, 2022 is currently generally unchanged.

The Company expects total production to be in a range of 225,000 to 240,000 Boe per day, with oil production of 74,000 to 81,000 Bbls per day and second half pro forma production of 250,000-260,000 Boe per day and 82,000-87,000 Bbls per day of oil production.

Capital expenditures are expected to be $950-$1,000 million, which is slightly higher than the original outlook due to expected timing of the Great Western Acquisition closing and continued anticipated oilfield service price increases.

PDC expects to invest nearly $250 -$300 million in the second quarter of 2022 to operate three full time drilling rigs and two completion crews in Wattenberg and one rig and a completion crew for a portion of the quarter in the Delaware basin, while delivering total production and oil production of 235,000-245,000 Boe per day and 78,000-82,000 Bbls per day, respectively.

The Company is committed to generating sustainable free cash flow and will update its multi-year outlook by early June with its updated formal guidance.

Environmental, Social and Governance ("ESG")

After completing its initial Environmental Protection Agency annual filing for 2021, the Company reported an approximate 12% reduction in GHG emissions and an approximate 17% reduction in methane emissions intensity from 2020 baseline levels (each on a per unit of production basis), putting the Company on track to meet its 60% and 50% GHG and methane reduction levels by 2025, respectively.

In 2022, PDC plans to modify its executive compensation program to include GHG and methane emission intensity performance targets in its quantitative short-term incentive program. Including its existing environmental, health and safety performance bonus metrics, along with GHG and methane intensity reduction goals, ESG is now projected to account for approximately 25 percent of the short-term incentive program.

Great Western Acquisition Update

On February 28, 2022, PDC announced it entered into a definitive agreement to buy Great Western Petroleum, LLC for approximately 4 million PDC shares and $543 million, plus assumed debt consisting of Great Western's credit facility balance and senior secured notes outstanding (subject to normal purchase price adjustments). The acquisition is expected to close on May 6, 2022 and will be funded with borrowings under the revolving credit facility along with cash on hand.

The Great Western Acquisition adds accretive scale to the Company's Wattenberg operations in reserves, production and operating cash flows. Per the previously announced metrics, the Great Western Acquisition brings approximately 185 MMBoe of proved reserves on 54,000 net acres with 315 future drilling locations. It is currently producing about 50,000-55,000 Boe/d, of which 42% is oil. The Company will update its pro forma cash flow outlook by early June.

Based on unaudited results for the quarter ended March 31, 2022, Great Western had $227 million drawn under its revolving credit facility and $311.9 million of senior secured notes. On April 20, 2022, Great Western provided a conditional redemption notice to the holders of its senior secured notes, with the redemption to be effective May 20, 2022 assuming the acquisition has closed by that date. The Company intends to fully satisfy and discharge all applicable covenants under the notes at closing by irrevocably depositing with the note trustee the amount necessary to redeem the notes in full (inclusive of principal, interests and applicable make whole premium).

First Quarter Oil and Gas Production, Sales and Operating Cost Data

Effective in the first quarter of 2022, PDC will present the results of the most recently completed quarter to the immediately preceding quarter, as we believe this comparison is more useful in identifying current trends of the Company. Crude oil, natural gas and NGLs sales, excluding net settlements on derivatives were $882 million, a 4 percent increase compared to fourth quarter of 2021 of $848 million. The increase in sales between periods was due to a 13 percent increase in weighted average realized sales price per Boe to $49.23 from $43.71 partially offset by an 8 percent decrease in production from 19.4 MMBoe to 17.9 MMBoe. The increase in sales price was primarily driven by 23 percent and 6 percent increases in weighted average realized crude oil and NGL prices, respectively. The combined revenue from crude oil, natural gas and NGLs sales and net settlements on commodity derivative instruments was $721 million in the first quarter of 2022 compared to $653 million in the fourth quarter of 2021.


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