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PDC Energy, Inc., First Quarter 2023 Results

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   |    Thursday,May 11,2023

PDC Energy, Inc., announced first quarter 2023 results.

Highlights

  • Net cash from operating activities of approximately $590 million, adjusted cash flows from operations, a non-U.S. GAAP metric defined below, of approximately $520 million and oil and gas capital investments of approximately $415 million.
  • Approximately $100 million of adjusted free cash flow ("FCF"), a non-U.S. GAAP metric defined below.
  • Returned approximately $170 million of capital to shareholders through the repurchase of approximately 2.1 million shares, or approximately 2.5 percent of common stock outstanding, and a $0.40 base dividend.
  • Total production of 22.0 million barrels of oil equivalent ("MMBoe") or approximately 244,000 Boe per day and oil production of 6.9 million barrels ("MMBbls") or approximately 77,000 Bbls per day.
  • Set aggressive, but achievable year-over-year GHG and methane intensity reduction goals for 2023 of approximately 20% and 40%, respectively.
PDC Energy announced its 2023 first quarter financial and operating results and updates second quarter production and full-year capital guidance.

President and Chief Executive Officer, Bart Brookman, commented, "Our first quarter operations established a solid foundation for executing on our full-year 2023 plan and marked our most operationally intensive quarter for the year, with four rigs running and three completion crews across our asset base. We began to see the production response from this activity level at the end of the first quarter when total production for March averaged 253,000 Boe per day, and oil production averaged 81,000 Bbls per day. Production continues to ramp up into the second quarter as new wells come online.

PDC remains focused on driving value through innovation and technology across all our operations. Great examples include our use of local sand in the Wattenberg to reduce well costs, the execution of 3-mile laterals in both basins, and our ongoing completion optimization efforts. These innovations along with our lower per-well cost structure will continue to improve the overall capital efficiency for the company.

As we report earnings today with production at record levels, I want to recognize an important milestone for our Company. Our DJ Basin operations have now exceeded 5 years with no lost time injuries and our Delaware team remains on track to achieve the same impressive milestone in the next month."

Operations Update

In the first quarter of 2023, PDC invested approximately $415 million while delivering total production of 22 million Boe, or approximately 244,000 Boe per day, and oil production of 6.9 million barrels, or approximately 77,000 barrels per day. Total production and oil production represent a sequential decrease of 3 percent and 6 percent, respectively, compared to the fourth quarter of 2022, primarily driven by two fewer days in the first quarter of 2023 and timing of turn-in-line activities.

In the Wattenberg Field, the Company invested approximately $330 million to operate an average of three drilling rigs and approximately two completion crews in the first quarter, resulting in 64 spuds and 55 TILs. Of the 55 TILs for the quarter, 36 occurred in the month of March. Total production was 19.4 million Boe, or approximately 216,000 Boe per day, while oil production was approximately 6.0 million Bbls, or approximately 67,000 Bbls per day. PDC exited the first quarter with 209 drilled, uncompleted wells ("DUCs").

In the Delaware Basin, PDC invested approximately $85 million to operate one drilling rig and one completion crew, resulting in 9 spuds and 6 TILs. Total production was 2.6 million Boe, or approximately 28,000 Boe per day, while oil production was approximately 0.9 million Boe, or approximately 10,000 Boe per day.

Q1 2023 Shareholder Returns and Financial Position

The Company returned approximately $170 million of capital to shareholders in the first quarter through the repurchase of approximately 2.1 million shares of common stock and a $0.40 per share base quarterly dividend. In February 2023, our board of directors approved a $750 million increase in the size of our stock repurchase program resulting in an aggregate authorization of $2 billion, which is currently expected to be utilized by year end 2025. PDC remains committed to returning a minimum of 60 percent of its annual post-dividend FCF to shareholders through the Company's share repurchase program and a year-end special dividend, if needed.

At quarter end, the Company had approximately $15 million cash on hand and approximately $350 million drawn on its credit facility. The net leverage ratio was 0.5x at March 31, 2023.

Full-Year 2023 and Second Quarter Outlook

For the full-year 2023, we reaffirm our total production guidance range of 255,000 Boe to 265,000 Boe per day and our crude oil production range of 82,000 Bbls to 86,000 Bbls. Our planned 2023 capital investments in crude oil and natural gas properties are now expected to be approximately $1,350 to $1,450 million reflecting some of the pass through cost savings primarily associated with steel, sand and fuel we have realized for the year.

For the second quarter, the Company increased the midpoint of its prior guidance and now expects total production to be in a range of 265,000-277,000 Boe per day and 87,000-92,000 Bbls per day of oil production. The increase is primarily a result of timing of turn-in-line activity from two large pads in the Wattenberg Field at the end of the first quarter that will now contribute more to the second quarter. Capital investments in crude oil and natural gas properties for the second quarter are expected to be approximately $325 - $400 million, unchanged from our prior guidance as realized savings are expected to be offset by a slight push of capital from first quarter activity.

Environmental, Social and Governance ("ESG")

In the first quarter, PDC submitted its final 2022 emissions data to the EPA and ultimately recorded 32% and 58% reductions in GHG and methane emissions intensity, respectively. As we continue to strive for improvement, we set aggressive, but achievable year-over-year GHG and methane intensity reduction goals for 2023 of approximately 20% and 40%, respectively.

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

Crude oil, natural gas and NGLs sales, excluding net settlements on derivatives, were $813 million, a 17 percent decrease compared to fourth quarter of 2022 of $976 million. The decrease in sales between periods was due to a 14 percent decrease in the weighted average realized sales price per Boe to $37.02 from $42.95 and a 3 percent decrease in production from 22.7 MMBoe to 22.0 MMBoe. The decrease in sales price was primarily driven by a 10 percent, 27 percent and 2 percent decrease in weighted average realized crude oil, natural gas and NGLs prices, respectively. The combined revenue from crude oil, natural gas and NGLs sales and net settlements on commodity derivative instruments was $727 million in the first quarter of 2023 compared to $809 million in the fourth quarter 2022.

Production costs for the first quarter of 2023, which include lease operating expenses ("LOE"), production taxes and TGP, were $162 million, or $7.35 per Boe, compared to $165 million, or $7.28 per Boe, in the fourth quarter of 2022.

Financial Results

Net income for the first quarter of 2023 was $414 million, or $4.64 per diluted share, compared to $350 million, or $3.79 per diluted share, in the fourth quarter of 2022. The quarter-over-quarter change was primarily due to a $144 million commodity risk management gain in the first quarter of 2023 compared to a $100 million commodity risk management loss in the fourth quarter of 2022 partially offset by a decrease in crude oil, natural gas and NGLs sales of $163 million and an increase in income tax expense of $17 million between periods. Adjusted net income, a non-U.S. GAAP financial measure defined below, was $233 million in the first quarter of 2023 compared to $297 million in the fourth quarter of 2022. The movement between periods is primarily attributable to the change in sales and income tax expense partially offset by settled derivatives.

Net cash from operating activities for the first quarter of 2023 was approximately $588 million compared to $688 million in the fourth quarter of 2022. Adjusted cash flows from operations, a non-U.S. GAAP metric defined below, was approximately $518 million and $604 million in the first quarter of 2023 and fourth quarter of 2022, respectively. The quarter-over-quarter decrease in adjusted cash flows from operations was primarily due to a $163 million decrease in sales partially offset by an $81 million decrease in derivative settlement losses between periods. Adjusted free cash flows, a non-U.S. GAAP metric defined below, decreased to $101 million from $258 million in the fourth quarter of 2022 due to a decrease in adjusted cash flows from operations and in increase capital expenditures between periods.

G&A, which includes cash and non-cash expense, was $41 million, or $1.89 per Boe, in the first quarter of 2023 compared to $36 million, or $1.60 per Boe, in the fourth quarter of 2022.

Reconciliation of Non-U.S. GAAP Financial Measures

We use "adjusted cash flows from operations," "adjusted free cash flow (deficit)" and "adjusted net income (loss)," non-U.S. GAAP financial measures, for internal management reporting, when evaluating period-to-period changes and, in some cases, in providing public guidance on possible future results. In addition, we believe these are measures of our fundamental business and can be useful to us, investors, lenders and other parties in the evaluation of our performance relative to our peers and in assessing acquisition opportunities and capital expenditure projects. These supplemental measures are not measures of financial performance under U.S. GAAP and should be considered in addition to, not as a substitute for, net income (loss) or cash flows from operations, investing or financing activities and should not be viewed as liquidity measures or indicators of cash flows reported in accordance with U.S. GAAP. The non-U.S. GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. In the future, we may disclose different non-U.S. GAAP financial measures in order to help us and our investors more meaningfully evaluate and compare our future results of operations to our previously reported results of operations. We strongly encourage investors to review our financial statements and publicly filed reports in their entirety and to not rely on any single financial measure.

Adjusted cash flows from operations and adjusted free cash flow (deficit). We believe adjusted cash flows from operations can provide additional transparency into the drivers of trends in our operating cash flows, such as production, realized sales prices and operating costs, as it disregards the timing of settlement of operating assets and liabilities. We believe adjusted free cash flow (deficit) provides additional information that may be useful in an investor analysis of our ability to generate cash from operating activities from our existing oil and gas asset base to fund exploration and development activities and to return capital to stockholders in the period in which the related transactions occurred. We exclude from this measure cash receipts and expenditures related to acquisitions and divestitures of oil and gas properties and capital expenditures for other properties and equipment, which are not reflective of the cash generated or used by ongoing activities on our existing producing properties and, in the case of acquisitions and divestitures, may be evaluated separately in terms of their impact on our performance and liquidity. Adjusted free cash flow is a supplemental measure of liquidity and should not be viewed as a substitute for cash flows from operations because it excludes certain required cash expenditures. For example, we may have mandatory debt service requirements or other non-discretionary expenditures which are not deducted from the adjusted free cash flow measure.

We are unable to present a reconciliation of forward-looking adjusted cash flow because components of the calculation, including fluctuations in working capital accounts, are inherently unpredictable. Moreover, estimating the most directly comparable GAAP measure with the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort. We believe that forward-looking estimates of adjusted cash flow are important to investors because they assist in the analysis of our ability to generate cash from our operations.

Adjusted net income (loss). We believe that adjusted net income (loss) provides additional transparency into operating trends, such as production, realized sales prices, operating costs and net settlements on commodity derivative contracts, because it disregards changes in our net income (loss) from mark-to-market adjustments resulting from net changes in the fair value of our unsettled commodity derivative contracts, and these changes are not directly reflective of our operating performance.



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