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PDC Energy Second Quarter 2022 Results

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   |    Thursday,August 04,2022

PDC Energy, Inc. announced its 2022 second quarter financial and operating results, and provided second half 2022 guidance.

The company also announced receiving Completeness Determination on the Guanella Comprehensive Area Plan (CAP) application.

CAP Application

On August 2, the Company passed a major milestone in the permitting process by receiving the Completeness Determination on its Guanella CAP from the Colorado Oil & Gas Conservation Commission. The Guanella CAP covers approximately 35,000 consolidated net acres in rural Weld County with approximately 450 well locations accessed by only 22 surface locations. With the Completeness Determination passed, PDC now enters the technical review phase and 60-day public comment period.

In June 2022, PDC was granted unanimous approval for a 69-well Oil and Gas Development Plan and a 30-well OGDP, the Company's second and third approval under the new permitting process. Combined, these two approvals provided the Company 99 additional permits. Together, these approvals and the in progress Guanella CAP application, represent the Company's planned Wattenberg Field turn-in-line ("TIL") activity into 2028. Over the coming months, the Company expects to submit several additional OGDPs expanding its inventory of permitted locations to support the most efficient development of the core Wattenberg Field.

2022 Second Quarter Highlights:

  • Net cash from operating activities of approximately $747 million, adjusted cash flows from operations, a non-U.S. GAAP metric defined below, of approximately $695 million and oil and gas capital investments of approximately $290 million.

  • Approximately $405 million of adjusted free cash flow ("FCF"), a non-U.S. GAAP metric defined below.

  • Returned approximately $250 million of capital to shareholders through the repurchase of approximately 3.0 million shares of common stock outstanding and a $0.35 base dividend.

  • Closed on acquisition of Great Western Petroleum, LLC (the "Great Western Acquisition") on May 6, 2022.

  • Extended multi-year DJ Basin permit inventory with approval of Kenosha and Broe OGDP permits accounting for 99 new wells.

  • Total production of 21.4 million barrels of oil equivalent ("MMBoe") or approximately 235,000 Boe per day and oil production of 6.8 million barrels ("MMBbls") or approximately 75,000 Bbls per day.

President and Chief Executive Officer, Bart Brookman, commented, "I commend our regulatory team at PDC and am pleased with the working relationship we have developed with the COGCC. In June, we obtained 99 additional permits, extending our mapped turn-in-line schedule well into 2025. Today's announcement of the Completeness Determination on the Guanella CAP marks another key accomplishment in providing long-term visibility into the drilling permit process. We look forward to continuing this approval track record with our Guanella CAP and future OGDPs.

"For the quarter, we closed on the $1.4 billion Great Western transaction, which honored all PDC's acquisition criteria and added complementary core inventory to our Wattenberg asset. The teams are diligently working to blend the two companies and we anticipate full integration will be complete by the end of 3rd quarter.

"Our results for the quarter are highlighted by the Company's ability to generate more than $400 million in adjusted free cash flow (FCF) while returning approximately $250 million of capital to shareholders through the repurchase of common stock and base dividends. This represents an annualized free cash flow yield and shareholder return yield of approximately 26% and 16% respectively. PDC increased its base quarterly dividend to $0.35 per share after closing the Great Western acquisition, and remains committed to returning a minimum of 60% of its quarterly post dividend annual FCF to shareholders through the Company's share repurchase program and a year-end special dividend if needed."

Operations Update

In the second quarter of 2022, PDC invested approximately $290 million while delivering total production of 21.4 million Boe, or approximately 235,000 Boe per day, and oil production of 6.8 million barrels, or approximately 75,000 barrels per day. Total production and oil production represent a sequential increase of 19 percent and 17 percent respectively, compared to the first quarter of 2022, primarily driven by the production volumes from the Great Western Acquisition. Production came in lower than guidance as a result of a small number of compounding near term operational constraints including downtime associated with moving wells on the Great Western Raindance pad to gas lift, timing of temporary unplanned maintenance on third party midstream systems in the Wattenberg Field and delays in securing workover rigs in the Delaware Basin.

In the Wattenberg Field, the Company invested approximately $230 million to operate an average of three drilling rigs and one and a half completion crews in the second quarter, resulting in 54 spuds and 33 TILs and 50 in-process wells PDC acquired as part of the Great Western Acquisition. Shortly after closing of the Great Western Acquisition on May 6th, the Company dropped one of the two rigs that Great Western was operating. Considering the two rigs operated by PDC and one rig from Great Western, we operated a three rig program for the majority of the second quarter. Total production was 18.3 million Boe, or approximately 201,000 Boe per day, while oil production was approximately 5.5 million Bbls, or approximately 60,000 Bbls per day. PDC exited the second quarter with approximately 190 drilled, uncompleted wells ("DUCs") and approximately 455 approved permits in-hand.

In June, the Company began moving the 35 well Raindance pad, located in a lower gas-oil ratio part of the core Wattenberg onto gas lift which required adjacent wells to be temporarily shut-in while equipment was moved and installed. Initial production response from wells where gas lift has been installed and been brought back online are meeting expectations and currently support longer term production forecasts. This work is expected to continue into the second half of the year and the impacts have been incorporated into our second half 2022 production guidance.

In the Delaware Basin, PDC invested approximately $60 million to operate one drilling rig and a completion crew, resulting in 4 spuds and 9 TILs. Total production was 3.1 million Boe, or approximately 34,000 Boe per day, while oil production was approximately 1.3 million Boe, or approximately 14,000 Boe per day.

Shareholder Returns and Financial Position

The Company returned approximately $250 million of capital to shareholders through the repurchase of approximately 3.0 million shares of common stock outstanding and its a $0.35 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. PDC remains 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 a year-end special dividend, if needed.

The Company had approximately $39 million cash on hand and approximately $755 million drawn on the credit facility as of June 30, 2022. The leverage ratio was 0.7x at June 30, 2022.

Second Half and Full Year 2022 Outlook

For the second half, the Company expects total production to be in a range of 245,000-255,000 Boe per day and 80,000-84,000 Bbls per day of oil production. Capital investments in crude oil and natural gas properties are expected to be between $515 and $565 million.

Based on our current operating results from the first half of the year, we now expect full-year 2022 production to range between 230,000 Boe to 240,000 Boe per day, of which approximately 73,000 Bbls to 77,000 Bbls is expected to be crude oil. Our planned 2022 capital investments in crude oil and natural gas properties are expected to be between $1.025 and $1.075 billion.

Environmental, Social and Governance (ESG)

Through the first six months of 2022, the Company is on schedule with its planned projects to meet its 15% and 30% GHG and methane reduction targets for the full year 2022, respectively.

The Company surpassed the four year mark with no lost time work injuries in both the Wattenberg and Delaware basins. Through the first six months of 2022, PDCE employee Total OSHA Recordable Injury Rate (TRIR) was 0.34, a mark ahead of the corporate target of 0.4.

Including its existing environmental, health and safety performance bonus metrics, along with GHG and methane intensity reduction goals, ESG is projected to account for approximately 25 percent of the Company's short-term incentive program.

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

Crude oil, natural gas and NGLs sales, excluding net settlements on derivatives were $1,238 million, a 40 percent increase compared to first quarter of 2022 of $882 million. The increase in sales between periods was due to a 17 percent increase in weighted average realized sales price per Boe to $57.81 from $49.23 and a 19 percent increase in production from 17.9 MMBoe to 21.4 MMBoe. The increase in sales price was primarily driven by 15 percent and 47 percent increases in weighted average realized crude oil and natural gas prices, respectively. The combined revenue from crude oil, natural gas and NGLs sales and net settlements on commodity derivative instruments was $939 million in the second quarter of 2022 compared to $721 million in the first quarter of 2022.

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