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PDC Energy Third Quarter 2021 Results

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   |    Wednesday,November 10,2021

PDC Energy, Inc. announced its 2021 third quarter financial and operating results, increased its anticipated adjusted free cash flow expectations and amount of targeted shareholder returns in 2021.

Third Quarter Company Highlights:

  • Net cash from operating activities of approximately $450 million, adjusted cash flows from operations, a non-U.S. GAAP metric defined below, of approximately $417 million and oil and gas capital investments of approximately $149 million.

  • Approximately $268 million of adjusted free cash flow ("FCF"), a non-U.S. GAAP metric defined below.

  • Returned approximately $72 million of total capital to shareholders through the Company's quarterly dividend of $0.12 per share (~$12 million) and the repurchase of approximately 1.5 million shares of common stock outstanding (~$60 million).

  • Reduced total debt by $200 million through the retirement of the Company's 1.125% 2021 Convertible Notes.

  • Total production of 18.8 million barrels of oil equivalent ("MMBoe") or approximately 204,000 Boe per day and oil production of 6.1 million barrels ("MMBbls") or nearly 66,500 Bbls per day.

  • Received approval for the eight-well Spinney Oil and Gas Development Plan ("OGDP") from the Colorado Oil and Gas Conservation Commission ("COGCC") and submitted the permit application for the Company's 70-well Kenosha OGDP.

  • In November, the Company entered into its fifth amended and restated credit facility now set to mature in November 2026. The Company has a $2.4 billion borrowing base with an elected commitment level of $1.5 billion. Further, the Company and its syndicate have included the ability to add certain sustainability-linked key performance indicators to be agreed upon between parties that may impact the applicable margin and commitment fee rate.

President and Chief Executive Officer Bart Brookman commented, "The third quarter was another outstanding quarter for PDC. Our team continues to operate safely and efficiently, and we are pleased we received our first batch of approved drilling permits under new Colorado regulations. The Company's commitment to debt reduction and shareholder returns stands firm. Along those lines, we expect to exceed our prior debt reduction and shareholder return goals for the year and have once again raised the bar, now projecting $650 million of debt reduction and more than $210 million of shareholder returns in 2021."

Q3 Financial and Operating Results

In the third quarter of 2021, PDC generated approximately $268 million of FCF and reduced total debt by approximately $200 million, exiting the quarter with a trailing twelve-month net leverage ratio of 0.8x. Additionally, PDC returned approximately $72 million of capital to shareholders through the $0.12 per share payment of its quarterly dividend and the repurchase of approximately 1.5 million shares of common stock outstanding.

The Company invested approximately $149 million in the development of crude oil and natural gas while delivering total production of 18.8 MMBoe, or 204,000 Boe per day, and oil production of 6.1 MMBbls, or 66,500 Bbls per day. Daily total production and daily oil production represent approximately seven and twelve percent sequential increases from the second quarter of 2021. On September 30, the Company provided anticipated third quarter production ranges of 197,000 to 200,000 Boe per day and 63,000 to 65,000 Bbls of oil per day. Third quarter total production and oil production exceeded the previously provided ranges primarily due to a net revenue interest ("NRI") adjustment to a 26-well Wattenberg pad turned-in-line ("TIL") in June 2021. In early October, the Company received NRI clarification resulting in an increase to each third quarter total production and oil production.

In Wattenberg, the Company invested approximately $115 million to operate one drilling rig and one completion crew in the third quarter, resulting in 20 spuds and 57 TILs. Third quarter Wattenberg TILs represent an increase of more than 150 percent compared to the second quarter as there were significantly more one- and one and a half mile laterals TIL'd. Total production was 16.0 MMBoe, or approximately 175,000 Boe per day, while oil production was 4.9 MMBbls, or approximately 53,500 Bbls per day. The increase in volumes between periods was primarily attributable to the increase in TILs between periods.

PDC exited the third quarter with approximately 160 drilled, uncompleted wells ("DUCs") and approximately 225 approved permits in-hand, which excludes the eight-well Spinney OGDP that was approved by the COGCC in early October. Further, the Company submitted its 70-well Kenosha OGDP permit application on September 30 and continues to target the year-end 2021 timeframe for submittal of its 450-well Guanella Comprehensive Area Plan ("CAP"). PDC projects its current DUCs and approved permit backlog to be sufficient for all completion activity through 2023.

In the Delaware Basin, PDC invested approximately $35 million to operate one drilling rig, resulting in five spuds and zero TILs in the quarter as the Company finished its 2021 completion activity in the second quarter. Total production was 2.7 MMBoe, or approximately 29,500 Boe per day, while oil production was approximately 1.2 MMBbls, or approximately 13,000 barrels per day. Late in the third quarter, the Company performed clean outs, modified its artificial lift program by testing electrical submersible pumps on two wells and completed several workover projects, all with encouraging early results.

2021 Capital Investment & Guidance

In 2021, PDC projects to generate more than $900 million of FCF, including more than $300 million in the fourth quarter, assuming $75 per Bbl WTI, $5.00 per Mcf NYMEX natural gas and NGL realizations of approximately $30 per Bbl for the remainder of the year. In the fourth quarter, the Company redeemed $200 million of its $400 million 6.125% senior notes due 2024 and plans to retire the remaining $102 million of its 6.25% senior notes due 2025 in December. Upon settlement of each liability management item, and in combination with successful year-to-date debt reduction efforts, PDC expects to surpass its year-end goal of reaching $1 billion of total debt. Total debt reduction in 2021 is projected to approximate $650 million with an anticipated long-term debt balance of approximately $950 million at year-end. Further, the Company's trailing-twelve-month net leverage ratio is expected to be approximately 0.5x at year-end compared to 1.7x at year-end 2020.

With its near-term debt balance goals met, PDC plans to shift its FCF allocation strategy towards increased shareholder returns. As such, the Company has increased its 2021 shareholder return commitment to more than $210 million from the prior goal of $180 million. As of September 30, PDC had returned approximately $130 million of capital to shareholders, with $24 million attributable to two quarterly base dividend payments of $0.12 per share, and approximately $108 million through the repurchase of approximately 2.7 million shares. To reach its modified goal of more than $210 million by year-end, the Company intends to return more than $80 million of capital to shareholders in the fourth quarter. Due to potential limitations associated with the Company's existing share repurchase program, including the number of trading days remaining in the year and the number of shares scheduled to be repurchased at various share prices, PDC will give consideration to paying a special dividend in the fourth quarter, if needed - and subject to Board approval, to ensure it meets its full-year return of capital commitment.

In the fourth quarter, PDC expects to invest less than $150 million, resulting in full-year anticipated capital investments towards the top of its $550 to $600 million range. Production in the fourth quarter is expected to average between 200,000 and 205,000 Boe per day while oil production is expected to average between 66,000 and 69,000 Bbls per day. Each total production and oil production are expected to fall within the Company's revised full-year ranges provided in September of 190,000 to 195,000 Boe per day and 60,000 to 63,000 Bbls per day.

The table below provides additional 2021 financial guidance (unchanged from prior guidance):

  Low   High
Operating Expenses      
Lease Operating expense ("LOE") (millions) $ 175     $ 180  
Transportation, Gathering & Processing expense ("TGP") ($/Boe) $ 1.40     $ 1.60  
Production Taxes (% of Crude oil, natural gas & NGLs sales) 6.0 %   7.0 %
General & Administrative expense ("G&A") (millions) $ 125     $ 130  
Estimated Price Realizations (excludes TGP)      
Crude oil (% of NYMEX) 95 %   98 %
Natural gas (% of NYMEX) 70 %   80 %

Multi-Year Outlook

The Company's planned levels of operating activity through 2023 remain generally unchanged. Assuming the aforementioned fourth quarter 2021 pricing and mid-cycle commodity pricing, below current strip, of $65 and $60 per Bbl WTI in 2022 and 2023, respectively, and $3.00 per Mcf NYMEX natural gas and $17.50 NGL realizations in each 2022 and 2023, PDC expects to generate more than $2.5 billion of after-tax FCF from 2021 through 2023. The Company is aiming to reduce total debt by $1 billion and return at least $1 billion to shareholders over the three-year timeframe.

Q3 Production, Sales and Operating Cost Data

Crude oil, natural gas and NGLs sales, excluding net settlements on derivatives were $703 million, a 123 percent increase over 2020 levels of $315 million. The increase in sales between periods was due to a 111 percent increase in weighted average realized sales price per Boe to $37.47 from $17.79. The increase in sales price was driven by 85 percent, 200 percent and 184 percent increases in weighted average realized crude oil, natural gas and NGL prices, respectively. The combined revenue from crude oil, natural gas and NGLs sales and net settlements on commodity derivative instruments was approximately $486 million in 2021 compared to approximately $249 million in 2020.

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