Exploration & Production | Production | Reserves

PDC's Wattenberg, Utica Ops Boost Production 51%

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   |    Thursday,January 29,2015

PDC Energy, Inc. reported year-end 2014 reserves and production.

Operational Update

PDC's full-year 2014 production was approximately 9.3 MMBoe or 25,460 Boe per day from its continuing operations in Wattenberg and Utica, a 51% increase compared to 2013 production from those two areas. In the fourth quarter, the Company turned-in-line 41 horizontal wells, including 37 wells in the Wattenberg Field and the 4-well Dynamite Pad in Utica. In 2015, the Company is implementing two initiatives to enhance capital efficiency in the Wattenberg Field. The first is tighter spacing between frac stages which is projected to increase per well expected ultimate recovery (EUR) by approximately 10%. Secondly, the Company plans to drill 40% of its wells in 2015 with extended laterals (approximately 6,500' to 7,000') which are expected to increase per well EURs by 30% to 50%. The Company also anticipates its service costs may be reduced by 10% to 25% in 2015 due to low commodity prices; such cost reductions, however, are not yet reflected in its 2015 capital budget of $557 million.

2014 Proved Reserves (1P)

PDC's total proved reserves as of December 31, 2014 increased 11% to 250 million barrels of oil equivalent (MMBoe), compared to 226 MMBoe reported as of December 31, 2013, after adjusting for the subsequent divestiture of its Marcellus dry-gas assets. The value of the Company's proved reserves, discounted at ten percent and before tax, increased to $3.5 billion as of December 31, 2014 compared with $2.7 billion as of year-end 2013, driven primarily by reserve additions in the Wattenberg Field. Proved reserves at year-end 2014 were comprised of approximately 64% liquids and 36% natural gas and are 30% proved developed.

The Company's proved reserve additions included further downspacing in the Wattenberg Field and an increase in per well reserves in its Inner Core horizontal wells targeting the Niobrara formation. Total gross proved undeveloped (PUD) horizontal locations in Wattenberg increased to 770, with 700 in the Niobrara and 70 in the Codell.

Bart Brookman, President and Chief Executive Officer, stated, "We are very pleased with our year-end 2014 reserves and the resulting reserve replacement of 357%. We had solid, full-year 2014 production of approximately 9.3 MMBoe -- in line with our guidance for continuing operations -- despite extremely cold weather and third-party midstream issues during the fourth quarter. Our 2015 budget is based on continuing to run five drilling rigs in Wattenberg, capitalizing on the superior economics of our substantial inventory of core locations. Though we are very well hedged in 2015 and 2016, we will continue to monitor commodity prices as well as focus intensely on cost reductions and improved operational efficiencies. Most importantly, we will stay disciplined in maintaining our strong balance sheet and solid debt metrics."

PDC's independent reserve engineering firm, Ryder Scott Company, L.P., completed its estimate of the Company's year-end 2014 proved reserves in accordance with Securities and Exchange Commission (SEC) guidelines using NYMEX prices of $94.99 per barrel (Bbl) for crude oil and $4.35 per million British Thermal Units (MMBtu) for natural gas, before adjustments for energy content, quality, midstream fees, and basis differentials.

The Company has stress-tested its proved reserves to determine the impact of lower commodity prices. Replacing the 2014 SEC NYMEX commodity prices with those shown in the table below, and leaving all other parameters unchanged, results in a decrease in PDC's total proved reserves of 9% or less.

For 2014, the Company has a net increase in proved reserves of 33 MMBoe through drilling, extensions, additions and revisions. Included in the increase is approximately 41 MMBoe of net additions in the Wattenberg Field primarily as a result of optimizing the Company's five-year development plan to focus on its most economic Inner and Middle Core areas. Also included in the net increase is a negative revision of approximately 8 MMBoe as a result of the reclassification of Utica PUD reserves to the probable category due to the change in the Utica development plan. Finally, in October 2014, the Company divested its 40 MMBoe of Marcellus dry-gas assets.

The following table provides PDC's year-end 2013 and 2014 total proved reserves (1P) by operating area:

2014 Proved, Probable, and Possible Reserves (3P)

PDC's internal estimate of 3P reserves increased to 993 MMBoe as of December 31, 2014 and contains an estimated 66% liquids and 34% natural gas. The Company's 3P reserves as of December 31, 2013 adjusted for the divestiture of dry-gas Marcellus assets were 721 MMBoe. The 38% increase in the Company's 3P reserves from year-end 2013 was primarily related to additional downspacing in the Wattenberg Field.

Utica Non-Cash Impairment

The Company expects in its fourth quarter 2014 financial reporting to incur a non-cash impairment of between $150 and $170 million related to its Utica shale assets in southeast Ohio. This impairment is due to low commodity prices and large natural gas differentials in Appalachian Basin and includes both PUD reclassifications to probable related to a change in the Utica development plan and a write down of a portion of its leasehold. The Company remains committed to its Utica Shale resource in the condensate and wet gas windows.