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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Investors welcomed plans from PDC Energy Incorporated (NASDAQ:PDCE) (Denver, Colorado) to trim its planned capital outlays for 2015, but increase its production of oil and gas, mostly from the Wattenberg Field, which is north of Denver. The company's stock rose about 10% in the week after it announced its 2014 earnings and 2015 capital spending plans on February 19. Year-to-date, PDC's stock is up about 30% in the face of sharply lower prices for crude oil and continued soft prices for natural gas.
Chief Executive Barton Brookman told investors PDC will reduce planned 2015 capital spending by about 15%, to $473 million from the $557 million that was originally planned. But production from continuing operations will increase about 50% this year, to between 13.5 million barrels of oil equivalent (MMboe) and 14.5 MMboe. The company produced 9.3 MMboe in 2014, an increase of 42% from continuing operations in 2013. Last year, PDC sold some dry gas assets in the Marcellus Shale last year as part of its transition to more liquids-oriented company.
In a February 19 earnings call with investors, Brookman said: "2014 was an excellent year for PDC as we continued to execute on our long-term growth strategy. We significantly grew production and cash flow while again achieving double-digit growth in proved reserves. We completed our transition to a liquids-rich portfolio with the divestiture of our Marcellus assets, which increased our crude oil and NGLs [natural gas liquids] production mix to approximately 65%."
"In 2015, we are focusing on further development of our inner and middle core Wattenberg assets, while maintaining a strong balance sheet with top-tier debt metrics," he continued. "We have seen significant reductions to our capital cost structure and expect to benefit from strong operational enhancements, both of which will increase our drilling economics in 2015."
Many oil and gas producers have lowered their capital spending plans for 2015 in the face of sharply lower crude-oil prices. But, like PDC, many also are projecting higher production this year, mainly by capturing operational efficiencies in the field and postponing some of their more aggressive development plans. Since hitting a high of nearly $108 last June, prices for West Texas Intermediate (WTI) have fallen more than 50% to a recent price of about $50 per barrel. Prices for Brent, a global crude oil benchmark, have tumbled by a similar percentage. Cash prices for natural gas at Henry Hub were hovering around $3.10 per million British thermal units (MMBtu), down about 30% from the comparable year-earlier price of about $4.50 per MMBtu. Much colder-than-average weather drove up the prices of gas for the first two months of 2015, as it did for the first two months of 2014.
For all of 2014, PDC earned $155.4 million compared to a loss of $22.3 million in 2013. Operating revenue increased 38% to $471.4 million last year from $340.8 million in 2013. Last year's results were boosted by a $309 million gain from commodity price risk-management activities, as well as the sale of its Marcellus assets, which brought in about $250 million. The company booked a $76 million gain on the sale of those assets.
Brookman also told investors that PDC has hedged the majority of its oil and gas output for 2015 and 2016, which will insulate the company from daily price volatility for those commodities. The company has "protected" about 85% of its crude-oil volumes at $89 per barrel for 2015, he said. For 2016, about 4.1 million barrels of crude-oil production are "protected" at about $85 per barrel. On the gas side, Brookman said PDC has protected about 75% of planned production at about $4 per thousand cubic feet (Mcf) this year, and about 30 billion cubic feet of production, also at about $4 per Mcf, for 2016.
PDC has "top tier economics" in its core Wattenberg drilling program, Brookman continued. Two of the zones PDC produces from will generate internal rates of return of between 43% and 68% when oil and gas are priced at $60 per barrel and $3.25 per Mcf, respectively.
The company also trimmed production costs about 10% last year. In 2014, PDC spent about $9 to produce each barrel of oil equivalent (boe). In 2013, by contrast, those costs were $9.94 per boe. Those costs include lease operating expenses, production taxes, transportation, gathering and processing expenses and certain production and engineering staff-related overhead costs, as well as other costs to operate its equipment.
In conclusion, Brookman noted: "These improvements generate solid returns for PDC and our shareholders, even in this challenging commodity price environment. The Company is well-positioned, both financially and operationally, to continue its track record of strong organic growth."
"By focusing on cost-reduction last year, while commodity prices were higher, PDC has positioned itself well for the current price environment," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "They were wise to continue their hedges into 2015 and 2016. No one knows where oil and gas prices are going this year or the next, but locking in high prices for both commodities means investors and executive management will have fewer anxieties as markets sort themselves out."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
Chief Executive Barton Brookman told investors PDC will reduce planned 2015 capital spending by about 15%, to $473 million from the $557 million that was originally planned. But production from continuing operations will increase about 50% this year, to between 13.5 million barrels of oil equivalent (MMboe) and 14.5 MMboe. The company produced 9.3 MMboe in 2014, an increase of 42% from continuing operations in 2013. Last year, PDC sold some dry gas assets in the Marcellus Shale last year as part of its transition to more liquids-oriented company.
In a February 19 earnings call with investors, Brookman said: "2014 was an excellent year for PDC as we continued to execute on our long-term growth strategy. We significantly grew production and cash flow while again achieving double-digit growth in proved reserves. We completed our transition to a liquids-rich portfolio with the divestiture of our Marcellus assets, which increased our crude oil and NGLs [natural gas liquids] production mix to approximately 65%."
"In 2015, we are focusing on further development of our inner and middle core Wattenberg assets, while maintaining a strong balance sheet with top-tier debt metrics," he continued. "We have seen significant reductions to our capital cost structure and expect to benefit from strong operational enhancements, both of which will increase our drilling economics in 2015."
Many oil and gas producers have lowered their capital spending plans for 2015 in the face of sharply lower crude-oil prices. But, like PDC, many also are projecting higher production this year, mainly by capturing operational efficiencies in the field and postponing some of their more aggressive development plans. Since hitting a high of nearly $108 last June, prices for West Texas Intermediate (WTI) have fallen more than 50% to a recent price of about $50 per barrel. Prices for Brent, a global crude oil benchmark, have tumbled by a similar percentage. Cash prices for natural gas at Henry Hub were hovering around $3.10 per million British thermal units (MMBtu), down about 30% from the comparable year-earlier price of about $4.50 per MMBtu. Much colder-than-average weather drove up the prices of gas for the first two months of 2015, as it did for the first two months of 2014.
For all of 2014, PDC earned $155.4 million compared to a loss of $22.3 million in 2013. Operating revenue increased 38% to $471.4 million last year from $340.8 million in 2013. Last year's results were boosted by a $309 million gain from commodity price risk-management activities, as well as the sale of its Marcellus assets, which brought in about $250 million. The company booked a $76 million gain on the sale of those assets.
Brookman also told investors that PDC has hedged the majority of its oil and gas output for 2015 and 2016, which will insulate the company from daily price volatility for those commodities. The company has "protected" about 85% of its crude-oil volumes at $89 per barrel for 2015, he said. For 2016, about 4.1 million barrels of crude-oil production are "protected" at about $85 per barrel. On the gas side, Brookman said PDC has protected about 75% of planned production at about $4 per thousand cubic feet (Mcf) this year, and about 30 billion cubic feet of production, also at about $4 per Mcf, for 2016.
PDC has "top tier economics" in its core Wattenberg drilling program, Brookman continued. Two of the zones PDC produces from will generate internal rates of return of between 43% and 68% when oil and gas are priced at $60 per barrel and $3.25 per Mcf, respectively.
The company also trimmed production costs about 10% last year. In 2014, PDC spent about $9 to produce each barrel of oil equivalent (boe). In 2013, by contrast, those costs were $9.94 per boe. Those costs include lease operating expenses, production taxes, transportation, gathering and processing expenses and certain production and engineering staff-related overhead costs, as well as other costs to operate its equipment.
In conclusion, Brookman noted: "These improvements generate solid returns for PDC and our shareholders, even in this challenging commodity price environment. The Company is well-positioned, both financially and operationally, to continue its track record of strong organic growth."
"By focusing on cost-reduction last year, while commodity prices were higher, PDC has positioned itself well for the current price environment," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "They were wise to continue their hedges into 2015 and 2016. No one knows where oil and gas prices are going this year or the next, but locking in high prices for both commodities means investors and executive management will have fewer anxieties as markets sort themselves out."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
