PDC Energy Delivers With Earnings and 2019 Guidance


PDC Energy’s [stock_market_widget type="inline" template="generic" color="default" assets="PDCE" markup="(NASDAQ: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] recently released results for the fiscal fourth quarter and full year 2018 revealed a tremendous increase in the company’s production, which investors would have definitely liked. Additionally, the company displayed remarkable control over its cost profile during the quarter, and it looks set to do a better job this year as the guidance suggests.

PDC’s Solid 2018 Production Helps Them Capitalize on Oil Prices

In all, a combination of higher production and stronger pricing allowed PDC to deliver a 49% increase in the operating cash flow to $890 million for the year.

PDC delivered 2018 production of 40.2 million barrels of oil equivalent (BOE), or approximately 110,000 BOE per day, an increase of 26% over 2017’s production levels. Crude oil accounted for 42% of PDC’s total annual production, and increased 32% year over year. This increase in the company’s full-year production was achieved at an annual capital expense of $985 million.

Moreover, the company managed to lower its costs toward the end of the year. Its total production expenses in the fourth quarter of 2018 came in at $6.08 per BOE, lower than the full-year figure of $6.44 per barrel. Along with the lower costs, PDC also benefited from an increase in the average sales price per barrel of oil equivalent during the year, which came in at $34.61/barrel in 2018 as compared to $28.69/barrel in 2017.

In all, a combination of higher production and stronger pricing allowed PDC to deliver a 49% increase in the operating cash flow to $890 million for the year. The company’s momentum will be hurt to some extent this year thanks to a lower oil pricing environment, but that shouldn’t discourage investors from holding their PDC shares as it is on track to efficiently increase its production.

2019 Guidance Grounded in Quality CapEx Plan

PDC Energy expects to deliver 48 million barrels of oil equivalent of production this year, a 20% increase over 2018 levels. But at the same time, its capital expenses will go down to a range of $810-$870 million, a drop of nearly 15% over last year at the mid-point of the guidance range.

What’s more, PDC believes that it can generate adjusted operating cash flow of $25 million at its planned capital expenditure level, assuming a West Texas Intermediate (WTI) oil price of $50 per barrel. But if the WTI oil price averages $55 per barrel this year, the company’s adjusted operating cash flow will exceed capital expenditures by $65 million.

Now that looks likely considering that WTI oil is currently trading at more than $56 per barrel. It could go higher given the steps being taken by producers across the globe to curtail supply, as well as a potential deal between China and the U.S. to end their trade stand-off. Additionally, lower costs this year will prove to be another catalyst for PDC’s cash flow.

The company anticipates lease operating expenses of $3.00/BOE at the mid-point of its guidance range, lower than the 2018 figure of $3.26 per BOE. Similarly, PDC’s transportation expenses are also expected to drop slightly as compared to last year’s levels. As such, it isn’t surprising to see why analysts expect PDC to post a profit this year as compared to a loss in the year-ago quarter, setting the stage for potential upside going forward.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.



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