Don’t Rule Out a Turnaround at PDC Energy


PDC Energy’s [stock_market_widget type="inline" template="generic" color="default" assets="PDCE" markup="(NASDAQ: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] high-flying run on the stock market came to an abrupt end at the end of April when oil prices started tumbling. But the stock has started gaining momentum once again thanks to the recent uptick in oil prices.

Strong Production Growth Will be a Tailwind

PDC’s significant production increase was enough to offset the impact of weak oil pricing during the quarter.

In the first quarter of 2019, PDC Energy delivered production growth of 26% year over year. The company produced 125,000 barrels of oil equivalent per day during the quarter, which allowed it to boost its oil and gas sales to the tune of 5% on a year-over-year basis.

The significant production increase was enough to offset the impact of weak oil pricing during the quarter. More specifically, PDC’s average price per barrel of oil equivalent fell 16% on a year over year basis in the first quarter. But despite this drop, the company was able to deliver an adjusted net income of $18 million, a substantial improvement over the prior-year period’s figure of $3 million.

More than Just Strong Production Growth

The reason why PDC managed to deliver a higher net income figure despite lower prices is because of its control on costs. The company’s lease operating expenses went down to $3.14 per BOE during the quarter from $3.33 per BOE a year ago.

What’s more, its production taxes per BOE also fell to $1.98 from $2.26 a year ago. At the same time, PDC was able to reduce well costs in the Wattenberg and Delaware Basin areas by reducing drilling times and completing more stages on a daily basis as compared to its original budget.

According to the company’s press release:

In the Wattenberg Field, the Company spud 38 wells and TIL’d 32 wells with average working interests of 93 percent. Standard-, mid-, and extended-reach lateral well costs for the quarter averaged approximately five percent below budget.  The Company’s completion crew is currently ten percent ahead of schedule.

Management had a similar thing to state about the Delaware Basin:

In the Delaware Basin, the Company spud ten wells and TIL’d nine wells with average working interests of approximately 96 percent. All spuds and TILs were mid- or extended-reach laterals with average well costs approximately five percent below budget.

Clearly, PDC Energy is pulling the right strings to increase its production and simultaneously keep costs under control. As a result, it would be a good idea to remain invested in the stock as the oil price scenario is about to get better.

The chances of a deal between the U.S. and China are getting better again, while the oil supply scenario won’t be getting any better thanks to fresh sanctions on Iran. As such, PDC Energy’s rally could resume sooner than later, leading to a stronger stock price performance from the company as it is pulling the right strings on the operational front.

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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