PDCE : NASDAQ : US$67.81
PDC Energy is an exploration and production company with operations in the DJ Basin of Colorado, the Utica Shale in Ohio, and the Marcellus Shale in West Virginia.
PDCE Q3 REVIEW: HEADLINE EPS MISS HIDES STRONG POSITIVES; MAINTAIN BUY, $80 PT
Lower prod causes EPS miss but 2014 guidance maintained PDCE’s Q3 Adj. EPS of ($0.07) missed consensus EPS of $0.22 (CG $0.16), primarily led by lower production and associated higher unit costs. Total production of 18.6mboepd missed guidance of ~19.5mboepd, and the shortfall was largely due to impact from CO flooding, Utica mid-stream issues, and a delay in hooking up pad drilled Marcellus wells. Despite that, PDCE maintained FY13 production guidance of 19.2-20.5mboepd, largely
due to expected contributions from 9 Utica and 16 Wattenberg wells. This also indicates higher oil yield in Q4 sequentially.
Headline IP hides the true merit of the Garvin well In our view, one of the most important slides of the call displayed the
3-stream IP vs. choke size .
As we understand, PDCE can allow unrestricted flow at >3mboepd that declines hyperbolically, or to preserve well integrity, flow at 20/64 choke, and maintain flat prod at ~1,500boepd. For comparison, GPOR had reported the Wagner 1-28 on a
32/64 choke at ~2,600boepd. At similar choke size, assuming the same casing pressure, Garvin could report ~3,500boepd. In any case, in our view, the 750mboe EUR could be way too conservative.
In Wattenberg, PDCE discussed early results from 8 of the 16 wells drilled in the Waste Management section. Notably, although the pilot was drilled in Outer Core, Niobrara results reflected Middle/Outer Core. Further, with the easing of high line pressures (Fig. 2), we see PDCE embark on full-scale pad development in Niobrara/Codell in the Middle/Inner Core where EURsimprove .
Finally, we think PDCE’s comment on higher GOR in Codell is expected moving into the core, but notably, Codell wells are exceeding management’s curve .
Weakness caused by EPS miss presents a buying opportunity
Overall, the headline EPS miss caused a ~5% underperformance that we believe presents a strong buying opportunity. Reiterate BUY, maintain price target of $80