PDC budgets $516M for Wattenberg projects in 2015

Denver, CO-based PDC Energy Inc. has set its capital budget for 2015 at $557 million, a decrease of 14% compared to its 2014 capital budget and plans to step back from Utica operations next year to focus the majority of its capital into what it believes will be highest-value Niobrara projects in the Inner and Middle core areas of the Wattenberg Field.

The company's 2015 budget includes $526 million of development capital (down 9% from $576 million in 2014) and $31 million for lease maintenance, exploration and other expenditures.

The company estimates net production volumes for 2015 will be between 13.8 million and 14.5 million barrels of oil equivalent (MMboe) and expects production growth throughout the year. The company anticipates a commodity mix of approximately 45% crude oil, 20% natural gas liquids and 35% natural gas.

For 2015, PDC plans to drill approximately 90% of its wells in the Inner and Middle Core areas, up from about 67% in those areas in 2014.

PDC estimates its 2014 production exit rate to be approximately 32,500 boe/d. The company's 2015 production exit rate is anticipated to be approximately 46,500 boe/d.

PDC plans to invest a total of $516 million (approximately 93% of the budget) in the Wattenberg Field in 2015 consisting of $415 million for its operated drilling program and $101 million for non-operated projects. The company's 2015 operated program is to continue utilizing its current five horizontal drilling rigs throughout the year. The Wattenberg budget for 2015 includes turning-in-line approximately 110 gross operated Niobrara and Codell horizontal wells of which 40% are expected to be extended length laterals of approximately 6,500 feet to 7,000 feet. Approximately 60% of those wells are expected to be targeting the Niobrara with the remainder targeting the Codell. The company's non-operated program is projected to include approximately 100 horizontal wells turned-in-line at an average working interest of about 20%.

In 2014, PDC's drilling program has delivered cost efficiencies which have improved drilling economics in the core Wattenberg Field. The average drilling and completion costs for the company's standard length lateral of approximately 4,200 feet have decreased from $4.2 million to $4 million per well. Additionally, the company estimates that expected average reserves for its Inner Core wells have increased 500 thousand barrels of oil equivalent ("Mboe") to 580 Mboe per well.

In 2015, PDC expects to realize additional capital efficiencies through drilling extended laterals and tighter frac spacing. The company plans to enhance its completion design decreasing the spacing between frac stages from 250 feet to 200 feet. With the modified completion design of more frac stages, the company's gross drilling and completion costs per well for a standard length lateral is $4.3 million and $5.5 million for an extended length lateral. PDC expects improved reserves from tighter frac spacing and extended laterals of approximately 10% and 30 to 50%, respectively, compared to its current type curves.

Bart Brookman, president, COO, and incoming CEO said, “By focusing our 2015 capital investment on the company's highest rate-of-return projects in the Inner and Middle core areas of the Wattenberg Field, we expect to deliver strong cash flow per share growth using our existing liquidity. We are well positioned to add value in the current low commodity price environment with our industry-leading hedge program, strong balance sheet, limited 2015 outspend of cash flow, and top-tier core Wattenberg drilling opportunities,” he continued.

Analysts' views
“We see the increased capital efficiency driving 15% annual growth on a debt-adjusted per share basis through 2018E (vs. 11% previously), while keeping net debt/EBITDA below 2.5x during the period,” noted Global Hunter Securities analysts December 9.

“With 75% to 85% of expected oil and gas production hedged through YE15 at average prices of $89/Bl and $4/Mcf, PDCE is better protected from commodity price weakness than most of our peer group, which has hedged an average of 34% of projected 2015 oil volumes at an average prices of $86/Bl,” noted Stifel analysts in a note to investors November 10.



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