PDC Energy Inc. plans to cut back this year, setting a capital budget that’s about $150 million lower than in 2018, but core assets in the Permian and Denver-Julesburg (DJ) basins are expected to drive a 20% increase in production growth.
PDC said it would spend $810-870 million this year versus $985 million in 2018. It plans a three-rig program in the DJ’s Wattenberg field in northeastern Colorado and a two-and-a-half rig program in the Permian’s Delaware sub-basin of West Texas.
The operating program assumes $50/bbl West Texas Intermediate (WTI) oil prices and gas prices of $3.00/MMBtu.
“The industry is clearly faced with a new set of operational and financial expectations, and I applaud our team’s resolve in creating a plan that mirrors our strategic priorities and commitment to generating” $25 million of free cash flow “at $50 WTI oil prices,” CEO Bart Brookman said.
PDC is the latest operator to slash spending in response to volatile oil prices and a gas glut. The company expects, however, to produce 46-50 million boe in 2019, which would be a sharp increase from the 40.2 million boe last year. Production in 2018 was 26% higher than 2017 volumes, including a 32% year/year gain in oil production of 17 million bbl.
PDC produced 11.8 million boe during 4Q2018, compared with 8.7 million boe in the prior year’s quarter.
The company has focused on growing its Delaware operations since it entered the play about two years ago. PDC said $40 million of its 2019 capital expenditures would go toward the continued build-out of midstream infrastructure. The company noted that it would likely recoup a portion of that capital by divesting those assets as it continues to search for a buyer.
Meanwhile, the midstream constraints the company wrestled with in the Wattenberg last year continue. Given the timing of third-party gas processing expansions in Colorado and the turn-in-line schedule in the Delaware, PDC said its sequential production would likely decline in 1Q2019 before steadily growing through the rest of the year.