PDC Energy Inc. has reached agreements to sell a substantial portion of its midstream assets in the Permian Basin for about $310 million in separate transactions expected to close in the coming months.
The deals to sell its gas and water midstream systems in the Permian’s Delaware sub-basin in West Texas bring it closer to capping a monetization process that started last year to dump some of the expenses related to them. The company said it is in the “final stages of negotiations” to sell its crude oil gathering assets.
PDC would receive $182 million in proceeds from EagleClaw Midstream for the gas assets and another $125 million from an affiliate of WaterBridge Resources LLC for the water assets. PDC has also entered into commercial agreements with those companies for continued service on the assets being sold.
The company said it would use the proceeds to pay off debt and fund future capital investments. The announcement, along with an operational update highlighting improved cycle times and reduced costs in its core areas, along with a share repurchase program, offset spending and activity levels that were higher than expected. The company also missed analysts' expectations for production.
PDC produced 11.2 million boe during the first quarter, up 26% from the year-ago period, but down from 11.8 million boe in 4Q2018. While year/year oil production was up during the quarter to 4.5 million boe, it was flat with the 4.9 million boe in 4Q2018. PDC said a lack of completion activity at the end of last year pushed turn-in-lines and new production to later in the first quarter.
The company’s $282 million spending during the quarter came on operating efficiencies that it said accelerated capital pace. CEO Bart Brookman said during a call on Thursday to discuss results that the company still remains on track to hit the midpoint of this year’s budget of $840 million and 48 million boe production target.
In the Denver-Julesburg Basin of northeast Colorado, which is to see the bulk of this year’s spending, the company spud 38 wells and turned 32 to sales. In the Delaware, where delineation efforts continue after the company entered the play about two years ago, PDC spud 10 wells and turned nine to sales.
Its first Bone Spring well in the Delaware, the Argentine S5 with an extended-reach lateral, has yet to reach a 30-day peak initial production rate and is averaging 190 boe/d per thousand feet with a 70% oil cut.
PDC’s management team has also been busy fending off activist investor Kimmeridge Energy Management Co. LLC, which owns more than 5% of the company’s stock, and has been pushing for operational and financial improvements. Kimmeridge has put forward three board nominees for shareholders to vote on at the company’s annual meeting on May 29.
“After a thorough review of their proposed candidates, we determined that our current board already possess the necessary skills, expertise and background best suited to steer PDC,” Brookman said.
The board also authorized up to a $200 million share repurchase program that is to start in 3Q2019, depending on market conditions, in what Brookman said is a “testament to our confidence in our financial and operational strength.”
PDC reported a first quarter net loss of $120.2 million (minus $1.82/share), compared to a net loss of $13.1 million (minus 20 cents) in the year-ago period. This year’s loss came on a decrease in the value of unsettled derivatives. Year/year revenue also slid in the first quarter to $134.5 million from $260.6 million, largely due to a loss on commodity risk management.