Denver-based PDC Energy Inc., which produced about 185,000 boe/d in 1Q2020 from the combined Wattenberg field in Colorado and the Permian Basin, is curtailing 20-30% of its oil and gas volumes this month, with additional curtailments likely in June and potentially longer, depending on the direction of prices.
The management team, led by CEO Bart Brookman, discussed first quarter performance during a conference call Friday, detailing how the independent has been hunkering down from Covid-19. PDC is doing what it must to manage through the downturn, he said.
“Today, the industry finds itself in uncharted waters due to a global pandemic and subsequent demand destruction forcing operators to make extremely difficult decisions. However, at PDC, the quality of our assets and our willingness to quickly and decisively alter our operating plan has once again positioned us to succeed in a time of extreme duress on the industry.”
The coming months are likely to be a “dynamic time…as we navigate our way through an incredibly fluid situation.”
Capital expenditures, now set at $500-600 million, first were cut in March and then again in April as Covid-19 hammered energy demand and pricing. The workforce was whittled down. Senior management and board compensation was reduced by 15%, with tiered pay cuts for many remaining employees.
[Want to see more earnings? See the full list of NGI’s 1Q2020 earnings season coverage.]
“As commodity prices plummeted, coupled with expanding differentials, we began a detailed evaluation of shutting in the company’s production,” Brookman told analysts. “This is a first for PDC, well-by-well, pad-by-pad. We focused on cash flow optimization in each basin.
“This resulted in anticipated production shut-ins ranging from 20-30% over the next several months. And we maintain the flexibility to keep production shut-in as we go through the balance of the year depending on market conditions.”
The second quarter “is projected to be the most negatively impacted quarter, delivering low single-digit netbacks,” said Executive Vice President Lance Lauck, who oversees Corporate Development and Strategy. “For the second half of the year, PDC anticipates a slight improvement and realized netbacks” from an improving oil price and “tightening” drilled but uncompleted, or DUC, count.
“We assume less curtailments during the third quarter and little to no curtailments in the fourth quarter,” Lauck said. “Keep in mind, however, that the market is still very dynamic, given the demand destruction that our industry is currently experiencing, and our projected production curtailments could change. But we’re well prepared to manage through it, whether prices stabilize or further deteriorate.”
In its prized Wattenberg field, only one rig is to run through the rest of the year, after PDC drops two rigs later this month. The completion crew is being let go this month too, with completions now set to resume in the final three months, “assuming pricing supports such a decision.”
For the Permian Basin’s Delaware sub-basin, no new exploration or production is planned for the year, with under $20 million earmarked only for leasing projects and facility investments.
The overall pullback is expected to reduce total production this year by 10% from 2019 proforma levels to 170,000-180,000 boe/d.
“Given the historic nature of current volatility in the commodity price market, all projections are subject to change throughout the year,” management said.
Net losses for 1Q2020 were $466 million (minus $4.94/share), compared with a year-ago loss of $120 million (minus $1.82). The year/year change followed an impairment of $880 million on Permian assets, offsetting an increase of $625 million in hedging. Net cash from operating activities was $266 million compared with $157 million in 1Q2019.
Hedges are key for this year, with 15.7 million bbl of oil protected at a weighted average of $58/bbl. Remaining swaps and costless collars through the year represent 75% of projected oil volumes. Around 35% of estimated natural gas output also was hedged for April through December at a protected price of $2.00/MMBtu. The 2021 hedge positions protect nearly 30% of estimated oil volumes at $50/bbl, with 35% of gas volumes protected at $2.35/MMBtu.
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