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PDC Energy Announces 2013 Third Quarter Results: Solid Wattenberg Production; Initial Production From Wattenberg 16-Wells Per Section Downspacing Project Outperforming Type Curves; Strong Production From First Horizontal Washington County Utica Well

Stocks in this article: PDCE

"Initial results from our Waste Management downspacing project are very positive and provide further confidence in at least 16-wells per section, as well as the quality of our more than 2,000 potential locations in the Wattenberg Field. Initial data from the Garvin well is also extremely encouraging, particularly with the sustained pressures and permeability we observed during early testing," said Bart Brookman, Executive Vice President and Chief Operating Officer.

PDC's Wattenberg Field operations were affected by the severe flooding in Colorado in mid-September. In advance of the flood, PDC elected to shut-in approximately 214 wells that were potentially in the flood zone or that were likely to experience access issues. Approximately 125 of the Company's vertical wells in the field remain shut-in pending repairs to roads and facilities. As of September 30, 2013, the Company accrued $0.9 million based on initial assessments of costs to perform remediation operations. Additional direct costs associated with the flood, not including lost production, are estimated to be between $3 million and $5 million and are expected to be incurred primarily in the fourth quarter of 2013 and the first quarter of 2014.

Oil and Gas Operations Cost, Production and Sales Data

The following table provides the components of production costs for the three and nine months ended September 30, 2013 and 2012:

  Three Months Ended Nine Months Ended
  September 30, September 30,
  2013 2012 2013 2012
  (in millions)
Lease operating expenses  $ 10.2  $ 6.8  $ 25.9  $ 20.6
Production taxes 6.1 3.8 16.8 12.0
Cost of well operations, overhead and other production expenses 2.7 5.2 8.4 8.5
Total production costs  $ 19.0  $ 15.8  $ 51.1  $ 41.1
Total production costs per Boe  $ 11.12  $ 11.97  $ 10.17  $ 10.36

The following table provides production from continuing operations by area, as well as the weighted-average sales price, for the three and nine months ended September 30, 2013 and 2012, excluding realized derivative gains or losses:

  Three Months Ended Nine Months Ended
  September 30, September 30,
  2013 2012 Percent 2013 2012 Percent
             
Crude oil (MBbls)            
Western - Wattenberg Field 580.6 429.2 35.3% 1,836.8 1,410.2 30.3%
Eastern - Appalachian Basin 20.9 0.8 * 50.7 6.5 *
Total 601.5 430.0 39.9% 1,887.5 1,416.7 33.2%
             
Weighted-Average Sales Price  $ 98.11  $ 85.45 14.8%  $ 90.63  $ 89.08 1.7%
             
Natural gas (MMcf)            
Western - Wattenberg Field  3,091.2  2,503.9 23.5%  8,982.9  7,018.6 28.0%
Eastern - Appalachian Basin  2,096.8  1,582.4 32.5%  5,266.4  4,531.2 16.2%
Total 5,188.0 4,086.3 27.0% 14,249.3 11,549.8 23.4%
             
Weighted-Average Sales Price  $ 3.13  $ 2.54 23.2%  $ 3.33  $ 2.40 38.8%
             
NGLs (MBbls)            
Western - Wattenberg Field 246.5 209.1 17.9% 760.0 627.9 21.0%
Eastern - Appalachian Basin 1.7 * 3.0 *
Total 248.2 209.1 18.7%  763.0 627.9 21.5%
             
Weighted-Average Sales Price  $ 27.70  $ 24.76 11.9%  $ 27.07  $ 26.51 2.1.%
             
Crude oil equivalent (MBoe)            
Western - Wattenberg Field  1,342.3  1,055.7 27.1%  4,094.0  3,207.9 27.6%
Eastern - Appalachian Basin 372.0 264.5 40.6% 931.4 761.7 22.3%
Total 1,714.3 1,320.2 29.9% 5,025.4 3,969.6 26.6%
             
Weighted-Average Sales Price  $ 47.91  $ 39.61 21.0%  $ 47.58  $ 42.97 10.7%
             
 * Percentage change is not meaningful or equal to or greater than 300%.

Commodity Price Risk Management Activities

The Company uses various derivative instruments to manage fluctuations in natural gas and crude oil prices. PDC has in place a series of floors, collars, fixed price and basis swaps on a portion of its expected crude oil and natural gas production. A complete listing of the Company's derivative positions as of September 30, 2013 is included in its Quarterly Report on Form 10-Q, available at the Company's website at www.pdce.com .

Non-GAAP Financial Measures

PDC uses "adjusted cash flows from operations," "adjusted net income (loss)," and "adjusted EBITDA," non-U.S. GAAP financial measures, for internal management reporting, when evaluating period-to-period changes and when providing public guidance on possible future results. PDC believes that each of these measures is useful in providing transparency with respect to certain aspects of its operations. Each of these measures is calculated by eliminating the items set forth in the relevant table below from the most closely comparable U.S. GAAP measure. See Management's Discussion and Analysis of Financial Condition and Results of Operation - Reconciliation of Non-U.S. GAAP Financial Measures in PDC's Annual Report on Form 10-K for the year ended December 31, 2012, and other subsequent filings with the SEC for additional disclosure concerning these non-U.S. GAAP measures. These measures are not measures of financial performance under U.S. GAAP and should be considered in addition to, not as a substitute for, net income, cash flows from operations, investing or financing activities or other U.S. GAAP financial measures, and should not be viewed as liquidity measures or indicators of cash flows reported in accordance with U.S. GAAP. The non-U.S. GAAP financial measures that PDC uses may not be comparable to similarly titled measures reported by other companies. Also, in the future, PDC may disclose different non-U.S. GAAP financial measures in order to help its investors more meaningfully evaluate and compare its future results of operations to its previously reported results of operations. PDC strongly encourages investors to review the Company's financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

The following tables provide reconciliations of adjusted cash flows from operations, adjusted net income (loss), and adjusted EBITDA to their most comparable U.S. GAAP measures (in millions, except per share data):

Adjusted Cash Flows from Operations
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2013 2012 2013 2012
Adjusted cash flows from operations:        
Net cash from operating activities  $ 77.5  $ 57.5  $ 119.5  $ 127.2
Changes in assets and liabilities  (40.8)  (23.3)  15.9  (13.8)
Adjusted cash flows from operations  $ 36.7  $ 34.2  $ 135.4  $ 113.4
         
Adjusted Net Income (Loss)
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2013 2012 2013 2012
Adjusted net income (loss):        
Net loss  $ (16.0)  $ (32.6)  $ (35.5)  $ (4.5)
Unrealized loss on derivatives, net 22.2  45.0 32.1 20.9
Tax effect of above adjustments  (8.5)  (17.2)  (12.3)  (8.0)
Adjusted net income (loss)  $ (2.3)  $ (4.8)  $ (15.7)  $ 8.4
Weighted-average diluted shares outstanding 33.4 30.2 31.4  27.0
Adjusted diluted net income (loss) per share  $ (0.07)  $ (0.16)  $ (0.50)  $ 0.31
 
Adjusted EBITDA
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2013 2012 2013 2012
Net loss to adjusted EBITDA:        
Net loss  $ (16.0)  $ (32.6)  $ (35.5)  $ (4.5)
Unrealized loss on derivatives, net 22.2 45.0 32.1 20.9
Interest expense, net 12.4 11.4 38.8 31.9
Income tax provision  (10.7)  (18.1)  (20.7)  (2.5)
Impairment of crude oil and natural gas properties 4.4 0.4 52.4 1.4
Depreciation, depletion and amortization 30.9 32.4 88.9 106.7
Accretion of asset retirement obligations 1.2 1.2 3.7 2.8
Adjusted EBITDA  $ 44.4  $ 39.7  $ 159.7  $ 156.7
         
Cash from operating activities to adjusted EBITDA:        
Net cash from operating activities  $ 77.5  $ 57.5  $ 119.5  $ 127.2
Interest expense, net 12.4 11.4 38.8 31.9
Exploratory dry hole costs  (0.6)  (1.0)
Stock-based compensation  (3.0)  (2.2)  (10.0)  (6.1)
Amortization of debt discount and issuance costs  (1.7)  (1.5)  (5.1)  (5.1)
Gain (loss) on sale of properties and equipment  (0.6) 1.5  (1.6) 23.8
Other 0.6  (3.1) 2.2  (0.2)
Changes in assets and liabilities  (40.8)  (23.3)  15.9  (13.8)
Adjusted EBITDA  $ 44.4  $ 39.7  $ 159.7  $ 156.7
 
 
PDC ENERGY, INC.
Condensed Consolidated Statements of Operations
(unaudited; in thousands, except per share data)
         
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2013 2012 2013 2012
         
Revenues:        
Crude oil, natural gas and NGLs sales  $ 82,136  $ 52,291  $ 239,112  $ 170,588
Sales from natural gas marketing 16,946 11,178 48,695 31,172
Commodity price risk management gain (loss), net  (23,638)  (31,943)  (21,269) 18,287
Well operations, pipeline income and other 1,672 1,194 3,709 3,419
Total revenues 77,116 32,720 270,247 223,466
         
Costs, expenses and other:        
Production costs 19,057 15,797 51,091 41,106
Cost of natural gas marketing 17,127 11,260 48,928 30,841
Exploration expense 2,030 1,773 5,156 6,019
Impairment of crude oil and natural gas properties 4,472 388 52,433 1,332
General and administrative expense 16,080 13,710 46,978 42,796
Depreciation, depletion and amortization 30,870 22,121 86,619 73,872
Accretion of asset retirement obligations 1,186 1,101 3,506 2,560
Gain on sale of properties and equipment  (712)  (1,508)  (759)  (3,908)
Total costs, expenses and other 90,110 64,642 293,952 194,618
Income (loss) from operations  (12,994)  (31,922)  (23,705) 28,848
Interest expense  (12,509)  (11,360)  (38,955)  (31,857)
Interest income 130 3 133 5
Loss from continuing operations before income taxes  (25,373)  (43,279)  (62,527)  (3,004)
Provision for income taxes 10,155 15,268 22,856 935
Loss from continuing operations  (15,218)  (28,011)  (39,671)  (2,069)
Income (loss) from discontinued operations, net of tax  (782)  (4,632) 4,171  (2,468)
Net loss  $ (16,000)  $ (32,643)  $ (35,500)  $ (4,537)
         
Earnings per share:        
Basic        
Loss from continuing operations  $ (0.46)  $ (0.93)  $ (1.26)  $ (0.08)
Income (loss) from discontinued operations  (0.02)  (0.15)  0.13  (0.09)
Net loss  $ (0.48)  $ (1.08)  $ (1.13)  $ (0.17)
Diluted        
Loss from continuing operations  $ (0.46)  $ (0.93)  $ (1.26)  $ (0.08)
Income (loss) from discontinued operations  (0.02)  (0.15)  0.13  (0.09)
Net loss  $ (0.48)  $ (1.08)  $ (1.13)  $ (0.17)
         
Weighted-average common shares outstanding:        
Basic 33,413 30,214 31,350 26,819
Diluted 33,413 30,214 31,350 26,819

2013 Third Quarter Teleconference and Webcast

PDC plans to host a conference call with investors to discuss 2013 third quarter results. The Company invites you to join James Trimble, Chief Executive Officer and President; Barton Brookman, Executive Vice President and Chief Operating Officer; Gysle Shellum, Chief Financial Officer; and Lance Lauck, Senior Vice President – Corporate Development, for a conference call on Thursday, October 31, 2013, for a discussion of its results. The related slide presentation will also be available on PDC's website at www.pdce.com.

Conference Call and Webcast:

Date/Time: Thursday, October 31, 2013, 11:00 a.m. ET Webcast available at: www.pdce.com Domestic (toll free): 877-312-5520 International: 253-237-1142 Conference ID: 78483816

Replay Numbers:

Domestic (toll free): 855-859-2056 International: 404-537-3406 Conference ID: 78483816

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