From Colorado-based PDC Energy on Thursday:
October 31, 2013
PDC Energy Inc. today reported its 2013 third quarter financial and operating results from continuing operations.
Third Quarter 2013 Highlights
Achieved 29% production growth from the third quarter of 2012 to 18,600 barrels of oil equivalent ("Boe") per day ("Boe/d")
Successfully drilled, completed and initiated production in late September on the Company's Wattenberg Field 16-wells per section downspacing project for an average cost of approximately $4.2 million per well; initial production from first eight wells on the downspacing project outperforming established type-curves
Established first production from Garvin #1H, the Company's first horizontal well on its southern Utica acreage in Washington County, Ohio, with a flow rate of 1,530 Boe/d on a 20/64 choke (54% liquids assuming full ethane recovery)
Completed public offering of 5,175,000 common shares for net proceeds of approximately $276 million
Company added to Russell 2000 Index
James Trimble, Chief Executive Officer and President, commented, "We are very excited about the Garvin well in Washington County, Ohio, based on early production and pressure data. The Garvin is our first horizontal Utica well on our southern acreage in the play. We are equally excited about the production results we are seeing in our Wattenberg downspacing project. We anticipate strong production in the fourth quarter with the Wattenberg and Utica wells coming on-line and expect to be within our full-year production guidance range of 19,200 to 20,500 Boe per day."
Third Quarter 2013 Results
Net loss for the third quarter of 2013 was $16.0 million, or $0.48 per diluted share, compared to a net loss of $32.6 million, or $1.08 per diluted share, in the third quarter of 2012. Adjusted net loss, a non-GAAP financial measure defined below, was $2.3 million for the third quarter of 2013, which included a non-recurring pre-tax impairment of $3.8 million, compared to an adjusted net loss of $4.8 million for the same 2012 period. Net cash from operating activities was $77.5 million for the third quarter of 2013, compared to net cash from operating activities of $57.5 million for the same 2012 period. Adjusted cash flows from operations, a non-GAAP financial measure defined below, were $36.7 million for the third quarter of 2013, compared to $34.2 million in the same 2012 period.
Production for the third quarter of 2013 increased 29% to 18,600 Boe/d, from 14,400 Boe/d in the third quarter of last year. The increase in production was primarily due to ongoing successful horizontal drilling in the Wattenberg Field and Marcellus Shale plays.
Crude oil, natural gas and NGLs sales revenues were $82.1 million compared to $52.3 million in the third quarter of 2012. The average realized sales price was $47.91 per Boe for the third quarter of this year, compared to $39.61 per Boe for the third quarter of 2012, excluding the impact of derivative transactions.
Commodity price risk management activities for the third quarter of 2013 resulted in a net loss of $23.6 million. The loss was comprised of a $1.5 million net realized loss and a $22.1 million net unrealized loss. Unrealized losses in the third quarter of 2013 were primarily the result of the upward shift in crude oil forward curves.
Production costs, which include lease operating expenses ("LOE"), production taxes and certain production and engineering staff-related overhead costs, as well as other costs to operate wells and pipelines, were $19.0 million, or $11.12 per Boe, for the third quarter of 2013 compared to $15.8 million, or $11.97 per Boe, for the third quarter of last year. LOE on a per Boe basis for the third quarter of 2013 increased 14% to $5.96 per Boe, compared to $5.21 per Boe for the third quarter of last year.
General and administrative ("G&A") expense for the third quarter of 2013 increased to $16.1 million, up from $13.7 million in the third quarter of 2012, primarily due to an increase in stock-based compensation, and payroll and employee benefits. G&A expense decreased 10% on a per Boe basis to $9.38 for the third quarter of 2013, compared to $10.38 per Boe for the third quarter of 2012 due to the increase in production volumes.
Depreciation, depletion and amortization ("DD&A") expense related to crude oil and natural gas properties was $29.6 million, or $17.25 per Boe, in the third quarter of 2013, compared to $21.0 million, or $15.87 per Boe, in the third quarter of last year. The increase in DD&A expense in the third quarter of 2013 was primarily due to an increase in production volumes and initial DD&A expense related to Utica production.
Interest expense for the third quarter of 2013 was $12.5 million compared to $11.4 million for the third quarter of 2012. The increase in interest expense was primarily related to increased interest expense associated with the issuance of $500 million of 7.75% senior notes due 2022 in October 2012, the proceeds of which were used to redeem $203 million of then-outstanding 12% senior notes due in November 2012, partially offset by lower average borrowings on the Company's revolving credit facility.
In August 2013, the Company completed a public offering of 5,175,000 shares of its common stock. Net proceeds of approximately $276 million are expected to be used to fund a portion of an expanded capital expenditure program for the remainder of 2013 and 2014, including the addition of a fourth drilling rig in the Wattenberg Field in the fourth quarter of 2013, as well as the potential for a second rig in the Utica Shale in 2014, and for general corporate purposes. The Company may also use a portion of the proceeds to acquire additional Utica shale acreage and/or to add a fifth drilling rig in the Wattenberg Field in 2014.
PDC's available consolidated liquidity position as of September 30, 2013 was $735 million, compared to $399 million as of December 31, 2012, primarily due to proceeds from the August 2013 public offering of the Company's common stock. As of September 30, 2013, PDC had no outstanding draws on its $450 million revolving credit facility.
Effective July 1, 2013, PDC was added to the Russell 2000 Index when Russell Investments reconstituted its comprehensive set of U.S. and global equity indexes. Russell indexes are widely used by investment managers and institutional investors for both index funds and as benchmarks for passive and active investment strategies.
Third Quarter 2013 Operations Update
On the Company's southern Utica acreage in Washington County, Ohio, PDC initiated production from its Garvin #1H well to a long-term midstream provider in mid-October. The well was rested for 60 days after completion operations were finished in mid-August. The Company began testing the well with a 12/64 choke for the first several days, increasing the choke size over the next four days to a 20/64 choke on the well's eighth day of production. On the 20/64 choke over a 24-hour period, the well produced approximately 5.2 million cubic feet of natural gas and 183 barrels of condensate. PDC estimates natural gas liquids, assuming full ethane recovery, over the 24-hour period to be 655 barrels for a combined three-stream total of 1,530 Boe/d, consisting of 54% liquids.
PDC began initial testing of its Stiers three-well pad in Guernsey County, Ohio during the third quarter. Early production testing and pressure data from the three wells are very positive although testing has been constrained by the limited capacity of an existing low-pressure midstream gathering system. The Company anticipates the Stiers pad will be connected to a long-term midstream facility in early November.
In the Wattenberg Field, the Company recently initiated production on its 16-wells per section downspacing project (known as the Waste Management Section). Drilling on this project was completed in early October and eight of the 16 wells are currently on production. Initial production from the four Codell wells has been tracking above the Company's established Codell type curve and production from the four Niobrara wells has been tracking between the Company's outer core and middle core Niobrara type curves. The remaining eight wells are expected to be on production in early November.
"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.