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Ohio Utica Shale

Production grows in Utica, two other shales for PDC Energy

By Bob Downing Published: August 14, 2014

From PDC Energy last week:

DENVER, August 8, 2014 (GLOBE NEWSWIRE) -- PDC Energy, Inc. ("PDC," the "Company," "we" or "us") (Nasdaq:PDCE) today reported its 2014 second quarter financial and operating results from continuing operations.

2014 Second Quarter Highlights Compared to 2013 Second Quarter

  • Increased production 64% to 29,700 barrels of oil equivalent per day ("Boe/d").
  • Increased crude oil and natural gas liquids ("NGLs") production 66% to 16,350 Boe/d.
  • Increased crude oil, natural gas and NGLs sales by 81% to $140 million.

Additional Highlights

  • Agreed to sell its 50% interest in the PDCM Marcellus Joint Venture for approximately $250 million.
  • Increased its Utica Shale leasehold by approximately 13,000 net acres to over 67,000 total net acres, with an estimated 350 drilling locations.

Bart Brookman, President and Chief Operating Officer, commented, "We had an excellent second quarter from an operational standpoint as we exceeded our quarterly production guidance by over 10%, which positioned us to raise full-year 2014 guidance. Adjusted cash flows from operations also exceeded our expectations due to the strong production volumes and higher than expected commodity prices. With the addition of the fifth Wattenberg drilling rig and the second Utica rig, we anticipate solid production growth in the second half of 2014 and 2015. We expect to fully fund our 2014 capital expenditures of $647 million from cash flow, cash on hand at the beginning of the year and proceeds from the sale of our Marcellus joint venture interests."

Financial Results

Net loss for the second quarter of 2014 was $28.2 million, or $0.79 per diluted share, compared to net income of $19.9 million, or $0.64 per diluted share, for the second quarter of 2013. Adjusted net loss, a non-U.S. GAAP financial measure defined below, was $1.5 million for the second quarter of 2014, compared to an adjusted net income of $7.0 million for the comparable period of 2013. Excluding the after-tax impact of a litigation charge recorded in general and administrative expense, adjusted net income in the current period would have been $11.4 million. Net cash from operating activities increased to $51.1 million in the second quarter of 2014, compared to net cash used in operating activities of $2.2 million in the second quarter of 2013. Adjusted cash flows from operations, a non-U.S. GAAP financial measure defined below, increased 20% to $55.0 million in the second quarter of 2014, compared to $46.4 million in the comparable period of 2013. Excluding the after-tax impact of the litigation charge recorded in general and administrative expense, adjusted cash flows in the second quarter would have been $75.8 million.

Second quarter 2014 production increased 64% to 29,700 Boe/d compared to 18,100 Boe/d in the second quarter of 2013, and increased 11% compared to 26,700 Boe/d in the first quarter of 2014. The increase in production over second quarter 2013 was primarily due to successful horizontal drilling in the Wattenberg Field.

Crude oil, natural gas and NGLs sales revenues increased 81% to $139.9 million in the second quarter of 2014, compared to $77.5 million in the second quarter of 2013. The increase was primarily due to the increase in production between periods. The average sales price, excluding net settlements on derivatives, increased 10% to $51.78 per Boe for the second quarter of 2014, compared to $47.10 per Boe for the same 2013 period.

Net commodity price risk management activities for the second quarter of 2014 resulted in a loss of $53.4 million, which was comprised of $10.4 million of negative net settlements and a $43.0 million loss in net change in fair value of unsettled derivatives. Commodity price risk management activities for the second quarter of 2013 resulted in a net gain of $24.7 million, comprised of $3.9 million of positive net settlements and a $20.8 million gain in net change in fair value of unsettled derivatives.

Production costs were $26.8 million, or $9.90 per Boe, for the second quarter of 2014, compared to $16.2 million, or $9.83 per Boe, for the second quarter of 2013, representing a 1% increase on a per Boe basis. Lease operating expense for the second quarter of 2014 increased 2% to $4.28 per Boe compared to $4.19 per Boe in the second quarter of 2013, primarily due to workover and maintenance related projects.

General and administrative ("G&A") expense was $40.7 million for the second quarter of 2014, up from $15.8 million for the second quarter of 2013. The increase in G&A expense was largely attributable to a litigation charge with an estimated value of approximately $20.8 million related to an ongoing lawsuit. The remainder of the increase is attributable to an increase in legal and other professional costs, and an increase in payroll and benefits.

Depreciation, depletion and amortization ("DD&A") expense was $53.7 million, or $19.89 per Boe, in the second quarter of 2014, compared to $27.8 million, or $16.89 per Boe, in the second quarter of 2013. The DD&A expense increase in the second quarter of 2014 compared to the second quarter of 2013 was due to higher production volumes and a higher per Boe DD&A rate.

2014 Guidance Update

The Company increased its 2014 full-year guidance which it provided at its Analyst Day in April 2014. Production guidance increased to a range of 10.7 to 10.9 million barrels of oil equivalent ("MMBoe") (or 29,300 to 29,850 Boe per day), from initial guidance of 9.5 to 10.0 MMBoe. This new guidance is estimated to be reduced by 0.3 MMBoe following the close of the sale of the Marcellus interests in the fourth quarter of 2014. Revenues are expected to be in the $518 million to $543 million range, from initial guidance of $461 million to $498 million; and adjusted cash flows from operations, a non-U.S. GAAP financial measure defined below, are expected to be in the $275 million to $290 million range, from initial guidance of $270 million to $300 million. The capital expenditures budget is unchanged at $647 million for 2014. The Company will provide additional financial guidance on its quarterly earnings call and in the related slide presentation. Revenue and adjusted cash flows from operations guidance is based on average assumed prices of $90.54 per barrel of oil, $4.05 per Mcf and $32.51 per barrel of NGLs over the second half of 2014.

Operations Update

PDC turned in line 28 operated wells during the second quarter of 2014, substantially all of which were in the Wattenberg Field. In the first half of the year, 46 wells were turned in line. In addition, approximately 11 non-operated wells in the Wattenberg Field were turned in line during the second quarter. The Company spud two horizontal wells in the Utica Shale during the second quarter and 31 horizontal wells in the Wattenberg Field. PDC added a fifth drilling rig in the Wattenberg Field in early June and is currently drilling on a pad in its inner core area. The Company also added a second drilling rig to its Utica Shale development operations in July. As previously announced, PDC increased its Utica Shale leasehold to approximately 67,000 net acres.

Oil and Gas Operations Cost, Production and Sales Data

The following table provides the components of production costs for the three and six months ended June 30, 2014 and 2013:

  Three Months Ended
June 30,
Six Months Ended
June 30,
  2014 2013 2014 2013
  (in millions, except per Boe data)
Lease operating expenses $ 11.6 $ 6.9 $ 19.8 $ 13.5
Production taxes 8.7 5.3 16.3 10.7
Transportation, gathering and processing expenses 2.2 2.7 4.4 4.3
Overhead and other production expenses 4.3 1.3 7.5 3.5
Total production costs $ 26.8 $ 16.2 $ 48.0 $ 32.0
Total production costs per Boe $ 9.90 $ 9.83 $ 9.40 $ 9.67

The following table provides production from continuing operations by area, as well as the weighted-average sales price, for the three and six months ended June 30, 2014 and 2013, excluding net settlements on derivatives:

  Three Months Ended
June 30,
Six Months Ended
June 30,
  2014 2013 Percent 2014 2013 Percent
             
Crude oil (MBbls)            
Wattenberg Field 1,008.5 605.5 66.6% 1,961.1 1,256.2 56.1%
Utica Shale 68.6 11.3 * 158.9 28.0 *
Marcellus Shale 0.9 * 1.8 *
Total 1,077.1 617.7 74.4% 2,120.0 1,286.0 64.9%
             
Weighted-Average Sales Price $ 91.77 $ 87.32 5.1% $ 88.94 $ 87.13 2.1%
             
Natural gas (MMcf)            
Wattenberg Field 4,338.2 2,916.2 48.8% 7,653.2 5,891.7 29.9%
Utica Shale 582.3 43.6 * 1,011.6 43.9 *
Marcellus Shale 2,362.7 1,551.7 52.3% 4,496.7 3,125.7 43.9%
Total 7,283.2 4,511.5 61.4% 13,161.5 9,061.3 45.2%
             
Weighted-Average Sales Price $ 4.08 $ 3.79 7.7% $ 4.29 $ 3.44 24.7%
             
NGLs (MBbls)            
Wattenberg Field 386.3 275.2 40.4% 730.2 513.5 42.2%
Utica Shale 24.7 1.3 * 60.3 1.3 *
Total 411.0 276.5 48.6% 790.5 514.8 53.6%
             
Weighted-Average Sales Price $ 27.60 $ 23.55 17.2% $ 31.24 $ 26.76 16.7%
             
Crude oil equivalent (MBoe)            
Wattenberg Field 2,117.9 1,366.7 55.0% 3,966.8 2,751.7 44.2%
Utica Shale 190.4 19.8 * 387.9 36.6 *
Marcellus Shale 393.8 259.6 51.7% 749.5 522.8 43.4%
Total 2,702.1 1,646.1 64.2% 5,104.2 3,311.1 54.2%
             
Weighted-Average Sales Price $ 51.78 $ 47.10 9.9% $ 52.85 $ 47.41 11.5%
* Percentage change is either not meaningful, or equal to or greater than 300%.
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Ohio Department of Natural Resources' Division of Oil and Gas Resources Management State agency Web site.

ODNR Division of Oil and Gas Resources Management. State drilling permits. List is updated weekly.

ODNR Division of Geological Survey.

Ohio Environmental Protection Agency.

Ohio State University Extension.

Ohio Farm Bureau.

Ohio Oil and Gas Association, a Granville-based group that represents 1,500 Ohio energy-related companies.

Ohio Oil & Gas Energy Education Program.

Energy In Depth, a trade group.

Marcellus and Utica Shale Resource Center by Ohio law firm Bricker & Eckler.

Utica Shale, a compilation of Utica shale activities.

Landman Report Card, a site that looks at companies involved in gas and oil leases.FracFocus, a compilation of chemicals used in fracking individual wells as reported voluntarily by some drillers.

Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.

Rig Count Interactive Map by Baker Hughes, an energy services company.

Shale Sheet Fracking, a Youngstown Vindicator blog.

National Geographic's The Great Shale Rush.

The Ohio Environmental Council, a statewide eco-group based in Columbus.

Buckeye Forest Council.

Earthjustice, a national eco-group.

Stop Fracking Ohio.

People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.

Concerned Citizens of Medina County, a grass-roots group.

No Frack Ohio, a Columbus-based grass-roots group.

Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.

Penn State Marcellus Center.

Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.

Allegheny Front, environmental public radio for Western Pennsylvania.