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PDC Energy Analyst Day Review
PDC Energy (Nasdaq:PETD) unveiled its new name and outlined its strategy to transform the company's resource base towards more of an oil focus. These and other plans were discussed at the company's analyst meeting held last week.
PDC Energy used to go by the name Petroleum Development Corporation, but felt that the old name was not reflective of the company's new business model. PDC Energy will continue to trade under the same symbol.
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Company Goals
PDC Energy kicked off in a new direction beginning about a year ago. The company put forth goals of increasing the oil portion of its resource base, and buying out the limited partners in partnerships that the company created years earlier.
PDC Energy would also increase production growth through the application of capital into selected basins, and work toward becoming a low cost operator in those basins while maintaining conservative leverage. (For some background reading, check out A Guide To Investing In Oil Markets.)
Oil Vs. Natural Gas
PDC Energy is working toward increasing the oil portion of its resource base and has a goal of reaching 35% oil in five years.
One of the areas that PDC Energy is developing is the Niobrara Shale, where the company has leased up 70,500 net acres, located mostly in the Wattenberg Field in Colorado. PDC Energy estimates that each of its new horizontal wells here will have a 70% rate of return based on the following assumptions:
Other Players and Areas
Other exploration and production companies in the Niobrara Shale include EOG Resources (NYSE:EOG), which has approximately 400,000 net acres under lease and is running two drilling rigs in the play. Noble Energy (NYSE:NBL) is also active in the Niobrara Shale, and plans on drilling 14 horizontal wells in 2010.
Another area that PDC Energy is working on developing to increase its oil base are its properties in the Wolfberry trend in Texas. The company estimates that it has 120 locations here and will start up a one-rig program in the final quarter of 2010. PDC Energy purchased these properties in May 2010, and expects to close by the end of the month. The acquisition included 8,300 net acres and 72 producing wells.
Another company active here is Concho Resources (NYSE:CXO), which has major operations all over the Permian Basin, and estimates that it has more than 1,600 Wolfberry locations to drill.
Production Growth
PDC Energy estimates that the planned development of its properties will lead to production growth of 15-20% annually over the next three years. This estimate excludes any contribution from the Niobrara Shale, so there is an opportunity for an higher growth rate if development moves faster here.
PDC Energy has filed documents with the Securities and Exchange Commission (SEC) to repurchase interests in four limited partnerships set up in 2004. A majority of the limited partners must approve the purchase for it to go through.
The company has allocated $37 million in 2010 to complete the purchase. PDC Energy has a total of 28 limited partnerships outstanding so investors should expect to see more capital spent on this going forward.
Bottom Line
PDC Energy rolled out the company's new name to investors and also laid out a case for the company to tilt its production and reserve base away from natural gas over the next few years. The company has established positions in several North American basins to accomplish this goal. (To learn more about the oil and gas industry, check out our Oil And Gas Industry Primer.)
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IN PICTURES: 7 Tools Of The Trade
Company Goals
PDC Energy kicked off in a new direction beginning about a year ago. The company put forth goals of increasing the oil portion of its resource base, and buying out the limited partners in partnerships that the company created years earlier.
PDC Energy would also increase production growth through the application of capital into selected basins, and work toward becoming a low cost operator in those basins while maintaining conservative leverage. (For some background reading, check out A Guide To Investing In Oil Markets.)
Oil Vs. Natural Gas
PDC Energy is working toward increasing the oil portion of its resource base and has a goal of reaching 35% oil in five years.
One of the areas that PDC Energy is developing is the Niobrara Shale, where the company has leased up 70,500 net acres, located mostly in the Wattenberg Field in Colorado. PDC Energy estimates that each of its new horizontal wells here will have a 70% rate of return based on the following assumptions:
- Well Cost - $3,500 MM
- Initial production rate - 289 barrels of oil equivalent (BOE) per day
- Gross estimated ultimate recovery - 300,000 BOE
Other exploration and production companies in the Niobrara Shale include EOG Resources (NYSE:EOG), which has approximately 400,000 net acres under lease and is running two drilling rigs in the play. Noble Energy (NYSE:NBL) is also active in the Niobrara Shale, and plans on drilling 14 horizontal wells in 2010.
Another area that PDC Energy is working on developing to increase its oil base are its properties in the Wolfberry trend in Texas. The company estimates that it has 120 locations here and will start up a one-rig program in the final quarter of 2010. PDC Energy purchased these properties in May 2010, and expects to close by the end of the month. The acquisition included 8,300 net acres and 72 producing wells.
Another company active here is Concho Resources (NYSE:CXO), which has major operations all over the Permian Basin, and estimates that it has more than 1,600 Wolfberry locations to drill.
Production Growth
PDC Energy estimates that the planned development of its properties will lead to production growth of 15-20% annually over the next three years. This estimate excludes any contribution from the Niobrara Shale, so there is an opportunity for an higher growth rate if development moves faster here.
PDC Energy has filed documents with the Securities and Exchange Commission (SEC) to repurchase interests in four limited partnerships set up in 2004. A majority of the limited partners must approve the purchase for it to go through.
The company has allocated $37 million in 2010 to complete the purchase. PDC Energy has a total of 28 limited partnerships outstanding so investors should expect to see more capital spent on this going forward.
Bottom Line
PDC Energy rolled out the company's new name to investors and also laid out a case for the company to tilt its production and reserve base away from natural gas over the next few years. The company has established positions in several North American basins to accomplish this goal. (To learn more about the oil and gas industry, check out our Oil And Gas Industry Primer.)
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by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
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