PDC Energy (Nasdaq:PETD) expects production growth of 19% in 2011, as the company moves to accelerate development of oil and liquid assets in the onshore area of the United States. The company discussed these assets, along with other financial and operating details, at a recent analyst meeting. Let's take a look at some of the highlights. (For background reading, see Oil And Gas Industry Primer.)

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2011 Capital Expenditures
PDC Energy plans to spend $206 million in 2011 to develop its various properties in the United States. The company will put 75% of this capital into oil and liquid plays, including the Niobrara Shale and the Permian Basin.

Production Growth
PDC Energy estimates that production will increase by 19% in 2011 over last year. Since the company is investing most of its capital in areas that have a high proportion of oil and other liquid hydrocarbons, PDC Energy expects the proportion of these in its production base to increase.

PDC Energy expects to produce between 2.4 million and 2.5 million barrels of oil and other liquids in 2011, up 34% from 2010. This will raise its oil and liquids percentage of production at the end of 2011 to approximately 34%.

Niobrara Shale
PDC Energy has 74,100 net acres under lease in the Denver Julesburg Basin in Colorado, with much of this acreage in the Wattenberg Field. The company plans to drill 14 horizontal wells into the Niobrara in 2011.

PDC Energy estimates that the average well here will earn the company a 59% rate of return. This analysis assumes an initial production rate of 325 barrels of oil per day, an estimated ultimate recovery of 290,000 barrels of oil equivalent (BOE) and a $4.2 million cost to drill and complete a well.

Returns can sometimes vary for operators that are developing the Niobrara. Carrizo Oil and Gas (Nasdaq:CRZO) has 61,000 net acres of exposure and estimates its returns will range from 40-150%, depending on the price of oil realized.

Permian Basin
PDC Energy has 12,800 net acres under lease in the Permian Basin, where the company is working in several different areas. In 2011, PDC Energy plans to drill 25 vertical wells there, and recomplete six others.

The company is working on different formations, with a primary emphasis on the Clear Fork, Spraberry and Wolfberry zones. Annual production from the Permian Basin should double by the end of 2011, to approximately 75,000 BOE.

Other Plays
Despite the emphasis in 2011 on oil and liquids, PDC Energy is not abandoning natural gas development. The company has 56,100 net acres under lease in the Appalachian Basin that is prospective for the Marcellus Shale. The company plans to drill nine wells into this formation on its acreage in West Virginia.

PDC Energy also has 8,000 net acres under lease in the Piceance Basin in Colorado, and plans to drill 12 wells there in 2011. Other companies involved in the Piceance Basin include EnCana (NYSE:ECA), which drilled 125 net wells there in 2010. Occidental Petroleum (NYSE:OXY) also operates in this area, and has 120,000 net acres under lease.

The Bottom Line
PDC Energy will leverage its onshore oil properties in the U.S., while still advancing its natural gas production. By targeting the Niobrara and Permian Basin formations, PDC hopes to increase its development of oil and other liquids by 19% in 2011.

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Tickers in this Article: PETD, CRZO, OXY, ECA

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