OREANDA-NEWS. PDC Energy, Inc. ("PDC", the "Company," "we" or "us") (NASDAQ:PDCE) today reported its 2016 second quarter financial and operating results and updated its full-year 2016 guidance.

2016 Second Quarter Highlights

  • Production of more than 57,100 barrels of oil equivalent (“Boe”) per day; 54% increase year-over-year and 14% increase over the first quarter of 2016.
  • Reduced lease operating expense (“LOE”) 29% year-over-year to $2.63 per Boe.
  • Turned-in-line 37 gross operated wells including the 10,000 foot lateral Neff well in the Utica. Began completions on first extended-reach lateral wells in the Core Wattenberg.
  • Announced agreement to consolidate Middle Core Wattenberg leasehold position through strategic acreage trade that is expected to provide the opportunity for longer laterals with significantly increased working interest and improved operational synergies.
  • Settled $115 million 3.25% Convertible Senior Notes (“Convertible Notes”) in May 2016 through a combination of cash and approximately 792,000 shares.

2016 Updated Guidance Highlights

  • Increased mid-point of guidance to 21.5 million barrels of oil equivalent (“MMBoe”), a 40% increase from 2015 production volumes, with an expected December exit rate in excess of 64,000 Boe per day.
  • Anticipated second half 2016 spuds and turn-in-lines of 52 and 61, respectively.
  • Full-year capital expenditures reduced to $400 to $420 million from the previously guided $410 to $440 million.
  • Net cash from operating activities of approximately $440 to $465 million and an adjusted cash flow from operations, a non-U.S.GAAP measure defined below, of $450 to $475 million.

Bart Brookman, Chief Executive Officer and President, commented, “Once again, we are extremely pleased with our operational results and, in particular, the 54% year-over-year production growth. Our improved guidance for 2016 is a direct reflection of our ongoing commitment to operational improvements along with an intense focus on cost structure and the balance sheet. As we wrap up the year, we anticipate operational cash flows will exceed capital expenditures and we eagerly anticipate the first turn-in-lines of our Wattenberg XRL drilling projects. With the success of these longer laterals coupled with enhanced completion designs, we expect to be able to deliver additional value in the Middle Core portion of the field where our acreage will be concentrated following the expected closing of our recently announced strategic acreage trade.”

Financial Results

Net loss in the second quarter of 2016 was $95.5 million, or $2.04 per diluted share, compared to a net loss of $46.9 million, or $1.17 per diluted share, in the second quarter of 2015. Adjusted net loss, a non-U.S. GAAP financial measure defined below, was $5.1 million in the second quarter of 2016, compared to adjusted net income of $10.8 million in the comparable period of 2015.

Net cash from operating activities increased 50% to $96.6 million in the second quarter of 2016, compared to $64.6 million in the second quarter of 2015. Adjusted cash flows from operations, a non-U.S. GAAP financial measure defined below, increased 16% to $112.6 million in the second quarter of 2016, compared to $96.9 million in the comparable period of 2015.

Second quarter 2016 production increased 54% to 5.2 MMBoe, or 57,112 Boe per day, compared to 3.4 MMBoe, or 37,001 Boe per day in the second quarter of 2015.  Second quarter 2016 production increased 14% compared to 50,216 Boe per day in the first quarter of 2016. The increase in production over second quarter 2015 was primarily due to successful execution of the Wattenberg drilling program and partially attributable to reduced line pressures in the Wattenberg Field. The increase in production over the first quarter 2016 is partially attributable to 34 Wattenberg turn-in-lines late in the first quarter of 2016 and earlier than expected production from the Utica Neff well.

Crude oil, natural gas and NGLs sales, excluding net settlements on derivatives, increased 14% to $110.8 million in the second quarter of 2016, compared to $96.9 million in the second quarter of 2015. Including the impact of net settlements on derivatives, crude oil, natural gas and NGL sales increased 16% to $164.1 million in the second quarter of 2016 compared to $141.0 million in the same period last year. The average sales price, excluding net settlements on derivatives, decreased 26% to $21.33 per Boe in the second quarter of 2016, compared to $28.79 per Boe in the same 2015 period.

Net commodity price risk management activities in the second quarter of 2016 resulted in a loss of $92.8 million, which was comprised of $53.3 million of positive net settlements on derivatives and a $146.1 million loss on net change in fair value of unsettled derivatives. Commodity price risk management activities in the second quarter of 2015 resulted in a net loss of $49.0 million, which was comprised of $44.1 million of positive net settlements on derivatives and a $93.1 million loss in net change in fair value of unsettled derivatives.

LOE in the second quarter of 2016 was $2.63 per Boe compared to $3.71 per Boe in the second quarter of 2015. The decrease in LOE rate is primarily attributable to an increase in production, operational efficiencies and some expenditures delayed until the second half of 2016.

General and administrative expense ("G&A") was $23.6 million in the second quarter of 2016, up from $20.7 million in the second quarter of 2015. The increase in G&A was primarily attributable to $2.7 million increase in payroll and employee benefits. G&A on a per Boe basis decreased 27% to $4.54 per Boe in the second quarter of 2016 from $6.16 in the second quarter of 2015 and is attributable to maintaining similar levels of total G&A while increasing production.

Depreciation, depletion and amortization expense ("DD&A") related to crude oil and natural gas properties was $106.1 million, or $20.41 per Boe, in the second quarter of 2016, compared to $69.0 million, or $20.48 per Boe, in the second quarter of 2015. The DD&A rates in the second quarter of 2016 were comparable to the second quarter of 2015.

Interest expense in the second quarter of 2016 was $10.7 million compared to $11.6 million in the second quarter of 2015.  The decrease in 2016 is primarily attributable to a decrease in interest on the Convertible Notes as they matured in May 2016.

Capital expenditures in the second quarter of 2016, excluding carry-over of expenses related to prior periods, were $107.5 million compared to $176.4 million for the same 2015 period.

Second Quarter Operations Update

The Company turned-in-line 34 gross operated wells in the Wattenberg Field during the second quarter of 2016 and average production from the field increased approximately 14% to 54,478 Boe per day compared to the first quarter of 2016. The Company’s average wellhead oil differential in Wattenberg, including transportation costs, was $6.91 per barrel in the second quarter of 2016.  The realized natural gas price in the Wattenberg Field during the quarter was approximately 70% of NYMEX and the NGL price was approximately 26% of NYMEX.

In the Utica Shale, second quarter 2016 production was 2,633 Boe per day, an 11% increase compared with the first quarter of 2016. Production from the 10,000 foot lateral Neff well, which was turned-in-line ahead of schedule, has been encouraging to date.  The Company’s average wellhead oil differentials in the Utica were approximately $6 per barrel during the second quarter of 2016. The realized natural gas price in the Utica in the second quarter of 2016 was approximately 81% of NYMEX and the NGLs price was approximately 29% of NYMEX.

Debt and Liquidity

At June 30, 2016, the Company had $500 million of 7.75% senior notes due 2022.  The Company settled its Convertible Notes in May 2016 through a combination of cash from its March 2016 equity issuance plus approximately 792,000 shares of common stock for the premium in excess of the conversion price of $42.40 per share. Liquidity as of June 30, 2016 was approximately $547.4 million, consisting of $109.1 million in cash and cash equivalents and its undrawn revolving credit facility of $450 million, net an $11.7 million letter of credit related to a third-party transportation service.  The liquidity amount excludes an additional $250 million available under the revolving credit facility on the Company’s borrowing base of $700 million.

2016 Guidance Update

The Company increased the mid-point of its full-year 2016 production guidance to reflect the positive impact of both increased drilling efficiencies and increased working interests associated with its recently announced consolidation of Middle Core acreage that is expected to close in the fourth quarter. Production guidance increased to a range of 21.0 to 22.0 MMBoe, or 57,375 to 60,110 Boe per day, from the previous range of 20.0 to 22.0 MMBoe.  The December 2016 production exit rate is expected to exceed 64,000 Boe per day.  The increase in expected production is primarily attributable to enhanced completion designs leading to outperformance of certain wells. Total revenue excluding unrealized gains and losses is expected to be between $670 and $700 million.  Net cash from operating activities is expected to be between $440 million and $465 million and adjusted cash flows from operations, a non-U.S. GAAP financial measure defined below, is expected to be between $450 million and $475 million, an increase of $45 million compared to the previous mid-point guidance of approximately $418 million.

Due to the aforementioned improvement in rig efficiencies and increased working interests, the Company plans to reduce its Wattenberg rig count from four to three in the third quarter of 2016 and expects to be cash flow positive for the remainder of the year. The Company anticipates its full-year capital expenditures to be between $400 and $420 million, a reduction of $15 million at the mid-point compared to its previously guided range of $410 to $440 million.

Oil and Gas Operations Cost, Production and Sales Data

The following table provides the components of production costs from continuing operations for the three and six months ended June 30, 2016 and 2015:

 
  Three Months Ended
June 30,		   Six Months Ended
June 30,
  2016   2015   2016   2015
               
Lease operating expenses $ 13.7     $ 12.6     $ 29.0     $ 28.9  
Production taxes 6.0     3.8     10.1     7.7  
Transportation, gathering and processing expenses 4.5     1.3     8.5     2.6  
Total $ 24.2     $ 17.7     $ 47.6     $ 39.2  
Lease operating expenses per Boe $ 2.63     $ 3.71     $ 2.97     $ 4.52  
                               

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, 2016 and 2015, excluding net settlements on derivatives:

 
  Three Months Ended
 June 30,		   Six Months Ended
June 30,
  2016   2015   Percent   2016   2015   Percent
                       
Crude oil (MBbls)                      
Wattenberg Field 1,894.0     1,449.7     30.6 %   3,712.2     2,640.9     40.6 %
Utica Shale 98.6     131.7     (25.1 )%   188.2     247.2     (23.9 )%
Total 1,992.6     1,581.4     26.0 %   3,900.4     2,888.1     35.1 %
                           
Weighted-Average Sales Price $ 40.37     $ 48.31     (16.4 )%   $ 34.46     $ 44.47     (22.5 )%
                           
Natural gas (MMcf)                          
Wattenberg Field 12,097.8     6,651.1     81.9 %   22,268.2     12,562.4     77.3 %
Utica Shale 575.0     672.6     (14.5 )%   1,082.6     1,285.7     (15.8 )%
Total 12,672.8     7,323.7     73.0 %   23,350.8     13,848.1     68.6 %
                           
Weighted-Average Sales Price $ 1.37     $ 2.03     (32.5 )%   $ 1.38     $ 2.21     (37.6 )%
                           
NGLs (MBbls)                          
Wattenberg Field 1,047.3     509.9     105.4 %   1,887.4     961.8     96.2 %
Utica Shale 45.2     55.1     (18.0 )%   87.3     103.7     (15.8 )%
Total 1,092.5     565.0     93.4 %   1,974.7     1,065.5     85.3 %
                           
Weighted-Average Sales Price $ 11.93     $ 10.01     19.2 %   $ 9.89     $ 11.23     (11.9 )%
                           
Crude oil equivalent (MBoe)                          
Wattenberg Field 4,957.5     3,068.2     61.6 %   9,310.9     5,696.5     63.4 %
Utica Shale 239.6     298.9     (19.8 )%   455.9     565.2     (19.3 )%
Total 5,197.1     3,367.1     54.3 %   9,766.8     6,261.7     56.0 %
                           
Weighted-Average Sales Price $ 21.33     $ 28.79     (25.9 )%   $ 19.07     $ 27.32     (30.2 )%
                                           

Commodity Price Risk Management Activities

PDC uses various derivative instruments to manage fluctuations in crude oil and natural gas prices. The Company has in place a series of collars and fixed price and basis swaps on a portion of its expected crude oil and natural gas production. For details of its hedge positions, refer to PDC's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”) for the related quarterly period.

Non-U.S. 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, in some cases, 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, 2015, 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 three 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   Six Months Ended
June 30, June 30,
  2016   2015   2016   2015
Adjusted cash flows from operations:              
Net cash from operating activities $ 96.6     $ 64.6     $ 197.8     $ 146.5  
Changes in assets and liabilities 16.0     32.3     5.8     24.3  
Adjusted cash flows from operations $ 112.6     $ 96.9     $ 203.6     $ 170.8  
   
Adjusted Net Income (Loss)
  Three Months Ended   Six Months Ended
June 30, June 30,
  2016   2015   2016   2015
Adjusted net income (loss):              
Net income (loss) $ (95.5 )   $ (46.9 )   $ (167.0 )   $ (29.8 )
(Gain) loss on commodity derivative instruments 92.7     49.0     81.7     (17.6 )
Net settlements on commodity derivative instruments 53.3     44.1     120.2     94.5  
Tax effect of above adjustments (55.6 )   (35.4 )   (76.8 )   (29.2 )
Adjusted net income (loss) $ (5.1 )   $ 10.8     $ (41.9 )   $ 17.9  
Weighted-average diluted shares outstanding 46.7     40.0     44.2     38.2  
Adjusted diluted net income (loss) per share $ (0.11 )   $ 0.27     $ (0.95 )   $ 0.47  
   
Adjusted EBITDA
  Three Months Ended   Six Months Ended
June 30, June 30,
  2016   2015   2016   2015
Net loss to adjusted EBITDA:              
Net income (loss) $ (95.5 )   $ (46.9 )   $ (167.0 )   $ (29.8 )
(Gain) loss on commodity derivative instruments 92.7     49     81.7     (17.6 )
Net settlements on commodity derivative instruments 53.3     44.1     120.2     94.5  
Interest expense, net 10.5     10.4     20.8     21.1  
Income tax provision (58.3 )   (30.1 )   (100.2 )   (19.4 )
Impairment of crude oil and natural gas properties 4.2     4.4     5.2     7.2  
Depreciation, depletion and amortization 107.0     70.1     204.4     125.9  
Accretion of asset retirement obligations 1.8     1.6     3.6     3.1  
Adjusted EBITDA $ 115.7     $ 102.6     $ 168.7     $ 185.0  
               
Cash from operating activities to adjusted EBITDA:              
Net cash from operating activities $ 96.6     $ 64.6     $ 197.8     $ 146.5  
Interest expense, net 10.5     10.4     20.8     21.1  
Stock-based compensation (6.4 )   (5.1 )   (11.1 )   (9.5 )
Amortization of debt discount and issuance costs (1.3 )   (1.8 )   (3.1 )   (3.5 )
Gain (loss) on sale of properties and equipment (0.3 )   0.2     (0.2 )   0.2  
Other 0.6     2.0     (41.3 )   5.9  
Changes in assets and liabilities 16.0     32.3     5.8     24.3  
Adjusted EBITDA $ 115.7     $ 102.6     $ 168.7     $ 185.0  
   
PDC ENERGY, INC.
Consolidated Statements of Operations
(unaudited; in thousands, except per share data)
               
  Three Months Ended
June 30,		   Six Months Ended
June 30,
  2016   2015   2016   2015
               
Revenues              
Crude oil, natural gas and NGLs sales $ 110,841     $ 96,928     $ 186,208     $ 171,037  
Sales from natural gas marketing 1,879     2,523     4,050     5,756  
Commodity price risk management gain (loss), net (92,801 )   (49,041 )   (81,745 )   17,621  
Well operations, pipeline income and other 178     550     2,415     1,178  
Total revenues 20,097     50,960     110,928     195,592  
Costs, expenses and other              
Lease operating expenses 13,675     12,639     29,005     28,924  
Production taxes 6,043     3,837     10,114     7,730  
Transportation, gathering and processing expenses 4,465     1,308     8,506     2,646  
Cost of natural gas marketing 2,125     2,836     4,703     6,094  
Exploration expense 237     275     447     560  
Impairment of properties and equipment 4,170     4,404     5,171     7,176  
General and administrative expense 23,579     20,728     46,358     41,773  
Depreciation, depletion and amortization 107,014     70,106     204,402     125,926  
Provision for uncollectible notes receivable —     —     44,738     —  
Accretion of asset retirement obligations 1,811     1,588     3,623     3,148  
(Gain) loss on sale of properties and equipment 260     (207 )   176     (228 )
Total cost, expenses and other 163,379     117,514     357,243     223,749  
Loss from operations (143,282 )   (66,554 )   (246,315 )   (28,157 )
Interest expense (10,672 )   (11,567 )   (22,566 )   (23,292 )
Interest income 177     1,135     1,735     2,248  
Loss before income taxes (153,777 )   (76,986 )   (267,146 )   (49,201 )
Provision for income taxes 58,327     30,116     100,166     19,393  
Net loss $ (95,450 )   $ (46,870 )   $ (166,980 )   $ (29,808 )
               
Earnings per share:              
Basic $ (2.04 )   $ (1.17 )   $ (3.78 )   $ (0.78 )
Diluted $ (2.04 )   $ (1.17 )   $ (3.78 )   $ (0.78 )
               
Weighted-average common shares outstanding:              
Basic 46,742     40,035     44,175     38,202  
Diluted 46,742     40,035     44,175     38,202