Acquisition: EagleClaw and WaterBridge buy Delaware basin midstream assets from PDC Energy

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[Context: On May 1, PDC Energy (Nasdaq: PDCE) disclosed the sale of Delaware Basin midstream gas and water assets for $310m and the pending sale of crude oil gathering assets. The buyers include Blackstone-backed EagleClaw Midstream and Five Point-backed WaterBridge Resources. Further details, advisors and related links are below.]


 

DENVER, May 01, 2019 (GLOBE NEWSWIRE) — PDC Energy, Inc. (“PDC” or the “Company”) (NASDAQ: PDCE) today reported its 2019 first quarter operating and financial results. Additionally, the Company announced it has entered into two definitive agreements to divest its gas and water midstream assets in the Delaware Basin for a combined total of approximately $310 million, subject to post-closing adjustments.

First Quarter Highlights:
>>Total production of 11.2 million barrels of oil equivalent (“MMBoe”), or approximately 125,000 Boe per day, a 26 percent increase from the first quarter of 2018.
>>Crude oil, natural gas and NGLs sales of approximately $320 million, a five percent increase from the first quarter of 2018 despite a 16 percent decrease in average per Boe prices between periods.
>>Improved well costs in both Wattenberg and Delaware Basin operations reflecting reduced drill times and more completion stages per day than originally budgeted.
>>Nine Delaware Basin turn-in-lines (“TILs”), including the extended-reach lateral Argentine S5, the Company’s first Bone Spring well. Current production for this well, which has yet to reach a peak 30-day IP, is averaging approximately 190 Boe per day per thousand feet and 70 percent crude oil.
>>The Company entered into two definitive agreements to divest certain Delaware Basin midstream assets for an aggregate purchase price of approximately $310 million, subject to post-closing adjustments. Additionally, the Company entered into long-term commercial service agreements with incentive-based provisions worth up to an additional $135 million.
>>The Company’s Board of Directors recently authorized a stock repurchase plan of up to $200 million of its outstanding common stock, depending on market conditions. The plan is expected to be funded through free cash flow beginning in the third quarter of 2019 with a target completion date of December 31, 2020.

CEO Commentary

President and Chief Executive Officer, Bart Brookman commented, “I’m extremely pleased with our first quarter results, highlighted by our improved drilling and completion pace, below-budget well costs, prolific well results and improved cost structure. These accomplishments, along with the successful monetization of our gas and water midstream assets, which we expect to close in mid-2019, are a tremendous example of PDC delivering value to shareholders through execution of our strategy.”

“Further, as a testament to our confidence in our financial and operational strength, as well as the quality of our assets and depth of current inventory, the PDC Board of Directors has approved a stock repurchase program of up to $200 million, depending on market conditions. PDC’s financial strength and focus on capital discipline, as outlined in our multi-year outlook, has positioned the Company to execute this program through free cash flow generated from operating activities.”

Operations Update

Production for the first quarter of 2019 was 11.2 MMBoe, or approximately 125,000 Boe per day, an increase of 26 percent from the first quarter of 2018. Oil production of 4.5 million barrels in the first quarter represents an increase of approximately 20 percent compared to the first quarter of 2018. The Company’s capital investment for the quarter was approximately $282 million and included $21 million of Delaware Basin midstream related capital. Several operating efficiencies have led to a slightly accelerated capital pace; however, the Company maintains operational flexibility and commitment to its full-year capital investment range of $810 million to $870 million, excluding corporate capital.

In the Wattenberg Field, the Company spud 38 wells and TIL’d 32 wells with average working interests of 93 percent. Standard-, mid-, and extended-reach lateral well costs for the quarter averaged approximately five percent below budget. The Company’s completion crew is currently ten percent ahead of schedule, resulting in improved capital efficiency and higher than anticipated first quarter capital investments.

In the Delaware Basin, the Company spud ten wells and TIL’d nine wells with average working interests of approximately 96 percent. All spuds and TILs were mid- or extended-reach laterals with average well costs approximately five percent below budget. This improvement in operational efficiency, which has largely been offset by higher than anticipated working interests, is primarily due to a seven day, or approximately 20 percent, improvement in spud-to-rig release drill times compared to its 2019 budget. Due to a lack of completion activity at the end of 2018, TILs and new production were weighted towards the back half of the first quarter. Notable early-time data include:
>>The Windy Mountain pad – two lower Wolfcamp B wells located in close proximity to the Company’s Grizzly pad in ‘Area 3’ of Block 4. Current production is above internal expectations through early flowback, averaging approximately 165 Boe per day per thousand feet and 60 percent crude oil.
>>Argentine B4 – Lower Wolfcamp B extended-reach lateral well testing an accelerated flowback technique. Current production is averaging approximately 240 Boe per day per thousand feet and 75 percent crude oil.
>>Argentine S5 – The Company’s first 3rd Bone Spring well. This well has yet to reach a peak 30-day average IP; however, early data is encouraging with average production averaging approximately 190 Boe per day per thousand feet and 70 percent crude oil.

Delaware Midstream Transactions

In the second quarter, the Company entered into two definitive agreements to divest of its gas and water midstream assets (the “Transactions”) for total cash proceeds of approximately $310 million, of which approximately $225 million is expected to be received at the time of closings and approximately $82 million is expected to be received as an unconditional payment one year post-closing. Additionally, PDC entered into long-term commercial service agreements for its gas gathering, compression, processing and transportation, and water gathering and disposal at market-competitive fees. These agreements also include volume- and activity-based incentives with potential future payments that would total up to an additional $135 million. In addition to upfront proceeds and substantial future capital avoidance, the Company expects its pro forma operating cost structure to remain market competitive, without sacrificing its current operating margins.

The Company anticipates closing the Transactions in mid-2019, and expects to utilize proceeds to pay off its outstanding revolver balance and for future capital investments. The majority of the upfront $225 million cash proceeds are expected to pay down the Company’s anticipated revolving credit facility balance at the end of the second quarter. Jefferies, LLC acted as PDC’s exclusive financial advisor in connection with the Transactions.

>>Upon closing of the transaction, the Company will divest its gas-related midstream assets, including long-term future gathering and processing rights, to EagleClaw Midstream for total proceeds of approximately $182 million. The transaction is composed of an initial $100 million payment at closing and an unconditional payment due one year after closing of approximately $82 million. The agreement provides PDC with long-term flow assurance via Eagleclaw’s current processing capacity system of approximately 1.3 billion cubic feet per day and transportation of residue gas to both Waha and the Gulf Coast markets via Delaware Link and the Permian Highway Pipeline. The agreement is a typical acreage dedication for the Company’s Central and Eastern Delaware Basin acreage, includes an area of mutual interest (“AMI”), contains no volume commitments for midstream services, includes upside volume-based incentives compared to the current development plan and downside protection for EagleClaw related to a modest level of drilling activity.

>>Upon closing of the transaction, the Company will divest its water-related midstream assets, including infrastructure and long-term future gathering and disposal rights, to a subsidiary of WaterBridge Resources, LLC for total proceeds of $125 million at closing. The agreement provides PDC access to WaterBridge’s extensive water disposal network of more than one million barrels per day, and the ability to efficiently transport all water volumes via pipe. The agreement includes an AMI, contains no volume commitments and includes incentives for each well drilled and completed in excess of an agreed upon, modest level of drilling activity. PDC has retained operational control of its fresh water supply.

Additionally, the Company is in the final stages of negotiations regarding the sale of its crude oil gathering assets.

Executive Vice President of Corporate Development and Strategy, Lance Lauck, commented, “These transactions represent a tremendous value-add for PDC. I’m very proud of our team’s ability to find the right balance between return on investment and market-competitive fee structures while maintaining our current strong margins. Additionally, we expect our long-term service agreements to not only provide flow assurance, but also enable us to focus on our core upstream business and avoid substantial future midstream capital investment.”

Stock Repurchase Program

The Company announced today that its Board of Directors has approved a stock repurchase program (the “Program”) to acquire up to $200 million of its outstanding common stock, depending on market conditions. The Program is expected to begin in the third quarter of 2019 with a target completion date of December 31, 2020. The Company projects to generate a sufficient level of free cash flow in this period to fund the Program while maintaining the ability to pursue additional future return of capital programs, depending on market conditions.

Repurchases under the Program can be made in open markets at the Company’s discretion and in compliance with safe harbor provisions, or in privately negotiated transactions. The Program does not require any specific number of shares to be acquired, and can be modified or discontinued by the Board of Directors at any time.

Oil and Gas Production, Sales and Operating Cost Data

Crude oil, natural gas and NGLs sales, excluding net settlements on derivatives, increased five percent to $321.1 million in the first quarter of 2019, compared to $305.2 million in the first quarter of 2018. The increase in sales was due to a 26 percent increase in total production offsetting a decrease in the sales price per Boe, excluding net settlements on derivatives, of 16 percent to $28.63 in the first quarter of 2019 from $34.26 in the comparable 2018 period. Including the impact of net settlements on derivatives, combined revenues increased 12 percent to $312.6 million from $279.2 million between periods.

Upcoming Investor Presentations

PDC is scheduled to attend the following conferences: Citi Global Energy and Utilities Conference in Boston on Tuesday, May 14, 2019, Bank of America Merrill Lynch Energy Credit Conference in New York on Wednesday, June 5, 2019, Stifel Energy’s Cross Sector Insight Conference in Boston on Monday, June 10, 2019, the Wells Fargo West Coast Energy Conference in San Francisco on Tuesday, June 11, 2019 and the J.P. Morgan Energy Conference in New York on Tuesday, June 18, 2019. Presentation materials will be posted to the Company’s website, www.pdce.com, prior to the start of the conference.

About PDC Energy, Inc.

PDC Energy, Inc. is a domestic independent exploration and production company that acquires, produces, develops, and explores for crude oil, natural gas and NGLs with operations in the Wattenberg Field in Colorado and the Delaware Basin in West Texas. Its operations are focused on the liquid-rich horizontal Niobrara and Codell plays in the Wattenberg Field and the liquid-rich Wolfcamp zones in the Delaware Basin.

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