03/31/17: New Addition To Focus List

By Published On: March 31, 2017
  • PDC Energy (NSDQ: PDCE)–Buy<$70 in Focus List

The most recent issue of Energy & Income Advisor highlighted the potential to add an upstream name to our Focus List after the recent pullback in shares of oil and gas producers.

PDC Energy boasts a legacy position in Colorado’s Niobrara Shale and last year established a footprint in the red-hot Delaware Basin, with the acquisition of 57,000 net acres in Reeves and Culbertson County.

Management’s guidance calls for the company to grow its hydrocarbon output by 40 percent in 2017. PDC Energy will run an additional rig in Colorado and West Texas, bringing the firm’s total rig count to seven–four in the Niobrara Shale and three in the Delaware Basin.

In Colorado, PDC Energy completed an acreage swap with Noble Energy (NYSE: NBL) that will expand the company’s inventory of extended-reach laterals.

PDC Energy’s initial efforts in the Delaware Basin focus on holding its acreage by production and targeting the Wolfcamp A and B zones. This development plan includes some extended-reach laterals, but the company will test additional productive zones in the region and build out its midstream infrastructure before shifting to pad drilling toward the end of next year–an upside driver for next year.

Why add PDC Energy to the Focus List today?

The exploration and production company’s upcoming Analyst Day on April 20 should include a detailed operational update highlighting the results from recent down-spacing tests and experiments with various completion techniques.

Management’s commentary on the company’s fourth-quarter earnings call suggests that its type curve in the Niobrara Shale could be due for an upgrade, a catalyst that isn’t baked into the firm’s already impressive 2017 guidance.

Despite trading at a significant discount to other players in the Delaware Basin, PDC Energy boasts top-tier production growth for 2017 and one of the strongest balance sheets among US independents, headlined by a leverage ratio of about 2 times operating cash flow.

One of the best value plays in the US onshore market, PDC Energy joins the Focus List as a buy up to $70.

(Click table to enlarge.)Focus List 033117

 

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