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Why PDC Energy Is Trading Near an All-Time High

PART:
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Part 2
Why PDC Energy Is Trading Near an All-Time High PART 2 OF 6

Understanding PDC Energy’s Core Delaware Acquisitions

Transformative acquisition

On December 6, 2016, crude oil (USO) and natural gas (UNG) producer PDC Energy (PDCE) closed its previously announced transformative acquisition of 57,000 net acres from two private companies in the core Delaware Basin. The transaction was valued at $1.5 billion, and it includes 41,000 net acres in Reeves county and 16,000 net acres in Culberson county.

The current production associated with this acquisition is ~7.5 Mboepd (thousand barrels of oil equivalent per day). This acquisition is transformative because it will give PDC Energy entry into the core Delaware Basin on a grand scale.

Understanding PDC Energy’s Core Delaware Acquisitions

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Bolt-on acquisition

On December 30, 2016, PDCE closed another strategic bolt-on acquisition of 4,500 net acres from Fortuna Resources Holdings in the Reeves and Culberson counties in the core Delaware Basin. The transaction was valued at $118 million. These properties are contiguous with PDCE’s acreage from the above-mentioned transformative acquisition. The current production associated with this acquisition is ~0.3 Mboepd.

Acquisition benefits

On a pro forma basis, the enlarged PDC Energy expects a 4Q16 exit rate of more than 74 Mboepd. This amount should result in a sequential production rise of more than 13%, compared to 3Q16 production of ~65.3 Mboepd. We’ll study PDC Energy’s 3Q16 production in the next article.

Another important benefit of PDC Energy’s core Delaware acquisition is the significant rise in its total inventory of highly economic drilling locations. As seen in the chart above, these acquisitions brought PDC Energy’s total potential horizontal drilling locations to 2,935, a rise of 710 drilling locations (or ~32%) compared to the older PDC Energy.

Other upstream players

In 2016, many upstream companies ventured out to add quality acreage to their portfolios at attractive prices. In May 2016, Range Resources (RRC) announced a merger with Memorial Resource Development (MRD) in an all-stock transaction valued at $4.4 billion.

In June 2016, Antero Resources (AR) acquired Marcellus Shale acreage from Southwestern Energy (SWN) for ~$450 million. In the same month, Marathon Oil (MRO) acquired PayRock Energy Holdings for $888 million.

Now let’s take a look at PDC Energy’s production.

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