peshkov/iStock via Getty Images

peshkov/iStock via Getty Images

PDC Energy (NASDAQ:PDCE ) now could generate close to $2 billion in positive cash flow in 2022 at current strip prices (of over $100 WTI oil). This would allow it to put approximately $1.1 billion towards share repurchases and special dividends during the year.

PDC may be able to boost its value above $80 per share in a long-term $75 oil and $3.75 gas environment if it is successful in getting the permits it wants.

PDC recently closed its acquisition of Great Western. It paid $543 million in cash and approximately 4 million common shares for Great Western as well as assuming its debt ($547 million in total debt). PDC mentioned that it paid off the $235 million in Great Western credit facility debt and the $312 million in Great Western 12% secured notes due 2025.

PDC also took on Great Western's hedges with the acquisition. At current strip prices, those hedges may have around $290 million in negative value.

Great Western was producing around 50,000 BOEPD to 55,000 BOEPD in early May, including approximately 42% oil, 25% NGLs and 33% natural gas.

The Great Western acquisition does add a fair bit to PDC's permitted inventory. It had 232 permitted (but undrilled) gross locations before the acquisition, and is adding another 114 permitted gross locations with the acquisition.

PDC Energy is now expecting to average around 225,000 to 240,000 BOEPD in total production, including 74,000 to 81,000 barrels of oil production per day during 2022.

PDC's 2H 2022 production will be higher due to the recently closed Great Western acquisition. It expects 2H 2022 production to average 250,000 to 260,000 BOEPD, including 82,000 to 87,000 barrels of oil production per day.

PDC had a realized hedging loss of $162 million in Q1 2022. It is forecasted (at current strip prices) to end up with $1.060 billion in total hedging losses for 2022.

This includes the hedges it assumed as part of the Great Western acquisition. The Great Western hedges roll off faster than PDC's standalone hedges, so post-acquisition it has a lower percentage of its production in 2023 and beyond hedged now.

Great Western Hedges (PDC Energy)

Great Western Hedges (PDC Energy)

At current strip prices (including above $100 WTI oil), PDC is now expected to generate $3.843 billion in revenues after hedges in 2022.

PDC is now budgeting $950 million to $1.0 billion in capital expenditures for 2022, which includes the additional spending on its Great Western assets and anticipated service cost increases.

PDC is now projected to end up with $1.963 billion in positive cash flow in 2022 at current strip prices.

PDC ended 2021 with $916 million in net debt. The Great Western acquisition uses around $1.09 billion in cash (for the acquisition price plus paying off the acquired debt).

PDC's projected positive cash flow during 2022 could pay off most of its net debt, although it is planning on returning a significant amount of capital to shareholders through dividends and share repurchases.

PDC's base quarterly dividend was $0.25 per share in Q1 2022 and it expects to increase this to $0.35 per share now that the Great Western acquisition has closed. This adds up to around $128 million in base dividend payouts for 2022 before the impact of share repurchases on dividends.

That would leave $1.835 billion in positive cash flow after its base dividend. PDC is committed to returning at least 60% of its post base dividend free cash flow to shareholders via special dividends and share repurchases. This would result in approximately $1.1 billion available for share repurchases and special dividends, and $735 million available for debt reduction. That debt reduction may result in PDC's year-end 2022 net debt ending up around $1.3 billion.

At a 2.7x EV to unhedged EBITDAX multiple (using PDC's 2H 2022 production levels), PDC has an estimated value of approximately $68 per share at long-term $70 WTI oil and $3.50 NYMEX gas. This assumes strip prices for 2022 and then long-term oil and gas prices after that. At long-term $75 WTI oil and $3.75 NYMEX gas, PDC's estimated value increases to approximately $73 to $74 per share using that multiple.

A 3.0x EV to unhedged EBITDAX multiple would increase PDC's estimated value to around $75 to $76 using long-term $70 oil and $3.50 natural gas, and approximately $81 per share using long-term $75 oil and $3.75 gas.

PDC Energy now looks capable of generating close to $2 billion in positive cash flow during 2022 at current strip prices, although this would have been around $3 billion without hedges.

PDC looks to have around $1.1 billion to put towards share repurchases and special dividends in 2022. This could reduce its outstanding share count by over 15%.

PDC's upside is partly dependent on how successful it is at getting additional permits. A good level of success there would put PDC's estimated value into the $80s at long-term $75 oil and $3.75 gas.

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