Where Are PDC Energy’s Free Cash Flows Headed?
PDC Energy’s Market Performance among Best in Upstream Mid-Caps
PDC Energy’s free cash flows
In this article, we’ll analyze how PDC Energy’s (PDCE) operating cash flows have trended over the past few quarters. We’ll also discuss how its free cash flow (or FCF) was affected given its capex (capital expenditures). We’ve already discussed PDCE’s capex in the previous part.
As you can see in the above table, PDC Energy’s cash from operating activities (or CFO) has remained steady, even in the face of a sharp decline in crude oil prices. Although PDCE’s average realized prices dropped nearly 49% from a year ago, the company’s operating cash flow increased 26% in 2Q15 over 2Q14. Higher CFO during this period reflected higher sales volume and cost savings from lower-than-expected well development costs.
PDC Energy’s historical FCF
Although CFO has remained steady in the past five quarters, FCF has continued to remain negative due to strong capex. In 2Q15, as CFO decreased compared to the previous quarter, FCF also deteriorated from stronger capex compared to 1Q15.
Will PDC Energy become cash flow neutral?
Total 2Q15 capex, increasing 15% from the 2Q14 level, led to PDCE’s FCF decreasing from -$107 million in 2Q14 to -$117 million in 2Q15. Given PDCE’s CFO generation, there’s not much need to resort to external financing to plug the cash flow holes.
PDCE expects to be cash flow neutral, or zero free cash flow, by 2H15 if energy prices remain at the July 27 level and 2015 capex stays in line with the company’s projection. It also expects to remain cash flow neutral in 2016.
For more on PDCE’s capex, read Part 7. In addition, PDCE has $385.3 million available for borrowing under a revolving credit facility. It’s there in case PDCE requires additional liquidity due to inadequate cash flow stemming from lower energy prices.
In comparison, SM Energy’s (SM) FCF registered -$160 million in 2Q15, compared to -$110 million in 2Q14. SM Energy is 1.45% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
Is PDC Energy trading at a premium or a discount? Read the next section to know.
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