What happened
Shares of PDC Energy (PDCE) rallied as much as 16.4% by 10:30 a.m. EST on Thursday. Fueling the oil stock was its fourth-quarter results and its plan to return cash to shareholders later this year.
So what
PDC Energy posted a fourth-quarter adjusted profit of $1.10 per share, which beat analysts' expectations by $0.21 per share. The company also generated $270 million of adjusted cash from operations, enabling it to fund its $110 million capital program while producing $160 million in free cash flow. That pushed its full-year free cash total to more than $400 million, enabling it to reduce debt by $300 million since closing its acquisition of SRC Energy.
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The oil and gas producer also unveiled its 2021 game plan. It expects to invest between $500 million to $600 million on capital projects this year, which should enable it to maintain its current production rate. At $45 oil, it can fully fund that spending plan with about $400 million to spare. The company plans to use some of those funds to reduce debt, targeting to repay more than $200 million in debt this year. Meanwhile, it expects to return more than $120 million in cash to shareholders via a stock repurchase plan and a new dividend program that it intends on launching by midyear.
Now what
PDC Energy spent much of the past year reducing costs, thanks in part to its increased scale from its merger with SCR. Because of that, it's cashing in on higher crude oil prices. It's aiming to keep its output roughly flat with last year's level, allowing it to generate significant free cash flow at higher prices. That's giving it the flexibility to further enhance its balance sheet and return capital to shareholders later this year if prices continue cooperating. Those catalysts could give its stock the fuel to keep rallying.
