PDCE - Valens Credit Report - 2023 05 17
Credit markets are overstating PDCE's credit risk, with a cash bond YTW of 6.801%, relative to an Intrinsic YTW of 5.351% and an Intrinsic CDS of 159 bps. Meanwhile, Moody's is overstating the firm's fundamental credit risk, with its Ba2 credit rating four notches lower than Valens' IG4+ (Baa1) credit rating.Incentives Dictate Behavior™ analysis highlights positive signals for credit holders. PDCE's metrics should generally drive management to focus on improving margins and asset utilization, which could lead to Uniform ROA expansion and increased cash flows available for obligations going forward. Furthermore, most management members are material owners of PDCE equity relative to their annual compensation, indicating they may be well-aligned with shareholders to pursue long-term value creation for the company. In addition, most management members have low change-in-control compensation relative to their annual compensation, indicating they may not be sufficiently incentivized to pursue a
takeover or accept a sale of the company, reducing event risk for creditors.
PDC Energy is an independent exploration and production company that acquires, explores and develops properties for the production of crude oil, natural gas, and natural gas liquids with operations in the Wattenberg Field in Colorado and the Delaware Basin in Texas. The company's operations in the Wattenberg Field are focused in the horizontal Niobrara and Codell plays and its Delaware Basin operations are primarily focused in the Wolfcamp zones. The company is engaged in two operating segments: its oil and gas exploration and production segment and its gas marketing segment.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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