TOM BUTCHER: Bart, thanks so much indeed for joining me today. This year, there has been a lot of talk about changing business models. How has PDC’s business model evolved to fit the current environment, and especially with the growing emphasis on return on capital?
BART BROOKMAN: I think the business model for PDC probably has not been modified dramatically. I think one thing as we entered this year was that we had always had a pretty intense focus on returns on capital. Let me reflect back the last three years.
We entered the ‘15 downturn in energy and we had, obviously, tremendous pressure on whether companies were generating value. We were able to keep our drilling programs going, had tremendous knowledge of our reservoir, quickly adjusted our capital spend levels, and we were able to grow the company in 2015 65%. We grew the company while we were strengthening the balance sheet. We had the attributes, the reservoir attributes, and we had the technical capabilities to go execute. Our primary focus has always been, are we achieving value add returns on our drilling programs? So it has been a cultural, philosophical, technical, and financial discipline that we have had.
We carried that into ‘16. The balance sheet got even stronger in a very difficult pricing environment. We all remember it. And we were so strong we were able to execute on our Delaware transaction. We did that in late ‘16 with a slight uptick in our debt levels. I think our debt to EBITDA went to about two and we were quickly able to work that down.
Then, in ‘17, we continued with growth and continued with strengthening balance sheets. So I think we have taken those attributes and those disciplines, whether it is financial or operational, and I do think the one thing that we are trying to honor to the best of our ability is the push by the market: we would love to see cash flow neutrality. That was one of our goals this year, when we sat down and looked at 2018: can we be cash flow neutral? Taking what we are good at, taking an incredible emerging Delaware Basin, and we feel very proud that, as of today, we are in a cash flow positive position going forward. So, I do not know if we have had any major shifts. I think we have listened to the market and I think we took what we are good at, and we have applied it. We have probably adjusted our capital spend a little bit. But we really have been steady-state with our rig pace and turn-in-line pace. Hopefully I am answering your question.
BROOKMAN: So, there was not a big metamorphosis for us of, we have got to do things a different way.
BROOKMAN: Let me take a little bit of a different spin on this. Our five corporate performance metrics are: production, cash flow per share, total costs, balance sheet strength or leverage ratio, and drilling F&D. So we have a capital efficiency, a balance sheet, a growth and cash flow, operating cost and productivity, and production. We set targets at the beginning of the year. And as you know, those all conflict – at times. We could go spend more, strain the balance sheet, and up production, right? We could move one at the cost of another. So we set aggressive targets in those five metrics, and we feel very good about the last several years, being able to achieve all of those, including the production growth.
BUTCHER: And one last question: what would you like conference attendees to take away with them about PDC?
BROOKMAN: Well, I think I have touched on it. I think we are blessed, we are uniquely positioned with two basins that have tremendous reservoir rock. We have great capital allocation choices, which we feel very fortunate to have. And we have got a very unique outlook, in that we are going to continue to grow the company. Growth is not our primary goal. Our primary goal is investing for value, honoring the balance sheets, being technically competent, and having social responsibility and being heavily involved in our communities.
We are fortunate that we set our plans, and one of the outputs is that we continue, even at a steady-state operational base of three rigs and three rigs, we are going to be able to build the company 20-40% the next several years. So I think those are unique attributes for a company: not that we are number one, but we feel like we are at least in the top tier of what we have the ability to do, both operationally and financially.
BUTCHER: Wonderful. Bart, thank you very much indeed.
BUTCHER: And all the best going forward.
BROOKMAN: Thank you.
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