CONFORMED COPY
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
For the period ended June 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 of 15(d) of
the Securities and Exchange Act of 1934
For the transition period from to
Commission file number 0-7246
I.R.S. Employer Identification Number 95-2636730
PETROLEUM DEVELOPMENT CORPORATION
(A Nevada Corporation)
103 East Main Street
Bridgeport, WV 26330
Telephone: (304) 842-6256
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes XX No
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date: 10,445,220 shares of the
Company's Common Stock ($.01 par value) were outstanding as of June 30, 1996.
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Independent Auditors' Review Report 1
Condensed Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 2
Condensed Consolidated Statements of Operations -
Three Months and Six Months Ended June 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Statement by Management Concerning Review of Interim
Financial Information by Independent Certified Public
Accountants 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
PART I - FINANCIAL INFORMATION
Independent Auditors' Review Report
The Board of Directors
Petroleum Development Corporation:
We have reviewed the accompanying condensed consolidated balance
sheet of Petroleum Development Corporation and subsidiaries as of June 30,
1996, and the related condensed consolidated statements of operations for the
three-month and six-month periods ended June 30, 1996 and 1995 and the related
condensed consolidated statements of cash flows for the six-month periods
ended June 30, 1996 and 1995. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Petroleum Development
Corporation and subsidiaries as of December 31, 1995 and the related
consolidated statements of operations, retained earnings, and cash flows for
the year then ended (not presented herein); and in our report dated March 15,
1996, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1995, is fairly
presented, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
August 7, 1996
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
<TABLE>
<S> <S> <S>
ASSETS
1996 1995
(Unaudited)
Current assets:
Cash and cash equivalents $ 5,169,300 $10,053,600
Accounts and notes receivable 4,960,800 2,016,600
Inventories 233,700 217,900
Prepaid expenses 951,200 868,800
Total current assets 11,315,000 13,156,900
Properties and equipment 48,553,600 48,240,000
Less accumulated depreciation, depletion,
and amortization 21,882,800 21,127,100
26,670,800 27,112,900
Other assets 479,500 350,300
$38,465,300 $40,620,100
</TABLE>
(Continued)
-2-
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, Continued
June 30, 1996 and December 31, 1995
<TABLE>
<S> <S> <S>
LIABILITIES AND
STOCKHOLDERS' EQUITY
1996 1995
(Unaudited)
Current liabilities:
Accounts payable and accrued expenses $ 7,646,100 $ 3,903,000
Advances for future drilling contracts 2,235,200 10,069,600
Funds held for future distribution 717,000 704,000
Total current liabilities 10,598,300 14,676,600
Long-term debt 2,700,000 2,500,000
Other liabilities 745,200 601,700
Deferred income taxes 2,980,200 2,920,900
Stockholders' equity:
Common stock 104,500 112,100
Additional paid-in capital 6,602,100 7,019,800
Retained earnings 14,817,900 12,878,000
Unamortized stock award (82,900) (89,000)
Total stockholders' equity 21,441,600 19,920,900
$38,465,300 $40,620,100
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three and Six Months ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<S> <S> <S> <S> <S>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Revenues:
Oil and gas well drilling operations $2,745,700 $2,379,400 $10,732,600 $ 9,673,100
Oil and gas sales 6,497,100 1,017,800 8,964,600 2,179,800
Pipeline and well operations income 945,500 969,400 1,847,100 1,972,000
Other income 145,400 66,200 230,700 144,900
10,333,700 4,432,800 21,775,000 13,969,800
Costs and expenses:
Cost of oil and gas well drilling
operations 2,267,900 1,989,700 8,770,200 8,125,500
Oil and gas purchases
and production costs 6,049,300 1,096,500 8,084,300 2,406,800
General and administrative expenses 570,100 520,900 1,111,900 971,200
Depreciation, depletion, and
amortization 541,700 535,500 1,207,400 1,123,900
Interest 67,300 76,300 139,400 159,700
9,496,300 4,218,900 19,313,200 12,787,100
Income before income taxes 837,400 213,900 2,461,800 1,182,700
Income taxes 177,500 53,000 521,900 293,300
Net income $ 659,900 $ 160,900 $ 1,939,900 $ 889,400
Earnings per common and
common equivalent share $ .06 $ .02 $ .17 $ .08
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<S> <S> <S>
1996 1995
Cash flows from operating activities:
Net income $ 1,939,900 $ 889,400
Adjustments to net income
to reconcile to cash used in
operating activities:
Deferred federal income taxes 43,300 88,000
Depreciation, depletion & amortization 1,207,400 1,123,900
Leasehold acreage expired or surrendered 100,300 173,500
Employee compensation paid in stock 11,800 -
Gain on disposal of assets (9,000) (23,600)
Decrease in current assets 254,600 339,300
(Increase) decrease in other assets (144,500) 100,700
Decrease in current liabilities (8,445,300) (8,372,900)
Increase in other liabilities 143,500 110,800
Total adjustments (6,837,900) (6,460,300)
Net cash used in operating activities(4,898,000) (5,570,900)
Cash flows from investing activities:
Capital expenditures (1,092,700) (845,300)
Proceeds from sale of leases 327,100 207,700
Proceeds from sale of other assets 9,000 24,300
Net cash acquired from purchase of subsidiary 1,450,000 -
Net cash provided by (used in)
investing activities 693,400 (613,300)
Cash flows from financing activities:
Proceeds from borrowings 1,000,000 -
Proceeds from sale of common stock 120,300 -
Purchase of treasury stock (1,000,000) -
Retirement of debt (800,000) (370,700)
Net cash used in financing activities (679,700) (370,700)
Net changes in cash and
cash equivalents (4,884,300) (6,554,900)
Cash and cash equivalents, beginning of period 10,053,600 8,906,800
Cash and cash equivalents, end of period $ 5,169,300 $ 2,351,900
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-5-
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1996
(Unaudited)
1. Accounting Policies
Reference is hereby made to the Company's Annual Report on Form 10-K for
1995, which contains a summary of major accounting policies followed by
the Company in the preparation of its consolidated financial
statements. These policies were also followed in preparing the
quarterly report included herein.
2. Basis of Presentation
The Management of the Company believes that all adjustments (consisting
of only normal recurring accruals) necessary to a fair statement of the
results of such periods have been made. The results of operations for
the six months ended June 30, 1996 are not necessarily indicative of
the results to be expected for the full year.
3. Oil and Gas Properties
Oil and Gas Properties are reported on the successful efforts method.
4. Acquisition of Subsidiary
On April 1, 1996, the Company acquired Riley Natural Gas Company (RNG), a
privately held gas marketing company in a stock for stock exchange.
While this addition does not constitute a significant subsidiary for
accounting purposes, it will substantially increase the Company's
capabilities in the natural gas marketing area. Proforma results
assuming the acquisition took place in earlier periods are not presented
as these results would not differ significantly from historical results
of operations. PDC issued 236,094 shares of common stock with a market
value of $449,100, for 100% of the outstanding common stock of RNG.
Key employees of RNG have agreed to enter into employment contracts with
PDC to assure the continuity of RNG's gas marketing operations.
5. Common Stock
On January 31, 1996, the Company purchased 1,200,000 shares of its
common stock pursuant to an option agreement. The option was obtained
in connection with a debt restructuring in 1990. The Company utilized
it's revolving credit line to acquire the shares for $1,000,000 or
$0.83 a share. The shares representing approximately 11% of the
currently outstanding stock were retired by the Company.
6. Earnings Per Share
Computation of earnings per common and common equivalent share are as
follows for the three months and six months ended June 30, 1996 and 1995:
-6-
<PAGE>
<TABLE>
<S> <S> <S> <S> <S>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Weighted average common
shares outstanding 11,349,965 11,756,190 11,363,245 11,683,882
Net income $ 659,900 $ 160,900 $ 1,939,900 $ 889,400
Earnings per common and
common equivalent share $ .06 $ .02 $ .17 $ .08
</TABLE>
7. Subsequent Event
On August 6, 1996 the Company purchased an interest in 188 oil and gas
wells in West Virginia. The Company utilized its revolving credit line
to finance the purchase. While this addition does not constitute a
significant subsidiary for accounting purposes, it will increase the
Company's oil and gas reserves by 4.8 Bcf of natural gas and 35,000
barrels of oil, add 12,000 acres of leases to its leasehold inventory
and increase the Company's gathering systems by forty-nine miles. The
purchase price was $3.3 million.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three Months Ended June 30, 1996 Compared With June 30, 1995
Total revenues increased $5,900,900 in the second quarter of 1996
compared to the same period in 1995 primarily as a result of increased oil
and gas sales and to a lesser extent increased drilling revenues. Oil and
gas sales increased $5,479,300 primarily due to the gas marketing activities
of Riley Natural Gas Company (RNG) ($5.1 million), a company acquired on
April 1, 1996, along with increased production and higher average sales prices
from the Company's producing properties. Drilling revenue increased by 15.4%
principally as a result of the Company's Public Sponsored Partnership, PDC
1996-A, which closed on June 5, 1996 providing $476,000 more drilling
revenues during the quarter than the first program in 1995.
Costs and expenses increased $5,277,400 primarily as a result of
increased oil and gas purchases and production costs and to a lesser extent
increased well drilling costs. Oil and gas purchases and production costs
increased $4,952,800 primarily due to increased purchases of gas for resale
by RNG. Oil and gas well drilling costs increased 14.0% as a result of the
increased drilling activity referred to above.
The foregoing resulted in net income of $659,900 as compared to a net
income of $160,900 for the second quarter of 1995. The provision for income
taxes in 1996 consists of $162,800 of current taxes and $14,700 of deferred
income taxes. The provision for income taxes in 1995 consisted of $37,100 of
current taxes and $15,900 of deferred income taxes.
Six Months Ended June 30, 1996 Compared with June 30, 1995
Total revenues increased $7,805,200 during the first six months of 1996
compared to the same period in 1995 primarily as a result of increased oil
and gas sales and to a lesser extent increased drilling revenues. Oil and
gas sales increased $6,784,800 primarily due to the gas marketing activities of
RNG ($5.1 million)
-7-
<PAGE>
along with significantly higher average sales prices of natural gas,
increased gas purchased for resale and to a lesser extent, increased sales
volumes from the Company's producing properties. Drilling revenues increased
10% as a result of higher volumes of drilling activities.
Costs and expenses increased $6,526,100 as a result of increased oil
and gas purchases and production costs and to a lesser extent increased well
drilling costs. Oil and gas purchases and production costs increased
$5,677,500 primarily due to gas purchases by RNG for resale and to a lesser
extent higher volumes of gas purchased for resale at higher average prices.
Oil and gas well drilling costs increased $644,700 as a result of the higher
volume of drilling activity referred to above.
The foregoing resulted in net income of $1,939,900 compared to a net
income of $889,400 for the first six months of 1995. The provision for
income taxes in 1996 consists of $478,600 of current taxes payable and $43,300
of deferred income taxes. The provision for income taxes in 1995 consisted of
$205,300 current taxes payable and $88,000 of deferred income taxes.
Liquidity and Capital Resources
Sales volumes of natural gas continued to increase while the natural
gas prices fluctuated monthly. The Company's gas sales prices are subject to
increase and decrease based on various market sensitive indices. A major
factor in the variability of these indices is the seasonal variation of
demand for natural gas, which typically peaks during the winter months. There
was a dramatic increase in the price of natural gas during the past winter.
While prices cannot be predicted for the entire year, it is generally
believed that the average sales price of natural gas will be higher in 1996
than in 1995. The volumes of gas sales are expected to continue to increase
as a result of continued drilling activities.
The Company closed its first drilling program of 1996 in the second
quarter and has drilled the wells in the second and third quarters of 1996.
The Company will close its second drilling program of 1996 in September, 1996
and will drill the wells during the third and fourth quarters of 1996. The
Company's public drilling program continues to receive wide market
acceptance. The Company's first drilling program of 1996 closed at
approximately 75% higher than the first program of 1995.
The purchase of RNG on April 1, 1996 has, as expected, increased both
gas and oil sales revenue and gas and oil purchases cost in the second
quarter of 1996. Gas marketing organizations like RNG purchase and resell gas
for a relatively small margin, typically the range of 1-3% of sales revenues.
While the volume of gas marketing activity for the remainder of 1996 cannot be
predicted, for the quarter ended June 30, 1996, RNG had gross revenues of
approximately $5.1 million.
The Company continues to pursue capital investment opportunities in
producing gas properties along with its commitment to participate in its
sponsored gas drilling programs. Management believes that the Company has
adequate capital to meet its operating requirements and continues to pursue
opportunities for operating improvements and cost efficiencies.
The Purchase of the wells described in Footnote 5 on August 6, 1996
will increase the Company's oil and gas sales and this increase is expected
to liquidate the increase in the Company's revolving credit line utilized to
purchase the wells.
The Company is party to a credit agreement providing up to $7.5 million
in borrowing capacity. At August 7, 1996 the Company has activated $6
million of that facility and has $5.85 million outstanding after the purchase
of wells described in Footnote 5.
-8-
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
STATEMENT BY MANAGEMENT CONCERNING
REVIEW OF INTERIM FINANCIAL INFORMATION
BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The June 30, 1996 and 1995 condensed consolidated financial statements
included in this filing on Form 10-Q have been reviewed by KPMG Peat Marwick
LLP, independent certified public accountants, in accordance with
established professional standards and procedures for such reviews. The
report of KPMG Peat Marwick LLP commenting upon their review accompanies the
condensed consolidated financial statements included in Item 1 of Part I.
-9-
<PAGE>
CONFORMED COPY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any legal actions that would
affect the Company's operations or financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) No reports on Form 8-K have been filed during the quarter
ended June 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Petroleum Development Corporation
(Registrant)
Date: August 7, 1996 /s/ Steven R. Williams
Steven R. Williams
President
Date: August 7, 1996 /s/ Dale G. Rettinger
Dale G. Rettinger
Executive Vice President
and Treasurer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,169,300
<SECURITIES> 0
<RECEIVABLES> 4,960,800
<ALLOWANCES> 422,100
<INVENTORY> 233,700
<CURRENT-ASSETS> 11,315,000
<PP&E> 48,553,600
<DEPRECIATION> 21,882,800
<TOTAL-ASSETS> 38,465,300
<CURRENT-LIABILITIES> 10,598,300
<BONDS> 0
0
0
<COMMON> 104,500
<OTHER-SE> 21,337,100
<TOTAL-LIABILITY-AND-EQUITY> 38,465,300
<SALES> 8,964,600
<TOTAL-REVENUES> 21,775,000
<CGS> 8,084,300
<TOTAL-COSTS> 19,313,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139,400
<INCOME-PRETAX> 2,461,800
<INCOME-TAX> 521,900
<INCOME-CONTINUING> 1,939,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,939,900
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
