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 March 31, 1997
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: 10,485,753 shares of the
Company's Common Stock ($.01 par value) were outstanding as of March 31, 1997.<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 -
March 31, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Income -
Three Months Ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows-Three
Months Ended March 31, 1997 and 1996 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 Auditors 9
PART II OTHER INFORMATION
Item l. 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 March 31,
1997, and the related condensed consolidated statements of income and cash
flows for the three-month periods ended March 31, 1997 and 1996. 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, 1996 and the
related consolidated statements of income, stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
March 13, 1997, 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, 1996 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
May 8, 1997
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 1997 and December 31, 1996
<TABLE>
<S> <S> <S>
ASSETS
1997 1996
(Unaudited)
Current assets:
Cash and cash equivalents $11,300,700 $20,615,400
Accounts and notes receivable 4,434,000 6,696,000
Inventories 338,700 567,200
Prepaid expenses 834,900 740,900
Total current assets 16,908,300 28,619,500
Properties and equipment 57,212,900 56,962,000
Less accumulated depreciation, depletion,
and amortization 22,743,700 22,522,300
34,469,200 34,439,700
Other assets 555,900 545,000
$51,933,400 $63,604,200
</TABLE>
(Continued)
-2-
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, Continued
March 31, 1997 and December 31, 1996
<TABLE>
<S> <S> <S>
LIABILITIES AND
STOCKHOLDERS' EQUITY
1997 1996
(Unaudited)
Current liabilities:
Accounts payable and accrued expenses $10,804,800 $11,715,700
Advances for future drilling contracts 5,466,000 18,397,000
Funds held for future distribution 1,403,700 864,000
Total current liabilities 17,674,500 30,976,700
Long-term debt 4,220,000 5,320,000
Other liabilities 1,163,200 1,094,200
Deferred income taxes 3,274,600 3,140,800
Stockholders' equity:
Common stock 104,900 104,600
Additional paid-in capital 6,638,900 6,617,300
Retained earnings 18,931,000 16,427,400
Unamortized stock award (73,700) (76,800)
Total stockholders' equity 25,601,100 23,072,500
$51,933,400 $63,604,200
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
Three Months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<S> <S> <S>
1997 1996
Revenues:
Oil and gas well drilling operations $ 13,261,100 7,986,900
Oil and gas sales 8,767,500 2,467,500
Well operations and pipeline income 1,130,600 901,600
Other income 248,600 85,300
23,407,800 11,441,300
Costs and expenses:
Cost of oil and gas well drilling operations 11,319,400 6,502,300
Oil and gas purchases and production costs 7,561,000 2,035,000
General and administrative expenses 498,600 541,800
Depreciation, depletion, and amortization 610,200 665,700
Interest 102,600 72,100
20,091,800 9,816,900
Income before income taxes 3,316,000 1,624,400
Income taxes 812,400 344,400
Net income $ 2,503,600 1,280,000
Earnings per common and
common equivalent share $ .21 $ .11
</TABLE>
See accompanying notes to condensed consolidated financial statements
-4-
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<S> <S> <S>
1997 1996
Cash flows from operating activities:
Net income $2,503,600 1,280,000
Adjustments to net income to reconcile
to cash used in operating activities:
Deferred federal income taxes 133,800 28,600
Depreciation, depletion & amortization 610,200 665,700
Leasehold acreage expired or surrendered 30,000 70,300
Employee compensation paid in stock 3,100 8,700
Gain on disposal of assets (54,000) (8,200)
Decrease (increase) in current assets 2,396,500 (463,900)
Increase in other assets (14,500) (144,800)
Decrease in current liabilities (13,302,200) (5,234,000)
Increase in other liabilities 69,000 71,600
Total adjustments (10,128,100) (5,006,000)
Net cash used in operating activities (7,624,500) (3,726,000)
Cash flows from investing activities:
Capital expenditures (1,253,700) (509,600)
Proceeds from sale of leases 586,000 271,500
Proceeds from sale of assets 55,600 8,200
Net cash used in investing activities (612,100) (229,900)
Cash flows from financing activities:
Proceeds from borrowings - 1,000,000
Proceeds from sale of common stock 21,900 120,300
Purchase of treasury stock - (1,000,000)
Retirement of debt (1,100,000) (550,000)
Net cash used in financing activities (1,078,100) (429,700)
Net change in cash and cash equivalents (9,314,700) (4,385,600)
Cash and cash equivalents, beginning of period 20,615,400 10,053,600
Cash and cash equivalents, end of period $11,300,700 5,668,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-5-
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
1. Accounting Policies
Reference is hereby made to the Company's Annual Report on Form 10-K for
1996, 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 three months ended March 31, 1997 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. Earnings Per Share
Computation of earnings per common and common equivalent share are as
follows for the three months ended March 31,
<TABLE>
<S> <S> <S>
1997 1996
Weighted average common and
common equivalent shares outstanding 11,706,629 11,253,911
Net income $2,503,600 $1,280,000
Earnings per common and
common equivalent share $ .21 $ .11
</TABLE>
-6-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Pending Adoption of New Accounting Principle
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per
Share. SFAS No. 128 supersedes APB Opinion No. 15, Earnings per Share
("Opinion No. 15"), and requires the calculation and dual presentation of
Basic and Diluted earnings per shares ("EPS"), replacing the measures of
Primary and Fully-diluted EPS as reported under Opinion No. 15. SFAS No. 128
is effective for financial statements issued for periods ending after
December 15, 1997; earlier application is not permitted. Accordingly, EPS
for the first quarters of 1997 and 1996 presented on the accompanying
statements of income are calculated under the guidance of Opinion 15.
Under SFAS No. 128, Basic EPS would have been $.24 and $.12 and Diluted
EPS would have been $.21 and $.11 per share for the quarters ended March 31,
1997 and 1996, respectively.
Results of Operations
Three Months Ended March 31, 1997 Compared With March 31, 1996
Total revenues increased $11,966,500 to $23,407,800 in the first quarter
of 1997 compared to the same period in 1996 as a result of increased drilling
activity and higher oil and gas sales. Drilling revenues increased 66% as a
result of higher volumes of drilling and completion activities, in the first
quarter of 1997 compared to the same period in 1996. Oil and gas sales
increased $6.3 million primarily due to the gas marketing activities of Riley
Natural Gas Company (RNG), a company acquired on April 1, 1996.
Additionally, oil and gas sales increased as a result of higher gas
production offset partially by lower average sales prices during the first
quarter from the Company's producing properties. Well operations and
pipeline income increased 25.4% as a result of an increase in the number of
wells operated by the Company in the first quarter of 1997 compared to the same
period in 1996. Other income increased $163,300 during the first quarter of
1997 compared to 1996 as a result of interest earned on higher average bank
balances along with a gain on the sale of equipment.
Costs and expenses increased $10,274,900 as a result of the increased
well drilling costs and increased oil and gas purchases and production costs
during the first quarter of 1997 compared to the same period in 1996. Oil
and gas well drilling costs increased 74.1% as a result of the increased
drilling activity referred to above. Oil and gas purchases and production
costs increased $5,526,000 primarily due to purchases of gas for resale by RNG.
The foregoing resulted in net income of $2,503,600 as compared to a net
income of $1,280,000 for the first quarter of 1996. The provision for income
taxes in 1997 consists of $678,600 of current taxes payable and $133,800 of
deferred income taxes. The provision for income taxes in 1996 consisted of
$315,800 of current taxes payable and $28,600 of deferred income taxes.
-7-
<PAGE>
Liquidity and Capital Resources
Sales volumes of natural gas have continued to increase while natural
gas prices fluctuate 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. The volumes
of gas sales are expected to continue to increase as a result of continued
drilling activities.
The Company has commenced sales of units in the fifth partnership in its
registered PDC 1996-1997 public drilling program consisting of eight
partnerships. The partnership is scheduled to close in May, 1997, with
drilling planned in the second and third quarters of 1997. The Company's
public drilling programs continue to receive wide market acceptance.
The acquisition of Riley Natural Gas Company (RNG) on April 1, 1996 in
a stock for stock exchange has, as expected, increased both oil and gas sales
revenues and oil and gas purchases. The RNG employees, added to PDC's work
force have substantial experience in natural gas markets and natural gas
hedging transactions and have greatly expanded the Company's capabilities in
the gas marketing area.
On March 13, 1997 the Company executed an amendment to a bank credit
agreement which provides a borrowing base of $10,000,000 subject to adequate
oil and gas reserves, which at the request of the Company, the bank may
increase the borrowing base to $20,000,000. Interest accrues at prime with
LIBOR (London Interbank Market) rate alternatives available at the discretion
of the Company. No principal payments are required until the credit
agreement expires on December 31, 1999.
The Company continues to pursue capital investment opportunities in
producing gas properties along with its commitment to participate in its
sponsored gas drilling partnerships. Management believes that the Company
has adequate capital to meet its operating requirements and continues to
pursue opportunities for operating improvements and cost efficiencies.
-8-
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
STATEMENT BY MANAGEMENT CONCERNING
REVIEW OF INTERIM FINANCIAL INFORMATION
BY INDEPENDENT AUDITORS
The March 31, 1997 and 1996 condensed consolidated financial statements
included in this filing on Form 10-Q have been reviewed by KPMG Peat Marwick
LLP, independent auditors, 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
materially 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
March 31, 1997.
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: May 9, 1997 /s/ Steven R. Williams
Steven R. Williams
President
Date: May 9, 1997 /s/ Dale G. Rettinger
Dale G. Rettinger
Executive Vice President
and Treasurer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,300,700
<SECURITIES> 0
<RECEIVABLES> 4,434,000
<ALLOWANCES> 287,800
<INVENTORY> 338,700
<CURRENT-ASSETS> 16,908,300
<PP&E> 57,212,900
<DEPRECIATION> 22,743,700
<TOTAL-ASSETS> 51,933,400
<CURRENT-LIABILITIES> 17,674,500
<BONDS> 0
0
0
<COMMON> 104,900
<OTHER-SE> 25,496,200
<TOTAL-LIABILITY-AND-EQUITY> 51,933,400
<SALES> 8,767,500
<TOTAL-REVENUES> 23,407,800
<CGS> 7,561,000
<TOTAL-COSTS> 20,091,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102,600
<INCOME-PRETAX> 3,316,000
<INCOME-TAX> 812,400
<INCOME-CONTINUING> 2,503,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,503,600
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
