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 September 30, 2000
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 15d 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
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date: 16,243,864 shares of the
Company's Common Stock ($.01 par value) were outstanding as of
September 30, 2000.
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
INDEX
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PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Independent Auditors' Review Report 1
Condensed Consolidated Balance Sheets -
September 30, 2000 (unaudited) and December 31, 1999 2
Condensed Consolidated Statements of Income - Three
Months and Nine Months Ended September 30, 2000
and 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows- Nine
Months Ended September 30, 2000 and 1999 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
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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 September 30,
2000, and the related condensed consolidated statements of income for the
three-month and nine-month periods ended September 30, 2000 and 1999 and
the related condensed consolidated statements of cash flows for the nine-
month periods ended September 30, 2000 and 1999. 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 accounting principles generally
accepted in the United States of America.
We have previously audited, in accordance with generally accepted auditing
standards, in the United States of America, the consolidated balance sheet
of Petroleum Development Corporation and subsidiaries as of December 31,
1999 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 6, 2000, 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, 1999 is fairly presented, in all material
respects, in relation to the consolidated balance sheet from which it has
been derived.
KPMG LLP
Pittsburgh, Pennsylvania
November 1, 2000
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
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ASSETS
2000 1999
(Unaudited)
Current assets:
Cash and cash equivalents $13,736,800 $ 29,059,200
Accounts and notes receivable 18,885,800 10,263,200
Inventories 838,600 577,600
Prepaid expenses 7,232,200 2,360,100
Total current assets 40,693,400 42,260,100
Properties and equipment 133,954,000 118,349,100
Less accumulated depreciation, depletion,
and amortization 36,188,800 31,207,300
97,765,200 87,141,800
Other assets 3,083,500 2,681,700
$141,542,100 $132,083,600
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(Continued)
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PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, Continued
September 30, 2000 and December 31, 1999
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LIABILITIES AND
STOCKHOLDERS' EQUITY
2000 1999
(Unaudited)
Current liabilities:
Accounts payable and accrued expenses $ 21,564,000 $ 17,599,000
Advances for future drilling contracts 11,191,700 25,137,400
Funds held for future distribution 2,794,200 2,027,600
Total current liabilities 35,549,900 44,764,000
Long-term debt 18,475,000 9,300,000
Other liabilities 3,907,200 3,160,600
Deferred income taxes 4,689,600 4,134,100
Stockholders' equity:
Common stock 162,400 157,400
Additional paid-in capital 32,931,400 32,071,000
Retained earnings 45,826,600 38,496,500
Total stockholders' equity 78,920,400 70,724,900
$141,542,100 $132,083,600
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
Three and Nine Months ended September 30, 2000 and 1999
(Unaudited)
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Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Revenues:
Oil and gas well drilling operations $ 6,803,900 $ 7,963,200 $32,209,900 $34,739,400
Oil and gas sales 24,424,100 13,525,700 59,581,600 32,414,700
Well operations and pipeline income 1,209,500 1,681,600 3,789,100 4,043,400
Other income 381,100 671,200 805,600 1,364,500
32,818,600 23,841,700 96,386,200 72,572,000
Costs and expenses:
Cost of oil and gas well drilling
operations 5,547,400 6,249,500 25,963,700 28,646,800
Oil and gas purchases
and production costs 21,249,200 12,782,300 52,505,100 30,740,900
General and administrative expenses 1,038,300 859,200 2,749,800 1,919,400
Depreciation, depletion, and
amortization 1,850,300 1,007,100 5,004,800 2,899,800
Interest 437,500 88,100 727,500 88,100
30,122,700 20,986,200 86,950,900 64,295,000
Income before income taxes 2,695,900 2,855,500 9,435,300 8,277,000
Income taxes 555,000 842,000 2,105,200 2,056,400
Net income $ 2,140,900 $ 2,013,500 $ 7,330,100 $ 6,220,600
Basic earnings per common share $ .13 $ .13 $ .45 $ .40
Diluted earnings per common and
common equivalent share $ .13 $ .12 $ .45 $ .38
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
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2000 1999
Cash flows from operating activities:
Net income $ 7,330,100
$6,220,600
Adjustments to net income to reconcile
to cash used in operating activities:
Deferred federal income taxes 555,500 (399,500)
Depreciation, depletion & amortization 5,004,800 2,899,800
Leasehold acreage expired or surrendered 271,100 381,200
Amortization of stock award 4,100 9,200
Gain on disposal of assets (15,200) (493,800)
Increase in current assets (13,609,000) (4,226,200)
Increase in other assets (340,700) (929,700)
Decrease in current liabilities (9,214,100) (20,455,500)
Increase in other liabilities 746,600 246,600
Total adjustments (16,596,900) (22,967,900)
Net cash used in operating activities (9,266,800) (16,747,300)
Cash flows from investing activities:
Capital expenditures (15,870,800) (13,655,400)
Proceeds from sale of leases 529,400 724,500
Proceeds from sale of assets 15,200 643,000
Net cash used in investing activities (15,326,200) (12,287,900)
Cash flows from financing activities:
Proceeds from exercise of stock options 95,600 -
Net proceeds from revolving credit agreement 9,175,000 3,735,000
Net cash provided by financing activities 9,270,600 3,735,000
Net change in cash and cash equivalents (15,322,400) (25,300,200)
Cash and cash equivalents, beginning of period 29,059,200 34,894,600
Cash and cash equivalents, end of period $ 13,736,800 $ 9,594,400
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(Unaudited)
1. Accounting Policies
Reference is hereby made to the Company's Annual Report on Form
10-K for 1999, which contains a summary of significant 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 nine months ended September 30, 2000 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 and nine months ended
September 30, 2000 and 1999:
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Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Weighted average common
shares outstanding 16,243,456 15,737,795 16,128,434 15,732,805
Weighted average common and
common equivalent shares outstanding 16,589,452 16,325,937 16,395,403 16,279,999
Net income $ 2,140,900 $ 2,013,500 $ 7,330,100 $ 6,220,600
Basic earnings per common share $ .13 $ .13 $ .45 $ .40
Diluted earnings per common and
common equivalent share $ .13 $ .12 $ .45 $ .38
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5. Business Segments (in Thousands)
PDC's operating activities can be divided into three major
segments: drilling and development, natural gas sales, and
well operations. The Company drills natural gas wells for
Company-sponsored drilling partnerships and retains an
interest in each well. The Company also engages in oil and
gas sales to residential, commercial and industrial end-users.
The Company charges Company-sponsored partnerships and
other third parties competitive industry rates for well operations
and gas gathering. Segment information for the three and nine
months ended September 30, 2000 and 1999 is as follows:
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Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
REVENUES
Drilling and Development $ 6,804 $ 7,963 $32,210 $34,739
Natural Gas Sales 24,424 13,526 59,582 32,415
Well Operations 1,210 1,682 3,789 4,053
Unallocated amounts (1) 381 671 805 1,365
Total $32,819 $23,842 $96,386 $72,572
(1) Includes interest on investments and partnership management fees which are not allocated in assessing segment
performance.
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
SEGMENT INCOME BEFORE INCOME TAXES
Drilling and Development $1,256 $1,713 $6,246 $6,092
Natural Gas Sales 2,232 808 4,964 1,579
Well Operations 340 648 1,013 1,364
Unallocated amounts (2)
General and Administrative
expenses (1,038) (859) (2,750) (1,919)
Interest expense (438) (88) (728) (88)
Other (1) 344 633 690 1,249
Total $ 2,696 $ 2,855 $ 9,435 $ 8,277
(2) Items which are not allocated in assessing segment performance.
September 30, 2000 December 31, 1999
SEGMENT ASSETS
Drilling and Development $ 11,947 $ 23,957
Natural Gas Sales 114,473 93,073
Well Operations 7,704 7,977
Unallocated amounts
Cash 469 1,967
Other 6,949 5,110
Total $141,542 $132,084
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6. Commitments and Contingencies
The nature of the independent oil and gas industry involves a
dependence on outside investor drilling capital and involves a
concentration of gas sales to a few customers. The Company sells
natural gas to various public utilities and industrial customers.
Substantially all of the Company's drilling programs contain a
repurchase provision where Investors may tender their partnership
units for repurchase at any time beginning with the third anniversary
of the first cash distribution. The provision provides that the
Company is obligated to purchase an aggregate of 10% of the initial
subscriptions per calendar year (at a minimum price of three times
the most recent 12 months' cash distributions), only if such units are
tendered, subject to the Company's financial ability to do so. The
maximum annual 10% repurchase obligation, if tendered by the
investors, is currently approximately $1.0 million. The Company has
adequate liquidity to meet this obligation.
The Company is not party to any legal action that would materially affect
the Company's results of operations or financial condition.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three Months Ended September 30, 2000 Compared With
September 30, 1999
Revenues. Total revenues for the three months ended
September 30, 2000 were $32.8 million compared to $23.8 million
for the three months ended September 30, 1999, an increase of
approximately $9.0 million, or 37.8 percent. Such increase was
primarily a result of increased oil and gas sales. Drilling
revenues for the three months ended September 30, 2000 were
$6.8 million compared to $8.0 million for the three months ended
September 30, 1999, a decrease of approximately $1.2 million or
15.0 percent. Such decrease resulted from lower volumes of
drilling and completion activities. Oil and gas sales for three
months ended September 30, 2000 were $24.4 million compared to
$13.5 million for the three months ended September 30, 1999, an
increase of approximately $10.9 million, or 80.7 percent. Such
increase was due to the natural gas marketing activities of Riley
Natural Gas (RNG), the Company's marketing subsidiary, and
increased production from the Company's producing properties and
higher average sales prices of natural gas and oil. Well operations
and pipeline income for the three months ended September 30,
2000 were $1.2 million compared to $1.7 million for the three
months ended September 30, 1999, a decrease of approximately
$500,000, or 29.4 percent.
Other income for the three months ended September 30, 2000 was
$381,000 compared to $671,000 for the three months ended
September 30, 1999, a decrease of approximately $290,000, or
43.2 percent. Other income for the three months ended
September 30, 1999 included a gain on the sale of oil and gas
properties of approximately $484,000.
Costs and expenses. Costs and expenses for the three months ended
September 30, 2000 were $30.1 million compared to $21.0 million for
the three months ended September 30, 1999, an increase of
approximately $9.1 million or 43.3 percent. Such increase was
primarily result of increased oil and gas activity. Oil and gas well
drilling operations costs for the three months ended September 30,
2000 were $5.5 million compared to $6.2 million for the three months
ended September 30, 1999, a decrease of approximately $700,000,
or 11.3 percent. Such decrease resulted from lower expenses
resulting from decreased drilling activity. Oil and gas purchases
and production costs for the three months ended September 30,
2000 were $21.2 million compared to $12.8 million for the three
months ended September 30, 1999, an increase of approximately
$8.4 million or 65.6 percent.
- 8 - Such increase was due primarily to the natural gas marketing
activities of RNG and production costs associated with the increased
volumes of natural gas produced by the Company's producing
properties. General and administrative expenses for the three
months ended September 30, 2000 increased to $1.0 million
compared with $859,000 for the three months ended September 30,
1999 an increase of approximately $141,000 or 16.4%. Such
increase was due to higher corporate expenses as a result of the
significant growth and geographic diversification of the Company's
drilling and production operations. Depreciation, depletion, and
amortization costs for the three months ended September 30,
2000 were $1.9 million compared to $1.0 million for the three
months ended September 30, 1999, an increase of $900,000 or
90.0 percent. Such increase was due to the increased amount
of investment in oil and gas properties owned by the Company.
Interest costs for the three months ended September 30, 2000
were $437,000 compared to $88,000 for the three months ended
September 30, 1999, an increase of approximately $349,000 as
the Company utilized an increased amount of its line-of-credit for
the purchase and development of oil and gas producing properties.
Net income. Net income for the three months ended September
30, 2000 was $2.1 million compared to a net income of $2.0
million for the three months ended September 30, 1999, an
increase of approximately $100,000 or 5.0 percent.
Nine Months Ended September 30, 2000 Compared with
September 30, 1999
Revenues. Total revenues for the nine months ended
September 30, 2000 were $96.4 million compared to $72.6
million for the nine months ended September 30, 1999, an
increase of approximately $23.8 million, or 32.8 percent.
Such increase was primarily a result of increased oil and
gas sales. Drilling revenues for the nine months ended
September 30, 2000 were $32.2 million compared to $34.7
million for the nine months ended September 30, 1999, a
decrease of approximately $2.5 million, or 7.2 percent.
Such decrease resulted from lower volumes of drilling
and completion activities as a result of decreased levels
of drilling partnership-related financing. Oil and gas sales
for the nine months ended September 30, 2000 were $59.6
million compared to $32.4 million for the nine months ended
September 30, 1999 an increase of approximately $27.2
million, or 84.0 percent. Such increase was due primarily to
the natural gas marketing activities of Riley Natural Gas (RNG),
the Companys marketing subsidiary, and increased production
volumes from the Companys producing properties, along with
higher average sales prices of oil and natural gas. Well
operationsand pipeline income for the nine months ended
September 30, 2000 was $3.8 million compared to $4.1 million
for the nine months ended September 30, 1999, a decrease of
approximately $300,000, or 7.3 percent. Other income for the
nine months ended September 30, 2000 was $805,000
compared to $1.4 million for the nine months ended September
30, 1999, a decrease of approximately $600,000, or 42.9
percent. Such decrease from 1999 was primarily due to a gain
on the sale of oil and gas property of approximately $484,000
which occurred during the third quarter of 1999.
Costs and expenses. Costs and expenses for the nine months
ended September 30, 2000 were $87.0 million compared to
$64.3 million for the nine months ended September 30, 1999,
an increase of approximately $22.7 million or 35.3 percent.
Oil and gas well drilling operations costs for the nine months
ended September 30, 2000 were $26.0 million compared to
$28.6 million for the nine months ended September 30, 1999,
a decrease of approximately $2.6 million, or 9.1 percent.
Such decrease resulted from lower expenses from decreased
drilling activity and an improved gross profit margin on the
Company's drilling activity. Oil and gas purchases and
production costs for the nine months ended September 30,
2000 were $52.5 million compared to $30.7 million for
the nine months ended September 30, 1999, an increase
of approximately $21.8 million, or 71.0 percent. Such
increase was due primarily to natural gas marketing
activities of RNG along with increased production costs
associated with the increased production volumes from
the Company's producing properties. General and
administrative expenses for the nine months ended
September 30, 2000 increased to $2.7 million compared
with $1.9 million for the nine months ended September
30, 1999, an increase of $800,000 or 42.1 percent.
Such increase was due to higher corporate expenses
as a result of the significant growth and geographic
diversification of the Company's drilling and production
operations. Depreciation, depletion, and amortization
costs for the nine months ended September 30, 2000
were $5.0 million compared to $2.9 million for the nine
months ended September 30, 1999, an
-9- increase of approximately $2.1 million or 72.4 percent.
Such increase was due to the increased amount of
investment in oil and gas properties owned by the
Company. Interest costs for the nine months ended
September 30, 2000 were $728,000 compared to
$88,000 for the nine ended September 30, 1999, an
increase of $640,000 as the Company utilized an
increased amount of its line-of-credit for the purchase
and development of oil and gas properties.
Net income. Net income for the nine months ended
September 30, 2000 was $7.3 million compared to a
net income of $6.2 million for the nine months ended
September 30, 1999, an increase of approximately $1.1
million or 17.7 percent.
Liquidity and Capital Resources
The Company funds its operations through a
combination of cash flow from operations, capital
raised through stock offerings and drilling partnerships,
and use of the Company's credit facility. Operational
cash flow is generated by sales of natural gas from
the Company's well interests, well drilling and operating
activities for the Company's investor partners, natural
gas gathering and transportation, and natural gas
marketing. Cash payments from Company-sponsored
partnerships are used to drill and complete wells for
the partnerships, with operating cash flow accruing to
the Company to the extent payments exceed drilling
costs. The Company utilizes its revolving credit
arrangement to meet the cash flow requirements of its
operating and investment activities.
Sales volumes of natural gas have continued to
increase while natural gas prices fluctuate monthly.
The Company's natural gas sales prices are subject to
increaseand decrease based on various market-
sensitiveindices. A major factor in the variability of
these indices is the seasonal variation of demand for
the natural gas, which typically peaks during the winter
months. The volumes of natural gas sales are expected
to continue to increase as a result of continued drilling
activities and additional investment by the Company in
oil and gas properties. The Company utilizes commodity-
based derivative instruments (natural gas futures and
option contracts traded on the NYMEX) as hedges to
manage a portion of its exposure to this price volatility.
The futures contracts hedge committed and anticipated
natural gas purchases and sales, generally forecasted
to occur within a three to twelve-month period.
The Company closed its first drilling program of 2000
in the second quarter and has drilled the wells in
the second and third quarters of 2000. The Company
closed its second drilling program of 2000 in September,
2000 and drilled some of the wells during the third
quarter with the remainder to be drilled in the fourth
quarter of 2000. This second drilling program of 2000
closed with subscriptions of $11.6 million compared to
the second drilling program of 1999 which closed with
subscriptions of $5.5 million. Additional programs are
scheduled to close in November and December of
2000. The Company generally invests, as its equity
contribution to each drilling partnership, an additional
sum approximating 20% of the aggregate subscriptions
received for that particular drilling partnership. As a
result, the Company is subject to substantial cash
commitments at the closing of each drilling partnership.
The funds received from these programs are restricted
to use in future drilling operations. No assurance can
be made that the Company will continue to receive this
level of funding from these or future programs.
On June 6, 2000 the Company purchased all of the
working interest in 168 producing wells in Colorado
for $5,650,000. The transaction was effective April
1, 2000. The wells have net remaining reserves of
560,000 barrels of oil and 4.9 billion cubic feet of
natural gas. The Company utilized its bank credit
agreement to finance this purchase.
-10-
On August 29, 2000 the Company executed an
Amendment to its Credit Agreement with Bank One,
formerly First National Bank of Chicago. The
amendment provides a $30.0 million borrowing
base, subject to adequate oil and gas reserves.
As of September 30, 2000, the outstanding balance
was $18,475,000. Interest accrues at prime, with
LIBOR (London Interbank Market Rule) alternatives
available at the discretion of the Company. No
principal payments are required until the credit
agreement expires on December 31, 2004.
The Company continues to pursue capital
investment opportunities in producing natural gas
properties as well as its plan to participate in its
sponsored natural gas drilling partnerships, while
pursuing opportunities for operating improvements
and costs efficiencies. Management believes that
the Company has adequate capital to meet its
operating requirements.
New Accounting Standard
Statement of Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133), was issued by the Financial
Accounting Standards Board in June, 1998. Statement
133 standardized the accounting for derivative
instruments, including certain derivative instruments
embedded in other contracts. SFAS No. 133 which was
amended by SFAS 138 is effective for years beginning
after June 15, 2000; however, early adoption is permitted.
On adoption, the provisions of SFAS No. 133 must be
applied prospectively.
At the present time, the Company cannot determine the
impact that SFAS No. 133 will have on its financial
statements upon adoption, as such impact will be
based on the extent of derivative instruments, such as
natural gas futures and option contracts, outstanding
at the date of adoption.
Item 3. Quantitative and Qualitative Disclosure About
Market Risk
There have been no material changes in the reported
market risks faced by the Company since December
31, 1999.
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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 September 30, 2000.
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)
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Date: November 6, 2000 /s/ Steven R. Williams
Steven R. Williams
President
Date: November 6, 2000 /s/ Dale G. Rettinger
Dale G. Rettinger
Executive Vice President
and Treasurer
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