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NEWS FROM
Petroleum Development Corporation
FOR IMMEDIATE RELEASE: March 31, 2005
CONTACT: Steven R. Williams - (304) 842-3597 www.petd.com
Petroleum Development Corporation Announces Record 2004 Results
Production, Prices and Drilling Activity Increase Net Income 51%
Bridgeport, West Virginia - Petroleum Development Corporation (NASDAQ/NMS PETD) today announced financial and operating results for the full year and fourth quarter of 2004. Net Income for the year was $34.1 million ($2.05 per diluted share) compared to $22.6 million ($1.39 per diluted share) in 2003. Net Income for the fourth quarter was $8.3 million ($.49 per diluted share) compared to $8.0 million ($.49 per diluted share) in the prior year. Driving the improved performance were record oil and natural gas production, strong energy prices, and higher levels of drilling activity.
Three Months Ended | Year Ended | |||
2004 | 2003 | 2004 | 2003 | |
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Revenues | $72,590,100 | $59,456,200 | $290,719,800 | $202,851,000 |
Income before income taxes and cumulative effect of change in accounting principle |
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Net income | $8,316,500 | $7,989,500 | $34,060,600 | $22,619,100 |
Basic earnings per share | $.50 | $.52 | $2.10 | $1.45 |
Diluted earnings per share | $.49 | $.49 | $2.05 | $1.39 |
Weighted average common shares outstanding | 16,539,163 | 15,628,433 | 16,240,604 | 15,659,591 |
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Weighted average common and common equivalent shares outstanding |
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Steven R. Williams, CEO of Petroleum Development Corporation (PDC), said, "Our operating performance in 2004 was outstanding and contributed to the substantial increase in net income and earnings per share. High energy prices were certainly a factor in our performance, but a 21% production increase and a 28% increase in sales of units in our drilling program were also critical to our record performance. In fact, all of our operating segments contributed to the improved earnings. It was exciting to see the market recognize the strong results as our stock price continued the excellent performance that began in 2003".
Operations
The Company drilled a total of 158 new wells during 2004, including 55 wells in the fourth quarter. The total included 137 development wells in Wattenberg and Grand Valley Fields drilled in conjunction with Company sponsored partnerships in which PDC owns a 20% working interest. In addition the Company drilled 20 infill development wells on its northeast Colorado properties (NECO), and one exploratory well on the Company's Legacy prospect in the Sand Wash Basin in Northwest Colorado. The Company owns an average of 85% of the working interest in the NECO wells and a 100% working interest in the Legacy exploratory well. Only four wells, all in Wattenberg Field, were dry holes. Successful wells included 97 wells in Wattenberg Field, 36 wells in Grand Valley Field and the 20 NECO wells.
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Testing of the Legacy prospect, a 12,778 foot Almond Sands well, has not yet been completed so it has not been classified as either successful or dry. Expenditures to date on the well have been approximately $4,400,000. Under the successful efforts accounting method, if the well is determined to be successful these costs will be capitalized as a part of the Company's oil and gas properties. If it is determined to be dry, the costs will be expensed as exploratory dry hole cost in the period when that determination is made. Testing of the well was suspended in January due to restrictions on the federal lease, but will be resumed late in the second quarter. Thereafter it will be determined whether the well is successful or dry.
The Legacy prospect is the first of a planned series of exploratory wells. A second well in the Sand Wash Basin on the Company's Coffeepot prospect is currently being drilled to a planned depth of 13,500 feet to test Upper Cretaceous Sands, with additional tests planned depending on the results of the first two wells. The Company currently has 6,300 acres in the two prospect areas, with options on approximately another 55,000 acres. To the north of the two Sand Wash Basin prospects the Company has acquired development rights to approximately 27,000 acres in the Red Desert Basin, Sweetwater County, Wyoming. Current plans call for a well later this year to test various Upper Cretaceous formations at depths of up to 12,000 feet.
In addition to these deep tests, the Company also has a number of prospects on its NECO properties that could offer attractive possible future drilling opportunities. These range from offset development opportunities to step out exploratory prospects. The Company expects to include 60 or more of these prospects in its drilling operations in 2005.
Sales of interests in Company sponsored drilling programs and the resulting drilling and development activity continue to be a major contributor to the Company's success. The Company sold a total of $100 million of partnership interests in four partnerships during 2004. PDC serves as general partner of the partnerships and as driller/operator for the partnership wells. The Company also earns a profit for managing the drilling process. At the end of 2004 there was a carryover of $42.5 million of projects to be drilled in 2005. The carryover will be used for drilling and completion activities in the first six months of 2005. Interest in the Company's partnerships continues unabated in 2005 as the first 2005 partnership was fully subscribed for $40 million within days of opening. Currently the Company plans two additional 2005 partnerships with total possible subscriptions for the year (including the $40 million from the first partnership) of $115 million. Actual sales will depend on many factors, including the success of the Company's prior drilling programs and oil and natural gas prices.
During 2004 the Company increased its total proved reserves by 9% from 199 Bcfe to 217 Bcfe, with proved developed reserves increasing 9% from 152 billion cubic feet equivalent (Bcfe) to 165 Bcfe. Capital expenditures associated with the increases were $42.2 million. A table showing reserves by area is included at the end of this release.
Production from the Company's oil and gas properties in 2004 was 12.7 Bcfe up from 10.4 Bcfe in 2003, and included 10.4 Bcf of natural gas and 381 thousand barrels of oil. Oil and natural gas production in the fourth quarter of 2004 was 3.2 Bcfe, or about 34.5 million cubic feet equivalent (MMcfe) per day. Approximately 82% of the Company's production in 2004 was natural gas. The increased production resulted from the combination of production from new wells drilled by the Company in 2004, recompletions of wells in Wattenberg Field in Colorado, and contributions from wells drilled and property acquisitions completed by the Company in the prior year. Higher energy prices were a major factor in the Company's success in 2004. Overall the Company's average price was $5.37 per thousand cubic feet equivalent (Mcfe) in 2004, compared to $4.50 per Mcfe in 2003. A conversion of one barrel of oil equaling six Mcfe is used in calculating equivalent Mcf. The following table shows details for oil and natural gas prices for the fourth quarter and full year, of 2004 compared with 2003 and a breakdown of production by region for both periods.
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Three Months Ended December 31, 2004 | Three Months Ended December 31, 2003 | ||||||||||
Natural | Natural Gas | Natural | Natural Gas | ||||||||
Oil | Gas | Equivalents | Oil | Gas | Equivalents | ||||||
(Bbl) | (Mcf) | (Mcfe) | (Bbl) | (Mcf) | (Mcfe) | ||||||
Appalachian Basin | 962 | 465,492 | 471,264 | 857 | 461,786 | 466,928 | |||||
Michigan Basin | 1,481 | 413,606 | 422,492 | 1,717 | 450,205 | 460,507 | |||||
Rocky Mountains | 90,174 | 1,737,284 | 2,278,328 | 91,680 | 1,660,415 | 2,210,495 | |||||
Total | 92,617 | 2,616,382 | 3,172,084 |
| 94,254 | 2,572,406 | 3,137,930 | ||||
Average Price | $43.05 | $6.03 | $6.23 |
| $32.17 | $4.32 | $4.51 | ||||
Year Ended December 31, 2004 | Year Ended December 31, 2003 | ||||||||||
Natural | Natural Gas | Natural | Natural Gas | ||||||||
Oil | Gas | Equivalents | Oil | Gas | Equivalents | ||||||
(Bbl) | (Mcf) | (Mcfe) |
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Appalachian Basin | 4,893 | 1,812,407 | 1,841,765 | 3,992 | 1,921,200 | 1,945,152 | |||||
Michigan Basin | 5,786 | 1,728,435 | 1,763,151 | 6,627 | 1,832,737 | 1,872,499 | |||||
Rocky Mountains | 370,482 | 6,831,032 | 9,053,924 | 278,874 | 4,958,245 | 6,631,489 | |||||
Total | 381,161 | 10,371,874 | 12,658,840 |
| 289,493 | 8,712,182 | 10,449,140 | ||||
Average Price | $35.13 | $5.26 | $5.37 |
| $29.39 | $4.42 | $4.50 | ||||
To protect itself from the potential effects of falling oil and natural gas prices, the Company uses natural gas derivatives. During 2004 the net impact of the hedges was a cost of $.09 per Mcfe. This cost is included in the prices the Company records for its oil and natural gas sales. A table at the end of this release summarizes the Company's current natural gas and oil futures positions. Some of these positions have been set since the end of 2004.
The Company's two other business segments also had excellent results in 2004. With strong natural gas prices Riley Natural Gas (RNG), the Company's natural gas marketing subsidiary, increased revenues by 28% to $93.2 million compared to 2003 revenue of $73.1 million. Income before income taxes increased from $689,000 in 2003 to $1,324,000 in 2004. Income before income taxes on the Company's well operations segment increased from $3.1 million in 2003 to $4.4 million in 2004.
Current Commodity-Based Derivative Transactions
The Company has entered into commodity-based derivative transactions to manage a portion of the exposure to price risk associated with its sales of oil and natural gas. During the fourth quarter of 2004 the Company had average production per month of 872,000 Mcf of natural gas and 31,000 Bbl of oil. The volumes shown are estimates of the hedges currently in place on the Company's share of production:
Floors | Ceilings | ||||||
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| Monthly Quantity Mmbtu | Contract Price | Monthly Quantity Mmbtu | Contract Price | ||
NYMEX Based Hedges - (Appalachian and Michigan Basins) | |||||||
5/04 | Jan 2005 - Mar 2005 | 180,000 | $5.67 | 90,000 | $7.00 | ||
2/04 | Apr 2005 - Oct 2005 | 122,000 | $4.28 | 61,000 | $5.00 | ||
3/05 | Apr 2005 - Oct 2005 | 39,000 | $5.75 | 19,500 | $8.37 | ||
1/05 | Nov 2005 - Mar 2006 | 156,000 | $5.00 | 78,000 | $8.50 | ||
3/05 | Apr 2006 - Oct 2006 | 78,000 | $5.50 | 39,000 | $7.40 | ||
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Colorado Interstate Gas (CIG) Based Hedges (Piceance Basin) | |||||||
5/04 | Jan 2005 - Mar 2005 | 60,000 | $5.04 | 30,000 | $6.00 | ||
2/04 | Apr 2005- Oct 2005 | 33,000 | $3.10 | 16,000 | $4.43 | ||
3/05 | Apr 2005 - Oct 2005 | 38,000 | $4.75 | 19,000 | $8.12 | ||
1/05 | Nov 2005 - Mar 2006 | 60,000 | $4.50 | 30,000 | $7.15 | ||
3/05 | Apr 2006 - Oct 2006 | 42,000 | $4.50 | 21,000 | $7.25 | ||
Colorado Interstate Gas (CIG) Based Hedges (Wattenberg) | |||||||
7/04 | Jan 2005 - Mar 2005 | 80,000 | $5.00 | 40,000 | $6.20 | ||
NYMEX Based Hedges (NECO) | |||||||
7/04 | Jan 2005 - Mar 2005 | 150,000 | $5.32 | - | - | ||
2/04 | Apr 2005 - Oct 2005 | 150,000 | $4.26 | 75,000 | $5.00 | ||
1/05 | Nov 2005 - Mar 2006 | 150,000 | $5.00 | 75,000 | $8.45 | ||
Oil - NYMEX Based (Wattenberg) | |||||||
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8/04 | Jan 2005 - Dec 2005 | 15,000 | $32.30 | 7,500 | $40.00 | ||
[this area left blank intentionally]
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PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
Three Months and Twelve Months ended December 31, 2004 and 2003
(Unaudited)
Three Months Ended December 31, | Twelve Months Ended December 31, | |||
2004 | 2003 | 2004 | 2003 | |
Revenues: | ||||
Oil and gas well drilling operations | $29,863,000 | $24,397,500 | $119,210,500 | $71,841,500 |
Gas sales from marketing activities | 19,779,600 | 16,496,700 | 93,231,400 | 73,141,100 |
Oil and gas sales | 19,775,100 | 14,155,400 | 67,947,700 | 47,021,600 |
Well operations and pipeline income | 2,560,800 | 2,065,600 | 8,384,500 | 7,347,700 |
Other income | 611,600 | 2,341,000 | 1,945,700 | 3,499,100 |
72,590,100 | 59,456,200 | 290,719,800 | 202,851,000 | |
Costs and expenses: | ||||
Cost of oil and gas well drilling operations | 26,502,300 | 21,526,300 | 102,830,700 | 61,277,800 |
Cost of gas marketing activities | 19,413,900 | 16,520,500 | 91,898,100 | 72,443,600 |
Oil and gas production costs | 6,155,300 | 3,445,600 | 18,049,800 | 13,749,200 |
General and administrative expenses | 1,684,200 | 1,232,800 | 4,505,600 | 4,974,400 |
Depreciation, depletion, and amortization | 4,368,400 | 3,521,000 | 17,958,200 | 14,153,400 |
Interest | 123,200 | 418,100 | 874,300 | 1,329,100 |
58,247,300 | 46,664,300 | 236,116,700 | 167,927,500 | |
Income before income taxes and cumulative effect of change in accounting principle |
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| 54,603,100 |
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Income taxes | 6,026,300 | 4,802,400 | 20,542,500 | 12,105,800 |
Net income before cumulative effect of change in accounting principle |
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| 34,060,600 |
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Cumulative effect of change in accounting principle (net of taxes of $121,700) |
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Net income | $8,316,500 | $7,989,500 | $34,060,600 | $22,619,100 |
Basic earnings per common share before accounting change |
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| $2.10 |
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Cumulative effect of change in accounting principle | $ - | $ - | $ - | $(0.01) |
Basic earnings per common share | $0.50 | $0.52 | $2.10 | $1.45 |
Diluted earnings per share before accounting change | $0.49 | $0.49 | $2.05 | $1.40 |
Cumulative effect of change in accounting principle | $ - | $ - | $ - | $(0.01) |
Diluted earnings per share | $0.49 | $0.49 | $2.05 | $1.39 |
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Non-GAAP Financial Measure
The United States Securities and Exchange Commission has disclosure requirements for public companies concerning references to Non-GAAP financial measures. (GAAP refers to generally accepted accounting principles.) Non-GAAP financial measures may be provided if the company explains the relevance of the information. The company must also reconcile the Non-GAAP financial measure to related GAAP information. "Adjusted Cash Flow" is a Non-GAAP financial measure provided by PDC in this earnings release. Adjusted Cash Flow is net income before deferred income taxes, depreciation, depletion, and amortization. PDC believes Adjusted Cash Flow is relevant because it is a measure of cash available to fund the Company's capital expenditures and to service its debt. PDC also believes Adjusted Cash Flow is a valuable measure for estimating the value of the Company's operations.
Three months Ended | Twelve months Ended | ||||
December 31, |
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2004 | 2003 |
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Net income | $8,316,500 | $7,989,500 | $34,060,000 | $22,619,100 | |
Deferred income tax expense | 1,853,200 | 4,583,600 | 10,443,600 | 8,870,700 | |
Depreciation, depletion and amortization | 4,368,400 | 3,521,000 |
| 17,958,200 | 14,153,400 |
Adjusted cash flow | $14,538,100 | $16,094,100 | $62,461,400 | $45,643,200 | |
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Oil and Natural Gas Reserves
The Company's oil and natural gas reserves by region are as follows as of December 31, 2004:
(Mbbl) |
(Mmcf) | Natural Gas Equivalent (Mmcfe) |
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Proved Developed Reserves | ||||
Appalachian Basin | 48 | 41,384 | 41,672 | 25.21% |
Michigan Basin | 52 | 24,895 | 25,207 | 15.25% |
Rocky Mountain Region | 3,090 | 79,873 | 98,413 | 59.54% |
Total Proved Developed Reserves | 3,190 | 146,152 | 165,292 | 100.00% |
Proved Undeveloped Reserves | ||||
Appalachian Basin | 0 | 0 | 0 | 0.00% |
Michigan Basin | 0 | 630 | 630 | 1.21% |
Rocky Mountain Region | 126 | 50,767 | 51,523 | 98.79% |
Total Proved Undeveloped | 126 | 51,397 | 52,153 | 100.00% |
Total Proved Reserves | ||||
Appalachian Basin | 48 | 41,384 | 41,672 | 19.16% |
Michigan Basin | 52 | 25,525 | 25,837 | 11.88% |
Rocky Mountain Region | 3,216 | 130,640 | 149,936 | 68.96% |
Total Proved Reserves | 3,316 | 197,549 | 217,445 | 100.00% |
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The Company plans to file its Annual Report on Form 10-K on Thursday, March 31, 2005. Everyone is invited to join Steve Williams, Chief Executive Officer, and Darwin Stump, Chief Financial Officer, for a conference call on March 31, 2005 to discuss the results with a question and answer period to follow.
What: Petroleum Development Fourth Quarter Earnings Conference Call
When: Thursday, March 31, 2005 at 11:00 a.m. Eastern Standard Time
Where: www.petd.com
How: Live on the Internet - log on to the web address above or call (877) 407-8033
(Passcode 235468) for telephone participation.
Contact: Darwin Stump, Petroleum Development Corporation, (800) 624-3821 E-mail: petd@petd.com
Please go to the website at least 15 minutes prior to the call and register, download and install any necessary audio software. If you are unable to listen to the live broadcast, an outline rebroadcast will be available shortly after the conclusion of the call.
About Petroleum Development Corporation
Petroleum Development Corporation (www.petd.com) is an independent energy company engaged in the development, production and marketing of natural gas. The Company operations are focused in the Rocky Mountains with additional operations in the Appalachian Basin and Michigan. During the third quarter of 2004, the Company was added to the S&P SmallCap 600 Index. Additionally, PDC was added to the Russell 3000 Index of companies in 2003. PDC was named on the FSB: Fortune Small Business Magazine list of America's 100 Fastest-Growing Small Companies in 2001 and 2002.
Certain matters discussed within this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although PDC believes the expectations reflected in such forward- looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from expectations include financial performance, oil and gas prices, drilling program results, drilling results, regulatory changes, changes in local or national economic conditions and other risks detailed from time to time in the Company's reports filed with the SEC, including quarterly reports on Form 10-Q, reports on Form 8-K and annual reports on Form 10-K.
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103 East Main Street • P. O. Box 26 • Bridgeport, West Virginia • Phone: (304) 842-3597
