NEWS FROM
Petroleum Development Corporation
FOR IMMEDIATE RELEASE: December 28, 2005
CONTACT: Steven R. Williams - (304) 842-3597 www.petd.com
Petroleum Development Corporation
Corrects Preliminary Financial Results for First Nine Months of 2005
Bridgeport, West Virginia. Petroleum Development Corporation (the "Company") (NASDAQ/NMS PETDE) issued Preliminary Financial Results for the First Nine Months of 2005 on December 20, 2005. We have subsequently discovered an error in the following line items: Gas Sales from Marketing Activities and Total Revenues for the three and nine months ended September 30, 2005 were overstated by approximately $41.7 million, Cost of Gas Marketing Activities and Total Costs and Expenses were overstated by approximately $39.9 million and Oil and Gas Price Risk Management Loss (Gain), Net was overstated by approximately $1.8 million. This error was self-correcting among these items, therefore, income before income taxes, net income, and earnings per share for the quarter and nine months did not change. The December 20, 2005 news release should not be relied upon, insofar as information in that release differs from information in this release.
The following is a complete corrected Preliminary Financial Results for the First Nine Months of 2005:
Petroleum Development Corporation (the "Company")(NASDAQ/NMS PETD) today reported preliminary, unaudited financial results for the first nine months of 2005 compared to the restated results for the same period in 2004. The Company's Independent Registered Public Accounting Firm has not completed its review of the periods reported. The Company is providing these preliminary results in an effort to keep its shareholders informed about the performance of the Company while it works to complete its delayed filings with the Securities and Exchange Commission for its Quarterly Reports on Form 10-Q for the quarters ending June 30, 2005 and September 30, 2005. The Company previously disclosed in news releases, dated August 15, 2005 and November 14, 2005 respectively, that its Form 10-Q for the second and third quarters would be delayed and the reasons for the delays. The Company has previously filed restated financial results for 2004 with the Securities and Exchange Commission on December 13, 2005 on Form 10-K/A, and for the first quarter of 2005 on December 23, 2005 on Form 10-Q/A.
Preliminary Results May Be Subject to Change
The Company cautions that all of the 2005 results presented herein are preliminary and subject to change, possibly materially, following the completion of the review by the Company's Independent Registered Public Accounting Firm, and management's final review and analysis of the year-to-date financial statements for 2005. After the completion of management's final review and analysis, required adjustments, if any, could have a significant material impact on the Company's financial statements for the third quarter ended September 30, 2005 and the first nine months of 2005. In addition, because the Company has not yet reported its results for the quarters ended June 30, 2005 or September 30, 2005, these periods remain open to the potential effect of subsequent events which may occur after the current date and before the Company reports its results for such periods. Finally, the Company reiterates that the above preliminary financial information presented in this news release does not represent the information that would normally be included in a Quarterly Report on Form 10-Q with respect to the Company's financial results.
Estimated Third Quarter Unaudited Results
The Company announced that it estimates that it had record revenues of approximately $252 million for the first nine months of 2005 compared to restated nine month 2004 revenue of approximately $215 million. The increased revenue resulted primarily from higher oil and gas prices, increased drilling revenue from its partnership activities, and sales of leases and producing properties ($5.2 million in the first quarter and $2.5 million in the second quarter of 2005). The estimated third quarter revenue of $86 million compared to a restated $72 million in the third quarter of 2004 also reflects primarily higher oil and natural gas prices and increased drilling. Both periods also benefited to a lesser degree from increased well operations and pipeline income.
The Company currently estimates that its net income for the three months ended September 30, 2005 was approximately $7.5 million compared to restated net income for the three months ended September 30, 2004 of approximately $7.9 million. The Company currently estimates net income for the nine months ended September 30, 2005 was approximately $28.5 million compared to a restated net income for the nine months ended September 30, 2004 of approximately $24.1 million. The Company's diluted earnings per share for the nine months and three months ended September 30, 2005 are estimated to be approximately $1.73 and $.45 per share, respectively, compared to restated diluted earnings per share for the nine months and three months ended September 30, 2004 of $1.45 and $.47, respectively.
The Company has added a new line item, "Oil and Gas Price Risk Management Loss (Gain), net" to the income statement to present the results of certain derivatives which do not qualify for hedge accounting. This line item, which is shown below, is comprised of the change in fair value of oil and natural gas derivatives related to our oil and gas production and includes both realized and unrealized gains and losses. This line item does not include changes in fair values of commodity-based derivative transactions related to its gas marketing activities.
The income statement line items "Gas sales from marketing activities" and "Cost of gas marketing activities" now include both realized and unrealized gains or losses related to derivative transactions for natural gas sales and purchases, because these derivatives do not qualify as cash flow hedges.
Realized gains or losses are gains or losses related to derivative transactions that expired during the period. Unrealized gains or losses are gains or losses that may or may not occur related to derivative transactions that have not expired as of the end of the reporting period. The change in fair value for non-expired derivatives is based on the closing price of the derivatives at the end of the period.
The oil and gas price risk management loss (gain), net as presented in the preliminary income statement later in this release is made up of the following realized and unrealized portions.
| (Unaudited) |
| Three months ended | | Nine months ended |
| March 31, | | June 30, | | September 30, | | September 30, |
| 2005 | | 2005 | | 2005 | | 2005 |
Realized | $200,500 | | $1,074,700 | | $2,121,400 | | $3,396,600 |
Unrealized | $3,458,600 | | $(1,933,100) | | $7,800,900 | | $9,326,400 |
Total | $3,659,100 | | $(858,400) | | $9,922,300 | | $12,723,000 |
The Company uses "Adjusted Cash Flow", a non-GAAP financial measure of the cash flow generated by the Company's operations. (See the tables and the paragraph titled "Non-GAAP Financial Measure" below for a reconciliation of Adjusted Cash Flow to net income and a more complete explanation of non-GAAP financial measures.) Adjusted Cash flow for the nine and three months ended September 30, 2005 is estimated to be approximately $59.4 million and $21.7 million, respectively, compared to restated $47.6 million and $16.0 million for the same periods in 2004.
| | | 2005 (Preliminary Estimates) (Unaudited) |
| | | Three months ended | | Nine months ended |
| | | March 31, | | June 30, | | September 30, | | September 30, |
| | | 2005 | | 2005 | | 2005 | | 2005 |
Revenues: | (restated) | | | | | | |
| Oil and gas well drilling operations | $32,351,200 | | $36,056,500 | | $39,710,600 | | $108,118,300 |
| Gas sales from marketing activities | 17,522,000 | | 25,917,100 | | 14,970,300 | | 58,409,400 |
| Oil and gas sales | 18,663,700 | | 21,542,800 | | 28,413,400 | | 68,619,900 |
| Well operations and pipeline income | 2,112,400 | | 2,244,400 | | 2,483,300 | | 6,840,100 |
| Other income | 6,213,800 | | 3,572,800 | | 209,400 | | 9,996,000 |
| | Total revenues | 76,863,100 | | 89,333,600 | | 85,787,000 | | 251,983,700 |
Costs and expenses: | | | | | | | |
| Cost of oil and gas well drilling operations | 27,629,000 | | 31,688,700 | | 36,177,500 | | 95,495,200 |
| Cost of gas marketing activities | 17,901,600 | | 26,177,300 | | 14,269,500 | | 58,348,400 |
| Oil and gas production and well operations cost | 4,163,400 | | 4,737,900 | | 6,455,400 | | 15,356,700 |
| Exploratory dry hole costs | | | 4,864,000 | | 135,800 | | 4,999,800 |
| General and administrative expenses | 1,617,500 | | 1,266,000 | | 1,645,500 | | 4,529,000 |
| Depreciation, depletion, and amortization | 4,856,900 | | 4,845,100 | | 5,120,000 | | 14,822,000 |
| | Total costs and expenses | 56,168,400 | | 73,579,000 | | 63,803,700 | | 193,551,100 |
| Income from operations | 20,694,700 | | 15,754,600 | | 21,983,300 | | 58,432,600 |
| Interest expense | 147,800 | | 143,000 | | 142,200 | | 433,000 |
| Oil and gas price risk management loss (gain), net | 3,659,100 | | (858,400) | | 9,922,300 | | 12,723,000 |
| Income before income taxes | 16,887,800 | | 16,470,000 | | 11,918,800 | | 45,276,600 |
| Income taxes | 6,247,900 | | 6,091,400 | | 4,413,000 | | 16,752,300 |
| | Net income | $10,639,900 | | $10,378,600 | | $7,505,800 | | $28,524,300 |
| | | | | | | | | |
| Basic earnings per common share | $0.64 | | $0.63 | | $0.45 | | $1.74 |
| Diluted earnings per common share | $0.64 | | $0.63 | | $0.45 | | $1.73 |
| | | | | | | | | |
| Adjusted Cash Flow | | | | | | | |
| | Net Income | $10,639,900 | | $10,378,600 | | $7,505,800 | | $28,524,300 |
| | Deferred Income Taxes | 1,524,400 | | 3,105,400 | | 2,054,100 | | 6,683,900 |
| | Depreciation, depletion, amortization | 4,856,900 | | 4,845,100 | | 5,120,000 | | 14,822,000 |
| | Unrealized loss (gain) on derivative transactions | 4,147,500 | | (1,767,600) | | 7,036,300 | | 9,416,200 |
| | Adjusted Cash Flow | $21,168,700 | | $16,561,500 | | $21,716,200 | | $59,446,400 |
| | | 2004 (Restated) (Unaudited) |
| | | Three months ended | | Nine months ended |
| | | March 31 | | June 30 | | September 30 | | September 30 |
| 2004 | | 2004 | | 2004 | | 2004 |
Revenues: | | | | | | | |
| Oil and gas well drilling operations | $29,499,300 | | $29,453,800 | | $30,394,400 | | $89,347,500 |
| Gas sales from marketing activities | 22,058,900 | | 24,954,300 | | 22,630,200 | | 69,643,400 |
| Oil and gas sales | 16,316,200 | | 16,209,000 | | 16,580,500 | | 49,105,700 |
| Well operations and pipeline income | 1,837,500 | | 1,912,400 | | 2,073,800 | | 5,823,700 |
| Other income | 58,100 | | 687,000 | | 589,000 | | 1,334,100 |
| | Total revenues | 69,770,000 | | 73,216,500 | | 72,267,900 | | 215,254,400 |
Costs and expenses: | | | | | | | |
| Cost of oil and gas well drilling operations | 25,355,700 | | 24,967,300 | | 26,005,400 | | 76,328,400 |
| Cost of gas marketing activities | 21,889,700 | | 24,605,800 | | 22,047,400 | | 68,542,900 |
| Oil and gas production and well operations cost | 3,906,100 | | 4,036,000 | | 3,952,400 | | 11,894,500 |
| General and administrative expenses | 994,200 | | 900,900 | | 926,300 | | 2,821,400 |
| Depreciation, depletion, amortization | 4,544,400 | | 4,451,300 | | 4,312,300 | | 13,308,000 |
| | Total costs and expenses | 56,690,100 | | 58,961,300 | | 57,243,800 | | 172,895,200 |
| Income from operations | 13,079,900 | | 14,255,200 | | 15,024,100 | | 42,359,200 |
| Interest expense | 209,600 | | 194,400 | | 223,100 | | 627,100 |
| Oil and gas price risk management loss, net | 830,000 | | 868,700 | | 2,378,800 | | 4,077,500 |
| Income before income taxes | 12,040,300 | | 13,192,100 | | 12,422,200 | | 37,654,600 |
| Income taxes | 4,334,400 | | 4,755,400 | | 4,506,400 | | 13,596,200 |
| | Net income | $7,705,900 | | $8,436,700 | | $7,915,800 | | $24,058,400 |
| | | | | | | | | |
| Basic earnings per common share | $0.49 | | $0.52 | | $0.49 | | $1.50 |
| Diluted earnings per common share | $0.47 | | $0.51 | | $0.47 | | $1.45 |
| | | | | | | | |
Adjusted Cash Flow | | | | | | | |
| Net Income | $7,705,900 | | $8,436,700 | | $7,915,800 | | $24,058,400 |
| Deferred Income Taxes | 2,373,800 | | 3,771,800 | | 1,524,900 | | 7,670,500 |
| Depreciation, depletion, amortization | 4,544,400 | | 4,451,300 | | 4,312,300 | | 13,308,000 |
| Unrealized loss (gain) on derivative transactions | 1,012,900 | | (639,100) | | 2,219,100 | | 2,592,900 |
| Adjusted Cash Flow | $5,637,000 | | $16,020,700 | | $15,972,100 | | $47,629,800 |
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 and unrealized gains and losses on derivative transactions. 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 useful measure for estimating the value of the Company's operations.
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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's 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, the results of the review by PDC's Independent Registered Public Accounting Firm and management's review of the financial statements for the period ended September 30, 2005, 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
