NEWS FROM
Petroleum Development Corporation
FOR IMMEDIATE RELEASE: November 10, 2006
CONTACT: Steven R. Williams - (304) 842-3597 http://www.petd.com
Petroleum Development Corporation Announces Record Third Quarter
And Nine Month Operating Results;
Previously Announced Lease Sale Drives Results
Bridgeport, West Virginia... Petroleum Development Corporation (NASDAQ GSM: PETD) today announced record third quarter and nine month operating results for 2006. Net income for the third quarter of 2006 was a record $210.9 million ($13.38 per diluted share) compared to $7.5 million ($.46 per diluted share) for the same period in 2005. Net income for the nine months of 2006 was a record $230.3 million ($14.40 per diluted share) compared to $28.5 million ($1.73 per diluted share) for the first nine months of 2005. The sale of undeveloped oil and gas leaseholds in July 2006 for a pre-tax gain of $328 million was the driving factor for both the quarter and nine months operating results.
| | Three Months Ended | | Nine Months Ended |
| | September 30, (unaudited) (in thousands, except per share) | | September 30, (unaudited) (in thousands, except per share) |
| | 2006 | | 2005 | | 2006 | | 2005 |
Revenues | | $ 67,190 | | $ 77,949 | | $ 208,558 | | $222,138 |
| | | | | | | | |
Gain on sale of leasehold | | $ 328,000 | | $- | | $ 328,000 | | $ 6,216 |
| | | | | | | | |
Income before income taxes | | $ 343,709 | | $ 11,919 | | $ 374,204 | | $45,277 |
| | | | | | | | |
Net income | | $ 210,914 | | $ 7,506 | | $ 230,261 | | $28,524 |
| | | | | | | | |
Basic earnings per common share | | $ 13.44 | | $ 0.46 | | $14.47 | | $ 1.74 |
Diluted earnings per share | | $ 13.38 | | $ 0.46 | | $14.40 | | $ 1.73 |
| | | | | | | | |
Steven R. Williams, CEO of Petroleum Development Corporation, said, "The importance of the gain on the sale of a portion of our Piceance Basin leasehold is clearly reflected in the results for the third quarter. Also contributing to the increase in shareholder value is the 25.9% increase in production in the third quarter compared to the third quarter of 2005."
Sale of Undeveloped Oil and Gas Leaseholds
On July 20, 2006, the Company sold to an unaffiliated company a portion of its undeveloped leasehold located in Grand Valley Field, Garfield County, Colorado. The sale encompassed 100% of the working interest in approximately 8,700 acres, including approximately 6,400 acres of the Company's Chevron leasehold and 2,300 acres of the Company's Puckett Land Company leasehold. The Company retained approximately 475 undeveloped locations on 10 acre spacing on the Grand Valley Field leasehold in addition to all of its producing properties in the field. The proceeds from the sale were $353.6 million.
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The Company recorded a gain on the sale of $328 million in the third quarter and a deferred gain of $25.6 million. The Company is obligated to either drill 16 wells on specifically identified acreage over the next three years or pay liquidated damages of $1.6 million per undrilled well. The Company expects to drill the wells for its own benefit.. For each well the Company drills, the Company will recognize $1.6 million of the deferred gain when drilling is complete and will record the costs of the wells drilled in accordance with its oil and gas properties accounting policy. Alternatively, should the Company not first drill the wells, the unaffiliated company has the option to drill the wells for its benefit. If the other company drills the wells, the Company would recognize both $1.6 million of the amount deferred and $0.4 million to be paid to the Company by the unaffiliated company as additional gain.
In conjunction with the sale, the Company entered into a "like-kind exchange" (LKE) agreement, in accordance with Section 1031 of the Internal Revenue Code, with a "qualified intermediary." Proceeds of $300 million were transferred directly to the qualified intermediary to be held in trust pursuant to the terms of the LKE agreement. The Company has identified and is in the process of evaluating suitable like-kind property. The Company has until January 17, 2007, to close any acquisitions to take advantage of the federal income tax deferral benefits of an LKE transaction.
Drilling Activity
The Company and its drilling fund partnerships drilled during the three and nine months ended September 30, 2006, a total of 47 and 137 development wells, respectively as detailed by field below. Wells labeled as program wells were drilled for the benefit of the Company and its drilling fund partnerships, while wells labeled as non-program were drilled for the benefit of the Company.
| Three Months Ended September 30, 2006 | | Nine Months Ended September 30, 2006 |
| Successful | | Dry Hole | | Total | | Successful | | Dry Hole | | Total |
Program | | | | | | | | | | | |
Wattenburg | 12 | | - | | 12 | | 49 | | 1 | | 50 |
Piceance | 6 | | - | | 6 | | 16 | | - | | 16 |
Bakken, ND | 1 | | - | | 1 | | 1 | | - | | 1 |
| 19 | | - | | 19 | | 66 | | 1 | | 67 |
Non Program | | | | | | | | | | | |
Wattenburg | 18 | | 1 | | 19 | | 39 | | 2 | | 41 |
Piceance | 9 | | - | | 9 | | 19 | | - | | 19 |
NECO | - | | - | | - | | 9 | | - | | 9 |
Michigan | - | | - | | - | | 1 | | - | | 1 |
| 27 | | 1 | | 28 | | 68 | | 2 | | 70 |
Total | | | | | | | | | | | |
Wattenburg | 30 | | 1 | | 31 | | 88 | | 3 | | 91 |
Piceance | 15 | | - | | 15 | | 35 | | - | | 35 |
NECO | - | | - | | - | | 9 | | - | | 9 |
Bakken, ND | 1 | | - | | 1 | | 1 | | - | | 1 |
Michigan | - | | - | | - | | 1 | | - | | 1 |
| 46 | | 1 | | 47 | | 134 | | 3 | | 137 |
| | | | | | | | | | | |
Additionally for the nine months ended September 30, 2006 the Company drilled one successful exploratory well on its North Dakota Bakken acreage. The Company also participated in seven successful exploratory wells on its North Dakota Nesson acreage of which four were drilled in the third quarter. The Company drilled one exploratory dry hole in the Red Desert Basin in Wyoming along with its drilling fund partnership Rockies Region Private Limited Partnership during the nine months ended September 30, 2006.
On September 1, 2006, the Company funded a 2006 partnership, Rockies Region 2006 Limited Partnership, with subscriptions of approximately $90 million. Upon closing on September 1, 2006, the Company, which serves as the managing general partner, contributed $38.9 million in cash for its contribution to the capital of the partnership. After payment of sales commissions and associated expenses, including a management fee of $1.3 million to the Company, the partnership had a total of approximately $118.0 million available for future drilling. Drilling operations commenced on September 1, 2006, and will continue into the first quarter of 2007.
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Oil and Gas Sales and Production
Oil and gas sales from the Company's producing properties for the three months ended September 30, 2006, were $29.7 million compared to $28.4 million for the same prior year period, an increase of $1.3 million or 4.6%. Oil sales benefited by an increase in both volume and price, but a decrease in natural gas prices more than offset the increase in natural gas volume resulting in lower natural gas sales revenues.
The Company's oil and gas production for the third quarter of 2006 totaled 4.3 Bcfe, an increase of approximately 26% over third quarter 2005 volumes of 3.4 Bcfe. Oil and natural gas production by area of operations along with average sales price (excluding derivative gains/losses) is presented below:
| Three Months Ended September 30, 2006 | | Three Months Ended September 30, 2005 | |
| | | Natural | | Natural Gas | | | | Natural | | Natural Gas |
Oil | | Gas | | Equivalents | Oil | | Gas | | Equivalents |
(Bbl) | | (Mcf) | | (Mcfe)* | (Bbl) | | (Mcf) | | (Mcfe)* |
Appalachian Basin | 441 | | 327,499 | | 330,145 | | 1,218 | | 394,982 | | 402,290 |
Michigan Basin | 1,281 | | 355,624 | | 363,310 | | 1,177 | | 379,824 | | 386,886 |
Rocky Mountains | 166,821 | | 2,620,421 | | 3,621,347 | | 116,170 | | 1,941,513 | | 2,638,533 |
Total | 168,543 | | 3,303,544 | | 4,314,802 | | 118,565 | | 2,716,319 | | 3,427,709 |
| | | | | | | | | | | |
Average Price | $ 57.42 | | $ 6.05 | | $6.87 | | $ 54.66 | | $ 8.07 | | $8.29 |
| | | | | | | | | | | | | | |
*One barrel of oil is equal to the energy equivalent of six Mcf of natural gas.
Oil and gas sales from the Company's producing properties for the nine months ended September 30, 2006, were $86.1 million compared to $68.6 million for the same prior year period, an increase of $17.5 million or 25.5%. The increase was primarily due to increased volumes of oil and natural gas and higher average oil prices partially offset by lower average natural gas prices.
The Company's oil and gas production for the first nine months of 2006 totaled 12.2 Bcfe, an increase of approximately 20% over the first nine months of 2005 volumes of 10.1 Bcfe. Oil and natural gas production by area of operations along with average prices (excluding derivative gains/losses) is presented below:
| Nine Months Ended September 30, 2006 | | Nine Months Ended September 30, 2005 | |
| | | Natural | | Natural Gas | | | | Natural | | Natural Gas |
Oil | | Gas | | Equivalents | Oil | | Gas | | Equivalents |
(Bbl) | | (Mcf) | | (Mcfe)* | (Bbl) | | (Mcf) | | (Mcfe)* |
Appalachian Basin | 1,230 | | 1,108,400 | | 1,115,780 | | 3,073 | | 1,238,724 | | 1,257,162 |
Michigan Basin | 3,274 | | 1,067,160 | | 1,086,804 | | 3,391 | | 1,172,638 | | 1,192,984 |
Rocky Mountains | 470,938 | | 7,135,371 | | 9,960,999 | | 324,355 | | 5,698,298 | | 7,644,428 |
Total | 475,442 | | 9,310,931 | | 12,163,583 | | 330,819 | | 8,109,660 | | 10,094,574 |
| | | | | | | | | | | |
Average Price | $ 59.04 | | $ 6.24 | | $ 7.08 | | $ 47.60 | | $ 6.52 | | $ 6.80 |
| | | | | | | | | | | | | | |
*One barrel of oil is equal to the energy equivalent of six Mcf of natural gas.
Current Hedging Position of Commodity 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 third quarter of 2006 the Company had average production per month of 1.1 Bcf of natural gas and 56,000 Bbls of oil. The current positions and as of the fourth quarter of 2006 in effect on the Company's share of production are shown in the following table:
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| | | Floors | | Ceilings |
| | | Monthly | | | Monthly | |
| | Quantity | | Quantity | |
| | Gas-Mmbtu | Contract | Gas-Mmbtu | Contract |
Month Set | Contract Term | Oil-Barrels | Price | Oil-Barrels | Price |
| | | | | | | |
Colorado Interstate Gas (CIG) Based Derivatives (Piceance Basin) |
| | | | | | | |
Mar 2005 | | Oct-06 | 42,000 | $ 4.50 | | 21,000 | $ 7.25 |
Jul 2005 | | Oct-06 | 27,500 | 5.50 | | 13,750 | 7.63 |
Jul 2005 | | Nov 2006 - Mar 2007 | 27,500 | 6.00 | | 13,750 | 8.40 |
Feb 2006 | | Nov 2006 - Mar 2007 | 60,000 | 6.50 | | - | - |
Sep 2006 | | Nov 2006 - Mar 2007 | 137,500 | 4.00 | | - | - |
Feb 2006 | | Apr 2007 - Oct 2007 | 44,000 | 5.50 | | - | - |
Sep 2006 | | Apr 2007 - Oct 2007 | 194,500 | 4.50 | | - | - |
| | | | | | | |
NYMEX Based Derivatives - (Appalachian and Michigan Basins) |
| | | | | | | |
Mar 2005 | | Oct-06 | 78,000 | $ 5.50 | | 39,000 | $ 7.40 |
Jul 2005 | | Oct-06 | 61,000 | 6.25 | | 30,000 | 8.98 |
Jul 2005 | | Nov 2006 - Mar 2007 | 68,000 | 7.00 | | 34,000 | 9.27 |
Feb 2006 | | Nov 2006 - Mar 2007 | 34,000 | 8.00 | | - | - |
Feb 2006 | | Nov 2006 - Mar 2007 | 34,000 | 8.50 | | 34,000 | 13.73 |
Feb 2006 | | Apr 2007 - Oct 2007 | 34,000 | 7.00 | | - | - |
Feb 2006 | | Apr 2007 - Oct 2007 | 34,000 | 7.50 | | 34,000 | 10.83 |
Sep 2006 | | Apr 2007 - Oct 2007 | 44,400 | 6.25 | | - | - |
| | | | | | | |
Panhandle Based Derivatives (NECO) | | | | |
| | | | | | | |
Mar 2005 | | Oct-06 | 150,000 | $ 5.00 | | 75,000 | $ 8.62 |
Jul 2005 | | Nov 2006 - Mar 2007 | 150,000 | 6.50 | | 75,000 | 8.56 |
Feb 2006 | Apr 2007 - Oct 2007 | 60,000 | 6.00 | - | - |
Feb 2006 | Apr 2007 - Oct 2007 | 60,000 | 6.50 | 60,000 | 9.80 |
| | | | | |
Oil-NYMEX Based (Wattenburg/ND) | | | | |
| | | | | | | |
Sept 2006 | | Nov 2006 - Oct 2007 | 12,350 | $50.00 | | - | $ - |
Oil and Gas Price Risk Management Gain (Loss), Net
For the three months ended September 30, 2006, the Company recorded unrealized gains of $2.8 million and realized gains of $0.1 million compared to unrealized losses of $7.8 million and realized losses of $2.1 million for the same prior year period. The 2006 change is the result of declining natural gas prices.
For the nine months ended September 30, 2006, our recognized oil and gas price risk management gain, net was $8.7 million comprised of $7.2 million unrealized gains and $1.5 million realized gains compared to a net loss of $12.7 million, consisting of realized losses of $3.4 million and unrealized losses of $9.3 million for the same prior year period. The 2006 change is the result of declining natural gas prices.
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Petroleum Development Corporation
(Unaudited; in thousands except per share data)
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2006 | | 2005 | | 2006 | | 2005 |
| | | (Restated) | | | | (Restated) |
Revenues: | | | | | | | |
Oil and gas well drilling operations | $ 2,659 | | $32,267 | | $ 11,682 | | $85,744 |
Gas sales from marketing activities | 30,374 | | 14,970 | | 101,445 | | 58,409 |
Oil and gas sales | 29,663 | | 28,414 | | 86,139 | | 68,620 |
Well operations and pipeline income | 2,530 | | 2,291 | | 7,306 | | 6,286 |
Other | 1,964 | | 7 | | 1,986 | | 3,079 |
Total revenues | 67,190 | | 77,949 | | 208,558 | | 222,138 |
| | | | | | | |
Costs and expenses: | | | | | | | |
Cost of oil and gas well drilling operations | 4,257 | | 28,734 | | 11,888 | | 73,121 |
Cost of gas marketing activities | 29,883 | | 14,269 | | 100,121 | | 58,349 |
Oil and gas production and well operations cost | 9,961 | | 6,379 | | 23,627 | | 15,067 |
Exploration cost | 940 | | 136 | | 3,735 | | 5,000 |
General and administrative expense | 4,423 | | 1,646 | | 13,070 | | 4,528 |
Depreciation, depletion, and amortization | 8,322 | | 5,120 | | 22,554 | | 14,822 |
Total costs and expenses | 57,786 | | 56,284 | | 174,995 | | 170,887 |
| | | | | | | |
Gain on sale of leaseholds | 328,000 | | - | | 328,000 | | 6,216 |
| | | | | | | |
Income from operations | 337,404 | | 21,665 | | 361,563 | | 57,467 |
Interest income | 3,427 | | 202 | | 4,159 | | 621 |
Interest expense | (34) | | (26) | | (232) | | (88) |
Oil and gas price risk management gain (loss), net | 2,912 | | (9,922) | | 8,714 | | (12,723) |
Income before income taxes | 343,709 | | 11,919 | | 374,204 | | 45,277 |
| | | | | | | |
Income taxes | 132,795 | | 4,413 | | 143,943 | | 16,753 |
| | | | | | | |
Net income | $ 210,914 | | $ 7,506 | | $ 230,261 | | $ 28,524 |
| | | | | | | |
Basic earnings per common share | $13.44 | | $ 0.46 | | $14.47 | | $ 1.74 |
| | | | | | | |
Diluted earnings per common share | $13.38 | | $ 0.46 | | $14.40 | | $ 1.73 |
| | | | | | | |
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Common Stock Buyback Program
On January 13, 2006, the Company announced that its Board of Directors authorized the purchase of up to 10% (1,627,500 shares) of the Company's common stock during 2006. Stock purchases under this program were authorized in the open market or in private transactions, at times and in amounts that management deemed appropriate. For the nine months ended September 30, 2006, the Company purchased 1,293,258 shares at a cost of $52.6 million ($40.70 average price paid per share), including 100,000 shares from an executive officer of the Company at a cost of $4.1 million ($40.66 price paid per share). On October 20, 2006, the Company completed its January 2006 program, purchasing in the open market throughout October an additional 334,242 shares at a cost of $13.7 million ($40.93 average price paid per share). The total of 1,627,500 common shares were purchased at a cost of $66.3 million for an average of $40.73 per share. All shares purchased in the program and remaining in treasury stock as reflected in the condensed consolidated balance sheet at September 30, 2006, have subsequently been retired.
On October 16, 2006, the Board of Directors of the Company approved a second 2006 purchase program authorizing the Company to purchase up to 10% (1,477,109 shares) of the Company's common stock through April 2008. Stock purchases under this program may be made in the open market or in private transactions, at time and in amounts that management deems appropriate. The Company may terminate or limit the stock purchase program at any time. No purchases have been made pursuant to this program as of the date of this news release.
10-Q and Quarterly Conference Call
The Company filed its Quarterly Report on Form 10-Q on November 9, 2006. You can access the report at the Company's website (www.petd.com), or contact the Company for a paper copy. The Company invites you to join Steve Williams, Chief Executive Officer, and Darwin Stump, Chief Financial Officer, for a conference call on Tuesday, November 14, 2006 for a discussion of the results.
What: Petroleum Development Third Quarter Earnings Conference Call
When: November 14, 2006 at 2:00 p.m. Eastern Standard Time
Where: www.petd.com
How: Log on to the web address above or call (877) 407-8033
Replay Number: 877-660-6853 Account# 286 Conference ID# 220240
(Replay will be available approximately one hour after the conclusion of the call)
Contact: Darwin Stump, Petroleum Development Corporation, (800) 624-3821 E-mail: petd@petd.com
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 and oil. 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.
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
