Petroleum Development Corporation
2007 First Quarter Results
July 6, 2007
Steven R. Williams, CEO
Richard W. McCullough, CFO & Treasurer
NASDAQ GSM: PETD
Forward Looking Statements
This information contains predictions, estimates and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors that could cause actual results to differ materially from those included in the forward-looking statements include the timing and extent of changes in commodity prices for oil and gas, the need to develop and replace reserves, environmental risks, drilling and operating risks, risks related to exploration and development, uncertainties about the estimates of reserves, competition, government regulation and the ability of the Company to meet its stated business goals.
Contact Information:
Investor Relations
Petroleum Development Corporation
120 Genesis Boulevard, PO Box 26
Bridgeport, West Virginia 26330
Phone: 304.842.6256, Fax: 304.842.0913
www.petd.com
Company Snapshot
· Market Cap (06/30/07) | Ø Approx. $700 Million |
· Proved Reserves (12/31/06) | Ø 323 Bcfe |
· Production (2006) | Ø 16.9 Bcfe |
· Production Profile (1Q07) | Ø 78% N. Gas / 22% Oil |
· EBITDA (2006) | Ø $423.6 Million |
· Total Equity (12/31/06) | Ø $360.1 Million |
First Quarter Highlights
| · | Received Nasdaq notification on July 5, 2007 |
| * | In compliance with all Nasdaq Marketplace Rules |
| · | Record production of 5.33 Bcfe |
| · | Adjusted Cash Flow up despite impacts of prices* |
| · | G&A costs reflect accounting and systems improvements and staff enhancements |
* Adjusted Cash Flow is net income adjusted for non-cash gains and charges for DD&A, deferred taxes and unrealized derivative losses. See slide 10 for further information.
Impact of Price Changes
| · | Average 1Q07 price of $6.38 per Mcfe was $1.32 lower than 1Q 2006 |
| · | Reduced cash flow and earnings |
| · | Realized derivative gain in 1Q07 of about $600k |
| o | Unrealized derivative losses for future period derivatives of $6.2 million (non-cash) |
| · | Prices and derivatives also reduced Gas Marketing revenue and expenses |
Summary Financial Results
($ in millions, except for per share data)
| | First Quarter |
| | 2006 | 2007 |
| Revenues | $82.8 | $57.9 |
| Total Expenses | $64.5 | $54.3 |
| Income from Operations | $18.3 | $3.6 |
| Net Income | $11.6 | $2.5 |
| Diluted Earnings Per Share | $0.72 | $0.17 |
Revenue
| · | Increased production at record levels |
| · | Factors reducing revenue |
| o | Direct impact of lower prices |
| o | Unrealized derivative losses |
o | Price effect on gas marketing revenue and derivatives |
Net Income
| · | Net Income of $2.5 million |
| § | Cash item - Lower prices |
| § | Non-cash items - Increased DD&A and unrealized derivative losses |
EBITDA
| · | Includes impact of lower gas prices and non-cash unrealized derivative losses |
| · | Affected by unrealized losses (gains): |
· | EBITDA = Net Income + Interest Expense + Income Taxes + Depreciation, depletion, amortization |
EBITDA Reconciliation
($ in thousands)
| | 2002 | 2003 | 2004 | 2005 | 2006 | | 1Q06 | 1Q07 |
Net Income | $8,881 | $20,413 | $33,228 | $41,452 | $237,772 | | $11,645 | $2,501 |
Interest | 1,505 | 816 | 238 | 217 | 2,443 | | 352 | 831 |
Income Taxes | 3,186 | 11,934 | 20,250 | 24,676 | 149,637 | | 6,710 | 1,436 |
Depreciation | 12,602 | 15,313 | 18,156 | 21,116 | 33,735 | | 6,587 | 13,074 |
EBITDA | $26,174 | $48,476 | $71,872 | $87,461 | $423,587 | | $25,294 | $17,842 |
Management believes EBITDA is relevant because it is a measure of cash available to fund the Company’s capital expenditures and service its debt and is a widely used industry metric which allows comparability of our results with our peers.
Adjusted Cash Flow
| · | Increased despite lower prices |
· | Adjusted Cash Flow = Net Income + Deferred Income Taxes + DD&A + impact of unrealized derivative gains or losses |
Adjusted Cash Flow Reconciliation
($ in thousands)
| | 2002 | 2003 | 2004 | 2005 | 2006 | | 1Q06 | 1Q07 |
Net Income | $8,881 | $20,413 | $33,228 | $41,452 | $237,772 | | $11,645 | $2,501 |
Deferred Income Taxes | 2,189 | 8,462 | 9,887 | 3,351 | 86,431 | | 996 | (3,379) |
Depreciation | 12,602 | 15,313 | 18,156 | 21,116 | 33,735 | | 6,587 | 13,074 |
Unrealized Derivative Losses (Gains) | 517 | (1,110) | 535 | 3,226 | (7,620) | | (2,894) | 6,636 |
Adjusted Cash Flow | $24,189 | $43,078 | $61,806 | $69,145 | $350,318 | | $16,334 | $18,832 |
Management believes Adjusted Cash Flow is relevant because it is a measure of cash available to fund the Company’s capital expenditures and service its debt. Management also believes Adjusted Cash Flow is a useful measure for estimating the value of the Company’s operations.
G&A Expense
| · | Levels higher than anticipated |
| o | Improving processes and systems |
| o | Delayed financial reports |
| · | Anticipate high levels through 2007 |
| o | New auditors (Pricewaterhouse Coopers) |
| o | Continuing partnership restatements and SOX work |
DD&A
| · | Higher oil & gas production |
| · | Higher reserve additions relative to historical lower cost reserves |
| · | Cost of recent acreage acquisitions at current market rates |
| · | Higher 3rd party drilling and development costs |
Increasing Production
| · | Record 5.3 Bcfe 1Q 2007 |
| · | On track to meet 28 Bcfe annual guidance |
| · | Piceance Basin compressor station now on line |
| o | Increases gross throughput from about 17 to 50 million cubic feet per day from Garden Gulch |
o | Other enhancement work underway |
Increasing Estimated Proved Reserves
| · | Anticipate greater than 500 Bcfe proved reserves for YE 2007 |
| o | Additions through both the drill bit and acquisitions |
| · | Active areas primarily in Colorado - Piceance, Wattenberg and Neco |
Drilling Activity
{Graphic}
2007 Production Forecast
| · | Estimated 2007 Production of 28 Bcfe |
| · | Estimated 2007 Exit Rate near 100 MMcfd |
| · | Compressor and pipeline work reducing back-log of wells awaiting turn-in in Grand Valley, Wattenberg and NECO areas |
| · | Also improving deliverability |
2007 Production Forecast
2007 Forecast by Area (MMcfe)
| | Forecast |
Area | 1Q Actual | Actual/ Forecast | 1Q | 2Q | 3Q | 4Q | 2007 |
Rocky Mountain | 4,290 | 97% | 4,435 | 5,041 | 6,794 | 7,405 | 23,675 |
Appalachian | 617 | 99% | 625 | 640 | 680 | 689 | 2,634 |
Michigan | 426 | 103% | 415 | 424 | 456 | 459 | 1,754 |
Company Total | 5,333 | 97% | 5,475 | 6,104 | 7,931 | 8,553 | 28,063 |
Rocky Mountain Forecast by Area (MMcfe)
| | Forecast |
Area | 1Q Actual | Actual / Forecast | 1Q | 2Q | 3Q | 4Q | 2007 |
Wattenberg | 2,209 | 95% | 2,314 | 2,586 | 3,149 | 3,361 | 11,410 |
Grand Valley | 1,246 | 117% | 1,064 | 1,245 | 2,086 | 2,094 | 6,490 |
NECO | 677 | 81% | 834 | 954 | 1,203 | 1,492 | 4,483 |
North Dakota | 158 | 71% | 224 | 256 | 355 | 458 | 1,293 |
Rocky Mountain Total | 4,290 | 97% | 4,435 | 5,041 | 6,794 | 7,405 | 23,675 |
Major Operating Area Highlights
• | Wattenberg Area production shortfall due to weather related issues, production not “lost” but delayed |
• | Grand Valley production positively impacted by facility improvements and greater # of wells inline |
• | NECO Area production difference due to fewer wells inline than anticipated |
Continuing Our Success
| · | Low-risk resource plays |
| · | Strong development inventory |
| · | Proven multi-basin operator |
| · | Skilled and experienced management and technical team |
Petroleum Development Corporation
2007 First Quarter Results
July 6, 2007
Steven R. Williams, CEO
Richard W. McCullough, CFO & Treasurer
NASDAQ GSM: PETD
