Petroleum Development Corporation
2007 Second Quarter Results
August 10, 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: 304.842.3597, Fax: 304.842.0913, www.petd.com
Company Snapshot
§ Market Cap (08/09/07) | Ö Approx. $700 Million |
§ Proved Reserves (12/31/06) | Ö 323 Bcfe |
| | Ø 500+ Bcfe (2007E) |
§ Production (2006) | Ö 16.9 Bcfe |
| | Ø 28 Bcfe (2007E) |
§ Production (2Q07) | Ö 78% N. Gas / 22% Oil |
§ Total Shareholder Equity (12/31/06) | Ö $360.1 Million |
§ Diluted Average Shares Outstanding (2007) | Ö 14,860,000 |
| | Ø (Down 8%) |
See Slide 2 regarding Forward Looking Statement
Second Quarter Highlights
§ Record production of 6.44 Bcfe
§ On track with 28 Bcfe guidance for 2007
§ Adjusted Cash Flow from Operations and EBITDA up despite impacts of prices*
§ Drilled a record 108 wells (gross)
* Adjusted cash flow from operations is defined as cash flow from operations before changes in assets and liabilities. EBITDA is defined as Net Income + Interest Expense + Income Taxes + Depreciation, depletion, amortization These are non-GAAP measures. See slide 21 for further information.
See Slide 2 regarding Forward Looking Statement
Impact of Price Changes
§ Average 2Q07 price of $6.10 per Mcfe was $0.61 lower than 2Q06 |
o Excludes derivative gains and losses |
§ Average price for six months ended June 30, 2007 of $6.22 was $0.96 lower than the same period in 2006 |
§ Prices reduced cash flow and earnings |
Energy Market Exposure
Percentage of Production by Market (Based on Mcfe)
§ Oil | Ö 21.7% |
§ Northern Border | Ö 0.5% |
§ Midcontinent | Ö 15.9% |
§ Colorado Liquids | Ö 3.7% |
§ Nymex | Ö 12.4% |
§ Michigan | Ö 8.5% |
§ Colorado Interstate Gas | Ö 37.2% |
See Slide 2 regarding Forward Looking Statement
CIG Basis
{Graphic}
Summary Financial Results
($ in millions, except for per share data)
| | Second Quarter | | Six Months Ended June 30 |
| | 2006 | 2007 | | 2006 | 2007 |
Revenues | $64.7 | $75.9 | | $147.5 | $133.9 |
Total Expenses | $53.2 | $71.7 | | $117.6 | $126.0 |
Income from Operations | $11.6 | $29.8 | | $29.9 | $33.4 |
Net Income | $7.3 | $18.1 | | $18.9 | $20.6 |
Diluted Earnings Per Share | $0.45 | $1.21 | | $1.17 | $1.38 |
See Slide 2 regarding Forward Looking Statement
Revenue
§ Increased production at record levels |
§ Other factors impacting revenue |
o Lower oil & natural gas prices ($0.61 per Mcfe) |
o Gain on lease sale not included ($25.6 million) |
Net Income
§ Net Income of $18.1 million
§ Primary Drivers
| o | Approximately $16 million after tax gain |
| o | $3.9 million exploration expenses |
See Slide 2 regarding Forward Looking Statement
EBITDA
§ Includes impact of lower gas prices and gain on leasehold sale
§ EBITDA of $31.7 million, excluding the benefit of the $16 million after tax gain on leasehold sale, represents a 63% increase
§ EBITDA = Net Income + Interest Expense + Income Taxes + Depreciation, depletion, amortization
See Slide 2 regarding Forward Looking Statement
Adjusted Cash Flow from Operations
§ Increased despite lower prices
§ Includes the impact of all non-cash items
§ Adjusted cash flow from operations is defined as cash flow from operations before changes in assets and liabilities
See Slide 2 regarding Forward Looking Statement
DD&A
§ Increased oil & gas production
§ Higher cost reserve additions relative to historical reserves
§ Cost of recent acreage acquisitions at current market rates
§ Higher drilling and development costs
See Slide 2 regarding Forward Looking Statement
Increasing Production
§ Record 6.4 Bcfe 2Q07 |
§ 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 |
See Slide 2 regarding Forward Looking Statement
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 |
See Slide 2 regarding Forward Looking Statement
Drilling Activity
{Graphic}
2007 Actual vs. Production Forecast
§ Estimated 2007 Production of 28 Bcfe |
o Six month production of 11.8 Bcfe |
§ Estimated 2007 Exit Rate approximately 100 MMcfd |
§ Compressor and pipeline work reducing back-log of wells awaiting turn-in in Grand Valley, Wattenberg and NECO areas |
§ Also improving deliverability |
See Slide 2 regarding Forward Looking Statement
Continuing Our Success
§ Low-risk resource plays
§ Strong development inventory
§ Proven multi-basin operator
§ Strong balance sheet
§ Skilled and experienced management and technical team
See Slide 2 regarding Forward Looking Statement
2007 Production Forecast
2007 Forecast by Area (MMcfe)
| | Forecast |
Area | 1Q Actual | 2Q Actual | 1Q | 2Q | 3Q | 4Q | 2007 |
Rocky Mtn | 4,290 | 5,322 | 4,435 | 5,041 | 6,794 | 7,405 | 23,675 |
Appalachian | 617 | 687 | 625 | 640 | 680 | 689 | 2,634 |
Michigan | 426 | 427 | 415 | 424 | 456 | 459 | 1,754 |
Company Total | 5,333 | 6,436 | 5,475 | 6,104 | 7,931 | 8,553 | 28,063 |
Rocky Mountain Forecast by Area (MMcfe)
| | Forecast |
Area | 1Q Actual | 2Q Actual | 1Q | 2Q | 3Q | 4Q | 2007 |
Wattenberg | 2,209 | 2,623 | 2,314 | 2,586 | 3,149 | 3,361 | 11,410 |
Grand Valley | 1,246 | 1,590 | 1,064 | 1,245 | 2,086 | 2,094 | 6,490 |
NECO | 677 | 942 | 834 | 954 | 1,203 | 1,492 | 4,483 |
North Dakota | 158 | 165 | 224 | 256 | 355 | 458 | 1,293 |
Rocky Mountain Total | 4,290 | 5,321 | 4,435 | 5,041 | 6,794 | 7,405 | 23,675 |
Forecasted numbers are from presentation to Analysts on January 22, 2007
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 |
See Slide 2 regarding Forward Looking Statement
EBITDA & Adjusted Cash Flow from Operations Reconciliation ($ in thousands)
EBITDA | 2002 | 2003 | 2004 | 2005 | 2006 | 06/30/07 | 2Q06 | 2Q07 |
Net Income | $8,881 | $20,413 | $33,228 | $41,452 | $237,772 | $20,552 | $7,280 | $18,051 |
Interest | 1,505 | 816 | 238 | 217 | 2,443 | 2,281 | 436 | 1,450 |
Income Taxes | 3,186 | 11,934 | 20,250 | 24,676 | 149,637 | 12,185 | 4,192 | 10,749 |
Depreciation | 12,602 | 15,313 | 18,156 | 21,116 | 33,735 | 30,503 | 7,605 | 17,428 |
EBITDA | $26,174 | $48,476 | $71,872 | $87,461 | $423,587 | $65,521 | $19,513 | $47,678 |
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 Operations | 2002 | 2003 | 2004 | 2005 | 2006 | 6/30/2007 | 2Q06 | 2Q07 |
Net Cash Used in Operating Activities | $28,173 | $73,608 | $73,301 | $112,372 | $67,390 | -$76,385 | -$16,698 | -$43,647 |
Changes in Assets & Liabilities to Operations | -2,875 | -26,691 | -10,786 | -38,815 | -37,554 | 112,950 | 31,905 | 60,418 |
Adjusted Cash Flow from Operations | $25,298 | $46,917 | $62,515 | $73,557 | $29,836 | $36,565 | $15,207 | $16,771 |
Management believes Adjusted Cash Flow from Operations 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 from Operations is a useful measure for estimating the value of the Company’s operations.
See Slide 2 regarding Forward Looking Statement
Petroleum Development Corporation
2007 Second Quarter Results
August 10, 2007
Steven R. Williams, CEO
Richard W. McCullough, CFO & Treasurer
NASDAQ GSM:PETD
