Petroleum Development Corporation
2007 Earnings Release
March 19, 2008
Steven R. Williams, CEO
Richard W. McCullough, President & CFO
NASDAQ GSM:PETD
Disclaimer
The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on Management’s current expectations and beliefs, as well as a number of assumptions concerning future events.
These statements are based on certain assumptions and analyses made by Management in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conform with Management’s expectations and predictions is subject to a number of risks and uncertainties, general economic, market or business conditions; the opportunities (or lack thereof) that may be presented to and pursued by Petroleum Development Corporation; actions by competitors; changes in laws or regulations; and other factors, many of which are beyond the control of Petroleum Development Corporation.
You are cautioned not to put undue reliance on such forward-looking statements because actual results may vary materially from those expressed or implied, as more fully discussed in our safe harbor statements found in our SEC filings, including, without limitation, the discussion under the heading “Risk Factors” in the company’s annual report on Form 10-K. All forward-looking statements are based on information available to Management on this date and Petroleum Development Corporation assumes no obligation to, and expressly disclaims any obligation to, update or revise any forward looking statements, whether as a result of new information, future events or otherwise.
The SEC permits oil and gas companies to disclose in their filings with the SEC only proved reserves, which are reserve estimates that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. The Company uses in this presentation the terms “probable” and “possible” reserves, which SEC guidelines prohibit in filings of U.S. registrants. Probable reserves are unproved reserves that are more likely than not to be recoverable. Possible reserves are unproved reserves that are less likely to be recoverable than probable reserves. Estimates of probable and possible reserves which may potentially be recoverable through additional drilling or recovery techniques are by nature more uncertain than estimates of proved reserves and accordingly are subject to substantially greater risk of not actually being realized by the Company. In addition, the Company’s production forecasts and expectations for future periods are dependent upon many assumptions, including estimates of production decline rates from existing wells and the undertaking and outcome of future drilling activity, which may be affected by significant commodity price declines or drilling cost increases.
This material also contains certain non-GAAP financial measures as defined under the Securities and Exchange Commission rules.
Filing Extension
| · | Requested automatic extension of filing date to March 31 |
| o | Company is awaiting SEC response on 2006 presentation matter that also impacts 2007 |
| o | Form 10-K was ready to file on time |
| o | PDC expects to file on or before extension date if SEC response is timely |
| · | Issue is presentation of partnership drilling revenues and expenses- net or gross |
| § | No impact on operating pretax and net income, earnings per share, or cash flow per share |
See Slide 2 regarding Forward Looking Statements
Operating Highlights {Graphic}
| o | Production increased 65% to 28 Bcfe |
| o | Reserves increased 112% to 686 Bcfe |
2007 Drilling Activity
| o | Total Wells Drilled Gross 349 |
| o | Total Wells Drilled Net 278 |
Planned 2008 Drilling Activity
| o | Estimated Total Wells Gross 364 |
| o | Estimated Total Wells Net 334 |
See Slide 2 regarding Forward Looking Statements
Core Operating Regions {Graphic}
Rocky Mountains
| o | 2007 Proved Reserves: 559 Bcfe |
| o | 2006 Production: 14.1 Bcfe |
| o | 2007 Production: 23.5 Bcfe |
Michigan Basin
| o | 2007 Proved Reserves: 24 Bcfe |
| o | 2006 Production: 1.4 Bcfe |
| o | 2007 Production: 1.7 Bcfe |
Appalachian Basin
| o | 2007 Proved Reserves: 103 Bcfe |
| o | 2006 Production: 1.5 Bcfe |
| o | 2007 Production: 2.7 Bcfe |
2007 Proved Reserves: 686 Bcfe
2007 Production: 28 Bcfe
See Slide 2 regarding Forward Looking Statements
Business Segment Contribution {Graphic}
Energy Market Exposure {Graphic}
Percentage of Sales by Market (Sales in Mcfe equivalents for the year ended 2007)
See Slide 2 regarding Forward Looking Statements
NYMEX and CIG Rates {Graphic}
YE2007 Proved Reserve Summary
| o | Added to Reserves and Production through acquisitions and development in 2007 |
| o | 2007 acquisitions added 195 Bcfe proved reserves |
| o | 2007 extensions, discoveries, other additions and purchases added 205 Bcfe |
| Summary Reserve Data | | |
| | | | | | |
| | Proved Reserves (Bcfe)(1) | | | |
| | 2006 YE | 2007 YE | % Growth | % Developed | % Natural Gas |
| Rockies | 175.5 | 558.6 | 195% | 47.0% | 83.6% |
| Appalachia | 36.0 | 102.7 | 185% | 72.4% | 99.8% |
| Michigan | 21.2 | 24.3 | 15% | 100% | 98.6% |
| Total | 322.7 | 685.6 | 112% | 53.6% | 86.6% |
(1) Independent reserve engineer’s estimates
See Slide 2 regarding Forward Looking Statements
Unproved Potential {Graphic}
| o | Over 358 Bcfe of Probable and Possible Reserves for Future Development |
| o | Grand Valley offset locations |
| o | Wattenberg field locations (5th spot, rule 318A and 40 acre locations) |
| o | Locations identified by seismic and offsets to producing wells in NE Colorado |
| o | Distribution of 2P and 3P Reserves |
See Slide 2 regarding Forward Looking Statements
See Slide 2 regarding reserve estimate limitations
Operations Forecast 2008 vs 2007
| | 2007 | 2008 | % Change |
| Total Net Production (BCFE) | 28 | 38 | 36% |
| Net Exit Rate (MMCFE/D) | 100 | 122 | 22% |
| Gross Exit Rate (MMCFE/D) | 187 | 211 | 13% |
| Development Net Capital (MM$) | $224 | $194 | -13% |
| Proved Reserves | 686 Bcfe | 750+ Bcfe | 10%+ |
| Total Proved, Probable, Possible | 1.04 Tcfe | 1.2+ Tcfe | 20%+ |
See Slide 2 regarding Forward Looking Statements
Production {Graphic}
Richard W. McCullough
President & CFO
Status of Year End 2007 Audit
| o | 10K and audit finalized and ready to file using net presentation method |
| o | We have disclosed in the footnotes the partnership drilling revenues and expenses that have been netted |
| o | Dialogue with SEC has been on-going since mid January; our last response was submitted approximately 10 days ago |
| o | Once the SEC finalizes their review and provides us with their guidance, we anticipate filing within 3-5 days |
See Slide 2 regarding Forward Looking Statements
Summary Financial Results ($ in millions, except for per share data)
| | Fourth Quarter | Year Ended December 31 |
| | 2006 | 2007 | 2006 | 2007 |
| Income from Operations* | $11.4 | $17.5 | $381.8 | $60.8 |
| Net Income* | $8.0 | $8.2 | $237.8 | $33.2 |
| Diluted Earnings Per Share* | $0.54 | $0.55 | $15.11 | $2.24 |
* Includes $328 million in 2006 and $33 million in 2007 for gain on sale of leaseholds related to the Marathon lease sale.
See Slide 2 regarding Forward Looking Statements
Adjusted Cash Flow from Operations {Graphic}
| o | Increased despite lower prices |
| o | Includes the impact of all non-cash items |
| o | Adjusted cash flow from operations is defined as cash flow from operations before changes in assets and liabilities |
See Slide 2 regarding Forward Looking Statements
See Slide 22 for GAAP Reconciliation
EBITDA {Graphic}
| o | 7.9% lower gas prices in 2007 |
| o | 2006 and 2007 include gain on leasehold sale |
| o | EBITDA = Net Income + Interest Expense + Income Taxes + Depreciation, depletion, amortization |
See Slide 2 regarding Forward Looking Statements
See Slide 22 for GAAP Reconciliation
Investments Adding Value
| o | Results of investments in people & production |
| | Fourth Quarter | Year Ended December 31 |
| Expense Category | 2006 | 2007 | 2006 | 2007 |
| Oil & gas production & well ops. | $6.7 | $16.0 | $29.0 | $49.3 |
| Per Mcfe | $1.39 | $1.88 | $1.71 | $1.76 |
| General & administrative expense | $4.9 | $9.1 | $19.0 | $31.0 |
| Per Mcfe | $1.02 | $1.08 | $1.12 | $1.11 |
| DD&A | $11.2 | $20.0 | $33.7 | $70.8 |
| Per Mcfe | $2.35 | $2.36 | $1.99 | $2.53 |
See Slide 2 regarding Forward Looking Statements
F&D Costs
| | 2007 | 2006 | 2005 |
| Acquisition of Properties | | | |
| Proved Properties | $257.3 | $0.8 | $1.6 |
| Unproved Properties | 13.7 | 11.9 | 16.9 |
| Development Costs | 194.0 | 114.5 | 68.6 |
| Exploration Costs | | | |
| Exploratory Drilling | 13.0 | 18.7 | 12.9 |
| Geological & Geophysical | 6.3 | 2.2 | 0.0 |
| Total Costs Incurred | $484.3 | $148.1 | $100.0 |
| * Additions to Reserves | 396.3 | 66.9 | 80.3 |
| F&D Cost/Mcfe | $1.22 | $2.21 | $1.25 |
| 3 Year Average F&D Cost/Mcfe | $1.35 | | |
*Additions to reserves = year-end proved reserves+ production + dispositions to partnerships - beginning of the year reserves
See Slide 2 regarding Forward Looking Statements
Derivatives {Graphic}
| Oil and Gas Price Risk Management gain (loss), net |
| | Fourth Quarter | Year Ended December 31, |
| | 2006 | 2007 | 2006 | 2007 |
| Unrealized | $(0.3) | $(5.8) | $7.3 | $(4.4) |
| Realized | $0.4 | $4.1 | $1.9 | $7.2 |
| o | As PDC’s production and the percentage of the overall production increases relative to Partnership volumes, our total hedged volumes have increased. |
| o | Because prices have risen during early 2008 and volumes hedged have increased, |
| o | Higher quarterly realized and unrealized losses from derivatives may result |
| o | We will realize prices in 2008 that may be higher than initial guidance |
See Slide 2 regarding Forward Looking Statements
PDC Outlook for 2008 and Beyond
| o | Large inventory of low-risk, high quality development prospects in Colorado |
| o | Staff and expertise to predictably execute the development plan |
| o | Capital to fund development at aggressive 2007 levels through 2010 |
| o | The Company is positioned for significant value creation in 2008 and beyond without any additions to its prospect inventory |
| o | Acquisitions, exploration or exploitation success in the Barnett or Marcellus shale or other new areas will add to anticipated future reserves and production levels |
See Slide 2 regarding Forward Looking Statements
EBITDA & Adjusted Cash Flow from Operations Reconciliation ($ in thousands)
| EBITDA | 2005 | 2006 | 2007 |
| Net Income | $41,452 | $237,772 | $33,209 |
| Interest, net | (681) | (5,607) | 6,617 |
| Income Taxes | 24,676 | 149,637 | 20,981 |
| Depreciation | 21,116 | 33,735 | 70,844 |
| EBITDA | $86,563 | $415,537 | $131,651 |
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 | 2006 | 1Q07 | 2Q07 | 3Q07 | 4Q07 | 2007 |
| Net Cash Provided (Used in) Operating Activities | $67,390 | (32,738) | (43,647) | $43,585 | $93,104 | $60,304 |
| Changes in Assets & Liabilities to Operations | (37,621) | 52,532 | 60,418 | (11,947) | (65,681) | 35,322 |
| Adjusted Cash Flow from Operations | 29,769 | 19,794 | 16,771 | 32,638 | 27,423 | 95,626 |
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 Statements
Petroleum Development Corporation
2007 Earnings Release
March 19, 2008
Steven R. Williams, CEO
Richard W. McCullough, President & CFO
NASDAQ GSM:PETD
