CONFORMED COPY
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
For the period ended March 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 of 15(d) of
the Securities and Exchange Act of 1934
For the transition period from to
Commission file number 0-7246
I.R.S. Employer Identification Number 95-2636730
PETROLEUM DEVELOPMENT CORPORATION
(A Nevada Corporation)
103 East Main Street
Bridgeport, WV 26330
Telephone: (304) 842-6256
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes XX No
Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date:
10,209,126 shares of the Company's Common Stock ($.01 par value)
were outstanding as of March 31, 1996.
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Independent Auditors' Review Report 1
Condensed Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 2
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows-Three
Months Ended March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Statement by Management Concerning Review of Interim
Financial Information by Independent Certified Public
Accountants 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
PART I - FINANCIAL INFORMATION
Independent Auditors' Review Report
The Board of Directors
Petroleum Development Corporation:
We have reviewed the accompanying condensed consolidated
balance sheet of Petroleum Development Corporation and subsidiaries
as of March 31, 1996, and the related condensed consolidated
statements of operations and cash flows for the three-month periods
ended March 31, 1996 and 1995. These financial statements are the
responsibility of the company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical review procedures to financial
data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet of
Petroleum Development Corporation and subsidiaries as of December
31, 1995 and the related consolidated statements of operations,
retained earnings, and cash flows for the year then ended (not
presented herein); and in our report dated March 15, 1996, we
expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31,
1995 is fairly presented, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
May 14, 1996
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
ASSETS
1996 1995
(Unaudited)
Current assets:
Cash and cash equivalents $ 5,668,000 $10,053,600
Accounts and notes receivable 2,595,500 2,016,600
Inventories 217,700 217,900
Prepaid expenses 746,300 868,800
Total current assets 9,227,500 13,156,900
Properties and equipment 48,334,200 48,240,000
Less accumulated depreciation, depletion,
and amortization 21,711,500 21,127,100
26,622,700 27,112,900
Other assets 495,100 350,300
$36,345,300 $40,620,100
(Continued)
-2-
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, Continued
March 31, 1996 and December 31, 1995
LIABILITIES AND
STOCKHOLDERS' EQUITY
1996 1995
(Unaudited)
Current liabilities:
Accounts payable and accrued expenses $ 5,602,800 $ 3,903,000
Advances for future drilling contracts 2,158,900 10,069,600
Funds held for future distribution 1,680,900 704,000
Total current liabilities 9,442,600 14,676,600
Long-term debt 2,950,000 2,500,000
Other liabilities 673,300 601,700
Deferred income taxes 2,949,500 2,920,900
Stockholders' equity:
Common stock 102,100 112,100
Additional paid-in capital 6,155,800 7,019,800
Retained earnings 14,158,000 12,878,000
Unamortized stock award (86,000) (89,000)
Total stockholders' equity 20,329,900 19,920,900
$36,345,300 $40,620,100
See accompanying notes to condensed consolidated financial statements.
-3-
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months ended March 31, 1996 and 1995
(Unaudited)
1996 1995
Revenues:
Oil and gas well drilling operations $ 7,986,900 $7,293,700
Oil and gas sales 2,467,500 1,162,000
Well operations and pipeline income 901,600 1,002,600
Other income 85,300 78,700
11,441,300 9,537,000
Costs and expenses:
Cost of oil and gas well
drilling operations 6,502,300 6,135,800
Oil and gas purchases and
production costs 2,035,000 1,310,300
General and administrative
expenses 541,800 450,300
Depreciation, depletion,
and amortization 665,700 588,400
Interest 72,100 83,400
9,816,900 8,568,200
Income before income taxes 1,624,400 968,800
Income taxes 344,400 240,300
Net income $ 1,280,000 $ 728,500
Earnings per common and
common equivalent share $ .11 $ .06
See accompanying notes to condensed
consolidated financial statements
-4-
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
Cash flows from operating activities:
Net income $1,280,000 $ 728,500
Adjustments to net income to reconcile
to cash used in operating activities:
Deferred federal income taxes 28,600 72,100
Depreciation, depletion & amortization 665,700 588,400
Leasehold acreage expired or
surrendered 70,300 143,500
Employee compensation paid in stock 8,700 -
Gain on disposal of assets (8,200) (8,300)
(Increase) decrease in current assets (463,900) 246,800
(Increase) decrease in other assets (144,800) 54,600
Decrease in current liabilities (5,234,000) (6,299,700)
Increase in other liabilities 71,600 24,900
Total adjustments (5,006,000) (5,177,700)
Net cash used in operating activities (3,726,000) (4,449,200)
Cash flows from investing activities:
Capital expenditures (509,600) (231,600)
Proceeds from sale of leases 271,500 111,000
Proceeds from sale of assets 8,200 8,300
Net cash used in investing activities (229,900) (112,300)
Cash flows from financing activities:
Proceeds from borrowings 1,000,000 -
Proceeds from sale of common stock 120,300 -
Purchase of treasury stock (1,000,000) -
Retirement of debt (550,000) (311,400)
Net cash used in financing activities (429,700) (311,400)
Net change in cash and cash equivalents (4,385,600) (4,872,900)
Cash and cash equivalents,
beginning of period 10,053,600 8,906,800
Cash and cash equivalents, end of period $ 5,668,000 $ 4,033,900
See accompanying notes to condensed
consolidated financial statements.
-5-
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1996
(Unaudited)
1. Accounting Policies
Reference is hereby made to the Company's Annual Report on Form
10-K for 1995, which contains a summary of major accounting
policies followed by the Company in the preparation of its
consolidated financial statements. These policies were also
followed in preparing the quarterly report included herein.
2. Basis of Presentation
The Management of the Company believes that all adjustments
(consisting of only normal recurring accruals) necessary to a
fair statement of the results of such periods have been made.
The results of operations for the three months ended March 31,
1996 are not necessarily indicative of the results to be
expected for the full year.
3. Oil and Gas Properties
Oil and Gas Properties are reported on the successful efforts
method.
4. Earnings Per Share
Computation of earnings per common and common equivalent share
are as follows for the three months ended March 31,
1996 1995
Weighted average common shares outstanding 11,253,911 11,717,352
Net income $1,280,000 $ 728,500
Earnings per common and
common equivalent share $ .11 $ .06
5. Subsequent Event
On April 1, 1996, the Company acquired Riley Natural Gas
Company (RNG), a privately held gas marketing company in a
stock for stock exchange. While this addition does not
constitute a significant subsidiary for accounting purposes, it
will substantially increase the Company's capabilities in the
natural gas marketing area. PDC expects to issue approximately
210,000 shares of common stock for 100% of the outstanding
common stock of RNG. Key employees of RNG have agreed to enter
into employment contracts with PDC to assure the continuity of
RNG's gas marketing operations.
-6-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three Months Ended March 31, 1996 Compared With March 31, 1995
Total revenues increased $1,904,300 or 20.0% in the first quarter
of 1996 compared to the same period in 1995 primarily as a result of
increased drilling activity and higher oil and gas sales. Drilling
revenues increased 9.5% as a result of higher volumes of drilling
and completion activities in connection with drilling of wells for
the PDC 1995-D Partnership which closed on December 29, 1995, in the
first quarter of 1996 compared to the same period in 1995. Oil and
gas sales increased $1,305,500 or 112.3% as a result of
significantly higher average sales prices, increased gas purchased
for resale, and to a lesser extent increased sales volumes from the
Company's producing properties.
Costs and expenses increased $1,248,700 as a result of the
increased activity in oil and gas well drilling operations, oil and
gas purchases and production costs, general and administrative
expenses and depreciation, depletion, and amortization. Cost of oil
and gas well drilling operations increased 6.0% as a result of the
higher volumes of drilling and completion activities. Oil and gas
purchases and production costs increased $724,700 primarily as a
result of higher volumes of gas purchased for resale at higher
average prices. General and administrative expenses increased
$91,500 primarily as a result of higher personnel and benefit costs
along with increased office expenses. Depreciation, depletion and
amortization increased 13.1% due to higher depreciation rates and
production volumes of natural gas as a result of the Company's
continuing increased investment in oil and gas properties.
The foregoing resulted in net income of $1,280,000 as compared to
a net income of $728,500 for the first quarter of 1995. The
provision for income taxes in 1996 consists of $315,800 of current
taxes payable and $28,600 of deferred income taxes. The provision
for income taxes in 1995 consisted of $168,200 of current taxes
payable and $72,100 of deferred income taxes.
Liquidity and Capital Resources
Sales volumes of natural gas continued to increase while the
natural gas prices fluctuated monthly. The Company's gas sales
prices are subject to increase and decrease based on various market
sensitive indices. A major factor in the variability of these
indices is the seasonal variation of demand for natural gas, which
typically peaks during the winter months. There has been a dramatic
increase in the price of natural gas during the past winter. While
prices cannot be predicted for the entire year it is generally
believed that the sales price of natural gas will be higher in 1996
than in 1995. The volumes of gas sales are expected to continue to
increase as a result of continued drilling activities.
The Company has registered a 1996-1997 public drilling program
consisting of eight partnerships and has commenced sales of units in
the first partnership which is scheduled to close in May, 1996, with
the wells scheduled to be drilled in the second and third quarters
of 1996. The Company's public drilling programs continue to receive
wide market acceptance.
The Company is party to a credit agreement providing up to $7.5
million in borrowing capacity. At March 31, 1996 the Company has
activated $5 million of that facility and has $2.9 million
outstanding.
-7-
On January 31, 1996, the Company purchased and subsequently
retired 1,200,000 shares of its common stock pursuant to an option
agreement with PNC Bank, N.A. The Company utilized $1,000,000 of
its credit facility to purchase the stock at $0.83 per share
resulting in redemption of 11% of its outstanding common stock.
The purchase of RNG on April 1, 1996 is expected to significantly
increase both gas and oil sales revenue and gas and oil purchases
cost in the year ended December 31, 1996 and future years. Gas
marketing organizations like RNG purchase and resell gas for a
relatively small margin, typically in the range of 1-3% of sales
revenues. While the volume of gas marketing activity for the
remainder of 1996 cannot be predicted, RNG for the year ended March
31, 1996 had gross revenues of approximately $18 million.
The Company continues to pursue capital investment opportunities
in producing gas properties along with its commitment to participate
in its sponsored gas drilling partnerships. Management believes
that the Company has adequate capital to meet its operating
requirements and continues to pursue opportunities for operating
improvements and cost efficiencies.
-8-
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
STATEMENT BY MANAGEMENT CONCERNING
REVIEW OF INTERIM FINANCIAL INFORMATION
BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The March 31, 1996 and 1995 condensed consolidated financial
statements included in this filing on Form 10-Q have been reviewed
by KPMG Peat Marwick LLP, independent certified public accountants,
in accordance with established professional standards and procedures
for such reviews. The report of KPMG Peat Marwick LLP commenting
upon their review accompanies the condensed consolidated financial
statements included in Item 1 of Part I.
-9-
CONFORMED COPY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any legal actions that would
materially affect the Company's operations or financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) No reports on Form 8-K have been filed during the quarter
ended March 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934 the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Petroleum Development Corporation
(Registrant)
Date: May 14, 1996 /s/ Steven R. Williams
Steven R. Williams
President
Date: May 14, 1996 /s/ Dale G. Rettinger
Dale G. Rettinger
Executive Vice President
and Treasurer
-10-