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 September 30, 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: 10,445,220 shares of the
Company's Common Stock ($.01 par value) were outstanding as of September 30,
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 -
September 30, 1996 and December 31, 1995 2
Condensed Consolidated Statements of Operations -
Three Months and Nine Months Ended
September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 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 8
Statement by Management Concerning Review of Interim
Financial Information by Independent Certified Public
Accountants 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
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 September
30, 1996, and the related condensed consolidated statements of operations for
the three-month and nine-month periods ended September 30, 1996 and 1995 and
the related condensed consolidated statements of cash flows for the nine-month
periods ended September 30, 1996 and 1995. These financial statements are the
responsibility of the Company's management.
We conducted our reviews 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
November 11, 1996
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995
ASSETS
1996 1995
(Unaudited)
Current assets:
Cash and cash equivalents $ 2,674,800 $10,053,600
Accounts and notes receivable 4,736,300 2,016,600
Inventories 529,600 217,900
Prepaid expenses 774,500 868,800
Total current assets 8,715,200 13,156,900
Properties and equipment 52,636,700 48,240,000
Less accumulated depreciation, depletion,
and amortization 22,457,500 21,127,100
30,179,200 27,112,900
Other assets 523,300 350,300
$39,417,700 $40,620,100
(Continued)
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PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, Continued
September 30, 1996 and December 31, 1995
LIABILITIES AND
STOCKHOLDERS' EQUITY
1996 1995
(Unaudited)
Current liabilities:
Accounts payable and accrued expenses $ 6,425,600 $ 3,903,000
Advances for future drilling contracts 788,500 10,069,600
Funds held for future distribution 899,400 704,000
Total current liabilities 8,113,500 14,676,600
Long-term debt 5,550,000 2,500,000
Other liabilities 819,200 601,700
Deferred income taxes 3,079,500 2,920,900
Stockholders' equity:
Common stock 104,500 112,100
Additional paid-in capital 6,602,400 7,019,800
Retained earnings 15,228,400 12,878,000
Unamortized stock award (79,800) (89,000)
Total stockholders' equity 21,855,500 19,920,900
$39,417,700 $40,620,100
See accompanying notes to condensed consolidated financial statements.
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PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three and Nine Months ended September 30, 1996 and 1995
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues:
Oil and gas well drilling operations $2,991,300 $1,857,400 $13,723,900 $11,530,500
Oil and gas sales 7,168,100 801,000 16,132,700 2,980,800
Pipeline and well operations income 1,017,600 868,600 2,864,700 2,840,600
Other income 140,000 55,500 370,700 200,400
11,317,000 3,582,500 33,092,000 17,552,300
Costs and expenses:
Cost of oil and gas well drilling
operations 2,455,100 1,355,100 11,225,300 9,480,600
Oil and gas purchases
and production costs 6,958,000 818,100 15,042,300 3,224,900
General and administrative expenses 651,000 600,700 1,762,900 1,571,900
Depreciation, depletion, and
amortization 583,400 591,300 1,790,800 1,715,200
Interest 106,400 71,000 245,800 230,700
10,753,900 3,436,200 30,067,100 16,223,300
Income before income taxes 563,100 146,300 3,024,900 1,329,000
Income taxes 152,600 36,300 674,500 329,600
Net income $ 410,500 $ 110,000 $ 2,350,400 $ 999,400
Earnings per common and
common equivalent share $ .04 $ .01 $ .21 $ .09
See accompanying notes to condensed consolidated financial statements.
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PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995
(Unaudited)
1996 1995
Cash flows from operating activities:
Net income $ 2,350,400 $ 999,400
Adjustments to net income to reconcile
to cash used in operating activities:
Deferred federal income taxes 142,600 98,900
Depreciation, depletion & amortization 1,790,800 1,715,200
Leasehold acreage expired or surrendered 130,300 203,500
Employee compensation paid in stock 14,900 -
Gain on disposal of assets (9,000) (29,300)
Decrease in current assets 347,100 605,200
(Increase) decrease in other assets (196,000) 147,600
Decrease in current liabilities (10,929,900) (8,638,100)
Increase in other liabilities 217,500 141,300
Total adjustments (8,491,700) (5,755,700)
Net cash used in operating activities (6,141,300) (4,756,300)
Cash flows from investing activities:
Capital expenditures (5,311,400) (1,653,600)
Proceeds from sale of leases 444,600 236,500
Proceeds from sale of other assets 9,000 30,000
Net cash acquired from purchase of subsidiary 1,450,000 -
Net cash used in
investing activities (3,407,800) (1,387,100)
Cash flows from financing activities:
Proceeds from borrowings 4,200,000 -
Proceeds from sale of common stock 120,300 -
Purchase of treasury stock (1,000,000) -
Retirement of debt (1,150,000) (429,800)
Net cash provided by (used in)
financing activities 2,170,300 (429,800)
Net changes in cash and cash equivalents (7,378,800) (6,573,200)
Cash and cash equivalents, beginning of period 10,053,600 8,906,800
Cash and cash equivalents, end of period $ 2,674,800 $ 2,333,600
See accompanying notes to condensed consolidated financial statements.
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PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 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 nine months ended September 30, 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. Acquisition of Subsidiary
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. Pro forma
results assuming the acquisition took place in earlier periods are not
presented as these results would not differ significantly from
historical results of operations. PDC issued 236,094 shares of common
stock with a market value of $449,100, 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.
5. Acquisition of Property
On August 6, 1996 the Company purchased an interest in 188 oil and gas
wells in West Virginia. The Company utilized its revolving credit line
to finance the purchase. While this addition does not constitute a
significant subsidiary for accounting purposes, it will increase the
Company's oil and gas reserves by 4.8 Bcf of natural gas and 35,000
barrels of oil, add 12,000 acres of leases to its leasehold inventory and
increase the Company's gathering systems by forty-nine miles. The
purchase price was $3.3 million.
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6. Common Stock
On January 31, 1996, the Company purchased 1,200,000 shares of its
common stock pursuant to an option agreement. The option was obtained
in connection with a debt restructuring in 1990. The Company utilized
its revolving credit line to acquire the shares for $1,000,000 or $0.83
a share. The shares, representing approximately 11%,
of the currently outstanding stock were retired by the Company.
7. Earnings Per Share
Computation of earnings per common and common equivalent share are as
follows for the three months and nine months ended September 30, 1996
and 1995:
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Weighted average common
shares outstanding 11,497,179 11,519,653 11,367,140 11,557,565
Net income $ 410,500 $ 110,000 $ 2,350,400 $ 999,400
Earnings per common and
common equivalent share $ .04 $ .01 $ .21 $ .09
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended September 30, 1996 Compared With September 30, 1995
Total revenues increased $7,734,500 in the third quarter of 1996 compared
to the same period in 1995 primarily as a result of increased oil and gas sales
and to a lesser extent increased drilling revenues. Oil and gas sales increased
$6,367,100 primarily due to the gas marketing activities of Riley Natural Gas
Company (RNG) ($5.8 million), a company acquired on April 1, 1996, along with
increased production and higher average sales prices from the Company's
producing properties. Drilling revenue increased by 61% principally as a result
of increased drilling activities.
Costs and expenses increased $7,317,700 primarily as a result of
increased oil and gas purchases and production costs and to a lesser extent
increased well drilling costs. Oil and gas purchases and production costs
increased $6,139,900 primarily due to increased purchases of gas for resale
by RNG. Oil and gas well drilling costs increased 81.2% as a result of the
increased drilling activity referred to above.
The foregoing resulted in net income of $410,500 as compared to a net
income of $110,000 for the third quarter of 1995. The provision for income
taxes in 1996 consists of $53,400 of current taxes and $99,200 of deferred
income taxes. The provision for income taxes in 1995 consisted of $25,400 of
current taxes and $10,900 of deferred income taxes.
Nine Months Ended September 30, 1996 Compared with September 30, 1995
Total revenues increased $15,539,700 during the first nine months of 1996
compared to the same period in 1995 primarily as a result of increased oil
and gas sales and to a lesser extent increased drilling revenues. Oil and
gas sales increased $13,151,900 primarily due to the gas marketing activities
of RNG ($10.9 million) along with significantly higher average sales prices
of natural gas, increased gas purchased for resale and to a lesser
extent, increased sales volumes from the Company's producing properties.
Drilling revenues increased 19% as a result of higher volumes of drilling
activities.
Costs and expenses increased $13,843,800 as a result of increased oil
and gas purchases and production costs and to a lesser extent increased well
drilling costs. Oil and gas purchases and production costs increased
$11,817,400 primarily due to gas purchases by RNG for resale and to a lesser
extent higher volumes of gas purchased for resale at higher average prices.
Oil and gas well drilling costs increased $1,744,700 as a result of the
higher volume of drilling activity referred to above.
The foregoing resulted in net income of $2,350,400 compared to a net
income of $999,400 for the first nine months of 1995. The provision for income
taxes in 1996 consists of $531,900 of current taxes payable and $142,600 of
deferred income taxes. The provision for income taxes in 1995 consisted of
$230,700 current taxes payable and $98,900 of deferred income taxes.
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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 was 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 average 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 closed its second drilling program of 1996 in the third
quarter and has drilled the wells in the third and fourth quarters of 1996.
The Company will close its third and fourth drilling programs of 1996 in the
fourth quarter and will drill the wells during the fourth quarter of 1996 and
the first quarter of 1997. The Company's public drilling programs continue
to receive wide market acceptance. The proceeds of the Company's first two
drilling programs of 1996 were approximately 59% higher than the first two
programs of 1995.
The purchase of RNG on April 1, 1996 has, as expected, increased both
gas and oil sales revenue and gas and oil purchases cost in the second and
third quarters of 1996. 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, for the quarters ended June 30, 1996, and
September 30, 1996, RNG had gross revenues of approximately $5.1 million, and
$5.8 million, respectively.
The Company continues to pursue capital investment opportunities in
producing gas properties along with its commitment to participate in its
sponsored gas drilling programs. Management believes that the Company has
adequate capital to meet its operating requirements and continues to pursue
opportunities for operating improvements and cost efficiencies.
The purchase on August 6, 1996 of the wells described in Footnote 5 will
increase the Company's oil and gas sales and this increase is expected to
liquidate the increase in the Company's revolving credit line utilized to
purchase the wells.
The Company is party to a credit agreement providing up to $7.5 million in
borrowing capacity. At November 11, 1996 the Company has $5.47 million of that
facility outstanding.
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PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
STATEMENT BY MANAGEMENT CONCERNING
REVIEW OF INTERIM FINANCIAL INFORMATION
BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The September 30, 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.
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CONFORMED COPY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to various legal actions in the normal
course of business which would not materially affect the Company's operations.
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 September 30, 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: November 11, 1996 /s/ Steven R. Williams
Steven R. Williams
President
Date: November 11, 1996 /s/ Dale G. Rettinger
Dale G. Rettinger
Executive Vice President
and Treasurer
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