BRIDGEPORT, W.Va., Aug. 7 /PRNewswire-FirstCall/ -- Petroleum Development
Corporation (Nasdaq: PETD) today reported its 2008 second quarter and first
six months operating and financial results. Adjusted net income, a non-GAAP
measure defined as cash flow from operations before changes in assets and
liabilities, for the second quarter 2008 was $20.5 million or $1.39 per
diluted share and $34.7 million or $2.35 per diluted share for the six months
ended June, 30, 2008. This reflects an increase of 57% and 58% over the
previous year comparable three and six month results respectively. The
adjusted net income excludes unrealized derivative losses, a one-time
litigation provision, and the impact of discrete items on the effective tax
rate. The second quarter increase in adjusted net income is attributable to a
37% increase in production and an over 55% increase in realized pricing over
the second quarter of 2007.
Inclusive of those items listed above, PDC reported a net loss of $40.7
million or $2.76 per diluted share for the quarter and a $54.6 million loss or
$3.71 per diluted share for the six months ended June 30, 2008.
Adjusted cash flow from operations (a non-GAAP measure defined as cash
flow from operations before changes in assets and liabilities) increased by
253% to $59.2 million in the second quarter of 2008 compared to $16.8 million
for the same period in 2007. The first six month 2008 amounts reflect a 172%
increase to $99.6 million up from $36.6 million in 2007.
Oil and gas production increased by 2.4 Bcfe to a record second quarter
level of 8.8 Bcfe, an increase of approximately 37% over the second quarter
of 2007. The average realized price for oil and natural gas during this
year's second quarter was $9.48 per Mcfe, an increase of over 55% from $6.10
per Mcfe for the year ago quarter.
Total oil and gas sales for the second quarter of 2008 were $98.7 million,
an increase of 152% from $39.2 million in the same period of 2007. The
increase was due to higher volumes of natural gas and oil along with increased
average sales prices of natural gas and oil as discussed above.
The Company also continued its active drilling pace for new development by
drilling 96 development wells and five exploratory wells during the second
quarter of 2008, a significant step in the 2008 drilling plan of approximately
447 gross (412 net) wells. All but five of the development wells drilled in
the second quarter were productive. Four exploratory wells were dry, while
the evaluation of the one additional exploratory well has not yet been
completed.
Richard W. McCullough, President and CEO, stated, "The second quarter
operating and financial results were outstanding as the fundamentals for the
Company continue to improve." Mr. McCullough added, "Consistent with our
guidance, our record production levels and improving price realizations are
driving our dramatic adjusted net income and cash flow improvements."
Financial Results
Net income for the three months ended March 31, 2008, declined
significantly compared to the respective year ago period due to the unrealized
derivative losses of $86.4 million. The unrealized losses result from
derivative positions that do not mature until future quarters and have no cash
impact on the second quarter results. Rapid increases during the first and
second quarters of 2008 to record high oil prices and near sharp increases in
natural gas prices along with our increased use of fixed swaps resulted in
both realized and unrealized losses on oil and gas derivative activity. The
litigation provision impacts the second quarter by $4.2 million and is related
to the previously disclosed Colorado royalty class action complaint against
the Company. With the completion of our drilling commitment for the 2007
partnership, we are drilling almost 100% for PDC. That, along with
substantially higher realized pricing is driving continuing improvement in all
our cash related measures. While we continue to recognize significant
unrealized losses on changes in value in our derivative instruments, our cash
adjusted EBITA, adjusted net income and adjusted cash flow from operations
continue to increase substantially as shown below:
Adjusted cash flow from operations increased to $59.2 million up from
$16.8 million for the second quarter in 2007 and was $99.6 million, up from
$36.6 million, for the first six months of 2008 and 2007 respectively. The
higher adjusted cash flow from operations in the second quarter of 2008
reflects increased revenue from sales of oil and natural gas. Adjusted EBITDA
(a non-GAAP measure defined as net income, plus the unrealized derivative
loss, litigation provision, interest (net), income taxes and DD&A) increased
from $43.5 million to $55.5 million in the second quarter of 2008 compared to
the same period in 2007, up 28% quarter to quarter and 49% year over year.
The following tables show net income and the calculation of adjusted net
income, adjusted cash flow from operations and adjusted EBITDA for the second
quarters and the first six months of 2008 and 2007:
Comparative Results
(In thousands, except per
share amounts) Three Months Ended Six Months Ended
June 30, June 30,
(unaudited) (unaudited)
2008 2007 2008 2007
Revenues $29,051 $75,945 $87,150 $133,857
Net income (loss) (40,712) $18,051 (54,640) $20,552
Basic earnings (loss) per common
share ($2.76) $1.22 ($3.71) $1.40
Diluted earnings (loss) per common
share ($2.76) $1.21 ($3.71) $1.38
Reconciliation of Adjusted Net Income (a non-GAAP measure)
Three Months Ended Six Months Ended
June 30, June 30,
(unaudited) (unaudited)
2008 2007 2008 2007
Net income (loss) ($40,712) $18,051 ($54,640) $20,552
Unrealized derivative (gain) loss 86,444 (3,715) 126,343 2,511
Royalty litigation provision 4,195 - 4,195 -
Tax effect* (29,467) 1,375 (41,201) (928)
Adjusted net income $20,460 $15,711 $34,697 $22,135
Weighted average diluted shares
outstanding** 14,742 14,860 14,740 14,851
Adjusted diluted earnings per share $1.39 $1.06 $2.35 $1.49
* Tax effect.
** Weighted average diluted shares outstanding includes shares that were
considered anti-dilutive for calculating earnings per share in accordance with
GAAP.
Reconciliation of Adjusted Cash Flow from Operations (a non-GAAP measure)
Three Months Ended Six Months Ended
June 30, June 30,
(unaudited) (unaudited)
2008 2007 2008 2007
Net Cash provided by (used in)
Operating Activities $18,941 ($43,647) $67,730 ($76,385)
Changes in Assets and Liabilities 40,266 60,418 31,865 112,950
Related to Operations
Adjusted Cash Flow from Operations $59,207 $16,771 $99,595 $36,565
Weighted average diluted shares
outstanding* 14,742 14,860 14,740 14,851
Adjusted diluted cash flow per share $4.02 $1.13 $6.76 $2.46
* Weighted average diluted shares outstanding includes shares that were
considered anti-dilutive for calculating earnings per share in accordance with
GAAP.
Reconciliation of Adjusted EBITDA (a non-GAAP measure)
Three Months Ended Six Months Ended
June 30, June 30,
(unaudited) (unaudited)
2008 2007 2008 2007
Net Income ($40,712) $18,051 ($54,640) $20,552
Unrealized derivative (gain) loss 86,444 (3,715) 126,343 2,511
Royalty litigation provision 4,195 - 4,195 -
Interest, net 6,319 996 10,980 684
Income Taxes (22,809) 10,749 (31,011) 12,185
Depreciation 22,105 17,429 43,236 30,503
Adjusted EBITDA $55,542 $43,510 $99,103 $66,435
* Weighted average diluted shares outstanding includes shares that were
considered anti-dilutive for calculating earnings per share in accordance with
GAAP.
Operations
Second quarter operations focused primarily on increasing production
volumes and continued exploitation of the Company's lease position in its
three core Colorado projects. Second quarter production was on target with
the 2008 guidance.
As announced yesterday, the Company's internal mid-year reserve summary
reflected 797 Bcfe of proved reserves and 1.17 Tcfe of 3P (proved, probable
and possible) reserves. The strong reserve growth is due to reserve growth in
the Wattenberg Field, Appalachian Basin, and Piceance Basin and, to a lesser
extent, the pricing environment.
The Company has also continued its development program in the Appalachian
Basin, with development underway in both its legacy areas and on the property
acquired in the 2007 acquisition in Pennsylvania. The Company is following
and evaluating developments relating to the Marcellus shale in the
Appalachian.
Drilling Activity
The Company's drilling activities continue to be focused in its Rocky
Mountain Region. The 101 wells drilled in the second quarter, with a total of
five dry holes and one well that has not yet been classified, are shown by
area in the table below. The five dry holes drilled in the second quarter
were located in the NECO field area. The total number of wells drilled during
the first six months represents an increase of 20% year over year. PDC's
2008 plan is to drill 447 gross wells, recomplete approximately 100 Wattenberg
Field wells, and recomplete 30 wells in the Appalachian Basin.
Wells Drilled
Three Months Ended June 30, Six Months Ended June 30,
2008 2007 2008 2007
Gross Net Gross Net Gross Net Gross Net
Rocky Mountain
Region:
Wattenberg 35.0 33.6 38.0 36.4 80.0 55.3 68.0 50.1
Piceance 11.0 11.0 14.0 14.0 32.0 24.5 30.0 28.1
NECO 38.0 32.0 54.0 46.0 67.0 58.6 67.0 59.0
North Dakota 1.0 0.2 0.0 0.0 1.0 0.2 2.0 0.6
Total Rocky Mountain
Region 85.0 76.8 106.0 96.4 180.0 138.6 167.0 137.8
Appalachian
Basin 14.0 14.0 0.0 0.0 18.0 18.0 0.0 0.0
Michigan 1.0 0.8 2.0 1.8 1.0 0.8 2.0 1.8
New York 0.0 0.0 0.0 0.0 1.0 1.0 0.0 0.0
Fort Worth
Basin 1.0 1.0 0.0 0.0 2.0 2.0 0.0 0.0
Total 101.0 92.6 108.0 98.2 202.0 160.4 169.0 139.6
Other Information
PETROLEUM DEVELOPMENT CORPORATION
Condensed Consolidated Statements of Operations
(unaudited; in thousands except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Revenues:
Oil and gas sales $94,549 $39,246 $166,195 $73,262
Sales from natural gas
marketing activities 30,941 29,924 54,266 51,911
Oil and gas well drilling
operations 2,887 1,739 5,970 5,769
Well operations and pipeline
income 2,438 1,292 4,790 4,590
Oil and gas price risk
management gain (loss), net (101,798) 3,742 (144,108) (1,903)
Other 34 2 37 228
Total revenues 29,051 75,945 87,150 133,857
Costs and expenses:
Oil and gas production and
well operations cost 20,815 11,628 38,947 20,663
Cost of natural gas
marketing activities 30,117 28,780 52,238 50,292
Cost of oil and gas well
drilling operations 518 246 596 810
Exploration expense 3,467 6,780 7,750 9,458
General and administrative
expense 9,231 6,886 19,054 14,310
Depreciation, depletion and
amortization 22,105 17,429 43,236 30,503
Total costs and expenses 86,253 71,749 161,821 126,036
Gain on sale of leaseholds 0 25,600 0 25,600
Income (loss) from
operations (57,202) 29,796 (74,671) 33,421
Interest income 75 454 346 1,597
Interest expense (6,394) (1,450) (11,326) (2,281)
Income (loss) before income
taxes (63,521) 28,800 (85,651) 32,737
Provision (benefit) for
income taxes (22,809) 10,749 (31,011) 12,185
Net income (loss) $(40,712) $18,051 $(54,640) $20,552
Earnings (loss) per share
Basic $(2.76) $1.22 $(3.71) $1.40
Diluted $(2.76) $1.21 $(3.71) $1.38
Weighted average common
shares outstanding
Basic 14,742 14,740 14,740 14,730
Diluted 14,742 14,860 14,740 14,851
Oil and Gas Sales and Production
Production for the quarter increased 37% above volumes for the second
quarter of 2007. Oil and natural gas sales from the Company's producing
properties for the three months ended June 30, 2008, were up 152% to 98.7
million compared to $39.2 million for the same prior year period. Oil and
natural gas sales for the six months ended June 30, 2008 was $170.4 million up
133% from $73.3 million for the same period in 2007. The quarter to quarter
and year-to-date sales increase was related to the increase in production and
an increase in realized oil and natural gas prices.
The increase in oil and gas sales was more than offset by an increase in
oil and gas price risk management loss. The total $144.1 million oil and gas
price risk management loss for the first six months of 2008 included $126.3
million of non-cash unrealized losses and $17.8 million of realized cash
losses. Significant increases in oil and gas commodity prices from December
31, 2007 to June 30, 2008, caused the cash losses for positions that closed
during the quarter and the first six months of 2008, and resulted in
unrealized losses reflecting the change in the value of positions that were
open during those periods.
The following tables show the Company's oil and natural gas production by
area of operations along with average sales price (excluding derivative
gains/losses):
Three Months Ended June 30, Six Months Ended June 30,
2008 2007 % Change 2008 2007 % Change
Production
Oil (Bbls)
Appalachian Basin 1,542 1,840 -16.2% 2,638 3,214 -17.9%
Michigan Basin 1,008 1,167 -13.6% 1,831 1,982 -7.6%
Rocky Mountain
Region 254,048 229,471 10.7% 507,581 426,821 18.9%
Total 256,598 232,478 10.4% 512,050 432,017 18.5%
Natural gas (Mcf)
Appalachian
Basin 996,729 675,591 47.5% 1,964,349 1,284,988 52.9%
Michigan Basin 386,906 420,390 -8.0% 766,343 841,277 -8.9%
Rocky Mountain
Region 5,873,549 3,945,077 48.9% 11,473,314 7,050,746 62.7%
Total 7,257,184 5,041,058 44.0% 14,204,006 9,177,011 54.8%
Natural gas
equivalent
(Mcfe)*
Appalachian
Basin 1,005,981 686,631 46.5% 1,980,177 1,304,272 51.8%
Michigan Basin 392,954 427,392 -8.1% 777,329 853,169 -8.9%
Rocky Mountain
Region 7,397,837 5,321,903 39.0% 14,518,800 9,611,672 51.1%
Total 8,796,772 6,435,926 36.7% 17,276,306 11,769,113 46.8%
Three Months Ended June 30, Six Months Ended June 30,
2008 2007 % Change 2008 2007 % Change
Average Sales Price
(excluding derivative
gains/losses)
Oil (per Bbl)
Appalachian Basin $113.11 $57.66 96.2% $104.38 $54.92 90.1%
Michigan Basin 118.61 58.64 102.3% 108.45 54.69 98.3%
Rocky Mountain
Region 123.30 57.00 116.3% 102.22 51.46 98.6%
Total 123.26 57.02 116.2% 102.24 51.50 98.5%
Natural gas
(per Mcf)
Appalachian Basin $11.09 $7.46 48.7% $9.79 $7.06 38.7%
Michigan Basin 10.41 6.79 53.3% 9.02 6.44 40.1%
Rocky Mountain
Region 8.87 4.60 92.8% 8.02 5.18 54.8%
Total 9.25 5.16 79.3% 8.31 5.56 49.5%
Natural gas
equivalent
(per Mcfe)*
Appalachian Basin $11.13 $7.49 48.6% $9.82 $7.09 38.5%
Michigan Basin 10.56 6.84 54.4% 9.15 6.48 41.2%
Rocky Mountain
Region 11.27 5.87 92.0% 9.91 6.09 62.7%
Total 11.23 6.10 84.1% 9.86 6.22 58.5%
*One barrel of oil is equal to the energy equivalent of six Mcf of natural
gas
Oil and Gas Derivative Activities
Because of uncertainty surrounding oil and natural gas prices, the Company
has used various derivative instruments to manage some of the impact of
fluctuations in prices. Through March 2012, a series of floors, ceilings,
collars and fixed price swaps are in place on a portion of our oil and natural
gas production. Under the arrangements, if the applicable index rises above
the ceiling price, the Company pays the counterparty; however, if the index
drops below the floor, the counterparty pays the Company. A complete listing
of the Company's derivative positions as of August 7, 2008, is included in the
Company's Form 10-Q and is available at the Company's website at www.petd.com.
Non-GAAP Financial Measures (unaudited)
This release refers to "Adjusted net income," "Adjusted diluted earnings
per share," "Adjusted cash flow from operations" and "Adjusted EBITDA" all of
which are non-GAAP financial measures. "Adjusted Net Income" is a measure
defined as Net Income excludes unrealized derivative losses, a one-time
litigation provision, and the impact of discreet items on the effective tax
rate. Adjusted net income and adjusted diluted earnings per share exclude
certain items that the Company believes affect the comparability of producing
companies. The Company discloses these non-GAAP financial measures as a
useful adjunct to GAAP earnings because: the Company uses adjusted net income
to evaluate its operational trends and performance relative to other natural
gas and oil producing companies; adjusted net income is more comparable to
earnings estimates provided by securities analysts; items excluded generally
are one-time items or items whose timing or amount cannot be reasonably
estimated, accordingly, any guidance provided by, the Company generally
excludes information regarding these types of items. Adjusted cash flow from
operations is the cash flow earned or incurred from operating activities
without regard to the collection or payment of associated receivables or
payables. The Company believes it is important to consider Adjusted cash flow
from operations separately, as the Company believes it can often be a better
way to discuss changes in operating trends in its business caused by changes
in production, prices, operating costs, and related operational factors,
without regard to whether the earned or incurred item was collected or paid
during that year. The Company also uses this measure because the collection
of its receivables or payment of its obligations has not been a significant
issue for the Company's business, but merely a timing issue from one period to
the next, with fluctuations generally caused by significant changes in
commodity prices. Adjusted EBITDA is a non-GAAP measure calculated by adding
net income, interest (net), income taxes, and depreciation, depletion and
amortization for the period excluding unrealized derivative losses, and a one-
time litigation provision. Management believes adjusted 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 from
operations and adjusted EBITDA are not measures of financial performance under
GAAP and should be considered in addition to, not as a substitute for, cash
flows from operations, investing, or financing activities, nor as a liquidity
measure or indicator of cash flows reported in accordance with U.S. GAAP.
2008 Outlook: Updated
Increasing shareholder value through increased reserves, production,
margins and cash flow is the primary focus of the Company's operating efforts.
The first six months demonstrated this focus and we expect 2008 to continue
the trend of increasing production with the addition of new wells. The
foundation of our 2008 strategy is continued development drilling in the
Company's three core Colorado projects -- Grand Valley field, Wattenberg field
and NECO (northeast Colorado), and our Appalachian project. Our second quarter
production was in line with guidance provided, and we still expect total
production for the year of about 39 Bcfe, which would be a 39% increase from
2007 production. We also expect to expand our planned drilling activity in
the Barnett basin from four to six wells and to commence drilling our first
Marcellus wells in Pennsylvania and West Virginia.
We recently increased our planned capital expenditures by $24 million
primarily to drill an additional 56 wells in Wattenberg Field. The total 2008
planned capital expenditures is now $319 million. Because most of the
additional wells will not be in production until late in 2008, we anticipate
the major impact on production from the additional wells will be in 2009.
So far in 2008, energy prices have been at historically high levels, and
the Company has added to its derivative positions several times to lock in the
positive impact of the strong energy market. Rocky Mountain area natural gas
prices were substantially lower than other regions of the country in the last
half of 2007. This resulted from local oversupply in the region, and
insufficient pipeline capacity to move natural gas to other markets. This
pricing situation, which affected about 35% of the Company's production on an
energy equivalent basis (Mcfe), substantially improved when the Rockies
Express Pipeline was placed into service in December 2007. Since the start-up
of the new line, the Company has seen improved prices relative to other market
areas. The combination of strong overall markets and the improvement in the
Rocky Mountain basis resulted in a significant increase in average realized
prices for both oil and natural gas, with the Mcfe equivalent price increasing
from $6.10 to $9.48 from 2007 to the second quarter of 2008. The increased
use of derivatives also creates the potential for additional realized and
unrealized derivative losses and gains in future periods, even as the Company
experiences record levels of cash flow. Although we give up some potential
upside by using the derivatives, we believe locking in a more predictable cash
flow stream that allows us to pursue a more aggressive development plan will
allow us to achieve our growth objectives with greater certainty.
We continue to expect the Rocky Mountain region to be our primary growth
driver for the remainder of 2008. Adequate capital is a key to our continuing
efforts to improve the value of the Company. Increasing production in
combination with the strong energy market will have a positive impact on cash
flow from operations in coming quarters. In February, the Company further
strengthened its liquidity though a $203 million bond offering. This capital
should ensure that the Company has adequate funds to execute its 2008 business
plan, and makes capital available to take advantage of possible acquisitions
or other opportunities.
The Company anticipates continuing a very active development drilling
schedule in 2008, drilling approximately 447 gross (412 net) wells. The new
wells, many of which are being drilled on property obtained through the
like-kind exchange purchases made in 2006 and 2007, are expected to provide
the additional production required to reach the 2008 production target and to
allow us to continue to grow production and proved reserves in coming years as
well. We anticipate 825+ Bcfe proved reserves for year-end 2008.
10-Q and Quarterly Conference Call
The Company will file its Quarterly Report on Form 10-Q on or before
August 11, 2008. You can access the report at the Company's website
(www.petd.com), or contact the Company for a paper copy. The Company invites
you to join Richard McCullough, President and CEO, and Bart Brookman, Senior
Vice President Exploration and Production for a conference call on Friday,
August 8, 2008, for a discussion of the results
What: Petroleum Development Corporation Second Quarter 2008 Earnings
Conference Call
When: Friday, August 8, 2008, at 2:00 p.m. Eastern Time
Where: www.petd.com
How: Log on to the web address above or call (877) 407-8031
Replay Number: 877-660-6853 Account #: 286
Conference ID #: 291724
(Replay will be available approximately one hour after the
conclusion of the call)
About Petroleum Development Corporation
Petroleum Development Corporation (www.petd.com) is an independent energy
company engaged in the exploration, production and marketing of natural gas
and oil. Its operations are focused in the Rocky Mountains with additional
operations in the Appalachian and Michigan Basins. PDC is included in the S&P
SmallCap 600 Index, and the Russell 3000 Index of Companies.
Forward-Looking Statements
Certain matters discussed within this press release are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements other than statements of historical fact included
herein are forward-looking statements. Although PDC believes the expectations
reflected in such forward-looking statements are based on reasonable
assumptions, it can give no assurance that its expectations will be attained.
Factors that could cause actual results to differ materially from expectations
include financial performance, oil and gas prices, drilling results,
regulatory changes, changes in federal or state tax policy, changes in local
or national economic conditions and other risks detailed from time to time in
PDC's reports filed with the Securities and Exchange Commission, including
quarterly reports on Form 10-Q, current reports on Form 8-K and annual reports
on Form 10-K. The Company undertakes no obligation to update or revise any
forward-looking statement.
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.
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