Published:
Petroleum Development Announces Third Quarter 2008 Results
BRIDGEPORT, W.Va., Nov. 6 /PRNewswire-FirstCall/ -- Petroleum Development
Corporation (Nasdaq: PETD) today reported its 2008 third quarter and first
nine months operating and financial results. Adjusted net income, a non-GAAP
measure, for the third quarter 2008 was $16.1 million or $1.08 per diluted
share and $49.0 million or $3.30 per diluted share for the nine months ended
September 30, 2008. This reflects an increase of 338% and 91% over the
previous year comparable three and nine month results respectively. The
adjusted net income primarily excludes unrealized derivative gains and the
impact of discrete items on the effective tax rate. The third quarter
increase in adjusted net income is attributable to a 32% increase in
production and an over 56% increase in realized pricing over the third quarter
of 2007.
Inclusive of those items listed above, PDC reported net income of $126.9
million or $8.55 per diluted share for the quarter and net income of $72.3
million or $4.86 per diluted share for the nine months ended September 30,
2008. Unrealized gains of $172.2 million from derivative activities resulted
in the large quarterly net income increase.
Adjusted cash flow from operations (a non-GAAP measure defined as cash
flow from operations before changes in assets and liabilities) increased to
$59.1 million in the third quarter of 2008 compared to $31.6 million for the
same period in 2007. The first nine month 2008 amounts reflect a 133%
increase to $158.7 million up from $68.2 million in 2007.
Oil and gas production increased by 2.5 Bcfe over the third quarter of
2007 to a record third quarter level of 10.2 Bcfe, an increase of
approximately 32% and 16% over second quarter 2008 levels. The average
realized price for oil and natural gas during this year's third quarter was
$9.49 per Mcfe, an increase of over 56% from $6.08 per Mcfe for the year ago
quarter. This increase in both production and pricing resulted in total oil
and gas sales for the third quarter of 2008 of $99.4 million, an increase of
124% from $44.4 million in the same period of 2007.
The Company also continued its active drilling pace for new development by
drilling 89 development wells and seven exploratory wells during the third
quarter of 2008. All but two of the development wells drilled in the third
quarter were productive. One exploratory well was dry, while the evaluation
of six additional exploratory wells has not yet been completed.
Richard W. McCullough, President and CEO, stated, "We are pleased with the
continued improvements in our operating and financial results, especially in
these uncertain economic times." Mr. McCullough added, "We exit the third
quarter with over $200 million in cash liquidity and a very strong hedge
position. We are substantially complete with a $75 million upsizing of our
bank line, so while we plan to enter 2009 at a reduced CAPEX levels, our
operating cash flows and liquidity positions have never been stronger."
Financial Results
Net income for the three months ended September 30, 2008, increased
significantly compared to the respective year ago period due to the unrealized
derivative gains of $172.2 million. The unrealized gains result from
derivative positions that do not mature until future quarters and have no cash
impact on the third quarter results. The significant declines in oil and
natural gas prices during the third quarter were the reason for the current
and nine month unrealized gains. The price of both oil and natural gas have
continued to decline since September 30, 2008, and if the prices remain at
current levels or continue to decline, we expect to experience additional
unrealized derivative gains for the fourth quarter 2008. Our adjusted EBITDA,
adjusted net income and adjusted cash flow from operations continue to
increase substantially as shown below.
Adjusted cash flow from operations increased to $59.1 million up from
$31.6 million for the third quarter in 2007 and was $158.7 million, up from
$68.2 million, for the first nine months of 2008 and 2007, respectively. The
higher adjusted cash flow from operations in the third 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
$27.9 million to $59.1 million in the third quarter of 2008 compared to the
same period in 2007, up 112% quarter to quarter and 68% 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 third quarters
and the first nine months of 2008 and 2007:
Comparative Results
(In thousands, except per Three Months Ended Nine Months Ended
share amounts) September 30, September 30,
(unaudited) (unaudited)
2008 2007 2008 2007
Revenues $326,804 $76,275 $413,954 $210,132
Net income $126,896 $4,459 $72,256 $25,011
Basic earnings per common share $8.59 $0.30 $4.90 $1.70
Diluted earnings per common share $8.55 $0.30 $4.86 $1.68
Reconciliation of Adjusted Net Income (a non-GAAP measure)
Three Months Ended Nine Months Ended
September 30, September 30,
(unaudited) (unaudited)
2008 2007 2008 2007
Net income $126,896 $4,459 $72,256 $25,011
Unrealized derivative gain (172,154) (3,854) (45,811) (1,344)
Litigation provision (170) 1,500 4,025 1,500
Tax effect* 61,520 1,572 18,489 507
Adjusted net income $16,092 $3,677 $48,959 $25,674
Weighted average diluted
shares outstanding 14,835 14,827 14,858 14,845
Adjusted diluted earnings
per share $1.08 $0.25 $3.30 $1.73
* Tax rate exclusive of discrete items
Reconciliation of Adjusted Cash Flow from Operations (a non-GAAP measure)
Three Months Ended Nine Months Ended
September 30, September 30,
(unaudited) (unaudited)
2008 2007 2008 2007
Net Cash provided by (used in)
Operating Activities $36,062 $43,585 $103,792 ($32,800)
Changes in Assets and Liabilities
Related to Operations 23,046 (11,947) 54,911 101,003
Adjusted Cash Flow from
Operations $59,108 $31,638 $158,703 $68,203
Weighted average diluted
shares outstanding 14,835 14,827 14,858 14,845
Adjusted diluted cash flow
per share $3.98 $2.13 $10.68 $4.59
Reconciliation of Adjusted EBITDA (a non-GAAP measure)
Three Months Ended Nine Months Ended
September 30, September 30,
(unaudited) (unaudited)
2008 2007 2008 2007
Net Income $126,896 $4,459 $72,256 $25,011
Unrealized derivative gain (172,154) (3,854) (45,811) (1,344)
Litigation provision (170) 1,500 4,025 1,500
Interest, net 7,666 2,082 18,646 2,766
Income Taxes 68,233 3,326 37,222 15,511
Depreciation 28,645 20,354 71,881 50,857
Adjusted EBITDA $59,116 $27,867 $158,219 $94,301
Operations
Third quarter operations focused primarily on increasing production
volumes and continued exploitation of the Company's lease position in its
three coreColorado projects. Third quarter production was on target with the
2008 guidance. The Company's internal mid-year reserve summary reflected 797
Bcfe of proved reserves. The strong reserve growth is due to reserve growth
in the Wattenberg Field, Appalachian Basin, and Piceance Basin.
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 inPennsylvania. The Company is following
and evaluating developments relating to the Marcellus shale in the Appalachian
and will drill its first well in the fourth quarter. The Company is currently
experiencing a 10-15% curtailment of production volumes in the Piceance Basin
due to limited compression and pipeline capacity which is anticipated to
continue through most of the fourth quarter.
Drilling Activity
The Company's drilling activities continue to be focused in its Rocky
Mountain Region. The 96 wells drilled in the third quarter, with three dry
holes and six wells that have not yet been classified, are shown by area in
the table below. The total number of wells drilled during the first nine
months represents an increase of 13% year over year. PDC's 2008 plan is to
drill 375 gross wells, recomplete approximately 100 Wattenberg Field wells,
and recomplete 30 wells in the Appalachian Basin. The 375 gross wells is less
than the prior estimated 2008 drilling estimate of 447.
Wells Drilled
Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
Gross Net Gross Net Gross Net Gross Net
Rocky Mountain
Region:
Wattenberg 36.0 36.0 41.0 29.4 116.0 91.3 109.0 79.5
Piceance 18.0 18.0 11.0 8.5 50.0 42.4 41.0 36.6
NECO 21.0 19.6 39.0 38.9 88.0 78.2 106.0 97.9
North Dakota 1.0 0.3 0.0 0.0 2.0 0.5 2.0 0.6
Total Rocky
Mountain 76.0 73.9 91.0 76.8 256.0 212.4 258.0 214.6
Appalachian
Basin 18.0 18.0 4.0 4.0 36.0 36.0 4.0 4.0
Michigan 1.0 0.8 0.0 0.0 2.0 1.6 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 3.0 3.0 0.0 0.0
Total 96.0 93.7 95.0 80.8 298.0 254.0 264.0 220.4
Other Information
PETROLEUM DEVELOPMENT CORPORATION
Condensed Consolidated Statements of Operations
(unaudited; in thousands except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Revenues:
Oil and gas sales $99,422 $44,437 $265,617 $117,699
Sales from natural gas
marketing activities 53,372 19,934 107,638 71,845
Oil and gas well
drilling operations 1,232 1,573 7,202 7,342
Well operations and
pipeline income 3,356 2,092 8,146 6,682
Oil and gas price risk
management gain, net 169,402 6,345 25,294 4,442
Other 20 1,894 57 2,122
Total revenues 326,804 76,275 413,954 210,132
Costs and expenses:
Oil & Gas production
& well operations
cost 22,173 12,645 61,120 33,308
Cost of natural gas
marketing activities 54,372 19,810 106,610 70,102
Cost of oil and gas
well drilling operations 501 749 1,097 1,559
Exploration expense 10,212 5,337 17,962 14,795
General and administrative
expense 8,106 7,513 27,160 21,823
Depreciation, depletion
and amortization 28,645 20,354 71,881 50,857
Total costs and
expenses 124,009 66,408 285,830 192,444
Gain on sale of leaseholds - - - 25,600
Income from operations 202,795 9,867 128,124 43,288
Interest income 151 462 497 2,059
Interest expense (7,817) (2,544) (19,143) (4,825)
Income before income
taxes 195,129 7,785 109,478 40,522
Provision for income
taxes 68,233 3,326 37,222 15,511
Net income $126,896 $4,459 $72,256 $25,011
Earnings per share
Basic $8.59 $0.30 $4.90 $ 1.70
Diluted $8.55 $0.30 $4.86 $ 1.68
Weighted average common
shares outstanding
Basic 14,767 14,757 14,749 14,739
Diluted 14,835 14,827 14,858 14,845
Oil and Gas Sales and Production
Production for the quarter increased 32% above volumes for the third
quarter of 2007. Oil and natural gas sales from the Company's producing
properties for the three months ended September 30, 2008, were up 124% to
$99.4 million compared to $44.4 million for the same prior year period. Oil
and natural gas sales for the nine months ended September 30, 2008 was $265.6
million up 129% from $117.7 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 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 Nine Months Ended
September 30, September 30,
% %
2008 2007 Change 2008 2007 Change
Oil (Bbls)
Appalachian Basin 2,467 602 309.8% 5,105 3,816 33.8%
Michigan Basin 944 1,003 -5.9% 2,775 2,985 -7.0%
Rocky Mountain
Region 318,722 233,130 36.7% 826,303 659,951 25.2%
Total 322,133 234,735 37.2% 834,183 666,752 25.1%
Natural gas (Mcf)
Appalachian Basin 931,150 606,165 53.6% 2,895,499 1,891,153 53.1%
Michigan Basin 391,316 421,909 -7.3% 1,157,659 1,263,186 -8.4%
Rocky Mountain
Region 6,916,539 5,284,103 30.9% 18,389,853 12,334,849 49.1%
Total 8,239,005 6,312,177 30.5% 22,443,011 15,489,188 44.9%
Natural gas
equivalent (Mcfe)
Appalachian Basin 945,952 609,777 55.1% 2,926,129 1,914,049 52.9%
Michigan Basin 396,980 427,927 -7.2% 1,174,309 1,281,096 -8.3%
Rocky Mountain
Region 8,828,871 6,682,883 32.1% 23,347,671 16,294,555 43.3%
Total 10,171,803 7,720,587 31.7% 27,448,109 19,489,700 40.8%
Three Months Ended Nine Months Ended
September 30, September 30,
% %
2008 2007 Change 2008 2007 Change
Average Sales Price
(excluding derivative gains/losses)
Oil (per Bbl)
Appalachian Basin $108.68 $68.19 59.4% $105.93 $57.06 85.6%
Michigan Basin 118.92 71.90 65.4% 112.38 60.46 85.9%
Rocky Mountain
Region 108.00 63.63 69.7% 104.45 55.75 87.4%
Weighted average
price 108.04 63.67 69.7% 104.48 55.78 87.3%
Natural gas (per Mcf)
Appalachian Basin $10.40 $6.16 68.8% $9.99 $6.76 47.8%
Michigan Basin 9.67 5.24 84.5% 9.24 6.04 53.0%
Rocky Mountain
Region 7.37 4.45 65.6% 7.78 4.87 59.8%
Weighted average
price 7.82 4.67 67.5% 8.13 5.20 56.3%
Natural gas
equivalent (Mcfe)
Appalachian Basin $10.43 $6.18 68.8% $10.02 $6.79 47.6%
Michigan Basin 9.84 5.33 84.6% 9.38 6.10 53.8%
Rocky Mountain
Region 9.68 5.74 68.6% 9.82 5.95 65.0%
Weighted average
price 9.76 5.76 69.4% 9.82 6.04 62.6%
*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. Our hedging
counterparties are all current or past members of our bank group for our
revolver. A complete listing of the Company's derivative positions 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 nine months demonstrated this focus and we expect 2008 to show
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 third quarter production was in
line with prior guidance, and in spite of the curtailment in the Piceance
Basin, we still expect total production for the year of about 38-39 Bcfe,
which would be a 35% - 39% increase from 2007 production. The Company
anticipates continuing a very active development drilling schedule in 2008,
drilling approximately 375 gross (341 net) wells down from our previously
announced levels of 447 gross (412 net).
Energy prices have fallen significantly in the last 120 days from
historically high levels earlier in the year, and the Company recognized a
$172.2 million noncash unrealized gain on its derivative activities in the
third quarter. Rocky Mountain area natural gas prices are substantially lower
than other regions of the country which affected about 35% of the Company's
production on an energy equivalent basis (Mcfe). However, our hedge positions
are expected to provide us higher pricing for much of our production through
most of 2009. 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 allows us to maintain more certainty in
our liquidity position which is so important today.
While we have not yet set out 2009 capital expenditure budget, if gas and
oil prices remain at the reduced levels they are today and 2009 production is
20% higher than 2008 production levels, we should realize pricing in the $8.00
per Mcfe range on such total 2009 production.
10-Q and Quarterly Conference Call
The Company will file its Quarterly Report on Form 10-Q on November 6,
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 Thursday, November 6,
2008, for a discussion of the results
What: Petroleum Development Corporation Third Quarter 2008 Earnings
Conference Call
When: Thursday, November 6, 2008, at 4:00 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 #: 300579
(Replay will be available approximately one hour after
the conclusion of the call)
Contact: Celesta Miracle, VP Strategic Planning,
(304) 842-3597, ir@petd.com
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.
SOURCE Petroleum Development Corporation
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Copyright © 2009, NewsBlaze,
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