COMMITMENTS AND CONTINGENCIES

Purchase Agreement. On September 23, 2011, PDCM executed a purchase agreement, effective as of July 1, 2011, with an unrelated third party to acquire 100% of the membership interests of Seneca-Upshur Petroleum, LLC ("Seneca-Upshur"), a West Virginia limited liability company, for a purchase price of $152.5 million ($76.2 million net to PDC). The transaction includes all rights and all depths to an estimated 100,000 net acres: 90,000 acres prospective for the Marcellus Shale primarily located in Harrison, Taylor, Barbour, Upshur, Lewis and Randolph counties of north central West Virginia and 10,000 acres prospective for the Huron Shale primarily located in Mingo and McDowell counties in southwest West Virginia. The acreage is held by production from approximately 1,400 wells producing from the shallow Devonian, which were included in the transaction. The acquisition of these assets are complementary to PDCM's existing properties due to their close proximity. The transaction closed on October 3, 2011, see Note 16 for a further discussion.

Utica Shale Leasehold Agreements. During the three months ended 2011, we entered into a series of leasehold agreements with multiple parties for the option to acquire acreage targeting the wet natural gas and crude oil phases of the Utica Shale play throughout southeastern Ohio. Pursuant to the agreements, we have the right, after confirmation of title, to acquire an estimated 30,000 net acres in the prospective Utica Shale play. Should we confirm title on all 30,000 acres, we estimate that the purchase price of these leaseholds will approximate $50 million. Further, subsequent to September 30, 2011, we have entered into additional leasehold agreements giving us the opportunity to purchase an estimated additional 10,000 acres, subject to confirmation of title, for up to $20 million. Currently, we are actively pursuing an industry joint venture partner to participate in and share in funding the growth and development in this play; however, we cannot guarantee we will be successful in securing a partner.

Merger Agreements. On June 20, 2011, pursuant to our previously announced partnership acquisition plan, we entered into separate merger agreements with five of our affiliated partnerships: PDC 2003-A Limited Partnership, PDC 2003-B Limited Partnership, PDC 2003-C Limited Partnership, PDC 2003-D Limited Partnership and PDC 2002-D Limited Partnership (collectively, the "2003/2002-D Partnerships"). We serve as the managing general partner of each of the 2003/2002-D Partnerships. Pursuant to each merger agreement, if the merger is approved by the holders of a majority of the limited partnership units held by limited partners of that partnership not owned by us (the "non-affiliated investor partners"), as well as the satisfaction of other customary closing conditions, we will then acquire such partnerships. If all five partnerships are acquired, we expect to pay an aggregate of approximately $29.5 million to the non-affiliated investor partners for the limited partnership units of these partnerships. Definitive proxy statements were filed with the SEC on September 12, 2011, and first mailed to investors on September 14, 2011. On October 28, 2011, the non-affiliated investor partners of the 2003/2002-D Partnerships approved the applicable merger agreements. We expect to fund the purchase price for these acquisitions in November 2011 through a draw on our corporate credit facility. See Note 16 for further details.

Firm Transportation Agreements. We enter into contracts that provide firm transportation, sales and processing charges on pipeline systems through which we transport or sell our natural gas and the natural gas of working interest owners, PDCM, our affiliated partnerships and other third parties. These contracts require us to pay these transportation and processing charges whether the required volumes are delivered or not. Satisfaction of the volume requirements includes volumes produced by us, volumes purchased from third parties and volumes produced by our joint venture and affiliated partnerships. We record in our financial statements only our share of costs based upon our working interest in the wells; however, with the exception of contracts entered into by PDCM, the costs of all volume shortfalls will be borne by PDC.

As of June 30, 2011, we had a liability in the amount of $3.1 million included in other liabilities on the balance sheet related to an agreement in the Piceance Basin. On July 27, 2011, we entered into an amendment with the unrelated third party subject to this agreement whereby the accrued liability was relieved; consequently, during the third quarter of 2011, the accrued liability was eliminated with a corresponding reduction in the statement of operations line item production costs. The amendment did not extend the expiration date of the original agreement. The table below includes the impact of this amendment.

The following table presents gross volume information, including our proportionate share of PDCM, related to our long-term firm sales, processing and transportation agreements for pipeline capacity.



	For the Twelve Months Ending September 30,
Area	2012		2013		2014		2015		2016 Through Expiration		Total		Expiration Date

Volume (MMcf)
Piceance Basin	18,000		25,254		37,719		31,910		119,149		232,032		May 31, 2021
Appalachian Basin (1)	7,993		20,152		21,265		22,855		196,312		268,577		September 25, 2025
NECO	3,655		2,285		1,825		1,825		2,285		11,875		December 31, 2016
Total	29,648		47,691		60,809		56,590		317,746		512,484

Dollar commitment (in thousands)	$	13,474	$	22,898	$	29,481	$	26,749	$	133,740	$	226,342

_____________

(1)

Includes a precedent agreement that becomes effective when a planned pipeline is placed in service, currently expected to be September 2012 and represents 873 MMcf of the total MMcf presented for the year ending September 30, 2012, 10,627 MMcf for each of the years ending September 30, 2013 through 2015, respectively, and 73,576 MMcf thereafter. This agreement will be null and void if the pipeline is not completed. In August 2009, we issued a letter of credit related to this agreement, see Note 7.

Litigation. The Company is involved in various legal proceedings that it considers normal to its business. The Company reviews the status of these proceedings on an ongoing basis and, from time to time, may settle or otherwise resolve these matters on terms and conditions that management believes are in the best interests of the Company. There are no assurances that settlements can be reached on acceptable terms or that adverse judgments, if any, in the remaining litigation will not exceed the amounts reserved. Although the results cannot be known with certainty, we currently believe that the ultimate results of such proceedings will not have a material adverse effect on our financial position, results of operations or liquidity.

Royalty Owner Class Action

Gobel et al v. Petroleum Development Corporation, filed on January 27, 2009, in Circuit Court of Harrison County, CA No. 09-C-40-2

David W. Gobel, individually and allegedly as representative of all royalty owners in the Company's West Virginia oil and gas wells, filed a lawsuit against the Company alleging that we failed to properly pay royalties. The allegations stated that the Company improperly deducted certain charges and costs before applying the royalty percentage. Punitive damages were requested in addition to breach of contract, tort and fraud allegations. On October 27, 2010, the state court set a trial date of April 2012.

In April 2011, the Company entered into an oral settlement agreement with respect to this lawsuit, settling all claims between the parties for an aggregate payment of $8.7 million. On June 15, 2011, subject to court approval, a written settlement agreement was signed confirming these terms. On June 30, 2011, the state court granted initial approval of the settlement agreement, subject to notice to class members and final court approval. Initial notice was then sent to the class members. The date for objection by class members was October 24, 2011, with no objections received. The hearing to consider final approval of the settlement is scheduled for December 19, 2011. The total settlement amount of $8.7 million was accrued as of September 30, 2011, and included in other accrued expenses on the accompanying balance sheet. An escrow account was funded on July 22, 2011, for the entire settlement amount and included in restricted cash - current on the balance sheet, with no impact to the accrued liability or statement of operations during the third quarter of 2011.

Environmental. Due to the nature of the natural gas and oil industry, we are exposed to environmental risks. We have various policies and procedures in place to avoid environmental contamination and mitigate the risks from environmental contamination. We conduct periodic reviews to identify changes in our environmental risk profile. Liabilities are accrued when environmental assessments and/or clean-ups are probable and the costs can be reasonably estimated. As of September 30, 2011, and December 31, 2010, we had accrued environmental liabilities in the amount of $1.9 million and $1.7 million, respectively, included in other accrued expenses on the balance sheet. We are not currently aware of any environmental claims existing as of September 30, 2011, which have not been provided for or would otherwise have a material impact on our accompanying financial statements. However, there can be no assurance that current regulatory requirements will not change or unknown past non-compliance with environmental laws will not be discovered on our properties.

Partnership Repurchase Provision. Although we have not sponsored a partnership drilling program since 2007, substantially all of our partnership drilling programs contain a repurchase provision where investing partners may request that we purchase their partnership units at any time beginning with the third anniversary of the respective partnership's first cash distribution. The provision provides that we are obligated to purchase an aggregate of 10% of the initial subscriptions per calendar year (at a minimum price of four times the most recent 12 months' cash distributions from production), if repurchase is requested by investors, subject to our financial ability to do so. As of September 30, 2011, the maximum annual repurchase obligation, based upon the minimum price described above, was approximately $5.2 million. We believe we have adequate liquidity to meet this obligation. For the nine months ended 2011, amounts paid for the repurchase of partnership units pursuant to this provision were immaterial.

Employment Agreements with Executive Officers. We have employment agreements with our executive officers. The employment agreements provide for annual base salaries, eligibility for performance bonus compensation and other various benefits, including severance benefits.

If, within two years following a change of control of the Company ("change in control period"), either the Company terminates the executive officer without cause or the executive officer terminates employment for good reason, then the severance benefits owed equals three times the sum of the executive's highest annual base salary during the previous two years of employment immediately preceding the termination date and the executive's highest annual bonus paid or, in the case of one executive officer, paid or payable during the same two-year period. For one executive, in this calculation, the target bonus will be used as the minimum value for the first two years of employment. Where the Company terminates the executive officer without cause or the executive officer terminates employment for good reason outside of the change in control period, the severance benefits range from two times to three times, specific to the executive officer, the benefits noted above. For this purpose, a change of control and good reason correspond to the respective definitions of change of control and good reason under Internal Revenue Code ("IRC") Section 409A and the supporting Treasury regulations, with some differences. Under any of the above circumstances, the executive officer is also entitled under his employment agreement to (i) vesting of any unvested equity compensation (excluding all long-term incentive shares), (ii) reimbursement for any unpaid expenses, (iii) retirement benefits earned under the current and/or previous agreements, (iv) continued coverage under our medical plan at the Company's cost for the federal COBRA health continuation coverage period and (v) payment of any earned and unpaid bonus amounts. In addition, the executive officer is entitled to receive any benefits that he would have otherwise been entitled to receive under our qualified retirement plan, although those benefits are not increased or payment accelerated.

In the event that an executive officer is terminated for just cause, we are required to pay the executive officer his base salary through the termination date plus a partial year bonus, incentive, deferred, retirement or other compensation and to provide any other benefits, which have been earned or become payable as of the termination date.

In the event that an executive officer voluntarily terminates his employment for other than good reason, he is entitled to receive (i) his base salary and bonus, provided, however, that with respect to the bonus, for certain executive officers, there will be no proration of the bonus if such executive leaves prior to the last day of the year and, with respect to one executive officer, there will be no proration of the bonus in the event such executive officer leaves prior to March 31 in the year of his termination, (ii) any incentive, deferred or other compensation which has been earned or has become payable, but which has not yet been paid under the schedule originally contemplated in the agreement under which they were granted, (iii) any unpaid expense reimbursement and (iv) any other payments for benefits earned under the employment agreement or our plans.

In the event of death or disability, the executive is entitled to receive certain benefits. For this purpose, the definition of "disability" corresponds to the definition under IRC Section 409A and the supporting Treasury regulations. The benefits will (i) in the case of death be paid in a lump sum and be equal to the base salary that would otherwise have been paid for a six-month period following the termination date and (ii) in the case of disability be up to thirteen weeks of ongoing base salary plus a lump sum equal to six months of base salary.

See Note 13 for a discussion related to the separation agreement entered into with our former chief executive officer during the nine months ended 2011.

Partnership Casualty Losses. As managing general partner of numerous partnerships, we have a potential liability for casualty losses in excess of the partnership assets and insurance. We believe the casualty insurance coverage that we and our subcontractors carry is adequate to meet this potential liability.