SUBSIDIARY GUARANTOR

PDC Permian, Inc., our wholly-owned subsidiary, guarantees our obligations under our publicly-registered senior notes. The following presents the condensed consolidating financial information separately for:



(i)	PDC Energy, Inc. ("Parent"), the issuer of the guaranteed obligations, including non-material subsidiaries;
(ii)	PDC Permian, Inc., the guarantor subsidiary ("Guarantor"), as specified in the indentures related to our senior notes;
(iii)	Eliminations representing adjustments to (a) eliminate intercompany transactions between or among Parent, Guarantor, and our other subsidiaries and (b) eliminate the investments in our subsidiaries; and
(iv)	Parent and subsidiaries on a consolidated basis ("Consolidated").

The Guarantor was 100 percent owned by the Parent beginning in December 2016. The senior notes are fully and unconditionally guaranteed on a joint and several basis by the Guarantor. The guarantee is subject to release in limited circumstances only upon the occurrence of certain customary conditions. Each entity in the consolidating financial information follows the same accounting policies as described in the notes to the consolidated financial statements.

The following consolidating financial statements have been prepared on the same basis of accounting as our consolidated financial statements. Investments in subsidiaries are accounted for under the equity method. Accordingly, the entries necessary to consolidate the Parent and Guarantor are reflected in the eliminations column.



	Consolidating Balance Sheets
	December 31, 2017
	Parent			Guarantor			Eliminations			Consolidated
	(in thousands)
Assets
Current assets:
Cash and cash equivalents	$	180,675		$	—		$	—		$	180,675
Accounts receivable, net	160,490			37,108			—			197,598
Fair value of derivatives	14,338			—			—			14,338
Prepaid expenses and other current assets	8,284			329			—			8,613
Total current assets	363,787			37,437			—			401,224
Properties and equipment, net	1,891,314			2,042,153			—			3,933,467
Assets held-for-sale, net	40,084			—			—			40,084
Intercompany receivable	250,279			—			(250,279		)	—
Investment in subsidiaries	1,617,537			—			(1,617,537		)	—
Other assets	42,547			2,569			—			45,116
Total Assets	$	4,205,548		$	2,082,159		$	(1,867,816	)	$	4,419,891

Liabilities and Stockholders' Equity
Liabilities
Current liabilities:
Accounts payable	$	85,000		$	65,067		$	—		$	150,067
Production tax liability	35,902			1,752			—			37,654
Fair value of derivatives	79,302			—			—			79,302
Funds held for distribution	83,898			11,913			—			95,811
Accrued interest payable	11,812			3			—			11,815
Other accrued expenses	42,543			444			—			42,987
Total current liabilities	338,457			79,179			—			417,636
Intercompany payable	—			250,279			(250,279		)	—
Long-term debt	1,151,932			—			—			1,151,932
Deferred income taxes	62,857			129,135			—			191,992
Asset retirement obligations	65,301			5,705			—			71,006
Fair value of derivatives	22,343			—			—			22,343
Other liabilities	57,009			324			—			57,333
Total liabilities	1,697,899			464,622			(250,279		)	1,912,242

Stockholders' equity
Common shares	659			—			—			659
Additional paid-in capital	2,503,294			1,766,775			(1,766,775		)	2,503,294
Retained earnings	6,704			(149,238		)	149,238			6,704
Treasury shares	(3,008		)	—			—			(3,008		)
Total stockholders' equity	2,507,649			1,617,537			(1,617,537		)	2,507,649
Total Liabilities and Stockholders' Equity	$	4,205,548		$	2,082,159		$	(1,867,816	)	$	4,419,891



	Consolidating Balance Sheets
	December 31, 2016
	Parent			Guarantor			Eliminations			Consolidated
	(in thousands)
Assets
Current assets:
Cash and cash equivalents	$	240,487		$	3,613		$	—		$	244,100
Accounts receivable, net	134,589			8,803			—			143,392
Fair value of derivatives	8,791			—			—			8,791
Prepaid expenses and other current assets	3,442			100			—			3,542
Total current assets	387,309			12,516			—			399,825
Properties and equipment, net	1,884,147			2,118,847			—			4,002,994
Assets held-for-sale, net	5,272			—			—			5,272
Intercompany receivable	9,415			—			(9,415		)	—
Investment in subsidiaries	1,765,092			—			(1,765,092		)	—
Fair value of derivatives	2,386			—			—			2,386
Goodwill	—			62,041			—			62,041
Other assets	13,153			171			—			13,324
Total Assets	$	4,066,774		$	2,193,575		$	(1,774,507	)	$	4,485,842

Liabilities and Stockholders' Equity
Liabilities
Current liabilities:
Accounts payable	$	38,748		$	27,574		$	—		$	66,322
Production tax liability	24,401			366			—			24,767
Fair value of derivatives	53,595			—			—			53,595
Funds held for distribution	65,022			6,317			—			71,339
Accrued interest payable	15,930			—			—			15,930
Other accrued expenses	37,425			1,200			—			38,625
Total current liabilities	235,121			35,457			—			270,578
Intercompany payable	—			9,415			(9,415		)	—
Long-term debt	1,043,954			—			—			1,043,954
Deferred income taxes	20,971			379,896			—			400,867
Asset retirement obligations	78,897			3,715			—			82,612
Fair value of derivatives	27,595			—			—			27,595
Other liabilities	37,482			—			—			37,482
Total liabilities	1,444,020			428,483			(9,415		)	1,863,088

Stockholders' equity
Common shares	657			—			—			657
Additional paid-in capital	2,489,557			1,766,775			(1,766,775		)	2,489,557
Retained earnings	134,208			(1,683		)	1,683			134,208
Treasury shares	(1,668		)	—			—			(1,668		)
Total stockholders' equity	2,622,754			1,765,092			(1,765,092		)	2,622,754
Total Liabilities and Stockholders' Equity	$	4,066,774		$	2,193,575		$	(1,774,507	)	$	4,485,842



	Consolidating Statements of Operations
	Year Ended December 31, 2017
	Parent			Guarantor			Eliminations		Consolidated
	(in thousands)

Revenues
Crude oil, natural gas, and NGLs sales	$	788,400		$	124,684		$	—	$	913,084
Commodity price risk management gain (loss), net	(3,936		)	—			—		(3,936		)
Other income	11,901			567			—		12,468
Total revenues	796,365			125,251			—		921,616
Costs, expenses and other
Lease operating expenses	68,031			21,610			—		89,641
Production taxes	53,236			7,481			—		60,717
Transportation, gathering, and processing expenses	23,301			9,919			—		33,220
Exploration, geologic, and geophysical expense	1,092			46,242			—		47,334
Impairment of properties and equipment	4,951			280,936			—		285,887
Impairment of goodwill	—			75,121			—		75,121
General and administrative expense	107,518			12,852			—		120,370
Depreciation, depletion and amortization	403,984			65,100			—		469,084
Provision for uncollectible notes receivable	(40,203		)	—			—		(40,203		)
Accretion of asset retirement obligations	5,965			341			—		6,306
Gain on sale of properties and equipment	(766		)	—			—		(766		)
Other expenses	13,157			—			—		13,157
Total costs, expenses and other	640,266			519,602			—		1,159,868
Income (loss) from operations	156,099			(394,351		)	—		(238,252		)
Loss on extinguishment of debt	(24,747		)	—			—		(24,747		)
Interest expense	(79,919		)	1,225			—		(78,694		)
Interest income	2,261			—			—		2,261
Income (loss) before income taxes	53,694			(393,126		)	—		(339,432		)
Income tax (expense) benefit	(33,643		)	245,571			—		211,928
Equity in loss of subsidiary	(147,555		)	—			147,555		—
Net loss	$	(127,504	)	$	(147,555	)	$	147,555	$	(127,504	)

Net losses of the Guarantor for the year ended 2017 are primarily the result of the exploratory dry hole expense, impairment of certain unproved Delaware Basin leasehold positions, and the impairment of goodwill.



	Consolidating Statements of Operations
	Year Ended December 31, 2016
	Parent			Guarantor			Eliminations		Consolidated
	(in thousands)

Revenues
Crude oil, natural gas, and NGLs sales	$	491,750		$	5,603		$	—	$	497,353
Commodity price risk management gain (loss), net	(125,681		)	—			—		(125,681		)
Other income	11,241			2			—		11,243
Total revenues	377,310			5,605			—		382,915
Costs, expenses and other
Lease operating expenses	58,401			1,549			—		59,950
Production taxes	31,132			278			—		31,410
Transportation, gathering, and processing expenses	18,263			152			—		18,415
Exploration, geologic, and geophysical expense	1,197			3,472			—		4,669
Impairment of properties and equipment	9,973			—			—		9,973
General and administrative expense	112,166			304			—		112,470
Depreciation, depletion and amortization	415,321			1,553			—		416,874
Provision for uncollectible notes receivable	44,038			—			—		44,038
Accretion of asset retirement obligations	7,070			10			—		7,080
Gain on sale of properties and equipment	(43		)	—			—		(43		)
Other expenses	10,193			—			—		10,193
Total costs, expenses and other	707,711			7,318			—		715,029
Loss from operations	(330,401		)	(1,713		)	—		(332,114		)
Interest expense	(62,002		)	30			—		(61,972		)
Interest income	963			—			—		963
Loss before income taxes	(391,440		)	(1,683		)	—		(393,123		)
Income tax benefit	147,195			—			—		147,195
Equity in loss of subsidiary	(1,683		)	—			1,683		—
Net loss	$	(245,928	)	$	(1,683	)	$	1,683	$	(245,928	)



	Condensed Consolidating Statements of Cash Flows
	Year Ended December 31, 2017
	Parent			Guarantor			Eliminations			Consolidated
	(in thousands)

Cash flows from operating activities	$	537,704		$	50,859		$	—		$	588,563
Cash flows from investing activities:
Capital expenditures for development of crude oil and natural properties	(439,897		)	(297,311		)	—			(737,208		)
Capital expenditures for other properties and equipment	(3,539		)	(1,555		)	—			(5,094		)
Acquisition of crude oil and natural gas properties, including settlement adjustments and deposit for pending acquisition	(21,000		)	5,372			—			(15,628		)
Proceeds from sale of properties and equipment	10,084			(93		)	—			9,991
Sale of promissory note	40,203			—			—			40,203
Restricted cash	(9,250		)	—			—			(9,250		)
Sale of short-term investments	49,890			—			—			49,890
Purchase of short-term investments	(49,890		)	—			—			(49,890		)
Intercompany transfers	(239,191		)	—			239,191			—
Net cash from investing activities	(662,590		)	(293,587		)	239,191			(716,986		)
Cash flows from financing activities:
Proceeds from issuance of senior notes	592,366			—			—			592,366
Redemption of senior notes	(519,375		)	—			—			(519,375		)
Purchase of treasury stock	(6,672		)	—			—			(6,672		)
Payment of debt issuance costs	(50		)	—			—			(50		)
Other	(1,195		)	(76		)	—			(1,271		)
Intercompany transfers	—			239,191			(239,191		)	—
Net cash from financing activities	65,074			239,115			(239,191		)	64,998
Net change in cash and cash equivalents	(59,812		)	(3,613		)	—			(63,425		)
Cash and cash equivalents, beginning of period	240,487			3,613			—			244,100
Cash and cash equivalents, end of period	$	180,675		$	—		$	—		$	180,675



	Condensed Consolidating Statements of Cash Flows
	Year Ended December 31, 2016
	Parent			Guarantor			Eliminations			Consolidated
	(in thousands)

Cash flows from operating activities	$	492,893		$	(6,630	)	$	—		$	486,263
Cash flows from investing activities:
Capital expenditures for development of crude oil and natural properties	(436,361		)	(523		)	—			(436,884		)
Capital expenditures for other properties and equipment	(2,282		)	(1,182		)	—			(3,464		)
Acquisition of crude oil and natural gas properties, including settlement adjustments and deposit for pending acquisition	(1,076,256		)	2,533			—			(1,073,723		)
Proceeds from sale of properties and equipment	4,945			—			—			4,945
Intercompany transfers	(9,415		)	—			9,415			—
Net cash from investing activities	(1,519,369		)	828			9,415			(1,509,126		)
Cash flows from financing activities:
Proceeds from issuance of equity, net of issuance costs	855,074			—			—			855,074
Proceeds from issuance of senior notes	392,172			—			—			392,172
Proceeds from issuance of convertible senior notes	193,935			—			—			193,935
Proceeds from revolving credit facility	85,000			—			—			85,000
Repayment of revolving credit facility	(122,000		)	—			—			(122,000		)
Redemption of convertible notes	(115,000		)	—			—			(115,000		)
Payment of debt issuance costs	(15,556		)	—			—			(15,556		)
Purchase of treasury shares	(6,935		)	—			—			(6,935		)
Other	(577		)	—			—			(577		)
Intercompany transfers	—			9,415			(9,415		)	—
Net cash from financing activities	1,266,113			9,415			(9,415		)	1,266,113
Net change in cash and cash equivalents	239,637			3,613			—			243,250
Cash and cash equivalents, beginning of period	850			—			—			850
Cash and cash equivalents, end of period	$	240,487		$	3,613		$	—		$	244,100

The condensed consolidating financial statements for the year ended December 31, 2016 represent one month of activity for the Guarantor as the Delaware Basin acquisition occurred in December 2016.