COMMITMENTS AND CONTINGENCIES

Firm Transportation and Processing Agreements. We enter into contracts that provide firm transportation and processing on pipeline systems through which we transport or sell crude oil and natural gas. Satisfaction of the volume requirements includes volumes produced by us, purchased from third parties, and produced by our affiliated partnerships and other third-party working, royalty, and overriding royalty interest owners whose volumes we market on their behalf. Our condensed consolidated statements of operations reflect our share of these firm transportation and processing costs. These contracts require us to pay these transportation and processing charges whether or not the required volumes are delivered.

The following table presents gross volume information related to our long-term firm transportation and processing agreements for pipeline capacity:



	For the Twelve Months Ending March 31,
Area	2019		2020		2021		2022		2023 and Through Expiration		Total		Expiration Date

Natural gas (MMcf)
Wattenberg Field	7,416		27,794		31,025		31,025		114,272		211,532		April 30, 2026
Delaware Basin	25,520		25,600		11,000		—		—		62,120		December 31, 2020
Gas Marketing	7,117		7,136		7,117		6,965		2,830		31,165		August 31, 2022
Total	40,053		60,530		49,142		37,990		117,102		304,817

Crude oil (MBbls)
Wattenberg Field	7,438		8,062		5,085		4,563		4,937		30,085		April 30, 2023
Delaware Basin	4,493		8,227		8,580		7,392		14,080		42,772		December 31, 2023
Total	11,931		16,289		13,665		11,955		19,017		72,857

Dollar commitment (in thousands)	$	64,690	$	99,560	$	69,434	$	65,060	$	160,183	$	458,927

In March 2018, we completed the sale of our Utica Shale properties. Upon closing, the related commitment was assumed by the purchaser of the Utica Shale properties.

In anticipation of our future drilling activities in the Wattenberg Field, we have entered into two facilities expansion agreements with our primary midstream provider to expand and improve its natural gas gathering pipelines and processing facilities. The midstream provider is expected to construct two new 200 MMcfd cryogenic plants. We will be bound to the volume requirements in these agreements on the first day of the calendar month following the actual in-service dates of the plants, which, as reflected in the above table, are currently scheduled to be in the third quarter of 2018 for the first plant and the second quarter of 2019 for the second plant. Both agreements require baseline volume commitments, consisting of our gross wellhead volume delivered in November 2016, to this midstream provider, and incremental wellhead volume commitments of 51.5 MMcfd and 33.5 MMcfd for the first and second agreements, respectively, for seven years. We may be required to pay shortfall fees for any volumes under the 51.5 MMcfd and 33.5 MMcfd incremental commitments. Any shortfall in these volume commitments may be offset by other producers’ volumes sold to the midstream provider that are greater than a certain total baseline volume. We are also required for the first three years of the contracts to guarantee a certain target profit margin to the midstream provider on these incremental volumes. We currently expect that our future development plans will meet both the baseline and incremental volumes, and we believe that the contractual target profit margin will be achieved without additional payment from us.

In April 2018, we entered into a five-year firm transportation agreement, effective May 1, 2018, with a third-party crude oil pipeline company to transport 12,500 barrels of crude oil per day from our Wattenberg Field via pipeline to Cushing, Oklahoma and other area refineries. This agreement is reflected in the pipeline capacity commitment table above.

In May 2018, we entered into a firm sales agreement that is effective from June 1, 2018 through December 31, 2023 for an initial 11,400 barrels of crude oil per day and incrementally increasing to 26,400 barrels of crude oil per day with a large integrated marketing company for our crude oil production in the Delaware Basin. This agreement is expected to provide price diversification through realization of export market pricing via a Corpus Christi terminal and exposure to Brent-weighted prices. The fixed transportation charge associated with this agreement is reflected in the pipeline capacity commitment table above.

For the three months ended March 31, 2018, commitments for long-term transportation volumes, net to our interest, for Wattenberg Field crude oil and Delaware Basin natural gas were $2.6 million, and in accordance with the guidance in the new revenue recognition standard, were netted against our crude oil and natural gas sales in our condensed consolidated statements of operations. For the three months ended March 31, 2017, commitments for long-term transportation volumes for Wattenberg Field crude oil and Utica Shale natural gas were $2.2 million and were recorded in transportation, gathering, and processing expense in our condensed consolidated statements of operations.

Litigation and Legal Items. We are involved in various legal proceedings. We review 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 our best interests. We have provided the necessary estimated accruals in the accompanying balance sheets where deemed appropriate for litigation and legal related items that are ongoing and not yet concluded. 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.

Action Regarding Partnerships. In December 2017, we received an action entitled Dufresne, et al. v. PDC Energy, et al., filed in the United States District Court for the District of Colorado. The complaint states that it is a derivative action brought by a number of limited partner investors seeking to assert claims on behalf of our two affiliated partnerships, Rockies Region 2006 LP and Rockies Region 2007 LP, against PDC and includes claims for breach of fiduciary duty and breach of contract. The plaintiffs also included claims against two of our senior officers for alleged breach of fiduciary duty. The lawsuit accuses PDC, as the managing general partner of the two partnerships, of, among other things, failing to maximize the productivity of the partnerships’ crude oil and natural gas wells. We filed a motion to dismiss the lawsuit on February 1, 2018, on the grounds that the complaint is deficient, including because the plaintiffs failed to allege that PDC refused a demand to take action on their claims. On March 14, 2018, the motion was denied as moot by the court because the plaintiffs requested leave to amend their complaint. In late April 2018, the plaintiffs filed an amendment to their complaint. Such amendment primarily alleges additional facts to support the plaintiffs’ claims and purports to add direct class action claims in addition to the original derivative claims. The amendment also adds three new individual defendants, all of which are independent members of our Board of Directors. We are currently unable to estimate any potential damages as a result of this lawsuit.

Environmental. Due to the nature of the natural gas and oil industry, we are exposed to environmental risks. We have various policies and procedures to minimize and mitigate the risks from environmental contamination. We conduct periodic reviews and simulated drills to identify changes in our environmental risk profile. Liabilities are recorded when environmental damages resulting from past events are probable and the costs can be reasonably estimated. Except as discussed herein, we are not aware of any material environmental claims existing as of March 31, 2018 which have not been provided for or would otherwise have a material impact on our financial statements; however, there can be no assurance that current regulatory requirements will not change or that unknown potential past non-compliance with environmental laws or other environmental liabilities will not be discovered on our properties. Accrued environmental liabilities are recorded in other accrued expenses on the condensed consolidated balance sheets. The liability ultimately incurred with respect to a matter may exceed the related accrual.

Clean Air Act Tentative Agreement and Related Consent Decree. In August 2015, we received a Clean Air Act Section 114 Information Request (the "Information Request") from the U.S. Environmental Protection Agency ("EPA"). The Information Request sought, among other things, information related to the design, operation, and maintenance of our Wattenberg Field production facilities in the Denver-Julesburg Basin of Colorado ("DJ Basin"). The Information Request focused on historical operation and design information for 46 of our production facilities and requested sampling and analyses at the identified 46 facilities. We responded to the Information Request with the requested data in January 2016.

In addition, in December 2015, we received a Compliance Advisory pursuant to C.R.S. 25-7-115(2) from the Colorado Department of Public Health and Environment's (“CDPHE”) Air Quality Control Commission's Air Pollution Control Division alleging that we failed to design, operate, and maintain certain condensate collection, storage, processing, and handling operations to minimize leakage of volatile organic compounds at 65 facilities consistent with applicable standards under Colorado law.

In June 2017, the U.S. Department of Justice, on behalf of the EPA and the state of Colorado, filed a complaint against us in the U.S. District Court for the District of Colorado, claiming that we failed to operate and maintain certain condensate collection facilities at 65 facilities so as to minimize leakage of volatile organic compounds in compliance with applicable law. In October 2017, we entered into a consent decree to resolve the lawsuit. Pursuant to the consent decree, we agreed to implement a variety of operational enhancements and mitigation and similar projects, including vapor control system modifications and verification, increased inspection and monitoring, and installation of tank pressure monitors. The three primary elements of the consent decree are: (i) fine/supplemental environmental projects ($1.5 million cash fine, plus $1 million in supplemental environmental projects) of which the cash fines were paid in the first quarter of 2018 and the environmental projects have been accrued in other accrued expenses on our consolidated balance sheet as of March 31, 2018 (ii) injunctive relief with an estimated cost of approximately $18 million, primarily representing capital enhancements to our operations; and (iii) mitigation with an estimated cost of $1.7 million. We continue to incur costs associated with these activities. If we fail to comply fully with the requirements of the consent decree with respect to those matters, we could be subject to additional liability. In addition, we could be the subject of other enforcement actions by regulatory authorities in the future relating to our past, present or future operations. We do not believe that the expenditures resulting from the settlement will have a material adverse effect on our consolidated financial statements.

Since our entry into the consent decree we have implemented a comprehensive program to comply with all of its requirements. As of the date of the filing of this report, all aspects of the consent decree compliance program are on or ahead of schedule.