COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

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 and purchased from third parties and other third-party working, royalty and overriding royalty interest owners, whose volumes we market on their behalf. Our 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, sales and processing agreements for pipeline capacity and water delivery and disposal commitments:

	Year Ending December 31,
Area	2020		2021		2022		2023		Thereafter		Total		Expiration Date
Natural gas (MMcf)
Wattenberg Field	30,608		31,025		31,025		31,025		63,992		187,675		August 31, 2026
Delaware Basin	37,552		28,241		9,125		9,125		66,175		150,218		March 31, 2031
Gas Marketing	7,136		7,056		4,495		—		—		18,687		August 31, 2022
Total	75,296		66,322		44,645		40,150		130,167		356,580
Crude oil (MBbls)
Wattenberg Field	9,992		16,243		16,243		12,567		37,255		92,300		December 31, 2027
Delaware Basin	8,784		8,030		8,030		8,030		—		32,874		December 31, 2023
Total	18,776		24,273		24,273		20,597		37,255		125,174
Water (MBbls)
Wattenberg Field	6,224		6,207		6,207		6,206		6,223		31,067		December 31, 2024
Total	6,224		6,207		6,207		6,206		6,223		31,067
Dollar commitment (in thousands)	$	85,159	$	106,322	$	101,107	$	85,774	$	202,532	$	580,894

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 completed and turned on line the first of the two 200 MMcfd cryogenic plants in August 2018 and the second plant was completed in August 2019. We are bound to the volume requirements in these agreements on the first day of the calendar month following the actual in-service date of the relevant 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. We are currently satisfying the volume commitment.

Delaware Basin. In May 2018, we entered into a firm sales agreement that is effective from June 2018 through December 2023 with an integrated marketing company for our crude oil production in the Delaware Basin. Contracted volumes are currently 24,000 barrels of crude oil per day and decrease over time to 22,000 barrels of crude oil per day. 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.

Crude Oil, Natural Gas and NGLs Sales. For 2019, amounts related to long-term transportation volumes, net to our interest, for Wattenberg Field crude oil and Delaware Basin natural gas were $50.1 million and in accordance with the guidance in the New Revenue Standard, were netted against our crude oil and natural gas sales. In addition, for 2019 and 2018, $1.9 million and $1.6 million, respectively, related to long-term transportation volumes were recorded in transportation, gathering and processing expense. Amounts related to long-term transportation volumes for Wattenberg Field crude oil and Utica Shale natural gas of $10.0 million for 2017 were recorded in transportation, gathering and processing expense. In March 2018, we completed the disposition of our Utica Shale properties.

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. (the "Dufresne Case"), filed in the United States District Court for the District of Colorado (the "District Court"). The original complaint stated that it was a derivative action brought by a number of limited partner investors seeking to assert claims for breach of fiduciary duties on behalf of our two affiliated partnerships, Rockies Region 2006 LP and Rockies Region 2007 LP (collectively, the "Partnerships"), against PDC. The complaint was subsequently amended to include putative class claims for breach of the partnership agreements. The plaintiffs also included claims against two of our senior officers and three independent members of the Board for allegedly aiding and abetting PDC's purported breach of fiduciary duty. We filed a motion to dismiss on July 31, 2018. On February 19, 2019, the District Court granted the motion to dismiss, in part. It dismissed all claims against the individuals named as defendants. It also held that that the plaintiffs were time-barred from using the failure to assign acreage to the Partnerships as grounds to support their claims for breach of fiduciary duty against PDC. On June 4, 2019, the District Court entered an order holding its opinion on the motion to dismiss in abeyance pending resolution of the Partnerships' bankruptcy cases and staying the litigation. As discussed in more detail below, the District Court in Colorado has dismissed the Dufresne Case.

Partnership Bankruptcy Filings. On October 30, 2018, the Partnerships filed petitions under Chapter 11 of the Bankruptcy Code (the "Chapter 11 Proceedings") in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "Bankruptcy Court"). Prior to the bankruptcy filings, PDC designated a third-party (the “Responsible Party”) to analyze strategic options for the Partnerships. After designation of the Responsible Party and before filing the Chapter 11 Proceedings, PDC and the Partnerships agreed to enter into a transaction pursuant to which PDC would acquire substantially all of the Partnerships’ assets through a Chapter 11 plan of liquidation and obtain a release of claims from the Partnerships, including the claims asserted in the Dufresne Case. In June 2019, the Responsible Party, PDC and the plaintiffs in the Dufresne Case reached a settlement of the matters raised in the Dufresne Case and the Chapter 11 Proceedings. The settlement, which settles all claims asserted against PDC, whether direct or derivative, including, but not limited to, the claims asserted in the Dufresne Case, was incorporated into an Amended Chapter 11 Plan (the “Amended Chapter 11 Plan”). The Disclosure Statement accompanying the Amended Chapter 11 Plan was approved by the Bankruptcy Court in August 2019 along with procedures for soliciting votes on the Amended Chapter 11 Plan. The Amended Chapter 11 Plan was distributed to the Partnership unit holders for voting. On October 2, 2019, the Bankruptcy Court held a hearing to consider confirmation of the Amended Chapter 11 Plan and, on October 3, 2019, entered an order confirming the Amended Chapter 11 Plan. The requirements for the Amended Chapter 11 Plan to become effective were met on October 21, 2019 (the “Effective Date”). As contemplated by the Amended Chapter 11 Plan, on the Effective Date, PDC funded the settlement payment, purchase price for the Partnership’s oil and gas assets and the administrative reserve. Additionally, the Partnership’s oil and gas assets were conveyed to PDC and PDC and the plaintiffs in the Dufresne Case submitted an agreed order dismissing the Dufresne Case with prejudice to the District Court. The District Court entered the agreed order on October 23, 2019, dismissing the Dufresne Case with prejudice. On December 5, 2019, the Bankruptcy Court entered orders approving final fee applications of the debtors' legal representatives and professional service providers, which were paid before the end of 2019, along with distributions of the settlement amount pursuant to the Amended Chapter 11 Plan to the Partnership unit holders.

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 December 31, 2019 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. The liability ultimately incurred with respect to a matter may exceed the related accrual.

On October 23, 2018, we agreed to an Administrative Order by Consent ("AOC") with the Colorado Oil and Gas Conservation Commission relating to a historical release discovered during the decommissioning of a location in Weld County, Colorado, pursuant to which, among other things, we agreed to a penalty of approximately $130,000, of which 20 percent would be suspended subject to compliance with certain corrective actions identified in the AOC. In addition to the penalty, we agreed to timely complete certain corrective actions set forth in the AOC relating to procedures for completing future work on buried or partially buried produced water vessels, and to reestablish vegetation and otherwise reclaim the location. We have completed the corrective actions in a timely manner and some of our reclamation activities are ongoing.

In recent years, we have been executing a program to plug and abandon certain of our older vertical wells in the Wattenberg Field. A self-audit of final reclamation activities associated with site retirements, which we concluded in 2019,

identified deficiencies, including incomplete documentation and agency submittals, inadequate plant growth and incomplete earthwork. In December 2019, we formally disclosed these deficiencies to the COGCC and are working to close this backlog of site reclamation work. We do not believe potential penalties and other expenditures associated with this disclosure will have a material effect on our financial condition or results of operations, but they may exceed $100,000.

Clean Air Act Agreement and Related Consent Decree. In June 2017, following our receipt of a 2015 Clean Air Act information request from the EPA and a 2015 compliance advisory from the Colorado Department of Public Health and Environment's (“CDPHE”) Air Pollution Control Division, 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 and the compliance advisory. 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 and the full cost of supplemental environmental projects were paid in the first and third quarters of 2018, respectively, (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. Additionally, we are subject to the revised requirements of the COC entered into by SRC with CDPHE as described in "Risk Factors -We are subject to complex federal, state, local and other laws and regulations that adversely affect the cost and manner of doing business." 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. We do not believe that the expenditures resulting from the settlement will have a material adverse effect on our consolidated financial statements.

We are in the process of implementing the consent decree program, recently expanded to include the COC. Over the course of its execution, we have identified certain immaterial deficiencies in our implementation of the program. We report these immaterial deficiencies to the appropriate authorities and remediate them promptly. We do not believe that the penalties and expenditures associated with the consent decree, including any sanctions associated with these deficiencies, will have a material effect on our financial condition or results of operations, but they may exceed $100,000. 

In addition, in December 2018, we were named as a nominal defendant in a derivative action filed in the Delaware chancery court. The complaint, which seeks unspecified monetary damages and various forms of equitable relief, alleges that certain current and former members of the Board violated their fiduciary duties, committed waste and were unjustly enriched by, among other things, failing to implement adequate environmental safeguards in connection with the issues that gave rise to the Department of Justice lawsuit and consent decree. We believe that this lawsuit is without merit but cannot predict its outcome.

Further, we could be the subject of other enforcement actions by regulatory authorities in the future relating to our past, present or future operations.