BUSINESS COMBINATIONS (Notes)

12 Months Ended

Dec. 31, 2022

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

NOTE 3 - BUSINESS COMBINATION

On May 6, 2022, we completed the acquisition of Great Western Petroleum, LLC (“Great Western”) for approximately $1.4 billion, inclusive of Great Western’s net debt (the “Great Western Acquisition”). Great Western was an independent oil and gas company focused on the exploration, production and development of crude oil and natural gas in the Wattenberg Field of Colorado. The consideration paid included $542.5 million in cash and approximately 4.0 million shares of our common stock, valued at $293.3 million on the acquisition date. In addition, we paid off the Great Western secured credit facility totaling $235.8 million and irrevocably deposited $361.2 million on Great Western’s behalf to pay and discharge on May 20, 2022 Great Western’s 12 percent senior secured notes due 2025, inclusive of unpaid accrued interest and a premium for early termination. The cash portion of the purchase price and the termination of Great Western’s debt were funded through a combination of cash on hand and availability under our revolving credit facility.

Purchase Price Allocation

The Great Western Acquisition has been accounted for using the acquisition method under Accounting Standards Codification (“ASC”) 805, Business Combinations, with PDC being treated as the accounting acquirer. Accordingly, we conducted assessments of the net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated fair values, while transaction and integration costs associated with the acquisition were expensed as incurred.

The following table details our final purchase price, valuation and allocation of the purchase price to the assets acquired and liabilities assumed as a result of the Great Western Acquisition:


	(in thousands, except share and per share data)
Consideration:
Cash	$	542,500
Retirement of Great Western’s credit facility	235,822
Extinguishment of Great Western’s secured senior notes	361,231
Total cash consideration	$	1,139,553

Common stock issued	4,007,018
Fair value of PDC common stock on May 6, 2022	$	73.20
Total fair value of common stock issued	293,314

Total consideration	$	1,432,867

Assets acquired:
Cash	$	63,183
Accounts receivable	164,026
Other current assets	3,129
Properties and equipment, net - proved	2,091,301
Properties and equipment, net - other	7,035
Other noncurrent assets	20,345
Total assets acquired	$	2,349,019

Liabilities assumed:
Accounts payable	$	(119,142)
Production tax liability	(110,940)
Funds held for distribution	(170,708)
Other current liabilities	(19,203)
Fair value of derivatives	(319,600)
Asset retirement obligations	(25,300)
Deferred tax liabilities	(28,400)
Other liabilities	(32,802)
Total liabilities assumed	$	(826,095)

Total identifiable net assets acquired	$	1,522,924
Gain on bargain purchase	90,057
Purchase price consideration	$	1,432,867

Determining the fair values of the assets and liabilities of Great Western requires judgement and certain assumptions to be made, the most significant of these being related to the valuation of crude oil and natural gas properties. The majority of the measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market, and therefore represent Level 3 inputs. The fair values of crude oil and natural gas properties and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs and assumptions to the valuation of proved and unproved crude oil and natural gas properties include estimates of reserve volumes, future operating and development costs, future commodity prices and a market-based weighted-average cost of capital rate of 14.25 percent. These inputs require significant judgments and estimates by management at the time of the valuation. The fair value of derivative instruments was based on observable inputs, including forward commodity-price curves which are considered Level 2 inputs, and based on volatility factors which are considered Level 3 inputs. We completed our purchase price allocation analysis as of December 31, 2022, with immaterial adjustments made to the previous allocation.

ASC 805, Business Combinations, requires that any excess of purchase price over the fair value of assets acquired, including identifiable intangibles and liabilities assumed, be recognized as goodwill and any excess of fair value of acquired net assets, including identifiable intangible assets over the acquisition consideration, results in a gain from bargain purchase. Prior to recording a gain, the acquiring entity must reassess whether all assets acquired and assumed liabilities have been identified and recognized and perform re-measurements to verify that the consideration paid, assets acquired and liabilities assumed have been properly valued. The Great Western Acquisition resulted in a gain on bargain purchase due to the estimated fair value of the identifiable net assets acquired exceeding the purchase consideration transferred by $90.1 million and is shown as a gain on bargain purchase on our consolidated statement of operations, net of related income taxes of $28.4 million. Upon completion of our assessment, we concluded that recording a gain on bargain purchase was appropriate and required under ASC 805. The bargain purchase was primarily attributable to the increase in commodity price forecasts from the date we entered into the definitive purchase agreement with Great Western, February 26, 2022, to the closing date of the acquisition, May 6, 2022, when the fair value of crude oil and natural gas reserves acquired were determined. Additionally, the majority of the acquisition consideration was fixed and therefore did not fluctuate as a result of market increases or decreases between the date of entry into the agreement through the closing date.

The results of operations for the Great Western Acquisition since the closing date have been included on our consolidated financial statements for the year ended December 31, 2022 and include approximately $631.0 million of total revenues and $387.8 million of income from operations, respectively. During the year ended December 31, 2022, we recognized total transaction costs of $11.7 million, which are included in general and administrative expense on the consolidated statement of operations.

Pro Forma Information. The following unaudited pro forma financial information represents a summary of the condensed consolidated results of operations for the year ended December 31, 2022 and 2021, assuming the acquisition had been completed as of January 1, 2021. The pro forma financial information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had been effective as of these dates, or of future results.

The information below reflects certain nonrecurring pro forma adjustments that were directly related to the business combination based on available information and certain assumptions that we believe are reasonable, including (i) our common stock issued to the owners of Great Western, (ii) the increase in depletion reflecting the relative fair values and production volumes attributable to Great Western’s properties and the revision to the depletion rate reflecting the reserve volumes acquired, (iii) adjustments to interest expense as a result of payoff of Great Western’s credit facility and secured senior notes, (iv) the adjustment to reflect the gain on bargain purchase, and (v) the estimated tax impacts of the pro forma adjustments. In addition, pro forma earnings were adjusted to exclude acquisition-related costs incurred by us and Great Western totaling approximately $33.6 million for the year ended December 31, 2022, and included the total costs of $33.6 million for the year ended December 31, 2021.


	Year Ended December 31,
	2022		2021
	(in thousands, except per share data)
Total revenue	$	3,897,361	$	2,277,463
Net income (loss)	1,651,029		563,855

Earnings (loss) per share:
Basic	$	17.42	$	5.50
Diluted	17.17		5.41