-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OvrHVPhqV5pT1V2fSBJx7ERkOX1xH7ag9grmReY/gU9vB4nofXtghJWwXehgYIHB oxHjKyY8Xcm9U/zMk7ywmw== 0000077877-98-000005.txt : 19980514 0000077877-98-000005.hdr.sgml : 19980514 ACCESSION NUMBER: 0000077877-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PETROLEUM DEVELOPMENT CORP CENTRAL INDEX KEY: 0000077877 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 952636730 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-07246 FILM NUMBER: 98618499 BUSINESS ADDRESS: STREET 1: 103 E MAIN ST CITY: BRIDGEPORT STATE: WV ZIP: 26330 BUSINESS PHONE: 3048426256 MAIL ADDRESS: STREET 1: PETROLEUM DEVELOPMENT CO STREET 2: PO BOX 26 CITY: BRIDGEPORT STATE: WV ZIP: 26330 FORMER COMPANY: FORMER CONFORMED NAME: YELLOW WING URANIUM CORP DATE OF NAME CHANGE: 19730606 10-Q 1 10-Q CONFORMED COPY UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the period ended March 31, 1998 OR [ ] Transition Report Pursuant to Section 13 of 15(d) of the Securities and Exchange Act of 1934 For the transition period from to Commission file number 0-7246 I.R.S. Employer Identification Number 95-2636730 PETROLEUM DEVELOPMENT CORPORATION (A Nevada Corporation) 103 East Main Street Bridgeport, WV 26330 Telephone: (304) 842-6256 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes XX No Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 15,510,762 shares of the Company's Common Stock ($.01 par value) were outstanding as of March 31, 1998. PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION Page No. Item 1. Financial Statements Independent Auditors' Review Report 1 Condensed Consolidated Balance Sheets - March 31, 1998 and December 31, 1997 2 Condensed Consolidated Statements of Income - Three Months Ended March 31, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows-Three Months Ended March 31, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II OTHER INFORMATION Item 1. Legal Proceedings 10 Item 6. Exhibits and Reports on Form 8-K 10
PART I - FINANCIAL INFORMATION Independent Auditors' Review Report The Board of Directors Petroleum Development Corporation: We have reviewed the accompanying condensed consolidated balance sheet of Petroleum Development Corporation and subsidiaries as of March 31, 1998, and the related condensed consolidated statements of income and cash flows for the three-month periods ended March 31, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Petroleum Development Corporation and subsidiaries as of December 31, 1997 and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated March 5, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1997 is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG PEAT MARWICK LLP Pittsburgh, Pennsylvania May 13, 1998 PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets March 31, 1998 and December 31, 1997 ASSETS 1998 1997 (Unaudited) Current assets: Cash and cash equivalents $30,820,800 $46,561,000 Accounts and notes receivable 5,215,800 4,923,400 Inventories 336,300 297,900 Prepaid expenses 1,534,200 2,076,500 Total current assets 37,907,100 53,858,800 Properties and equipment 71,561,100 67,792,200 Less accumulated depreciation, depletion, and amortization 24,963,400 24,222,900 46,597,700 43,569,300 Other assets 1,096,200 983,500 $85,601,000 $98,411,600
(Continued) -2- PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets, Continued March 31, 1998 and December 31, 1997 LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997 (Unaudited) Current liabilities: Accounts payable and accrued expenses $12,083,100 $12,424,300 Advances for future drilling contracts 8,342,000 23,291,600 Funds held for future distribution 957,600 1,659,700 Total current liabilities 21,382,700 37,375,600 Other liabilities 2,215,400 1,684,000 Deferred income taxes 3,437,100 3,585,900 Stockholders' equity: Common stock 155,100 152,500 Additional paid-in capital 31,615,000 31,617,600 Warrants outstanding 46,300 46,300 Retained earnings 26,810,900 24,014,200 Unamortized stock award (61,500) (64,500) Total stockholders' equity 58,565,800 55,766,100 $85,601,000 $98,411,600
See accompanying notes to condensed consolidated financial statements. -3- PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Income Three Months ended March 31, 1998 and 1997 (Unaudited) 1998 1997 Revenues: Oil and gas well drilling operations $15,489,200 $13,261,100 Oil and gas sales 8,040,000 8,767,500 Well operations and pipeline income 1,066,800 1,130,600 Other income 651,400 248,600 25,247,400 23,407,800 Costs and expenses: Cost of oil and gas well drilling operations 12,990,400 11,319,400 Oil and gas purchases and production costs 7,454,400 7,561,000 General and administrative expenses 440,100 498,600 Depreciation, depletion, and amortization 758,500 610,200 Interest - 102,600 21,643,400 20,091,800 Income before income taxes 3,604,000 3,316,000 Income taxes 807,300 812,400 Net income $ 2,796,700 $ 2,503,600 Basic earnings per common share $ .18 $ .24 Diluted earnings per common and common equivalent share $ .17 $ .21
See accompanying notes to condensed consolidated financial statements -4- PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 1998 and 1997 (Unaudited) 1998 1997 Cash flows from operating activities: Net income $ 2,796,700 $2,503,600 Adjustments to net income to reconcile to cash used in operating activities: Deferred federal income taxes (148,800) 133,800 Depreciation, depletion & amortization 758,500 610,200 Leasehold acreage expired or surrendered 70,500 30,000 Employee compensation paid in stock 3,000 3,100 Gain on disposal of assets (5,000) (54,000) Decrease in current assets 211,500 2,396,500 Increase in other assets (118,100) (14,500) Decrease in current liabilities (15,992,900) (13,302,200) Increase in other liabilities 531,400 69,000 Total adjustments (14,689,900) (10,128,100) Net cash used in operating activities (11,893,200) (7,624,500) Cash flows from investing activities: Capital expenditures (4,444,600) (1,253,700) Proceeds from sale of leases 592,600 586,000 Proceeds from sale of assets 5,000 55,600 Net cash used in investing activities (3,847,000) (612,100) Cash flows from financing activities: Proceeds from sale of common stock - 21,900 Retirement of debt - (1,100,000) Net cash used in financing activities - (1,078,100) Net change in cash and cash equivalents (15,740,200) (9,314,700) Cash and cash equivalents, beginning of period 46,561,000 20,615,400 Cash and cash equivalents, end of period $ 30,820,800 $11,300,700
See accompanying notes to condensed consolidated financial statements. -5- PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements March 31, 1998 (Unaudited) 1. Accounting Policies Reference is hereby made to the Company's Annual Report on Form 10-K for 1997, which contains a summary of significant accounting policies followed by the Company in the preparation of its consolidated financial statements. These policies were also followed in preparing the quarterly report included herein. 2. Basis of Presentation The Management of the Company believes that all adjustments (consisting of only normal recurring accruals) necessary to a fair statement of the results of such periods have been made. The results of operations for the three months ended March 31, 1998 are not necessarily indicative of the results to be expected for the full year. 3. Oil and Gas Properties Oil and Gas Properties are reported on the successful efforts method. 4. Earnings Per Share Computation of earnings per common and common equivalent share are as follows for the three months ended March 31, 1998 1997 Weighted average common shares outstanding 15,490,151 10,478,337 Weighted average common and common equivalent shares outstanding 16,378,383 11,702,968 Net income $ 2,796,700 $ 2,503,600 Basic earnings per common share $ .18 $ .24 Diluted earnings per common and common equivalent share $ .17 $ .21
5. Commitments and Contingencies The nature of the independent oil and gas industry involves a dependence on outside investor drilling capital and involves a concentration of gas sales to a few customers. The Company sells natural gas to various public utilities and industrial customers. One customer, Hope Gas, Inc., a regulated public utility, accounted for 5.0 percent of total revenues in the first three months of 1998. -6- Substantially all of the Company's drilling programs contain a repurchase provision where Investors may tender their partnership units for repurchase at any time beginning with the third anniversary of the first cash distribution. The provision provides that the Company is obligated to purchase an aggregate of 10% of the initial subscriptions per calendar year (at a minimum price of three times the most recent 12 months' cash distributions), only if such units are tendered, subject to the Company's financial ability to do so. The maximum annual 10% repurchase obligation, if tendered by the investors, is currently approximately $1.0 million. The Company has adequate capital to meet this obligation. The Company is not party to any legal action that would materially affect the Company's results of operations or financial condition. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three Months Ended March 31, 1998 Compared With March 31, 1997 Revenues. Total revenues for the three months ended March 31, 1998 were $25.2 million compared to $23.4 million for the three months ended March 31, 1997, an increase of approximately $1.8 million, or 7.7 percent. Such increase was primarily a result of increased drilling revenues. Drilling revenues for the three months ended March 31, 1998 were $15.5 million compared to $13.3 million for the three months ended March 31, 1997, an increase of approximately $2.2 million, or 16.5 percent. Such increase resulted from higher volumes of drilling and completion activities, due to increased levels of drilling partnership-related financing. Oil and gas sales for the three months ended March 31, 1998 were $8.0 million compared to $8.8 million for the three months ended March 31, 1997, a decrease of approximately $800,000, or 9.1 percent. Such decrease was due primarily to lower average sales prices in the production and gas marketing activities offset in part by increased natural gas production volumes from the Company's producing properties. Well operations and pipeline income for the three months ended March 31, 1998 remained relatively constant at approximately $1.1 million. Other income for the three months ended March 31, 1998 was $651,000 compared to $249,000 for the three months ended March 31, 1997, an increase of approximately $402,000, or 161.4 percent. Such increase resulted from interest earned on higher average cash balances. Costs and expenses. Costs and expenses for the three months ended March 31, 1998 were $21.6 million compared to $20.1 million for the three months ended March 31, 1997, an increase of approximately $1.5 million or 7.5 percent. Oil and gas well drilling operations costs for the three months ended March 31, 1998 were $13.0 million compared to $11.3 million for the three months ended March 31, 1997, an increase of approximately $1.7 million, or 15.0 percent. Such increase resulted from additional expenses resulting from the increased drilling activity. Oil and gas purchases and production costs for the three months ended March 31, 1998 remained relatively constant at approximately $7.5 million. General and administrative expenses for the three months ended March 31, 1998 decreased to $440,000 compared with $499,000 for the three months ended March 31, 1997. Depreciation, depletion, and amortization costs for the three months ended March 31, 1998 were $758,000 compared to $610,000 for the three months ended March 31, 1997, an increase of $148,000 or 24.3 percent. Such increase was due to the increased amount of investment in oil and gas properties owned by the Company. Interest costs were eliminated after the Company extinguished the balance on its bank credit line in November 1997. -7- Net income. Net income for the three months ended March 31, 1998 was $2.8 million compared to a net income of $2.5 million for the three months ended March 31, 1997, an increase of approximately $300,000 or 12.0 percent. Liquidity and Capital Resources The Company funds its operations through a combination of cash flow from operations, capital raised through drilling partnerships, and use of the Company's credit facility. Operational cash flow is generated by sales of natural gas from the Company's well interests, well drilling and operating activities for the Company's investor partners, natural gas gathering and transportation, and natural gas marketing. Cash payments from Company- sponsored partnerships are used to drill and complete wells for the partnerships, with operating cash flow accruing to the Company to the extent payments exceed drilling costs. The Company utilizes its revolving credit arrangement, if needed, to meet the cash flow requirements of its operating and investment activities. Sales volumes of natural gas have continued to increase while natural gas prices fluctuate monthly. The Company's natural gas sales prices are subject to increase and decrease based on various market-sensitive indices. A major factor in the variability of these indices is the seasonal variation of demand for natural gas, which typically peaks during the winter months. The volumes of natural gas sales are expected to continue to increase as a result of continued drilling activities and additional investment by the Company in oil and gas properties. The Company utilizes commodity-based derivative instruments (natural gas futures contracts traded on the NYMEX) as hedges to manage a portion of its exposure to this price volatility. The futures contracts hedge committed and anticipated natural gas purchases and sales, generally forecasted to occur within a three- to twelve-month period. The Company has a bank credit agreement with First National Bank of Chicago, which provides a borrowing base of $10.0 million, subject to adequate oil and natural gas reserves. At the request of the Company, the bank, at its sole discretion, may increase the borrowing base to $20.0 million. As of March 31, 1998, no balance is outstanding on the line of credit. Interest accrues at prime, with LIBOR (London Interbank Market Rate) alternatives available at the discretion of the Company. No principal payments are required until the credit agreement expires on December 31, 1999. The Company has commenced sales of units in the first partnership in its registered PDC 2000 public drilling program which consists of twelve partnerships scheduled to close over the next three years. The first partnership is scheduled to close in early June, 1998, with drilling planned in the second and third quarters of 1998. Additional programs are scheduled to close in September, November and December of 1998. The Company generally invests, as its equity contribution to each drilling partnership, an additional sum approximating 20% of the aggregate subscriptions received for that particular drilling partnership. As a result, the Company is subject to substantial cash commitments at the closing of each drilling partnership. The funds received from these programs are restricted to use in future drilling operations. No assurance can be made that the Company will continue to receive this level of funding from these or future programs. The Company was notified that it had submitted a successful bid for the acquisition of Columbia Gas Transmission Company's Rimersburg natural gas gathering system, located in northern Pennsylvania. If consummated, this transaction would occur in the second or third quarter of 1998 and would add to the Company's existing natural gas gathering system 207 miles of pipeline located in an area contiguous to the Company's Pennsylvania drilling operations, at a cost to the Company of $1.4 million. -8- In the fourth quarter of 1997, the Company completed a public offering of 4,077,500 shares of its common stock at a price of $6.25 per share. Net proceeds to the Company of approximately $23 million from the sale of the common stock has been partially used to extinguish the balance on the Company's bank credit line and to purchase producing oil and gas properties. The remaining $18 million will be used primarily to fund development drilling on new and existing properties, acquisition of producing properties and general corporate purposes, including working capital and possible acquisitions of complementary businesses. On February 19, 1998, the Company offered to purchase from Investors their units of investment in the Company's Drilling Programs formed prior to 1993. The Company purchased approximately $2.2 million of producing oil and gas properties in conjunction with this offer, which expired on March 31, 1998. The Company utilized capital received from its Public Stock Offering to fund this purchase. The Company continues to pursue capital investment opportunities in producing natural gas properties as well as its plan to participate in its sponsored natural gas drilling partnerships, while pursuing opportunities for operating improvements and costs efficiencies. Management believes that the Company has adequate capital to meet its operating requirements. Year 2000 Issue The Company has assessed the extent of the Year 2000 Issues affecting the Company. The Company believes that the new computer system including operating software currently being installed along with modifications being made by the Company's computer technicians will address the dating system flaw inherent in most operating systems. The Company expects to be fully Year 2000 Compliant by the end of 1998. Management believes that cost to become Year 2000 Compliant is not material to the Company's financial position or results of operations. New Accounting Standards The Company will implement SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information in 1998. SFAS No. 131 establishes standards for the way that public enterprises report information about operating segments in annual and interim financial statements. Because SFAS No. 131 has a disclosure-only effect on the notes to the Company's financial statements, adoption of SFAS No. 131 has no impact on the Company's result of operations or financial condition. In the year of adoption, the disclosure requirements of SFAS No. 131 need not be applied to interim financial statements. The Company will implement SFAS No. 131 in its full year 1998 financial statements. -9- CONFORMED COPY PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is not a party to any legal actions that would materially affect the Company's operations or financial statements. Item 6. Exhibits and Reports on Form 8-K (a) None. (b) No reports on Form 8-K have been filed during the quarter ended March 31, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Petroleum Development Corporation (Registrant) Date: May 13, 1998 /s/ Steven R. Williams Steven R. Williams President Date: May 13, 1998 /s/ Dale G. Rettinger Dale G. Rettinger Executive Vice President and Treasurer -10- EX-27 2
5 3-MOS DEC-31-1998 MAR-31-1998 30,820,800 0 5,215,800 273,900 336,300 37,907,100 71,561,100 24,963,400 85,601,000 21,382,700 0 0 0 155,100 58,410,700 85,601,000 23,529,200 25,247,400 20,444,800 21,643,400 0 0 0 3,604,000 807,300 2,796,700 0 0 0 2,796,700 .18 .17
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