8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

Current Report

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 16, 2016 (December 6, 2016)

PDC Energy, Inc.

(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of
incorporation or organization) 001-37419
(Commission
File Number) 95-2636730
(I.R.S. Employer
Identification Number)

1775 Sherman Street, Suite 3000

Denver, Colorado 80203

Registrant’s telephone number, including area code: 303-860-5800

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

EXPLANATORY NOTE

As previously disclosed in its Current Reports on Form 8-K filed with the U.S. Securities and Exchange Commission on August 24, 2016 and December 7, 2016, PDC Energy, Inc. (the “Company”) entered into two acquisition agreements (the “Acquisition Agreements”) to purchase Arris Petroleum Corporation (“Arris”) and the assets of 299 Resources, LLC, 299 Production, LLC and 299 Pipeline, LLC (collectively, “299 Sellers”) pursuant to which, and subject to the terms and conditions of those agreements, the Company agreed to acquire an aggregate of approximately 57,000 net acres in Reeves and Culberson Counties, Texas, for an aggregate consideration to Arris and 299 Sellers, in the form of cash and stock of the Company, of approximately $1.5 billion, subject to certain adjustments. On December 6, 2016, the transactions contemplated by the Acquisition Agreements were completed and the name of Arris was changed to PDC Permian, Inc.

This Current Report on Form 8-K/A provides the financial statements of the business acquired in the Acquisition Agreements and the pro forma financial statements required by Item 9.01 of Form 8-K. This Current Report on Form 8-K/A should be read in connection with the Current Reports on Form 8-K filed on August 24, 2016 and December 7, 2016, which provide a more complete description of the transactions contemplated by the Acquisition Agreements.

Item 9.01. Financial Statements and Exhibits.

(a)           Financial Statements of Business Acquired

The audited consolidated financial statements of Arris as of and for the years ended December 31, 2015 and 2014, including the notes and independent auditor’s report related thereto, the unaudited consolidated balance sheet of Arris as of June 30, 2016 and the audited consolidated balance sheet as of December 31, 2015, the unaudited condensed consolidated statements of operations and changes in cash flows of Arris for the six month periods ended June 30, 2016 and 2015 and the unaudited condensed changes in stockholders’ deficit for the six month period ended June 30, 2016, including the notes thereto, are attached as Exhibit 99.1 and incorporated herein by reference. The unaudited condensed consolidated financial statements of Arris as of September 30, 2016, including the unaudited condensed consolidated balance sheet of Arris as of September 30, 2016 and the audited consolidated balance sheet as of December 31, 2015, the unaudited condensed consolidated income statements of Arris for the three and nine month periods ended September 30, 2016 and 2015,  the unaudited condensed consolidated statement of changes in stockholders’ deficit of Arris for the nine month period ended September 30, 2016, and the unaudited condensed consolidated statement of changes in cash flows of Arris for nine month periods ended September 30, 2016 and 2015, including the notes thereto, are attached as Exhibit 99.2 and incorporated herein by reference. The Company requested and was granted a waiver from the U.S. Securities and Exchange Commission to exclude comparable information for 299 Sellers as the impact of 299 Sellers’ results of operations were insignificant.

(b)           Pro Forma Financial Information

The unaudited pro forma condensed consolidated balance sheet of the Company as at September 30, 2016, and the unaudited pro forma condensed consolidated statements of operations of the Company for the nine months ended September 30, 2016 and the year ended December 31, 2015, which give effect to the transactions contemplated by the Acquisition Agreements, are attached as Exhibit 99.3 and incorporated herein by reference.

(d)           Exhibits

See Exhibit Index.

2

SIGNATURE

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 hereunto duly authorized.

Date: December 16, 2016

PDC Energy, Inc.
By:	/s/ Daniel W. Amidon
	Daniel W. Amidon
	Senior Vice President, General Counsel and
	Secretary

3

EXHIBIT INDEX

Exhibit  No.	Description
99.1	The audited consolidated financial statements of Arris as of and for the years ended December 31, 2015 and 2014, including the notes and independent auditor’s report related thereto, the unaudited consolidated balance sheet of Arris as of June 30, 2016 and the audited consolidated balance sheet as of December 31, 2015, the unaudited condensed consolidated statements of operations and changes in cash flows of Arris for the six month periods ended June 30, 2016 and 2015 and the unaudited condensed changes in stockholders’ deficit for the six month period ended June 30, 2016, including the notes thereto (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed on September 8, 2016).
99.2	The unaudited condensed consolidated financial statements of Arris Petroleum Corporation as of September 30, 2016, including the unaudited condensed consolidated balance sheet of Arris Petroleum Corporation as of September 30, 2016 and the audited consolidated balance sheet as of December 31, 2015, the unaudited condensed consolidated income statements of Arris Petroleum Corporation for the three and nine month periods ended September 30, 2016 and 2015, the unaudited condensed consolidated statement of changes in stockholders’ deficit of Arris Petroleum Corporation for the nine month period ended September 30, 2016 and 2015, and the unaudited condensed consolidated statement of changes in cash flows of Arris Petroleum Corporation for nine month periods ended September 30, 2016 and 2015, including the notes thereto.
99.3	The unaudited pro forma condensed consolidated balance sheet of the Company as at September 30, 2016, and the unaudited pro forma condensed consolidated statements of operations of the Company for the nine months ended September 30, 2016 and the year ended December 31, 2015, which give effect to the transactions contemplated by the Acquisition Agreements.

4

EX-99.2

Exhibit 99.2

ARRIS PETROLEUM CORPORATION

Condensed Consolidated Financial Statements

ARRIS PETROLEUM CORPORATION

Table of Contents

	Page
Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets (Unaudited)	1
Condensed Consolidated Income Statements (Unaudited)	2
Condensed Consolidated Statement of Changes in Stockholders’ Deficit (Unaudited)	3
Condensed Consolidated Statement of Changes in Cash Flows (Unaudited)	4
Notes to Condensed Consolidated Financial Statements (Unaudited)	5

ARRIS PETROLEUM CORPORATION

Condensed Consolidated Balance Sheets (Unaudited)

	September 30,			December 31,
	2016			2015
Assets
Current assets
Cash and equivalents	$	4,614,523		$	3,720,366
Revenue receivable	6,107,520			660,452
JIB receivable	159,771			1,277,575
Due from stockholder	—			5,167,774
Affiliate receivable	129,322			—
Other current assets	241,764			414,726
Total current assets	11,252,900			11,240,893
Property and equipment
Oil and gas properties (successful efforts method)
Proved properties	144,581,234			76,050,422
Unproved properties	53,638,363			58,904,693
Other property and equipment	635,121			608,217
Accumulated depreciation, depletion, and amortization	(22,159,048		)	(5,552,375		)
Property and equipment, net	176,695,670			130,010,957
Other assets	454,746			—
Total assets	$	188,403,316		$	141,251,850
Liabilities and Stockholders’ Deficit
Current liabilities
Trade payables	$	4,147,111		$	15,800,636
Accrued liabilities	1,416,636			5,749,725
Revenue payable	4,303,788			421,064
Fair value of derivative instruments	375,173			—
Total current liabilities	10,242,708			21,971,425
Revolving credit facility	30,000,000			—
Asset retirement obligations	1,211,961			689,292
Total liabilities	41,454,669			22,660,717
Redeemable Convertible Senior Preferred Stock, $0.001 par value, 325,000 shares authorized, 207,182 shares issued and outstanding, liquidation preference of $237,795,093	237,795,093			192,218,143
Commitments and Contingencies (Note 7)
Stockholders’ deficit
Class A and Class B Common Stock, $0.001 par value, 210,000 shares authorized, 161,675 shares issued and outstanding	162			162
Additional paid-in capital	(30,988,209		)	(17,549,895		)
Accumulated deficit	(59,858,399		)	(56,077,277		)
Total stockholders’ deficit	(90,846,446		)	(73,627,010		)
Total liabilities and stockholders’ deficit	$	188,403,316		$	141,251,850

See notes to condensed consolidated financial statements.

1

ARRIS PETROLEUM CORPORATION

Condensed Consolidated Income Statements (Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Revenues
Oil revenues	$	9,872,111		$	781,665		$	17,489,088		$	1,109,002
Gas and natural gas liquids revenues	2,736,291			455,785			4,075,181			920,620
Total oil and gas revenues	12,608,402			1,237,450			21,564,269			2,029,622
Other revenue	12,006			—			18,762			—
Total revenues	12,620,408			1,237,450			21,583,031			2,029,622
Operating expenses
Lease operating expenses	1,537,485			269,220			3,039,682			609,216
Production taxes	632,961			74,824			1,060,922			125,941
Depreciation, depletion, amortization, and accretion	7,845,466			1,097,503			16,637,573			2,973,537
Workover expense	253,093			16,637			365,369			21,667
Gathering and processing expense	6,441			—			6,441			111,355
Geological and geophysical	4,788			—			6,591			1,262,558
General and administrative expense	1,193,011			1,455,244			3,673,278			3,754,834
Total operating expenses	11,473,245			2,913,428			24,789,856			8,859,108
Other income (expense)
Interest expense	(180,820		)	—			(180,820		)	—
Interest income	694			1,829			3,289			7,610
Loss on derivatives	(375,173		)	—			(375,173		)	—
Amortization of debt issuance costs	(21,621		)	—			(21,621		)	—
Other income	20			—			28			—
Total other income	(576,900		)	1,829			(574,297		)	7,610
Net income (loss)	$	570,263		$	(1,674,149	)	$	(3,781,122	)	$	(6,821,876	)

See notes to condensed consolidated financial statements.

2

ARRIS PETROLEUM CORPORATION

Condensed Consolidated Statement of Changes in Stockholders’ Deficit (Unaudited)

							Additional						Total
	Class A Common Stock			Class B Common Stock			Paid-In			Accumulated			Stockholders’
	Shares	Amount		Shares	Amount		Capital			Deficit			Deficit
Balance - December 31, 2015	159,797	$	160	1,878	$	2	$	(17,549,895	)	$	(56,077,277	)	$	(73,627,010	)
Other	—	—		—	—		(151		)	—			(151		)
Accrued dividends on Redeemable Convertible Senior Preferred Stock	—	—		—	—		(13,438,163		)	—			(13,438,163		)
Net loss	—	—		—	—		—			(3,781,122		)	(3,781,122		)
Balance - September 30, 2016	159,797	$	160	1,878	$	2	$	(30,988,209	)	$	(59,858,399	)	$	(90,846,446	)

See notes to condensed consolidated financial statements.

3

ARRIS PETROLEUM CORPORATION

Condensed Consolidated Statement of Changes in Cash Flows (Unaudited)

	Nine Months Ended
	September 30,
	2016			2015
Cash flows from operating activities
Net loss	$	(3,781,122	)	$	(6,821,876	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation, depletion, amortization, and accretion	16,637,573			2,973,537
Loss on derivative instruments	375,173			—
Amortization of debt issuance costs	21,621			—
Changes in operating assets and liabilities
Accounts receivable	(4,329,264		)	(518,306		)
Affiliate receivable	(129,322		)	(557,561		)
Other current assets	172,962			32,189
Accounts payable and accrued liabilities	(1,635,893		)	203,275
Oil and gas revenue payable	3,882,724			416,591
	14,995,574			2,549,725
Net cash provided by (used in) operating activities	11,214,452			(4,272,151		)
Cash flows from investing activities
Investment in oil and gas properties	(66,623,434		)	(50,458,064		)
Acquisition of oil and gas properties	(10,500,000		)	(4,760,000		)
Purchase of furniture and equipment	(26,904		)	(148,770		)
Net cash used in investing activities	(77,150,338		)	(55,366,834		)
Cash flows from financing activities
Proceeds from issuance of common stock	—			35,657
Proceeds from issuance of Redeemable Convertible Senior Preferred Stock	37,306,561			53,000,001
Redemption of Redeemable Convertible Preferred Stock	—			(830,718		)
Redemption of common stock	—			(14,669		)
Proceeds from borrowings on revolving credit facility	30,000,000			—
Costs related to debt issuance	(476,367		)	—
Other	(151		)	(95,997		)
Net cash provided by financing activities	66,830,043			52,094,274
Net increase (decrease) in cash and cash equivalents	894,157			(7,544,711		)
Cash and cash equivalents - beginning of period	3,720,366			23,549,819
Cash and cash equivalents - end of period	$	4,614,523		$	16,005,108
Supplemental disclosure of non-cash activity:
Current liabilities related to oil and gas property additions	$	4,658,277		$	14,446,144
Capitalized asset retirement obligations	$	326,962		$	301,692
Acquired asset retirement obligations	$	164,807		$	272,022
Accrued Redeemable Convertible Senior Preferred Stock dividends	$	13,438,163		$	7,613,863
Cash paid for interest	$	153,969		$	—

See notes to condensed consolidated financial statements.

4

ARRIS PETROLEUM CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 - Description of Business and Summary of Significant Accounting Policies

Arris Petroleum Corporation (the “Company”) is an independent energy company with substantially all of its producing oil and gas property located in the Permian Basin.

The Company was formed in the state of Delaware on October 16, 2013 with the purpose of acquiring and developing oil and gas properties located in the United States and commenced substantial operations in 2014.

Interim Financial Information

In the Company’s opinion, the accompanying condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of our financial statements for interim periods in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Accordingly, certain notes and other financial information included in audited financial statements have been condensed or omitted. The information presented in these interim period financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2015. Results of operations and cash flows for the nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the full year or any other future period.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Arris Petroleum Corporation and its wholly owned subsidiaries, Arris Operating Company, LLC; Arris Delaware Basin, LLC; Kimmeridge West Texas, LLC; and Arris Reeves Infrastructure, LLC. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The impact of oil and gas prices has a significant influence on estimates made by management. Changes in oil and gas prices directly affect the economic limits of estimated oil and gas reserves. These economic limits have significant effects upon estimated reserve quantities and valuations. These estimates are the basis for the calculation of depreciation, depletion, and amortization for the oil and gas properties and the assessment as to whether an impairment of such properties is required. In addition, significant estimates include the estimated cost and timing related to asset retirement obligations and the recoverability of unproved properties.

5

ARRIS PETROLEUM CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests. As of the balance sheet date, and periodically throughout the period, the Company has maintained balances in various operating accounts in excess of federally insured limits.

Accounts Receivable

The Company accrues for oil and gas sales based on actual production dates. Joint interest billings represent monthly billings to working interest owners in the properties the Company operates. These receivables are due within 30 days of billing, with a right of offset against revenues due to working interest owners in the properties. No interest is charged on past-due balances. All receivables are reviewed periodically, and appropriate actions are taken on past-due amounts, if any.

Concentrations of Credit Risk

The Company grants credit in the normal course of business to oil and gas purchasers in the United States. Collectability of the Company’s oil and gas sales is dependent upon the financial condition of the Company’s purchasers as well as general economic conditions of the industry. As of and for the nine months ended September 30, 2016, two purchasers accounted for 87% of oil and gas sales and 86% of revenue receivables. As of and for the nine months ended September 30, 2015, two purchasers accounted for 87% of oil and gas sales.

Accounting for Oil and Gas Properties

The Company follows the successful efforts method of accounting for its oil and gas properties. The Company does not capitalize general and administrative expenses directly identifiable with such activities. Costs of unsuccessful exploration efforts are expensed in the period it is determined that such costs are not recoverable through future net revenues. Geological and geophysical costs and delay rentals are expensed as incurred. The cost of development wells are capitalized whether productive or non-productive. Upon the sale of proved properties, the cost and accumulated depletion are removed from the accounts, and any gain or loss is reflected in the consolidated statement of operations. If it is determined that the sale of proved properties did not significantly affect the units-of-production depletion rate, the sale is treated as a normal retirement with no gain or loss recognized.

6

ARRIS PETROLEUM CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)

Accounting for Oil and Gas Properties (continued)

Capitalized costs for unproved oil and gas properties are assessed at least annually to determine if an impairment in value needs to be recognized. There were no unproved property impairments during the nine months ended September 30, 2016 and 2015. For sales of partial interests in unproved properties, the Company treats the proceeds as a recovery of costs with no gain recognized until all costs have been recovered  No sales of unproved properties occurred during the nine months ended September 30, 2016. Depreciation, depletion, and amortization of proved oil and gas properties is calculated using the units-of-production method based on proved reserves and estimated salvage values. For the nine months ended September 30, 2016 and 2015, depletion expense was $16,481,103 and $2,914,083, respectively.

The Company assesses the recoverability of its capitalized costs for its proved oil and gas properties periodically, or when circumstances indicate there is a need for such review. To determine if a depletable unit (generally defined as an individual field) is impaired, the Company compares the carrying value of the depletable unit to the undiscounted future net cash flows by applying estimated future prices over the economic lives of the reserves. For each depletable unit determined to be impaired, an impairment loss equal to the difference between the carrying value and the estimated fair value of the depletable unit will be recognized. Fair value, on a depletable unit basis, is estimated to be the present value of expected future cash flows computed by applying estimated future oil and gas prices, as determined by management, to estimated future production of oil and gas reserves over the economic lives of the reserves and the application of a discount rate commensurate with the risk associated with realizing the expected cash flows. The discount rate is a rate that management believes is representative of current market conditions and includes estimates for the risk premium. No proved property impairments were recorded during the nine months ended September 30, 2016.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided utilizing the straight-line method over the estimated useful lives for owned assets, ranging from five to seven years.

Revenue Recognition

Natural gas revenues are recognized when the title and risk pass to the purchaser. The Company records its share of revenues based on its share of proceeds. The Company sells the majority of its products soon after production at various locations, including the wellhead, at which time title and risk of loss pass to the buyer.

7

ARRIS PETROLEUM CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)

Revenue Recognition (continued)

Gas imbalances occur when the Company sells more or less than its entitled ownership percentage of total gas production. Any amount received in excess of the Company’s share is treated as a liability. If the Company receives less than its entitled share, the underproduction is recorded as a receivable. At September 30, 2016, the Company did not have any material gas imbalances.

Oil revenues are recognized when production is sold to a purchaser at a fixed or determinable price, delivery has occurred, title is transferred, and collectibility is assured.

Income Taxes

The Company recognizes deferred tax liabilities and assets based on the differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years. The Company’s temporary differences result primarily from depletion and impairments of oil and gas properties under the successful efforts method of accounting.

The Company’s deferred income taxes include certain future tax benefits. The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions will more likely than not be sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are not recorded as a tax benefit or expense in the current year. Interest and penalties, if applicable, are recorded in the period assessed as general and administrative expenses. However, no interest or penalties have been assessed for the nine months ended September 30, 2016 and 2015.

Stock-Based Compensation

The Company recognizes compensation expense for stock-based awards when all performance and service conditions are probable of being satisfied (generally upon a liquidation event).

Derivative Instruments

On occasion, the Company enters into derivative contracts to mitigate the impact of oil and natural gas price fluctuations. The Company applies ASC Topic 815, Derivatives and Hedging, to these transactions. Open transactions are accounted for on a fair value basis at the balance sheet date, and any changes in fair value are included in other income or expense in the consolidated statements of operations. Cash from settled transactions are also recorded as other income or expense in the consolidated statements of operations. The Company does not have any derivative contracts designated as cash flow hedges.

8

ARRIS PETROLEUM CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 2 — Stock Purchase Agreement with PDC Energy

On August 23, 2016, the Company entered into a stock purchase agreement with PDC Energy, Inc. with an effective date of July 1, 2016 (the “Sale Agreement”). The Sale Agreement calls for payments in both privately placed shares of common stock and cash and is expected to close in the fourth quarter of 2016. Contingent upon closing, the estimated preliminary purchase price for 100% of the Company’s common stock, net of estimated preliminary closing adjustments, includes approximately $504 million of cash and 5,390,478 shares of common stock of PDC Energy, Inc. Conditioned upon closing and the determination of the final purchase price in the Sale Agreement, cash severance payments and bonus payments to employees of the Company may approximate $13.5 million at the date of close.  Management anticipates the redemption of the preferred shares and a distribution to holders of Class A and Class B shares of common stock of both cash and common stock of PDC Energy, Inc., in accordance with the governing documents (Note 10).

Note 3 - Acquisitions and Divestitures

On August 5, 2016, the Company acquired approximately 655 net acres (the “Acquired Acreage”) and interests in three well bores from an unrelated party in exchange for $10,500,000 and interests in certain acreage and surface interests. If the Company or its successor sells the Acquired Acreage within one year, the Company or its successor is obligated to pay additional consideration equal to 50% of the amount that exceeds a value of $11,000 per net acre. Conditioned upon the closing and determination of the final purchase price of the Sale Agreement, this additional consideration could approximate $4.0 million. Below is a summary of the preliminary allocation of the assets acquired and liability assumed with this transaction:

Purchase price
Cash consideration	$	10,500,000
Assets contributed	19,530
Total purchase price	$	10,519,530
Recognized amounts of identifiable assets and liabilities acquired
Proved oil and gas properties	$	10,684,337
Asset retirement obligation assumed	(164,807		)
Total identifiable net assets	$	10,519,530

In September 2015, the Company entered into a purchase and sale agreement with an unrelated party to acquire the right, title, and interest in and to several oil and gas properties totaling $4,760,000. The Company recorded the estimated fair value of the identifiable assets acquired as of the acquisition date.

9

ARRIS PETROLEUM CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 3 - Acquisitions and Divestitures (continued)

Below is a summary of the assets acquired and liabilities assumed with this transaction:

Purchase price
Cash consideration	$	4,760,000
Recognized amounts of identifiable assets and liabilities acquired
Proved oil and gas properties	$	3,561,922
Pipeline and gas gathering equipment	951,575
Unproved properties	518,525
Asset retirement obligation assumed	(272,022		)
Total identifiable net assets	$	4,760,000

To determine the fair value of the proved oil and gas properties acquired in the business combinations above, the Company used an income approach based on a discounted cash flow model and made market assumptions as to future commodity prices, projections of estimated quantities of oil and natural gas reserves, expectations for timing and amount of future development and operating costs, projections of future rates of production, expected recovery rates, and risk-adjusted discount rates. The Company determined the appropriate discount rates used for the discounted cash flow analyses by using a weighted-average cost of capital from a market participant perspective plus property-specific risk premiums for the assets acquired. The pipeline and gas gathering equipment acquired is included in proved oil and gas properties and is subject to units-of-production depletion and impairment at the depletable unit.

In December 2015, the Company entered into a purchase and sale agreement with an unrelated party to divest certain unproved oil and gas properties. The properties were sold for $1,426,000 in cash, resulting in a loss of $733,000.

10

ARRIS PETROLEUM CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 4 - Fair Value Measurements

The Company applies the authoritative guidance applicable to all financial assets and liabilities required to be measured and reported at fair value on a recurring basis, as well as to non-financial assets and liabilities measured at fair value on a non-recurring basis, including impairments of proved oil and gas properties and other long-lived assets and asset retirement obligations initially measured at fair value. The fair value of an asset or liability is the amount that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Observable inputs are inputs that market participants would use in valuing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in valuing the asset or liability based on the best information available in the circumstances.

Financial and non-financial assets and liabilities are classified within the valuation hierarchy based upon the lowest level of input that is significant to the fair value measurement. The Company’s policy is to recognize transfers in and out of the fair value hierarchy as of the end of the reporting period in which the event or change in circumstances caused the transfer. The hierarchy is organized into three levels based on the reliability of the inputs as follows:

Level 1:Quoted prices in active markets for identical assets or liabilities;

Level 2:Quoted prices in active markets for similar assets and liabilities and inputs, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations whose inputs or significant value drivers are observable; or

Level 3:Unobservable pricing inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.

Recurring Fair Value Measurements

The following table presents the Company’s financial assets and liabilities that were measured at fair value on a recurring basis during the period ended September 30, 2016 by level within the fair value hierarchy:

Description	Level 1		Level 2		Level 3		Total
Liability
Commodity derivatives	$	—	$	375,173	$	—	$	375,173

11

ARRIS PETROLEUM CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 4 - Fair Value Measurements (continued)

Recurring Fair Value Measurements (continued)

The Company’s commodity derivative financial instruments consist of one oil costless collar agreement and one natural gas costless collar agreement. The fair values of these derivative swap contracts are based on market prices posted on the New York Mercantile Exchange (“NYMEX”). The fair values of the agreements are determined under the income valuation technique using an option-pricing model. The valuation model requires a variety of inputs, including contractual terms, projected crude oil and natural gas market prices, volatilities, and discount rates, as appropriate. The Company’s estimates of fair value of the derivatives include consideration of the Company’s creditworthiness and the time value of money. The consideration of these factors resulted in an estimated exit-price for the derivative liability under a marketplace participant’s view. All of the significant inputs are observable, either directly or indirectly; therefore, the Company’s commodity derivative instruments are included within the Level 2 fair value hierarchy.

Non-Recurring Fair Value Measurements

The following table presents the Company’s non-financial assets and liabilities that were measured at fair value on a non-recurring basis during the period ended September 30, 2016 by level within the fair value hierarchy:

Description	Level 1		Level 2		Level 3		Total
Liability
Asset retirement obligations	$	—	$	—	$	326,962	$	326,962

12

ARRIS PETROLEUM CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 4 - Fair Value Measurements (continued)

Non-Recurring Fair Value Measurements (continued)

Fair value used in the initial recognition of asset retirement obligations and any subsequent upward changes in estimates is determined under the income approach using the present value of expected future remediation and dismantlement costs, incorporating the Company’s best estimate of inputs used by industry participants when valuing similar liabilities. Accordingly, the fair value is based on unobservable pricing inputs and, therefore, is considered a Level 3 measurement in the fair value hierarchy. During the period ended September 30, 2016, the Company recorded asset retirement obligations of $326,962.  See Note 6 for additional information.

Other assets and liabilities not measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and revenue payable. The consolidated financial statement carrying amounts of these items approximate their fair values due to their short-term nature.

Note 5 - Derivative Instruments

In July 2016, the Company entered into one oil and one gas costless collar with an unrelated party. Instruments outstanding as of September 30, 2016 were as follows:

Commodity	Settlement  Month	Volumes	Floor  (Purchased Put)  Price		Ceiling (Sold  Call) Price
Oil — WTI	October 2016	33,810 Bbls	$	42.00	$	45.75
Oil — WTI	November 2016	30,926 Bbls	$	42.00	$	45.75
Oil — WTI	December 2016	29,093 Bbls	$	42.00	$	45.75
Natural Gas — Henry Hub	November 2016	234,892 Mbtu	$	2.10	$	3.65
Natural Gas — Henry Hub	December 2016	215,413 Mbtu	$	2.10	$	3.65

The Company has the option to enter into a netting arrangement with the counterparty, however as of September 30, 2016 no such election has been made.

The counterparty has an intercreditor arrangement with Texas Capital Bank, accordingly, the Company is not required to post collateral since the senior revolving line-of-credit is secured by the Company’s oil and gas properties.

13

ARRIS PETROLEUM CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 6 - Asset Retirement Obligations

The Company follows the provisions of ASC Topic 410, Asset Retirement and Environmental Obligations. This topic requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the asset. The asset retirement obligations are allocated to operating expenses by using a systematic, rational method. The Company’s asset retirement obligations relate to the plugging and abandoning of its oil and gas wells and the reclamation of its well locations.

A reconciliation of the changes in the Company’s liabilities are as follows:

	For the Nine  Months ended  September 30,  2016
Beginning asset retirement obligations	$	689,292
Liabilities acquired	164,807
Liabilities incurred	326,962
Revisions	—
Accretion	30,900
Long-term asset retirement obligations	$	1,211,961

14

ARRIS PETROLEUM CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 7 - Commitments and Contingencies

Litigation

In the normal course of business, the Company is party to litigation from time to time. The Company maintains insurance to cover certain actions and believes that resolution of such litigation will not have a material adverse effect on the Company.

Shut-In Wells

In November 2015, the third-party gas plant servicing the Company’s wells in Culberson County was closed due to a gas processing plant explosion. As a result, those wells were shut-in temporarily pending the reopening of the plant. The gas plant was reopened during the second quarter of 2016.

Note 8 — Long Term Debt

In July 2016, the Company entered into a senior revolving line-of-credit (the “Credit Agreement”) with Texas Capital Bank with a maximum commitment of $100,000,000. The Credit Agreement had an initial borrowing base of $20,000,000, which is subject to semi-annual redeterminations. In September 2016, the borrowing base was increased to $40,000,000. As of September 30, 2016, the outstanding borrowings under this Credit Agreement were $30,000,000. Repayment of borrowings is required in the event that the redetermined borrowing base is less than outstanding borrowings or on the maturity date in July 2020. Interest accrues at either the Alternate Base Rate or LIBOR plus applicable margins ranging 2.00% to 4.00% based upon the borrowing base usage (4.02% as of September 30, 2016). The Company pays a commitment fee of 0.50% of the unused borrowing base. Amounts borrowed under the Credit Agreement are collateralized by substantially all of the Company’s assets. The Credit Agreement restricts the Company’s ability to, among other items, incur additional indebtedness, sell assets, pay dividends; and requires the Company to enter into swaps, puts, or collars representing at least 75%- 85% of projected proved developed producing volumes. The Credit Agreement contains certain financial covenants, including but not limited to, a maximum senior debt to EBITDAX (as defined in the Credit Agreement) ratio, a minimum current ratio, and a minimum interest coverage ratio. As of September 30, 2016, the Company was in compliance with all financial covenants.

Note 9 - Redeemable Convertible Senior Preferred Stock

The Company is authorized to issue up to 350,000 preferred shares, par value $0.001. Of the 350,000 preferred shares authorized, the Company has designated 325,000 shares as Redeemable Convertible Senior Preferred Stock (“Senior Preferred Stock”). On January 14, 2016 and March 14, 2016, the Company issued an additional 21,000 shares and 11,139 shares, respectively, of Redeemable Convertible Preferred Stock for $1,000 per share. As of September 30, 2016, there were 207,182 shares of Senior Preferred Stock issued and outstanding, issued at an original issuance price of $1,000 per share (“Original Issue Price”).

15

ARRIS PETROLEUM CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 9 - Redeemable Convertible Senior Preferred Stock (continued)

At December 31, 2015, the Company had $5,167,774 recorded as due from stockholders on the accompanying consolidated balance sheet relating to shares issued in December 2015. The balance of $5,167,774 was received by the Company on January 4, 2016.

Voting

The Senior Preferred Stock holders are entitled to vote as a separate class on certain matters, including (i) any amendment to the certificate of incorporation that would adversely affect the rights and preferences of Senior Preferred Stock; (ii) adoption of a Certification of Designation with respect to any series of preferred shares; (iii) any amendment to the Bylaws of the Company proposed by the holders of the Common Stock; and (iv) consummation by the Company of any contract for a liquidation event, as defined (“Liquidation Event”). In instances where both holders of Common Stock and Senior Preferred Stock have voting rights with respect to a matter for which a vote is being taken, holders will vote as separate classes. Approval of such matter will require majority approval of each voting class.

Conversion

Holders of the Senior Preferred Stock may elect to convert some or all of the Senior Preferred Stock within 30 days after the closing of an initial public offering (“IPO”) into the class of stock in the IPO at the IPO price.

Dividends

Holders of the Senior Preferred Stock are entitled to a cumulative preferred return of 8% per annum, compounded continually on the Adjusted Capital Balance with respect to such share through the earlier of (i) the redemption date of such share or (ii) a Liquidation Event, as defined. The Adjusted Capital Balance is defined as (i) the Original Issue Price, less (ii) the aggregate amount of all distributions made by the Company with respect to such share prior to such date, if any. As of September 30, 2016, the Company recorded cumulative accrued Senior Preferred Stock dividends of $30,613,552.

16

ARRIS PETROLEUM CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 9 - Redeemable Convertible Senior Preferred Stock (continued)

Liquidation

In the event of liquidation, dissolution, or winding up of the Company, the holders of the Senior Preferred Stock will be paid in cash for each share of Senior Preferred Stock held in an amount equal to the Original Issue Price, plus all accrued unpaid dividends (the “Liquidation Preference”), before any payment is made to any Common Stock holders. If the assets of the Company available for distribution to the holders of shares of the Senior Preferred Stock are insufficient to permit payment in full to such holders of the sums that such holders are entitled to receive in such case, then all of the assets available for distribution to holders of shares of the Senior Preferred Stock will be distributed among and paid to such holders ratably in proportion to the amounts that would be payable if such assets were sufficient to permit full payment.

Redemption

The Company may, but is not obligated to, redeem all or any portion of the Senior Preferred Stock at the Liquidation Preference. Upon a Liquidation Event, the Company is required to repurchase the Senior Preferred Stock with the proceeds received. Due to this conditional redemption feature, the Senior Preferred Stock has been classified outside of permanent equity (Note 2).

Note 10 - Stockholders’ Deficit

The Company is authorized to issue up to 210,000 shares of Common Stock, par value $0.001, which is divided into two classes: Class A Common Stock (“Class A Stock”) and Class B Common Stock (“Class B Stock”) (collectively, “Common Stock”). There were 159,797 shares of Class A Stock, of which management holds 7,990, and 1,878 shares of Class B Stock issued and outstanding as of September 30, 2016.

Voting

Each holder of Common Stock will be entitled to one vote for each share.

Conversion

Upon achievement of the Required Investor Return, each outstanding share of Class B Stock will be automatically converted into one Class A Stock.

If, immediately prior to the effective date of an IPO, the Required Investor Return has not been achieved, all outstanding shares of Class B Stock will automatically convert into fractional shares of Class A Stock based upon the actual rate of return achieved through that date.

17

ARRIS PETROLEUM CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 10 - Stockholders’ Deficit (continued)

Dividends

Holders of the Common Stock shall not be entitled to dividends until the Senior Preferred Stock has been redeemed at the Liquidation Preference and, after that, only when declared by the Board of Directors. When and if dividends are properly declared on the Common Stock:

a.The holders of the outstanding shares of Class A Stock will be entitled to receive dividends with respect to each share of Class A Stock, prior to the payment of any dividend or other distribution on shares of Class B Stock, until a 30% required investor return (“Required Investor Return”) has been achieved and paid in full.  The Required Investor Return is expected to be achieved upon the closing of the Sale Agreement.

b.Once the Required Investor Return has been achieved and paid in full, the holders of all Common Stock will be entitled to receive all further dividends from the Company.

c.Thereafter, all dividends with respect to shares of each class of Common Stock will be paid pro rata and in like matter to all of the holders entitled thereto.

Liquidation

In the event of liquidation, dissolution, or winding up of the Company, the assets of the Company legally available to the stockholders, after payment in full of the Liquidation Preference to the Senior Preferred Stock, will be distributed to the holders of Common Stock, first to the holders of Class A Stock, until the Required Investor Return has been achieved and paid in full. Once this is achieved, the holders of Common Stock will be entitled to all residual assets of the Company pro rata without limit (Note 2).

Management Incentive Units

The Class B Stock is available to management only, and a portion of Class A Stock is also held by management (“Management Incentive Units”). The number of Class A Stock and Class B Stock shares held by management as of September 30, 2016 was 7,990. The Management Incentive Units were purchased with cash at $1.00 per share and are generally subject to vesting over four years. If subsequent issuances of Class A Stock and Class B Stock occur, management is entitled to maintain their relative percentage of Class A Stock and Class B Stock without further consideration, subject to the original vesting schedule.

18

ARRIS PETROLEUM CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 11 - Income Taxes

The Company has pre-tax net operating loss carryforwards as of December 31, 2015 of $25,964,982, which expire before 2036. Internal Revenue Code Section 382 imposes limitations on a Company’s ability to recognize certain deferred tax assets upon a change of control of the Company. During 2014, the Company had a change of control event under Section 382, which will limit its ability to utilize its deferred tax assets, including net operating loss carryforwards, to offset future taxable income. The approximate amount of net operating losses subject to the Section 382 limitation is $650,000.

A valuation allowance is provided when it is more likely than not that all or some of the deferred income tax assets will not be realized. Based upon cumulative losses since inception and projections of future taxable income, the Company has recorded a valuation allowance of $21,306,031 at December 31, 2015. During the three and nine months ended September 30, 2016, the effective tax rate was zero due to the full valuation allowance on the deferred tax assets. For the year ended December 31, 2016, the Company estimates the annual effective tax rate to be zero due to the full valuation allowance on the deferred tax assets.

The Company does not believe that it has any uncertain tax positions. It is the Company’s policy to recognize interest and penalties related to uncertain tax benefits in income tax expense.

Note 12 - Related Party Transactions

In June 2016, the Company and an affiliate of a stockholder (“Stockholder Affiliate”) entered into a services agreement whereby the Company will be charged up to $2,450 per day of services provided to the Company by a group of employees of the Stockholder Affiliate. This agreement can be terminated with 10 days’ notice.

In June 2016, the Company and an investee company of a stockholder (“Stockholder Investee Company”) entered into a services agreement whereby the Company may charge the Stockholder Investee Company up to $6,850 per day of services provided to the Stockholder Investee Company by a group of employees of the Company. This agreement can be terminated with 10 days’ notice.  As of September 30, 2016, the Company had a receivable form the Stockholder Investee Company of $129,322.

Note 13 - Subsequent Events

As of December 2, 2016, there were no other material subsequent events that required recognition or disclosure in the consolidated financial statements other than those previously disclosed.

19

EX-99.3

Exhibit 99.3

PDC ENERGY, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

INDEX

Financial Information	Page Number
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2016	2
Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2016	3
Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2015	4
Notes to Pro Forma Condensed Consolidated Financial Statements	5

1

PDC ENERGY, INC.

Pro Forma Condensed Consolidated Balance Sheet

(unaudited; in thousands, except share and per share data)

	September 30, 2016
	PDC Historical			Arris Petroleum Historical			299 Sellers Historical			Pro Forma Adjustments (1)			PDC Pro Forma
Assets
Current assets:
Cash and cash equivalents	$	1,197,692		$	4,615		$	(370,048	)(a)	$	(446,165	)(b)	$	315,510
										10,094		(c)
										(40,094		)(d)
										(13,585		)(g)
										(11,480		)(i)
										(6,154		)(j)
										(9,365		)(k)
Other current assets	170,353			6,638			223		(a)	—			177,214
Total current assets	1,368,045			11,253			(369,825		)	(516,749		)	492,724
Properties and equipment, net	1,932,274			176,696			724,996		(a)	923,779		(b)	4,073,381
										449,000		(e)
										(133,364		)(h)
Other assets	116,961			455			(42,574		)(a)	(57,426		)(b)	23,570
Other assets										6,154		(j)
Total Assets	$	3,417,280		$	188,404		$	312,597		$	671,394		$	4,589,675
Liabilities and Equity
Liabilities
Current liabilities	$	219,281		$	10,243		$	70	(a)	$	13,585	(f)	$	209,334
										(13,585		)(g)
										(11,260		)(i)
										(9,000		)(k)
Long-term debt	1,041,575			30,000			—			10,094		(c)	1,041,575
										(40,094		)(d)
Deferred income taxes	44,340			—			—			449,000		(e)	493,340
Asset retirement obligations	82,509			1,212			1,000		(a)	—			84,721
Other liabilities	43,515			—			16		(a)	—			43,531
Total liabilities	1,431,220			41,455			1,086			398,740			1,872,501
Senior preferred stock	—			237,795			—			(237,795		)(h)	—
Equity
Shareholders’ equity:
Preferred shares, par value $0.01 per share; authorized 50,000,000 shares; issued: none	—			—			—			—			—
Common shares, par value $0.01 per share; authorized 150,000,000 shares; issued: 56,280,544	563			1			40		(a)	54		(b)	657
										(1		)(h)
Additional paid-in capital	1,796,664			(30,988		)	311,471		(a)	420,134		(b)	2,528,269
										30,988		(h)
Retained earnings	190,133			(59,859		)	—			(13,585		)(f)	189,548
										73,444		(h)
										(220		)(i)
										(365		)(k)
Treasury shares, at cost: 25,854	(1,300		)	—			—			—			(1,300		)
Total shareholders’ equity	1,986,060			(90,846		)	311,511			510,449			2,717,174
Total Liabilities and Shareholders’ Equity	$	3,417,280		$	188,404		$	312,597		$	671,394		$	4,589,675

(1) See Note 4      

See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements

2

PDC ENERGY, INC.

Pro Forma Condensed Consolidated Statement of Operations

(unaudited; in thousands, except share and per share data)

	Nine Months Ended September 30, 2016
	PDC Energy Historical			Arris Petroleum Historical			Pro Forma Adjustments (1)			PDC Energy Pro Forma
Revenues:
Crude oil, natural gas and NGLs sales	$	328,013		$	21,564		$	—		$	349,577
Sales from natural gas marketing	6,728			—			—			6,728
Commodity price risk management loss, net	(62,348		)	(375		)	—			(62,723		)
Well operations, pipeline income and other	2,425			19			—			2,444
Total revenues	274,818			21,208			—			296,026
Costs, expenses and other:
Lease operating expenses	43,006			3,405			—			46,411
Production taxes	19,682			1,061			—			20,743
Transportation, gathering and processing expenses	13,554			6			—			13,560
Cost of natural gas marketing	7,795			—			—			7,795
Exploration expense	688			7			—			695
Impairment of properties and equipment	6,104			—			—			6,104
General and administrative expense	78,868			3,673			(11,260		)(l)	71,281
Depreciation, depletion and amortization	317,329			16,607			—			333,936
Provision for uncollectible notes receivable	44,038			—			—			44,038
Accretion of asset retirement obligations	5,400			31			—			5,431
Loss on sale of properties and equipment	(43		)	—			—			(43		)
Total costs, expenses and other	536,421			24,790			(11,260		)	549,951
Income (loss) from operations	(261,603		)	(3,582		)	11,260			(253,925		)
Interest expense	(42,759		)	(202		)	9,000		(m)	(62,030		)
							(28,069		)(n)
Interest income	1,875			3			—			1,878
Income (loss) before income taxes	(302,487		)	(3,781		)	(7,809		)	(314,077		)
Provision for income taxes	112,198			—			4,404		(o)	116,602
Net income (loss)	$	(190,289	)	$	(3,781	)	$	(3,405	)	$	(197,475	)
Earnings per share:
Basic	$	(4.16	)							$	(3.58	)
Diluted	$	(4.16	)							$	(3.58	)
Weighted-average common shares outstanding:
Basic	45,741									55,128
Diluted	45,741									55,128

(1) See Note 4

See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements

3

PDC ENERGY, INC.

Pro Forma Condensed Consolidated Statement of Operations

(unaudited; in thousands, except share and per share data)

	Year Ended December 31, 2015
	PDC Energy Historical			Arris Petroleum Historical			Pro Forma Adjustments (1)			PDC Energy Pro Forma
Revenues:
Crude oil, natural gas and NGLs sales	$	378,713		$	3,606		$	—		$	382,319
Sales from natural gas marketing	10,920			—			—			10,920
Commodity price risk management gain, net	203,183			—			—			203,183
Well operations, pipeline income and other	2,510			—			—			2,510
Total revenues	595,326			3,606			—			598,932
Costs, expenses and other:
Lease operating expenses	56,992			1,110			—			58,102
Production taxes	18,443			204			—			18,647
Transportation, gathering and processing expenses	10,151			174			—			10,325
Cost of natural gas marketing	11,717			—			—			11,717
Exploration expense	1,102			3,056			—			4,158
Impairment of properties and equipment	161,620			38,662			—			200,282
General and administrative expense	89,959			5,913			—			95,872
Depreciation, depletion and amortization	303,258			5,317			—			308,575
Accretion of asset retirement obligations	6,293			9			—			6,302
Gain (loss) on sale of properties and equipment	(385		)	733			—			348
Total costs, expenses and other	659,150			55,178			—			714,328
Loss from operations	(63,824		)	(51,572		)	—			(115,396		)
Interest expense	(47,571		)	—			(39,125		)(n)	(86,696		)
Interest income	4,807			10			—			4,817
Loss before income taxes	(106,588		)	(51,562		)	(39,125		)	(197,275		)
Provision for income taxes	38,308			—			34,461		(o)	72,769
Net loss	$	(68,280	)	$	(51,562	)	$	(4,664	)	$	(124,506	)
Earnings per share:
Basic	$	(1.74	)							$	(2.57	)
Diluted	$	(1.74	)							$	(2.57	)
Weighted-average common shares outstanding:
Basic	39,153									48,540
Diluted	39,153									48,540

(1) See Note 4

See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements

4

Note 1 - Basis of Presentation

The unaudited pro forma condensed consolidated balance sheet of PDC Energy, Inc. (“PDC” or the “Company”) as of September 30, 2016, is derived from:

·the historical consolidated balance sheet of the Company;

·the historical consolidated balance sheet of Arris Petroleum Corporation (“Arris”); and

·the preliminary estimated values assigned to the identifiable assets acquired and liabilities assumed from 299 Resources, 299 Production, LLC, 299 Pipeline, LLC (collectively, “299 Sellers”)

The unaudited pro forma condensed consolidated statements of operations of the Company for the nine months ended September 30, 2016 and year ended December 31, 2015 are derived from:

·the historical consolidated statements of operations of the Company; and

·the historical consolidated statements of operations of Arris.

The Company requested and was granted a waiver from the Securities and Exchange Commission (“SEC”) to exclude comparable results of operations information for 299 Sellers as the impact of 299 Sellers’ results of operations were insignificant.

The unaudited pro forma condensed consolidated balance sheet gives effect to the acquisition of the stock of Arris and the assets of 299 Sellers as if the transaction had occurred on September 30, 2016. The unaudited pro forma condensed consolidated statements of operations give effect to the acquisition of Arris and additional acquisition-related financing costs as if the transactions had occurred on January 1, 2015. The transactions and the related adjustments are described in the accompanying notes to the financial statements. In the opinion of Company management, all adjustments have been made that are necessary to present fairly, in accordance with Regulation S-X of the SEC, the pro forma condensed consolidated financial statements.

The unaudited pro forma condensed consolidated balance sheet and statements of operations are presented for illustrative purposes only, and do not purport to be indicative of the results of operations that would actually have occurred if the transaction described had occurred as presented in such statements or that may be obtained in the future. In addition, future results may vary significantly from those reflected in such statements due to factors described in “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”), and elsewhere in the Company’s reports and filings with the SEC.

The unaudited pro forma condensed consolidated balance sheet and statements of operations should be read in conjunction with the Company’s historical consolidated financial statements and the notes thereto included in its 2015 Form 10-K. The pro forma statements should also be read in conjunction with the historical statements of Arris and the notes thereto filed as Exhibit 99.1 to the Current Report on Form 8-K/A of which this Exhibit 99.3 is a part and Exhibit 99.1 to the Current Report on Form 8-K that was filed on September 8, 2016.

Note 2 - Acquisition Date

The acquisition closed on December 6, 2016, for a preliminary closing price of approximately $1.6 billion, subject to customary post-closing adjustments, including adjustments based on title and environmental due diligence, and has an effective date of July 1, 2016.

5

PDC ENERGY, INC.

Notes To Pro Forma Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2016 And Year Ended December 31, 2015

(unaudited)

Note 3 - Preliminary Acquisition Accounting

The transaction is accounted for under the acquisition method of accounting. Accordingly, the Company conducts assessments of net assets acquired and liabilities assumed and recognizes amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisition are expensed as incurred. The preliminary purchase price allocation presented within is based on the Company’s initial assessment of the limited financial information available, pending final settlement and completion of valuation. The final purchase price allocation for the business combination will be performed subsequent to closing and adjustments to estimated amounts, or recognition of additional assets acquired or liabilities assumed, may occur as more detailed analyses are completed and additional information is obtained about the facts and circumstances that existed as of the acquisition date.

The following presents the preliminary estimated purchase price allocation of the net assets acquired in the acquisition (in thousands):

Assets:
Current Assets	$		11,476
Proved properties	112,069
Unproved properties	1,989,989
Other property and equipment	11,383
Other assets	$	455
Total assets to be acquired	$	2,125,372
Liabilities:
Current liabilities	$	10,313
Asset retirement obligations	2,212
Long-term debt	30,000
Other liabilities	16
Deferred tax liabilities	449,000
Total liabilities to be assumed	491,541
Net assets to be acquired	$	1,633,831

The preliminary estimated fair value of properties and equipment and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of properties and equipment include estimates of: (i) reserves; (ii) future operating and development costs; (iii) future commodity prices; (iv) estimated future cash flows; and (v) a market-based weighted-average cost of capital rate.

Properties and Equipment. Significant accounting polices related to our properties and equipment are discussed below.

Crude Oil and Natural Gas Properties. We account for our crude oil and natural gas properties under the successful efforts method of accounting. Costs of proved developed producing properties, successful exploratory wells and developmental dry hole costs are capitalized and depreciated or depleted by the unit-of-production method based on estimated proved developed producing reserves. Property acquisition costs are depreciated or depleted on the unit-of-production method based on estimated proved reserves. We calculate quarterly depreciation, depletion and amortization (“DD&A”) expense by using our estimated prior period-end reserves as the denominator, with the exception of our fourth quarter where we use the year-end reserve estimate adjusted to add back fourth quarter production. Upon the sale or retirement of significant portions of or complete fields of depreciable or depletable property, the net book value thereof, less proceeds or salvage value, is recognized

6

PDC ENERGY, INC.

Notes To Pro Forma Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2016 And Year Ended December 31, 2015

(unaudited)

in the consolidated statements of operations as a gain or loss. Upon the sale of individual wells or a portion of a field, the proceeds are credited to accumulated DD&A.

Proved Property Impairment. Upon a triggering event, we assess our producing crude oil and natural gas properties for possible impairment by comparing net capitalized costs, or carrying value, to estimated undiscounted future net cash flows on a field-by-field basis using estimated production based upon prices at which we reasonably estimate the commodity to be sold. The estimates of future prices may differ from current market prices of crude oil, natural gas and NGLs. Certain events, including but not limited to downward revisions in estimates to our reserve quantities, expectations of falling commodity prices or rising operating costs, could result in a triggering event and, therefore, a possible impairment of our proved crude oil and natural gas properties. If net capitalized costs exceed undiscounted future net cash flows, the measurement of impairment is based on estimated fair value utilizing a future discounted cash flows analysis and is measured by the amount by which the net capitalized costs exceed their fair value. Impairments are included in the consolidated statements of operations line item impairment of crude oil and natural gas properties, with a corresponding impact on accumulated DD&A on the consolidated balance sheets.

Unproved Property Impairment. The acquisition costs of unproved properties are capitalized when incurred, until such properties are transferred to proved properties or charged to expense when expired, impaired or amortized. Unproved crude oil and natural gas properties with individually significant acquisition costs are periodically assessed for impairment. Unproved crude oil and natural gas properties which are not individually significant are amortized, by field, based on our historical experience, acquisition dates and average lease terms. Impairment and amortization charges related to unproved crude oil and natural gas properties are charged to the consolidated statements of operations line item impairment of crude oil and natural gas properties.

Other Property and Equipment. Other property and equipment is carried at cost. Depreciation is provided principally on the straightline method over the assets’ estimated useful lives. We review these long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds our estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

The following table presents the estimated useful lives of our other property and equipment:

Transportation, pipeline and other equipment	3 - 20 years
Buildings	20 - 30 years

Maintenance and repair costs on other property and equipment are charged to expense as incurred. Major renewals and improvements are capitalized and depreciated over the remaining useful life of the asset. Upon the sale or other disposition of assets, the cost and related accumulated DD&A are removed from the accounts, the proceeds are applied thereto and any resulting gain or loss is reflected in income.

Note 4 - Pro Forma Adjustments

The pro forma condensed consolidated financial statements have been adjusted to reflect the estimated closing price to be paid by the Company for the stock of Arris and assets of 299 Sellers, estimated additional borrowings, the issuance of Company stock to the sellers, adjustments to historical book values of Arris’ and 299 Sellers’ properties to their preliminary estimated fair values in accordance with the acquisition method of accounting and estimated direct acquisition costs, including to:

7

PDC ENERGY, INC.

Notes To Pro Forma Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2016 And Year Ended December 31, 2015

(unaudited)

(a) reflect the consideration of $724.1 million, including cash paid of $412.6 million (comprised of $370.0 million paid at closing and $42.6 million that was paid into escrow upon signing the acquisition agreement) and 3,996,290 shares of Company stock valued at $311.5 million and the preliminary estimated fair value measurement of assets acquired from 299 Sellers and liabilities assumed for the acquisition, as well as other miscellaneous purchase price adjustments;

(b) reflect the consideration of $923.8 million, including cash paid of $503.6 million (comprised of $446.2 million paid at closing and $57.4 million that was paid into escrow upon signing the acquisition agreement) and 5,390,478 shares of Company stock valued at $420.2 million for the stock of Arris and adjustments to historical book value of the Arris assets to their preliminary estimated fair values in accordance with the acquisition method of accounting;

(c) reflect Arris borrowings of $10.1 million on its credit facility subsequent to September 30, 2016 to pay transaction-related obligations;

(d) reflect repayment of the Arris credit facility of approximately $40.1 million;

(e) record deferred tax liabilities of $449.0 million on the difference between the book basis and tax basis of Arris properties acquired as this was a non-taxable transaction due to no IRS section 338 election being made;

(f) reflect accrual of Arris direct transaction-related obligations paid subsequent to September 30, 2016;

(g) record payment of Arris transaction-related obligations subsequent to September 30, 2016;

(h) eliminate Arris capital;

(i) record payment of direct acquisition-related costs of $11.5 million, $11.3 million of which were included in accrued liabilities as of September 30, 2016;

(j) record fees of $6.2 million paid upon closing to increase revolving credit facility commitment to $700.0 million;

(k) record fees of $9.4 million for securing short-term financing, $9.0 million of which were included in accrued liabilities as of September 30, 2016;

(l) remove direct acquisition-related costs of $11.3 million which were included in general and administrative expense for the nine months ended September 30, 2016;

(m) remove fees of $9.0 million for securing short-term financing which were included in interest expense for the nine months ended September 30, 2016;

(n) reflect interest payable and amortization of debt issuance costs for each period presented associated with issuance of senior notes, convertible senior notes and our existing credit facility, as well as accretion of debt discount on the convertible senior notes, incurred to fund the acquisition. The Company incurred a total of $18.8 million of debt issuance costs associated with issuance of senior notes and convertible senior notes and an increase in the commitment under its existing credit facility. The Company assumed incremental interest expense of $2.2 million and $3.1 million associated with amortization of debt issuance costs for the nine months ended September 30, 2016 and the year ended December 31, 2015, respectively. The Company recorded a debt discount of $39.5 million associated with the issuance of convertible senior notes and assumed incremental interest expense of $6.9 million and $9.3 million associated with accretion of the debt discount for the nine months ended September 30, 2016 and the year ended December 31, 2015, respectively. Incremental interest expense of $18.9 million and $26.8 million was computed using an interest rate of 6.125% for $400 million of senior notes and an interest rate of 1.125% for $200 million of convertible senior notes for the nine months ended September 30, 2016 and year ended December 31, 2015, respectively; and

(o) record the tax benefit on additional loss for the periods.

The pro forma condensed consolidated statements of operations also include an adjustment to the weighted-average common shares outstanding to reflect shares issued to fund the purchase price of the stock of Arris and the assets of 299 Sellers.

Note that the fair value of the proved properties and other property and equipment being acquired approximates the net book value and, as a result, no pro forma adjustment was made to DD&A expense for all periods presented as there would not be a significant change to DD&A expense.

8

PDC ENERGY, INC.

Notes To Pro Forma Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2016 And Year Ended December 31, 2015

(unaudited)

Note 5 - Supplemental Oil and Natural Gas Reserve Information

The following tables set forth certain unaudited pro forma information concerning the Company’s proved crude oil, natural gas and natural gas liquids (“NGLs”) reserves for the year December 31, 2015, giving effect to the acquisition of Arris as if it had occurred on January 1, 2015. There are numerous uncertainties inherent in estimating the quantities of proved reserves and projecting future rates of production and timing of development costs. The estimates of reserves, and the standardized measure of future net cash flow, shown below, reflects Arris’ development plan for the Arris properties, rather than the Company’s development plan for the properties. The following reserve data represent estimates only and should not be construed as being precise. Arris’ oil reserves include NGLs.

	PDC				PDC				PDC		PDC
	Energy		Arris		Energy		Arris		Energy		Energy
	Historical		Historical		Historical		Historical		Historical		Pro Forma
Proved Reserves:	Crude Oil, Condensate				Natural Gas				NGLs		Total
	(MBbls)				(MMcf)				(MBbls)		(MBoe)
Proved reserves, December 31, 2014	100,515		547		536,972		3,486		60,119		251,257
Revisions of previous estimates	(43,268	)	(229	)	(154,775	)	853		(24,407	)	(93,558	)
Extension and discoveries	48,707		2,902		311,709		18,499		30,835		137,479
Purchases of reserves	17		—		215		—		23		76
Dispositions	(12	)	—		(82	)	—		(8	)	(34	)
Production	(6,984	)	(59	)	(33,302	)	(638	)	(2,835	)	(15,535	)
Proved reserves, December 31, 2015	98,975		3,161		660,737		22,200		63,727		279,685
Proved developed reserves as of:
December 31, 2014	26,798		157		186,633		2,256		17,002		75,438
December 31, 2015	26,257		1,051		175,367		11,448		15,011		73,455
Proved undeveloped reserves:
December 31, 2014	73,717		390		350,339		1,230		43,117		175,819
December 31, 2015	72,718		2,110		485,370		10,752		48,716		206,231

PDC Energy Historical

Overall, our proved reserves increased by 23 MMBoe as of December 31, 2015 as compared to December 31, 2014. In 2015, we produced 15.4 MMBoe. At December 31, 2014, we projected a PUD conversion rate of 16% for 2015. Our actual conversion rate was 17%, resulting in 29 MMBoe of reserves booked as PUDs at December 31, 2014 being converted to proved developed reserves during 2015. As shown, we acquired and divested minimal volumes of proved reserves in 2015.

Extensions, discoveries and other additions, including infill reserves, of approximately 131 MMBoe in 2015 were all added in the Wattenberg Field and primarily related to horizontal Niobrara projects being added to our development plan. The reserve additions associated with these projects are largely the result of data generated from our downspacing testing. This led to increased well density of our PUD locations year-over-year and extended the field by enabling us to book more reserves per section in the Niobrara. In general, at December 31, 2014, Niobrara PUD locations were booked at an equivalent of eight wells per section and at December 31, 2015, such locations were booked at an equivalent of 16 wells per section. Additionally, due to more efficient drilling leading to shorter spud-to-spud times, we have increased the number of wells drilled per drilling rig utilized during the course of the year. We have 791 gross PUD horizontal drilling locations at December 31, 2015, which is an increase from 774 locations at December 31, 2014. Approximately 9 MMBoe of the extensions, discoveries and other additions to our developed reserves related to wells drilled that were not related to reserves booked as of prior year-end.

We recorded net downward revisions of previous estimates of proved reserves of approximately 93 MMBoe. The revision was a result of multiple factors, most notably a decrease of approximately 56 MMBoe for adjustments to our development plans in the Wattenberg Field resulting from the booking of further-downspaced PUD locations. This downspacing delayed the expected development date for many existing PUD locations beyond the limits of the SEC five-year rule. Also contributing to the downward revision was a decrease of approximately 33 MMBoe due to the significant decrease in SEC commodity prices utilized in the December 31, 2015 reserve report, including approximately 11 MMBoe specifically related to the removal of vertical re-fracs and re-completions from the proved developed reserves which no longer fall within our economic parameters. There was an additional negative revision of approximately 22 MMBoe primarily related to geology findings and leasehold factors. Partially offsetting these decreases was an upward revision approximately 18 MMBoe related to well performance and forecast adjustments.

Based on the economic conditions on December 31, 2015, our approved development plan provides for the development of our remaining PUD reserves within five years of the date such reserves were initially recorded. The continued success of our increased well density tests in the Wattenberg Field in 2015 allowed for the additional increased well density of PUD locations as of December 31, 2015. Because we expect to continue to drill primarily proven Wattenberg Field locations in 2016 and as a result of additional newly-booked downspaced PUDs at December 31, 2015, our 2016 PUD conversion rate is expected to be approximately 19%. The balance of the locations are scheduled to be drilled over the remaining four years in accordance with our current development plan. The level of capital spending necessary to achieve this drilling schedule is consistent with our recent performance and our outlook for future development activities.

Arris Historical

Notable changes in proved reserves for the year ended December 31, 2015 relate to extensions and discoveries resulting from the drilling of one successful exploratory well in Culberson county and three successful exploratory wells in Reeves County.

Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Reserves

Summarized in the following table is information for the standardized measure of discounted cash flows relating to proved reserves as of December 31, 2015, giving effect to the acquisition of Arris properties. Future estimated cash flows were based on a 12-month average price calculated as the unweighted arithmetic average of the prices on the first day of each month, January through December applied to the year-end estimated proved reserves. Prices were adjusted by field for Btu content, transportation and regional price differences; however, they were not adjusted to reflect the value of commodity derivatives. Production and development costs were based on prices as of December 31, 2015. The amounts shown do not give effect to non-property related expenses, such as corporate general and administrative expenses, debt service or to depreciation, depletion and amortization expense. Production and development costs include those cash flows associated with the ultimate settlement of our asset retirement obligation. Future estimated income tax expense is computed by applying the statutory rate in effect at the end of each year to the future pretax net cash flows, less the tax basis of the properties and gives effect to permanent differences, tax credits and allowances related to the properties.

9

PDC ENERGY, INC.

Notes To Pro Forma Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2016 And Year Ended December 31, 2015

(unaudited)

Changes in the demand for crude oil, natural gas and NGLs, inflation, and other factors make such estimates inherently imprecise and subject to substantial revision. This table should not be construed to be an estimate of the current market value of the Company’s proved reserves.

	December 31, 2015
	PDC						PDC
	Energy			Arris			Energy
	Historical			Historical			Pro Forma
	(in thousands)
Future estimated revenues	$	6,297,298		$	202,923		$	6,500,221
Future estimated production costs	(1,577,393		)	(64,859		)	(1,642,252		)
Future estimated development costs	(1,952,332		)	(46,839		)	(1,999,171		)
Future estimated income tax expense	(508,332		)	(1,065		)	(509,397		)
Future net cash flows	2,259,241			90,160			2,349,401
10% annual discount for estimated timing of cash flows	(1,162,377		)	(44,897		)	(1,207,274		)
Standardized measure of discounted future net cash flows	$	1,096,864		$	45,263		$	1,142,127
Netted Back Prices Used to Estimate Reserves:
Oil (Bbl)	$	42.10		$	50.28
Natural gas (MMBtu)	$	2.05		2.59
NGLs (Bbl)	$	12.23		$	—

10

PDC ENERGY, INC.

Notes To Pro Forma Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2016 And Year Ended December 31, 2015

(unaudited)

The following table summarizes the principal sources of change in the standardized measure of discounted future net cash flows:

	December 31, 2015
	PDC						PDC
	Energy			Arris			Energy
	Historical			Historical			Pro Forma
	(in thousands)
Sales of crude oil, natural gas and NGLs production, net of production costs	$	(293,127	)	$	(2,119	)	$	(295,246	)
Net changes in prices and production costs	(1,752,921		)	(13,935		)	(1,766,856		)
Extensions, discoveries and improved recovery, less related costs	489,178			38,442			527,620
Sales of reserves	(463		)	—			(463		)
Purchases of reserves	374			—			374
Development costs incurred during the period	368,840			7,000			375,840
Revisions of previous quantity estimates	(1,286,462		)	(3,612		)	(1,290,074		)
Changes in estimated income taxes	902,994			(499		)	902,495
Net changes in future development costs	112,958			1			112,959
Accretion of discount	345,007			1,840			346,847
Timing and other	(95,979		)	(165		)	(96,144		)
Total	$	(1,209,601	)	$	26,953		$	(1,182,648	)

It is necessary to emphasize that the data presented should not be viewed as representing the expected cash flow from, or current value of, existing proved reserves since the computations are based on a large number of estimates and arbitrary assumptions. Reserve quantities cannot be measured with precision and their estimation requires many judgmental determinations and frequent revisions. The required projection of production and related expenditures over time requires further estimates with respect to pipeline availability, rates of demand and governmental control. Actual future prices and costs are likely to be substantially different from the recent average prices and current costs utilized in the computation of reported amounts. Any analysis or evaluation of the reported amounts should give specific recognition to the computational methods utilized and the limitations inherent therein.

11