Petroleum Development Corporation
Hart’s Energy Capital Week June 3, 2009
NASDAQ:PETD
Disclaimer
The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on Management’s current expectations and beliefs, as well as a number of assumptions concerning future events. These statements are based on certain assumptions and analyses made by Management in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conform with Management’s expectations and predictions is subject to a number of risks and uncertainties, general economic, market or business conditions; the opportunities (or lack thereof) that may be presented to and pursued by Petroleum Development Corporation; actions by competitors; changes in laws or regulations; and other factors, many of which are beyond the control of Petroleum Development Corporation. You are cautioned not to put undue reliance on such forward-looking statements because actual results may vary materially from those expressed or implied, as more fully discussed in our safe harbor statements found in our SEC filings, including, without limitation, the discussion under the heading “Risk Factors” in the company’s annual report on Form 10-K and in subsequent Form 10-Qs. All forward-looking statements are based on information available to Management on this date and Petroleum Development Corporation assumes no obligation to, and expressly disclaims any obligation to, update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The SEC permits oil and gas companies to disclose in their filings with the SEC only proved reserves, which are reserve estimates that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. The Company uses in this presentation the terms “probable” and “possible” reserves, which SEC guidelines prohibit in filings of U.S. registrants. Probable reserves are unproved reserves that are more likely than not to be recoverable. Possible reserves are unproved reserves that are less likely to be recoverable than probable reserves. Estimates of probable and possible reserves which may potentially be recoverable through additional drilling or recovery techniques are by nature more uncertain than estimates of proved reserves and accordingly are subject to substantially greater risk of not actually being realized by the Company. In addition, the Company’s reserves and production forecasts and expectations for future periods are dependent upon many assumptions, including estimates of production decline rates from existing wells and the undertaking and outcome of future drilling activity, which may be affected by significant commodity price declines or drilling cost increases. This material also contains certain non-GAAP financial measures as defined under the Securities and Exchange Commission rules.
See Slide 2 regarding Forward Looking Statements
2
Rick McCullough Chairman & Chief Executive Officer
See Slide 2 regarding Forward Looking Statements
3
PDC History Snapshot
• NASDAQ:PETD • Founded in 1969 • Market cap of $260.6 million at 5/28/09 • Operate in the Rockies, Appalachia and Michigan • A leading producer in the Rocky Mountain region • Reported record results in 2008 and exited the year with strong balance sheet metrics and liquidity • Outstanding financial, technical and operating teams built in the past five years
See Slide 2 regarding Forward Looking Statements
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Fundamentals
Three Months Ended March 31, 2009 Production (Bcfe) Proved Reserves (Bcfe) Realized Gas and Oil Prices
(Mcfe)(1)
Year Ended December 31, 2008 38.7 753 $8.66 $192.5 $200.1 $44.6 2007 28.0 686 $6.52 $104.2 $95.6 $37.5
2008 8.5
N/A
11.2
N/A
$7.08 $48.9 $39.8 $4.1
$8.16 $43.6 $40.4 $10.9
Adjusted EBITDA ($ millions)(2) Adjusted Cash Flow from Operations ($ millions)(2) Adjusted Net Income ($ millions)(2) Adjusted Cash Flow from Operations, per diluted share (2) Stock Price(3)
(1) (2) (3)
$2.69
$18.70
$2.74
$74.47
$13.48
$79 - $12
$6.44
$62 - $36
Equivalent prices including oil sales, natural gas liquids and realized derivative gains and losses. Excludes non-realized derivative gains & losses See appendix for reconciliation to GAAP. Gain on leasehold sales excluded. Hi-low range, per year. First quarter 2009 is the May 4, 2009 closing price. First quarter 2008 is the May 5, 2008 closing price.
See Slide 2 regarding Forward Looking Statements
5
2009 Will Be Challenging
• 2008 – superior growth year
– Production/Revenues – EBITDA/CASH FLOW – EPS/CFPS
• 2009 will be a challenging year
– – – – Valuable hedges - $153.5 MM MTM at 12/31/08 CAPEX reduced 50-60%, to $120 MM Current strong liquidity position; will monitor it closely Bank borrowing base redetermination in May
See Slide 2 regarding Forward Looking Statements
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Cost Control and Operational Enhancements
• Implementing an internal strategic reassessment process
– Measuring activities based on their contribution to shareholder value – Entire company involved – Will drive future decision making
• Review of all major elements of cost • Basin by basin operational enhancement review
– Costs; logistics; marketing
See Slide 2 regarding Forward Looking Statements
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Core Operating Regions 1st Quarter 2009 Production Summary
1st Quarter 2009 Production 11.2 Bcfe
1st Rocky Mountains 2008 Production: Q 2009 Production 33.2 Bcfe 9.9 Bcfe Michigan Basin 2008 Production: 1st Q 2009 Production 1.6 Bcfe 0.3 Bcfe
•
32% increase over prior year quarter 124 MMcfe daily production rate
1st
•
Appalachian Basin 2008 Production: Q 2009 Production 3.9 Bcfe 1.0 Bcfe
See Slide 2 regarding Forward Looking Statements
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Energy Market Exposure
Percentage of Mcfe Sold by Market (for Three Months Ended March 31, 2009)
Mich-Con, 3% Colorado Liquids, 4% Other, 1%
San Juan Basin / Southern California, 16% Mid Continent , 12%
Colorado Interstate Gas (CIG), 37%
NYMEX, 9% Crude Oil, 18%
See Slide 2 regarding Forward Looking Statements
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Oil and Gas Hedges in Place at May 8, 2009
2009 Weighted Average Hedge Price (Mcfe)(1) With Floors With Ceilings % of Forecasted Production(2) Weighted Avg Forward Price(3) Weighted Avg Price of Forecasted Production(4) Weighted Avg Price of Forecasted Production
Assuming 15% increase in Production
(1) (2) (3) (4) Excludes basis swaps from 4/2010 through 12/2013 Based on 12/31/08 PDP adjusted for Q1 2009 turn ins Based on forward curves as of 3/31/2009 Represents a blended price for forecasted production at hedged prices and at forward prices
2010
2011
$8.00 $10.90 71% $4.26 $6.92 $6.57
$8.33 $9.74 69% $5.89 $7.58 $7.36
$6.50 $9.49 12% $6.69 $6.67 $6.67
See Slide 2 regarding Forward Looking Statements
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2009 Production Forecast
• Estimated 2009 production of 42.5 - 44 Bcfe
• Current production in line with forecast • Forecast includes curtailment in Appalachian Basin • Strong production optimization efforts underway
See Slide 2 regarding Forward Looking Statements
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F&D Costs
2008
Acquisition of Properties Proved Properties Unproved Properties Development Costs Exploration Costs Exploratory Drilling Geological & Geophysical Total Costs Incurred 15.6 2.1 $288.7 13.0 6.3 $484.3 18.7 2.2 $148.1 12.9 0.0 $100.0
(in millions)
2007
2006
2005
$13.0 ― 257.9
$257.3 13.7 194.0
$0.8 11.9 114.5
$1.6 16.9 68.6
*Additions to Reserves (Bcfe) F&D Cost ($/Mcfe)
107.4 2.69
396.3 1.22
66.9 2.21
80.3 1.25
* Additions to reserves = year-end proved reserves + production + dispositions to partnerships - beginning of year proved reserves.
See Slide 2 regarding Forward Looking Statements
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Lease Operating Expenses
Lifting Cost Improvements
(per Mcfe)
Twelve Months Ended December 31, 2008 Direct Well Expenses Indirect Well Expenses
Lifting Cost ($ per Mcfe)
Three Months Ended March 31, 2009 $0.69 $0.24 $0.93
Q1 2009 % Variance -18% 0% -14%
$0.84 $0.23 $1.07
Production Taxes Well Operations Segment Overhead and Other Production Expenses Oil & Gas Production and Well Operations Costs
See Slide 2 regarding Forward Looking Statements
$0.48 $0.15 $0.32 $2.02
$0.17 $0.14 $0.21 $1.45
-64% -7% -34% -28%
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2009 Cost Management
Capital
Projected Cost Reduction Per Well by July 2009 Piceance Wattenberg NECO East $590,000 168,000 51,000 37,050 Projected % Savings by July 2009 22 20 21 9
Lease Operating Expense
Projected Cost Savings Per Month by July 2009 $176,000 210,000 62,000 98,000 Projected % Savings Per Month by July 2009 15 14 13 10
Current Capital and LOE improvements are equal to, or exceeding, projected levels.
See Slide 2 regarding Forward Looking Statements
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Quarter Operating Highlights
• Ongoing Marcellus development
– – – – Four wells drilled, two in line Five wells scheduled beginning June 1st seismic shoot being planned 1st horizontal well in planning
st 1
• • • •
10 of 17 completions conducted in Piceance One drilling rig running in Wattenberg Continued focus on capital cost and LOE reductions North Dakota Bakken exploration well placed in line early May
See Slide 2 regarding Forward Looking Statements
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Marcellus Economic Fairway
10,000 Acres PA
Indiana County, Cambria County, Fayette County
36,000 Acres WV
Harrison County, Taylor County, Barbour County
District Offices See Slide 2 regarding Forward Looking Statements
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Summary Financial Results
($ in millions, except for per share data) Three Months Ended March 31, 2009 O&G Revenues O&G Production & Well Operating Costs O&G Operating Margins(1) Adjusted Net Income(2) Adjusted Cash Flow from Operations(2) Adjusted Cash Flow from Operations (per share) (2) DD&A G&A $39.7 $16.2 $23.5 $4.1 $39.8 $2.69 $34.3 $12.1 2008 $71.6 $18.1 $53.5 $10.9 $40.4 $2.74 $21.1 $9.8
(1) O&G operating margins is defined as O&G sales less O&G production and well operations costs. (2) See appendix for reconciliation to GAAP.
See Slide 2 regarding Forward Looking Statements
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Debt Maturity Schedule ($MM)
• $350 million revolver matures May 22, 2012 • Maturity schedule reflects:
– Mitigation of liquidity risk – Diversification of funding sources
$300 $400
$350
• As of March 31, 2009:
– $222.5 MM drawn balance – $41.1 MM unrestricted cash – $152.5 MM available balance
$222.5
$200
$203
$100
$0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
See Slide 2 regarding Forward Looking Statements
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Summary ~ PDC as an Investment
• Strong financial position
– Bank line availability and solid debt metrics
– Excellent hedge position – Continuing cash flows
• Existing reserve base and operational excellence
– Predictable low-risk production profiles – Driving efficiencies and cost reductions
• Well positioned to capitalize on market recovery
See Slide 2 regarding Forward Looking Statements
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2009 Financial Results
APPENDIX
See Slide 2 regarding Forward Looking Statements
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Adjusted EBITDA Reconciliation
($ in millions) Three Months Ended March 31, 2009 Net income (loss) Gain on sale of leaseholds Unrealized derivative (gain) loss Interest, net Income taxes (benefit) DD&A Other Adjusted EBITDA
See Slide 2 regarding Forward Looking Statements
Year Ended December 31, 2008 $113.3 (118.4) 27.5 61.5 104.6 4.0 $192.5 2007 $33.2 (33.3) 4.4 6.6 21.0 70.8 1.5 $104.2
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2008 ($13.9) 39.9 4.7 (8.2) 21.1 $43.6
($5.7) .1 13.2 8.4 (4.0) 34.3 2.6 $48.9
Adjusted Cash Flow Reconciliation
($ in millions)
Three Months Ended March 31, 2009 Net Cash provided by Operating Activities Changes in Assets & Liabilities Related to Operations Adjusted Cash Flow from Operations 2008
Year Ended December 31, 2008 2007
$35.9
$48.8
$139.1
$60.3
3.9
(8.4)
61.0
35.3
$39.8
$40.4
$200.1
$95.6
See Slide 2 regarding Forward Looking Statements
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Adjusted Net Income Reconciliation
($ in millions)
Three Months Ended March 31, 2009 Net income (loss) ($5.7) 2008 ($13.9)
Year Ended December 31, 2008 $113.3 2007 $33.2
Unrealized derivative (gain) loss Tax effect Other Adjusted net income
13.2 (6.0) 2.6 $4.1
39.9 (15.0) $11.0
(118.4) 45.7 4.0 $44.6
4.4 (1.6) 1.5 $37.5
See Slide 2 regarding Forward Looking Statements
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Petroleum Development Corporation
Hart’s Energy Capital Week June 3, 2009
NASDAQ:PETD