CONFORMED COPY



                                               UNITED STATES
                                    SECURITIES AND EXCHANGE COMMISSION

                                          Washington, D.C. 20549

                                                 FORM 10-Q


                    [X] Quarterly Report Pursuant to Section 13 or 15(d) of
                             the Securities and Exchange Act of 1934
                             For the period ended September 30, 2000

                                                    OR

                   [ ] Transition Report Pursuant to Section 13 of 15(d) of
                            the Securities and Exchange Act of  1934
                        For the transition period from         to

                                       Commission file number 0-7246

                             I.R.S. Employer Identification Number 95-2636730

                                     PETROLEUM DEVELOPMENT CORPORATION
                                          (A Nevada Corporation)
                                           103 East Main Street
                                           Bridgeport, WV 26330
                                         Telephone: (304) 842-6256

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15d of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing


Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date: 16,243,864 shares of the
Company's Common Stock ($.01 par value) were outstanding as of
      September 30, 2000.
                      PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES

                                                   INDEX

                                                                  
PART I - FINANCIAL INFORMATION                                                            Page No.

  Item 1.  Financial Statements

              Independent Auditors' Review Report                                        	        	1

              Condensed Consolidated Balance Sheets -
              September 30, 2000 (unaudited) and December 31, 1999                         	2

              Condensed Consolidated Statements of Income - Three
              Months and Nine Months Ended September 30, 2000
              and 1999 (unaudited)                                                               		4

              Condensed Consolidated Statements of Cash Flows- Nine
              Months Ended September 30, 2000 and 1999 (unaudited)                               	5

              Notes to Condensed Consolidated Financial Statements                               	6

  Item 2.     Management's Discussion and Analysis of Financial
              Condition and Results of Operations                                                		8

  Item 3.     Quantitative and Qualitative Disclosure About Market Risk                         	12

PART II       OTHER INFORMATION

  Item 1.     Legal Proceedings                                                                 		12

  Item 6.     Exhibits and Reports on Form 8-K                                                  		12

PART I - FINANCIAL INFORMATION Independent Auditors' Review Report The Board of Directors Petroleum Development Corporation: We have reviewed the accompanying condensed consolidated balance sheet of Petroleum Development Corporation and subsidiaries as of September 30, 2000, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2000 and 1999 and the related condensed consolidated statements of cash flows for the nine- month periods ended September 30, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with generally accepted auditing standards, in the United States of America, the consolidated balance sheet of Petroleum Development Corporation and subsidiaries as of December 31, 1999 and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated March 6, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1999 is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG LLP Pittsburgh, Pennsylvania November 1, 2000 PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets September 30, 2000 and December 31, 1999 ASSETS 2000 1999 (Unaudited) Current assets: Cash and cash equivalents $13,736,800 $ 29,059,200 Accounts and notes receivable 18,885,800 10,263,200 Inventories 838,600 577,600 Prepaid expenses 7,232,200 2,360,100 Total current assets 40,693,400 42,260,100 Properties and equipment 133,954,000 118,349,100 Less accumulated depreciation, depletion, and amortization 36,188,800 31,207,300 97,765,200 87,141,800 Other assets 3,083,500 2,681,700 $141,542,100 $132,083,600
(Continued) -2- PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets, Continued September 30, 2000 and December 31, 1999 LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 (Unaudited) Current liabilities: Accounts payable and accrued expenses $ 21,564,000 $ 17,599,000 Advances for future drilling contracts 11,191,700 25,137,400 Funds held for future distribution 2,794,200 2,027,600 Total current liabilities 35,549,900 44,764,000 Long-term debt 18,475,000 9,300,000 Other liabilities 3,907,200 3,160,600 Deferred income taxes 4,689,600 4,134,100 Stockholders' equity: Common stock 162,400 157,400 Additional paid-in capital 32,931,400 32,071,000 Retained earnings 45,826,600 38,496,500 Total stockholders' equity 78,920,400 70,724,900 $141,542,100 $132,083,600
See accompanying notes to condensed consolidated financial statements. -3- PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Income Three and Nine Months ended September 30, 2000 and 1999 (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 Revenues: Oil and gas well drilling operations $ 6,803,900 $ 7,963,200 $32,209,900 $34,739,400 Oil and gas sales 24,424,100 13,525,700 59,581,600 32,414,700 Well operations and pipeline income 1,209,500 1,681,600 3,789,100 4,043,400 Other income 381,100 671,200 805,600 1,364,500 32,818,600 23,841,700 96,386,200 72,572,000 Costs and expenses: Cost of oil and gas well drilling operations 5,547,400 6,249,500 25,963,700 28,646,800 Oil and gas purchases and production costs 21,249,200 12,782,300 52,505,100 30,740,900 General and administrative expenses 1,038,300 859,200 2,749,800 1,919,400 Depreciation, depletion, and amortization 1,850,300 1,007,100 5,004,800 2,899,800 Interest 437,500 88,100 727,500 88,100 30,122,700 20,986,200 86,950,900 64,295,000 Income before income taxes 2,695,900 2,855,500 9,435,300 8,277,000 Income taxes 555,000 842,000 2,105,200 2,056,400 Net income $ 2,140,900 $ 2,013,500 $ 7,330,100 $ 6,220,600 Basic earnings per common share $ .13 $ .13 $ .45 $ .40 Diluted earnings per common and common equivalent share $ .13 $ .12 $ .45 $ .38
See accompanying notes to condensed consolidated financial statements. -4- PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2000 and 1999 (Unaudited) 2000 1999 Cash flows from operating activities: Net income $ 7,330,100 $6,220,600 Adjustments to net income to reconcile to cash used in operating activities: Deferred federal income taxes 555,500 (399,500) Depreciation, depletion & amortization 5,004,800 2,899,800 Leasehold acreage expired or surrendered 271,100 381,200 Amortization of stock award 4,100 9,200 Gain on disposal of assets (15,200) (493,800) Increase in current assets (13,609,000) (4,226,200) Increase in other assets (340,700) (929,700) Decrease in current liabilities (9,214,100) (20,455,500) Increase in other liabilities 746,600 246,600 Total adjustments (16,596,900) (22,967,900) Net cash used in operating activities (9,266,800) (16,747,300) Cash flows from investing activities: Capital expenditures (15,870,800) (13,655,400) Proceeds from sale of leases 529,400 724,500 Proceeds from sale of assets 15,200 643,000 Net cash used in investing activities (15,326,200) (12,287,900) Cash flows from financing activities: Proceeds from exercise of stock options 95,600 - Net proceeds from revolving credit agreement 9,175,000 3,735,000 Net cash provided by financing activities 9,270,600 3,735,000 Net change in cash and cash equivalents (15,322,400) (25,300,200) Cash and cash equivalents, beginning of period 29,059,200 34,894,600 Cash and cash equivalents, end of period $ 13,736,800 $ 9,594,400
See accompanying notes to condensed consolidated financial statements. -5- PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements September 30, 2000 (Unaudited) 1. Accounting Policies Reference is hereby made to the Company's Annual Report on Form 10-K for 1999, which contains a summary of significant accounting policies followed by the Company in the preparation of its consolidated financial statements. These policies were also followed in preparing the quarterly report included herein. 2. Basis of Presentation The Management of the Company believes that all adjustments (consisting of only normal recurring accruals) necessary to a fair statement of the results of such periods have been made. The results of operations for the nine months ended September 30, 2000 are not necessarily indicative of the results to be expected for the full year. 3. Oil and Gas Properties Oil and Gas Properties are reported on the successful efforts method. 4. Earnings Per Share Computation of earnings per common and common equivalent share are as follows for the three and nine months ended September 30, 2000 and 1999: Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 Weighted average common shares outstanding 16,243,456 15,737,795 16,128,434 15,732,805 Weighted average common and common equivalent shares outstanding 16,589,452 16,325,937 16,395,403 16,279,999 Net income $ 2,140,900 $ 2,013,500 $ 7,330,100 $ 6,220,600 Basic earnings per common share $ .13 $ .13 $ .45 $ .40 Diluted earnings per common and common equivalent share $ .13 $ .12 $ .45 $ .38
- - 6- 5. Business Segments (in Thousands) PDC's operating activities can be divided into three major segments: drilling and development, natural gas sales, and well operations. The Company drills natural gas wells for Company-sponsored drilling partnerships and retains an interest in each well. The Company also engages in oil and gas sales to residential, commercial and industrial end-users. The Company charges Company-sponsored partnerships and other third parties competitive industry rates for well operations and gas gathering. Segment information for the three and nine months ended September 30, 2000 and 1999 is as follows: Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 REVENUES Drilling and Development $ 6,804 $ 7,963 $32,210 $34,739 Natural Gas Sales 24,424 13,526 59,582 32,415 Well Operations 1,210 1,682 3,789 4,053 Unallocated amounts (1) 381 671 805 1,365 Total $32,819 $23,842 $96,386 $72,572 (1) Includes interest on investments and partnership management fees which are not allocated in assessing segment performance. Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 SEGMENT INCOME BEFORE INCOME TAXES Drilling and Development $1,256 $1,713 $6,246 $6,092 Natural Gas Sales 2,232 808 4,964 1,579 Well Operations 340 648 1,013 1,364 Unallocated amounts (2) General and Administrative expenses (1,038) (859) (2,750) (1,919) Interest expense (438) (88) (728) (88) Other (1) 344 633 690 1,249 Total $ 2,696 $ 2,855 $ 9,435 $ 8,277 (2) Items which are not allocated in assessing segment performance. September 30, 2000 December 31, 1999 SEGMENT ASSETS Drilling and Development $ 11,947 $ 23,957 Natural Gas Sales 114,473 93,073 Well Operations 7,704 7,977 Unallocated amounts Cash 469 1,967 Other 6,949 5,110 Total $141,542 $132,084
- -7- 6. Commitments and Contingencies The nature of the independent oil and gas industry involves a dependence on outside investor drilling capital and involves a concentration of gas sales to a few customers. The Company sells natural gas to various public utilities and industrial customers. Substantially all of the Company's drilling programs contain a repurchase provision where Investors may tender their partnership units for repurchase at any time beginning with the third anniversary of the first cash distribution. The provision provides that the Company is obligated to purchase an aggregate of 10% of the initial subscriptions per calendar year (at a minimum price of three times the most recent 12 months' cash distributions), only if such units are tendered, subject to the Company's financial ability to do so. The maximum annual 10% repurchase obligation, if tendered by the investors, is currently approximately $1.0 million. The Company has adequate liquidity to meet this obligation. The Company is not party to any legal action that would materially affect the Company's results of operations or financial condition. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three Months Ended September 30, 2000 Compared With September 30, 1999 Revenues. Total revenues for the three months ended September 30, 2000 were $32.8 million compared to $23.8 million for the three months ended September 30, 1999, an increase of approximately $9.0 million, or 37.8 percent. Such increase was primarily a result of increased oil and gas sales. Drilling revenues for the three months ended September 30, 2000 were $6.8 million compared to $8.0 million for the three months ended September 30, 1999, a decrease of approximately $1.2 million or 15.0 percent. Such decrease resulted from lower volumes of drilling and completion activities. Oil and gas sales for three months ended September 30, 2000 were $24.4 million compared to $13.5 million for the three months ended September 30, 1999, an increase of approximately $10.9 million, or 80.7 percent. Such increase was due to the natural gas marketing activities of Riley Natural Gas (RNG), the Company's marketing subsidiary, and increased production from the Company's producing properties and higher average sales prices of natural gas and oil. Well operations and pipeline income for the three months ended September 30, 2000 were $1.2 million compared to $1.7 million for the three months ended September 30, 1999, a decrease of approximately $500,000, or 29.4 percent. Other income for the three months ended September 30, 2000 was $381,000 compared to $671,000 for the three months ended September 30, 1999, a decrease of approximately $290,000, or 43.2 percent. Other income for the three months ended September 30, 1999 included a gain on the sale of oil and gas properties of approximately $484,000. Costs and expenses. Costs and expenses for the three months ended September 30, 2000 were $30.1 million compared to $21.0 million for the three months ended September 30, 1999, an increase of approximately $9.1 million or 43.3 percent. Such increase was primarily result of increased oil and gas activity. Oil and gas well drilling operations costs for the three months ended September 30, 2000 were $5.5 million compared to $6.2 million for the three months ended September 30, 1999, a decrease of approximately $700,000, or 11.3 percent. Such decrease resulted from lower expenses resulting from decreased drilling activity. Oil and gas purchases and production costs for the three months ended September 30, 2000 were $21.2 million compared to $12.8 million for the three months ended September 30, 1999, an increase of approximately $8.4 million or 65.6 percent. - - 8 - Such increase was due primarily to the natural gas marketing activities of RNG and production costs associated with the increased volumes of natural gas produced by the Company's producing properties. General and administrative expenses for the three months ended September 30, 2000 increased to $1.0 million compared with $859,000 for the three months ended September 30, 1999 an increase of approximately $141,000 or 16.4%. Such increase was due to higher corporate expenses as a result of the significant growth and geographic diversification of the Company's drilling and production operations. Depreciation, depletion, and amortization costs for the three months ended September 30, 2000 were $1.9 million compared to $1.0 million for the three months ended September 30, 1999, an increase of $900,000 or 90.0 percent. Such increase was due to the increased amount of investment in oil and gas properties owned by the Company. Interest costs for the three months ended September 30, 2000 were $437,000 compared to $88,000 for the three months ended September 30, 1999, an increase of approximately $349,000 as the Company utilized an increased amount of its line-of-credit for the purchase and development of oil and gas producing properties. Net income. Net income for the three months ended September 30, 2000 was $2.1 million compared to a net income of $2.0 million for the three months ended September 30, 1999, an increase of approximately $100,000 or 5.0 percent. Nine Months Ended September 30, 2000 Compared with September 30, 1999 Revenues. Total revenues for the nine months ended September 30, 2000 were $96.4 million compared to $72.6 million for the nine months ended September 30, 1999, an increase of approximately $23.8 million, or 32.8 percent. Such increase was primarily a result of increased oil and gas sales. Drilling revenues for the nine months ended September 30, 2000 were $32.2 million compared to $34.7 million for the nine months ended September 30, 1999, a decrease of approximately $2.5 million, or 7.2 percent. Such decrease resulted from lower volumes of drilling and completion activities as a result of decreased levels of drilling partnership-related financing. Oil and gas sales for the nine months ended September 30, 2000 were $59.6 million compared to $32.4 million for the nine months ended September 30, 1999 an increase of approximately $27.2 million, or 84.0 percent. Such increase was due primarily to the natural gas marketing activities of Riley Natural Gas (RNG), the Companys marketing subsidiary, and increased production volumes from the Companys producing properties, along with higher average sales prices of oil and natural gas. Well operationsand pipeline income for the nine months ended September 30, 2000 was $3.8 million compared to $4.1 million for the nine months ended September 30, 1999, a decrease of approximately $300,000, or 7.3 percent. Other income for the nine months ended September 30, 2000 was $805,000 compared to $1.4 million for the nine months ended September 30, 1999, a decrease of approximately $600,000, or 42.9 percent. Such decrease from 1999 was primarily due to a gain on the sale of oil and gas property of approximately $484,000 which occurred during the third quarter of 1999. Costs and expenses. Costs and expenses for the nine months ended September 30, 2000 were $87.0 million compared to $64.3 million for the nine months ended September 30, 1999, an increase of approximately $22.7 million or 35.3 percent. Oil and gas well drilling operations costs for the nine months ended September 30, 2000 were $26.0 million compared to $28.6 million for the nine months ended September 30, 1999, a decrease of approximately $2.6 million, or 9.1 percent. Such decrease resulted from lower expenses from decreased drilling activity and an improved gross profit margin on the Company's drilling activity. Oil and gas purchases and production costs for the nine months ended September 30, 2000 were $52.5 million compared to $30.7 million for the nine months ended September 30, 1999, an increase of approximately $21.8 million, or 71.0 percent. Such increase was due primarily to natural gas marketing activities of RNG along with increased production costs associated with the increased production volumes from the Company's producing properties. General and administrative expenses for the nine months ended September 30, 2000 increased to $2.7 million compared with $1.9 million for the nine months ended September 30, 1999, an increase of $800,000 or 42.1 percent. Such increase was due to higher corporate expenses as a result of the significant growth and geographic diversification of the Company's drilling and production operations. Depreciation, depletion, and amortization costs for the nine months ended September 30, 2000 were $5.0 million compared to $2.9 million for the nine months ended September 30, 1999, an - -9- increase of approximately $2.1 million or 72.4 percent. Such increase was due to the increased amount of investment in oil and gas properties owned by the Company. Interest costs for the nine months ended September 30, 2000 were $728,000 compared to $88,000 for the nine ended September 30, 1999, an increase of $640,000 as the Company utilized an increased amount of its line-of-credit for the purchase and development of oil and gas properties. Net income. Net income for the nine months ended September 30, 2000 was $7.3 million compared to a net income of $6.2 million for the nine months ended September 30, 1999, an increase of approximately $1.1 million or 17.7 percent. Liquidity and Capital Resources The Company funds its operations through a combination of cash flow from operations, capital raised through stock offerings and drilling partnerships, and use of the Company's credit facility. Operational cash flow is generated by sales of natural gas from the Company's well interests, well drilling and operating activities for the Company's investor partners, natural gas gathering and transportation, and natural gas marketing. Cash payments from Company-sponsored partnerships are used to drill and complete wells for the partnerships, with operating cash flow accruing to the Company to the extent payments exceed drilling costs. The Company utilizes its revolving credit arrangement to meet the cash flow requirements of its operating and investment activities. Sales volumes of natural gas have continued to increase while natural gas prices fluctuate monthly. The Company's natural gas sales prices are subject to increaseand decrease based on various market- sensitiveindices. A major factor in the variability of these indices is the seasonal variation of demand for the natural gas, which typically peaks during the winter months. The volumes of natural gas sales are expected to continue to increase as a result of continued drilling activities and additional investment by the Company in oil and gas properties. The Company utilizes commodity- based derivative instruments (natural gas futures and option contracts traded on the NYMEX) as hedges to manage a portion of its exposure to this price volatility. The futures contracts hedge committed and anticipated natural gas purchases and sales, generally forecasted to occur within a three to twelve-month period. The Company closed its first drilling program of 2000 in the second quarter and has drilled the wells in the second and third quarters of 2000. The Company closed its second drilling program of 2000 in September, 2000 and drilled some of the wells during the third quarter with the remainder to be drilled in the fourth quarter of 2000. This second drilling program of 2000 closed with subscriptions of $11.6 million compared to the second drilling program of 1999 which closed with subscriptions of $5.5 million. Additional programs are scheduled to close in November and December of 2000. The Company generally invests, as its equity contribution to each drilling partnership, an additional sum approximating 20% of the aggregate subscriptions received for that particular drilling partnership. As a result, the Company is subject to substantial cash commitments at the closing of each drilling partnership. The funds received from these programs are restricted to use in future drilling operations. No assurance can be made that the Company will continue to receive this level of funding from these or future programs. On June 6, 2000 the Company purchased all of the working interest in 168 producing wells in Colorado for $5,650,000. The transaction was effective April 1, 2000. The wells have net remaining reserves of 560,000 barrels of oil and 4.9 billion cubic feet of natural gas. The Company utilized its bank credit agreement to finance this purchase. - -10- On August 29, 2000 the Company executed an Amendment to its Credit Agreement with Bank One, formerly First National Bank of Chicago. The amendment provides a $30.0 million borrowing base, subject to adequate oil and gas reserves. As of September 30, 2000, the outstanding balance was $18,475,000. Interest accrues at prime, with LIBOR (London Interbank Market Rule) alternatives available at the discretion of the Company. No principal payments are required until the credit agreement expires on December 31, 2004. The Company continues to pursue capital investment opportunities in producing natural gas properties as well as its plan to participate in its sponsored natural gas drilling partnerships, while pursuing opportunities for operating improvements and costs efficiencies. Management believes that the Company has adequate capital to meet its operating requirements. New Accounting Standard Statement of Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), was issued by the Financial Accounting Standards Board in June, 1998. Statement 133 standardized the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. SFAS No. 133 which was amended by SFAS 138 is effective for years beginning after June 15, 2000; however, early adoption is permitted. On adoption, the provisions of SFAS No. 133 must be applied prospectively. At the present time, the Company cannot determine the impact that SFAS No. 133 will have on its financial statements upon adoption, as such impact will be based on the extent of derivative instruments, such as natural gas futures and option contracts, outstanding at the date of adoption. Item 3. Quantitative and Qualitative Disclosure About Market Risk There have been no material changes in the reported market risks faced by the Company since December 31, 1999. - -11- CONFORMED COPY PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is not a party to any legal actions that would materially affect the Company's operations or financial statements. Item 6. Exhibits and Reports on Form 8-K (a) None. (b) No reports on Form 8-K have been filed during the quarter ended September 30, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Petroleum Development Corporation (Registrant) Date: November 6, 2000 /s/ Steven R. Williams Steven R. Williams President Date: November 6, 2000 /s/ Dale G. Rettinger Dale G. Rettinger Executive Vice President and Treasurer
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