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 June 30, 2001

	OR

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

	Commission file number 0-7246

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

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

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


Indicate the number of shares outstanding of each of the issuers classes
     of common stock, as of  the latest practicable  date: 16,244,844 shares
     of the Company's Common Stock ($.01 par value) were outstanding
    as of June 30, 2001.


	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 -
		June 30, 2001 and December 31, 2000		 2

		Condensed Consolidated Statements of Income - Three
		Months and Six Months Ended June 30, 2001 and 2000	 4

		Condensed Consolidated Statements of Cash Flows- Six
		Months Ended June 30, 2001 and 2000		 5

		Notes to Condensed Consolidated Financial Statements	 6

	Item 2.	Management's Discussion and Analysis of Financial
		Condition and Results of Operations		 9

	Item 3.	Quantitative and Qualitative Disclosure About Market Risk	13

PART II	OTHER INFORMATION

	Item 1.	Legal Proceedings			14

	Item 6.	Exhibits and Reports on Form 8-K		14











	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 June 30, 2001, and the related condensed consolidated statements of income and cash flows for the
three-month and six-month periods ended June 30, 2001 and 2000.   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 auditing standards generally accepted in the United States of
America, the  consolidated balance sheet of Petroleum Development Corporation and subsidiaries as of December 31, 2000
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 8, 2001,  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, 2000 is fairly presented, in all material respects, in relation to the consolidated  balance sheet from
 which it has been derived.



		KPMG LLP



Pittsburgh, Pennsylvania
August  8, 2001





	PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES

	Condensed Consolidated Balance Sheets
	June 30, 2001 and December 31, 2000



    	                                                                              

		ASSETS

			2001   	2000
			(Unaudited)

Current assets:
	Cash and cash equivalents     	$ 26,349,900	$ 46,872,000
	Accounts and notes receivable	  16,958,300	   23,648,000
	Inventories		    1,630,600	     1,097,900
	Prepaid expenses	    4,372,400	     7,134,800

    	Total current assets	 49,311,200	  78,752,700



Properties and equipment 	 153,258,600	 141,298,600
	Less accumulated depreciation,
                        depletion, and amortization	   39,311,700	   35,344,700
			 113,946,900	 105,953,900

Other assets	                                   3,164,400	      2,977,900

    			$166,422,500	$187,684,500







	(Continued)




	-2-



	PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES

	Condensed Consolidated Balance Sheets, Continued
	June 30, 2001 and December 31, 2000



                                                                  
               LIABILITIES AND
             STOCKHOLDERS' EQUITY
                                                  		2001   	2000
			                          (Unaudited)

Current liabilities:
	Accounts payable and accrued expenses	$ 29,225,000 	$ 31,722,500
	Advances for future drilling contracts	   11,398,900 	   43,809,400
	Funds held for future distribution	     6,655,900 	     2,440,100

		Total current liabilities	   47,279,800 	   77,972,000


Long-term debt			  15,000,000 	  17,350,000
Other liabilities			    4,430,400 	    4,396,800
Deferred income taxes			    7,540,400 	    5,708,800


Stockholders' equity:
	Common stock	  		        162,400 	         162,400
	Additional paid-in capital		  32,919,700 	   32,917,000
	Retained earnings		  58,618,400 	   49,177,500
	Accumulated other comprehensive income	        471,400	          -

		Total stockholders' equity	   92,171,900 	    82,256,900


				$166,422,500 	$187,684,500

See accompanying notes to condensed consolidated financial statements. -3- PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Income Three and Six Months ended June 30, 2001 and 2000 (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 Revenues: Oil and gas well drilling operations $21,805,800 $ 7,648,200 $43,228,100 $25,406,000 Gas sales from marketing activities 16,923,600 15,537,200 45,737,700 27,221,400 Oil and gas sales 6,501,200 4,298,300 14,042,100 7,936,100 Well operations and pipeline income 1,381,900 1,291,800 2,689,500 2,579,600 Other income 516,500 287,700 973,000 424,500 47,129,000 29,063,200 106,670,400 63,567,600 Costs and expenses: Cost of oil and gas well drilling operations 18,868,800 6,012,600 37,351,300 20,416,300 Cost of gas marketing activities 17,111,600 15,691,200 45,280,100 27,340,800 Oil and gas production costs 2,495,100 1,857,200 4,184,400 3,915,100 General and administrative expenses 998,400 1,032,300 1,959,800 1,711,500 Depreciation, depletion, and amortization 1,990,100 1,664,800 3,980,200 3,154,500 Interest 213,700 275,400 427,600 290,000 41,677,700 26,533,500 93,183,400 56,828,200 Income before income taxes 5,451,300 2,529,700 13,487,000 6,739,400 Income taxes 1,635,400 581,900 4,046,100 1,550,200 Net income $ 3,815,900 $ 1,947,800 $ 9,440,900 $ 5,189,200 Basic earnings per common share $ .23 $ .12 $ .58 $ .32 Diluted earnings per share $ .23 $ .12 $ .57 $ .32
See accompanying notes to condensed consolidated financial statements. -4- PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 2001 and 2000 (Unaudited) 2001 2000 Cash flows from operating activities: Net income $ 9,440,900 $5,189,200 Adjustments to net income to reconcile to cash used in operating activities: Deferred federal income taxes 1,517,300 396,800 Depreciation, depletion & amortization 3,980,200 3,154,500 Leasehold acreage expired or surrendered 191,600 196,100 Amortization of stock award 2,700 2,700 Gain on disposal of assets (3,500) (6,700) Decrease (increase) in current assets 9,705,100 (9,887,900) Increase in other assets (199,700) (62,700) Decrease in current liabilities (30,692,200) (16,625,600) Increase in other liabilities 33,600 534,500 Total adjustments (15,464,900) (22,298,300) Net cash used in operating activities (6,024,000) (17,109,100) Cash flows from investing activities: Capital expenditures (13,028,100) (11,688,000) Proceeds from sale of leases 876,500 392,500 Proceeds from sale of assets 3,500 6,700 (12,148,100) (11,288,800) Cash flows from financing activities: Proceeds from exercise of stock options - 95,600 Net (retirement of) proceeds from long-term debt (2,350,000) 4,700,000 Net cash (used in) provided by financing activities (2,350,000) 4,795,600 Net decrease in cash and cash equivalents (20,522,100) (23,602,300) Cash and cash equivalents, beginning of period 46,872,000 29,059,200 Cash and cash equivalents, end of period $ 26,349,900 $ 5,456,900
See accompanying notes to condensed consolidated financial statements. -5- PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2001 (Unaudited) 1. Accounting Policies 349: Reference is hereby made to the Company's Annual Report on Form 10-K for 2000, 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 six months ended June 30, 2001 are not necessarily indicative of 358: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 six months ended June 30, 2001 and 2000: Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 Weighted average common shares outstanding 16,244,519 16,174,331 16,244,283 16,070,290 Weighted average common and common equivalent shares outstanding 16,695,585 16,436,754 16,681,560 16,313,108 Net income $ 3,815,900 $ 1,947,800 $ 9,440,900 $ 5,189,200 Basic earnings per common share $ .23 $ .12 $ .58 $ .32 Diluted earnings per share $ .23 $ .12 $ .57 $ .32
-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 six months ended June 30, 2001 and 2000 is as follows: Three Months Ended Six Months Ended June 30, 2001 2000 2001 2000 REVENUES Drilling and Development $21,806 $ 7,648 $ 43,228 $25,406 Natural Gas Sales 23,425 19,835 59,780 35,157 Well Operations 1,381 1,292 2,689 2,580 Unallocated amounts (1) 517 288 973 425 Total $47,129 $29,063 $106,670 $63,568
(1) Includes interest on investments and partnership management fees which are not allocated in assessing segment performance. Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 SEGMENT INCOME BEFORE INCOME TAXES Drilling and Development $ 2,937 $ 1,635 $ 5,877 $ 4,990 Natural Gas Sales 2,853 1,556 8,307 2,732 Well Operations 395 397 795 673 Unallocated amounts (2) General and Administrative expenses (999) (1,032) (1,960) (1,712) Interest expense (214) (275) (428) (290) Other (1) 479 249 896 346 Total $5,451 $ 2,530 $13,487 $ 6,739
(2) Items which are not allocated in assessing segment performance. June 30, 2001 December 31, 2000 SEGMENT ASSETS Drilling and Development $ 11,033 $ 31,592 Natural Gas Sales 128,329 139,116 Well Operations 11,454 8,490 Unallocated amounts Cash 5,401 1,567 Other 10,206 6,920 Total $166,423 $187,685
-7- 6. Derivative Instruments and Hedging Activities The Company utilizes commodity based derivative instruments as hedges to manage a portion of its exposure to price volatility stemming from its integrated natural gas production and marketing activities. These instruments consist of natural gas futures and option contracts traded on the New York Mercantile Exchange. The futures and option contracts hedge committed and anticipated natural gas purchases and sales, generally forecasted to occur within a 12 month period. The Company does not hold or issue derivatives for trading or speculative purposes. Interest rate swap agreements are used to reduce the potential impact of increases in interest rates on variable rate long-term debt. Statement of Accounting Standards No. 133 and No. 138, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133/138), was issued by the Financial Accounting Standards Board. SFAS No. 133/138 standardized the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. The Company adopted the provisions of the SFAS 133/138 effective January 1, 2001. The natural gas futures and options and the interest rate swap are derivatives pursuant to SFAS 133/138. The Company's derivatives are treated as hedges of committed and/or anticipated transactions and have a total estimated fair value of $471,400 (net of tax) on June 30, 2001. On adoption of this Statement on January 1, 2001, the Company recorded a net transition adjustment of ($12,079,100) (net of related income tax benefit of $8,052,700) which was recorded in accumulated other comprehensive income (AOCI). During the six months ended June 30, 2001, the Company reclassified $10,209,400 from AOCI into cost of gas marketing activities and oil and gas sales relating to the transition adjustment included in AOCI on January 1, 2001. Changes in fair value related to qualifying hedges of firm commitments or anticipated transactions through the use of natural gas futures and option contracts and the interest rate swap agreement are deferred and recorded in AOCI and subsequently recognized in income when the underlying hedged transaction occurs. In order for the contracts to qualify as a hedge, there must be sufficient hedging effectiveness. The change in the fair value of derivative instruments which do not qualify for hedging are recognized into income currently. 7. Comprehensive Income Comprehensive income includes net income and certain items recorded directly to shareholders' equity and classified as Other Comprehensive Income. The Company recorded Other Comprehensive Income for the first time in the first quarter of 2001. The following table illustrates the calculation of comprehensive income for the three and six months ended June 30, 2001. Three months ended Six months ended June 30, 2001 June 30, 3001 Net Income $3,815,900 $ 9,440,900 Other Comprehensive Loss (net of tax) Cumulative effect of change in accounting principle - January 1, 2001 (net of tax of $8,052,700) - (12,079,100) Reclassification adjustment for settled contracts included in net income (net of tax of $3,897,300 and $6,806,300, respectively) 5,845,900 10,209,400 Changes in fair value of outstanding hedging positions (net of tax of $1,637,500 and $1,560,700, respectively) (2,456,300) 2,341,100 Other Comprehensive Loss 3,389,600 471,400 Comprehensive Income $ 7,205,500 $ 9,912,300
There were no items in Other Comprehensive Income/Loss during 2000. - -8- 8. 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 four 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 $1,188,000. The Company has adequate capital to meet this obligation. The Company is not party to any legal action that would materially affect the Company's results of operations or financial condition. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three Months Ended June 30, 2001 Compared with June 30, 2000 Revenues. Total revenues for the three months ended June 30, 2001 were $47.1 million compared to $29.1 million for the three months ended June 30, 2000, an increase of approximately $18.0 million, or 61.9 percent. Such increase was primarily a result of increased drilling revenues, gas marketing activities and oil and gas sales. Drilling revenues for the three months ended June 30, 2001 were $21.8 million compared to $7.6 million for the three months ended June 30, 2000, an increase of approximately $14.2 million, or 186.8 percent. Such increase was due to an increase in drilling and completion activities, which was a direct result of an increase in drilling funds from the Company's public drilling programs. Natural gas sales from the marketing activities of Riley Natural Gas (RNG), the Company's marketing subsidiary for the three months ended June 30, 2001 were $16.9 million compared to $15.5 million for the three months ended June 30, 2000, an increase of approximately $1.4 million or 9.0 percent. Such increase was due to increased volumes of gas sold with higher average sales prices. Oil and gas sales from the Company's producing properties for the three months ended June 30, 2001 were $6.5 million compared to $4.3 million for the three months ended June 30, 2000, an increase of approximately $2.2 million, or 51.2 percent. Such increase was due to increased production from new wells drilled along with higher average sales prices of natural gas and oil from the Company's producing properties. Financial results depend upon many factors, particularly the price of natural gas and our ability to market our production on economically attractive terms. Price volatility in the natural gas market has remained prevalent in the last few years. From the third quarter of 1998 through the first quarter of 1999, we experienced a decline in energy commodity prices. However, in the summer of 2000 and continuing into early 2001, prices improved. For the months of April, 2000 through June 30, 2001, we had certain natural gas hedges in place that prevented us from realizing the full impact of this price environment. Despite this limitation, our realized natural gas price for each month in the second quarter of 2001 was higher than the previous year. In the final months of 2000 and the first quarter of 2001, the NYMEX futures market reported unprecendented natural gas contract prices. During the three months ended June 30, 2001, the hedging activities resulted in oil and gas sales being $660,000 lower than if the Company had not hedged. Well operations and pipeline income for the three months ended June 30, 2001 was $1.4 million compared to $1.3 million for the three months ended June 30, 2000, an increase of approximately $100,000 or 7.7 percent. Other income for the three months ended June 30, 2001 was $516,000 compared to $288,000 for the three months ended June 30, 2000, an increase of approximately $228,000, or 79.2 percent. Such increase resulted from more interest earned on higher average cash balances. - -9- Costs and expenses. Costs and expenses for the three months ended June 30, 2001 were $41.7 million compared to $26.5 million for the three months ended June 30, 2000, an increase of approximately $15.2 million or 57.4 percent. Oil and gas well drilling operations costs for the three months ended June 30, 2001 were $18.9 million compared to $6.0 million for the three months ended June 30, 2000, an increase of approximately $12.9 million or 215.0 percent. Such increase was due to the increased drilling activity referred to above. The cost of gas marketing activities for the three months ended June 30, 2001 were $17.1 million compared to $15.7 million for the three months ended June 30, 2000, an increase of $1.4 million or 8.9 percent. Such increase was due to the increased gas marketing activity of RNG with increased volumes purchased at higher average sales prices. Based on the nature of the Company's gas marketing activities, hedging did not have a significant impact on the Company's net margins from marketing activities during either period. Oil and gas production costs from the Company's producing properties for the three months ended June 30, 2001 were $2.5 million compared to $1.9 million for the three months ended June 30, 2000, an increase of approximately $600,000 or 31.6 percent. Such increase was due to the increased production from the Company's producing properties. General and administrative expenses for the three months ended June 30, 2001 remained constant at approximately $1.0 million as compared to the three months ended June 30, 2000. Depreciation, depletion, and amortization costs for the three months ended June 30, 2001 were $2.0 million compared to $1.7 million for the three months ended June 30, 2000, an increase of approximately $300,000 or 17.6 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 June 30, 2001 were $214,000 compared to $275,000 for the three months ended June 30, 2000, a decrease of approximately $61,000. The decrease was due to lower average outstanding balances and lower interest rates on the Company's credit facility. Net income. Net income for the three months ended June 30, 2001 was $3.8 million compared to a net income of $1.9 million for the three months ended June 30, 2000, an increase of approximately $1.9 million or 100 percent. Six Months Ended June 30, 2001 Compared with June 30, 2000 Revenues. Total revenues for the six months ended June 30, 2001 were $106.7 million compared to $63.6 million for the six months ended June 30, 2000, an increase of approximately $43.1 million, or 67.8 percent. Such increase was primarily a result of increased drilling revenues, gas marketing activities and oil and gas sales. Drilling revenues for the six months ended June 30, 2001 were $43.2 million compared to $25.4 million for the six months ended June 30, 2000, an increase of approximately $17.8 million, or 70.1 percent. Such increase was due to an increase in drilling and completion activities, which was a direct result of an increase drilling funds from the Company's public drilling programs. Natural gas sales from the marketing activities of Riley Natural Gas (RNG), the Company's marketing subsidiary for the six months ended June 30, 2001 were $45.7 million compared to $27.2 million for the six months ended June 30, 2000, an increase of approximately $18.5 million or 68.0 percent. Such increase was due to increased volumes of gas sold with higher average sales prices. Oil and gas sales from the Company's producing properties for the six months ended June 30, 2001 were $14.0 million compared to $7.9 million for the six months ended June 30, 2000, an increase of approximately $6.1 million, or 77.2 percent. Such increase was due to increased production from new wells drilled along with higher average sales prices of natural gas and oil from the Company's producing properties. Financial results depend upon many factors, particularly the price of natural gas and our ability to market our production on economically attractive terms. Price volatility in the natural gas market has remained prevalent in the last few years. From the third quarter of 1998 through the first quarter of 1999, we experienced a decline in energy commodity prices. However, in the summer of 2000 and continuing into early 2001, prices improved. For the months of April, 2000 through June 30, 2001, we had certain natural gas hedges in place that prevented us from realizing the full impact of this price environment. - -10- Despite this limitation, our realized natural gas price for each month in the first six months of 2001 was higher than the previous year. In the final months of 2000 and the first quarter of 2001, the NYMEX futures market reported unprecendented natural gas contract prices. During the six months ended June 30, 2001, the hedging activities resulted in oil and gas sales being $4.2 million lower than if the Company had not hedged. Well operations and pipeline income for the six months ended June 30, 2001 was $2.7 million compared to $2.6 million for the six months ended June 30, 2000, an increase of approximately $100,000 or 3.8 percent. Other income for the six months ended June 30, 2001 was $973,000 compared to $425,000 for the six months ended June 30, 2000, an increase of approximately $548,000, or 128.9 percent. Such increase resulted from interest earned on higher average cash balances. Costs and expenses. Costs and expenses for the six months ended June 30, 2001 were $93.2 million compared to $56.8 million for the six months ended June 30, 2000, an increase of approximately $36.4 million or 64.1 percent. Oil and gas well drilling operations costs for the six months ended June 30, 2001 were $37.4 million compared to $20.4 million for the six months ended June 30, 2000, an increase of approximately $17.0 million or 83.3 percent. Such increase was due to the increased drilling activity referred to above. The cost of gas marketing activities for the six months ended June 30, 2001 were $45.3 million compared to $27.3 million for the six months ended June 30, 2000, an increase of $18.0 million or 65.9 percent. Such increase was due to the increased gas marketing activity of RNG with increased volumes purchased at higher average sales prices. Based on the nature of the Company's gas marketing activities, hedging did not have a significant impact on the Company's net margins from marketing activities during either period. Oil and gas production costs from the Company's producing properties for the six months ended June 30, 2001 were $4.2 million compared to $3.9 million for the six months ended June 30, 2000, an increase of approximately $300,000 or 17.6 percent. Such increase was due to the increased production from the Company's producing properties. General and administrative expenses for the six months ended June 30, 2001 increased to $2.0 million compared with $1.7 million for the six months ended June 30, 2000, an increase of $300,000 or 7.7 percent. Such increase was due to high 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 six months ended June 30, 2001 were $4.0 million compared to $3.2 million for the six months ended June 30, 2000, an increase of approximately $800,000 or 25.0 percent. Such increase was due to the increased amount of investment in oil and gas properties owned by the Company. Interest costs for the six months ended June 30, 2001 were $428,000 compared to $290,000 for the six months ended June 30, 2000, an increase of approximately $138,000. The increase was due to higher average outstanding balances offset in part by lower interest rates on the Company's credit facility. Net income. Net income for the six months ended June 30, 2001 was $9.4 million compared to a net income of $5.2 million for the six months ended June 30, 2000, an increase of approximately $4.2 million or 80.8 percent. - -11- Liquidity and Capital Resources The Company funds its operations through a combination of cash flow from operations, capital raised through drilling partnerships, and use of the Company's credit facility. Operational cash flow is generated by sales of natural gas from the Company's well interests, well drilling and operating activities for the Company's investor partners, natural gas gathering and transportation, and natural gas marketing. Cash payments from Company- sponsored partnerships are used to drill and complete wells for the partnerships, with operating cash flow accruing to the Company to the extent payments exceed drilling costs. The Company utilizes its revolving credit arrangement to meet the cash flow requirements of its operating and investment activities. Sales volumes of natural gas have continued to increase while natural gas prices fluctuate monthly. The Company's natural gas sales prices are subject to increase and decrease based on various market-sensitive indices. A major factor in the variability of these indices is the seasonal variation of demand for 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 has a bank credit agreement with Bank One, formerly First National Bank of Chicago, which provides a borrowing base of $30.0 million, subject to adequate oil and natural gas reserves. As of June 30, 2001, the outstanding balance was $15.0 million. Interest accrues at prime, with LIBOR (London Interbank Market Rate) 714: alternatives available at the discretion of the Company. No principal payments are required until the credit agreement expires on December 31, 2004. The Company closed its first drilling program of 2001 in the second quarter and has drilled the wells in the second and third quarters of 2001. This program closed with investor subscriptions of $9.4 million compared to the first program of 2000 which closed with investor subscriptions of $5.0 million. The Company will close its second drilling program of 2001 in September, 2001 and will drill the wells during the third and fourth quarters of 2001. Additional programs 725: are scheduled to close in November and December of 2001. The 726: Company generally invests, as its equity contribution to each drilling partnership, an additional sum approximating 20% of the aggregate subscriptions received for that particular drilling partnership. As a result, the Company is subject to substantial cash commitments at the closing of each drilling partnership. The funds received from these programs are restricted to use in future drilling operations. No assurance can be made that the Company will continue to receive this level of funding from these or future programs. The Company 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 738: for operating improvements and costs efficiencies. Management believes that the Company has adequate capital to meet its operating requirements. - -12- Item 3. Quantitative and Qualitative Disclosure About Market Rate Risk Interest Rate Risk There have been no material changes in the reported market risks faced by the Company since December 31, 2000. Commodity Price Risk The Company utilizes commodity-based derivative instruments as hedges to manage a portion of its exposure to price risk from its natural gas sales and marketing activities. These instruments consist of NYMEX-traded natural gas futures contracts and option contracts. These hedging arrangements have the effect of locking in for specified periods (at predetermined prices or ranges of prices) the prices the Company will receive for the volume to which the hedge relates. As a result, while these hedging arrangements are structured to reduce the Company's exposure to decreases in price associated with the hedging commodity, they also limit the benefit the Company might otherwise have received from price increases associated with the hedged commodity. The Company's policy prohibits the use of natural gas future and option contracts for speculative purposes. As of June 30, 2001, PDC had entered into a series of natural gas future contracts and options contracts. Open future contracts maturing in 2001 are for the sale of 2,129,800 dt of natural gas with a weighted average price of $3.25 dt resulting in a total contract amount of $6,927,200. Open option contracts maturing in 2001 are for the sale of 912,200 dt with a weighted average floor price of $3.75 dt. The fair market value of the futures contracts and options is $1,483,900 as of June 30, 2001 on a pre-tax basis. -13- CONFORMED COPY PART II - OTHER INFORMATION Item 1. Legal Proceedings 817: 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 June 30, 2001. 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: August 8, 2001 /s/ Steven R. Williams Steven R. Williams President Date: August 8, 2001 /s/ Dale G. Rettinger Dale G. Rettinger Executive Vice President and Treasurer -14- ??