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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to _________

Commission File Number 001-37419
https://cdn.kscope.io/e308854aa7c61c2377e88aad1afe75c7-pdce-20220930_g1.jpg
PDC ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware95-2636730
(State of incorporation)(I.R.S. Employer Identification No.)
1775 Sherman Street, Suite 3000
Denver, Colorado 80203
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code: (303) 860-5800

Securities registered pursuant to Section 12(b) of the Act.
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per sharePDCENasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
    
Large Accelerated Filer
Accelerated filer 
Non-accelerated filer  
Smaller reporting company 
Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 92,144,663 shares of the Company's Common Stock ($0.01 par value) were outstanding as of October 25, 2022.



PDC ENERGY, INC.


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PART I – FINANCIAL INFORMATIONPage
Item 1.
Item 2.
Item 3.
Item 4.
  
PART II – OTHER INFORMATION
   
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
  
 




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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”) and the United States (“U.S.”) Private Securities Litigation Reform Act of 1995 regarding our business, financial condition, results of operations and prospects. All statements other than statements of historical fact included in and incorporated by reference into this report are “forward-looking statements”. Words such as expect, anticipate, intend, plan, believe, seek, estimate, schedule and similar expressions or variations of such words are intended to identify forward-looking statements herein. Forward-looking statements include, among other things, statements regarding future production, costs and cash flows; impacts from the acquisition and integration of Great Western Petroleum, LLC (“Great Western”); drilling locations, zones and growth opportunities; impacts of Colorado political matters, including recent rulemaking initiatives influencing our ability to continue to obtain permits; our receipt of permits and the timing of such receipt; commodity prices and differentials; capital expenditures and projects, including the number of rigs employed; cash flows from operations relative to future capital investments; financial ratios and compliance with covenants in our revolving credit facility and other debt instruments; adequacy of midstream infrastructure; the return of capital to shareholders through buybacks of shares and/or payments of dividends; ongoing compliance with our legacy PDC consent decree and Great Western’s compliance order on consent; risk of our counterparties’ non-performance on derivative instruments; tax matters; and our ability to fund planned activities.

The above statements are not the exclusive means of identifying forward-looking statements herein. Although forward-looking statements contained in this report reflect our good faith judgment, such statements can only be based on facts and factors currently known to us. Forward-looking statements are always subject to risks and uncertainties, and become subject to greater levels of risk and uncertainty as they address matters further into the future. Throughout this report or accompanying materials, we may use the term “projection” or similar terms or expressions, or indicate that we have “modeled” certain future scenarios. We typically use these terms to indicate our current thoughts on possible outcomes relating to our business or our industry in periods beyond the current fiscal year. Because such statements relate to events or conditions further in the future, they are subject to increased levels of uncertainty.

Important factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to:

market and commodity price volatility, widening price differentials, and related impacts to the Company, including decreased revenue, income and cash flow, write-downs and impairments and decreased availability of capital;
difficulties in integrating our operations as a result of any significant acquisitions, including the acquisition of Great Western, or acreage exchanges;
adverse changes to our future cash flows, liquidity and financial condition;
changes in, and interpretations and enforcement of, environmental and other laws and other political and regulatory developments, including in particular additional permit scrutiny in Colorado;
the coronavirus 2019 (“COVID-19”) pandemic, including its effects on commodity prices, downstream capacity, employee health and safety, business continuity and regulatory matters;
declines in the value of our crude oil, natural gas and natural gas liquids (“NGLs”) properties resulting in impairments;
changes in, and inaccuracy of, reserve estimates and expected production and decline rates;
timing and extent of our success in discovering, acquiring, developing and producing reserves;
reductions in the borrowing base under our revolving credit facility;
availability and cost of capital;
risks inherent in the drilling and operation of crude oil and natural gas wells;
timing and costs of wells and facilities;
availability, cost, and timing of sufficient pipeline, gathering and transportation facilities and related infrastructure;
limitations in the availability of supplies, materials, contractors and services that may delay the drilling or
completion of our wells;
potential losses of acreage or other impacts due to lease expirations, other title defects, or otherwise;
risks inherent in marketing crude oil, natural gas and NGLs;
effect of crude oil and natural gas derivative activities;


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impact of environmental events, governmental and other third-party responses to such events and our ability to insure adequately against such events;
cost of pending or future litigation;
impact to our operations, personnel retention, strategy, stock price and expenses caused by the actions of activist shareholders;
uncertainties associated with future dividends to our shareholders or share buybacks;
timing and amounts of federal and state income taxes;
our ability to retain or attract senior management and key technical employees;
an unanticipated assumption of liabilities or other problems with the Great Western acquisition or other acquisitions we may pursue;
civil unrest, terrorist attacks and cyber threats;
changes in general economic, business or industry conditions, including changes in interest rates and inflation rates and concerns regarding national or global recessionary conditions; and
success of strategic plans, expectations and objectives for our future operations.

Further, we urge you to carefully review and consider the cautionary statements and disclosures, specifically those under Item 1A, Risk Factors made in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”) filed with the U.S. Securities and Exchange Commission (“SEC”) for further information on risks and uncertainties that could affect our business, financial condition, results of operations and prospects, which are incorporated by this reference as though fully set forth herein. We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to update any forward-looking statements in order to reflect any event or circumstance occurring after the date of this report or currently unknown facts or conditions or the occurrence of unanticipated events. All forward-looking statements are qualified in their entirety by this cautionary statement.

REFERENCES

Unless the context otherwise requires, references in this report to “PDC Energy”, “PDC”, “the Company”, “we”, “us”, “our” or “ours” refer to the registrant, PDC Energy, Inc. and all subsidiaries consolidated for the purposes of its financial statements.


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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PDC ENERGY, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(Unaudited)
September 30, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$45,649 $33,829 
Accounts receivable, net609,440 398,605 
Fair value of derivatives62,246 17,909 
Prepaid expenses and other current assets10,630 8,230 
Total current assets727,965 458,573 
Properties and equipment, net7,127,291 4,814,865 
Fair value of derivatives91,075 15,177 
Other assets81,759 48,051 
Total Assets$8,028,090 $5,336,666 
Liabilities and Stockholders’ Equity
Liabilities
Current liabilities:
Accounts payable$213,473 $127,891 
Production tax liability247,946 99,583 
Fair value of derivatives389,234 304,870 
Funds held for distribution538,865 285,861 
Accrued interest payable19,511 10,482 
Other accrued expenses102,024 91,409 
Total current liabilities1,511,053 920,096 
Long-term debt1,393,528 942,084 
Asset retirement obligations152,709 127,526 
Fair value of derivatives100,860 95,561 
Deferred income taxes 413,983 26,383 
Other liabilities474,610 314,769 
Total liabilities4,046,743 2,426,419 
Commitments and contingent liabilities
Stockholders’ equity
Common shares - par value $0.01 per share, 150,000,000 authorized, 92,857,134 and 96,468,071 issued as of September 30, 2022 and December 31, 2021, respectively
929 965 
Additional paid-in capital2,950,625 3,161,941 
Retained earnings (accumulated deficit)1,037,229 (249,954)
Treasury shares - at cost, 130,091 and 54,960 as of September 30, 2022 and December 31, 2021, respectively
(7,436)(2,705)
Total stockholders’ equity3,981,347 2,910,247 
Total Liabilities and Stockholders’ Equity$8,028,090 $5,336,666 


See accompanying Notes to Condensed Consolidated Financial Statements
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PDC ENERGY, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
2022202120222021
Revenues
Crude oil, natural gas and NGLs sales$1,200,619 $703,136 $3,320,678 $1,704,396 
Commodity price risk management gain (loss), net306,749 (217,678)(363,283)(707,187)
Other income3,921 904 8,833 4,058 
Total revenues1,511,289 486,362 2,966,228 1,001,267 
Costs, expenses and other
Lease operating expense69,155 45,649 193,922 129,848 
Production taxes98,142 44,654 250,309 101,114 
Transportation, gathering and processing expense32,327 26,732 89,882 74,453 
Exploration, geologic and geophysical expense11,843 222 12,416 862 
General and administrative expense40,103 30,847 119,859 96,367 
Depreciation, depletion and amortization205,604 169,644 547,720 478,617 
Accretion of asset retirement obligations3,484 2,825 9,823 9,185 
Impairment of properties and equipment184 77 1,637 329 
Loss (gain) on sale of properties and equipment(86)(220)287 (561)
Other expense 303  2,496 
Total costs, expenses and other460,756 320,733 1,225,855 892,710 
Income (loss) from operations1,050,533 165,629 1,740,373 108,557 
Interest expense, net(18,629)(20,098)(49,139)(59,199)
(Adjustment to) Gain on bargain purchase
(4,621) 95,652  
Income (loss) before income taxes1,027,283 145,531 1,786,886 49,358 
Income tax benefit (expense)(229,318)(210)(358,500)(110)
Net income (loss)$797,965 $145,321 $1,428,386 $49,248 
Earnings (loss) per share:
Basic$8.40 $1.48 $14.87 $0.50 
Diluted$8.30 $1.45 $14.66 $0.49 
Weighted average common shares outstanding:
Basic94,950 98,183 96,065 99,018 
Diluted96,122 99,966 97,467 100,534 


See accompanying Notes to Condensed Consolidated Financial Statements
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PDC ENERGY, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended September 30,
20222021
Cash flows from operating activities:
Net income (loss)$1,428,386 $49,248 
Adjustments to net income (loss) to reconcile to net cash from operating activities:
Net change in fair value of unsettled commodity derivatives(349,798)491,830 
Depreciation, depletion and amortization547,720 478,617 
Impairment of properties and equipment1,637 329 
Exploratory dry hole costs11,536  
Accretion of asset retirement obligations9,823 9,185 
Non-cash stock-based compensation19,952 17,294 
Loss (gain) on sale of properties and equipment287 (561)
Amortization of debt discount, premium and issuance costs4,075 11,195 
Deferred income taxes357,500  
Gain on bargain purchase(95,652) 
Other(742)2,353 
Changes in assets and liabilities150,067 (31,670)
Net cash from operating activities2,084,791 1,027,820 
Cash flows from investing activities:
Capital expenditures for development of crude oil and natural gas properties(773,748)(428,831)
Capital expenditures for midstream assets(8,747) 
Capital expenditures for other properties and equipment(8,619)(363)
Cash paid for acquisition of an exploration and production business(1,068,241) 
Proceeds from sale of properties and equipment640 4,720 
Proceeds from divestitures10,452  
Net cash from investing activities(1,848,263)(424,474)
Cash flows from financing activities:
Proceeds from revolving credit facility and other borrowings2,049,200 502,800 
Repayment of revolving credit facility and other borrowings(1,599,200)(670,800)
Repayment of convertible notes (200,000)
Payment of debt issuance costs(101) 
Purchase of treasury shares for employee stock-based compensation tax withholding obligations(16,979)(5,836)
Purchase of treasury shares under stock repurchase program (556,035)(107,318)
Dividends paid(91,972)(23,600)
Principal payments under financing lease obligations(1,491)(1,293)
Net cash from financing activities(216,578)(506,047)
Net change in cash and cash equivalents19,950 97,299 
Cash, cash equivalents and restricted cash, beginning of period33,829 2,623 
Cash, cash equivalents and restricted cash, end of period$53,779 $99,922 


See accompanying Notes to Condensed Consolidated Financial Statements
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PDC ENERGY, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except dividends per share)
(Unaudited)
Nine Months Ended September 30, 2022
Common StockAdditional Paid-in CapitalTreasury StockRetained Earnings (Accumulated Deficit)Total Stockholders’ Equity
SharesAmountSharesAmount
Balance, January 1, 202296,468 $965 $3,161,941 (55)$(2,705)$(249,954)$2,910,247 
Net income (loss)— — — — — (31,960)(31,960)
Stock-based compensation655 7 1,798  3,669 — 5,474 
Purchase of treasury shares for employee stock-based compensation tax withholding obligations— — — (164)(9,203)— (9,203)
Retirement of treasury shares for employee stock-based compensation tax withholding obligations(53)(2)(3,022)53 3,024 — — 
Retirement of treasury shares(1,320)(13)(83,508)1,320 83,521 — — 
Issuance of treasury shares— —  67  —  
Purchase of treasury shares under stock repurchase program— — — (1,326)(85,339)— (85,339)
Dividends declared ($0.25 per share)
— — (24,468)— — — (24,468)
Balance, March 31, 202295,750 957 3,052,741 (105)(7,033)(281,914)2,764,751 
Net income (loss)— — — — — 662,381 662,381 
Issuance of stock pursuant to acquisition4,007 40 293,274 — — — 293,314 
Stock-based compensation337 3 6,924  369 — 7,296 
Purchase of treasury shares for employee stock-based compensation tax withholding obligations— — — (101)(7,657)— (7,657)
Retirement of treasury shares for employee stock-based compensation tax withholding obligations(101)(1)(7,635)101 7,636 — — 
Retirement of treasury shares(2,946)(29)(214,123)2,946 214,152 —  
Issuance of treasury shares— —  5  —  
Purchase of treasury shares under stock repurchase program— — — (2,966)(214,706)— (214,706)
Dividends declared ($0.35 per share)
— — (34,658)— — — (34,658)
Balance, June 30, 202297,047 970 3,096,523 (120)(7,239)380,467 3,470,721 
Net income— — — — — 797,965 797,965 
Stock-based compensation7  7,254  (72)— 7,182 
Purchase of treasury shares for employee stock-based compensation tax withholding obligations— — — (2)(119)— (119)
Retirement of treasury shares for employee stock-based compensation tax withholding obligations(2)— (69)2 115 (46)— 
Retirement of treasury shares(4,195)(41)(153,083)4,195 261,030 (107,906) 
Issuance of treasury shares     —  
Purchase of treasury shares under stock repurchase program— — — (4,205)(261,151) (261,151)
Dividends declared ($0.35 per share)
— —  — — (33,251)(33,251)
Balance, September 30, 202292,857 $929 $2,950,625 (130)$(7,436)$1,037,229 $3,981,347 

See accompanying Notes to Condensed Consolidated Financial Statements
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Nine Months Ended September 30, 2021
Common StockAdditional Paid-in CapitalTreasury StockAccumulated DeficitTotal Stockholders’ Equity
SharesAmountSharesAmount
Balance, January 1, 202199,759 $998 $3,387,754 (38)$(949)$(772,265)$2,615,538 
Net income (loss)— — — — — (9,036)(9,036)
Issuance pursuant to acquisition   — — —  
Stock-based compensation209 2 3,670  1,348 — 5,020 
Purchase of treasury shares for employee stock-based compensation tax withholding obligations— — — (81)(2,356)— (2,356)
Retirement of treasury shares for employee stock-based compensation tax withholding obligations(33) (1,091)33 1,091 — — 
Retirement of treasury shares(568)(6)(21,061)568 21,067 — — 
Issuance of treasury shares— —  65  —  
Purchase of treasury shares under stock repurchase program— — — (598)(22,098)— (22,098)
Balance, March 31, 202199,367 994 3,369,272 (51)(1,897)(781,301)2,587,068 
Net income (loss)— — — — — (87,037)(87,037)
Stock-based compensation295 3 5,742  750 — 6,495 
Purchase of treasury shares for employee stock-based compensation tax withholding obligations— — — (92)(3,300)— (3,300)
Retirement of treasury shares for employee stock-based compensation tax withholding obligations(78)(1)(2,807)78 2,808 — — 
Retirement of treasury shares(677)(7)(26,922)684 27,235 — 306 
Issuance of treasury shares— —  22  — 
Purchase of treasury shares under stock repurchase program— — — (661)(26,509)— (26,509)
Dividends declared ($0.12 per share)
— — (12,117)— — — (12,117)
Balance, June 30, 202198,907 989 3,333,168 (20)(913)(868,338)2,464,906 
Net income (loss)— — — — — 145,321 145,321 
Stock-based compensation12  5,730  49 — 5,779 
Purchase of treasury shares for employee stock-based compensation tax withholding obligations— — — (4)(180)— (180)
Retirement of treasury shares for employee stock-based compensation tax withholding obligations(2)— (91)2 91 — — 
Retirement of treasury shares(1,476)(15)(59,610)1,476 59,625 —  
Issuance of treasury shares   1  —  
Purchase of treasury shares under stock repurchase program— — — (1,476)(59,666)— (59,666)
Retirement of treasury shares(1,476)(15)(59,610)1,476 59,625 — — 
Dividends declared ($0.12 per share)
— — (11,936)— — — (11,936)
Balance, September 30, 202197,441 $974 $3,267,261 (21)$(994)$(723,017)$2,544,224 

See accompanying Notes to Condensed Consolidated Financial Statements
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PDC ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
PDC Energy, Inc. is a domestic independent exploration and production company that acquires, explores and develops properties for the production of crude oil, natural gas and NGLs, with operations in the Wattenberg Field in Colorado and the Delaware Basin in west Texas. Our operations in the Wattenberg Field are focused in the horizontal Niobrara and Codell plays and our Delaware Basin operations are primarily focused in the horizontal Wolfcamp zones. As of September 30, 2022, we owned an interest in approximately 4,200 gross productive wells.
The accompanying unaudited condensed consolidated financial statements include the accounts of PDC and our wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. In our opinion, the accompanying condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments necessary for a fair statement of the results of interim periods presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, pursuant to such rules and regulations, certain notes and other financial information included in audited financial statements have been condensed or omitted. The December 31, 2021 condensed consolidated balance sheet data was derived from audited statements, but does not include all disclosures required by U.S. GAAP. The information presented in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements and notes thereto included in our 2021 Form 10-K. Our results of operations and cash flows for the nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year or any other future period.
NOTE 2 - BUSINESS COMBINATION
On May 6, 2022, we completed the acquisition of Great Western Petroleum, LLC (“Great Western”), for approximately $1.4 billion, inclusive of Great Western’s net debt (the “Great Western Acquisition”). Great Western was an independent oil and gas company focused on the exploration, production and development of crude oil and natural gas in the Wattenberg Field of Colorado. The consideration paid was $542.5 million in cash and approximately 4.0 million shares of our common stock, valued at $293.3 million on the acquisition date. In addition, we paid off the Great Western secured credit facility totaling $235.8 million and irrevocably deposited $361.2 million on Great Western’s behalf to pay and discharge on May 20, 2022 Great Western’s 12 percent senior secured notes due 2025, inclusive of unpaid accrued interest and a premium for early termination. The cash portion of the purchase price and the termination of Great Western’s debt were funded through a combination of cash on hand and availability under our revolving credit facility.
Purchase Price Allocation
The Great Western Acquisition has been accounted for using the acquisition method under Accounting Standards Codification (“ASC”) 805, Business Combinations, with PDC being treated as the accounting acquirer. Accordingly, we conducted assessments of the net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated fair values, while transaction and integration costs associated with the acquisition were expensed as incurred.
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PDC ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

The following table presents our preliminary allocation of the total purchase price of Great Western to the identifiable assets acquired and liabilities assumed based on the fair values as of the acquisition date:
(in thousands, except share and per share data)
Consideration:
Cash$542,500 
Retirement of Great Western’s credit facility235,822 
Extinguishment of Great Western’s secured senior notes361,231 
Total cash consideration$1,139,553 
Common stock issued4,007,018 
Fair value of PDC common stock on May 6, 2022$73.20 
Total fair value of common stock issued293,314 
Total consideration$1,432,867 
Assets acquired:
Cash$63,183 
Accounts receivable164,026 
Other current assets3,129 
Properties and equipment, net - proved2,089,443 
Properties and equipment, net - other7,035 
Other noncurrent assets21,888 
Total assets acquired$2,348,704 
Liabilities assumed:
Accounts payable$(118,485)
Production tax liability(110,940)
Funds held for distribution(166,212)
Other current liabilities(18,603)
Fair value of derivatives(319,600)
Asset retirement obligations(23,442)
Deferred tax liabilities(30,100)
Other liabilities(32,803)
Total liabilities assumed$(820,185)
Total identifiable net assets acquired$1,528,519 
Gain on bargain purchase95,652 
Purchase price consideration$1,432,867 

Determining the fair values of the assets and liabilities of Great Western requires judgement and certain assumptions to be made, the most significant of these being related to the valuation of crude oil and natural gas properties. The majority of the measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market, and therefore represent Level 3 inputs. The fair values of crude oil and natural gas properties and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs and assumptions to the valuation of proved and unproved crude oil and natural gas properties include estimates of reserve volumes, future operating and development costs, future commodity prices, lease terms and expirations and a market-based weighted-average cost of capital rate of 14.25 percent. These inputs require significant judgments and estimates by management at the time of the valuation. Due to this, the final purchase price allocation is considered an ongoing process and the measurement period will extend into the fourth quarter of 2022. Through September 30, 2022, there have been immaterial adjustments made to the allocation presented in the Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 filed with the SEC on August 3, 2022.
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PDC ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

ASC 805, Business Combinations, requires that any excess of purchase price over the fair value of assets acquired, including identifiable intangibles and liabilities assumed, be recognized as goodwill and any excess of fair value of acquired net assets, including identifiable intangible assets over the acquisition consideration, results in a gain from bargain purchase. Prior to recording a gain, the acquiring entity must reassess whether all assets acquired and assumed liabilities have been identified and recognized and perform re-measurements to verify that the consideration paid, assets acquired and liabilities assumed have been properly valued. The Great Western Acquisition resulted in a gain on bargain purchase due to the estimated fair value of the identifiable net assets acquired exceeding the purchase consideration transferred by $95.7 million and is shown as a gain on bargain purchase on our condensed consolidated statement of operations, net of related income taxes of $30.1 million. Upon completion of our assessment, we concluded that recording a gain on bargain purchase was appropriate and required under ASC 805. The bargain purchase was primarily attributable to the increase in commodity price forecasts from the date we entered into the definitive purchase agreement with Great Western, February 26, 2022, to the closing date of the acquisition, May 6, 2022, when the fair value of crude oil and natural gas reserves acquired were determined. Additionally, the majority of the acquisition consideration was fixed and therefore did not fluctuate as a result of market increases or decreases between the date of entry into the agreement through the closing date.
The results of operations for the Great Western Acquisition since the closing date have been included on our condensed consolidated financial statements for the three and nine months ended September 30, 2022 and include approximately $266.1 million and $458.9 million of total revenues, respectively, and $162.2 million and $293.3 million of income from operations, respectively. During the three and nine months ended September 30, 2022, we recognized total transaction costs of $1.2 million and $11.7 million, respectively, which are included in general and administrative expense on the condensed consolidated statement of operations.

Pro Forma Information. The following unaudited pro forma financial information represents a summary of the condensed consolidated results of operations for the three months ended September 30, 2021 and nine months ended September 30, 2022 and 2021, assuming the acquisition had been completed as of January 1, 2021. The financial information for the three months ended September 30, 2022 was included on our condensed consolidated financial statements and therefore does not require a pro forma disclosure. The pro forma financial information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had been effective as of these dates, or of future results.

The information below reflects certain nonrecurring pro forma adjustments that were directly related to the business combination based on available information and certain assumptions that we believe are reasonable, including (i) our common stock issued to the owners of Great Western, (ii) the increase in depletion reflecting the relative fair values and production volumes attributable to Great Western’s properties and the revision to the depletion rate reflecting the reserve volumes acquired, (iii) adjustments to interest expense as a result of payoff of Great Western’s credit facility and secured senior notes, (iv) the adjustment to reflect the gain on bargain purchase, and (v) the estimated tax impacts of the pro forma adjustments. In addition, pro forma earnings were adjusted to exclude acquisition-related costs incurred by us and Great Western totaling approximately $4.9 million and $33.4 million for the three and nine months ended September 30, 2022, respectively, and included the total costs of $33.4 million for the nine months ended September 30, 2021.

Three months ended September 30,Nine months ended September 30,
202120222021
(in thousands, except per share data)
Total revenues$570,736 $3,017,856 $1,189,724 
Net income (loss)128,818 1,299,632 (8,654)
Earnings (loss) per share:
Basic$1.26 $12.99 $(0.08)
Diluted1.24 12.81 (0.08)



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PDC ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

NOTE 3 - REVENUE RECOGNITION
Disaggregated Revenue. The following table presents crude oil, natural gas and NGLs sales disaggregated by commodity and operating region for the periods presented:
Three Months Ended September 30,
Nine Months Ended September 30,
Revenue by Commodity and Operating Region20222021Percent Change20222021Percent Change
(in thousands)
Crude oil
Wattenberg Field$577,451 $341,822 69 %$1,628,524 $869,336 87 %
Delaware Basin103,263 80,751 28 %342,772 177,587 93 %
Total$680,714 $422,573 61 %1,971,296 1,046,923 88 %
 Natural gas
Wattenberg Field$277,098 $116,263