Company Quick10K Filing
Quick10K
PDC Energy
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$36.91 66 $2,450
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-13 M&A
8-K 2019-05-31 M&A, Other Events
8-K 2019-05-29 Shareholder Vote
8-K 2019-05-01 Earnings, Exhibits
8-K 2019-02-11 Earnings, Regulation FD, Exhibits
8-K 2018-12-12 Officers
8-K 2018-11-05 Earnings, Exhibits
8-K 2018-08-08 Earnings, Exhibits
8-K 2018-06-20 Officers
8-K 2018-05-30 Officers, Shareholder Vote, Exhibits
8-K 2018-05-23 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-02-26 Earnings, Exhibits
8-K 2018-02-05 Officers, Exhibits
8-K 2018-01-03 Officers
MMC Marsh & Mclennan Companies 47,650
FOR Forestar Group 832
ACOR Acorda Therapeutics 559
SFS Smart & Final Stores 497
IMXI International Money Express 431
CSWC Capital Southwest 384
CVCY Central Valley Community Bancorp 273
NGS Natural Gas Services Group 215
HPGN Hypgen 0
NWGI Newgioco Group 0
PDCE 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Note 1 - Nature of Operations and Basis of Presentation
Note 2 - Summary of Significant Accounting Policies
Note 3 - Revenue Recognition
Note 4 - Fair Value of Financial Instruments
Note 5 - Commodity Derivative Financial Instruments
Note 6 - Properties and Equipment
Note 7 - Other Accrued Expenses and Other Liabilities
Note 8 - Long-Term Debt
Note 9 - Leases
Note 10 - Asset Retirement Obligations
Note 11 - Commitments and Contingencies
Note 12 - Common Stock
Note 13 - Income Taxes
Note 14 - Earnings per Share
Note 15 - Supplemental Disclosures of Cash Flow Information
Note 16 - Subsidiary Guarantor
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities - None.
Item 4. Mine Safety Disclosures - Not Applicable.
Item 5. Other Information - None.
Item 6. Exhibits
EX-31.1 a201910q1ex311.htm
EX-31.2 a201910q1ex312.htm
EX-32.1 a201910q1ex321.htm
EX-99.1 exhibit991-2018eipx201.htm
EX-99.2 exhibit992-2018eip2019.htm
EX-99.3 exhibit993-2010ltep201.htm
EX-99.4 exhibit994-2018eip2019.htm

PDC Energy Earnings 2019-03-31

PDCE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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

FORM 10-Q

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

For the quarterly period ended March 31, 2019

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
logo123114a12.jpg
PDC ENERGY, INC.
(Exact name of registrant as specified in its charter)

Delaware
95-2636730
(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

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 x No o

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 x No o

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  x
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company  o
 
Emerging growth company  o
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 o No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 66,282,650 shares of the Company's Common Stock ($0.01 par value) were outstanding as of April 22, 2019.


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PDC ENERGY, INC.


TABLE OF CONTENTS

 
PART I – FINANCIAL INFORMATION
 
Page
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
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"), 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; drilling locations, zones and growth opportunities; commodity prices and differentials; capital expenditures and projects, including the number of rigs employed, and that cash flows from operations will exceed expected capital investments in crude oil and natural gas properties for 2019 and 2020; anticipated stock repurchase program, which may be modified or discontinued at any time, and expected timing and amount of such program; financial ratios and compliance with covenants in our revolving credit facility and other debt instruments; impacts of certain accounting and tax changes; anticipated sale of our Delaware Basin midstream assets and the timing of those sales and whether closing will occur timely or at all; timing and adequacy of infrastructure projects of our midstream providers and the related impact on our midstream capacity and related curtailments; fractionation capacity; impacts of Colorado political matters; ability to meet our volume commitments to midstream providers; ongoing compliance with our consent decree; and reclassification of the Denver Metro/North Front Range NAA ozone classification to serious.

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:

changes in global production volumes and demand, including economic conditions that might impact demand and prices for the products we produce;
volatility of commodity prices for crude oil, natural gas and natural gas liquids ("NGLs") and the risk of an extended period of depressed prices;
impact to our operations, personnel retention, strategy, stock price and expenses caused by the actions of activist shareholders;
volatility and widening of differentials;
reductions in the borrowing base under our revolving credit facility;
impact of governmental policies and/or regulations, including changes in environmental and other laws, the interpretation and enforcement of those laws and regulations, liabilities arising thereunder and the costs to comply with those laws and regulations;
declines in the value of our crude oil, natural gas and NGLs properties resulting in impairments;
changes in estimates of proved reserves;
inaccuracy of reserve estimates and expected production rates;
potential for production decline rates from our wells being greater than expected;
timing and extent of our success in discovering, acquiring, developing and producing reserves;
availability of sufficient pipeline, gathering and other transportation facilities and related infrastructure to process and transport our production and the impact of these facilities and regional capacity on the prices we receive for our production;
timing and receipt of necessary regulatory permits;
risks incidental to the drilling and operation of crude oil and natural gas wells;
difficulties in integrating our operations as a result of any significant acquisitions or acreage exchanges;
increases or changes in costs and expenses;
availability of supplies, materials, contractors and services that may delay the drilling or completion of our wells;
potential losses of acreage due to lease expirations or otherwise;
increases or changes in costs and expenses;


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future cash flows, liquidity and financial condition;
possibility that one or more sales of our Delaware Basin midstream assets will not close when expected or at all;
competition within the oil and gas industry;
availability and cost of capital;
our success in marketing crude oil, natural gas and NGLs;
effect of crude oil and natural gas derivative activities;
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;
effect that acquisitions we may pursue have on our capital requirements;
our ability to retain or attract senior management and key technical employees; 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 the heading "Risk Factors," made in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the U.S. Securities and Exchange Commission ("SEC") on February 28, 2019 (the "2018 Form 10-K") and our other filings with the 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, including our proportionate share of the financial position, results of operations, cash flows and operating activities of our affiliated partnerships.


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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PDC ENERGY, INC.
Condensed Consolidated Balance Sheets
(unaudited; in thousands, except share and per share data)
 
 
March 31, 2019
 
December 31, 2018
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
1,112

 
$
1,398

Accounts receivable, net
 
190,844

 
181,434

Fair value of derivatives
 
13,330

 
84,492

Prepaid expenses and other current assets
 
7,870

 
7,136

Total current assets
 
213,156

 
274,460

Properties and equipment, net
 
4,121,649

 
4,002,862

Assets held-for-sale, net
 
152,847

 
140,705

Fair value of derivatives
 
24,225

 
93,722

Other assets
 
52,051

 
32,396

Total Assets
 
$
4,563,928

 
$
4,544,145

 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
Liabilities
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
215,555

 
$
181,864

Production tax liability
 
55,430

 
60,719

Fair value of derivatives
 
43,899

 
3,364

Funds held for distribution
 
91,615

 
105,784

Accrued interest payable
 
15,194

 
14,150

Other accrued expenses
 
68,836

 
75,133

Total current liabilities
 
490,529

 
441,014

Long-term debt
 
1,289,046

 
1,194,876

Deferred income taxes
 
160,609

 
198,096

Asset retirement obligations
 
82,497

 
85,312

Liabilities held-for-sale
 
4,614

 
4,111

Fair value of derivatives
 
1,815

 
1,364

Other liabilities
 
125,063

 
92,664

Total liabilities
 
2,154,173

 
2,017,437

 
 
 
 
 
Commitments and contingent liabilities
 

 

 
 
 
 
 
Stockholders' equity
 
 
 
 
Common shares - par value $0.01 per share, 150,000,000 authorized, 66,196,863 and 66,148,609 issued as of March 31, 2019 and December 31, 2018, respectively
 
662

 
661

Additional paid-in capital
 
2,521,558

 
2,519,423

Retained earnings (deficit)
 
(111,449
)
 
8,727

Treasury shares - at cost, 22,635 and 45,220
as of March 31, 2019 and December 31, 2018, respectively
 
(1,016
)
 
(2,103
)
Total stockholders' equity
 
2,409,755

 
2,526,708

Total Liabilities and Stockholders' Equity
 
$
4,563,928

 
$
4,544,145




See accompanying Notes to Condensed Consolidated Financial Statements
1

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PDC ENERGY, INC.
Condensed Consolidated Statements of Operations
(unaudited; in thousands, except per share data)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Revenues
 
 
 
 
Crude oil, natural gas and NGLs sales
 
$
321,099

 
$
305,225

Commodity price risk management loss, net
 
(190,074
)
 
(47,240
)
Other income
 
3,475

 
2,615

Total revenues
 
134,500

 
260,600

Costs, expenses and other
 
 
 
 
Lease operating expenses
 
35,221

 
29,636

Production taxes
 
22,168

 
20,169

Transportation, gathering and processing expenses
 
11,424

 
7,313

Exploration, geologic and geophysical expense
 
2,643

 
2,646

Impairment of properties and equipment
 
7,875

 
33,188

General and administrative expense
 
39,598

 
35,696

Depreciation, depletion and amortization
 
151,422

 
126,788

Accretion of asset retirement obligations
 
1,584

 
1,288

(Gain) loss on sale of properties and equipment
 
(369
)
 
1,432

Other expenses
 
3,554

 
2,768

Total costs, expenses and other
 
275,120

 
260,924

Loss from operations
 
(140,620
)
 
(324
)
Interest expense
 
(16,978
)
 
(17,529
)
Interest income
 
10

 
148

Loss before income taxes
 
(157,588
)
 
(17,705
)
Income tax benefit
 
37,412

 
4,566

Net loss
 
$
(120,176
)
 
$
(13,139
)
 
 
 
 
 
Earnings per share:
 
 
 
 
Basic
 
$
(1.82
)
 
$
(0.20
)
Diluted
 
$
(1.82
)
 
$
(0.20
)
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
Basic
 
66,182

 
65,957

Diluted
 
66,182

 
65,957

 
 
 
 
 


 

See accompanying Notes to Condensed Consolidated Financial Statements
2

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PDC ENERGY, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited; in thousands)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(120,176
)
 
$
(13,139
)
Adjustments to net loss to reconcile to net cash from operating activities:
 
 
 
 
Net change in fair value of unsettled commodity derivatives
 
181,622

 
21,202

Depreciation, depletion and amortization
 
151,422

 
126,788

Impairment of properties and equipment
 
7,875

 
33,188

Accretion of asset retirement obligations
 
1,584

 
1,288

Non-cash stock-based compensation
 
4,683

 
5,261

(Gain) loss on sale of properties and equipment
 
(369
)
 
1,432

Amortization of debt discount and issuance costs
 
3,349

 
3,246

Deferred income taxes
 
(37,487
)
 
(4,809
)
Other
 
21

 
515

Changes in assets and liabilities
 
(10,671
)
 
30,177

Net cash from operating activities
 
181,853

 
205,149

Cash flows from investing activities:
 
 
 
 
Capital expenditures for development of crude oil and natural gas properties
 
(266,940
)
 
(196,917
)
Capital expenditures for other properties and equipment
 
(4,826
)
 
(1,066
)
Acquisition of crude oil and natural gas properties
 

 
(180,825
)
Proceeds from sale of properties and equipment
 
102

 
20

Proceeds from divestiture
 

 
39,023

Restricted cash
 

 
1,249

Net cash from investing activities
 
(271,664
)
 
(338,516
)
Cash flows from financing activities:
 
 
 
 
Proceeds from revolving credit facility
 
432,000

 
35,000

Repayment of revolving credit facility
 
(340,500
)
 
(35,000
)
Purchase of treasury stock
 
(1,460
)
 
(2,255
)
Other
 
(515
)
 
(379
)
Net cash from financing activities
 
89,525

 
(2,634
)
Net change in cash, cash equivalents and restricted cash
 
(286
)
 
(136,001
)
Cash, cash equivalents and restricted cash, beginning of period
 
9,399

 
189,925

Cash, cash equivalents and restricted cash, end of period
 
$
9,113

 
$
53,924


See accompanying Notes to Condensed Consolidated Financial Statements
3

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PDC ENERGY, INC.
Condensed Consolidated Statement of Equity
(unaudited; in thousands, except share data)

 
Three Months Ended March 31, 2019
 
Common Stock
 
 
 
Treasury Stock
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Shares
 
Amount
 
Retained Earnings (Deficit)
 
Total Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2018
66,148,609

 
$
661

 
$
2,519,423

 
(45,220
)
 
$
(2,103
)
 
$
8,727

 
$
2,526,708

Net loss

 

 

 

 

 
(120,176
)
 
(120,176
)
Purchase of treasury shares

 

 

 
(41,787
)
 
(1,460
)
 

 
(1,460
)
Issuance of treasury shares
(64,372
)
 
1

 
(1
)
 
64,372

 

 

 

Non-employee directors' deferred compensation plan

 

 

 

 

 

 

Issuance of stock awards, net of forfeitures
112,626

 

 
(2,547
)
 

 
2,547

 

 

Stock-based compensation expense

 

 
4,683

 

 

 

 
4,683

Other

 

 

 

 

 

 

Balance, March 31, 2019
66,196,863

 
$
662

 
$
2,521,558

 
(22,635
)
 
$
(1,016
)
 
$
(111,449
)
 
$
2,409,755



 
Three Months Ended March 31, 2018
 
Common Stock
 
 
 
Treasury Stock
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Shares
 
Amount
 
Retained Earnings (Deficit)
 
Total Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
65,955,080

 
$
659

 
$
2,503,294

 
(55,927
)
 
$
(3,008
)
 
$
6,704

 
$
2,507,649

Net loss

 

 

 

 

 
(13,139
)
 
(13,139
)
Purchase of treasury shares

 

 

 
(41,357
)
 
(2,255
)
 

 
(2,255
)
Issuance of treasury shares

 

 
(3,891
)
 
70,603

 
3,891

 

 

Non-employee directors' deferred compensation plan

 

 

 
(2,574
)
 
(142
)
 

 
(142
)
Issuance of stock awards, net of forfeitures
43,930

 
1

 
(1
)
 

 

 

 

Stock-based compensation expense

 

 
5,261

 

 

 

 
5,261

Balance, March 31, 2018
65,999,010

 
$
660

 
$
2,504,663

 
(29,255
)
 
$
(1,514
)
 
$
(6,435
)
 
$
2,497,374




See accompanying Notes to Condensed Consolidated Financial Statements
4

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PDC ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(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 Texas. Our operations in the Wattenberg Field are focused in the rural areas of the horizontal Niobrara and Codell plays and our Delaware Basin operations are primarily focused in the Wolfcamp zones. We previously operated properties in the Utica Shale in Southeastern Ohio; however, we divested these properties during the first quarter of 2018. As of March 31, 2019, we owned an interest in approximately 2,800 gross productive wells. We are engaged in two operating segments: our oil and gas exploration and production segment and our gas marketing segment. Our gas marketing segment does not meet the quantitative thresholds to require disclosure as a separate reportable segment. All of our material operations are attributable to our exploration and production business; therefore, all of our operations are presented as a single segment for all periods presented.

In 2018, we began the process of actively marketing our Delaware Basin crude oil gathering, natural gas gathering and produced water gathering and disposal assets for sale. In the second quarter of 2019, we entered into definitive agreements to divest the natural gas gathering and produced water gathering and disposal assets. These transactions are expected to close in mid-2019. We are also in the final stages of negotiations regarding the sale of our crude oil gathering assets.
 
The accompanying unaudited condensed consolidated financial statements include the accounts of PDC, our wholly-owned subsidiaries and our proportionate share of our affiliated partnerships. Pursuant to the proportionate consolidation method, our accompanying condensed consolidated financial statements include our pro rata share of assets, liabilities, revenues and expenses of the entities which we proportionately consolidate. 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 our financial statements for interim periods 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, 2018 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 2018 Form 10-K. Our results of operations and cash flows for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year or any other future period.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash, cash equivalents and restricted cash. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported on the condensed consolidated balance sheets at March 31, 2019 and 2018 and December 31, 2018 and 2017, which sum to the total of cash, cash equivalents and restricted cash in the consolidated statements of cash flows:
 
March 31, 2019
 
December 31, 2018
 
March 31, 2018
 
December 31, 2017
 
(in thousands)
Cash and cash equivalents
$
1,112

 
$
1,398

 
$
45,923

 
$
180,675

Restricted cash
8,001

 
8,001

 
8,001

 
9,250

Cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows
$
9,113

 
$
9,399

 
$
53,924

 
$
189,925

 
Restricted cash is included in other assets on the condensed consolidated balance sheets.

Recently Adopted Accounting Standards

In February 2016, the FASB issued an accounting update and subsequent amendments aimed at increasing the transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and

5

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PDC ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(unaudited)


disclosing key information about related leasing arrangements (the “New Lease Standard”). For leases with terms of more than 12 months, the accounting update requires lessees to recognize a right-of-use ("ROU") asset and lease liability for its right to use the underlying asset and the corresponding lease obligation. As provided by practical expedients, we made accounting policy elections to not recognize ROU assets and lease liabilities that arise from short-term leases and to not separate lease and non-lease components for any class of underlying asset. The FASB issued an accounting update which provides an optional transition practical expedient for the adoption of the New Lease Standard that, if elected, permits an organization to not evaluate the accounting for existing land easements that are not accounted for under the previous lease accounting standard. We elected this practical expedient, and accordingly, existing land easements at December 31, 2018 were not assessed. All new or modified land easements entered into after January 1, 2019 will be evaluated under the New Lease Standard. The New Lease Standard does not apply to leases of mineral rights to explore for or use crude oil and natural gas. Adoption of the New Lease Standard resulted in increases to other assets of $20.1 million, other accrued expenses of $4.6 million and other liabilities of $15.5 million at January 1, 2019, with no adjustment to the opening balance of retained earnings.

NOTE 3 - REVENUE RECOGNITION

Crude oil, natural gas and NGLs revenues are recognized when we have transferred control of crude oil, natural gas or NGLs production to the purchaser. We consider the transfer of control to have occurred when the purchaser has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the crude oil, natural gas or NGLs production. We record sales revenue based on an estimate of the volumes delivered at estimated prices as determined by the applicable sales agreement. We estimate our sales volumes based on company-measured volume readings. We then adjust our crude oil, natural gas and NGLs sales in subsequent periods based on the data received from our purchasers that reflects actual volumes delivered and prices received. We receive payment for sales one to two months after actual delivery has occurred. The differences in sales estimates and actual sales are recorded one to two months later. Historically, these differences have not been material.        

Disaggregated Revenue. The following table presents crude oil, natural gas and NGLs sales disaggregated by
commodity and operating region for the three months ended March 31, 2019 and 2018 (in thousands):

 
 
Three Months Ended March 31,
Revenue by Commodity and Operating Region
 
2019
 
2018
 
Percent Change
Crude oil
 
 
 
 
 
 
Wattenberg Field
 
$
180,426

 
$
170,306

 
5.9
 %
Delaware Basin
 
50,657

 
53,418

 
(5.2
)%
Utica Shale (1)
 

 
2,696

 
(100.0
)%
Total
 
$
231,083

 
$
226,420

 
2.1
 %
 Natural gas
 
 
 
 
 
 
Wattenberg Field
 
$
46,701

 
$
29,772

 
56.9
 %
Delaware Basin
 
5,770

 
7,679

 
(24.9
)%
Utica Shale (1)
 

 
1,110

 
(100.0
)%
Total
 
$
52,471

 
$
38,561

 
36.1
 %
NGLs
 
 
 
 
 
 
Wattenberg Field
 
$
27,722

 
$
28,770

 
(3.6
)%
Delaware Basin
 
9,823

 
10,635

 
(7.6
)%
Utica Shale (1)
 

 
839

 
(100.0
)%
Total
 
$
37,545

 
$
40,244

 
(6.7
)%
Revenue by Operating Region
 
 
 
 
 
 
Wattenberg Field
 
$
254,849

 
$
228,848

 
11.4
 %
Delaware Basin
 
66,250

 
71,732

 
(7.6
)%
Utica Shale (1)
 

 
4,645

 
(100.0
)%
Total
 
$
321,099

 
$
305,225

 
5.2
 %
(1)
In March 2018, we completed the disposition of our Utica Shale properties.



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PDC ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(unaudited)


NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS

Determination of Fair Value

Our fair value measurements are estimated pursuant to a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date, giving the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. The lowest level input that is significant to a fair value measurement in its entirety determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability and may affect the valuation of the assets and liabilities and their placement within the fair value hierarchy levels. The three levels of inputs that may be used to measure fair value are defined as:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived from observable market data by correlation or other means.

Level 3 – Unobservable inputs for the asset or liability, including situations where there is little, if any, market activity.

Derivative Financial Instruments

We measure the fair value of our derivative instruments based upon a pricing model that utilizes market-based inputs, including, but not limited to, the contractual price of the underlying position, current market prices, crude oil and natural gas forward curves, discount rates such as the LIBOR curve for a similar duration of each outstanding position, volatility factors and nonperformance risk. Nonperformance risk considers the effect of our credit standing on the fair value of derivative liabilities and the effect of our counterparties' credit standings on the fair value of derivative assets. Both inputs to the model are based on published credit default swap rates and the duration of each outstanding derivative position.

We validate our fair value measurement through the review of counterparty statements and other supporting documentation, determination that the source of the inputs is valid, corroboration of the original source of inputs through access to multiple quotes, if available, or other information and monitoring changes in valuation methods and assumptions.

Our crude oil and natural gas fixed-price swaps are included in Level 2. Our collars are included in Level 3. Our basis swaps are included in Level 2 and Level 3. The following table presents, for each applicable level within the fair value hierarchy, our derivative assets and liabilities, including both current and non-current portions, measured at fair value on a recurring basis:
 
March 31, 2019
 
December 31, 2018
 
Significant Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  
Total
 
Significant Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  
Total
 
(in thousands)
Total assets
$
21,177

 
$
16,378

 
$
37,555

 
$
118,521

 
$
59,693

 
$
178,214

Total liabilities
(42,326
)
 
(3,388
)
 
(45,714
)
 
(3,364
)
 
(1,364
)
 
(4,728
)
Net asset (liability)
$
(21,149
)
 
$
12,990

 
$
(8,159
)
 
$
115,157

 
$
58,329

 
$
173,486

 
 
 
 
 
 
 
 
 
 
 
 


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PDC ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(unaudited)


The following table presents a reconciliation of our Level 3 assets measured at fair value:
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(in thousands)
Fair value of Level 3 instruments, net asset (liability) beginning of period
 
$
58,329

 
$
(9,687
)
Changes in fair value included in condensed consolidated statement of operations line item:
 
 
 
 
Commodity price risk management loss, net
 
(43,520
)
 
(2,152
)
Settlements included in condensed consolidated statement of operations line items:
 
 
 
 
Commodity price risk management loss, net
 
(1,819
)
 
3,006

Fair value of Level 3 instruments, net liability end of period
 
$
12,990

 
$
(8,833
)
 
 
 
 
 
Net change in fair value of Level 3 unsettled derivatives included in condensed consolidated statement of operations line item:
 
 
 
 
Commodity price risk management loss, net
 
$
(38,680
)
 
$
1,205

 
 
 
 
 


The significant unobservable input used in the fair value measurement of our derivative contracts is the implied volatility curve, which is provided by a third-party vendor. A significant increase or decrease in the implied volatility, in isolation, would have a directionally similar effect resulting in a significantly higher or lower fair value measurement of our Level 3 derivative contracts. There has been no change in the methodology we apply to measure the fair value of our Level 3 derivative contracts during the periods covered by the financial statements.
        
Non-Derivative Financial Assets and Liabilities

The carrying value of the financial instruments included in current assets and current liabilities approximate fair value due to the short-term maturities of these instruments.

We utilize fair value on a nonrecurring basis to review our proved crude oil and natural gas properties for possible impairment when events and circumstances indicate a possible decline in the recoverability of the carrying value of such assets. The fair value of the properties is determined based upon estimated future discounted cash flow, a Level 3 input, using estimated production and prices at which we reasonably expect the crude oil and natural gas will be sold.
The portion of our long-term debt related to our revolving credit facility approximates fair value due to the variable nature of related interest rates. We have not elected to account for the portion of our debt related to our senior notes under the fair value option; however, we have determined an estimate of the fair values based on measurements of trading activity and broker and/or dealer quotes, respectively, which are published market prices, and therefore are Level 2 inputs. The table below presents these estimates of the fair value of the portion of our long-term debt related to our senior notes and convertible notes as of:
 
 
As of March 31, 2019
 
As of December 31, 2018
 
 
Estimated Fair Value
 
Percent of Par
 
Estimated Fair Value
 
Percent of Par
 
 
(in millions)
Senior notes:
 
 
 
 
 
 
 
 
2021 Convertible Notes
$
188.1

 
94.1
%
 
$
175.4

 
87.7
%
 
2024 Senior Notes
398.9

 
99.7
%
 
370.2

 
92.5
%
 
2026 Senior Notes
583.7

 
97.3
%
 
532.4

 
88.7
%


Concentration of Risk

Derivative Counterparties. A portion of our liquidity relates to commodity derivative instruments that enable us to manage a portion of our exposure to price volatility from producing crude oil and natural gas. These arrangements expose us to credit risk of nonperformance by our counterparties. We primarily use financial institutions who are also lenders under our

8

Table of contents
PDC ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(unaudited)


revolving credit facility as counterparties to our commodity derivative contracts. To date, we have had no derivative counterparty default losses. We have evaluated the credit risk of our derivative assets from our counterparties using relevant credit market default rates, giving consideration to amounts outstanding for each counterparty and the duration of each outstanding derivative position. Based on our evaluation, we have determined that the potential impact of nonperformance of our current counterparties on the fair value of our derivative instruments is not significant at March 31, 2019.

Cash and Cash Equivalents. We consider all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents potentially subject us to a concentration of credit risk as substantially all of our deposits held in financial institutions were in excess of the FDIC insurance limits at March 31, 2019 and December 31, 2018. We maintain our cash and cash equivalents in the form of money market and checking accounts with financial institutions that we believe are creditworthy and are also lenders under our revolving credit facility.

NOTE 5 - COMMODITY DERIVATIVE FINANCIAL INSTRUMENTS

Our results of operations and operating cash flows are affected by changes in market prices for crude oil, natural gas and NGLs. To manage a portion of our exposure to price volatility from producing crude oil and natural gas we enter into commodity derivative contracts to protect against price declines in future periods. While we structure these commodity derivatives to reduce our exposure to decreases in commodity prices, they also limit the benefit we might otherwise receive from price increases.
 
We believe our commodity derivative instruments continue to be effective in achieving the risk management objectives for which they were intended. As of March 31, 2019, we had derivative instruments, which were comprised of collars, fixed-price swaps and basis protection swaps, in place for a portion of our anticipated 2019, 2020 and 2021 production. Our commodity derivative contracts have been entered into at no upfront cost to us as we hedge our anticipated production at the then-prevailing commodity market prices, without adjustment for premium or discount.

As of March 31, 2019, we had the following outstanding derivative contracts. When aggregating multiple contracts, the weighted average contract price is disclosed.
 
 
Collars
 
Fixed-Price Swaps
 
 
Commodity/ Index/
Maturity Period
 
Quantity
(Crude oil -
MBls
Natural Gas - BBtu)
 
Weighted-Average
Contract Price
 
Quantity (Crude Oil - MBbls
Gas and Basis-
BBtu )
 
Weighted-
Average
Contract
Price
 
Fair Value
March 31,
2019 (1)
(in thousands)
 
 
Floors
 
Ceilings
 
 
 
Crude Oil
 
 
 
 
 
 
 
 
 
 
 
 
NYMEX
 
 
 
 
 
 
 
 
 
 
 
 
2019
 
2,050

 
$
56.22

 
$
67.77

 
6,150

 
$
54.25

 
$
(35,191
)
2020
 
3,600

 
55.00

 
71.68

 
5,600

 
61.55

 
27,831

2021
 

 

 

 
600

 
57.23

 
350

Total Crude Oil
 
5,650

 
 
 
 
 
12,350

 
 
 
$
(7,010
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Natural Gas
 
 
 
 
 
 
 
 
 
 
 
 
NYMEX
 
 
 
 
 
 
 
 
 
 
 
 
2019
 

 
$

 
$

 
22,746

 
$
2.91

 
$
2,641

Dominion South
 
 
 
 
 
 
 
 
 
 
 
 
2019
 

 

 

 
113

 
2.56

 
6

2020
 

 

 

 
14

 
2.54

 

Total Natural Gas
 

 
 
 
 
 
22,873

 
 
 
$
2,647

 
 
 
 
 
 
 
 
 
 
 
 
 
Basis Protection - Natural Gas
 
 
 
 
 
 
 
 
 
 
 
 
CIG
 
 
 
 
 
 
 
 
 
 
 
 
2019
 

 
$

 
$

 
22,683

 
$
(0.76
)
 
$
(3,796
)
Total Basis Protection - Natural Gas
 

 
 
 
 
 
22,683

 
 
 
$
(3,796
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Derivatives Fair Value
 
 
 
 
 
 
 
$
(8,159
)
_____________
(1)
Approximately 43.6 percent of the fair value of our commodity derivative assets and 7.4 percent of the fair value of our commodity derivative liabilities were measured using significant unobservable inputs (Level 3).

We have not elected to designate any of our derivative instruments as cash flow hedges; therefore, these instruments do not qualify for hedge accounting. Accordingly, changes in the fair value of our derivative instruments are recorded in the condensed consolidated statements of operations.

The following table presents the balance sheet location and fair value amounts of our derivative instruments on the condensed consolidated balance sheets:
 
 
 
 
 
Fair Value
Derivative Instruments:
 
Condensed Consolidated Balance Sheet Line Item
 
March 31, 2019
 
December 31, 2018
 
 
 
 
 
(in thousands)
Derivative assets:
Current
 
 
 
 
 
 
 
Commodity derivative contracts
 
Fair value of derivatives
 
$
13,330

 
$
84,492

 
Non-current
 
 
 
 
 
 
 
Commodity derivative contracts
 
Fair value of derivatives
 
24,225

 
93,722

Total derivative assets
 
 
 
$
37,555

 
$
178,214

 
 
 
 
 
 
 
 
Derivative liabilities:
Current
 
 
 
 
 
 
 
Commodity derivative contracts
 
Fair value of derivatives
 
$
40,103

 
$
748

 
Basis protection derivative contracts
 
Fair value of derivatives
 
3,796

 
2,616

 
 
 
 
 
43,899

 
3,364

 
Non-current
 
 
 
 
 
 
 
Commodity derivative contracts
 
Fair value of derivatives
 
1,815

 
1,364

Total derivative liabilities
 
 
 
$
45,714

 
$
4,728


    

9

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PDC ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(unaudited)


The following table presents the impact of our derivative instruments on our condensed consolidated statements of operations:
 
 
Three Months Ended March 31,
Condensed Consolidated Statement of Operations Line Item
 
2019
 
2018
 
 
(in thousands)
Commodity price risk management loss, net
 
 
 
 
Net settlements
 
$
(8,452
)
 
$
(26,038
)
Net change in fair value of unsettled derivatives
 
(181,622
)
 
(21,202
)
Total commodity price risk management loss, net
 
$
(190,074
)
 
$
(47,240
)
 
 
 
 
 


Our financial derivative agreements contain master netting provisions that provide for the net settlement of contracts through a single payment in the event of early termination. We have elected not to offset the fair value positions recorded on our condensed consolidated balance sheets.

The following table reflects the impact of netting agreements on gross derivative assets and liabilities:
As of March 31, 2019
 
Derivative Instruments, Gross
 
Effect of Master Netting Agreements
 
Derivative Instruments, Net
 
 
(in thousands)
Asset derivatives:
 
 
 
 
 
 
Derivative instruments, at fair value
 
$
37,555

 
$
(27,793
)
 
$
9,762

 
 
 
 
 
 
 
Liability derivatives:
 
 
 
 
 
 
Derivative instruments, at fair value
 
$
45,714

 
$
(27,793
)
 
$
17,921

 
 
 
 
 
 
 

As of December 31, 2018
 
Derivative Instruments, Gross
 
Effect of Master Netting Agreements
 
Derivative Instruments, Net
 
 
(in thousands)
Asset derivatives:
 
 
 
 
 
 
Derivative instruments, at fair value
 
$
178,214

 
$
(3,985
)
 
$
174,229

 
 
 
 
 
 
 
Liability derivatives:
 
 
 
 
 
 
Derivative instruments, at fair value
 
$
4,728

 
$
(3,985
)
 
$
743

 
 
 
 
 
 
 



10

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PDC ENERGY, INC.