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 expects, anticipates, intends, plans, believes, seeks, estimates,expect, anticipate, intend, plan, believe, seek, estimate and similar expressions or variations of such words are intended to identify forward-looking statements herein. Forward-looking statements may include, among other things, statements regarding future: reserves, production, costs and cash flows, and earnings;flows; drilling locations and zones and growth opportunities; commodity prices and differentials; capital investmentsexpenditures and projects, including expected lateral lengths of wells, drill times andthe number of rigs employed; rates of return; operational enhancements and efficiencies; management of lease expiration issues; financial ratios;ratios and compliance with covenants in our revolving credit facility; impacts of certain accounting and tax changes; midstream capacity and related curtailments.curtailments; impacts of a potential ballot initiative and other Colorado political matters; ability to meet our volume commitments to midstream providers; ongoing compliance with our consent decree; timing and likelihood that the Denver Metro/North Front Range NAA ozone classification will be reclassified to serious; and timing and adequacy of infrastructure projects of our midstream providers.

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 termsterm “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.

Unless the context otherwise requires, references in this report to "PDC Energy," "PDC," "the Company," "we," "us," "our,""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.

(unaudited)

PDC Energy, Inc. ("PDC", the "Company," "we," "us," or "our") is a domestic independent exploration and production company that produces,acquires, explores and develops and exploresproperties for the production of crude oil, natural gas and NGLs, with primary operations in the Wattenberg Field in Colorado and beginning in December 2016, the Delaware Basin in Reeves and Culberson Counties, Texas. We also have operations in the Utica Shale in Southeastern Ohio. Subsequent to June 30, 2017, as part of plans to divest the Utica Shale properties, we engaged an investment banking group to assist in marketing them for sale; therefore, these properties will be classified as held-for-sale upon meeting the criteria for such classification in the third quarter of 2017. Our operations in the Wattenberg Field are focused in the horizontal Niobrara and Codell plays and our Delaware Basin operations are currentlyprimarily 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 June 30, 2017,2018, we owned an interest in approximately 2,9003,000 gross productive wells. We are engaged in two operating segments: our oil and gas exploration and production segment and our gas marketing segment. Beginning in 2017, ourOur 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.

The accompanying unaudited condensed consolidated financial statements include the accounts of PDC, our wholly-owned subsidiaries and our proportionate share of our two 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, 20162017 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 20162017 Form 10-K. Our results of operations and cash flows for the three and six months ended June 30, 20172018 are not necessarily indicative of the results to be expected for the full year or any other future period.

In November 2016, the FASB issued an accounting update on statements of cash flows to the standard intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations when recognizing revenue. In December 2016, the FASB issued technical corrections and improvements to the standard. The revenue standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The revenue standard can be adopted under the full retrospective method or simplified transition method. Entities are permitted to adopt the revenue standard early, beginning with annual reporting periods after December 15, 2016. We areaddress diversity in practice in the processclassification and presentation of assessing potential impactschanges in restricted cash. The accounting update requires that the statement of cash flows explain the new standard on our existing revenue recognition criteria,change during the period in the total of cash, cash equivalents and amounts generally described as well as on related revenue recognition disclosures.restricted

In February 2016, the FASB issued an accounting update aimed at increasing the transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about related leasing arrangements. The standard has been updated and now includes amendments. For leases with terms of more than 12 months, the accounting update requires lessees to recognize a right-of-use asset and lease liability for its right to use the underlying asset and the corresponding lease obligation. Both the lease asset and liability will initially be measured at the present value of the future minimum lease payments over the lease term. Subsequent measurement, including the presentation of expenses and cash flows, will depend upon the classification of the lease as either a finance or operating lease. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted, and is to be applied as of the beginning of the earliest period presented using a modified retrospective approach. The update does not apply to leases of mineral rights to explore for or use crude oil and natural gas. We are in the process of assessingcurrently evaluating the impact these changes may have on our condensed consolidated financial statements.

In August 2016,2017, the FASB issued an accounting update on statementsto provide guidance for various components of cash flows to address diversity in practice in how certain cash receipts and cash payments are presented and classifiedhedge accounting, including hedge ineffectiveness, the expansion of types of permissible hedging strategies, reduced complexity in the statementapplication of cash flows. The update addresses eight specific cash flow issues with the objectivelong-haul method for fair value hedges and reduced complexity in assessment of reducing the existing diversity in practice.effectiveness. The guidance is effective for fiscal years beginning after December 15, 2017,2018, and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact these changes may have on our consolidated financial statements.

On January 1, 2018, we adopted the new accounting standard that was issued by the FASB to provide a single, comprehensive model to determine the measurement of revenue and timing of when it is calculated asrecognized and all related amendments (the “New Revenue Standard”) using the excessmodified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Based upon our review, we determined that the adoption of the purchase price over the fair value of net assets acquiredNew Revenue Standard would have reduced our crude oil, natural gas and represents the future economic benefits arising from other assets acquired that could not be individually identifiedNGLs sales by approximately $2.8 million and separately recognized. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets acquired were the acquisition of an element of a workforce and the expected value from operations of the Delaware Basin acquisition to be derived$5.4 million in the future. The amountthree and six months ended June 30, 2017, respectively, with a

The following table presents the changes in carrying amounts of the contract assets associated with final purchase accounting, as described above. Any value assigned to goodwill isour crude oil, natural gas and NGLs sales revenue for the six months ended June 30, 2018:

Our fair value measurements are estimated pursuant to a fair value hierarchy that requires us to maximize the carryinguse of observable inputs and minimize the use of unobservable inputs when measuring fair value. In either case,The valuation hierarchy is based upon the transparency of inputs to the valuation of goodwill willan 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 a significant estimate as such methods incorporate forward-looking assumptions and estimates.used to measure fair value are defined as:

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 properties: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.

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, natural gas and propane, which is an element of our NGLs, 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 June 30, 2017,2018, we had derivative instruments, which were comprised of collars, fixed-price swaps and basis protection swaps, in place for a portion of our anticipated 20172018, 2019 and 2018 production for a total of 12,896 MBbls of crude oil, 82,030 BBtu of natural gas, and 643 MBbls of propane.2020 production. Our commodity derivative contracts have been entered into at no cost to us as we hedge our anticipated production at the then-prevailing commodity market prices, without adjustment for premium or discount.

We have not elected to designate any of our derivative instruments as cash flow hedges, andhedges; 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:

Net settlements of commodity derivatives and net change in fair value of unsettled derivatives decreased for the three and six months ended June 30, 20172018 as compared to the three and six months ended June 30, 2016.  We entered into agreements for2017 as a result of the derivative instruments that settled throughout 2016 prior toincrease in future commodity prices becoming depressedduring the first half of 2018 compared to a decrease during the first half of 2017. Our decrease in late 2014.  Substantially all of these higher-value agreements settled by the end of 2016.  Netnet settlements for the three and six months ended June 30, 2017 reflect2018 was partially offset by an $11.3 million realized gain on the early settlement of certain commodity derivative basis protection positions, including $10.3 million for the early settlement of crude oil basis protection instruments and $1.0 million for the early settlement of natural gas basis protection instruments, both for our Delaware Basin operations. The volumes associated with these instruments were impacted by certain marketing agreements entered into since 2015, which more closely approximate recent realized prices.  Based uponduring the forward strip pricing atthree months ended June 30, 2017, we expect that settlements will continue2018 which eliminated the underlying sale price variability, and therefore there was no longer a variable to be substantially lower in 2017 on a relative basis as compared to those in 2016.hedge.

All of our financial derivative agreements contain master netting provisions that provide for the net settlement of all 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:

DeterminationThe following table presents the components of Fair Valueproperties and equipment, net of accumulated depreciation, depletion and amortization ("DD&A"):