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 ~~September~~June 30, ~~2017~~2018

£ 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

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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting 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 (Do not check if a smaller reporting company)	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: ~~65,872,790~~66,073,231 shares of the Company's Common Stock ($0.01 par value) were outstanding as of ~~October~~July 20, ~~2017.~~2018.

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PDC ENERGY, INC.

TABLE OF CONTENTS



	PART I – FINANCIAL INFORMATION	Page

Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets (unaudited)	1
	Condensed Consolidated Statements of Operations (unaudited)	2
	Condensed Consolidated Statements of Cash Flows (unaudited)	3
	Condensed Consolidated Statement of Equity (unaudited)	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3137
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5255
Item 4.	Controls and Procedures	5556

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	5657
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5758
Item 3.	Defaults Upon Senior Securities	5758
Item 4.	Mine Safety Disclosures	5758
Item 5.	Other Information	5758
Item 6.	Exhibits	5859

	SIGNATURES	5960

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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 ~~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 the closing of pending transactions and the effects of such transactions, including the fact that the pending acquisition of certain properties owned by Bayswater Exploration & Production, LLC and certain related parties and the pending acreage exchanges are subject to continuing diligence between the parties and may not occur within the expected timeframe or we may not successfully close such transactions; the potential sale of our Utica Shale properties and the timing of such sale; the level of non-operated well activity following the pending acreage exchanges; future reserves,future: production, costs and cash ~~flows, and earnings;~~flows; drilling locations and zones and growth opportunities; commodity prices and differentials; capital ~~investments~~expenditures and projects, including ~~expected lateral lengths of wells, drill times and~~the number of rigs employed; ~~potential future impairments; the finalization of a consent decree resolving pending litigation; 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 ~~estimated in-service date~~Denver Metro/North Front Range NAA ozone classification will be reclassified to serious; and timing and adequacy of ~~the facilities being constructed by~~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 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 worldwide 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;

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;

~~losses from our gas marketing business exceeding our expectations;~~

difficulties in integrating our operations as a result of any significant acquisitions ~~including our pending acquisitions~~ and acreage ~~exchanges in the Wattenberg Field;~~exchanges;

increases or changes in ~~operating~~ costs ~~severance~~ and ~~ad valorem taxes, and increases or changes in drilling, completion, and facilities costs;~~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 adverse changes in construction ~~costs~~ and procurement costs associated with future build out of midstream-related assets;

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future cash flows, liquidity and financial condition;

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 derivatives 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, including recent environmental~~ 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, ~~2016 (the "2016 Form 10-K"),~~2017 filed with the U.S. Securities and Exchange Commission ("SEC") on February ~~28, 2017,~~27, 2018 and as amended on May 1, 2018 (the "2017 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,"~~"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)


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	136,429		$	244,100		$	1,425		$	180,675
Accounts receivable, net	167,276			143,392			195,317			197,598
Fair value of derivatives	22,916			8,791			14,817			14,338
Prepaid expenses and other current assets	8,081			3,542			6,744			8,613
Total current assets	334,702			399,825			218,303			401,224
Properties and equipment, net	3,882,700			4,002,994			4,192,608			3,933,467
Assets held-for-sale, net	41,484			5,272			—			40,084
Fair value of derivatives	4,605			2,386
Goodwill	—			62,041
Other assets	43,796			13,324			31,243			45,116
Total Assets	$	4,307,287		$	4,485,842		$	4,442,154		$	4,419,891

Liabilities and Stockholders' Equity
Liabilities
Current liabilities:
Accounts payable	$	164,080		$	66,322		$	215,150		$	150,067
Production tax liability	36,954			24,767			56,766			37,654
Fair value of derivatives	25,987			53,595			186,605			79,302
Funds held for distribution	94,387			71,339			102,354			95,811
Accrued interest payable	18,929			15,930			12,561			11,815
Other accrued expenses	33,451			38,625			35,888			42,987
Total current liabilities	373,788			270,578			609,324			417,636
Long-term debt	1,051,571			1,043,954			1,179,117			1,151,932
Deferred income taxes	326,472			400,867			141,811			191,992
Asset retirement obligations	78,188			82,612			73,549			71,006
Fair value of derivatives	7,261			27,595			36,430			22,343
Other liabilities	43,405			37,482			61,617			57,333
Total liabilities	1,880,685			1,863,088			2,101,848			1,912,242

Commitments and contingent liabilities

Stockholders' equity
Common shares - par value $0.01 per share, 150,000,000 authorized, 65,928,295 and 65,704,568 issued as of September 30, 2017 and December 31, 2016, respectively	659			657
Common shares - par value $0.01 per share, 150,000,000 authorized, 66,133,025 and 65,955,080 issued as of June 30, 2018 and December 31, 2017, respectively							661			659
Additional paid-in capital	2,500,532			2,489,557			2,509,693			2,503,294
Retained earnings (deficit)	(70,933		)	134,208			(166,692		)	6,704
Treasury shares - at cost, 62,772 and 28,763 as of September 30, 2017 and December 31, 2016, respectively	(3,656		)	(1,668		)
Treasury shares - at cost, 67,169 and 55,927 as of June 30, 2018 and December 31, 2017, respectively							(3,356		)	(3,008		)
Total stockholders' equity	2,426,602			2,622,754			2,340,306			2,507,649
Total Liabilities and Stockholders' Equity	$	4,307,287		$	4,485,842		$	4,442,154		$	4,419,891

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PDC ENERGY, INC.

Condensed Consolidated Statements of Operations

(unaudited; in thousands, except per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Revenues
Crude oil, natural gas, and NGLs sales	$	232,733		$	141,805		$	636,027		$	328,013
Commodity price risk management gain (loss), net of settlements	(52,178		)	19,397			86,458			(62,348		)
Crude oil, natural gas and NGLs sales													$	325,933		$	213,602		$	631,158		$	403,294
Commodity price risk management gain (loss), net													(116,126		)	57,932			(163,366		)	138,636
Other income	2,680			2,688			9,615			9,153			2,724			3,624			5,339			6,935
Total revenues	183,235			163,890			732,100			274,818			212,531			275,158			473,131			548,865
Costs, expenses and other
Lease operating expenses	25,353			14,001			65,170			43,006			32,260			20,028			61,896			39,817
Production taxes	15,516			9,568			42,957			19,682			22,604			15,042			42,773			27,441
Transportation, gathering and processing expenses	9,794			5,048			22,184			13,554			8,964			6,488			16,277			12,390
Exploration, geologic and geophysical expense													875			1,033			3,521			1,987
Impairment of properties and equipment													159,554			27,566			192,742			29,759
General and administrative expense	29,299			32,510			85,145			78,868			37,247			29,531			72,943			55,846
Exploration, geologic, and geophysical expense	41,908			241			43,895			688
Depreciation, depletion and amortization	125,238			112,927			360,567			317,329			135,624			126,013			262,412			235,329
Impairment of properties and equipment	252,740			933			282,499			6,104
Impairment of goodwill	75,121			—			75,121			—
Accretion of asset retirement obligations	1,472			1,777			4,906			5,400			1,285			1,666			2,573			3,434
Gain on sale of properties and equipment	(62		)	(219		)	(754		)	(43		)
Provision for uncollectible notes receivable	—			(700		)	(40,203		)	44,038
(Gain) loss on sale of properties and equipment													(351		)	(532		)	1,081			(692		)
Provision for uncollectible note receivable													—			(40,203		)	—			(40,203		)
Other expenses	2,947			3,092			10,365			7,795			2,708			3,890			5,476			7,418
Total costs, expenses and other	579,326			179,178			951,852			536,421			400,770			190,522			661,694			372,526
Loss from operations	(396,091		)	(15,288		)	(219,752		)	(261,603		)
Income (loss) from operations													(188,239		)	84,636			(188,563		)	176,339
Interest expense	(19,275		)	(20,193		)	(58,359		)	(42,759		)	(17,410		)	(19,617		)	(34,939		)	(39,084		)
Interest income	479			140			1,487			1,875			69			768			217			1,008
Loss before income taxes	(414,887		)	(35,341		)	(276,624		)	(302,487		)
Income tax benefit	122,350			12,032			71,483			112,198
Net loss	$	(292,537	)	$	(23,309	)	$	(205,141	)	$	(190,289	)
Income (loss) before income taxes													(205,580		)	65,787			(223,285		)	138,263
Income tax (expense) benefit													45,323			(24,537		)	49,889			(50,867		)
Net income (loss)													$	(160,257	)	$	41,250		$	(173,396	)	$	87,396

Earnings per share:
Basic	$	(4.44	)	$	(0.48	)	$	(3.12	)	$	(4.16	)	$	(2.43	)	$	0.63		$	(2.63	)	$	1.33
Diluted	$	(4.44	)	$	(0.48	)	$	(3.12	)	$	(4.16	)	$	(2.43	)	$	0.62		$	(2.63	)	$	1.32

Weighted-average common shares outstanding:
Basic	65,865			48,839			65,825			45,741			66,066			65,859			66,012			65,804
Diluted	65,865			48,839			65,825			45,741			66,066			66,019			66,012			66,066

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PDC ENERGY, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited; in thousands)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
Cash flows from operating activities:
Net loss	$	(205,141	)	$	(190,289	)
Adjustments to net loss to reconcile to net cash from operating activities:
Net income (loss)							$	(173,396	)	$	87,396
Adjustments to net income (loss) to reconcile to net cash from operating activities:
Net change in fair value of unsettled commodity derivatives	(64,307		)	230,177			120,920			(126,070		)
Depreciation, depletion and amortization	360,567			317,329			262,412			235,329
Impairment of properties and equipment	282,499			6,104			192,742			29,759
Impairment of goodwill	75,121			—
Exploratory dry hole costs	41,187			—
Provision for uncollectible notes receivable	(40,203		)	44,038			—			(40,203		)
Accretion of asset retirement obligations	4,906			5,400			2,573			3,434
Non-cash stock-based compensation	14,587			15,205			10,779			9,826
Gain on sale of properties and equipment	(754		)	(43		)
(Gain) loss on sale of properties and equipment							1,081			(692		)
Amortization of debt discount and issuance costs	9,628			12,951			6,372			6,399
Deferred income taxes	(71,529		)	(114,136		)	(50,181		)	50,767
Other	986			(526		)	974			670
Changes in assets and liabilities	3,855			34,621			6,581			15,832
Net cash from operating activities	411,402			360,831			380,857			272,447
Cash flows from investing activities:
Capital expenditures for development of crude oil and natural gas properties	(528,850		)	(352,213		)	(432,635		)	(334,406		)
Capital expenditures for other properties and equipment	(3,740		)	(1,509		)	(2,450		)	(2,299		)
Acquisition of crude oil and natural gas properties, including settlement adjustments and deposit for pending acquisition	(14,482		)	(100,000		)
Acquisition of crude oil and natural gas properties, including settlement adjustments							(181,052		)	5,372
Proceeds from sale of properties and equipment	3,322			4,945			1,782			1,293
Proceeds from divestiture							39,023			—
Sale of promissory note	40,203			—			—			40,203
Restricted cash	(9,250		)	—			1,249			(9,250		)
Sale of short-term investments	49,890			—			—			49,890
Purchase of short-term investments	(49,890		)	—			—			(49,890		)
Net cash from investing activities	(512,797		)	(448,777		)	(574,083		)	(299,087		)
Cash flows from financing activities:
Proceeds from issuance of equity, net of issuance cost	—			855,072
Proceeds from senior notes	—			392,250
Proceeds from convertible senior notes	—			193,979
Proceeds from revolving credit facility	—			85,000			233,000			—
Repayment of revolving credit facility	—			(122,000		)	(211,000		)	—
Redemption of convertible notes	—			(115,000		)
Purchase of treasury shares	(5,325		)	(5,106		)
Payment of debt issuance costs							(4,060		)	—
Purchases of treasury stock							(4,494		)	(5,274		)
Other	(951		)	593			(719		)	(645		)
Net cash from financing activities	(6,276		)	1,284,788			12,727			(5,919		)
Net change in cash and cash equivalents	(107,671		)	1,196,842
Cash and cash equivalents, beginning of period	244,100			850
Cash and cash equivalents, end of period	$	136,429		$	1,197,692
Net change in cash, cash equivalents and restricted cash							(180,499		)	(32,559		)
Cash, cash equivalents and restricted cash, beginning of period							189,925			244,100
Cash, cash equivalents and restricted cash, end of period							$	9,426		$	211,541

Supplemental cash flow information:
Cash payments (receipts) for:
Interest, net of capitalized interest	$	45,719		$	19,499		$	27,817		$	32,647
Income taxes	(2,623		)	167			393			(39		)
Non-cash investing and financing activities:
Change in accounts payable related to purchases of properties and equipment	$	89,974		$	(31,497	)
Change in accounts payable related to capital expenditures							$	72,334		$	81,891
Change in asset retirement obligations, with a corresponding change to crude oil and natural gas properties, net of disposals	3,357			1,137			6,248			2,415
Purchase of properties and equipment under capital leases	3,363			1,231			689			2,160

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PDC ENERGY, INC.

Condensed Consolidated Statement of Equity

(unaudited; in thousands, except share data)


	Common Stock							Treasury Stock											Common Stock						Treasury Stock
	Shares		Amount		Additional Paid-in Capital			Shares		Amount			Retained Earnings (Deficit)			Total Stockholders' Equity			Shares	Amount		Additional Paid-in Capital			Shares		Amount			Retained Earnings (Deficit)			Total Stockholders' Equity

Balance, December 31, 2016	65,704,568		$	657	$	2,489,557		(28,763	)	$	(1,668	)	$	134,208		$	2,622,754
Balance, December 31, 2017																			65,955,080	$	659	$	2,503,294		(55,927	)	$	(3,008	)	$	6,704		$	2,507,649
Net loss	—		—		—			—		—			(205,141		)	(205,141		)	—	—		—			—		—			(173,396		)	(173,396		)
Purchase of treasury shares	—		—		—			(80,572	)	(5,325		)	—			(5,325		)	—	—		—			(87,063	)	(4,494		)	—			(4,494		)
Issuance of treasury shares	(49,446	)	—		(3,513		)	49,446		3,513			—			—			—	—		(4,288		)	78,395		4,288			—			—
Non-employee directors' deferred compensation plan	—		—		—			(2,883	)	(176		)	—			(176		)	—	—		—			(2,574	)	(142		)	—			(142		)
Issuance of stock awards, net of forfeitures	273,173		2		(2		)	—		—			—			—			177,945	2		(2		)	—		—			—			—
Stock-based compensation expense	—		—		14,587			—		—			—			14,587			—	—		10,779			—		—			—			10,779
Other	—		—		(97		)	—		—			—			(97		)	—	—		(90		)	—		—			—			(90		)
Balance, September 30, 2017	65,928,295		$	659	$	2,500,532		(62,772	)	$	(3,656	)	$	(70,933	)	$	2,426,602
Balance, June 30, 2018																			66,133,025	$	661	$	2,509,693		(67,169	)	$	(3,356	)	$	(166,692	)	$	2,340,306

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2017~~2018

(unaudited)

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION

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 explores~~properties 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. During the third quarter of 2017, as part of plans to divest the Utica Shale properties, we engaged an investment banking group and began actively marketing the properties for sale; therefore, these properties are classified as held-for-sale as they met the criteria for such classification during 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 ~~currently~~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 ~~September~~June 30, ~~2017,~~2018, we owned an interest in approximately ~~2,900~~3,000 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, our~~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.

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, ~~2016~~2017 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 ~~2016~~2017 Form 10-K. Our results of operations and cash flows for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2018 are not necessarily indicative of the results to be expected for the full year or any other future period.

Certain immaterial reclassifications have been made to our prior period balance sheet and statement of operations to conform to the current period presentation. The reclassifications had no impact on previously reported cash flows, net earnings, earnings per share or stockholders' equity.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recently Adopted Accounting Standard

In January 2017, the FASB issued an accounting update to simplify the measurement of goodwill. The update eliminates the two-step process that required identification of potential impairment and a separate measure of actual impairment. The annual and/or interim assessments are still required to be completed. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. We elected to early adopt this standard in the second quarter of 2017. Our annual evaluation of goodwill for impairment was expected to occur in the fourth quarter of 2017; however, we experienced an impairment triggering event as of September 30, 2017 and implemented the new guidance as part of the impairment evaluation. See the footnote titled ~~Goodwill~~ ~~for a detailed description of the results of our impairment testing.~~

~~Recently Issued Accounting Standards~~

In May 2014, the ~~FASB~~Financial Accounting Standards Board ("FASB") and the International Accounting Standards Board issued their converged standard on revenue recognition that provides a single, comprehensive model that entities will apply to determine the measurement of revenue and timing of when it is recognized. The standard has been updated and now includes technical corrections. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~

amount that the entity expects to be entitled to in exchange for those goods or services. The standard outlines a five-step approach to apply the underlying principle: (1) identify the contract with the customer, (2) identify the separate performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to separate performance obligations and (5) recognize revenue when or as each performance obligation is satisfied. ~~The revenue standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period; we are adopting~~We adopted the standard effective January 1, 2018. ~~The revenue standard can be adopted under the full retrospective method or modified retrospective method.~~ In order to evaluate the impact that the adoption of the revenue standard ~~will have~~had on our consolidated financial statements, we ~~are performing~~performed a comprehensive review of our significant revenue streams. The focus of this review ~~includes,~~included, among other things, the identification of the significant contracts and other arrangements we have with our customers to identify performance obligations and principal versus agent considerations and factors affecting the determination of the transaction price. We ~~are~~ also ~~reviewing~~reviewed our current accounting policies, procedures and controls with respect to these contracts and arrangements to determine what changes, if any, ~~may~~would be required by the adoption of the revenue standard. We ~~have~~ determined that we ~~will~~would adopt the standard under the modified retrospective method. ~~We have not made a complete determination~~Upon adoption, no adjustment to our opening balance of retained earnings was deemed necessary. See the footnote below titled Revenue Recognition for further details regarding the ~~impact~~changes in our revenue recognition resulting from the adoption of this standard.

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period amounts shown on the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption ~~will have on our consolidated financial statements as of the time~~permitted. The adoption of this ~~filing.~~standard impacted our condensed consolidated statements of cash flows. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported on the condensed consolidated balance sheets at June 30, 2018 and 2017 and December 31, 2017, which sum to the total of cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows:



	June 30, 2018		December 31, 2017		June 30, 2017
	(in thousands)

Cash and cash equivalents	$	1,425	$	180,675	$	202,291
Restricted cash	8,001		9,250		9,250
Cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	9,426	$	189,925	$	211,541

Restricted cash is included in other assets on the condensed consolidated balance sheets at June 30, 2018 and December 31, 2017. We did not have any cash classified as restricted cash at December 31, 2016.

Recently Issued Accounting Standards

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 currently evaluating the impact these changes may have on our condensed consolidated financial statements.

In August ~~2016,~~2017, the FASB issued an accounting update ~~on statements~~to provide guidance for various components of ~~cash flows to address diversity in practice in how certain cash receipts and cash payments are presented and classified~~hedge accounting, including hedge ineffectiveness, the expansion of types of permissible hedging strategies, reduced complexity in the ~~statement~~application of ~~cash flows. The update addresses eight specific cash flow issues with~~ the ~~objective~~long-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.~~

In November 2016, the FASB issued an accounting update on statements of cash flows to address diversity in practice in the classification and presentation of changes in restricted cash. The accounting update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period amounts shown on the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, 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.

In January 2017, the FASB issued an accounting update clarifying the definition of a business, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. This guidance is to be applied using a prospective method and is effective for fiscal years beginning after December 15, 2017, 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.

In May 2017, the FASB issued an accounting update clarifying when to account for a change to the terms or conditions of a share-based payment award as a modification. The guidance is effective for fiscal years beginning on or after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Adoption of this standard is not expected to have a significant impact on our condensed consolidated financial statements.

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~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~

NOTE 3 - BUSINESS COMBINATION

~~Delaware Basin Acquisition.~~ ~~On December 6, 2016,~~In January 2018, we closed ~~on an~~the acquisition ~~which was accounted~~of properties from Bayswater Exploration and Production LLC (the "Bayswater Acquisition") for ~~as a business combination. The acquisition consisted of the purchase of stock of an entity and assets of other entities under common control. The transaction was for the purchase of~~ approximately 57,900 net acres, approximately 30 completed and producing wells and related midstream infrastructure in Reeves and Culberson Counties, Texas, for an aggregate consideration to the sellers of approximately $1.64 billion, after preliminary post-closing adjustments. The total consideration to sellers was comprised of approximately $946.0$202.0 million in cash, including ~~the payment of $40.0~~$21.0 million ~~of debt of the sellers at closing~~deposited into an escrow account in September 2017, subject to certain customary post-closing adjustments. The $21.0 million deposit was included in other assets on our December 31, 2017 condensed consolidated balance sheet. We acquired approximately 7,400 net acres, approximately 220 gross drilling locations and ~~other purchase price adjustments, and 9.4 million shares of our common stock valued at approximately $690.7 million~~24 operated horizontal wells that were either drilled uncompleted wells ("DUCs") or in-process wells at the time ~~the acquisition closed. The purchase accounting for the entity~~ of which we acquired the stock reflected oil and gas assets that did not receive fair value step-up of the tax basis. As a result, a significant deferred income tax liability was calculated based on the acquired allocated fair value of the assets in excess of the tax basis of assets inside the entity. This calculation resulted in approximately $375.0 million of non-cash basis needing to be allocated to the acquired assets. No deferred tax liability was established for the calculated goodwill as the goodwill did not qualify as tax goodwill.closing.

The ~~final fair value~~estimated allocation of the assets acquired and the liabilities assumed in the acquisition are presented below and ~~include~~are subject to customary post-closing adjustments. The most significant item to be completed during the final purchase price allocation in the third quarter of 2017 was the final allocation of value to the unproved oil and gas properties associated with the acquired acreage. Adjustments to the preliminary purchase price ~~primarily~~ stem from final settlement of the proceeds from operating activities and additional information we obtained about facts and circumstances that existed at the acquisition date that impact the underlying value of certain assets acquired and current liabilities ~~assumed, including detailed lease terms, location of~~assumed. Such adjustments primarily relate to sales, operating expenses and capital costs from the ~~acreage, and intent to develop the acreage as of the~~effective date ofthrough closing. There were a significant number of leases acquired with complex lease terms and evaluation of these terms and the timing of the lease expirations impacted the manner in which the final purchase price was allocated. Our final determination of the value of goodwill has been adjusted for all post-closing adjustments.

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

The details of the ~~final~~estimated purchase price and the allocation of the purchase price for the transaction, are presented below (in thousands):

September 30, 2017
Acquisition costs:
       Cash, net of cash acquired $ 905,962
       Retirement of seller's debt 40,000
  Total cash consideration 945,962
        Common stock, 9.4 million shares 690,702
        Other purchase price adjustments 426
  Total acquisition costs $ 1,637,090

Recognized amounts of identifiable assets acquired and liabilities assumed:
Assets acquired:
       Current assets $ 6,401
       Crude oil and natural gas properties - proved 216,000
       Crude oil and natural gas properties - unproved 1,697,000
       Infrastructure, pipeline, and other 33,153
       Construction in progress 12,323
       Goodwill 75,121
Total assets acquired 2,039,998
Liabilities assumed:
       Current liabilities (24,496 )
       Asset retirement obligations (3,705 )
       Deferred tax liabilities, net (374,707 )
Total liabilities assumed (402,908 )
Total identifiable net assets acquired $ 1,637,090

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~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~



	June 30, 2018
Acquisition costs:
Cash	$	170,560
Deposit made in prior period	21,000
Total cash consideration	191,560
Other purchase price adjustments	10,422
Total acquisition costs	$	201,982

Recognized amounts of identifiable assets acquired and liabilities assumed:
Assets acquired:	��
Current assets	$	517
Crude oil and natural gas properties - proved	207,816
Other assets	2,796
Total assets acquired	211,129
Liabilities assumed:
Current liabilities	(4,460		)
Asset retirement obligations	(4,687		)
Total liabilities assumed	(9,147		)
Total identifiable net assets acquired	$	201,982

This transaction was accounted for under the acquisition method. Accordingly, we conducted assessments of the net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisition were expensed as incurred. The fair value 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 to the valuation of crude oil and natural gas properties include estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows, lease terms and expirations and a market-based weighted-average cost of capital rate. ~~Within the unproven properties, the~~The allocation of the value to the underlying leases also ~~required~~requires significant judgment and ~~was~~is based on a combination of comparable market transactions, the term and conditions associated with the individual leases, our ability and intent to develop specific leases and our initial assessment of the underlying relative value of the leases given our knowledge of the geology at the time of closing. These inputs require significant judgments and estimates by management at the time of the ~~valuation and were the most sensitive and subject to change.~~

This acquisition was accounted for under the acquisition method. Accordingly, we conducted assessments of net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisition were expensed as incurred.valuation.

~~Goodwill.~~The results of operations for the Bayswater Acquisition for the three and six months ended June 30, 2018 have been included in our condensed consolidated financial statements, including approximately $14.5 million and $21.8 million, respectively, of total revenue, $8.3 million and $12.0 million, respectively, ~~Goodwill~~of income from operations and $0.12and $0.18,respectively, of dilutedearnings per share. Pro forma results of operations for the Bayswater Acquisition showing results as if the acquisition had been completed as of January 1, 2017 would not have been material to our condensed consolidated financial statements for the three and six months ended June 30, 2017.

NOTE 4 - REVENUE RECOGNITION

On January 1, 2018, we adopted the new accounting standard that was ~~calculated as~~issued by the ~~excess~~FASB to provide a single, comprehensive model to determine the measurement of revenue and timing of when it is recognized and all related amendments (the “New Revenue Standard”) using the modified 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 acquired, including the additional value resulting from the creation of the deferred tax liability,~~New 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 identified~~NGLs 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, such as production from future development~~three and six months ended June 30, 2017, respectively, with a

Table of ~~additional producing zones. The amount of~~contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

corresponding decrease in transportation, gathering and processing expenses and no impact on net earnings. To determine the ~~final goodwill~~impact on our crude oil, natural gas and NGLs sales and our transportation, processing and gathering expenses for the three and six months ended June 30, 2018, we applied the new guidance to contracts that ~~was recorded in the third quarter of 2017 related to the Delaware Basin acquisition was $75.1 million and was higher than the initial estimated amount recorded~~were not completed as of December 31, ~~2016, primarily~~2017. We do not expect adoption of the New Revenue Standard to have a significant impact on our net income going forward.

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. We account for natural gas imbalances using the sales method. For the three and six months ended June 30, 2018 and 2017, the impact of any natural gas imbalances was not significant. If a sale is deemed uncollectible, an allowance for doubtful collection is recorded.

Our crude oil, natural gas and NGLs sales are recorded using either the “net-back” or "gross" method of accounting, depending upon the related agreement. We use the net-back method when control of the crude oil, natural gas, or NGLs has been transferred to the purchasers of these commodities that are providing transportation, gathering or processing services. In these situations, the purchaser pays us proceeds based on a percent of the proceeds or have fixed our sales price at index less specified deductions. The net-back method results in the recognition of a net sales price that is lower than the index for which the production is based because the operating costs and profit of the midstream facilities are embedded in the net price we are paid.

We use the gross method of accounting when control of the crude oil, natural gas, or NGLs is not transferred to the purchaser and the purchaser does not provide transportation, gathering, or processing services as a function of the price we receive. Rather, we contract separately with midstream providers for the applicable transport and processing on a per unit basis. Under this method, we recognize revenues based on the gross selling price and recognize transportation, gathering and processing expenses.

Based on our evaluation of when control of crude oil and natural gas sales are transferred to the customer under the guidance of the New Revenue Standard, certain crude oil sales in the Wattenberg Field that were recognized using the gross method prior to the adoption of the New Revenue Standard will be recognized using the net-back method. In the Delaware Basin, certain crude oil and natural gas sales that were recognized using the gross method prior to the adoption of the New Revenue Standard will be recognized using the net-back method.

As discussed above, we enter into agreements for the sale, transportation, gathering and processing of our production. The terms of these agreements can result in variances in the per unit realized prices that we receive for our crude oil, natural gas and NGLs. For crude oil, the average NYMEX prices are based upon average daily prices throughout each month and, for natural gas, the average NYMEX pricing is based upon first-of-the-month index prices, as in each case this is how the majority of each of these commodities is sold pursuant to terms of the respective sales agreements. For NGLs, we use the NYMEX crude oil price as a reference for presentation purposes.

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

Disaggregated Revenue. The following table presents crude oil, natural gas and NGLs sales disaggregated by commodity and operating region for the three and six months ended June 30, 2018 and 2017 (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
Revenue by Commodity and Operating Region	2018		2017 (1)		Percentage Change		2018		2017 (1)		Percentage Change
Crude oil
Wattenberg Field	$	189,992	$	129,258	47.0	%	$	360,299	$	234,446	53.7	%
Delaware Basin	62,599		16,327		283.4	%	116,016		29,865		288.5	%
Utica Shale (2)	—		3,216		(100.0	)%	2,696		7,486		(64.0	)%
Total	$	252,591	$	148,801	69.8	%	$	479,011	$	271,797	76.2	%
Natural gas
Wattenberg Field	$	22,640	$	34,004	(33.4	)%	$	52,412	$	66,617	(21.3	)%
Delaware Basin	7,472		2,767		170.0	%	15,151		5,236		189.4	%
Utica Shale (2)	—		1,561		(100.0	)%	1,109		3,421		(67.6	)%
Total	$	30,112	$	38,332	(21.4	)%	$	68,672	$	75,274	(8.8	)%
NGLs
Wattenberg Field	$	30,271	$	21,923	38.1	%	$	59,041	$	47,242	25.0	%
Delaware Basin	12,959		3,680		252.1	%	23,594		6,626		256.1	%
Utica Shale (2)	—		866		(100.0	)%	840		2,355		(64.3	)%
Total	$	43,230	$	26,469	63.3	%	$	83,475	$	56,223	48.5	%
Revenue by Operating Region
Wattenberg Field	$	242,903	$	185,185	31.2	%	$	471,752	$	348,305	35.4	%
Delaware Basin	83,030		22,774		264.6	%	154,761		41,727		270.9	%
Utica Shale (2)	—		5,643		(100.0	)%	4,645		13,262		(65.0	)%
Total	$	325,933	$	213,602	52.6	%	$	631,158	$	403,294	56.5	%



________________________________________
(1)	As we have elected the modified retrospective method of adoption for the New Revenue Standard, revenues for the three
	and six months ended June 30, 2017 have not been restated. Such changes would not have been material.
(2)	In March 2018, we completed the disposition of our Utica Shale properties.

Contract Assets. Contract assets include material contributions in aid of construction ("CIAC"), which are common in purchase/purchase and processing agreements with midstream service providers that are our customers. Generally, the intent of the payments is to reimburse the customer for actual costs incurred related to ~~finalization~~the construction of its gathering and processing infrastructure. Contract assets that are classified as current assets are included in prepaid expenses and other current assets on our condensed consolidated balance sheet. Contract assets that are classified as long-term assets are included in other assets on our condensed consolidated balance sheet. The contract assets will be amortized as a reduction to crude oil, natural gas and NGLs sales revenue during the ~~aggregate acreage position acquired and~~periods in which the related ~~lease terms and a final settlement with~~production is transferred to the sellers in connection with a revised valuation of certain acquired leases and the retirement of estimated environmental remediation liabilities. Any value assigned to goodwill was not expected to be deductible for income tax purposes.customer.

The following table presents the changes in ~~goodwill from~~carrying amounts of the ~~preliminary allocation at December 31, 2016,~~contract assets associated with our crude oil, natural gas and NGLs sales revenue for the ~~final allocation determined during the quarter~~six months ended ~~September~~June 30, ~~2017:~~2018:

Amount
(in thousands)

Preliminary purchase price allocation $ 62,041
Adjustments 13,080
Final purchase price allocation $ 75,121



	Amount
	(in thousands)

Beginning balance, January 1, 2018	$	4,446
Additions	1,202
Amortized as a reduction to crude oil, natural gas and NGLs sales	(2,408		)
Ending balance, June 30, 2018	$	3,240

~~See the footnote titled~~Customer Accounts Receivable. ~~Goodwill~~ Our accounts receivable include amounts billed and currently due from sales of our crude oil, natural gas and NGLs production. Our gross accounts receivable balance from crude oil, natural gas and NGLs sales at June 30, 2018 and December 31, 2017 was $159.1 million and $154.3 million, respectively. We did not record an allowance for ~~the details regarding the impairment of goodwill as of~~ ~~September~~doubtful accounts for these receivables at June 30, ~~2017~~.

~~NOTE 4 - PENDING ACQUISITION AND ACREAGE EXCHANGES~~

~~Pending Acquisition.~~ In September 2017, we entered into an acquisition agreement to acquire certain assets from Bayswater Exploration & Production, LLC ("Bayswater") and certain related parties, pursuant to which, subject to the terms and conditions of the agreement, we have agreed to acquire approximately 8,300 net acres, 30 operated drilled uncompleted wells ("DUCs"), and an estimated 240 gross drilling locations, for approximately $210 million in cash, subject to certain pre- and post-closing adjustments. We plan to turn-in-line 18 of these DUCs at approximately year-end 2017, with the completion costs expected to be treated as an increase to the purchase price. Upon executing the purchase and sale agreement, we paid a $21 million deposit toward the purchase price into an escrow account, which is included in other assets on our September 30, 2017 condensed consolidated balance sheet. Assuming all conditions required for closing are met, the acquisition is expected to close in2018 or December ~~2017 and is expected to be funded by a combination of available cash and debt.~~

~~Pending Acreage Exchanges.~~ In September 2017, we entered into an acreage exchange transaction to consolidate certain acreage positions in the core area of the Wattenberg Field. Pursuant to the transaction, we will exchange leasehold acreage with some limited in-process development wells. Upon closing, we expect to receive approximately 11,700 net acres in exchange for approximately 12,100 net acres with minimal cash exchanged between the parties. The difference in net acres is31, 2017.

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2017~~2018

(unaudited)

primarily due to variances in working and net revenue interests. The acreage exchange is expected to close in the fourth quarter of 2017; however, there can be no assurance that conditions to closing will be satisfied.

In June 2017, we entered into an acreage exchange transaction that also involves the consolidation of certain acreage positions in the core area of the Wattenberg Field. Pursuant to the transaction, we will exchange leasehold acreage with some limited in-process development wells. Upon closing, we estimate that we will receive approximately 3,900 net acres in exchange for approximately 4,100 net acres with minimal cash exchanged between the parties. The difference in net acres is primarily due to variances in working and net revenue interests. This acreage exchange is also expected to close in the fourth quarter 2017; however, there can be no assurance that conditions to closing will be satisfied.

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~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~

~~NOTE 5 - EXPLORATION, GEOLOGIC, AND GEOPHYSICAL EXPENSE~~

~~The following table presents the major components of exploration, geologic, and geophysical expense:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)

Exploratory dry hole costs $ 41,187
$ —
$ 41,187
$ —
Geological and geophysical costs, including seismic purchases 463
—
1,790
—
Operating, personnel and other 258
241
918
688
Total exploration, geologic, and geophysical expense $ 41,908
$ 241
$ 43,895
$ 688

~~Exploratory dry hole costs.~~ During the three and nine months ended September 30, 2017, two exploratory dry hole wells, associated lease costs, and related infrastructure assets in the Delaware Basin were expensed at a cost of $41.2 million. The conclusion to expense these items was due to the conclusion that the acreage on which these wells were drilled was exploratory in nature and, following drilling, the lack of hydrocarbon production necessary for the wells to be deemed economically viable.

NOTE 65 - ~~PROPERTIES AND EQUIPMENT AND ASSETS HELD-FOR-SALE~~FAIR VALUE OF FINANCIAL INSTRUMENTS

~~The following table presents the components~~Determination of ~~properties and equipment, net of accumulated depreciation, depletion, and amortization ("DD&A"):~~Fair Value

September 30, 2017 December 31, 2016
(in thousands)
Properties and equipment, net:
Crude oil and natural gas properties
Proved $ 3,759,501
$ 3,499,718
Unproved 1,559,717
1,874,671
Total crude oil and natural gas properties 5,319,218
5,374,389
Infrastructure, pipeline, and other 104,568
62,093
Land and buildings 10,714
6,392
Construction in progress 177,341
122,591
Properties and equipment, at cost 5,611,841
5,565,465
Accumulated DD&A (1,729,141 ) (1,562,471 )
Properties and equipment, net $ 3,882,700
$ 4,002,994

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:

~~The following table presents impairment charges recorded~~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 ~~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.

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. While we use common industry practices to develop our valuation techniques and believe our valuation method is appropriate and consistent with those used by other market participants, changes in our pricing methodologies or the underlying assumptions could result in significantly different fair values.

Our crude oil and natural gas fixed-price swaps are included in Level 2 of the hierarchy. Our collars and propane fixed-price swaps are included in Level 3 of the hierarchy. Our basis swaps are included in Level 2 and Level 3 of the hierarchy. 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:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)

Impairment of unproved properties $ 252,623
$ 338
$ 282,188
$ 2,391
Amortization of individually insignificant unproved properties 117
595
311
681
Impairment of crude oil and natural gas properties
252,740
933
282,499
3,072
Land and buildings —
—
—
3,032
Total impairment of properties and equipment $ 252,740
$ 933
$ 282,499
$ 6,104



	June 30, 2018									December 31, 2017
	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	$	10,412		$	4,405		$	14,817		$	12,949		$	1,389		$	14,338
Total liabilities	(199,530		)	(23,505		)	(223,035		)	(90,569		)	(11,076		)	(101,645		)
Net liability	$	(189,118	)	$	(19,100	)	$	(208,218	)	$	(77,620	)	$	(9,687	)	$	(87,307	)

During the three months ended September 30, 2017, we recorded a charge related to two exploratory dry holes we had drilled in the western area of our Culberson County acreage in the Delaware Basin, as referenced previously. We then assessed the impact of the dry holes and various factors related thereto, including (i) the operational and geologic data obtained, (ii) the

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2017~~2018

(unaudited)

current increased cost environment for drilling and completion services in the Delaware Basin, (iii) our decreased future commodity price outlook, and (iv) the terms of the related lease agreements. Based on the results of this assessment, we concluded that the underlying geologic risk and the challenged economics of future capital expenditures reduced the likelihood that we would perform future development in this area over the remaining lease term for this acreage. Accordingly, we recorded an impairment of $251.6 million covering approximately 13,400 acres during the third quarter of 2017. The amount of the impairment of these unproved properties was based on the value assigned to individual lease acres in the final purchase price allocation of the business combination. This allocation had included the consideration paid to the sellers, including the effect of the non-cash impact from the deferred tax liability created at the time of the acquisition. Due to the aforementioned events and circumstances in the third quarter of 2017, we evaluated our proved property for possible impairment and concluded that these assets were not impaired during the period.

~~Classification of Assets as Held-for-Sale.~~ During the third quarter of 2017, as part of our plan to divest the Utica Shale properties, we engaged an investment banking group and began actively marketing the properties for sale; therefore, these properties are classified as held-for-sale as they met the criteria for such classification during the third quarter of 2017.

The following table presents ~~balance sheet data related to~~a reconciliation of our Level 3 assets held-for-sale, which include the Utica Shale properties, field office facilities, and a parcel of land that are being marketed for sale. Assets held-for-sale represents the assets that are expected to be sold, net of liabilities, that are expected to be assumed by the purchasers: measured at fair value:

September 30, 2017 December 31, 2016
(in thousands)
Assets
Properties and equipment, net $ 41,983
$ 5,272
Total assets $ 41,983
$ 5,272

Liabilities
Asset retirement obligation $ 499
$ —
Total liabilities $ 499
$ —

Net assets $ 41,484
$ 5,272

~~NOTE 7 - GOODWILL~~



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(in thousands)
Fair value of Level 3 instruments, net asset (liability) beginning of period	$	(8,834	)	$	2,316		$	(9,687	)	$	(9,574	)
Changes in fair value included in condensed consolidated statement of operations line item:
Commodity price risk management gain (loss), net	(4,701		)	9,262			(6,854		)	22,622
Settlements included in condensed consolidated statement of operations line items:
Commodity price risk management gain (loss), net	(5,565		)	(2,959		)	(2,559		)	(4,429		)
Fair value of Level 3 instruments, net asset (liability) end of period	$	(19,100	)	$	8,619		$	(19,100	)	$	8,619

Net change in fair value of Level 3 unsettled derivatives included in condensed consolidated statement of operations line item:
Commodity price risk management gain (loss), net	$	(15,582	)	$	8,161		$	(9,412	)	$	17,194

The ~~final goodwill that resulted from~~significant unobservable input used in the ~~purchase price allocation~~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 this report.

Non-Derivative Financial Assets and Liabilities

The carrying value of the financial instruments included in current assets ~~acquired~~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 Delaware Basin was determined to be $75.1 million. With the creation of goodwill from this transaction, we expected to perform our evaluation of goodwill for impairment annually in the fourth quarter. However, primarily due to a combination of increases in per well development and operational costs and our drilling of two exploratory dry holes in the Delaware Basin since the timerecoverability of the acquisition, in conjunction with our lower future commodity price outlook, we determined a triggering event had occurred in the quarter ended September 30, 2017. In addition to the factors mentioned above, we also considered our recent impairmentscarrying value of certain unproven leasehold costs, and the impact of these items on our internal expectations for acceptable rates of return. We evaluated goodwill for impairment by performing a quantitative test, which involves comparing the estimatedsuch assets. The fair value of the ~~goodwill asset group,~~properties is determined based upon estimated future discounted cash flow, a Level 3 input, using estimated production and prices at which we ~~define as~~reasonably expect the ~~Delaware Basin,~~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 ~~carrying value.~~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 goodwill at September 30, 2017 by using an estimated after-tax future discounted cash flow analysis, along with a combination of market-based pricing factors for similar acreage, reserve valuation techniques, and other fair value considerations. The discounted cash flow analysis used to estimate fair value was based on known or knowable information at the interim measurement date. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. The quantitative test resulted in a determination that a full impairment charge of $75.1 million was required; therefore, the charge was recorded in the quarter ended September 30, 2017.

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~

~~NOTE 8 - 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~~long-term debt related to ~~price volatility from producing crude oil, natural gas,~~our senior notes 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.convertible notes as of:

We believe our commodity derivative instruments continue to be effective in achieving the risk management objectives for which they were intended. As of September 30, 2017, we had derivative instruments, which were comprised of collars, fixed-price swaps, and basis protection swaps, in place for a portion of our anticipated 2017 and 2018 production for a total of 14,337 MBbls of crude oil, 69,715 BBtu of natural gas, and 412 MBbls of propane. 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, and 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.



		As of June 30, 2018				As of December 31, 2017
		Estimated Fair Value		Percent of Par		Estimated Fair Value		Percent of Par
		(in millions)				(in millions)
Senior notes:
	2021 Convertible Notes	$	209.2	104.6	%	$	195.6	97.8	%
	2024 Senior Notes	408.4		102.1	%	416.0		104.0	%
	2026 Senior Notes	599.7		99.9	%	616.5		102.8	%

The ~~following table presents the balance sheet location and~~carrying value of our capital lease obligations approximates fair value ~~amounts~~due to the variable nature of ~~our derivative instruments on~~ the ~~condensed consolidated balance sheets:~~

Fair Value
Derivative instruments: Condensed consolidated balance sheet line item September 30, 2017 December 31, 2016
(in thousands)
Derivative assets: Current
Commodity derivative contracts Fair value of derivatives $ 19,042
$ 8,490
Basis protection derivative contracts Fair value of derivatives 3,874
301
22,916
8,791
Non-current
Commodity derivative contracts Fair value of derivatives 3,942
1,123
Basis protection derivative contracts Fair value of derivatives 663
1,263
4,605
2,386
Total derivative assets $ 27,521
$ 11,177

Derivative liabilities: Current
Commodity derivative contracts Fair value of derivatives $ 25,895
$ 53,565
Basis protection derivative contracts Fair value of derivatives 92
30
25,987
53,595
Non-current
Commodity derivative contracts Fair value of derivatives 7,244
27,595
Basis protection derivative contracts Fair value of derivatives 17
—
7,261
27,595
Total derivative liabilities $ 33,248
$ 81,190
imputed interest rates and the duration of the related vehicle lease.

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2017~~2018

(unaudited)

~~The following table presents~~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 major lenders under our 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 ~~on our condensed consolidated statements~~is not significant at June 30, 2018, taking into account the estimated likelihood of ~~operations:~~nonperformance.

Three Months Ended September 30, Nine Months Ended September 30,
Condensed consolidated statement of operations line item 2017 2016 2017 2016
(in thousands)
Commodity price risk management gain, net
Net settlements $ 9,585
$ 47,728
$ 22,151
$ 167,859
Net change in fair value of unsettled derivatives (61,763 ) (28,331 ) 64,307
(230,207 )
Total commodity price risk management gain, net $ (52,178 ) $ 19,397
$ 86,458
$ (62,348 )

Note Receivable.In 2014, we sold our entire 50 percent ownership interest in PDC Mountaineer, LLC to an unrelated third-party. As part of the consideration, we received a promissory note (the “Promissory Note”) for a principal sum of $39.0 million, bearing variable interest rates. We regularly analyzed the Promissory Note for evidence of collectibility, evaluating factors such as the creditworthiness of the issuer of the Promissory Note and the value of the issuer's assets. Based upon this analysis, during the quarter ended March 31, 2016, we recognized a provision and recorded an allowance for uncollectible notes receivable for the $44.0 million accumulated outstanding balance, including interest. In April 2017, we sold the Promissory Note to an unrelated third-party buyer for approximately $40.2 million in cash. Accordingly, we reversed $40.2 million of the provision for uncollectible notes receivable during the second quarter of 2017.

~~Net settlements~~Cash and Cash Equivalents. We consider all highly liquid instruments purchased with an original maturity of ~~commodity derivatives decreased for the~~ three months or less to be cash equivalents. Cash and ~~nine months ended September 30, 2017~~cash equivalents potentially subject us to a concentration of credit risk as compared to the three and nine months ended September 30, 2016. We entered into agreements for the derivative instruments that settled throughout 2016 prior to commodity prices becoming depressed in late 2014. Substantiallysubstantially all of ~~these higher-value agreements settled by~~our deposits held in financial institutions were in excess of the ~~end~~FDIC insurance limits at June 30, 2018 and December 31, 2017. We maintain our cash and cash equivalents in the form of ~~2016. Net settlements for the three~~money market and nine months ended September 30, 2017 reflect derivative instruments entered into since 2015, which more closely approximate recent realized prices. Based on forward strip pricing at September 30, 2017,checking accounts with financial institutions that we ~~expect that settlements will continue to be substantially lower in 2017 on a relative basis as compared to those in 2016.~~believe are creditworthy and are also major lenders under our revolving credit facility.

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:~~

As of September 30, 2017 Derivative instruments, recorded in condensed consolidated balance sheet, gross Effect of master netting agreements Derivative instruments, net
(in thousands)
Asset derivatives:
Derivative instruments, at fair value $ 27,521
$ (15,010 ) $ 12,511

Liability derivatives:
Derivative instruments, at fair value $ 33,248
$ (15,010 ) $ 18,238

As of December 31, 2016 Derivative instruments, recorded in condensed consolidated balance sheet, gross Effect of master netting agreements Derivative instruments, net
(in thousands)
Asset derivatives:
Derivative instruments, at fair value $ 11,177
$ (10,930 ) $ 247

Liability derivatives:
Derivative instruments, at fair value $ 81,190
$ (10,930 ) $ 70,260

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~

NOTE 96 - ~~FAIR VALUE OF~~COMMODITY DERIVATIVE FINANCIAL INSTRUMENTS

~~Determination~~Our results of ~~Fair Value~~

~~Our fair value measurements~~operations and operating cash flows 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 pricesaffected by changes 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~~market prices for ~~similar assets or liabilities~~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 ~~active markets, quoted~~future periods. While we structure these commodity derivatives to reduce our exposure to decreases in commodity prices, ~~for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for~~they also limit the ~~asset or liability, and inputs that are derived~~benefit we might otherwise receive from ~~observable market data by correlation or other means.~~price increases.

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

~~Derivative Financial Instruments~~

We ~~measure~~believe our commodity derivative instruments continue to be effective in achieving the ~~fair value~~risk management objectives for which they were intended. As of June 30, 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 2018, 2019 and 2020 production. Our commodity derivative ~~instruments based upon a pricing model that utilizes market-based inputs, including, but not limited~~contracts have been entered into at no cost to us as we hedge our anticipated production at the ~~contractual price of the underlying position, current~~then-prevailing commodity market prices, ~~crude oil and natural gas forward curves, discount rates such as the LIBOR curve~~without adjustment 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.premium or discount.

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. While we use common industry practices to develop our valuation techniques and believe our valuation method is appropriate and consistent with those used by other market participants, changes in our pricing methodologies or the underlying assumptions could result in significantly different fair values.

Our crude oil and natural gas fixed-price swaps are included in Level 2. Our collars and propane fixed-price swaps 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:

September 30, 2017 December 31, 2016
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)
Assets:
Total assets $ 24,553
$ 2,968
$ 27,521
$ 6,350
$ 4,827
$ 11,177
Total liabilities (23,811 ) (9,437 ) (33,248 ) (66,789 ) (14,401 ) (81,190 )
Net asset (liability) $ 742
$ (6,469 ) $ (5,727 ) $ (60,439 ) $ (9,574 ) $ (70,013 )

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2017~~2018

(unaudited)

As of June 30, 2018, 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 Propane - MBbls)	Weighted- Average Contract Price			Fair Value June 30, 2018 (1) (in thousands)
Commodity/ Index/ Maturity Period	Quantity (Crude oil - MBls Natural Gas - BBtu)	Floors		Ceilings			Weighted- Average Contract Price			Fair Value June 30, 2018 (1) (in thousands)
Crude Oil
NYMEX
2018	1,106.0	$	46.01	$	57.11	5,636.0	$	52.34		$	(117,210	)
2019	1,400.0	53.57		65.55		8,400.0	53.86			(99,002		)
2020	—	—		—		600.0	62.50			343
Total Crude Oil	2,506.0					14,636.0				$	(215,869	)

Natural Gas
NYMEX
2018	240.0	$	3.00	$	3.90	27,715.0	$	2.94		$	(541	)
2019	—	—		—		8,004.0	2.78			(218		)
Dominion South
2018	—	—		—		399.0	2.12			12
2019	—	—		—		256.6	2.13			7
Total Natural Gas	240.0					36,396.2				$	(740	)

Basis Protection - Crude Oil
Midland Cushing
2018	—	$	—	$	—	343.9	$	(0.10	)	$	4,374
Total Basis Protection - Crude Oil	—					343.9				$	4,374

Basis Protection - Natural Gas
CIG
2018	—	$	—	$	—	19,612.0	$	(0.42	)	$	6,440
2019	—	—		—		7,924.0	(0.88		)	(369		)
Waha
2018	—	—		—		3,425.0	(0.50		)	2,842
Total Basis Protection - Natural Gas	—					30,961.0				$	8,913

Propane
Mont Belvieu
2018	—	$	—	$	—	333.4	$	33.97		$	(1,882	)
Total Propane	—					333.4				$	(1,882	)

Rollfactor (2)
Crude Oil CMA
2018	—	$	—	$	—	2,934.3	$	0.13		$	(3,014	)
Total Rollfactor	—					2,934.3				$	(3,014	)

Commodity Derivatives Fair Value										$	(208,218	)

_____________


(1)	Approximately 29.9 percent of the fair value of our commodity derivative assets and 10.5 percentof the fair value of our commodity derivative liabilities were measured using significant unobservable inputs (Level 3).

(2)

These positions hedge the timing risk associated with our physical sales. We generally sell crude oil for the delivery month at a sales price based on the average NYMEX West Texas Intermediate price during that month, plus an adjustment calculated as a spread between the weighted average prices of the delivery month, the next month and the following month during the period when the delivery month is the first month.

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

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	June 30, 2018		December 31, 2017
			(in thousands)
Derivative assets:	Current
	Commodity derivative contracts	Fair value of derivatives	$	1,161	$	7,340
	Basis protection derivative contracts	Fair value of derivatives	13,656		6,998
			14,817		14,338
	Non-current	Fair value of derivatives	—		—
Total derivative assets			$	14,817	$	14,338

Derivative liabilities:	Current
	Commodity derivative contracts	Fair value of derivatives	$	183,369	$	77,999
	Basis protection derivative contracts	Fair value of derivatives	222		234
	Rollfactor derivative contracts	Fair value of derivatives	3,014		1,069
			186,605		79,302
	Non-current
	Commodity derivative contracts	Fair value of derivatives	36,283		22,343
	Basis protection derivative contracts	Fair value of derivatives	147		—
			36,430		22,343
Total derivative liabilities			$	223,035	$	101,645

The following table presents ~~a reconciliation~~the impact of our ~~Level 3~~derivative instruments on our condensed consolidated statements of operations:



	Three Months Ended June 30,					Six Months Ended June 30,
Condensed Consolidated Statement of Operations Line Item	2018			2017		2018			2017
	(in thousands)
Commodity price risk management gain (loss), net
Net settlements	$	(16,408	)	$	12,015	$	(42,446	)	$	12,566
Net change in fair value of unsettled derivatives	(99,718		)	45,917		(120,920		)	126,070
Total commodity price risk management gain (loss), net	$	(116,126	)	$	57,932	$	(163,366	)	$	138,636

Net settlements of commodity derivatives and net change in fair value of unsettled derivatives decreased for the three and six months ended June 30, 2018 as compared to the three and six months ended June 30, 2017 as a result of the increase in future commodity prices during the first half of 2018 compared to a decrease during the first half of 2017. Our decrease in net settlements for the three months ended June 30, 2018 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 during the three months ended June 30, 2018 which eliminated the underlying sale price variability, and therefore there was no longer a variable to hedge.

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

The following table reflects the impact of netting agreements on gross derivative assets ~~measured at fair value:~~and liabilities:



As of June 30, 2018	Derivative Instruments, Gross		Effect of Master Netting Agreements			Derivative Instruments, Net
	(in thousands)
Asset derivatives:
Derivative instruments, at fair value	$	14,817	$	(14,752	)	$	65

Liability derivatives:
Derivative instruments, at fair value	$	223,035	$	(14,752	)	$	208,283



As of December 31, 2017	Derivative Instruments, Gross		Effect of Master Netting Agreements			Derivative Instruments, Net
	(in thousands)
Asset derivatives:
Derivative instruments, at fair value	$	14,338	$	(14,173	)	$	165

Liability derivatives:
Derivative instruments, at fair value	$	101,645	$	(14,173	)	$	87,472

NOTE 7 - PROPERTIES AND EQUIPMENT

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Fair value of Level 3 instruments, net asset (liability) beginning of period $ 8,619
$ 27,375
$ (9,574 ) $ 91,288
Changes in fair value included in condensed consolidated statement of operations line item:
Commodity price risk management gain (loss), net (14,075 ) 4,234
8,547
(16,023 )
Settlements included in condensed consolidated statement of operations line items:
Commodity price risk management gain (loss), net (1,013 ) (15,587 ) (5,442 ) (59,243 )
Fair value of Level 3 instruments, net asset end of period $ (6,469 ) $ 16,022
$ (6,469 ) $ 16,022

Net change in fair value of Level 3 unsettled derivatives included in condensed consolidated statement of operations line item:
Commodity price risk management gain (loss), net $ (8,711 ) $ (2,240 ) $ (583 ) $ (8,273 )



	June 30, 2018			December 31, 2017
	(in thousands)
Properties and equipment, net:
Crude oil and natural gas properties
Proved	$	4,944,476		$	4,356,922
Unproved	908,271			1,097,317
Total crude oil and natural gas properties	5,852,747			5,454,239
Infrastructure, pipeline and other	127,799			109,359
Land and buildings	12,724			10,960
Construction in progress	294,669			196,024
Properties and equipment, at cost	6,287,939			5,770,582
Accumulated DD&A	(2,095,331		)	(1,837,115		)
Properties and equipment, net	$	4,192,608		$	3,933,467

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 this report.

~~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~~following table presents impairment charges recorded for crude oil and natural gas properties:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in thousands)

Impairment of proved and unproved properties	$	159,528	$	27,463	$	192,658	$	29,565
Amortization of individually insignificant unproved properties	26		103		84		194
Impairment of crude oil and natural gas properties	$	159,554	$	27,566	$	192,742	$	29,759

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

During the six months ended June 30, 2018, we recorded impairment charges totaling $192.7 million, including $159.5 million during the three months ended June 30, 2018. During the three months ended June 30, 2018, we identified current and anticipated near-term leasehold expirations within our non-focus areas of the Delaware Basin and made the determination that we would no longer pursue plans to develop these properties. The impaired non-focus leasehold typically has a higher gas to oil ratio and a greater degree of geologic complexity than our other Delaware Basin properties and ~~goodwill~~is further impacted by widening natural gas differentials and increased well development costs. We intend to focus our future Delaware Basin development in our oilier core areas where we have identified approximately 450 mid-length lateral equivalent Wolfcamp drilling locations. We continue to explore options for our non-focus areas and monitor them for possible future impairment ~~when events and circumstances indicate a possible decline in~~based on similar analyses. We determined 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 fair value~~

Additionally, we corrected an error in our calculation of the unproved properties and goodwill ~~is determined using either a qualitative method or a quantitative method, both of which utilize market data, a Level 3 input,~~impairment originally reported in the ~~derivation~~quarter ended September 30, 2017. The correction of the ~~value estimation.~~error resulted in an additional impairment charge of $6.3 million, recorded in the three months ended March 31, 2018, which we have included in the impairment of properties and equipment expense line in our condensed consolidated statement of operations. We evaluated the error under the guidance of Accounting Standards Codification 250, Accounting Changes and Error Corrections ("ASC 250"). Based on the guidance in ASC 250, we determined that the impact of the error did not have a material impact on our previously-issued financial statements or those of the period of correction.

~~The portion~~Utica Shale Divestiture. In March 2018, we completed the disposition of our ~~long-term debt~~Utica Shale properties (the "Utica Shale Divestiture") for net cash proceeds of approximately $39.0 million. We recorded a loss on sale of properties and equipment of $1.4 million for the six months ended June 30, 2018, which included post-closing adjustments. The divestiture of the Utica Shale properties did not represent a strategic shift in our operations or have a significant impact on our operations or financial results; therefore, we did not account for it as a discontinued operation.

Suspended Well Costs. We have spud one well in the Delaware Basin for which we are unable to make a final determination regarding whether proved reserves can be associated with the well as of June 30, 2018 as the well had not been completed as of that date. Therefore, we have classified the capitalized costs of the well as suspended well costs as of June 30, 2018 while we continue to conduct completion and testing operations to determine the existence of proved reserves.

The following table presents the capitalized exploratory well cost pending determination of proved reserves and included in properties and equipment, net on the condensed consolidated balance sheets:



	Six Months Ended June 30, 2018			Year Ended December 31, 2017
	(in thousands, except for number of wells)

Beginning balance	$	15,448		$	—
Additions to capitalized exploratory well costs pending the determination of proved reserves	23,443			51,776
Reclassifications to proved properties	(29,883		)	(36,328		)
Capitalized exploratory well costs charged to expense	—			—
Ending balance	$	9,008		$	15,448

Number of wells pending determination at period end	1			3

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

NOTE 8 - OTHER ACCRUED EXPENSES AND OTHER LIABILITIES

Other Accrued Expenses. The following table presents the components of other accrued expenses as of:



	June 30, 2018		December 31, 2017
	(in thousands)

Employee benefits	$	14,609	$	22,383
Asset retirement obligations	15,959		15,801
Environmental expenses	2,355		1,374
Other	2,965		3,429
Other accrued expenses	$	35,888	$	42,987

Other Liabilities. The following table presents the components of other liabilities as of:



	June 30, 2018		December 31, 2017
	(in thousands)

Production taxes	$	28,537	$	50,476
Deferred oil gathering credit	23,115		—
Other	9,965		6,857
Other liabilities	$	61,617	$	57,333

Deferred Oil Gathering Credit. On January 31, 2018, we received a payment of $24.1 million from Saddle Butte Rockies Midstream, LLC for the execution of an amendment to an existing crude oil purchase and sale agreement signed in December 2017. The amendment was effective contingent upon certain events which occurred in late January 2018. The amendment, among other things, dedicates crude oil from the majority of our Wattenberg Field acreage to Saddle Butte's gathering lines and extends the term of the agreement through December 2029. The payment will be amortized using the straight-line method over the life of the amendment. Amortization charges totaling approximately $0.4 million and $0.7 million for the three and six months ended June 30, 2018 related to the deferred oil gathering credit are included as a reduction to transportation, gathering and processing expenses on our ~~revolving credit facility approximates fair value due to the variable nature~~condensed consolidated statements of ~~related interest rates. We have not elected to account for the portion~~operations.

Table of ~~our~~contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

NOTE 9 - LONG-TERM DEBT

Long-term debt ~~related to our senior notes under the fair value option; however, we have determined an estimate~~consisted of the ~~fair values~~following as of:



	June 30, 2018			December 31, 2017
	(in thousands)
Senior notes:
1.125% Convertible Notes due September 2021:
Principal amount	$	200,000		$	200,000
Unamortized discount	(26,600		)	(30,328		)
Unamortized debt issuance costs	(3,128		)	(3,615		)
Net of unamortized discount and debt issuance costs	170,272			166,057

6.125% Senior Notes due September 2024:
Principal amount	400,000			400,000
Unamortized debt issuance costs	(6,080		)	(6,570		)
Net of unamortized debt issuance costs	393,920			393,430

5.75% Senior Notes due May 2026:
Principal amount	600,000			600,000
Unamortized debt issuance costs	(7,075		)	(7,555		)
Net of unamortized debt issuance costs	592,925			592,445

Total senior notes	1,157,117			1,151,932

Revolving credit facility due May 2023	22,000			—
Total long-term debt, net of unamortized discount and debt issuance costs	$	1,179,117		$	1,151,932

Senior Notes

2021 Convertible Notes. In September 2016, we issued $200 million of 1.125% convertible notes due September 15, 2021 (the "2021 Convertible Notes") in a public offering. Interest is payable in cash semiannually on each March 15 and September 15. The conversion price at maturity is $85.39 per share. We allocated the gross proceeds of the 2021 Convertible Notes between the liability and equity components of the debt. The initial $160.5 million liability component was determined 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 similar debt instruments, excluding the ~~portion~~conversion feature, priced on the same day we issued the 2021 Convertible Notes. Approximately $4.8 million in costs associated with the issuance of the 2021 Convertible Notes were capitalized as debt issuance costs. As of June 30, 2018, the unamortized debt discount will be amortized over the remaining contractual term to maturity of the 2021 Convertible Notes using the effective interest method.

Upon conversion, the 2021 Convertible Notes may be settled, at our sole election, in shares of our ~~long-term debt related~~common stock, cash, or a combination of cash and shares of our common stock. We have initially elected a combination settlement method to satisfy our conversion obligation, which allows us to settle the principal amount of the 2021 Convertible Notes in cash and to settle the excess conversion value, if any, in shares of our common stock, with cash paid in lieu of fractional shares.

2024 Senior Notes. In September 2016, we issued $400 million aggregate principal amount of 6.125% senior notes due September 15, 2024 (the “2024 Senior Notes”) in a private placement to qualified institutional buyers. In May 2017, in accordance with the registration rights agreement that we entered into with the initial purchasers when we issued the 2024 Senior Notes, we filed a registration statement with the SEC relating to an offer to exchange the 2024 Senior Notes for registered notes with substantially identical terms, and ~~convertible notes as~~we completed the exchange offer in September 2017. The 2024 Senior Notes accrue interest from the date of issuance and interest is payable semi-annually on March 15 and September ~~30, 2017.~~

Estimated Fair Value Percent of Par
(in millions)
Senior notes:
2021 Convertible Notes $ 196.3
98.1 %
2022 Senior Notes 521.9
104.4 %
2024 Senior Notes 412.5
103.1 %

~~The carrying value of our capital lease obligations approximates fair value due to~~15. Approximately $7.8 million in costs associated with the ~~variable nature~~issuance of the ~~imputed~~2024 Senior Notes were capitalized as debt issuance costs and are being amortized as interest ~~rates and~~expense over the ~~duration~~life of the ~~related vehicle lease.~~notes using the effective interest method.

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2017~~2018

(unaudited)

~~Concentration~~2026 Senior Notes. In November 2017, we issued $600 million aggregate principal amount of ~~Risk~~5.75% senior notes due May 15, 2026, in a private placement to qualified institutional buyers. In June 2018, in accordance with the registration rights agreement that we entered into with the initial purchasers when we issued the 2024 Senior Notes, we filed a registration statement with the SEC relating to an offer to exchange the 2024 Senior Notes for registered notes with substantially identical terms, and we completed the exchange offer in July 2018. The 2026 Senior Notes accrue interest from the date of issuance and interest is payable semi-annually on May 15 and November 15. The first interest payment occurred on May 15, 2018. Approximately $7.6 million in costs associated with the issuance of the 2026 Senior Notes were capitalized as debt issuance costs and are being amortized as interest expense over the life of the notes using the effective interest method.

~~Derivative Counterparties.~~Our wholly-owned subsidiary PDC Permian, Inc. guarantees our obligations under the 2021 Convertible Notes, the 2026 Senior Notes and the 2024 Senior Notes (collectively, the "Notes"). Accordingly, condensed consolidating financial information for PDC and PDC Permian, Inc. is presented in the footnote titled ~~A portion~~Subsidiary Guarantor.

As of June 30, 2018, we were in compliance with all covenants related to the Notes.

Revolving Credit Facility

In May 2018, we entered into a Fourth Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with certain banks and other lenders, including JPMorgan Chase Bank, N.A. as administrative agent. The Restated Credit Agreement amends and restates our ~~liquidity relates~~Third Amended and Restated Credit Agreement dated as of May 21, 2013, as amended. Among other things, the Restated Credit Agreement provides for a maximum credit amount of $2.5 billion, an initial borrowing base of $1.3 billion, an initial elected commitment amount of $700 million and is subject to ~~commodity derivative instruments that enable us~~certain limitations under our Notes. In addition, the Restated Credit Agreement extends the maturity date of the facility from May 2020 to ~~manage~~May 2023, reflects improved covenant flexibility and certain reductions in interest rates applicable to borrowings under the facility and includes a ~~portion~~$25.0 million swingline facility.

The revolving credit facility is available for working capital requirements, capital investments, acquisitions, to support letters of ~~our exposure~~credit and for general corporate purposes. The borrowing base is based on, among other things, the loan value assigned to ~~price volatility from producing~~the proved reserves attributable to our crude oil and natural ~~gas. These arrangements expose us~~gas interests. The borrowing base is subject to a semi-annual redetermination on November 1 and May 1 based upon quantification of our reserves at June 30 and December 31, and is also subject to a redetermination upon the occurrence of certain events.

The outstanding principal amount under the revolving credit ~~risk~~facility accrues interest at a varying interest rate that fluctuates with an alternate base rate (equal to the greatest of ~~nonperformance by~~JPMorgan Chase Bank, N.A.'s prime rate, the federal funds rate plus a premium and the rate for dollar deposits in the London interbank market (“LIBOR”) for one month plus a premium) or, at our ~~counterparties. We primarily use~~election, a rate equal to LIBOR for certain time periods. Additionally, commitment fees, interest margin and other bank fees, charged as a component of interest, vary with our utilization of the facility. As of June 30, 2018, the applicable interest margin is 0.25 percent for the alternate base rate option or 1.25 percent for the LIBOR option, and the unused commitment fee is 0.375 percent. Principal payments are generally not required until the revolving credit facility expires in May 2023, unless the borrowing base falls below the outstanding balance.

The revolving credit facility contains covenants customary for agreements of this type, with the most restrictive being certain financial ~~institutions who are also major lenders under~~tests on a quarterly basis. The financial tests, as defined per the revolving credit facility, include requirements to: (a) maintain a minimum current ratio of 1.0:1.0 and (b) not exceed a maximum leverage ratio of 4.0:1.0. As of June 30, 2018, we were in compliance with all the revolving credit facility covenants.

As of June 30, 2018 and December 31, 2017, debt issuance costs related to our revolving credit facility ~~as counterparties to our commodity derivative contracts. An insignificant portion of our commodity derivative instruments may be with~~were $9.0 million and $6.2 million, respectively, and are included in other ~~counterparties. 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~~condensed consolidated balance sheets. As of ~~our derivative instruments is not significant at September~~June 30, ~~2017, taking into account~~2018, the ~~estimated likelihood of nonperformance.~~

~~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 ofweighted-average interest rate on the FDIC insurance limits at September 30, 2017. 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 major lenders underoutstanding balance on our revolving credit ~~facility.~~facility, exclusive of fees on the unused commitment, was 5.4 percent.

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

NOTE 10 - ~~NOTE RECEIVABLE~~

In October 2014, we sold our entire 50 percent ownership interest in PDC Mountaineer, LLC to an unrelated third-party. As part of the consideration, we received a promissory note (the “Promissory Note”) for a principal sum of $39.0 million, bearing variable interest rates. The interest was to be paid quarterly, in arrears and at the option of the issuer could be paid-in-kind (“PIK Interest”). Any such PIK Interest would be subject to the then current interest rate.CAPITAL LEASES

We ~~regularly analyzed the Promissory Note~~periodically enter into non-cancelable lease agreements for ~~evidence of collectability, evaluating factors such~~vehicles utilized by our operations and field personnel. These leases are being accounted for as capital leases as the ~~creditworthiness~~present value of minimum monthly lease payments, including the residual value guarantee, exceeds 90 percent of the ~~issuer of the Promissory Note and the~~fair value of the ~~issuer's assets. Based upon this analysis, during~~leased vehicles at inception of the ~~quarter ended March 31, 2016, we recognized a provision~~lease.

The following table presents vehicles under capital lease as of:



	June 30, 2018			December 31, 2017
	(in thousands)
Vehicles	$	6,842		$	6,249
Accumulated depreciation	(2,654		)	(1,882		)
	$	4,188		$	4,367

Future minimum lease payments by year and ~~recorded an allowance for uncollectible notes receivable for the $44.0 million accumulated outstanding balance, including interest. Commencing~~ in the ~~second quarter~~aggregate, under non-cancelable capital leases with terms of ~~2016, we ceased recognizing interest income~~one year or more, consist of the following:



For the Twelve Months Ending June 30,	Amount
	(in thousands)
2019	$	2,036
2020	2,160
2021	966
	5,162
Executory cost	(267		)
Amount representing interest	(582		)
Present value of minimum lease payments	$	4,313

Short-term capital lease obligations	$	1,746
Long-term capital lease obligations	2,567
	$	4,313

Short-term capital lease obligations are included in other accrued expenses on the ~~Promissory Note~~condensed consolidated balance sheets and ~~began accounting for the interest~~long-term capital lease obligations are included in other liabilities on the ~~Promissory Note under the cash basis method.~~

We performed this analysis as of March 31, 2017 and evaluated preliminary 2016 year-end financial statements of the note issuer which were available at such time, related information about the operations of the issuer, and existing market conditions for natural gas. Based upon this evaluation, it was determined that collection of the Promissory Note and the PIK Interest continued to be doubtful and the full valuation allowance on the Promissory Note remained appropriate as of that date. This evaluation assumed that repayment of the Promissory Note would be made exclusively from the existing operations of the issuer of the Promissory Note based on the latest available information.

In April 2017, we sold the Promissory Note to an unrelated third-party buyer for approximately $40.2 million in cash. The sales agreement transferred all of our legal rights to collect from the issuer of the Promissory Note. Accordingly, we reversed $40.2 million of the provision for uncollectible notes receivable during the second quarter of 2017.condensed consolidated balance sheets.

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2017~~2018

(unaudited)

NOTE 11 - INCOME TAXES

We evaluate and update our estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and tax laws. Consequently, based upon the mix and timing of our actual annual earnings compared to annual projections, our effective tax rate may vary quarterly and may make quarterly comparisons not meaningful. The quarterly income tax provision is generally comprised of tax expense on income or benefit on loss at the most recent estimated annual effective income tax rate, adjusted for the effect of discrete items.

The effective income tax rates for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 were 29.5 percent~~2018 and 25.8 percent benefit on loss, respectively, compared to 34.0 percent and 37.1 percent benefit on loss for the three and nine months ended September 30, 2016. The most significant element related to the decrease in the effective income tax rate was the impact from the $75.1 million impairment of the goodwill in the quarter ended September 30, 2017. This goodwill did not have an associated deferred tax liability at the time it was created, therefore, no deferred tax benefit was realized upon the impairment of the goodwill. The effective income tax rates for the three and nine months ended SeptemberJune 30, 2017 are based upon a full year forecasted tax benefit on ~~loss.~~loss and a full year forecasted tax expense on income, respectively. The effective income tax rates differs from the statutory federal tax rate, primarily due to state taxes, stock-based compensation, nondeductible officers’ compensation and nondeductible lobbying expenses. In addition, ~~to the impact from the goodwill impairment,~~federal tax credits impacted the effective income tax rate for the three and six months ended ~~September~~June 30, 2017 includes discrete income tax benefits of $0.8 million for additional deductions and credits claimed on the filed 2016 federal and state income tax returns. The effective income tax rate for the nine months ended September 30, 2017 includes discrete income tax benefits of $1.8 million relating to the excess income tax benefit recognized with the vesting of stock awards and $0.8 million for additional deductions and credits claimed on the filed 2016 federal and state tax returns. These discrete tax benefits during the three and nine months ended September 30, 2017 resulted in a 0.2 percent and 0.9 percent increase to our effective income tax rates.2018. We anticipate the potential for increased periodic volatility in future effective ~~income~~ tax rates from the impact of stock-based compensation tax deductions as they are treated as discrete tax items.

The effective income tax rates for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2018 were ~~based upon a full year forecasted income tax~~22.0 percent and 22.3 percent benefit on loss, respectively, compared to 37.3 percent and ~~were greater than~~36.8 percent expense on income for the three and six months ended June 30, 2017, respectively. The federal corporate statutory ~~federal~~ income tax rate ~~primarily due~~decreased from 35 percent in 2017 to ~~state income taxes~~21 percent in 2018 resulting from the 2017 Tax Cuts and percentage depletion, partially offset by nondeductible officers’ compensation and nondeductible lobbying expenses. There were no significant discrete income tax items recorded during the three and nine months ended September 30, 2016.Jobs Act (the "2017 Tax Act").

As of ~~September~~June 30, ~~2017,~~2018, there is no liability for unrecognized income tax benefits. As of the date of this report, we are current with our income tax filings in all applicable state jurisdictions and are not currently under any state income tax examinations. We continue to voluntarily participate in the Internal Revenue Service's ("IRS") Compliance Assurance Program for the ~~2016~~2017 and ~~2017~~2018 tax ~~years, and~~years. We have received final acceptance of our ~~2015 federal income tax return and partial acceptance of the recently filed~~ 2016 federal income tax return ~~that~~from the IRS; however, this return is ~~now~~ going through the ~~IRS CAP post-filing~~Joint Tax Committee review ~~process.~~

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~

~~NOTE 12 - LONG-TERM DEBT~~

~~Long-term debt consisted of the following as of:~~

September 30, 2017 December 31, 2016
(in thousands)
Senior notes:
1.125% Convertible Notes due 2021:
Principal amount $ 200,000
$ 200,000
Unamortized discount (32,153 ) (37,475 )
Unamortized debt issuance costs (3,859 ) (4,584 )
1.125% Convertible Notes due 2021, net of unamortized discount and debt issuance costs 163,988
157,941

7.75% Senior Notes due 2022:
Principal amount 500,000
500,000
Unamortized debt issuance costs (5,602 ) (6,443 )
7.75% Senior Notes due 2022, net of unamortized debt issuance costs 494,398
493,557

6.125% Senior Notes due 2024:
Principal amount 400,000
400,000
Unamortized debt issuance costs (6,815 ) (7,544 )
6.125% Senior Notes due 2024, net of unamortized debt issuance costs 393,185
392,456

Total senior notes 1,051,571
1,043,954

Revolving credit facility —
—
Total long-term debt, net of unamortized discount and debt issuance costs $ 1,051,571
$ 1,043,954

~~Senior Notes~~

~~2021 Convertible Notes.~~ ~~In September 2016, we issued $200 million of 1.125% convertible notes~~process due 2021 (the "2021 Convertible Notes") in a public offering. The maturity for the payment of principal is September 15, 2021. Interest at the rate of 1.125% per year is payable in cash semiannually in arrears on each March 15 and September 15. The conversion stock price at maturity is $85.39 per share. We allocated the gross proceeds of the 2021 Convertible Notes between the liability and equity components of the debt. The initial $160.5 million liability component was determined based on the fair value of similar debt instruments, excluding the conversion feature, priced on the same day we issued the 2021 Convertible Notes. Approximately $4.8 million in costs associated with the issuance of the 2021 Convertible Notes have been capitalized as debt issuance costs. As of September 30, 2017, the unamortized debt discount will be amortized over the remaining contractual term to ~~maturity of the 2021 Convertible Notes using an effective interest rate of 5.8 percent.~~

Upon conversion, the 2021 Convertible Notes may be settled, at our sole election, in shares of our common stock, cash, or a combination of cash and shares of our common stock. We have initially elected a combination settlement method to satisfy our conversion obligation, which allows us to settle the principal amount of the 2021 Convertible Notes in cash and to settle the excess conversion value, if any, in shares of our common stock, as well as cash in lieu of fractional shares.

~~2022 Senior Notes.~~ In October 2012, we issued $500 million aggregate principal amount 7.75% senior notes due October 15, 2022 (the “2022 Senior Notes”). The 2022 Senior Notes accrue interest from the date of issuance and interest is payable semi-annually in arrears on April 15 and October 15. Approximately $11.0 million in costs associated with the issuance of the 2022 Senior Notes have been capitalized as debt issuance costs and are being amortized as interest expense over the life of the notes using the effective interest method.

~~2024 Senior Notes.~~ In September 2016, we issued $400 million aggregate principal amount of 6.125% senior notes due September 15, 2024 (the “2024 Senior Notes”) in a private placement to qualified institutional buyers. In May 2017, in accordance with the registration rights agreement that we entered into with the initial purchasers when we issued the 2024

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~

Senior Notes, we filed a registration statement with the SEC relating to an offer to exchange the 2024 Senior Notes for registered notes with substantially identical terms, and we completed the exchange offer in September 2017. The 2024 Senior Notes accrue interest from the date of issuance and interest is payable semi-annually in arrears on March 15 and September 15. Approximately $7.8 million in costs associated with the issuance of the 2024 Senior Notes have been capitalized as debt issuance costs and are being amortized as interest expense over the life of the notes using the effective interest method.

In January 2017, pursuant to the filing of supplemental indentures for the 2021 Convertible Notes, 2022 Senior Notes, and the 2024 Senior Notes (collectively, the "Notes"), our wholly-owned subsidiary, PDC Permian, Inc. became a guarantor of our obligations under the Notes. Accordingly, condensed consolidating financial information for PDC and PDC Permian, Inc. is presented in the footnote titled ~~Subsidiary Guarantor~~.

~~As of September 30, 2017, we were in compliance with all covenants related to the Notes, and expect to remain in compliance throughout the next 12-month period.~~

~~Revolving Credit Facility~~

~~Revolving Credit Facility.~~ The revolving credit facility is available for working capital requirements, capital investments, acquisitions, general corporate purposes and to support letters of credit. The revolving credit facility matures in May 2020 and provides for a maximum of $1.0 billion in allowable borrowing capacity, subject to the borrowing base and certain limitations under our senior notes. The borrowing base is based on, among other things, the loan value assigned to the proved reserves attributable to our crude oil and natural gas interests. The borrowing base is subject to a semi-annual redetermination on November 1 and May 1 based upon quantification of our reserves at June 30 and December 31, and is also subject to a redetermination upon the occurrence of certain events. The revolving credit facility is secured by a pledge of the stock of certain of our subsidiaries, mortgages of certain producing crude oil and natural gas properties and substantially all of our and such subsidiaries' other assets. Our affiliated partnerships are not guarantors of our obligations under the revolving credit facility.

In May 2017, we entered into a Fifth Amendment to the Third Amended and Restated Credit Agreement. The amendment, among other things, amended the revolving credit facility to reflect an increase in the borrowing base from $700 million to ~~$950 million. In addition, the Fifth Amendment made changes to certain of the financial and non-financial covenants in the existing agreement, as well as other administrative changes.~~

In October 2017, we entered into a Sixth Amendment to the Third Amended and Restated Credit Agreement. The amendment amends the revolving credit facility to allow the borrowing base to increase above the maximum allowable borrowing capacity of $1.0 billion. We have elected to increase the fall 2017 borrowing base to $1.1 billion and maintain a $700 million commitment level as of the date of this report. As of September 30, 2017, available funds under our revolving credit facility were $700 million based on our elected commitment level.

As of September 30, 2017 and December 31, 2016, debt issuance costs related to our revolving credit facility were $6.8 million and $8.8 million, respectively, and are included in other assets on the condensed consolidated balance sheets. We had no outstanding balance on our revolving credit facility as of September 30, 2017 or December 31, 2016. The outstanding principal amount under the revolving credit facility accrues interest at a varying interest rate that fluctuates with an alternate base rate (equal to the greatest of JPMorgan Chase Bank, N.A.'s prime rate, the federal funds rate plus a premium and the rate for dollar deposits in the London interbank market (“LIBOR”) for one month plus a premium), or at our election, a rate equal to LIBOR for certain time periods. Additionally, commitment fees, interest margin, and other bank fees, charged as a component of interest, vary with our utilization of the facility. As of September 30, 2017, the applicable interest margin is 1.25 percent for the alternate base rate option or 2.25 percent for the LIBOR option, and the unused commitment fee is 0.5 percent. No principal payments are generally required until the revolving credit facility expires in May 2020, or in the event that the borrowing base falls below the outstanding balance.

The revolving credit facility contains covenants customary for agreements of this type, with the most restrictive being certain financial tests on a quarterly basis. The financial tests, as defined per the revolving credit facility, include requirements to: (a) maintain a minimum current ratio of 1.0:1.0 and (b) not exceed a maximum leverage ratio of 4.0:1.0. As of September 30, 2017, we were in compliance with all the revolving credit facility covenants and expect to remain in compliance throughout the next 12-month period. As defined by the revolving credit facility, our leverage ratio was 1.8 and our current ratio was 2.9 as of September 30, 2017.

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~

~~NOTE 13 - OTHER ACCRUED EXPENSES~~

~~Other Accrued Expenses.~~ ~~The following table presents the components of other accrued expenses as of:~~

September 30, 2017 December 31, 2016
(in thousands)

Employee benefits $ 14,401
$ 22,282
Asset retirement obligations 13,128
9,775
Other 5,922
6,568
Other accrued expenses $ 33,451
$ 38,625

tax refunds requested.

~~NOTE 14 - CAPITAL LEASES~~

We periodically enter into non-cancelable lease agreements for vehicles utilized by our operations and field personnel. These leases are being accounted for as capital leases, as the present value of minimum monthly lease payments, including the residual value guarantee, exceeds 90 percent of the fair value of the leased vehicles at inception of the lease.

~~The following table presents vehicles under capital lease as of:~~

September 30, 2017 December 31, 2016
(in thousands)
Vehicles $ 6,301
$ 2,975
Accumulated depreciation (1,435 ) (776 )
$ 4,866
$ 2,199

~~Future minimum lease payments by year and in the aggregate, under non-cancelable capital leases with terms of one year or more, consist of the following:~~

For the Twelve Months Ending September 30, Amount
(in thousands)
2018 $ 2,207
2019 1,617
2020 1,758
5,582
Less executory cost (258 )
Less amount representing interest (615 )
Present value of minimum lease payments $ 4,709

Short-term capital lease obligations $ 1,768
Long-term capital lease obligations 2,941
$ 4,709

Short-term capital lease obligations are included in other accrued expenses on the condensed consolidated balance sheets and long-term capital lease obligations are included in other liabilities on the condensed consolidated balance sheets.

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~

NOTE 1512 - ASSET RETIREMENT OBLIGATIONS

The following table presents the changes in carrying amounts of the asset retirement obligations associated with our working interests in crude oil and natural gas properties:

Amount
(in thousands)

Balance at December 31, 2016 $ 92,387
Obligations incurred with development activities 3,296
Accretion expense 4,906
Revisions in estimated cash flows 155
Obligations discharged with asset retirements (8,929 )
Balance at September 30, 2017 91,815
Less liabilities held for sale (499 )
Less current portion (13,128 )
Long-term portion $ 78,188



	Amount
	(in thousands)

Balance at December 31, 2017	$	87,306
Obligations incurred with development activities	1,517
Obligations incurred with acquisition	4,687
Accretion expense	2,573
Revisions in estimated cash flows	42
Obligations discharged with asset retirements and divestiture	(6,617		)
Balance at June 30, 2018	89,508
Current portion	(15,959		)
Long-term portion	$	73,549

Our estimated asset retirement obligations liability is based on historical experience in plugging and abandoning wells, estimated economic lives and estimated plugging and abandonment costs considering federal and state regulatory requirements in effect. The liability is discounted using the credit-adjusted risk-free rate estimated at the time the liability is incurred or revised. ~~As of September 30, 2017,~~To the ~~credit-adjusted risk-free rates used~~extent future revisions to ~~discount our plugging and abandonment liabilities ranged from 6.5 percent to 8.2 percent. In periods subsequent to initial measurement~~these assumptions impact the present value of the existing asset retirement obligations liability, ~~we must recognize period-to-period changes~~a corresponding adjustment is made to the properties and equipment balance. Changes in the liability ~~resulting from~~due to the passage of time ~~revisions to either~~are recognized as an increase in the carrying amount of the ~~original estimate of undiscounted cash flows or changes in inflation factors,~~liability and ~~changes to our credit-adjusted risk-free rate~~ as ~~market conditions warrant.~~corresponding accretion expense. Short-term asset retirement obligations are included in other accrued expenses on the condensed consolidated balance sheets.

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

NOTE 1613 - COMMITMENTS AND CONTINGENCIES

Firm Transportation and Processing Agreements. We enter into contracts that provide firm transportation and processing on pipeline systems through which we transport or sell crude oil and natural gas. Satisfaction of the volume requirements includes volumes produced by us, purchased from third parties and produced by our affiliated partnerships and other third-party working, royalty and overriding royalty interest owners whose volumes we market on their behalf. Our condensed consolidated statements of operations reflect our share of these firm transportation and processing costs. These contracts require us to pay these transportation and processing charges whether or not the required volumes are delivered.

The following table presents gross volume information related to our long-term firm transportation and processing agreements for pipeline capacity:

For the Twelve Months Ending September 30,
Area 2018 2019 2020 2021 2022 and
Through
Expiration Total Expiration
Date

Natural gas (MMcf)
Wattenberg Field —
16,760
30,850
31,025
131,287
209,922
March 31, 2026
Delaware Basin 14,600
14,600
14,640
3,680
—
47,520
December 31, 2020
Gas Marketing 7,117
7,117
7,136
7,117
6,227
34,714
August 31, 2022
Utica Shale 2,738
2,738
2,745
2,738
5,016
15,975
July 22, 2023
Total 24,455
41,215
55,371
44,560
142,530
308,131

Crude oil (MBbls)
Wattenberg Field 2,413
2,413
1,812
—
—
6,638
June 30, 2020

Dollar commitment (in thousands) $ 18,410
$ 35,170
$ 44,949
$ 33,776
$ 129,546
$ 261,851

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~



	For the Twelve Months Ending June 30,
Area	2019		2020		2021		2022		2023 and Through Expiration		Total		Expiration Date

Natural gas (MMcf)
Wattenberg Field	13,124		29,820		31,025		31,025		106,537		211,531		April 30, 2026
Delaware Basin	41,637		21,960		7,360		—		—		70,957		December 31, 2020
Gas Marketing	7,117		7,136		7,117		6,875		1,147		29,392		August 31, 2022
Total	61,878		58,916		45,502		37,900		107,684		311,880

Crude oil (MBbls)
Wattenberg Field	4,238		4,860		5,475		5,475		4,560		24,608		April 30, 2023
Delaware Basin	5,822		8,740		8,398		8,030		12,078		43,068		December 31, 2023
Total	10,060		13,600		13,873		13,505		16,638		67,676

Dollar commitment (in thousands)	$	80,377	$	92,045	$	71,309	$	70,248	$	150,493	$	464,472

Wattenberg Field.In anticipation of our future drilling activities in the Wattenberg Field, we have entered into two facilities expansion agreements with our primary midstream provider to expand and improve its natural gas gathering pipelines and processing facilities. The midstream provider ~~is expected to construct~~completed and turned on line the first of the two ~~new~~ 200 MMcfd cryogenic ~~plants.~~plants in August 2018. The second plant is currently scheduled to be completed in the second quarter of 2019. We ~~will be~~are bound to the volume requirements in these agreements on the first day of the calendar month ~~after~~following the actual in-service date of the ~~plants, which in the above table is scheduled to be in the fourth quarter of 2018 for the first plant and April 2019 for the second~~relevant plant. ~~We are currently working with this midstream provider to identify opportunities to accelerate the completion of the first of these processing facilities.~~ Both agreements require baseline volume commitments, consisting of our gross wellhead volume delivered in November 2016 to this midstream provider, and incremental wellhead volume commitments of 51.5 MMcfd and 33.5 MMcfd for the first and second agreements, respectively, for seven years. We may be required to pay shortfall fees for any volumes under the 51.5 MMcfd and 33.5 MMcfd incremental commitments. Any shortfall ofin these volume commitments may be offset by ~~additional third party~~other producers’ volumes sold to the midstream provider that are greater than a certain total baseline volume. We are also required for the first three years of the contracts to guarantee a certain target profit margin to the midstream provider on these incremental volumes. We currently expect that our future development plans will ~~support~~meet both the ~~utilization of~~baseline and incremental volumes and we believe that the ~~incremental commitments.~~contractual target profit margin will be achieved with minimal payment from us, if any.

In April ~~2017,~~2018, we entered into two five-year firm transportation agreements, effective May 1, 2018, with a ~~transportation service agreement for delivery~~third-party crude oil pipeline company to transport 15,000 barrels of ~~40,000 dekatherms~~crude oil per day offrom our ~~Delaware Basin natural gas production~~Wattenberg Field via pipeline to ~~the Waha market hub in West Texas.~~ Cushing, Oklahoma, and other area refineries.

Delaware Basin. In May 2018, we entered into two firm sales agreements that is effective from June 1, 2018 through December 31, 2023 for an initial 11,400 barrels of crude oil per day and incrementally increasing to 26,400 barrels of crude oil per day with an integrated marketing company for our crude oil production in the Delaware Basin. These agreements are expected to provide price diversification through realization of export market pricing via a Corpus Christi terminal and exposure to Brent-weighted prices.

Commodity Sales. For ~~each of~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, commitments for long-term transportation volumes, net to our interest, for Wattenberg Field crude oil and Delaware Basin ~~natural gas, and Utica Shale~~ natural gas were $2.6 million and ~~$7.4~~ $5.2

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

million, respectively, and in accordance with the guidance in the New Revenue Standard, were ~~recorded in transportation, gathering,~~netted against our crude oil and ~~processing expenses~~natural gas sales in our condensed consolidated statements of operations. For ~~each of~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, commitments for long-term transportation volumes for Wattenberg Field crude oil and Utica Shale natural gas were $2.6 million and ~~$7.2~~$4.8 million, ~~respectively.~~respectively, and were recorded in transportation, gathering and processing expense in our condensed consolidated statements of operations. The commitments for the three and six months ended June 30, 2017 would have been netted against our crude oil and natural gas sales in accordance with the New Revenue Standard.

Litigation and Legal Items. ~~The Company is~~We are involved in various legal proceedings. ~~The Company reviews~~We review the status of these proceedings on an ongoing basis and, from time to time, may settle or otherwise resolve these matters on terms and conditions that management believes are in ~~the~~our best ~~interests of the Company. Management has~~interests. We have provided the necessary estimated accruals in the accompanying balance sheets where deemed appropriate for litigation and legal related items that are ongoing and not yet concluded. ~~However, the liability ultimately incurred with respect to a matter may exceed the related accrual.~~ Although the results cannot be known with certainty, we currently believe that the ultimate results of such proceedings will not have a material adverse effect on our financial position, results of operations or liquidity.

Action Regarding Partnerships. In December 2017, we received an action entitled Dufresne, et al. v. PDC Energy, et al., filed in the United States District Court for the District of Colorado. The complaint states that it is a derivative action brought by a number of limited partner investors seeking to assert claims on behalf of our two affiliated partnerships, Rockies Region 2006 LP and Rockies Region 2007 LP, against PDC and includes claims for breach of fiduciary duty and breach of contract. The plaintiffs also included claims against two of our senior officers for alleged breach of fiduciary duty. The lawsuit accuses PDC, as the managing general partner of the two partnerships, of, among other things, failing to maximize the productivity of the partnerships’ crude oil and natural gas wells. We filed a motion to dismiss the lawsuit on February 1, 2018, on the grounds that the complaint is deficient, including because the plaintiffs failed to allege that PDC refused a demand to take action on their claims. On March 14, 2018, the motion was denied as moot by the court because the plaintiffs requested leave to amend their complaint. In late April 2018, the plaintiffs filed an amendment to their complaint. Such amendment primarily alleges additional facts to support the plaintiffs’ claims and purports to add direct class action claims in addition to the original derivative claims. The amendment also adds three new individual defendants, all of whom are currently independent members of our Board of Directors. We moved to dismiss the claims against the individuals named as defendants and in response, the plaintiffs filed a second amended complaint on July 10, 2018. We filed a motion to dismiss this second amended complaint and the claims against the individuals named as defendants on July 31, 2018. We are currently unable to estimate any potential damages resulting from this lawsuit.

Environmental.Due to the nature of the natural gas and oil industry, we are exposed to environmental risks. We have various policies and procedures to minimize and mitigate the risks from environmental contamination. We conduct periodic reviews and simulated drills to identify changes in our environmental risk profile. Liabilities are recorded when environmental damages resulting from past events are probable and the costs can be reasonably estimated. Except as discussed herein, we are not aware of any material environmental claims existing as of ~~September~~June 30, ~~2017~~2018 which have not been provided for or would otherwise have a material impact on our financial statements; however, there can be no assurance that current regulatory requirements will not change or that unknown potential past non-compliance with environmental laws or other environmental liabilities will not be discovered on our properties. ~~However, the liability ultimately incurred with respect to a matter may exceed the related accrual.~~ Accrued environmental liabilities are recorded in other accrued expenses on the condensed consolidated balance sheets. The liability ultimately incurred with respect to a matter may exceed the related accrual.

Clean Air Act ~~Tentative~~ Agreement and Related Consent Decree.In August 2015, we received a Clean Air Act Section 114 Information Request (the "Information Request") from the U.S. Environmental Protection Agency ("EPA"). The Information Request sought, among other things, information related to the design, operation and maintenance of our Wattenberg Field production facilities in the Denver-Julesburg Basin of Colorado ("DJ Basin"). The Information Request focused on historical operation and design information for 46 of our production facilities and requested sampling and analyses at the identified 46 facilities. We responded to the Information Request with the requested data in January 2016.

In addition, in December 2015, we received a Compliance Advisory pursuant to C.R.S. 25-7-115(2) from the Colorado Department of Public Health and Environment's (“CDPHE”) Air Quality Control Commission's Air Pollution Control Division alleging that we failed to design, operate and maintain certain condensate collection, storage, processing and handling

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~

operations to minimize leakage of volatile organic compounds at 65 facilities consistent with applicable standards under Colorado law.

~~For more than a year, we held a series~~

Table of ~~meetings with~~contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

In June 2017, the ~~EPA,~~U.S. Department of Justice, ~~(“DOJ”) and CDPHE on the above matters. On June 26, 2017, the DOJ~~ on behalf of the EPA and the ~~State~~state of Colorado, filed a complaint against us ~~based on~~in the ~~above matters. We continued~~U.S. District Court for the District of Colorado, claiming that we failed to ~~conduct meetings~~operate and maintain certain condensate collection facilities at 65 facilities so as to minimize leakage of volatile organic compounds in compliance with ~~these agencies in working toward~~applicable law. In October 2017, we entered into a resolution of the matters. On September 28, 2017, the parties jointly filed for an extension of time for PDC to reply to the complaint. The extension was requested because the parties reached an agreementconsent decree to resolve the ~~case subject~~lawsuit and the above referenced Compliance Advisory. Pursuant to ~~final approval by~~ the ~~appropriate persons within the federal government and state government, as well as outcome of the period of public comment on the proposed decree.~~

A consent decree, ~~was signed by all parties on October 31, 2017~~we agreed to implement a variety of operational enhancements and ~~is subject to a 30-day comment period in which it will be publicly published in the Federal Register. The consent decree provides that we will implement changes to our design, operation,~~mitigation and ~~maintenance of most of our field-wide storage tank systems to enhance our emission management in the DJ Basin. Agreed upon and planned efforts include, but are not limited to,~~similar projects, including vapor control system modifications and verification, increased inspection and monitoring and installation of tank pressure monitors. ~~We voluntarily included in the consent decree approximately 40 additional facilities associated with our pending acquisition of additional assets in the basin.~~ The three primary elements of the consent decree are: (i) fine/supplemental environmental projects ($1.5 million cash fine, plus $1 million in supplemental environmental projects); of which the cash fines were paid in the first quarter of 2018 and the environmental projects have been accrued in other accrued expenses on our consolidated balance sheet as of June 30, 2018, (ii) injunctive relief with an estimated cost of approximately $18 million, primarily representing capital enhancements to our ~~operations;~~operations and (iii) mitigation with an estimated cost of $1.7 million. ~~Certain expenditures for the injunctive relief are believed~~We continue to ~~have been incurred in 2016 and 2017,~~incur costs associated with these activities. If we fail to comply fully with the ~~remainder expected~~requirements of the consent decree with respect to those matters, we could be ~~incurred over~~subject to additional liability. In addition, we could be the ~~next few years.~~subject of other enforcement actions by regulatory authorities in the future relating to our past, present or future operations. We do not believe that the expenditures resulting from the settlement will have a material adverse effect on our consolidated financial statements. ~~Although we believe~~

We are in the process of implementing a program to comply with the consent ~~decree~~decree. In July 2018, we identified certain immaterial deficiencies in our implementation of the program. We have reported these immaterial deficiencies to the appropriate authorities and are in the process of remediating them. We do not believe that any sanctions associated with these deficiencies will ~~be approved by the court following the comment period, this cannot be guaranteed.~~ have a material effect on our financial condition or results of operations, but they may exceed $100,000.

NOTE 1714 - COMMON STOCK

~~Sale of Equity Securities~~Stock-Based Compensation Plans

~~During December 2016, we issued 9.4 million~~2018 Equity Incentive Plan. In May 2018, our stockholders approved a long-term equity compensation plan for our employees and non-employee directors (the “2018 Plan”). The 2018 Plan provides for a reserve of 1,800,000 shares of our common stock ~~as partial consideration for 100 percent~~that may be issued pursuant to awards under the 2018 Plan and a term that expires in March 2028. Shares issued may be either authorized but unissued shares, treasury shares or any combination. Additionally, the 2018 Plan permits the reuse or reissuance of shares of common stock which were canceled, expired, forfeited, or paid out in the form of cash. Shares tendered or withheld to satisfy the exercise price of options or tax withholding obligations, and shares covering the portion of exercised stock-settled stock appreciation rights ("SARs") (regardless of the ~~common~~number of shares actually delivered), count against the share limit. Awards may be issued in the form of options, SARs, restricted stock, restricted stock units ("RSUs"), performance stock units ("PSUs") and other stock-based awards. Awards may vest over periods set at the discretion of ~~Arris Petroleum and for~~ the acquisition of certain Delaware Basin properties. Pursuant to the terms of previously disclosed lock-up agreements, the resale of these shares was restricted. The lock-up period ended on June 4, 2017. We have registered the 9.4 million sharesCompensation Committee of our ~~common stock~~Board of Directors (the "Compensation Committee") with certain minimum vesting periods. With regard to SARs, awards have a maximum exercisable period of ten years.

2010 Long-Term Equity Compensation Plan. Our Amended and Restated 2010 Long-Term Equity Compensation Plan, which was most recently approved by stockholders in 2013 (as the same has been amended and restated from time to time, the "2010 Plan"), will remain outstanding and we may use the 2010 Plan to grant awards. However, the share reserve of the 2010 Plan is nearly depleted. As of June 30, 2018, there were 256,059 shares available for ~~resale~~grant under the ~~Securities Act~~2010 Plan.

Table of ~~1933.~~contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

~~Stock-Based Compensation Plans~~

The following table provides a summary of the impact of our outstanding stock-based compensation plans on the results of operations for the periods presented:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
	(in thousands)												(in thousands)

Stock-based compensation expense	$	4,761		$	4,079		$	14,587		$	15,205		$	5,518		$	5,372		$	10,779		$	9,826
Income tax benefit	(1,781		)	(1,552		)	(5,457		)	(5,786		)	(1,323		)	(2,010		)	(2,584		)	(3,676		)
Net stock-based compensation expense	$	2,980		$	2,527		$	9,130		$	9,419		$	4,195		$	3,362		$	8,195		$	6,150

Stock Appreciation Rights

The ~~stock appreciation right ("SARs")~~SARs vest ratably over a three-year period and may be exercised at any point after vesting through ten years from the date of issuance. Pursuant to the terms of the awards, upon exercise, the executive officers will receive, in shares of common stock, the excess of the market price of the award on the date of exercise over the market price of the award on the date of issuance.

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~

~~The Compensation Committee of our Board of Directors~~ No SARs were awarded ~~SARs to our executive officers~~or expired during the ~~nine~~three and six months ended ~~September~~June 30, ~~2017 and 2016. The fair value of each SAR award was estimated on the date of grant using a Black-Scholes pricing model using the following assumptions:~~

Nine Months Ended September 30,
2017 2016

Expected term of award (in years) 6
6
Risk-free interest rate 2.0 % 1.8 %
Expected volatility 53.3 % 54.5 %
Weighted-average grant date fair value per share $ 38.58
$ 26.96

The expected term of the award was estimated using historical stock option exercise behavior data. The risk-free interest rate was based on the U.S. Treasury yields approximating the expected life of the award in effect at the time of grant. Expected volatilities were based on our historical volatility. We do not expect to pay or declare dividends in the foreseeable future.2018.

~~The following table presents the changes in our SARs for the nine months ended September 30, 2017:~~

Number of
SARs Weighted-Average
Exercise
Price Average Remaining Contractual
Term (in years)
Aggregate Intrinsic
Value (in thousands)
Outstanding at December 31, 2016 244,078
$ 41.36
6.9
$ 7,620
Awarded 54,142
74.57
—
—
Outstanding at September 30, 2017 298,220
47.39
6.7
2,043
Exercisable at September 30, 2017 186,248
39.38
5.6
1,867

Total compensation cost related to non-vested SARs granted and not yet recognized in our condensed consolidated statement of operations as of ~~September~~June 30, ~~2017~~2018 was ~~$2.3~~$1.2 million. The cost is expected to be recognized over a weighted-average period of~~1.9~~ 1.3 years.

Restricted Stock Awards

Time-Based Awards. The fair value of the time-based ~~restricted shares~~RSUs is amortized ratably over the requisite service period, primarily three years. The time-based shares generally vest ratably on each anniversary following the grant date provided that a participant is continuously employed.

The following table presents the changes in non-vested time-based ~~awards~~RSUs to all employees, including executive officers, for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2018:

Shares Weighted-Average
Grant Date
Fair Value per Share

Non-vested at December 31, 2016 479,642
$ 56.09
Granted 260,019
66.00
Vested (206,242 ) 56.44
Forfeited (7,990 ) 64.32
Non-vested at September 30, 2017 525,429
60.73

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~



	Shares		Weighted-Average Grant Date Fair Value per Share

Non-vested at December 31, 2017	472,132		$	60.23
Granted	373,788		49.73
Vested	(208,060	)	58.49
Forfeited	(26,878	)	58.12
Non-vested at June 30, 2018	610,982		54.49

The following table presents the weighted-average grant date fair value per share and related information as of/for the periods presented:


	As of/Nine Months Ended September 30,				Six Months Ended June 30,
	2017		2016		2018		2017
	(in thousands, except per share data)				(in thousands, except per share data)

Total intrinsic value of time-based awards vested	$	13,266	$	14,675	$	10,482	$	13,103
Total intrinsic value of time-based awards non-vested	25,762		35,079		36,934		22,454
Market price per common share as of September 30,	49.03		67.06
Market price per share as of June 30,					60.45		43.11
Weighted-average grant date fair value per share	66.00		57.12		49.73		67.02

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

Total compensation cost related to non-vested time-based awards and not yet recognized in our condensed consolidated statements of operations as of ~~September~~June 30, ~~2017~~2018 was ~~$22.0~~$26.8 million. This cost is expected to be recognized over a weighted-average period of ~~1.9~~2.1 years.

Market-Based Awards. The fair value of the market-based ~~restricted shares~~PSUs is amortized ratably over the requisite service period, primarily three years. The market-based shares vest if the participant is continuously employed throughout the performance period and the market-based performance measure is achieved, with a maximum vesting period of three years. All compensation cost related to the market-based awards will be recognized if the requisite service period is fulfilled, even if the market condition is not achieved.

The Compensation Committee ~~of our Board of Directors~~ awarded a total of ~~28,069~~90,778 market-based~~restricted shares~~ PSUs to our executive officers during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. In addition to continuous employment, the vesting of these shares is contingent on our total stockholder return ("TSR"), which is essentially our stock price change including any dividends as compared to the TSR of a group of peer companies. The shares are measured over a three-year period ending on December 31, ~~2019,~~2020, and can result in a payout between 0 percent and 200 percent of the ~~total shares~~target PSUs awarded. The weighted-average grant date fair value per ~~market-based share for these awards~~PSU granted was computed using the Monte Carlo pricing model using the following assumptions:


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017

Expected term of award (in years)	3			3			3			3
Risk-free interest rate	1.4		%	1.2		%	2.4		%	1.4		%
Expected volatility	51.4		%	52.3		%	42.3		%	51.4		%
Weighted-average grant date fair value per share	$	94.02		$	72.54		$	69.98		$	94.02

The expected term of the awards was based on the requisite service period. The risk-free interest rate was based on the U.S. Treasury yields in effect at the time of grant and extrapolated to approximate the life of the award. The expected volatility was based on our historical volatility.

The following table presents the change in non-vested market-based awards during the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2018:

Shares
Weighted-Average
Grant Date
Fair Value per Share

Non-vested at December 31, 2016
48,420
$ 64.97
Granted
28,069
94.02
Non-vested at September 30, 2017
76,489
75.63

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~



	Shares		Weighted-Average Grant Date Fair Value per Share

Non-vested at December 31, 2017	52,349		$	84.06
Granted	90,778		69.98
Forfeited	(4,128	)	94.02
Non-vested at June 30, 2018	138,999		74.57

The following table presents the weighted-average grant date fair value per share and related information as of/for the periods presented:


	As of /Nine Months Ended September 30,				Six Months Ended June 30,
	2017		2016		2018		2017
	(in thousands, except per share data)				(in thousands, except per share data)

Total intrinsic value of market-based awards vested	$	—	$	1,174
Total intrinsic value of market-based awards non-vested	3,750		5,670		$	8,402	$	3,297
Market price per common share as of September 30,	49.03		67.06
Market price per common share as of June 30,					60.45		43.11
Weighted-average grant date fair value per share	94.02		72.54		69.98		94.02

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

Total compensation cost related to non-vested market-based awards not yet recognized in our condensed consolidated statements of operations as of ~~September~~June 30, ~~2017~~2018 was ~~$2.9~~$7.0 million. This cost is expected to be recognized over a weighted-average period of ~~1.9~~2.3 years.

~~Treasury Share Purchases~~

In June 2010, our stockholders approved a long-term equity compensation plan for our employees and non-employee directors (the "2010 Plan"). In accordance with the 2010 Plan, as amended in June 2013, up to 3,000,000 new shares of our common stock are authorized for issuance. Shares granted may be either authorized but unissued shares, treasury shares, or any combination of these shares. Additionally, the 2010 Plan permits the reuse or reissuance of shares of common stock which were canceled, expired, forfeited or, in the case of SARs, paid out in the form of cash. In accordance with our stock-based compensation plans, employees and directors may surrender shares of our common stock to pay tax withholding obligations upon the vesting and exercise of share-based awards. Shares acquired that had been issued pursuant to the 2010 Plan are reissued for new grants. For shares reissued for new grants under the 2010 Plan, shares are recorded at cost and upon reissuance we reduce the carrying value of shares acquired and held pursuant to the 2010 Plan by the weighted-average cost per share with an offsetting charge to additional paid-in capital. As of December 31, 2016, we had 10,397 shares remaining available for reissuance pursuant to our 2010 plan. Additionally, as of December 31, 2016, we had 18,366 of shares of treasury stock related to a rabbi trust. During the nine months ended September 30, 2017, we acquired 80,572 shares pursuant to our stock-based compensation plans for payment of tax liabilities, of which 49,446 shares were reissued and 41,523 shares are available for reissuance pursuant to the 2010 Plan.

Preferred Stock

We are authorized to issue 50,000,000 shares of preferred stock, par value $0.01 per share, which may be issued in one or more series, with such rights, preferences, privileges and restrictions as shall be fixed by our Board of Directors from time to time. Through ~~September~~June 30, ~~2017,~~2018, no preferred shares have been issued.

NOTE 1815 - EARNINGS PER SHARE

Basic earnings per share is computed by dividing net earnings by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is similarly computed, except that the denominator includes the effect, using the treasury stock method, of unvested restricted stock, outstanding SARs, stock options, convertible notes and shares held pursuant to our non-employee director deferred compensation plan, if including such potential shares of common stock is dilutive.

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~

The following table presents a reconciliation of the weighted-average diluted shares outstanding:


	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended June 30,		Six Months Ended June 30,
	2017	2016	2017	2016	2018	2017	2018	2017
	(in thousands)				(in thousands)

Weighted-average common shares outstanding - basic	65,865	48,839	65,825	45,741	66,066	65,859	66,012	65,804
Dilutive effect of:
Restricted stock					—	94	—	176
Other equity-based awards					—	66	—	86
Weighted-average common shares and equivalents outstanding - diluted	65,865	48,839	65,825	45,741	66,066	66,019	66,012	66,066

We reported a net loss for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016.~~2018. As a result, our basic and diluted weighted-average common shares outstanding were the same for ~~each~~that period because the effect of the common share equivalents was anti-dilutive.

The following table presents the weighted-average common share equivalents excluded from the calculation of diluted earnings per share due to their anti-dilutive effect:


	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended June 30,		Six Months Ended June 30,
	2017	2016	2017	2016	2018	2017	2018	2017
	(in thousands)				(in thousands)

Weighted-average common share equivalents excluded from diluted earnings per share due to their anti-dilutive effect:
Restricted stock	588	660	585	705	624	376	558	119
Convertible notes	—	—	—	345
Other equity-based awards	48	97	82	103	272	1	225	10
Total anti-dilutive common share equivalents	636	757	667	1,153	896	377	783	129

In September 2016, we issued the 2021 Convertible Notes, which give the holders, at our election, the right to convert the aggregate principal amount into 2.3 million shares of our common stock at a conversion price of $85.39 per share. The 2021 Convertible Notes could be included in the diluted earnings per share calculation using the treasury stock method if the average market share price exceeds the $85.39 conversion price during the periods presented. During the three and ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, the average market price of our common stock did not exceed the conversion price; therefore, shares issuable upon conversion of the 2021 Convertible Notes were not included in the diluted earnings per share calculation.

~~In November 2010, we issued $115.0 million aggregate principal amount~~

Table of 3.25% convertible senior notes that were due in 2016 ("2016 Convertible Notes"), which gave the holders the right to convert the aggregate principal amount into 2.7 million shares of our common stock at a conversion price of $42.40 per share. The 2016 Convertible Notes matured in May 2016. Prior to maturity, the 2016 Convertible Notes were included in the diluted earnings per share calculation using the treasury stock method when the average market share price exceeded the $42.40 conversion price during the periods presented.contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)

NOTE 1916 - SUBSIDIARY GUARANTOR

~~Our subsidiary~~ PDC Permian, Inc., our wholly-owned subsidiary, guarantees our obligations under our publicly-registered ~~Notes.~~senior notes. The following presents the condensed consolidating financial information separately for:



(i)	PDC Energy, Inc. ("Parent"), the issuer of the guaranteed obligations, including non-material subsidiaries;
(ii)	PDC Permian, Inc., the guarantor subsidiary ("Guarantor"), as specified in the indentures related to our ~~Notes;~~senior notes;
(iii)	Eliminations representing adjustments to (a) eliminate intercompany transactions between or among Parent, Guarantor and our other subsidiaries and (b) eliminate the investments in our subsidiaries; and
(iv)	Parent and subsidiaries on a consolidated basis ("Consolidated").

The Guarantor is ~~100%~~100 percent owned by the ~~Parent beginning in December 2016.~~Parent. The ~~Notes~~senior notes are fully and unconditionally guaranteed on a joint and several basis by the Guarantor. The guarantee is subject to release in limited circumstances only upon

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2017~~

~~(unaudited)~~

the occurrence of certain customary conditions. Each entity in the condensed consolidating financial information follows the same accounting policies as described in the notes to the condensed consolidated financial statements.

The following condensed consolidating financial statements have been prepared on the same basis of accounting as our condensed consolidated financial statements. Investments in subsidiaries are accounted for under the equity method. Accordingly, the entries necessary to consolidate the Parent and Guarantor are reflected in the eliminations column.

Condensed Consolidating Balance Sheets
September 30, 2017
Parent Guarantor Eliminations Consolidated
(in thousands)
Assets
Current assets $ 299,239
$ 35,463
$ —
$ 334,702
Properties and equipment, net 1,911,759
1,970,941
—
3,882,700
Intercompany receivable 199,871
—
(199,871 ) —
Investment in subsidiaries 1,467,623
—
(1,467,623 ) —
Noncurrent assets 89,245
640
—
89,885
Total Assets $ 3,967,737
$ 2,007,044
$ (1,667,494 ) $ 4,307,287

Liabilities and Stockholders' Equity
Current liabilities $ 310,997
$ 62,791
$ —
$ 373,788
Intercompany payable —
199,871
(199,871 ) —
Long-term debt 1,051,571
—
—
1,051,571
Other noncurrent liabilities 178,567
276,759
—
455,326
Stockholders' equity 2,426,602
1,467,623
(1,467,623 ) 2,426,602
Total Liabilities and Stockholders' Equity $ 3,967,737
$ 2,007,044
$ (1,667,494 ) $ 4,307,287

Condensed Consolidating Balance Sheets
December 31, 2016
Parent Guarantor Eliminations Consolidated
(in thousands)
Assets
Current assets $ 387,309
$ 12,516
$ —
$ 399,825
Properties and equipment, net 1,884,147
2,118,847
—
4,002,994
Intercompany receivable 9,415
—
(9,415 ) —
Investment in subsidiaries 1,765,092
—
(1,765,092 ) —
Goodwill —
62,041
—
62,041
Noncurrent assets 20,811
171
—
20,982
Total Assets $ 4,066,774
$ 2,193,575
$ (1,774,507 ) $ 4,485,842

Liabilities and Stockholders' Equity
Current liabilities $ 235,121
$ 35,457
$ —
$ 270,578
Intercompany payable —
9,415
(9,415 ) —
Long-term debt 1,043,954
—
—
1,043,954
Other noncurrent liabilities 164,945
383,611
—
548,556
Stockholders' equity 2,622,754
1,765,092
(1,765,092 ) 2,622,754
Total Liabilities and Stockholders' Equity $ 4,066,774
$ 2,193,575
$ (1,774,507 ) $ 4,485,842

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2017~~2018

(unaudited)

Condensed Consolidating Statements of Operations
Three Months Ended September 30, 2017
Parent Guarantor Eliminations Consolidated
(in thousands)

Operating and other revenues $ 150,015
$ 33,220
$ —
$ 183,235
Production and other operating expenses 41,891
13,129
—
55,020
General and administrative 26,207
3,092
—
29,299
Exploration, geologic, and geophysical expense 217
41,691
—
41,908
Depreciation depletion and amortization 106,623
18,615
—
125,238
Impairment of properties and equipment 1,148
251,592
—
252,740
Impairment of goodwill —
75,121
—
75,121
Interest (expense) income (19,168 ) 372
—
(18,796 )
Loss before income taxes (45,239 ) (369,648 ) —
(414,887 )
Income tax benefit 30,274
92,076
—
122,350
Equity in loss of subsidiary (277,572 ) —
277,572
—
Net loss $ (292,537 ) $ (277,572 ) $ 277,572
$ (292,537 )



	Condensed Consolidating Balance Sheets
	June 30, 2018
	Parent			Guarantor			Eliminations			Consolidated
	(in thousands)

Current assets:
Cash and cash equivalents	$	1,425		$	—		$	—		$	1,425
Accounts receivable, net	149,120			46,197			—			195,317
Fair value of derivatives	14,817			—			—			14,817
Prepaid expenses and other current assets	5,379			1,365			—			6,744
Total current assets	170,741			47,562			—			218,303
Properties and equipment, net	2,191,985			2,000,623			—			4,192,608
Intercompany receivable	352,436			—			(352,436		)	—
Investment in subsidiaries	1,493,829			—			(1,493,829		)	—
Other assets	27,069			4,174			—			31,243
Total Assets	$	4,236,060		$	2,052,359		$	(1,846,265	)	$	4,442,154

Liabilities and Stockholders' Equity
Liabilities
Current liabilities:
Accounts payable	$	135,677		$	79,473		$	—		$	215,150
Production tax liability	52,768			3,998			—			56,766
Fair value of derivatives	186,605			—			—			186,605
Funds held for distribution	80,439			21,915			—			102,354
Accrued interest payable	12,556			5			—			12,561
Other accrued expenses	35,143			745			—			35,888
Total current liabilities	503,188			106,136			—			609,324
Intercompany payable	—			352,436			(352,436		)	—
Long-term debt	1,179,117			—			—			1,179,117
Deferred income taxes	48,740			93,071			—			141,811
Asset retirement obligations	67,142			6,407			—			73,549
Fair value of derivatives	36,430			—			—			36,430
Other liabilities	61,137			480			—			61,617
Total liabilities	1,895,754			558,530			(352,436		)	2,101,848

Commitments and contingent liabilities

Stockholders' Equity
Stockholders' equity
Common shares	661			—			—			661
Additional paid-in capital	2,509,693			1,766,775			(1,766,775		)	2,509,693
Retained earnings	(166,692		)	(272,946		)	272,946			(166,692		)
Treasury shares	(3,356		)	—			—			(3,356		)
Total stockholders' equity	2,340,306			1,493,829			(1,493,829		)	2,340,306
Total Liabilities and Stockholders' Equity	$	4,236,060		$	2,052,359		$	(1,846,265	)	$	4,442,154

Condensed Consolidating Statements of Operations
Nine Months Ended September 30, 2017
Parent Guarantor Eliminations Consolidated
(in thousands)

Operating and other revenues $ 657,102
$ 74,998
$ —
$ 732,100
Production and other operating expenses 118,779
26,049
—
144,828
General and administrative 76,353
8,792
—
85,145
Exploration, geologic, and geophysical expense 744
43,151
—
43,895
Depreciation depletion and amortization 317,088
43,479
—
360,567
Impairment of properties and equipment 2,282
280,217
—
282,499
Impairment of goodwill —
75,121
—
75,121
Provision for uncollectible notes receivable (40,203 ) —
—
(40,203 )
Interest (expense) income (57,557 ) 685
—
(56,872 )
Income (loss) before income taxes 124,502
(401,126 ) —
(276,624 )
Income tax expense (benefit) (32,174 ) 103,657
—
71,483
Equity in loss of subsidiary (297,469 ) —
297,469
—
Net loss $ (205,141 ) $ (297,469 ) $ 297,469
$ (205,141 )

Net losses of the Guarantor for the three and nine months ended September 30, 2017 are primarily the result of the exploratory dry hole expense, impairment of certain unproved Delaware Basin leasehold positions during the relevant periods, and the impairment of goodwill during the three months ended September 30, 2017.

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2017~~2018

(unaudited)

Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2017
Parent Guarantor Eliminations Consolidated
(in thousands)

Cash flows from operating activities $ 382,715
$ 28,687
$ —
$ 411,402
Cash flows from investing activities:
Capital expenditures for development of crude oil and natural properties (315,718 ) (213,132 ) —
(528,850 )
Capital expenditures for other properties and equipment (2,488 ) (1,252 ) —
(3,740 )
Acquisition of crude oil and natural gas properties, including settlement adjustments and deposit for pending acquisition (19,761 ) 5,279
—
(14,482 )
Proceeds from sale of properties and equipment 3,322
—
—
3,322
Sale of promissory note 40,203
—
—
40,203
Restricted cash (9,250 ) —
—
(9,250 )
Sales of short-term investments 49,890
—
—
49,890
Purchases of short-term investments (49,890 ) —
—
(49,890 )
Intercompany transfers (189,239 ) —
189,239
—
Net cash from investing activities (492,931 ) (209,105 ) 189,239
(512,797 )
Cash flows from financing activities:
Purchase of treasury stock (5,325 ) —
—
(5,325 )
Other (906 ) (45 ) —
(951 )
Intercompany transfers —
189,239
(189,239 ) —
Net cash from financing activities (6,231 ) 189,194
(189,239 ) (6,276 )
Net change in cash and cash equivalents (116,447 ) 8,776
—
(107,671 )
Cash and cash equivalents, beginning of period 240,487
3,613
—
244,100
Cash and cash equivalents, end of period $ 124,040
$ 12,389
$ —
$ 136,429



	Condensed Consolidating Balance Sheets
	December 31, 2017
	Parent			Guarantor			Eliminations			Consolidated
	(in thousands)

Current assets:
Cash and cash equivalents	$	180,675		$	—		$	—		$	180,675
Accounts receivable, net	160,490			37,108			—			197,598
Fair value of derivatives	14,338			—			—			14,338
Prepaid expenses and other current assets	8,284			329			—			8,613
Total current assets	363,787			37,437			—			401,224
Properties and equipment, net	1,891,314			2,042,153			—			3,933,467
Assets held-for-sale, net	40,084			—			—			40,084
Intercompany receivable	250,279			—			(250,279		)	—
Investment in subsidiaries	1,617,537			—			(1,617,537		)	—
Other assets	42,547			2,569			—			45,116
Total Assets	$	4,205,548		$	2,082,159		$	(1,867,816	)	$	4,419,891

Liabilities and Stockholders' Equity
Liabilities
Current liabilities:
Accounts payable	$	85,000		$	65,067		$	—		$	150,067
Production tax liability	35,902			1,752			—			37,654
Fair value of derivatives	79,302			—			—			79,302
Funds held for distribution	83,898			11,913			—			95,811
Accrued interest payable	11,812			3			—			11,815
Other accrued expenses	42,543			444			—			42,987
Total current liabilities	338,457			79,179			—			417,636
Intercompany payable	—			250,279			(250,279		)	—
Long-term debt	1,151,932			—			—			1,151,932
Deferred income taxes	62,857			129,135			—			191,992
Asset retirement obligations	65,301			5,705			—			71,006
Fair value of derivatives	22,343			—			—			22,343
Other liabilities	57,009			324			—			57,333
Total liabilities	1,697,899			464,622			(250,279		)	1,912,242

Commitments and contingent liabilities

Stockholders' Equity
Stockholders' equity
Common shares	659			—			—			659
Additional paid-in capital	2,503,294			1,766,775			(1,766,775		)	2,503,294
Retained earnings	6,704			(149,238		)	149,238			6,704
Treasury shares	(3,008		)	—			—			(3,008		)
Total stockholders' equity	2,507,649			1,617,537			(1,617,537		)	2,507,649
Total Liabilities and Stockholders' Equity	$	4,205,548		$	2,082,159		$	(1,867,816	)	$	4,419,891

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)



	Condensed Consolidating Statements of Operations
	Three Months Ended June 30, 2018
	Parent			Guarantor			Eliminations		Consolidated
	(in thousands)

Revenues
Crude oil, natural gas and NGLs sales	$	242,903		$	83,030		$	—	$	325,933
Commodity price risk management loss, net	(116,126		)	—			—		(116,126		)
Other income	2,479			245			—		2,724
Total revenues	129,256			83,275			—		212,531
Costs, expenses and other
Lease operating expenses	23,432			8,828			—		32,260
Production taxes	16,189			6,415			—		22,604
Transportation, gathering and processing expenses	3,610			5,354			—		8,964
Exploration, geologic and geophysical expense	296			579			—		875
Impairment of properties and equipment	86			159,468			—		159,554
General and administrative expense	33,152			4,095			—		37,247
Depreciation, depletion and amortization	93,217			42,407			—		135,624
Accretion of asset retirement obligations	1,177			108			—		1,285
Gain on sale of properties and equipment	(351		)	—			—		(351		)
Other expenses	2,708			—			—		2,708
Total costs, expenses and other	173,516			227,254			—		400,770
Loss from operations	(44,260		)	(143,979		)	—		(188,239		)
Interest expense	(17,915		)	505			—		(17,410		)
Interest income	69			—			—		69
Loss before income taxes	(62,106		)	(143,474		)	—		(205,580		)
Income tax benefit	13,348			31,975			—		45,323
Equity in loss of subsidiary	(111,499		)	—			111,499		—
Net loss	$	(160,257	)	$	(111,499	)	$	111,499	$	(160,257	)

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)



	Condensed Consolidating Statements of Operations
	Three Months Ended June 30, 2017
	Parent			Guarantor			Eliminations		Consolidated
	(in thousands)

Revenues
Crude oil, natural gas and NGLs sales	$	190,828		$	22,774		$	—	$	213,602
Commodity price risk management gain, net	57,932			—			—		57,932
Other income	3,586			38			—		3,624
Total revenues	252,346			22,812			—		275,158
Costs, expenses and other
Lease operating expenses	15,557			4,471			—		20,028
Production taxes	13,388			1,654			—		15,042
Transportation, gathering and processing expenses	5,767			721			—		6,488
Exploration, geologic and geophysical expense	256			777			—		1,033
Impairment of properties and equipment	531			27,035			—		27,566
General and administrative expense	26,617			2,914			—		29,531
Depreciation, depletion and amortization	108,727			17,286			—		126,013
Accretion of asset retirement obligations	1,589			77			—		1,666
Gain on sale of properties and equipment	(532		)	—			—		(532		)
Provision for uncollectible notes receivable	(40,203		)	—			—		(40,203		)
Other expenses	3,890			—			—		3,890
Total costs, expenses and other	135,587			54,935			—		190,522
Income (loss) from operations	116,759			(32,123		)	—		84,636
Interest expense	(19,800		)	183			—		(19,617		)
Interest income	768			—			—		768
Income (loss) before income taxes	97,727			(31,940		)	—		65,787
Income tax (expense) benefit	(36,285		)	11,748			—		(24,537		)
Equity in loss of subsidiary	(20,192		)	—			20,192		—
Net income (loss)	$	41,250		$	(20,192	)	$	20,192	$	41,250

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)



	Condensed Consolidating Statements of Operations
	Six Months Ended June 30, 2018
	Parent			Guarantor			Eliminations		Consolidated
	(in thousands)

Revenues
Crude oil, natural gas and NGLs sales	$	476,397		$	154,761		$	—	$	631,158
Commodity price risk management loss, net	(163,366		)	—			—		(163,366		)
Other income	4,995			344			—		5,339
Total revenues	318,026			155,105			—		473,131
Costs, expenses and other
Lease operating expenses	44,794			17,102			—		61,896
Production taxes	32,270			10,503			—		42,773
Transportation, gathering and processing expenses	6,841			9,436			—		16,277
Exploration, geologic and geophysical expense	609			2,912			—		3,521
Impairment of properties and equipment	92			192,650			—		192,742
General and administrative expense	64,711			8,232			—		72,943
Depreciation, depletion and amortization	187,593			74,819			—		262,412
Accretion of asset retirement obligations	2,377			196			—		2,573
Loss on sale of properties and equipment	1,081			—			—		1,081
Other expenses	5,476			—			—		5,476
Total costs, expenses and other	345,844			315,850			—		661,694
Loss from operations	(27,818		)	(160,745		)	—		(188,563		)
Interest expense	(36,012		)	1,073			—		(34,939		)
Interest income	217			—			—		217
Loss before income taxes	(63,613		)	(159,672		)	—		(223,285		)
Income tax benefit	13,925			35,964			—		49,889
Equity in loss of subsidiary	(123,708		)	—			123,708		—
Net loss	$	(173,396	)	$	(123,708	)	$	123,708	$	(173,396	)

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)



	Condensed Consolidating Statements of Operations
	Six Months Ended June 30, 2017
	Parent			Guarantor			Eliminations		Consolidated
	(in thousands)

Revenues
Crude oil, natural gas and NGLs sales	$	361,567		$	41,727		$	—	$	403,294
Commodity price risk management gain, net	138,636			—			—		138,636
Other income	6,884			51			—		6,935
Total revenues	507,087			41,778			—		548,865
Costs, expenses and other
Lease operating expenses	31,374			8,443			—		39,817
Production taxes	24,532			2,909			—		27,441
Transportation, gathering and processing expenses	10,982			1,408			—		12,390
Exploration, geologic and geophysical expense	527			1,460			—		1,987
Impairment of properties and equipment	1,134			28,625			—		29,759
General and administrative expense	50,146			5,700			—		55,846
Depreciation, depletion and amortization	210,465			24,864			—		235,329
Accretion of asset retirement obligations	3,274			160			—		3,434
Gain on sale of properties and equipment	(692		)	—			—		(692		)
Provision for uncollectible notes receivable	(40,203		)	—			—		(40,203		)
Other expenses	7,418			—			—		7,418
Total costs, expenses and other	298,957			73,569			—		372,526
Income (loss) from operations	208,130			(31,791		)	—		176,339
Interest expense	(39,397		)	313			—		(39,084		)
Interest income	1,008			—			—		1,008
Income (loss) before income taxes	169,741			(31,478		)	—		138,263
Income tax (expense) benefit	(62,448		)	11,581			—		(50,867		)
Equity in loss of subsidiary	(19,897		)	—			19,897		—
Net income (loss)	$	87,396		$	(19,897	)	$	19,897	$	87,396

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)



	Condensed Consolidating Statements of Cash Flows
	Six Months Ended June 30, 2018
	Parent			Guarantor			Eliminations			Consolidated
	(in thousands)

Cash flows from operating activities	$	267,551		$	113,306					$	380,857
Cash flows from investing activities:
Capital expenditures for development of crude oil and natural gas properties	(218,614		)	(214,021		)	—			(432,635		)
Capital expenditures for other properties and equipment	(1,898		)	(552		)	—			(2,450		)
Acquisition of crude oil and natural gas properties, including settlement adjustments	(180,981		)	(71		)	—			(181,052		)
Proceeds from sale of properties and equipment	1,782			—			—			1,782
Proceeds from divestiture	39,023			—			—			39,023
Restricted cash	1,249			—			—			1,249
Intercompany transfers	(101,398		)	—			101,398			—
Net cash from investing activities	(460,837		)	(214,644		)	101,398			(574,083		)
Cash flows from financing activities:
Proceeds from revolving credit facility	233,000			—			—			233,000
Repayment of revolving credit facility	(211,000		)	—			—			(211,000		)
Payment of debt issuance costs	(4,060		)	—			—			(4,060		)
Purchases of treasury stock	(4,494		)	—			—			(4,494		)
Other	(659		)	(60		)	—			(719		)
Intercompany transfers	—			101,398			(101,398		)	—
Net cash from financing activities	12,787			101,338			(101,398		)	12,727
Net change in cash, cash equivalents and restricted cash	(180,499		)	—			—			(180,499		)
Cash, cash equivalents and restricted cash, beginning of period	189,925			—			—			189,925
Cash, cash equivalents and restricted cash, end of period	$	9,426		$	—		$	—		$	9,426

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(unaudited)



	Condensed Consolidating Statements of Cash Flows
	Six Months Ended June 30, 2017
	Parent			Guarantor			Eliminations			Consolidated
	(in thousands)

Cash flows from operating activities	$	255,378		$	17,069		$	—		$	272,447
Cash flows from investing activities:
Capital expenditures for development of crude oil and natural gas properties	(198,954		)	(135,452		)	—			(334,406		)
Capital expenditures for other properties and equipment	(1,792		)	(507		)	—			(2,299		)
Acquisition of crude oil and natural gas properties, including settlement adjustments	—			5,372			—			5,372
Proceeds from sale of properties and equipment	1,293			—			—			1,293
Sale of promissory note	40,203			—			—			40,203
Restricted cash	(9,250		)	—			—			(9,250		)
Sale of short-term investments	49,890			—			—			49,890
Purchase of short-term investments	(49,890		)	—			—			(49,890		)
Intercompany transfers	(109,923		)	—			109,923			—
Net cash from investing activities	(278,423		)	(130,587		)	109,923			(299,087		)
Cash flows from financing activities:
Purchases of treasury stock	(5,274		)	—			—			(5,274		)
Other	(627		)	(18		)	—			(645		)
Intercompany transfers	—			109,923			(109,923		)	—
Net cash from financing activities	(5,901		)	109,905			(109,923		)	(5,919		)
Net change in cash, cash equivalents and restricted cash	(28,946		)	(3,613		)	—			(32,559		)
Cash, cash equivalents and restricted cash, beginning of period	240,487			3,613			—			244,100
Cash, cash equivalents and restricted cash, end of period	$	211,541		$	—		$	—		$	211,541

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PDC ENERGY, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis, as well as other sections in this report, should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report. Further, we encourage you to review the Special Note Regarding Forward-Looking Statements.

EXECUTIVE SUMMARY

Production and Financial Overview

Production volumes increased to ~~8.5~~9.4 MMboe and ~~23.2~~18.3 MMboe for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, representing increases of 4217 percent and 4725 percent as compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively. The increases in production volumes were primarily attributable to the continued success of our horizontal Niobrara and Codell drilling program in the Wattenberg Field and growing production from our Delaware Basin properties.Crude oil production increased 4722 percent and 35 percent for the three and ~~nine~~six months ended ~~September~~June 30, 2017 compared to the three and nine months ended September 30, 2016, respectively. Crude oil production comprised approximately 40 percent of total production in each of the three and nine months ended September 30, 2017. NGL production increased 33 percent and 54 percent for the three and nine months ended September 30, 2017,2018, respectively, compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2016. Natural gas~~2017. Crude oil production ~~increased~~comprised approximately 42 percent and 4339 percent inof total production for the six months ended June 30, 2018 and 2017, respectively. NGLs production increased 10 percent and 14 percent for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.On a combined basis, total liquids~~2017. Natural gas production ~~comprised 63~~increased 16 percent ~~of our total production during each of~~and 21 percent for the three and six months ended ~~September~~June 30, ~~2017~~2018, respectively, compared to the three and ~~September 30, 2016, and 62 percent and 61 percent of total production during the nine~~six months ended ~~September~~June 30, ~~2017 and September 30, 2016, respectively.~~2017. For the ~~three months~~month ended ~~September~~June 30, ~~2017,~~2018, we maintained an average daily production rate of approximately ~~92,500~~102,000 Boe per day, ~~including 12,800 Boe per day from the Delaware Basin,~~ up from approximately~~65,300~~ 87,000 Boe per day for the ~~three months~~month ended ~~September~~June 30, ~~2016.~~2017.

On a sequential quarterly basis, total production and crude oil production volumes for the three months ended ~~September~~June 30, ~~2017~~2018 as compared to the three months ended ~~June 30, 2017~~March 31, 2018 increased ~~with contributions from both~~by five percent and four percent, respectively. In the Wattenberg Field, continued high line pressures, which have been greater than anticipated, and ~~Delaware Basin. For~~unplanned gathering system facility downtime hampered our production growth in the field during the three ~~months ended September 30, 2017 as compared to the three~~and six months ended June 30, ~~2017, total~~2018. These operating challenges are reflected in our expected full year 2018 production outlook as discussed under 2018 Operational and ~~crude oil~~Financial Outlook. We expect significant production ~~each increased by six percent. Continued high line pressures~~growth in the Wattenberg Field ~~have temporarily tempered~~during the second half of 2018 as an additional processing facility was completed by our primary third-party midstream provider and turned on line in August 2018. We continue to see successful development of our Delaware Basin properties. However, crude oil and natural gas takeaway capacity constraints and widening differentials could hinder production growth ~~rate~~and result in ~~the Wattenberg Field; however, we are expecting an overall modest sequential quarterly increase in~~further widening of price differentials for our future production in the ~~fourth~~basin. In an effort to address these issues, we entered into separate agreements during the second quarter of ~~2017.~~2018 for pipeline capacity for significant portions of our Delaware Basin crude oil and natural gas production. See Results of Operations - Crude Oil, Natural Gas and NGLs Production for further details of these agreements.

Crude oil, natural gas and NGLs sales revenue increased to ~~$232.7~~$325.9 million and ~~$636.0~~$631.2 million infor the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, compared to ~~$141.8~~$213.6 million and ~~$328.0~~$403.3 million infor the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively. ~~These 64~~The 53 percent and 9457 percent increases in sales revenues were driven by the 4217 percent and 4725 percent increases in production and 16the 30 percent and 3225 percent increases in average realized commodity prices. The adoption of the New Revenue Standard at January 1, 2018 did not significantly impact the change in our crude oil, natural gas and NGLs sales revenue for the three and six months ended June 30, 2018 as compared to the comparable periods of 2017. See the footnote titled Revenue Recognition to our condensed consolidated financial statements included elsewhere in this report foradditional information regarding the New Revenue Standard.

We had ~~positive~~negative net settlements from our commodity derivative contracts of ~~$9.6~~$16.4 million and $42.4 million for the three and six months ended ~~September~~June 30, ~~2017~~2018, respectively, as compared to positive net settlements of ~~$47.7~~$12.0 million and $12.6 million for the three and six months ended ~~September~~June 30, ~~2016. We had positive~~2017, respectively. The 2018 negative net settlements include an $11.3 million realized gain on the early settlement of ~~$22.2 million for the nine months ended September 30, 2017, as compared to positive net settlements of $167.9 million for the nine months ended September 30, 2016. We entered into agreements for the~~certain commodity derivative instruments that settled throughout 2016 prior to commodity prices becoming depressed in late 2014. Substantially all of these higher-value derivatives settled by the end of 2016. Net settlements for the three and nine months ended September 30, 2017 reflect derivative instruments entered into since 2015, which more closely approximate recent realized prices. Based upon the forward strip pricing at September 30, 2017, we expect that settlements will continue to be substantially lower in 2017 than in 2016.basis protection positions. See Results of Operations - Commodity Price Risk Management, Net for further details of our settlements of derivatives and changes in the fair value of unsettled ~~derivatives~~.derivatives.

The combined revenue from crude oil, natural gas and NGLs sales and net settlements received on our commodity derivative instruments increased 2837 percent to ~~$242.3~~$309.5 million infor the three months ended ~~September~~June 30, ~~2017~~2018 from ~~$189.5~~$225.6 million infor the three months ended ~~September~~June 30, ~~2016,~~2017, and increased 3342 percent to ~~$658.2~~$588.7 million infor the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~$495.9~~$415.9 million infor the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017.

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PDC ENERGY, INC.

~~During~~determination that we would no longer pursue plans to develop these properties. The impaired non-focus leasehold typically has a higher gas to oil ratio and a greater degree of geologic complexity than our other Delaware Basin properties and is further impacted by widening natural gas differentials and increased well development costs. We intend to focus our future Delaware Basin development in our oilier core areas where we have identified approximately 450 mid-length lateral equivalent Wolfcamp drilling locations. We continue to explore options for our non-focus areas and monitor them for possible future impairment based on similar analyses. We determined the ~~three months ended September 30, 2017, we recorded exploratory dry hole well expense of $41.2 million, an unproved property impairment charge of $251.6 million, and we impaired all~~fair value of the ~~goodwill associated with~~properties based upon estimated future discounted cash flow, a Level 3 input, using estimated production and prices at which we reasonably expect the ~~assets acquired in the Delaware Basin, which resulted in an impairment charge of $75.1 million. For more information regarding these expenses~~crude oil and ~~charges see~~ ~~Results of Operations - Exploration, Geologic, and Geophysical Expense, Results of Operations - Impairments of Properties,~~ ~~and~~ ~~Results of Operations - Impairment of Goodwill~~.natural gas will be sold.

InFor the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we generated a net ~~loss~~losses of ~~$292.5~~$160.3 million and ~~$205.1~~$173.4 million, respectively, or ~~$4.44~~$2.43 and ~~$3.12~~$2.63 per diluted ~~share, respectively.~~share. Our net ~~income~~loss was most negatively impacted by the ~~aforementioned impairment charges~~commodity price risk management loss and ~~expensing of exploratory dry hole well costs.~~Delaware Basin leasehold impairments, partially offset by the increase in crude oil, natural gas and NGLs sales. During the same periods, our adjusted EBITDAX, a non-U.S. GAAP financial measure, was ~~$166.9~~$214.3 million and ~~$497.6~~$404.4 million, respectively. Beginning in 2017, we have included non-cash stock-based compensation and exploration, geologic and geophysical expense in our reconciliation of adjusted EBITDAX. In prior periods, we reported adjusted EBITDA, a non-U.S. GAAP financial measure that did not include these adjustments. All prior periods have been conformed for comparability of this updated presentation. InFor the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, our~~2017, we generated net ~~loss~~income of $41.3 million and $87.4 million, respectively, or $0.62 and $1.32 per diluted share, ~~was $0.48 and $4.16, respectively,~~ and our adjusted EBITDAX was ~~$133.0~~$200.4 million and ~~$313.3~~$330.6 million, respectively. The seven percent increase in our adjusted EBITDAX for the three months ended June 30, 2018 as compared to the three months ended June 30, 2017 was primarily due to the increase in crude oil, natural gas and NGLs sales of $112.3 million. This increase was partially offset by the reversal of a provision for uncollectible notes receivable of $40.2 million in the three months ended June 30, 2017, an increase in operating costs of $30.0 million and a decrease in commodity derivative settlements of $28.4 million. The 22 percent increase in our adjusted EBITDAX for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017 was primarily due to the increase in crude oil, natural gas and NGLs sales of $227.9 million. This increase was partially offset by an increase in operating costs of $58.4 million, a decrease in commodity derivative settlements of $55.0 million and the reversal of a provision for uncollectible notes receivable of $40.2 million in the six months ended June 30, 2017. Our cash ~~flow~~flows from operations ~~was $411.4~~were $380.9 million and our adjusted cash flow from operations, a non-U.S. GAAP financial measure, was ~~$407.5~~$374.3 million infor the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. See Reconciliation of Non-U.S. GAAP Financial Measures, below, for a more detailed discussion of these non-U.S. GAAP financial measures and a reconciliation of these measures to the most comparable U.S. GAAP measures.

Liquidity

Available liquidity as of ~~September~~June 30, ~~2017~~2018 was ~~$836.4~~$679.4 million, which was comprised of ~~$136.4~~$1.4 million of cash and cash equivalents and ~~$700~~$678.0 million available for borrowing under our revolving credit facility at our current commitment level. ~~We expect decreases~~In May 2018, we entered into the Restated Credit Agreement. See the footnote titled Long-Term Debt to our condensed consolidated financial statements included elsewhere in this report for further details. Based on our ~~cash balance during~~current production forecast for the remainder of ~~2017 due to: (i)~~2018 and assuming average NYMEX prices for the ~~expected closing~~remainder of the ~~pending Wattenberg Field acquisition described below, (ii) continued planned development in~~year of $65.00 per barrel of crude oil and $2.75 per Mcf of natural gas, less the ~~core Wattenberg Field,~~anticipated differentials, we expect our 2018 capital investments to exceed our 2018 cash flows from operations by between $75 million and ~~(iii) further~~$100 million, of which we anticipate approximately $65 million will be covered by an amendment to a midstream dedication agreement and the divestiture of our Utica Shale properties. We experienced this outspend during the first half of 2018 and expect cash flows from operations to exceed capital investment ~~in our Delaware Basin assets. In October 2017, we entered into a Sixth Amendment to~~during the ~~Third Amended and Restated Credit Agreement. The amendment allowed~~second half of the ~~borrowing base~~year. We expect to be ~~set above the $1.0 billion allowable borrowing capacity of the facility. The borrowing base redetermination for the fall of 2017 was confirmed~~undrawn on our credit facility at ~~$1.1 billion and we elected to maintain a $700 million commitment level as of the date of this report.~~December 31, 2018.

We intend to continue to manage our liquidity position by a variety of means, including through the generation of cash flows from operations, investment in projects with attractive rates of return, protection of cash flows on a portion of our anticipated sales through the use of an active commodity derivative hedging program, ~~potential~~ utilization of our borrowing capacity under our revolving credit facility and, if warranted, capital markets transactions from time to time.

~~Pending Acquisition~~Acquisitions and ~~Acreage Exchanges~~Divestitures

~~Pending~~Bayswater Acquisition. In ~~September 2017,~~January 2018, we ~~entered into a purchase and sale agreement to acquire certain assets from~~closed the Bayswater and certain related parties, pursuant to which, subject to the terms and conditions of the agreement, we have agreed to acquire approximately 8,300 net acres, 30 DUCs, and an incremental 240 gross drilling locations,Acquisition for ~~approximately $210~~$202.0 million, ~~in cash,~~ subject to certain ~~pre- and~~customary post-closing adjustments. ~~We plan~~See the footnote titled Business Combination to turn-in-line 18 of these DUCs at approximately year-end 2017, with the completion costs expected to be treated as an increase to the purchase price. Upon executing the purchase and sale agreement, we paid a $21 million deposit toward the purchase price into an escrow account, which is included in other assets in our ~~September 30, 2017~~ condensed consolidated ~~balance sheet. Assuming all conditions required~~financial statements included elsewhere in this report for ~~closing are met, the acquisition is expected to close in December 2017 and will be funded by a combination of available cash and debt.~~further details.

~~Pending Acreage Exchanges.~~Utica Shale Divestiture. In ~~September 2017,~~March 2018, we ~~entered into an acreage exchange transaction~~ completed the Utica Shale Divestiture for net cash proceeds of approximately $39 million. We do not believe the divestiture of these assets will have a material impact on our results of operations or reserves. See the footnote titled Properties and Equipment to ~~consolidate certain acreage positions~~our condensed consolidated financial statements included elsewhere in the core area of the Wattenberg Field. Pursuant to the transaction, we will exchange leasehold acreage with some limited in-process development wells. Upon closing, we expect to receive approximately 11,700 net acres in exchangethis report for approximately 12,100 net acres, with minimal cash exchanged between the parties. The difference in net acres is primarily due to variances in working and net revenue interests. The acreage exchange is anticipated to close in the fourth quarter of 2017; however, there can be no assurance that conditions to closing will be satisfied.further details.

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exchange for approximately 4,100 net acres with minimal cash exchanged between the parties. The difference in net acres is primarily due to variances in working and net revenue interests. This acreage exchange is also expected to close in the fourth quarter of 2017; however, there can be no assurance that conditions to closing will be satisfied.

Operational Overview

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we continued to execute our strategic plan to grow production while preserving our financial strength and liquidity. ~~Our~~During the six months ended June 30, 2018, we ran three drilling ~~efficiency~~rigs in the Wattenberg Field ~~over the last nine months has resulted in shorter drill cycle times; therefore, we decreased our rig count to three~~and briefly ran four drilling rigs in the ~~fourth quarter of 2017. Because of the shorter~~Delaware Basin while we swapped out a rig to focus on improved drill times ~~the impact of the reduced~~before returning to three rigs. We expect to maintain a three rig ~~count on our expected turn-in-line count~~pace in both the Wattenberg Field ~~is expected to be minimal in 2017. In~~and the Delaware Basin during the ~~three months ended September 30, 2017, we adjusted to operating three drilling rigs. During the third quarter~~remainder of ~~2017, we turned in line to sales 39 wells in Wattenberg and four wells in the Delaware Basin.~~2018.

The following tables summarizes our drilling and completion activity for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2018:

Wells Operated by PDC
Wattenberg Field Delaware Basin Total
Gross Net Gross Net Gross Net
In-process as of December 31, 2016 64
52.7
5
4.8
69
57.5
Wells spud 119
105.6
18
16.6
137
122.2
Wells turned-in-line to sales (111 ) (93.6 ) (11 ) (10.2 ) (122 ) (103.8 )
Exploratory dry holes —
—
(2 ) (2.0 ) (2 ) (2.0 )
In-process as of September 30, 2017 72
64.7
10
9.2
82
73.9



	Wells Operated by PDC
	Wattenberg Field				Delaware Basin				Total
	Gross		Net		Gross		Net		Gross		Net
In-process as of December 31, 2017	87		80.1		13		12.2		100		92.3
Wells spud	78		72.3		14		12.7		92		85.0
Acquired DUCs (1)	12		11.0		—		—		12		11.0
Wells turned-in-line	(77	)	(70.8	)	(12	)	(11.1	)	(89	)	(81.9	)
In-process as of June 30, 2018	100		92.6		15		13.8		115		106.4

Wells Operated by Others
Wattenberg Field Delaware Basin Total
Gross Net Gross Net Gross Net
In-process as of December 31, 2016 18
3.4
—
—
18
3.4
Wells spud 89
12.2
7
1.0
96
13.2
Wells turned-in-line to sales (40 ) (4.5 ) (2 ) (0.4 ) (42 ) (4.9 )
In-process as of September 30, 2017 67
11.1
5
0.6
72
11.7



	Wells Operated by Others
	Wattenberg Field				Delaware Basin				Total
	Gross		Net		Gross		Net		Gross		Net
In-process as of December 31, 2017	14		2.6		8		1.0		22		3.6
Wells spud	21		2.6		3		0.1		24		2.7
Acquired DUCs (operated at June 30, 2018) (1)	(3	)	(1.5	)	—		—		(3	)	(1.5	)
Wells turned-in-line	(16	)	(1.8	)	(2	)	(0.7	)	(18	)	(2.5	)
In-process as of June 30, 2018	16		1.9		9		0.4		25		2.3

______________

(1) Represents DUCs that we acquired with the Bayswater Acquisition in January 2018.

Our in-process wells represent wells that are in the process of being drilled and/or have been drilled and are waiting to be fractured and/or for gas pipeline connection. Our DUCs are generally completed and ~~turned in-line to sales~~turned-in-line within three to nine months of drilling.

2018 Operational and Financial Outlook

We have updated our expected production guidance range for 2018 to 40 MMBoe to 42 MMBoe, or approximately 110,000 Boe per day to 115,000 Boe per day. The ~~majority~~update assumes an adequate allocation of ~~the PDC-operated in-process wells at each period end are DUCs, as we do not begin the completion process until the entire well pad is drilled. As we continue to monitor~~system capacity from our ~~capital investment and due to the efficiencies gained by our operating team~~primary midstream service provider in the Wattenberg Field, we expect that we will have an increase of approximately 25 wells in our in-process well count at December 31, 2017 relative to September 30, 2017. All appropriate costs incurred through the end of the period have been capitalized, while the capital investment to complete the wells will be incurred in the period in which the wells are completed.Field. We ~~expect that the level of non-operated well activity reflected in the table above will decrease upon the anticipated closing of our aforementioned pending acreage exchanges.~~

~~2017 Operational Outlook~~

~~Based on our revised timing of well completions and the estimated productivity of wells associated with our capital investment program, we~~ currently ~~believe that our 2017 production will be approximately 32 MMBoe. We~~ expect that approximately 4042 to 45 percent of our ~~2017~~2018 production will be crude oil and approximately 2319 to 22 percent will be NGLs, for total liquids of approximately 6361 to 67 percent. ~~The anticipated percentage~~We are currently experiencing and expect to continue to experience fewer days between the spudding of ~~production from NGLs has increased due to the success of field recovery efforts and improved yields by our third-party processors~~wells resulting in an approximate 15 percent efficiency gain in the Wattenberg Field, which has led to an increase in the number of wells planned to be spud this year. We are also experiencing increased service costs in both the Wattenberg Field and Delaware Basin. Additionally, we have increased lateral lengths and the number of frac stages per well in the Kersey area of the Wattenberg Field. Accordingly, we have increased our 2018 capital investment forecast to between $950 million and $985 million.

We ~~expect~~believe that we maintain significant operational flexibility to control the pace of our capital ~~expenditures~~spending. As we execute our capital investment program, we continually monitor, among other things, commodity prices, development costs, midstream capacity and offset and continuous drilling obligations. While we have experienced some service cost increases in the first half of 2018, drilling efficiencies are partially offsetting these increases. Should commodity pricing or the operating environment deteriorate, we may determine that an adjustment to ~~be approximately $800 million~~our development plan is appropriate. We believe we have ample opportunities to reduce capital spending if necessary in ~~2017, which takes into account~~order to stay within our capital investment plan, including, but not limited to, reducing the ~~current increased per well costs~~number of rigs being utilized in our drilling program and/or managing our completion schedule. This flexibility is more limited in the Delaware Basin and the anticipated increase in the expected number of wells to be spud in the Wattenberg Field during the year compared to our original 2017 budget. As previously disclosed, we added a third and fourth rig in the first quarter of 2017 in the Delaware Basin, which was sooner than initially contemplated in our budget, in order to protect certaingiven leasehold ~~positions and to create greater future operational flexibility. Finally, some additional~~maintenance requirements.

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~~capital investment has been included in our forecast for the closed and anticipated Wattenberg Field acreage trades that would, if completed, increase our working interest in certain wells.~~

Wattenberg Field. ~~The 2017 capital investment forecast is estimated at approximately $450 million~~We are drilling in the ~~Wattenberg Field. Our plan contemplates running three rigs in~~Niobrara and Codell plays within the field ~~in the fourth quarter of 2017. Approximately $445 million is expected to be allocated to development activities, comprised of approximately $425 million for our operated drilling program~~ and approximately $20 million for wells drilled and operated by others. The remainder is expected to be used for miscellaneous well equipment and capital projects. Wells in the Wattenberg Field typically have productive horizons at a depth of approximately 6,500 to 7,500 feet below the surface. Our revised investment forecast anticipatesanticipate spudding approximately ~~155~~150 to 165 wells and turning-in-line approximately ~~133 horizontal~~145 to 160 operated wells ~~with lateral lengths of 4,000 to 10,000 feet. We do not expect to~~in 2018, which is an increase over our ~~2017~~previously-reported guidance for 2018. Our 2018 capital investment forecast in connection with the acquisition agreement we entered into with Bayswater and certain related parties, as the acquisition is expected to close late in December. There are expected to be costs in addition to the $210 million purchase price as a result of continued capital activity on the DUCs being acquired in the transaction, which will be accounted for as additional purchase price.

~~Delaware Basin.~~ ~~We are currently operating a three-rig drilling~~ program ~~in the Delaware Basin. Total capital investment in the Delaware Basin for the year~~ is estimated to be approximately ~~$345~~$525 million ~~of which approximately $285~~to $540 million ~~is expected~~in the Wattenberg Field, with over 90 percent anticipated to be ~~used to spud 24~~invested in operated drilling and ~~turn-in-line an estimated 20 wells.~~ Expected per well drilling costs in the Delaware Basin have increased by approximately 10 to 15 percent during the third quarter of 2017 as compared to the second quarter of 2017, primarily due to higher costs of services and supplies and longer than anticipated drill cycle times. To enhance our understandingcompletion activity. The remainder of the geology in the Delaware Basin, we initiated various engineering studies on a large portion of our Delaware Basin wells, including expanded depth pilot holes and logging/seismic services. These studies are providing important information to our operating team; however, they have come with additional unexpected costs. Additionally, mechanical issues have resulted in cost overruns for certain wells we have drilled in the area. Of the 20 planned turn-in-lines during 2017, nine are expected to have extended laterals of approximately 10,000 horizontal feet with an estimated 70 to 75 completion stages per well. Similarly spaced completion stages are anticipated for the remaining 11 turn-in-lines. Wells in the Delaware Basin typically have productive horizons at a depth of approximately 9,000 to 11,000 feet below the surface. We plan to invest approximately $15 million for leasing, seismic, and technical studies with an additional $35 million for midstream-related projects including gas connections and surface location infrastructure. The remaining $10 million of the Delaware BasinWattenberg Field capital investment program is expected to be used for non-operated wells and miscellaneous workover and capital projects.

Delaware Basin. Total capital investment in the Delaware Basin in 2018 is estimated to be approximately $425 million to $445 million, of which approximately 80 percent is allocated to both spud and turn-in-line approximately 25 to 30 operated wells, primarily targeting the Wolfcamp formation. Based on the timing of our operations and requirements to meet our drilling obligations, we may adapt our capital investment program to drill wells different from or in addition to those currently anticipated, as we are continuing to analyze the terms of the relevant leases. We plan to invest approximately five percent of our capital for leasing, non-operated capital, seismic and technical studies, with an additional approximately 15 percent for midstream-related projects, including oil and gas gathering systems and water supply and disposal systems. In addition, we are in the process of evaluating our strategic alternatives with respect to our midstream assets in the Delaware Basin.

Financial Guidance.

The following table provides financial guidance for the year ended December 31, 2018 for certain expenses and price differentials:



	Low			High
Operating Expenses
Lease operating expenses ($/Boe)	$	3.00		$	3.15
Transportation, gathering and processing expenses ("TGP") ($/Boe)	$	0.80		$	0.90
Production taxes (% of crude oil, natural gas and NGLs sales)	6		%	8		%
General and administrative expense ($/Boe)	$	3.40		$	3.70

Estimated Price Realizations (% of NYMEX, excludes TGP)
Crude oil	91%			95%
Natural gas	55%			60%
NGLs	30%			35%

Regulatory Update

Proposed Statutory Ballot Initiative. As previously disclosed, certain interest groups in Colorado opposed to oil and natural gas development generally, and hydraulic fracturing in particular, have advanced a ballot initiative that would result in oil and natural gas development in the state being essentially eliminated. Proponents of the initiative have submitted signatures in an effort to qualify the initiative to appear on the ballot in November 2018. The signatures are subject to a verification process to be conducted by the Colorado Secretary of State. This process could take up to 30 days. We do not know what the outcome of this process will be. If approved by the voters of Colorado, the proposal would take effect by the end of 2018.

The initiative would require all new oil and gas development facilities to be located at least 2,500 feet away from any occupied structure or “vulnerable areas,” broadly defined to include playgrounds, permanent sports fields, amphitheaters, public parks, public open space, public and community drinking water sources, irrigation canals, reservoirs, lakes, rivers, perennial or intermittent streams and creeks and any additional vulnerable areas designated by the state or a local government. The current minimum required setback between oil and gas wells and occupied structures is generally 500 feet. Federal lands would be excluded from the effect of the initiative.

The Colorado Oil and Gas Conservation Commission has estimated that implementation of the proposed initiative would make drilling unlawful on approximately 85 percent of the non-federal surface area of the state of Colorado, and approximately 85 percent of the non-federal surface area of Weld County. If passed, this proposal would effectively prohibit the vast majority of our planned future drilling activities in Colorado, and would therefore make it impossible to continue to pursue our current development plans. This would have a highly material and adverse effect on our results of operations, financial condition and reserves.

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Ozone Classification. In 2016, the EPA increased the state of Colorado’s non-attainment ozone classification for the Denver Metro North Front Range Ozone Eight-Hour Non-Attainment ("Denver Metro/North Front Range NAA") area from “marginal” to “moderate” under the 2008 national ambient air quality standard (“NAAQS”). This increase in non-attainment status triggered significant additional obligations for the state under the Clean Air Act ("CAA") and resulted in Colorado adopting new and more stringent air quality control requirements in November 2017 that are applicable to our operations. The Denver Metro/North Front Range NAA is at risk of being reclassified again to “serious” if it does not meet the 2008 NAAQS by 2018. The Colorado Department of Public Health and Environment ("CDPHE") has requested that the EPA extend this deadline to 2019. Based on recent air quality monitoring data, however, it appears likely that the Denver Metro/North Front Range NAA will not be able to meet the 2008 NAAQS even by 2019 and will be reclassified as “serious,” likely in 2020 or soon thereafter. A “serious” classification would trigger significant additional obligations for the state under the CAA and could result in new and more stringent air quality control requirements applicable to our operations and significant costs and delays in obtaining necessary permits.

2018 Colorado General Election. A general election will be held in November 2018, with high-profile races on the federal, state and local levels. Newly-elected officials may take a different approach than their predecessors to regulatory and legislative issues affecting the oil and gas industry. Because a substantial portion of our current operations and reserves are located in Colorado, the risks we face with respect to the outcome of the November 2018 Colorado political elections are greater than those of our competitors with more geographically diverse operations. We cannot predict the outcome of the election.

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Results of Operations

Summary Operating Results

The following table presents selected information regarding our operating results:



	Three Months Ended June 30,							Six Months Ended June 30,
	2018			2017		Percentage Change		2018			2017		Percentage Change
	(dollars in millions, except per unit data)
Production
Crude oil (MBbls)	3,948			3,237		22.0	%	7,745			5,745		34.8	%
Natural gas (MMcf)	20,687			17,783		16.3	%	40,274			33,367		20.7	%
NGLs (MBbls)	1,987			1,814		9.5	%	3,833			3,357		14.2	%
Crude oil equivalent (MBoe)	9,382			8,015		17.1	%	18,290			14,663		24.7	%
Average Boe per day (Boe)	103,099			88,078		17.1	%	101,049			81,011		24.7	%
Crude Oil, Natural Gas and NGLs Sales
Crude oil	$	252.6		$	148.8	69.8	%	$	479.0		$	271.8	76.2	%
Natural gas	30.0			38.3		(21.7	)%	68.7			75.3		(8.8	)%
NGLs	43.3			26.5		63.4	%	83.5			56.2		48.6	%
Total crude oil, natural gas and NGLs sales	$	325.9		$	213.6	52.6	%	$	631.2		$	403.3	56.5	%

Net Settlements on Commodity Derivatives
Crude oil	$	(25.5	)	$	5.1	*		$	(52.5	)	$	1.9	*
Natural gas	11.2			6.8		64.7	%	13.9			10.6		31.1	%
NGLs (propane portion)	(2.1		)	0.1		*		(3.8		)	0.1		*
Total net settlements on derivatives	$	(16.4	)	$	12.0	*		$	(42.4	)	$	12.6	*

Average Sales Price (excluding net settlements on derivatives)
Crude oil (per Bbl)	$	63.99		$	45.97	39.2	%	$	61.85		$	47.31	30.7	%
Natural gas (per Mcf)	1.46			2.16		(32.4	)%	1.71			2.26		(24.3	)%
NGLs (per Bbl)	21.76			14.59		49.1	%	21.78			16.75		30.0	%
Crude oil equivalent (per Boe)	34.74			26.65		30.4	%	34.51			27.50		25.5	%

Average Costs and Expenses (per Boe)
Lease operating expenses	$	3.44		$	2.50	37.6	%	$	3.38		$	2.72	24.3	%
Production taxes	2.41			1.88		28.2	%	2.34			1.87		25.1	%
Transportation, gathering and processing expenses	0.96			0.81		18.5	%	0.89			0.84		6.0	%
General and administrative expense	3.97			3.68		7.9	%	3.99			3.81		4.7	%
Depreciation, depletion and amortization	14.46			15.72		(8.0	)%	14.35			16.05		(10.6	)%

Lease Operating Expenses by Operating Region (per Boe)
Wattenberg Field	$	3.29		$	2.22	48.2	%	$	3.16		$	2.42	30.6	%
Delaware Basin	3.92			4.88		(19.7	)%	4.16			5.53		(24.8	)%
Utica Shale (1)	—			1.34		(100.0	)%	3.46			1.48		133.8	%

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 Percentage Change 2017 2016 Percentage Change
(dollars in millions, except per unit data)
Production
Crude oil (MBbls) 3,439
2,340
47.0 % 9,184
6,241
47.2 %
Natural gas (MMcf) 19,070
13,417
42.1 % 52,437
36,768
42.6 %
NGLs (MBbls) 1,892
1,428
32.5 % 5,249
3,402
54.3 %
Crude oil equivalent (MBoe) 8,509
6,004
41.7 % 23,172
15,771
46.9 %
Average Boe per day (Boe) 92,491
65,263
41.7 % 84,880
57,558
47.5 %
Crude Oil, Natural Gas and NGLs Sales
Crude oil $ 157.0
$ 98.5
59.4 % $ 428.8
$ 233.0
84.0 %
Natural gas 41.5
27.4
51.5 % 116.7
59.6
95.8 %
NGLs 34.2
15.9
115.1 % 90.5
35.4
155.6 %
Total crude oil, natural gas, and NGLs sales $ 232.7
$ 141.8
64.1 % $ 636.0
$ 328.0
93.9 %

Net Settlements on Commodity Derivatives
Crude oil $ 5.4
$ 39.5
(86.3 )% $ 7.4
$ 131.6
(94.4 )%
Natural gas 6.3
8.2
(23.2 )% 16.8
36.3
(53.7 )%
NGLs (propane portion) (2.1 ) —
*
(2.0 ) —
*
Total net settlements on derivatives $ 9.6
$ 47.7
(79.9 )% $ 22.2
$ 167.9
(86.8 )%

Average Sales Price (excluding net settlements on derivatives)
Crude oil (per Bbl) $ 45.66
$ 42.11
8.4 % $ 46.69
$ 37.33
25.1 %
Natural gas (per Mcf) 2.17
2.04
6.4 % 2.23
1.62
37.7 %
NGLs (per Bbl) 18.11
11.12
62.9 % 17.24
10.41
65.6 %
Crude oil equivalent (per Boe) 27.35
23.62
15.8 % 27.45
20.80
32.0 %

Average Costs and Expenses (per Boe)
Lease operating expenses $ 2.98
$ 2.33
27.9 % $ 2.81
$ 2.73
2.9 %
Production taxes 1.82
1.59
14.5 % 1.85
1.25
48.0 %
Transportation, gathering and processing expenses 1.15
0.84
36.9 % 0.96
0.86
11.6 %
General and administrative expense 3.44
5.41
(36.4 )% 3.67
5.00
(26.6 )%
Depreciation, depletion and amortization 14.72
18.81
(21.7 )% 15.56
20.12
(22.7 )%

Lease Operating Expenses by Operating Region (per Boe)
Wattenberg Field $ 2.49
$ 2.39
4.2 % $ 2.45
$ 2.77
(11.6 )%
Delaware Basin 6.07
—
*
5.76
—
*
Utica Shale 1.91
1.27
50.4 % 1.60
1.87
(14.4 )%



*	Percentage change is not meaningful.

Amounts may not recalculate due to rounding.(1)In March 2018, we completed the disposition of our Utica Shale properties.

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Crude Oil, Natural Gas and NGLs Sales

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, crude oil, natural gas and NGLs sales revenue increased compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 due to the following (in millions):


	September 30, 2017				June 30, 2018
	Three Months Ended		Nine Months Ended		Three Months Ended			Six Months Ended
	(in millions)				(in millions)
Increase in production	$	63.0	$	154.5	$	41.4		$	118.2
Increase in average crude oil price	12.2		86.0		71.2			112.6
Increase in average natural gas price	2.5		31.7
Decrease in average natural gas price					(14.5		)	(22.2		)
Increase in average NGLs price	13.2		35.8		14.2			19.3
Total increase in crude oil, natural gas and NGLs sales revenue	$	90.9	$	308.0	$	112.3		$	227.9

Crude Oil, Natural Gas and NGLs Production

The following ~~tables present~~table presents crude oil, natural gas and NGLs production. ~~Our acquisitions of assets in the Delaware Basin closed in December 2016; therefore, there is no comparative data for the three and nine months ended September 30, 2016:~~


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
Production by Operating Region	2017	2016	Percentage Change		2017	2016	Percentage Change			2018	2017	Percentage Change		2018	2017	Percentage Change
Crude oil (MBbls)
Wattenberg Field	2,943	2,216	32.8	%	7,883	5,929	33.0	%		2,943	2,798	5.2	%	5,823	4,940	17.9	%
Delaware Basin	436	—	*		1,075	—	*			1,005	364	176.1	%	1,876	639	193.6	%
Utica Shale	60	124	(51.4	)%	226	312	(27.7	)%
Utica Shale (1)										—	75	(100.0	)%	46	166	(72.3	)%
Total	3,439	2,340	47.0	%	9,184	6,241	47.2	%		3,948	3,237	22.0	%	7,745	5,745	34.8	%
Natural gas (MMcf)
Wattenberg Field	15,788	12,700	24.3	%	44,694	34,968	27.8	%		15,836	15,192	4.2	%	31,360	28,906	8.5	%
Delaware Basin	2,781	—	*		6,052	—	*			4,851	2,025	139.6	%	8,500	3,271	159.9	%
Utica Shale	501	717	(30.2	)%	1,691	1,800	(6.0	)%
Utica Shale (1)										—	566	(100.0	)%	414	1,190	(65.2	)%
Total	19,070	13,417	42.1	%	52,437	36,768	42.6	%		20,687	17,783	16.3	%	40,274	33,367	20.7	%
NGLs (MBbls)
Wattenberg Field	1,564	1,353	15.6	%	4,473	3,240	38.0	%		1,544	1,551	(0.5	)%	2,973	2,909	2.2	%
Delaware Basin	282	—	*		625	—	*			443	212	109.0	%	826	343	140.8	%
Utica Shale	46	75	(38.7	)%	151	162	(7.3	)%
Utica Shale (1)										—	51	(100.0	)%	34	105	(67.6	)%
Total	1,892	1,428	32.5	%	5,249	3,402	54.3	%		1,987	1,814	9.5	%	3,833	3,357	14.2	%
Crude oil equivalent (MBoe)
Wattenberg Field	7,138	5,686	25.5	%	19,805	14,997	32.1	%		7,126	6,882	3.5	%	14,023	12,667	10.7	%
Delaware Basin	1,182	—	*		2,709	—	*			2,256	914	147.0	%	4,118	1,527	169.6	%
Utica Shale	189	318	(40.6	)%	658	774	(15.0	)%
Utica Shale (1)										—	219	(100.0	)%	149	469	(68.2	)%
Total	8,509	6,004	41.7	%	23,172	15,771	46.9	%		9,382	8,015	17.1	%	18,290	14,663	24.7	%
Average crude oil equivalent per day (Boe)									Average crude oil equivalent per day (Boe)
Wattenberg Field	77,582	61,804	25.5	%	72,545	54,733	32.5	%		78,308	75,621	3.6	%	77,475	69,984	10.7	%
Delaware Basin	12,845	—	*		9,923	—	*			24,791	10,047	146.8	%	22,751	8,437	169.7	%
Utica Shale	2,064	3,459	(40.3	)%	2,412	2,825	(14.6	)%
Utica Shale (1)										—	2,410	(100.0	)%	823	2,590	(68.2	)%
Total	92,491	65,263	41.7	%	84,880	57,558	47.5	%		103,099	88,078	17.1	%	101,049	81,011	24.7	%

* Percentage change is not meaningful.



	Amounts may not recalculate due to rounding.
(1)	In March 2018, we completed the disposition of our Utica Shale properties.

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The following table presents our crude oil, natural gas and NGLs production ratio by operating region:



Three Months Ended June 30, 2018

	Crude Oil	Natural Gas	NGLs	Total
Wattenberg Field	41%	37%	22%	100%
Delaware Basin	45%	36%	20%	100%

Three Months Ended June 30, 2017

	Crude Oil	Natural Gas	NGLs	Total
Wattenberg Field	41%	37%	23%	100%
Delaware Basin	40%	37%	23%	100%



Six Months Ended June 30, 2018

	Crude Oil	Natural Gas	NGLs	Total
Wattenberg Field	42%	37%	21%	100%
Delaware Basin	46%	34%	20%	100%

Six Months Ended June 30, 2017

	Crude Oil	Natural Gas	NGLs	Total
Wattenberg Field	39%	38%	23%	100%
Delaware Basin	42%	36%	22%	100%

Wattenberg Field. In the Wattenberg Field, we rely on third-party midstream service providers to construct gathering, compression and processing facilities to keep pace with our and the overall field's natural gas production growth. ~~From time-to-time,~~During the three and six months ended June 30, 2018, our production ~~has been~~was adversely ~~affected~~impacted by high line pressures on ~~the~~ gas gathering facilities, primarily due to ~~higher ambient temperatures and~~ increases in field-wide production ~~volumes. As a result, we have experienced some~~volumes, gathering line freezes that occur more often at higher line pressures and unexpected facility downtime. Line pressures did not materially affect our production

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~~curtailments from time to time, including in~~ during the third quarter of 2017. We believe that our 2017 production guidance range appropriately reflects the impact of such higher gathering system line pressures. Our primary midstream service provider has added some additional capacity to its system in 2017,three and ~~cooler weather is expected to help increase the efficiency of the system in the fourth quarter of 2017. For the nine~~six months ended ~~September~~June 30, 2017. During the six months ended June 30, 2018 and 2017, 9397 percent and 92 percent, respectively, of our production in the Wattenberg Field was delivered from horizontal wells, with the remaining ~~seven percent~~production coming from vertical wells. The horizontal wells are less prone to ~~issues~~curtailments than the vertical wells ~~in that~~because they are newer and have greater producing capacity and higher formation pressures and therefore tend to be more resilient to gas system pressure ~~issues. While this will lessen~~issues; however, currently all of our wells in the ~~impact of the pressures, we expect to continue~~field are experiencing some adverse impact. We have continued to operate in a constrained environment ~~through~~into the ~~first nine months~~third quarter of ~~2018, at which time additional~~2018. Additional processing capacity iswas brought into operation by DCP Midstream, LP ("DCP") in August 2018, with further processing capacity scheduled to be brought into operation ~~by our primary midstream provider.~~during the second quarter of 2019.

We continue to work closely with our third-party midstream providers in an effort to ensure that adequate midstream system capacity is available going forward in the Wattenberg Field. We, along with other operators, have made a commitment ~~with~~to DCP ~~Midstream, LP ("DCP")~~ to support ~~DCP's~~its construction of two additional processing facilities, including a plant that was completed and turned on line in August 2018, with associated gathering ~~pipe~~ and compression in the field. These expansions are expected to increase DCP's system capacity, assist in the control of line pressures on its natural gas gathering facilities and reduce production curtailments in the field. We will be bound to the incremental volume requirements in these agreements for a period of seven years beginning on the first day of the calendar month after the actual in-service ~~dates~~date of the ~~plants, which are currently~~relevant plant. The second plant is scheduled to ~~occur~~be completed and turned on line in the ~~fourth~~second quarter of ~~2018 and April~~ 2019. ~~We are currently working with DCP to identify opportunities to accelerate the completion of the first of these facilities. The~~These agreements impose a baseline volume commitment and a guarantee of a certain target profit margin to DCP on those volumes during the initial three years of the contracts. Under our current drilling plans and in the current commodity pricing environment, we expect to meet both the baseline and incremental volume commitments, and we believe that the contractual target profit margin will be achieved ~~without additional~~with minimal, if any, payment from us. See the footnote titled Commitments and Contingencies to our condensed consolidated financial statements included elsewhere in this report for additional details regarding these agreements. In addition, we have begun early discussions with DCP with respect to further increasing its processing capacity in the ~~agreements.~~Wattenberg Field. We also continue to work with ~~all of~~ our other midstream service providers in the field in an effort to ensure all of the existing infrastructure is fully utilized and that all options for system expansions are evaluated and implemented, where possible.

The ultimate timing and availability of adequate infrastructure is not within our control and if our midstream service providers' construction projects are delayed, we could experience higher gathering line pressures that may negatively impact our ability to fulfill our growth plans. Total system infrastructure performance may also be affected by a number of other factors, including potential additional increases in production from the Wattenberg Field.

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service providers' construction projects are delayed, we could experience elevated gathering line pressures for extended periods of time that would negatively impact our ability to meet our production targets.

Delaware Basin. Due to prolific development and the resulting increased production in the Delaware Basin, product takeaway infrastructure downstream of in-field gathering and processing facilities is operating near capacity. We are dependent upon third parties to construct downstream takeaway infrastructure, including crude oil, natural gas and NGL pipelines. This has the potential to lead to near term production constraints until new capacity is added. We expect additional infrastructure to be built starting in the second half of 2019. Until the additional infrastructure is turned on line, our production may be negatively impacted by midstream capacity issues from time to time. We have the option to transport a portion of our crude oil production via truck or rail; however, doing so would decrease the realized prices we receive. A current trucking shortage in the basin could result in increased differentials. In the second quarter of 2018, we entered into separate agreements for pipeline capacity for portions of our Delaware Basin crude oil and natural gas production. The crude oil agreement runs through December 2023 and provides for firm physical takeaway for approximately 85 percent of our forecasted 2018 and 2019 Delaware Basin crude oil volumes. The agreement provides us with price diversification through realization of export market pricing via a Corpus Christi terminal and exposure to Brent-weighted prices. As a result of this agreement, we expect to realize between 88 and 92 percent of West Texas Intermediate ("WTI") crude oil pricing for our total Delaware Basin production through 2018 and 2019, after deducting transportation and other related marketing expenses. Our actual realization for all Delaware Basin production for the second quarter of 2018 was 92 percent of WTI crude oil pricing. Our Delaware Basin natural gas sales agreements run through December 2019 and provide for firm physical takeaway capacity, which varies from approximately between 40,000 MMbtu and 75,000 MMbtu per day of our Delaware Basin natural gas volumes during the period of the agreements. Our Delaware Basin natural gas sales were partially curtailed during the second quarter of 2018 as a result of a shortage of our midstream compression capacity in our Central area of the basin. We plan to install additional compression in this area during the third quarter of 2018, which we expect will provide sufficient capacity to move our Central area natural gas volumes.

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Crude Oil, Natural Gas and NGLs Pricing

Our results of operations depend upon many factors. Key factors include the price of crude oil, natural gas and NGLs and our ability to market our production effectively. Crude oil, natural gas and ~~NGL~~NGLs prices have a high degree of volatility and our realizations can change substantially. Our sales prices for crude oil ~~natural gas,~~ and NGLs increased during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. NYMEX average daily crude oil prices increased ~~seven~~41 percent and 2030 percent ~~respectively,~~ and NYMEX first-of-the-month natural gas prices ~~increased seven~~decreased 12 percent and 3811 percent ~~respectively,~~for the three and six months ended June 30, 2018 as compared to the three and ~~nine~~six months ended ~~September~~June 30, 2016. The NGL prices in the Wattenberg Field are reflected in the tables below, net of the processing and transport costs that are embedded in the applicable percent-of-proceeds contracts, as are a portion of our Delaware Basin NGL sales.2017.

The following tables present weighted-average sales prices of crude oil, natural gas and NGLs for the periods presented. ~~Our acquisitions of assets in the Delaware Basin closed in December 2016; therefore, there is no comparative data for the three and nine months ended September 30, 2016:~~



	Three Months Ended June 30,						Six Months Ended June 30,
Weighted-Average Realized Sales Price by Operating Region					Percentage Change						Percentage Change
(excluding net settlements on derivatives)	2018		2017		Percentage Change		2018		2017		Percentage Change
Crude oil (per Bbl)
Wattenberg Field	$	64.57	$	46.19	39.8	%	$	61.88	$	47.46	30.4	%
Delaware Basin	62.31		44.81		39.1	%	61.86		46.73		32.4	%
Utica Shale (1)	—		43.19		(100.0	)%	58.10		45.05		29.0	%
Weighted-average price	63.99		45.97		39.2	%	61.85		47.31		30.7	%
Natural gas (per Mcf)
Wattenberg Field	$	1.43	$	2.24	(36.2	)%	$	1.67	$	2.30	(27.4	)%
Delaware Basin	1.54		1.37		12.4	%	1.78		1.60		11.3	%
Utica Shale (1)	—		2.76		(100.0	)%	2.68		2.88		(6.9	)%
Weighted-average price	1.46		2.16		(32.4	)%	1.71		2.26		(24.3	)%
NGLs (per Bbl)
Wattenberg Field	$	19.60	$	14.13	38.7	%	$	19.86	$	16.24	22.3	%
Delaware Basin	29.26		17.33		68.8	%	28.56		19.33		47.7	%
Utica Shale (1)	—		17.10		(100.0	)%	24.29		22.58		7.6	%
Weighted-average price	21.76		14.59		49.1	%	21.78		16.75		30.0	%
Crude oil equivalent (per Boe)
Wattenberg Field	$	34.09	$	26.91	26.7	%	$	33.64	$	27.50	22.3	%
Delaware Basin	36.80		24.91		47.7	%	37.58		27.32		37.6	%
Utica Shale (1)	—		25.72		(100.0	)%	30.98		28.29		9.5	%
Weighted-average price	34.74		26.65		30.4	%	34.51		27.50		25.5	%

Three Months Ended September 30, Nine Months Ended September 30,
Weighted-Average Realized Sales Price by Operating Region Percentage Change Percentage Change
(excluding net settlements on derivatives) 2017 2016 2017 2016
Crude oil (per Bbl)
Wattenberg Field $ 45.80
$ 42.29
8.3 % $ 46.84
$ 37.42
25.2 %
Delaware Basin 45.06
—
*
46.05
—
*
Utica Shale 43.03
38.93
10.5 % 44.51
35.61
25.0 %
Weighted-average price 45.66
42.11
8.4 % 46.69
37.33
25.1 %
Natural gas (per Mcf)
Wattenberg Field $ 2.09
$ 2.08
0.5 % $ 2.23
$ 1.63
36.8 %
Delaware Basin 2.74
—
*
2.13
—
*
Utica Shale 1.81
1.33
36.1 % 2.56
1.44
77.8 %
Weighted-average price 2.17
2.04
6.4 % 2.23
1.62
37.7 %
NGLs (per Bbl)
Wattenberg Field $ 17.49
$ 11.07
58.0 % $ 16.68
$ 10.32
61.6 %
Delaware Basin 20.87
—
*
20.02
—
*
Utica Shale 22.00
12.14
81.2 % 22.40
12.22
83.3 %
Weighted-average price 18.11
11.12
62.9 % 17.24
10.41
65.6 %
Crude oil equivalent (per Boe)
Wattenberg Field $ 27.33
$ 23.77
15.0 % $ 27.44
$ 20.83
31.7 %
Delaware Basin 28.07
—
*
27.65
—
*
Utica Shale 23.75
20.98
13.2 % 26.98
20.26
33.2 %
Weighted-average price 27.35
23.62
15.8 % 27.45
20.80
32.0 %

* Percentage change is not meaningful.



	Amounts may not recalculate due to rounding.
(1)	In March 2018, we completed the disposition of our Utica Shale properties.

~~During the three months ended September 30, 2017, the weighted-average realized sales price for~~Crude oil, natural gas inand NGLs revenues are recognized when we have transferred control of crude oil, natural gas or NGLs production to the ~~Delaware Basin was impacted~~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 ~~entry into a~~applicable sales agreement. We estimate our sales volumes based on company-measured volume readings. We then adjust our crude oil, natural gas ~~gathering contract that we accounted for under the gross method of accounting; therefore, our realized price was~~and NGLs sales in subsequent periods based on the ~~gross selling price.~~data received from our purchasers that reflects actual volumes and prices received.

Our crude oil, natural gas and NGLs sales are recorded ~~under~~using either the “net-back” or "gross" method of accounting, depending upon the related purchase agreement. We use the net-back method when control of ~~accounting for~~the crude oil, natural gas ~~and~~or NGLs as well as the majority of our crude oil production from the Wattenberg Field, for all of our crude oil, NGLs, and a portion of our natural gas in the Delaware Basin, and for crude oil from the Utica Shale, ashas been transferred to the purchasers of these commodities ~~also provide~~that are providing transportation, gathering or processing services. In these situations, the purchaser pays us proceeds based on a percent of the proceeds or have fixed our sales price at index less specified deductions. We sell our commodities at the wellhead, or what is equivalent to the wellhead in situations where we gather multiple wells into larger pads, and collect a price and recognize revenues based on the wellhead sales price, as transportation and processing costs downstream of the wellhead are incurred by the purchaser and therefore embedded in the wellhead price. The net-back method results in the recognition of a net sales price that is lower than the indices

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~~price that is lower than the indices~~ for which the production is based because the operating costs and profit of the midstream facilities are embedded in the net price we ~~earn.~~are paid.

We use the gross method of accounting ~~for Wattenberg Field~~when control of the crude oil, ~~delivered through certain pipelines, a portion of our~~ natural gas ~~in the Delaware Basin, and for natural gas and~~or NGLs ~~sales related~~is not transferred to ~~production from the Utica Shale, as~~ the purchasers doand the purchaser does not provide transportation, gathering or processing services as a function of the price we receive. Rather, we contract separately with midstream providers for the applicable transport and processing ~~based~~ on a per unit basis. Under this method, we recognize revenues based on the gross selling price and recognize transportation, gathering and processing expenses.

We adopted the New Revenue Standard effective January 1, 2018. Under the New Revenue Standard, certain crude oil sales in the Wattenberg Field that were recognized using the gross method prior to the adoption of the New Revenue Standard are recognized using the net-back method. In the Delaware Basin, certain crude oil and natural gas sales that were recognized using the gross method prior to the adoption of the New Revenue Standard are recognized using the net-back method. If we had adopted the New Revenue Standard on January 1, 2017, we estimate that the average realization percentage before transportation, gathering and processing expenses for the three months ended June 30, 2017 would have been 94 percent, 67 percent and 30percent for crude oil, natural gas and NGLs, respectively, as $2.8 million in expenses currently recorded in transportation, gathering and processing expense on our condensed consolidated statements of operations for that period would, in that case, have been reflected as a reduction to the sales price. For the six months ended June 30, 2017, the realization percentage before transportation, gathering and processing expense would have been 93 percent, 69 percent and 33percent for crude oil, natural gas and NGLs, respectively, as $5.4 million in expenses currently recorded in transportation, gathering and processing expense on our condensed consolidated statements of operations for that period would have been reflected as a reduction to the sales price. However, the net realized price after transportation, gathering and processing would not have changed.

As discussed above, we enter into agreements for the sale and transportation, gathering and processing of our production, the terms of which can result in variances in the per unit realized prices that we receive for our crude oil, natural gas and NGLs. Information related to the components and classifications in the condensed consolidated statements of operations is shown below. For crude oil, the average NYMEX prices shown below are based upon average daily prices throughout each month and, ~~our~~for natural gas, the average NYMEX pricing is based upon first-of-the-month index prices, as in each case this is the method used to sell the majority ~~of each~~ of these commodities pursuant to terms of the respective sales agreements. For NGLs, we use the NYMEX crude oil price as a reference for presentation purposes. The average realized price both before and after transportation, gathering and processing expenses shown in the table below represents our approximate composite per barrel price for NGLs.

For the three months ended
September 30, 2017
Average NYMEX Price Average Realization Percentage Before Transportation, Gathering and Processing Expenses Average Realized Price Before Transportation, Gathering and Processing Expenses Average Transportation, Gathering and Processing Expenses Average Realized Price After Transportation, Gathering and Processing Expenses
Crude oil (per Bbl) $ 48.20
95 % $ 45.66
$ 1.41
$ 44.25
Natural gas (per MMBtu) 3.00
72 % 2.17
0.24
1.93
NGLs (per Bbl) 48.20
38 % 18.11
0.25
17.86
Crude oil equivalent (per Boe) 36.92
74 % 27.35
1.15
26.20

For the three months ended
September 30, 2016
Average NYMEX Price Average Realization Percentage Before Transportation, Gathering and Processing Expenses Average Realized Price Before Transportation, Gathering and Processing Expenses Average Transportation, Gathering and Processing Expenses Average Realized Price After Transportation, Gathering and Processing Expenses
Crude oil (per Bbl) $ 44.94
94 % $ 42.11
$ 1.52
$ 40.59
Natural gas (per MMBtu) 2.81
73 % 2.04
0.08
1.96
NGLs (per Bbl) 44.94
25 % 11.12
0.29
10.83
Crude oil equivalent (per Boe) 34.48
69 % 23.62
0.84
22.78



For the Three Months Ended June 30, 2018	Average NYMEX Price		Average Realized Price Before Transportation, Gathering and Processing Expenses		Average Realization Percentage Before Transportation, Gathering and Processing Expenses		Average Transportation, Gathering and Processing Expenses		Average Realized Price After Transportation, Gathering and Processing Expenses		Average Realization Percentage After Transportation, Gathering and Processing Expenses
Crude oil (per Bbl)	$	67.88	$	63.99	94	%	$	0.92	$	63.07	93	%
Natural gas (per MMBtu)	2.80		1.46		52	%	0.24		1.22		44	%
NGLs (per Bbl)	67.88		21.76		32	%	0.18		21.58		32	%
Crude oil equivalent (per Boe)	49.11		34.74		71	%	0.96		33.78		69	%

For the Three Months Ended June 30, 2017	Average NYMEX Price		Average Realized Price Before Transportation, Gathering and Processing Expenses		Average Realization Percentage Before Transportation, Gathering and Processing Expenses		Average Transportation, Gathering and Processing Expenses		Average Realized Price After Transportation, Gathering and Processing Expenses		Average Realization Percentage After Transportation, Gathering and Processing Expenses
Crude oil (per Bbl)	$	48.28	$	45.97	95	%	$	1.38	$	44.59	92	%
Natural gas (per MMBtu)	3.18		2.16		68	%	0.08		2.08		65	%
NGLs (per Bbl)	48.28		14.59		30	%	0.31		14.28		30	%
Crude oil equivalent (per Boe)	37.48		26.65		71	%	0.81		25.84		69	%

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For the nine months ended September 30, 2017	Average NYMEX Price		Average Realization Percentage Before Transportation, Gathering and Processing Expenses		Average Realized Price Before Transportation, Gathering and Processing Expenses		Average Transportation, Gathering and Processing Expenses		Average Realized Price After Transportation, Gathering and Processing Expenses
For the Six Months Ended June 30, 2018											Average NYMEX Price		Average Realized Price Before Transportation, Gathering and Processing Expenses		Average Realization Percentage Before Transportation, Gathering and Processing Expenses		Average Transportation, Gathering and Processing Expenses		Average Realized Price After Transportation, Gathering and Processing Expenses		Average Realization Percentage After Transportation, Gathering and Processing Expenses
Crude oil (per Bbl)	$	49.47	94	%	$	46.69	$	1.42	$	45.27	$	65.37	$	61.85	95	%	$	0.80	$	61.05	93	%
Natural gas (per MMBtu)	3.17		70	%	2.23		0.15		2.08		2.90		1.71		59	%	0.23		1.48		51	%
NGLs (per Bbl)	49.47		35	%	17.24		0.29		16.95		65.37		21.78		33	%	0.21		21.57		33	%
Crude oil equivalent (per Boe)	37.99		72	%	27.45		0.96		26.49		47.77		34.51		72	%	0.89		33.62		70	%

For the nine months ended September 30, 2016	Average NYMEX Price		Average Realization Percentage Before Transportation, Gathering and Processing Expenses		Average Realized Price Before Transportation, Gathering and Processing Expenses		Average Transportation, Gathering and Processing Expenses		Average Realized Price After Transportation, Gathering and Processing Expenses
For the Six Months Ended June 30, 2017											Average NYMEX Price		Average Realized Price Before Transportation, Gathering and Processing Expenses		Average Realization Percentage Before Transportation, Gathering and Processing Expenses		Average Transportation, Gathering and Processing Expenses		Average Realized Price After Transportation, Gathering and Processing Expenses		Average Realization Percentage After Transportation, Gathering and Processing Expenses
Crude oil (per Bbl)	$	41.33	90	%	$	37.33	$	1.56	$	35.77	$	50.10	$	47.31	94	%	$	1.44	$	45.87	92	%
Natural gas (per MMBtu)	2.29		71	%	1.62		0.08		1.54		3.25		2.26		70	%	0.09		2.17		67	%
NGLs (per Bbl)	41.33		25	%	10.41		0.29		10.12		50.10		16.75		33	%	0.35		16.40		33	%
Crude oil equivalent (per Boe)	30.61		68	%	20.80		0.86		19.94		38.50		27.50		71	%	0.84		26.66		69	%

Commodity Price Risk Management, Net

We use commodity derivative instruments to manage fluctuations in crude oil, natural gas and NGLs prices. We have in place a variety of collars, fixed-price swaps and basis swaps on a portion of our estimated crude oil, natural gas and propane production. Because we sell all of our crude oil, natural gas, and NGLs production at prices related to the indexes inherent to our underlying derivative instruments, we ultimately realize value related to our collars of no less than the floor and no more than the ceiling. For our commodity swaps, we ultimately realize the fixed price value related to the swaps. See the footnote titled Commodity Derivative Financial Instruments to our condensed consolidated financial statements included elsewhere in this report for a detailed presentation of our derivative positions as of ~~September~~June 30, ~~2017.~~2018.

Commodity price risk management, net, includes cash settlements upon maturity of our derivative instruments, as well as the change in fair value of unsettled commodity derivatives related to our crude oil, natural gas and propane production. Commodity price risk management, net, does not include derivative transactions related to our gas marketing, which are included in other income and other expenses.

Net settlements of commodity derivative instruments are based on the difference between the crude oil, natural gas and propane index prices at the settlement date of our commodity derivative instruments compared to the respective strike prices contracted for the settlement months that were established at the time we entered into the commodity derivative transaction. The net change in fair value of unsettled commodity derivatives is comprised of the net value increase or decrease in the beginning-of-period fair value of commodity derivative instruments that settled during the period, and the net change in fair value of unsettled commodity derivatives during the period or from inception of any new contracts entered into during the applicable period. The corresponding impact of settlement of the commodity derivative instruments during the period is included in net settlements for the period. The net change in fair value of unsettled commodity derivatives during the period is primarily related to shifts in the crude oil, natural gas and NGLs forward curves and changes in certain differentials.

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The following table presents net settlements and net change in fair value of unsettled derivatives included in commodity price risk management, net:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
	(in millions)												(in millions)
Commodity price risk management gain (loss), net:
Net settlements of commodity derivative instruments:
Crude oil fixed price swaps and collars	$	5.4		$	39.5		$	7.4		$	131.6
Crude oil fixed price swaps, collars and rollfactors													$	(37.2	)	$	5.1		$	(63.9	)	$	1.9
Crude oil basis protection swaps													11.7			—			11.4			—
Natural gas fixed price swaps and collars	5.1			7.7			13.5			35.8			2.5			4.8			2.6			8.5
Natural gas basis protection swaps	1.2			0.5			3.3			0.5			8.7			2.0			11.2			2.0
NGLs (propane portion) fixed price swaps	(2.1		)	—			(2.0		)	—			(2.1		)	0.1			(3.8		)	0.1
Total net settlements of commodity derivative instruments	9.6			47.7			22.2			167.9			(16.4		)	12.0			(42.5		)	12.5
Change in fair value of unsettled commodity derivative instruments:
Reclassification of settlements included in prior period changes in fair value of commodity derivative instruments	(15.6		)	(40.6		)	31.0			(169.5		)	18.1			(5.1		)	32.0			18.4
Crude oil fixed price swaps and collars	(40.0		)	4.8			26.3			(48.3		)
Crude oil fixed price swaps, collars and rollfactors													(111.4		)	43.1			(152.9		)	88.7
Natural gas fixed price swaps and collars	(2.1		)	6.1			9.2			(13.1		)	(2.3		)	8.3			(3.2		)	16.7
Natural gas basis protection swaps	1.5			1.4			3.4			0.7			(1.7		)	(0.2		)	5.0			2.3
NGLs (propane portion) fixed price swaps	(5.6		)	—			(5.6		)	—			(2.4		)	(0.2		)	(1.8		)	—
Net change in fair value of unsettled commodity derivative instruments	(61.8		)	(28.3		)	64.3			(230.2		)	(99.7		)	45.9			(120.9		)	126.1
Total commodity price risk management gain (loss), net	$	(52.2	)	$	19.4		$	86.5		$	(62.3	)	$	(116.1	)	$	57.9		$	(163.4	)	$	138.6

Net settlements of commodity derivatives and net change in fair value of unsettled derivatives decreased for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018 as compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2016. We entered into agreements for~~2017 as a result of the ~~derivative instruments that settled throughout 2016 prior to~~increase in future commodity prices ~~becoming depressed~~during 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 had settled by the end of 2016. Net~~net settlements for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017, reflect~~2018 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,~~during the three months ended June 30, 2018 which ~~more closely approximate recent realized prices. Based upon~~eliminated the ~~forward strip pricing at September 30, 2017, we expect that settlements will continue~~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.

Lease Operating Expenses

Lease operating expenses increased 61 percent to $2.98 per Boe and $2.81 per Boe during the three and nine months ended September 30, 2017, respectively, compared to $2.33 per Boe and $2.73 per Boe during the three and nine months ended September 30, 2016, respectively. Our lease operating expenses per Boe were $2.50 per Boe during$32.3 million in the three months ended June 30, ~~2017 and $2.98 per Boe during~~2018 compared to $20.0 million in the three months ended ~~March 31,~~June 30, 2017. ~~Our per Boe costs have increased compared to prior year periods primarily due to the expected higher per Boe costs in the Delaware Basin.~~ The ~~per Boe costs during the three months ended September 30, 2017 increased as compared to the three months ended September 30, 2016,~~increase was primarily due to increases of ~~$0.19 per Boe for water disposal, $0.15 per Boe for environmental remediation costs, and $0.14 per Boe~~$4.4 million for increased workover ~~projects.~~

~~Aggregate lease operating expenses during the three months ended September 30, 2017, increased $11.4 million as compared to the three months ended September 30, 2016, of which $7.2~~projects, $1.6 million related to ~~our properties in the Delaware Basin.The increase of $11.4 million is primarily due to increases of $2.9~~additional compressor and equipment rentals, $1.2 million for payroll and employee benefits related to increases in headcount, ~~$1.9~~$1.2 million for environmental remediation expenses, $0.8 million related to midstream expense in the Delaware Basin and $0.8 million for produced water ~~disposal, $1.8~~disposal. Lease operating expense per Boe increased by 38 percent to $3.44 for the three months ended June 30, 2018 from $2.50 for the three months ended June 30, 2017.

Lease operating expenses increased 55 percent to $61.9 million in the six months ended June 30, 2018 compared to $39.8 million in the six months ended June 30, 2017. The increase was primarily due to increases of $4.6 million for increased workover projects, ~~$1.5 million for environmental remediation costs, and $1.3 million related to additional compressor rentals to combat increased gathering system line pressures.~~

Aggregate lease operating expenses during the nine months ended September 30, 2017, increased $22.2 million as compared to the nine months ended September 30, 2016, of which $15.6 million related to our properties in the Delaware Basin. The increase of $22.2 million is primarily due to increases of $7.2$3.1 million for payroll and employee benefits related to increases in headcount, ~~$3.7~~$2.9 million related to additional compressor and equipment rentals, $2.5 million related to midstream expense in the Delaware Basin, $2.1 million for environmental remediation expenses, $1.3 million for produced water disposal ~~$3.5 million for workover projects, $3.1~~and $1.1 million related to chemical treatment programs. Lease operating expense per Boe increased by 24 percent to $3.38 for the six months ended June 30, 2018 from $2.72 for the six months ended June 30, 2017.

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additional compressor rentals to combat increased gathering system line pressures, and $2.5 million related to vehicle and equipment expenses. We expect continued increases in our headcount through the remainder of 2017 as we grow our Delaware Basin production base and production team. On a per unit basis, we expect much of this increased cost of personnel will be offset by increases in our production.

Production Taxes

Production taxes are comprised mainly of severance tax and ad valorem tax and are directly related to crude oil, natural gas and NGLs sales and are generally assessed as a percentage of net revenues. From ~~time-to-time,~~time to time, there are adjustments to the statutory rates for these taxes based upon certain credits that are determined based upon activity levels and relative commodity prices from year-to-year. ~~The $5.9~~

Production taxes increased 50 percent to $22.6 million ~~and $23.3 million increases~~ in ~~production taxes during~~ the three ~~and nine~~ months ended ~~September~~June 30, 2018 compared to $15.0 million in the three months ended June 30, 2017, ~~respectively, compared~~primarily due to the ~~three and nine months ended September 30, 2016 were primarily related to the 64~~53 percent ~~and 94 percent increases~~increase in crude oil, natural gas and NGLs ~~sales.~~sales for the three months ended June 30, 2018 compared to the three months ended June 30, 2017, as well as an increase in the ad valorem tax rate in the Delaware Basin related to an increase in assessed property values.

Production taxes increased 56 percent to $42.8 million in the six months ended June 30, 2018 compared to $27.4 million in the six months ended June 30, 2017, primarily due to the 57 percent increase in crude oil, natural gas and NGLs sales for the six months ended June 30, 2018 compared to the six months ended June 30, 2017, as well as an increase in the ad valorem tax rate in the Delaware Basin related to an increase in assessed property values.

Transportation, Gathering and Processing Expenses

Transportation, gathering and processing expenses increased ~~$4.7~~38 percent to $9.0 million ~~and $8.6 million during~~in the three ~~and nine~~ months ended ~~September~~June 30, ~~2017, respectively,~~2018 compared to $6.5 million in the three ~~and nine~~ months ended ~~September~~June 30, ~~2016.~~2017. The ~~primary drivers of these increases were $1.3 million and $3.7 million increases in oil transportation costs~~increase was primarily due to ~~increased volumes delivered through a pipeline in the Wattenberg Field and increases~~an increase of ~~$3.8 million and~~ $5.2 million ~~respectively,~~ related to natural gas gathering and transportation operations in the Delaware ~~Basin. The increases during the three~~Basin and ~~nine months ended September 30, 2017 were slightly offset by decreases related~~a $1.2 million increase in oil transportation costs due to ~~lower production in the Utica Shale. When feasible, we use~~additional volumes delivered through pipelines in the Wattenberg Field, ~~to deliver crude oil~~partially offset by a $2.8 million decrease resulting from the adoption of the New Revenue Standard on January 1, 2018 whereby we record certain portions of our current transportation, gathering and processing expense as a reduction to the ~~market in an effort~~sales price and a $1.1 million decrease due to ~~decrease field truck traffic and air emissions.~~the disposition of the Utica Shale properties. Transportation, gathering and processing expenses per Boe increased to ~~$1.15 and~~ $0.96 for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017, respectively,~~2018 compared to $0.81 for the three months ended June 30, 2017.

Transportation, gathering and processing expenses increased 31 percent to $16.3 million in the six months ended June 30, 2018 compared to $12.4 million in the six months ended June 30, 2017. The increase was primarily due to an increase of $8.6 million related to natural gas gathering and transportation operations in the Delaware Basin and a $2.0 million increase in oil transportation costs due to additional volumes delivered through pipelines in the Wattenberg Field, partially offset by a $5.0 million decrease resulting from the adoption of the New Revenue Standard on January 1, 2018 whereby we record certain portions of our current transportation, gathering and processing expense as a reduction to the sales price and a $1.8 million decrease due to the disposition of the Utica Shale properties. Transportation, gathering and processing expenses per Boe increased to $0.89 for the six months ended June 30, 2018 compared to $0.84 ~~and $0.86~~ for the ~~three and nine~~six months ended ~~September~~June 30, ~~2016, respectively.~~2017. As discussed in ~~As disclosed previously in this section, there is an interaction with the marketing contracts in determining if~~Crude Oil, Natural Gas and NGLs Pricing, whether transportation, gathering and processing costs are presented separately or ~~presented~~are reflected as a reduction to net ~~in the~~ revenue ~~section of our financial statements; therefore, the net realized price analysis~~ is a ~~useful analysis to understand our net realized prices.~~

~~Exploration, Geologic, and Geophysical Expense~~

~~The following table presents~~function of the ~~major components~~terms of ~~exploration, geologic, and geophysical expense:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in millions)

Exploratory dry hole costs $ 41.2
$ —
$ 41.2
$ —
Geological and geophysical costs, including seismic purchases 0.5
—
1.8
—
Operating, personnel and other 0.2
0.2
0.9
0.7
Total exploration, geologic, and geophysical expense $ 41.9
$ 0.2
$ 43.9
$ 0.7

~~Exploratory dry hole costs.~~ ~~During~~ the three and nine months ended September 30, 2017, two exploratory dry hole wells, associated lease costs, and related infrastructure assets in the Delaware Basin were expensed at a cost of $41.2 million. The conclusion to expense these items was due to the determination that the acreage on which these wells were drilled was exploratory in nature and, following drilling, the lack of hydrocarbon production necessary for the wells to be deemed economically viable.relevant marketing contract.

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Impairment of Properties and Equipment

The following table sets forth the major components of our impairment of properties and equipment expense:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in millions)

Impairment of unproved properties $ 252.6
$ 0.3
$ 282.2
$ 2.4
Amortization of individually insignificant unproved properties 0.1
0.6
0.3
0.7
Impairment of crude oil and natural gas properties
252.7
0.9
282.5
3.1
Land and buildings —
—
—
3.0
Total impairment of properties and equipment $ 252.7
$ 0.9
$ 282.5
$ 6.1



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in millions)

Impairment of proved and unproved properties	$	159.5	$	27.5	$	192.6	$	29.6
Amortization of individually insignificant unproved properties	—		0.1		0.1		0.2
Impairment of crude oil and natural gas properties	$	159.5	$	27.6	$	192.7	$	29.8

~~Impairment of unproved properties.~~ ~~Amounts represent~~During the ~~retirement or expiration of certain leases that are no longer part of our development plan or that~~six months ended June 30, 2018, we ~~do not plan to extend and will allow to expire. Deterioration of commodity prices or other operating circumstances could result in additional~~recorded impairment charges ~~as such a change could decrease~~totaling $192.7 million, including $159.5 million during the ~~number of wells drilled in future periods.~~

three months ended June 30, 2018. During the three months ended ~~September~~June 30, ~~2017,~~2018, we ~~recorded a charge related to two exploratory dry holes we had drilled in the western area~~identified current and anticipated near-term leasehold expirations within our non-focus areas of ~~our Culberson County acreage in~~ the Delaware Basin ~~as referenced previously. We then assessed~~and made the impact of the dry holes and various factors related thereto, including (i) the operational and geologic data obtained, (ii) the current increased cost environment for drilling and completion services in the Delaware, (iii) our decreased future commodity price outlook, and (iv) the terms of the related lease agreements. Based on the results of this assessment, we concluded that the underlying geologic risk and the challenged economics of future capital expenditures reduced the likelihooddetermination that we would ~~perform~~no longer pursue plans to develop these properties. The impaired non-focus leasehold typically has a higher gas to oil ratio and a greater degree of geologic complexity than our other Delaware Basin properties and is further impacted by widening natural gas differentials and increased well development costs. We intend to focus our future Delaware Basin development in ~~this area over the remaining lease term for this acreage. Accordingly,~~our oilier core areas where we ~~recorded an impairment of $251.6 million covering~~have identified approximately 13,400 acres during the third quarter of 2017. The amount of the impairment was based on the value assigned to individual lease acres in the final purchase price allocation of the business combination. This allocation had included the consideration paid to the sellers, including the effect of the non-cash impact from the deferred tax liability created at the time of the acquisition. Due to the aforementioned events and circumstances in the third quarter of 2017, we evaluated our proved property for possible impairment and concluded that these assets were not impaired during the period.

~~Impairment of Goodwill~~

The final goodwill that resulted from the purchase price allocation of the assets acquired in the Delaware Basin was determined to be $75.1 million. With the creation of goodwill from this transaction, we expected to perform our evaluation of goodwill for impairment annually in the fourth quarter. However, primarily due to a combination of increases in per well development and operational costs and our drilling of two exploratory dry holes in the Delaware Basin since the time of the acquisition, in conjunction with our lower future commodity price outlook, we determined a triggering event had occurred in the quarter ended September 30, 2017. In addition to the factors mentioned above, we also considered our recent impairments of certain unproven leasehold costs, and the impact of these items on our internal expectations for acceptable rates of return. We evaluated goodwill for impairment by performing a quantitative test, which involves comparing the estimated fair value of the goodwill asset group, which we define as the Delaware Basin, to the carrying value. We determined the fair value of the goodwill at September 30, 2017 by using an estimated after-tax future discounted cash flow analysis, along with a combination of market-based pricing factors for similar acreage, reserve valuation techniques, and other fair value considerations. The discounted cash flow analysis used to estimate fair value was based on known or knowable information at the interim measurement date. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. The quantitative test resulted in a determination that a full impairment charge of $75.1 million was required; therefore, the charge was recorded in the quarter ended September 30, 2017.

~~General and Administrative Expense~~

General and administrative expense decreased $3.2 million for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016. The decrease of $3.2 million was primarily attributable to a decrease of $10.2 million in professional fees related to the Delaware Basin acquisition that were incurred in 2016, partially offset by450 mid-length lateral equivalent

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~~increases~~Wolfcamp drilling locations. We continue to explore options for our non-focus areas and monitor them for possible future impairment based on similar analyses. We determined the fair value of ~~$3.7 million in payroll~~the properties based upon estimated future discounted cash flow, a Level 3 input, using estimated production and ~~employee benefits related to an increase in headcount for 2017 as compared to 2016, $2.0 million related to professional services,~~prices at which we reasonably expect the crude oil and ~~$0.8 million for adjustments to the accounts receivable allowance.~~natural gas will be sold.

General and Administrative Expense

General and administrative expense increased ~~$6.3~~26 percent to $37.2 million ~~for~~in the ~~nine~~three months ended ~~September~~June 30, ~~2017, as~~2018 compared to $29.5 million in the ~~nine~~three months ended ~~September~~June 30, ~~2016.~~2017. The increase ~~of $6.3 million~~ was primarily attributable to ~~increases of $7.5~~a $4.1 million increase in payroll and employee benefits, ~~due to an~~a $1.9 million increase ~~in headcount for 2017 as compared to 2016, $2.9 million~~ related to professional services ~~$2.4~~and a $1.0 million increase related to ~~legal settlements, $1.0~~government relations.

General and administrative expense increased 31 percent to $72.9 million in ~~software maintenance agreements and subscriptions, and $1.0~~the six months ended June 30, 2018 compared to $55.8 million in ~~rent expense.~~the six months ended June 30, 2017. The ~~increases were partially offset by~~increase was primarily attributable to a ~~decrease of $10.2~~$10.3 million increase in ~~professional fees~~payroll and employee benefits, a $4.0 million increase related to ~~the Delaware Basin acquisition during the third quarter of 2016. We expect continued increases~~professional services and a $1.9 million increase in ~~our headcount through the remainder of 2017 as we build out our Delaware Basin operations and the associated supporting service elements.~~government relations expenses.

Depreciation, Depletion and Amortization Expense

Crude oil and natural gas properties. DD&A expense related to crude oil and natural gas properties is directly related to proved reserves and production volumes. DD&A expense related to crude oil and natural gas properties was ~~$123.6~~$133.6 million and ~~$355.7~~$258.4 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, compared to ~~$112.1~~$124.4 million and ~~$314.4~~$232.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively.

The period-over-period change in DD&A expense related to crude oil and natural gas properties was primarily due to the following:


	September 30, 2017						June 30, 2018
	Three Months Ended			Nine Months Ended			Three Months Ended			Six Months Ended
	(in millions)						(in thousands)
Increase in production	$	44.5		$	138.5		$	25.6		$	58.2
Decrease in weighted-average depreciation, depletion and amortization rates	(33.0		)	(97.2		)	(16.4		)	(32.0		)
Total increase in DD&A expense related to crude oil and natural gas properties	$	11.5		$	41.3		$	9.2		$	26.2

The following table presents our per Boe DD&A expense rates for crude oil and natural gas properties:



	Three Months Ended June 30,				Six Months Ended June 30,
Operating Region/Area	2018		2017		2018		2017
	(per Boe)
Wattenberg Field	$	12.94	$	15.30	$	13.23	$	16.05
Delaware Basin	18.34		18.14		17.69		15.46
Utica Shale (1)	—		11.27		—		11.26
Total weighted-average	$	14.24	$	15.51	$	14.13	$	15.83

Three Months Ended September 30, Nine Months Ended September 30,
Operating Region/Area 2017 2016 2017 2016
(per Boe)
Wattenberg Field $ 14.60
$ 19.17
$ 15.53
$ 20.42
Delaware Basin 15.14
—
15.32
—
Utica Shale 7.64
9.59
10.21
10.52
Total weighted-average 14.52
18.66
15.35
19.94

During the three months ended September 30, 2017, as part of plans to divest the Utica Shale properties, we engaged an investment banking group and began actively marketing the properties for sale; therefore, these properties are classified as held-for-sale as they met the criteria for such classification at the beginning of September 2017. As a result of the properties being classified as held-for-sale, we stopped recording DD&A expense on these properties during the three month period ended September 30, 2017, which has lowered the rate for the quarter.



(1)	The Utica Shale properties were classified as held-for-sale during the third quarter of 2017; therefore, we did not record DD&A
	expense on these properties in 2018. In March 2018, we completed the disposition of the properties.

Non-crude oil and natural gas properties. Depreciation expense for non-crude oil and natural gas properties was ~~$1.7~~$2.0 million and ~~$4.8~~$4.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, compared to ~~$0.9~~$1.7 million and ~~$2.9~~$3.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively.

Provision for Uncollectible Notes Receivable

In the first quarter of 2016, we recorded a provision for uncollectible notes receivable of $44.7 million to impair two third-party notes receivable whose collection was not reasonably assured. As described in the footnote titled Fair Value of Financial Instruments, in April 2017, we ~~signed a definitive agreement and simultaneously closed on the sale of~~sold one of the associated notes receivable to an unrelated third-party. Accordingly, we reversed $40.2 million of the provision for uncollectible notes receivable during the three months ended June 30, 2017.

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~~uncollectible notes receivable during the nine months ended September 30, 2017, since all cash was collected in April 2017 from the sale of the note.~~

Interest Expense

Interest expense decreased ~~$0.9~~$2.2 million to ~~$19.3~~$17.4 million for the three months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$20.2~~$19.6 million for the three months ended ~~September~~June 30, ~~2016.~~ 2017. The decrease iswas primarily ~~attributable~~related to a ~~$9.0 million charge for a bridge loan commitment related to acquisitions of properties in the Delaware Basin during the three months ended September 30, 2016 and a $0.4~~$10.0 million decrease in interest expense onrelating to the net settlement of $500 million 7.75% senior notes in December 2017 and a $1.1 million increase in capitalized interest. The decreases were partially offset by an $8.8 million increase in interest expense related to the issuance of our ~~2016 Convertible~~2026 Senior Notes ~~which were settled~~ in ~~May 2016.~~November 2017.

Interest expense decreased $4.1 million to $34.9 million for the six months ended June 30, 2018 compared to $39.1 million for the six months ended June 30, 2017. The decrease was primarily related to a $19.9 million decrease in interest expense relating to the net settlement of $500 million 7.75% senior notes in December 2017 and a $2.0 million increase in capitalized interest. The decreases were partially offset by a ~~$5.3~~$17.6 million increase in interest ~~relating~~expense related to the issuance of our ~~2024~~2026 Senior Notes ~~a $2.6 million increase~~ in ~~interest expense relating to the issuance of our 2021 Convertible Notes, and a $0.9 million increase related to fees for the redetermination of the borrowing base under our revolving credit facility.~~

Interest expense increased $15.6 million to $58.4 million for the nine months ended September 30, 2017 compared to $42.8 million for the nine months ended September 30, 2016. The increase is primarily attributable to an $18.0 million increase in interest expense relating to the issuance of our 2024 Senior Notes, a $7.7 million increase in interest expense relating to the issuance of our 2021 Convertible Notes, and a $2.5 million increase related to fees for the redetermination of the borrowing base under our revolving credit facility. These increases were partially offset by a $9.0 million charge for the bridge loan commitment related to acquisitions of properties in the Delaware Basin during the three months ended September 30, 2016 and a $3.9 million decrease in interest expense on our 2016 Convertible Notes, which were settled in May 2016.November 2017.

Provision for Income Taxes

The effective income tax rates for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 were ~~29.5~~a 22.0 percent and ~~25.8~~22.3 percent benefit on loss, respectively, compared to ~~34.0~~37.3 percent and ~~37.1~~36.8 percent ~~benefit~~expense on ~~loss~~income, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively. The most significant element related to the decrease in the effective income tax rate was the impact from the impairment of the goodwill in the quarter ended September 30,~~ 2017. This goodwill did not have an associated deferred tax liability associated with the goodwill at the time it was created, therefore, no deferred tax benefit was realized upon the impairment of the goodwill. The effective income tax rates are based upon a full year forecasted pre-tax ~~loss~~income for the year adjusted for permanent differences. The ~~forecasted full year effective~~federal corporate statutory income tax rate ~~has been applied~~decreased from 35 percent in 2017 to 21 percent in 2018 pursuant to the quarter-to-date pre-tax loss, resulting in an income tax benefit for the period. Because the estimate of full-year income or loss may change from quarter to quarter, the effective income tax rate for any particular quarter may not have a meaningful relationship to pre-tax income or loss for the quarter or the actual annual effective income tax rate that is determined at the end of the year. In addition to the impact from the goodwill impairment, the effective income tax rate for the three months ended September 30, 2017 includes discrete income tax benefits of $0.8 million for additional deductions and credits claimed on the filed 2016 federal and state income tax returns. The effective income tax rate for the nine months ended September 30, 2017 includes discrete income tax benefits of $1.8 million relating to the excess income tax benefit recognized with the vesting of stock awards and $0.8 million for additional deductions and credits claimed on the filed 2016 federal and state tax returns. These discrete tax benefits during the three and nine months ended September 30, 2017 resulted in a 0.2 percent and 0.9 percent increase to our effective income tax rates.Tax Act.

Net Income (Loss)/Adjusted Net Income (Loss)

The factors resulting in changes in net loss in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 of ~~$292.5~~$160.3 million and ~~$205.1~~$173.4 million, respectively, and a net ~~loss~~income in the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 of ~~$23.3~~$41.2 million and ~~$190.3~~$87.4 million, respectively, are discussed above. ~~These same reasons similarly impacted adjusted~~Adjusted net loss, a non-U.S. GAAP financial measure, ~~with~~was $84.5 million and $81.4 million for the three and six months ended June 30, 2018, respectively, and adjusted net income, a non-U.S. GAAP financial measure, was $12.5 million and $8.5 million for the three and six months ended June 30, 2017, respectively. With the exception of the tax affected net change in fair value of unsettled derivatives of ~~$38.6~~$75.8 million and ~~$40.3~~$92.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, and ~~$17.5~~$28.7 million and ~~$142.6~~$78.9 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively. Adjusted~~2017, respectively, these same factors impacted adjusted net ~~loss,~~income (loss), a non-U.S. GAAP financial measure, was $253.9 million and $245.4 million for the three and nine months ended September 30, 2017, respectively, and adjusted net loss was $5.8 million and $47.7 million for the three and nine months ended September 30, 2016, respectively.measure. See Reconciliation of Non-U.S. GAAP Financial Measures below for a more detailed discussion of ~~this~~these non-U.S. GAAP financial ~~measure~~measures and a reconciliation of ~~this measure~~these measures to the most comparable U.S. GAAP ~~measure.~~measures.

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~~PDC ENERGY, INC.~~

Financial Condition, Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operating activities, our revolving credit facility, proceeds raised in debt and equity capital market transactions and asset sales. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, our net cash flows from operating activities were ~~$411.4~~$380.9 million.

Our primary source of cash flows from operating activities is the sale of crude oil, natural gas and NGLs. Fluctuations in our operating cash flows are principally driven by commodity prices and changes in our production volumes. Commodity prices have historically been volatile and we manage a portion of this volatility through our use of derivative instruments. We enter into commodity derivative instruments with maturities of no greater than five years from the date of the instrument. Our revolving credit facility imposes limits on the amount of our production we can hedge, and we may choose not to hedge the maximum amounts permitted. Therefore, we may still have fluctuations in our cash flows from operating activities due to the remaining non-hedged portion of our future production. Due to a decreasing leverage ratio that we have recently experienced, the percentage of our expected future production that we currently have hedged is lower than we have historically maintained and we anticipate that this may remain the case in the near term. Based upon our current hedge position and assuming forward strip pricing as of ~~September~~June 30, ~~2017,~~2018, our derivatives ~~may not~~are expected to be a ~~significant~~ source of net cash ~~flow~~outflow in the near term.

Our working capital fluctuates for various reasons, including, but not limited to, changes in the fair value of our commodity derivative instruments and changes in our cash and cash equivalents due to our practice of utilizing excess cash to reduce the outstanding borrowings under our revolving credit facility. ~~At September~~We had working capital deficits of $391.0 million and $16.4 million at June 30, 2018 and December 31, 2017, ~~we had a~~respectively. The increase in working capital deficit ~~of $39.1 million compared to working capital of $129.2 million at December 31, 2016. The decrease in working capital~~ as of ~~September~~June 30, ~~2017~~2018 of $374.6 million is primarily the result of a decrease in cash and cash equivalents of ~~$107.7~~$179.3 million related to ~~capital investment exceeding operating cash flows and an increase in accounts payable of $97.8 million related to increased development and exploration activity, which was~~the Bayswater Acquisition, partially offset by the proceeds received from the Utica Shale Divestiture and an ~~increase~~amendment to a midstream

dedication agreement, a decrease in the net fair value of our unsettled commodity derivative instruments of ~~$41.7~~$106.8 million, an increase in accounts payable of $65.1 million related to increased development and exploration activity, and an increase in production tax liability of $19.1 million.

Our cash and cash equivalents were ~~$136.4~~$1.4 million at ~~September~~June 30, ~~2017~~2018 and availability under our revolving credit facility was ~~$700.0~~$678.0 million, providing for a total liquidity position of ~~$836.4~~$679.4 million as of ~~September~~June 30, ~~2017. Our liquidity was augmented~~2018. Based on the pricing assumptions described in ~~2017 by the $40.2 million of proceeds received in the second quarter of 2017 from the sale of the Promissory Note, as described previously. We anticipate that~~Executive Summary - Liquidity, we expect our 2018 capital investments ~~will~~to exceed our 2018 cash flows from ~~operating activities in 2017. With~~operations by between $75 million and $100 million, of which we anticipate approximately $65 million will be covered by an amendment to a midstream dedication agreement and the divestiture of our Utica Shale properties. We experienced this outspend ~~along with~~during the ~~expected closing~~first half of 2018 and expect cash flows from operations to exceed capital investment during the second half of the ~~acquisition of certain properties owned by Bayswater and certain related parties, we~~year. We expect to ~~have borrowings~~be undrawn on our ~~revolving~~ credit facility at December 31, ~~2017.~~2018.

Based on our expected cash flows from operations, our cash and cash equivalents and availability under our revolving credit facility, we believe that we will have sufficient capital available to fund our planned activities ~~during 2017.~~through the 12-month period following the filing of this report.

Our revolving credit facility is a borrowing base facility and availability under the facility is subject to redetermination, generally each May and November, based upon a quantification of our proved reserves at each December 31 and June 30, respectively. The maturity date of our revolving credit facility is May 2020. Our ability to borrow under the revolving credit facility is limited under our 2022 Senior Notes to the greater of $700 million or the calculated value under an Adjusted Consolidated Tangible Net Asset test, as defined.2023.

In May ~~2017,~~2018, we entered into ~~a Fifth Amendment to~~ the Restated Credit Agreement with certain banks and other lenders, including JPMorgan Chase Bank, N.A. as administrative agent. The Restated Credit Agreement amends and restates our Third Amended and Restated Credit ~~Agreement. The amendment, among other things, amends~~Agreement dated as of May 21, 2013. See the ~~revolving credit facility~~ footnote titled Long-Term Debt to ~~reflect an increase of~~our condensed consolidated financial statements included elsewhere in this report foradditional information regarding the ~~borrowing base from $700 million to $950 million. In addition, the Fifth Amendment made changes to certain of the covenants in the existing agreement as well as other administrative changes.~~

~~In October 2017, we entered into a Sixth Amendment to the Third Amended and~~ Restated Credit Agreement. The amendment amends the revolving credit facility to allow the borrowing base to increase above the maximum allowable borrowing capacity of $1.0 billion. We have elected to increase the borrowing base to $1.1 billion for our fall 2017 borrowing base redetermination and have elected to maintain a $700 million commitment level as of the date of this report.

Amounts borrowed under the revolving credit facility bear interest at either an alternate base rate option or a LIBOR option as defined in the revolving credit facility plus an applicable margin, depending on the percentage of the commitment that has been utilized. As of ~~September~~June 30, ~~2017,~~2018, the applicable margin is ~~1.25~~0.25 percent for the alternate base rate option or ~~2.25~~1.25 percent for the LIBOR option, and the unused commitment fee is ~~0.5~~0.375 percent.

We had noa $22.0 million outstanding balance ~~outstanding~~ on our revolving credit facility as of ~~September~~June 30, ~~2017.~~2018. In May 2017, we replaced our $11.7 million irrevocable standby letter of credit that we held in favor of a third-party transportation service

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~~PDC ENERGY, INC.~~

provider to secure a firm transportation obligation with a ~~$9.3 million~~cash deposit, which is classified as restricted cash and is included in other assets on the condensed consolidated balance sheet. As of ~~September~~June 30, 2018 and December 31, 2017, ~~the available funds under our revolving credit facility were $700~~we had $8.0 million ~~based on our elected commitment level.~~and $9.3 million in restricted cash, respectively.

Our revolving credit facility contains financial maintenance covenants. The covenants require that we maintain (i) a leverage ratio defined as total debt of less than 4.0 times the trailing 12 months earnings before interest, taxes, depreciation, depletion and amortization, change in fair value of unsettled commodity derivatives, exploration expense, gains (losses) on sales of assets and other non-cash gains (losses) and (ii) an adjusted current ratio of at least 1.0:1.0. Our adjusted current ratio is adjusted by eliminating the impact on our current assets and liabilities of recording the fair value of crude oil and natural gas commodity derivative instruments. Additionally, available borrowings under our revolving credit facility are added to the current asset calculation and the current portion of our revolving credit facility debt is eliminated from the current liabilities calculation. At ~~September~~June 30, ~~2017,~~2018, we were in compliance with all debt covenants ~~as defined by the revolving credit agreement,~~ with a leverage ratio of ~~1.8~~1.6:1.0 and a current ratio of ~~2.9.~~2.1:1.0. We expect to remain in compliance throughout the ~~next~~ 12-month ~~period.~~period following the filing of this report.

The indentures governing our ~~2022~~2024 Senior Notes and ~~2024~~2026 Senior Notes contain customary restrictive covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to: (a) incur additional debt including under our revolving credit facility, (b) make certain investments or pay dividends or distributions on our capital stock or purchase, redeem or retire capital stock, (c) sell assets, including capital stock of our restricted subsidiaries, (d) restrict the payment of dividends or other payments by restricted subsidiaries to us, (e) create liens that secure debt, (f) enter into transactions with affiliates and (g) merge or consolidate with another company. At ~~September~~June 30, ~~2017,~~2018, we were in compliance with all covenants and expect to remain in compliance throughout the next 12-month period.

In January 2017, pursuant to the filing of the supplemental indentures for the 2021 Convertible Senior Notes ~~the 2022 Senior Notes,~~ and the 2024 Senior Notes, our subsidiary PDC Permian, Inc. became a guarantor of the notes. PDC Permian, Inc. is also the

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guarantor of our 2026 Senior Notes issued in November 2017.

Cash Flows

Operating Activities. Our net cash flows from operating activities are primarily impacted by commodity prices, production volumes, net settlements from our commodity derivative positions, operating costs and general and administrative expenses. Cash flows from operating activities increased by ~~$50.6~~$108.4 million to ~~$411.4~~$380.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, primarily due to increases in crude oil, natural gas and NGLs sales of ~~$308.0~~$227.9 million. ~~These increases were~~This increase was offset in part by a decrease in commodity derivative settlements of ~~$145.7~~$55.0 million and ~~a decrease in changes in assets and liabilities of $30.8 million related to the timing of cash payments and~~ increases in ~~production taxes of $23.3 million,~~ lease operating expenses of ~~$22.2~~$22.1 million, ~~interest expense of $15.6 million, transportation, gathering, and processing expenses of $8.6 million, and~~ general and administrative expenses of ~~$6.3~~$17.1 million and production taxes of $15.3 million.

Adjusted cash flows from operations, a non-U.S. GAAP financial measure, increased by ~~$81.3~~$117.7 million to ~~$407.5~~$374.3 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The increase was primarily due to the same factors mentioned above for changes in cash flows provided by operating activities, without regard to timing of cash payments and receipts of assets and liabilities. Adjusted EBITDAX, a non-U.S. GAAP financial measure, increased by ~~$184.3~~$73.8 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The increase was primarily the result of ~~increases~~an increase in crude oil, natural gas and NGLs sales of ~~$308.0~~$227.9 million. This increase was partially offset by a decrease in commodity derivative settlements of $55.0 million, ~~the recording of a provision for uncollectible notes receivable of $44.7 million during the nine months ended September 30, 2016, and~~ the reversal of a provision for uncollectible notes receivable of $40.2 million ~~during~~in the ~~nine~~six months ended ~~September~~June 30, ~~2017. These increases were partially offset by a decrease in commodity derivative settlements of $145.7 million~~2017, and increases in ~~production taxes of $23.3 million,~~ lease operating expenses of ~~$22.2~~$22.1 million, ~~transportation, gathering, and processing expenses of $8.6 million, and~~ general and administrative expenses of ~~$6.3~~$17.1 million and production taxes of $15.3 million. See Reconciliation of Non-U.S. GAAP Financial Measures, below, for a more detailed discussion of non-U.S. GAAP financial measures.

Investing Activities. Because crude oil and natural gas production from a well declines rapidly in the first few years of production, we need to continue to commit significant amounts of capital in order to maintain and grow our production and replace our reserves. If capital is not available or is constrained in the future, we will be limited to our cash flows from operations and liquidity under our revolving credit facility as the sources for funding our capital investments.

Cash flows from investing activities primarily consist of the acquisition, exploration and development of crude oil and natural gas properties, net of dispositions of crude oil and natural gas properties. Net cash used in investing activities of ~~$512.8~~$574.1 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018 was primarily related to cash utilized ~~for our drilling operations, including completion activities of $528.9 million, $21.0 million deposit~~ toward the purchase price of the ~~acquisition~~Bayswater Acquisition of ~~certain~~

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~~properties owned by Bayswater and certain related parties, purchases of short-term investments of $49.9~~$181.1 million and ~~a $9.3 million deposit with a third-party transportation service provider for surety~~our drilling and completion activities of ~~an existing firm transportation obligation previously secured by a letter of credit.~~$432.6 million. Partially offsetting these investments was the receipt of approximately ~~$49.9~~$39.0 million related to the ~~sale of short-term investments, $40.2 million from the sale of the Promissory Note, and $5.4 million related to post-closing settlements of properties acquired in 2016.~~Utica Shale Divestiture.

Financing Activities. Net cash received from financing activities ~~for~~of $12.7 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017 decreased by approximately $1,291.1~~2018 was primarily comprised of net borrowings from our credit facility of $22.0 million, compared to the nine months ended September 30, 2016. Certain capital markets and financing activities occurred in 2016 including $855.1 million received from an issuance of our common stock, $392.3 million of proceeds from the issuance of the 2024 Senior Notes, and the $194.0 million of proceeds from the issuance of the 2021 Convertible Notes. These amounts werewhich was partially offset by ~~the $115.0~~$4.5 million ~~payment~~related to purchases of ~~principal amounts owed upon the maturity~~our stock and $4.1 million of ~~the 2016 Convertible Notes and net payments of approximately $37.0 million~~debt issuance costs, primarily related to ~~pay down amounts borrowed under~~ our ~~revolving credit facility in the first quarter of 2016.~~Restated Credit Agreement.

Off-Balance Sheet Arrangements

At ~~September~~June 30, ~~2017,~~2018, we had no off-balance sheet arrangements, as defined under SEC rules, which have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital investments or capital resources.

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Commitments and Contingencies

See the footnote titled Commitments and Contingencies to the accompanying condensed consolidated financial statements included elsewhere in this report.

Recent Accounting Standards

See the footnote titled Summary of Significant Accounting Policies to the accompanying condensed consolidated financial statements included elsewhere in this report.

~~Recent Regulatory Developments~~

On May 2, 2017, in response to an incident in Firestone, Colorado, the Colorado Oil & Gas Conservation Commission (“COGCC”) issued a Notice to Operators (the “Notice”). Among other things, the Notice included requirements for all operators of oil and gas wells in Colorado to inspect all existing flowlines and pipelines located within 1,000 feet of a building unit; inspect any abandoned flowlines or pipelines, regardless of distance to ensure proper abandonment; and test integrity of all connected flowlines.

We timely complied with both phases of the Notice. We have an existing Flowline Integrity Management Program to inspect all Denver-Julesburg Basin wells and related pipelines on an annual basis, and will continue to engage in this process.

On August 22, 2017, the State announced its response to the incident, following a three month review of oil and gas operations. The policy initiatives proposed could come either through rulemaking or legislation.

Critical Accounting Policies and Estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP required management to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses.

There have been no significant changes to our critical accounting policies and estimates or in the underlying accounting assumptions and estimates used in these critical accounting policies from those disclosed in the condensed consolidated financial statements and accompanying notes contained in our ~~2016~~2017 Form 10-K filed with the SEC on February ~~28, 2017.~~27, 2018 and amended on May 1, 2018.

Reconciliation of Non-U.S. GAAP Financial Measures

We use "adjusted cash flows from operations," "adjusted net income (loss)" and "adjusted EBITDAX," non-U.S. GAAP financial measures, for internal management reporting, when evaluating period-to-period changes and, in some cases, providing public guidance on possible future results. Beginning in 2017, we have included non-cash stock-based compensation and exploration, geologic and geophysical expense in our reconciliation of adjusted EBITDAX calculation. In prior periods, we included adjusted EBITDA, a non-U.S. GAAP financial measure that did not include these adjustments. We have elected to disclose Adjusted EBITDAX rather than Adjusted EBITDA in this report and other public disclosures because we believe it is more comparable to similar metrics presented by others in the industry. All prior periods have been conformed for comparability of this information. These measures are not measures of financial performance under U.S. GAAP and should be considered in addition to, not as a substitute for, net income (loss) or cash flows from operations, investing or financing activities and should not be viewed as liquidity measures or indicators of cash flows reported in accordance with U.S. GAAP. The non-U.S. GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-U.S. GAAP financial measures in order to help our investors more meaningfully evaluate and compare our future results of operations to our previously reported results of operations. We strongly encourage investors to review our financial statements and publicly filed reports in their entirety and not rely on any single financial measure.

Adjusted cash flows from operations. We define adjusted cash flows from operations as the cash flows earned or incurred from operating activities, without regard to changes in operating assets and liabilities. We believe it is important to consider adjusted cash flows from operations, as well as cash flows from operations, as we believe it often provides more transparency into what drives the changes in our operating trends, such as production, prices, operating costs and related operational factors, without regard to whether the related asset or liability was received or paid during the same period. We

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also use this measure because the timing of cash received from our assets, cash paid to obtain an asset or payment of our obligations has generally been a timing issue from one period to the next as we have not had significant accounts receivable collection problems, nor been unable to purchase assets or pay our obligations.

Adjusted net income (loss). We define adjusted net income (loss) as net income (loss), plus loss on commodity derivatives, less gain on commodity derivatives and net settlements on commodity derivatives, each adjusted for tax effect. We believe it is important to consider adjusted net income (loss), as well as net income (loss). We believe this measure often provides more transparency into our operating trends, such as production, prices, operating costs, net settlements from derivatives and related factors, without regard to changes in our net income (loss) from our mark-to-market adjustments resulting from net changes in the fair value of unsettled derivatives. Additionally, other items which are not indicative of future results may be excluded to clearly identify operating trends.

Adjusted EBITDAX. We define adjusted EBITDAX as net income (loss), plus loss on commodity derivatives, interest expense, net of interest income, income taxes, impairment of properties and equipment, exploration, geologic and geophysical expense, depreciation, depletion and amortization expense, accretion of asset retirement obligations and non-cash stock-based compensation, less gain on commodity derivatives and net settlements on commodity derivatives. Adjusted EBITDAX is not a measure of financial performance or liquidity under U.S. GAAP and should be considered in addition to, not as a substitute for, net income (loss), and should not be considered an indicator of cash flows reported in accordance with U.S. GAAP. Adjusted EBITDAX includes certain non-cash costs incurred by us and does not take into account changes in operating assets and liabilities. Other companies in our industry may calculate adjusted EBITDAX differently than we do, limiting its usefulness as a comparative measure. We believe adjusted EBITDAX is relevant because it is a measure of our operational and financial performance, as well as a measure of our liquidity, and is used by our management, investors, commercial banks, research analysts and others to analyze such things as:

operating performance and return on capital as compared to our peers;

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financial performance of our assets and our valuation without regard to financing methods, capital structure or historical cost basis;

our ability to generate sufficient cash to service our debt obligations; and

the viability of acquisition opportunities and capital expenditure projects, including the related rate of return.

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The following table presents a reconciliation of each of our non-U.S. GAAP financial measures to its most comparable U.S. GAAP measure:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
	(in millions)												(in millions)
Adjusted cash flows from operations:
Net cash from operating activities	$	148.2		$	163.0		411.4			$	360.8		$	175.7		$	132.9		$	380.9		$	272.4
Changes in assets and liabilities	2.7			(40.4		)	(3.9		)	(34.6		)	23.6			10.0			(6.6		)	(15.8		)
Adjusted cash flows from operations	$	150.9		$	122.6		$	407.5		$	326.2		$	199.3		$	142.9		$	374.3		$	256.6

Adjusted net loss:
Net loss	$	(292.5	)	$	(23.3	)	$	(205.1	)	$	(190.3	)
Adjusted net income (loss):
Net income (loss)													$	(160.3	)	$	41.2		$	(173.4	)	$	87.4
(Gain) loss on commodity derivative instruments	52.2			(19.4		)	(86.5		)	62.3			116.1			(57.9		)	163.4			(138.6		)
Net settlements on commodity derivative instruments	9.6			47.7			22.2			167.9			(16.4		)	12.0			(42.4		)	12.5
Tax effect of above adjustments	(23.2		)	(10.8		)	24.0			(87.6		)	(23.9		)	17.2			(29.0		)	47.2
Adjusted net loss	$	(253.9	)	$	(5.8	)	$	(245.4	)	$	(47.7	)
Adjusted net income (loss)													$	(84.5	)	$	12.5		$	(81.4	)	$	8.5

Net loss to adjusted EBITDAX:
Net loss	$	(292.5	)	$	(23.3	)	$	(205.1	)	$	(190.3	)
Net income (loss) to adjusted EBITDAX:
Net income (loss)													$	(160.3	)	$	41.2		$	(173.4	)	$	87.4
(Gain) loss on commodity derivative instruments	52.2			(19.4		)	(86.5		)	62.3			116.1			(57.9		)	163.4			(138.6		)
Net settlements on commodity derivative instruments	9.6			47.7			22.2			167.9			(16.4		)	12.0			(42.4		)	12.5
Non-cash stock-based compensation	4.8			4.1			14.6			15.2			5.5			5.4			10.8			9.8
Interest expense, net	18.8			20.1			56.9			40.9			17.3			18.9			34.7			38.1
Income tax benefit	(122.4		)	(12.0		)	(71.5		)	(112.2		)
Income tax expense (benefit)													(45.3		)	24.5			(49.9		)	50.9
Impairment of properties and equipment	252.7			0.9			282.5			6.1			159.5			27.6			192.7			29.8
Impairment of goodwill	75.1			—			75.1			—
Exploration, geologic, and geophysical expense	41.9			0.2			43.9			0.7
Depreciation, depletion, and amortization	125.2			112.9			360.6			317.3
Exploration, geologic and geophysical expense													0.9			1.0			3.5			2.0
Depreciation, depletion and amortization													135.6			126.0			262.4			235.3
Accretion of asset retirement obligations	1.5			1.8			4.9			5.4			1.4			1.7			2.6			3.4
Adjusted EBITDAX	$	166.9		$	133.0		$	497.6		$	313.3		$	214.3		$	200.4		$	404.4		$	330.6

Cash from operating activities to adjusted EBITDAX:
Net cash from operating activities	$	148.2		$	163.0		$	411.4		$	360.8		$	175.7		$	132.9		$	380.9		$	272.4
Interest expense, net	18.8			20.1			56.9			40.9			17.3			18.9			34.7			38.1
Amortization of debt discount and issuance costs	(3.2		)	(9.9		)	(9.6		)	(13.0		)	(3.1		)	(3.2		)	(6.4		)	(6.4		)
Gain on sale of properties and equipment	0.1			0.2			0.8			—
Exploration, geologic, and geophysical expense	41.9			0.2			43.9			0.7
Exploratory dry hole costs	(41.2		)	—			(41.2		)	—
Gain (loss) on sale of properties and equipment													0.4			0.5			(1.1		)	0.7
Exploration, geologic and geophysical expense													0.9			1.0			3.5			2.0
Other	(0.4		)	(0.2		)	39.3			(41.5		)	(0.5		)	40.3			(0.6		)	39.6
Changes in assets and liabilities	2.7			(40.4		)	(3.9		)	(34.6		)	23.6			10.0			(6.6		)	(15.8		)
Adjusted EBITDAX	$	166.9		$	133.0		$	497.6		$	313.3		$	214.3		$	200.4		$	404.4		$	330.6

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market-Sensitive Instruments and Risk Management

We are exposed to market risks associated with interest rate risks, commodity price risk and credit risk. We have established risk management processes to monitor and manage these market risks.

Interest Rate Risk

Changes in interest rates affect the amount of interest we earn on our interest bearing cash, cash equivalents and restricted cash accounts and the interest we pay on borrowings under our revolving credit facility. Our 2021 Convertible Notes, 2024 Senior Notes and ~~2022~~2026 Senior Notes have fixed rates, and therefore near-term changes in interest rates do not expose us to risk of earnings or cash flow loss; however, near-term changes in interest rates may affect the fair value of our fixed-rate debt.

As of ~~September~~June 30, ~~2017,~~2018, our interest-bearing deposit accounts included money market accounts ~~certificates of deposit,~~ and checking ~~and savings~~ accounts with various banks. The amount of our interest-bearing cash, cash equivalents and restricted cash as of ~~September~~June 30, ~~2017~~2018 was ~~$105.6~~$0.6 million with a weighted-average interest rate of ~~1.0~~1.3 percent. Based on a sensitivity analysis of our interest-bearing deposits as of ~~September~~June 30, ~~2017~~2018 and assuming we had ~~$105.6~~$0.6 million outstanding throughout the period, we estimate that a one percent increase in interest rates would not have ~~increased~~had a material impact on interest income for the ~~nine~~six months ended ~~September~~June 30, ~~2017 by approximately $0.8 million.~~2018.

As of ~~September~~June 30, ~~2017,~~2018, we had no$22.0 million outstanding balance on our revolving credit facility.

Commodity Price Risk

We are exposed to the potential risk of loss from adverse changes in the market price of crude oil, natural gas, natural gas basis and NGLs. Pursuant to established policies and procedures, we manage a portion of the risks associated with these market fluctuations using commodity derivative instruments. These instruments help us predict with greater certainty the effective crude oil, natural gas and propane prices we will receive for our hedged production. We believe that our commodity derivative policies and procedures are effective in achieving our risk management objectives.

~~Table~~ See the footnote titled Commodity Derivative Financial Instruments to our condensed consolidated financial statements included elsewhere in this report for a description of ~~contents~~

~~PDC ENERGY, INC.~~

~~The following table presents~~ our ~~commodity and basis derivative positions related to crude oil, natural gas, and propane in effect as of September 30, 2017:~~

Collars Fixed-Price Swaps
Commodity/ Index/
Maturity Period

Quantity
(Gas -
BBtu
Oil - MBbls)

Weighted-Average
Contract Price

Quantity (Oil - MBbls
Gas and Basis-
BBtu
Propane - MBbls)

Weighted-
Average
Contract
Price

Fair Value
September 30,
2017 (1)
(in millions)
Floors Ceilings
Crude Oil
NYMEX
2017 616.0
$ 49.54
$ 62.32
1,837.1
$ 50.13
$ (2.6 )
2018 1,512.0
41.85
54.31
7,972.0
52.11
(0.6 )
2019 —
—
—
2,400.0
50.25
(1.8 )
Total Crude Oil 2,128.0
12,209.1
$ (5.0 )

Natural Gas
NYMEX
2017 2,895.1
$ 3.38
$ 4.02
10,310.0
$ 3.39
$ 4.6
2018 5,230.0
3.00
3.54
51,280.0
2.95
(4.1 )
Total Natural Gas 8,125.1
61,590.0
$ 0.5

Basis Protection
CIG
2017 —
—
—
13,264.2
$ (0.34 ) $ 0.6
2018 —
—
—
30,200.0
(0.34 ) 3.7
Waha
2018 —
—
—
6,000.0
(0.50 ) 0.1
Total Basis Protection —
49,464.2
$ 4.4

Propane
Mont Belvieu
2017 —
—
—
411.9
$ 27.22
$ (4.3 )
2018 —
—
—
428.6
29.14
(1.3 )
Total Propane 840.5
$ (5.6 )
Commodity Derivatives Fair Value $ (5.7 )

~~____________~~


~~(1)~~	Approximately 10.8 percent of the fair value of our commodity derivative assets and 28.4 percent of the fair value of our commodity derivative liabilities were measured using significant unobservable inputs (Level 3).

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~~In addition to our~~open commodity derivative positions ~~as of September~~at June 30, ~~2017, we entered into the following commodity derivative positions subsequent to September 30, 2017 that are effective as of November 3, 2017:~~2018.

Fixed-Price Swaps
Commodity/ Index/
Maturity Period

Quantity (Oil - MBbls
Gas and Basis-
BBtu
Propane - MBbls)

Weighted-
Average
Contract
Price

Crude Oil
NYMEX
2018 600.0
$ 53.30
2019 600.0
$ 51.43

Total Crude Oil 1,200.0

Basis Protection
CIG
2018 5,000.0
$ (0.51 )

El Paso
2018 3,000.0
$ (0.62 )

Total Basis Swaps 8,000.0

Rollfactor (1)
2018 3,648.0
$ 0.03

~~(1)~~

Our realized prices vary regionally based on local market differentials and our transportation agreements. The following table presents average market index prices for crude oil and natural gas for the periods identified, as well as the average sales prices we realized for our crude oil, natural gas and NGLs production:


	Three Months Ended		Nine Months Ended		Year Ended		Three Months Ended		Six Months Ended		Year Ended
	September 30, 2017		September 30, 2017		December 31, 2016		June 30, 2018		June 30, 2018		December 31, 2017
Average NYMEX Index Price:
Crude oil (per Bbl)	$	48.20	$	49.47	$	43.32	$	67.88	$	65.37	$	50.95
Natural gas (per MMBtu)	3.00		3.17		2.46		2.80		2.90		3.11

Average Sales Price Realized:
Excluding net settlements on commodity derivatives	Excluding net settlements on commodity derivatives						Excluding net settlements on commodity derivatives
Crude oil (per Bbl)	$	45.66	$	46.69	$	39.96	$	63.99	$	61.85	$	48.45
Natural gas (per Mcf)	2.17		2.23		1.77		1.46		1.71		2.21
NGLs (per Bbl)	18.11		17.24		11.80		21.76		21.78		18.59

Based on a sensitivity analysis as of ~~September~~June 30, ~~2017,~~2018, we estimate that a ten percent increase in natural gas, crude oil and the propane portion of NGLs prices, inclusive of basis, over the entire period for which we have commodity derivatives

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in place, would have resulted in a decrease in the fair value of our derivative positions of ~~$83.9~~$92.4 million, whereas a ten percent decrease in prices would have resulted in an increase in fair value of ~~$83.7~~$91.7 million.

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Credit Risk

Credit risk represents the loss that we would incur if a counterparty fails to perform its contractual obligations. We attempt to reduce credit risk by diversifying our counterparty exposure and entering into transactions with high-quality counterparties. When exposed to significant credit risk, we analyze the counterparty’s financial condition prior to entering into an agreement, establish credit limits and monitor the appropriateness of those limits on an ongoing basis. We monitor the creditworthiness of significant counterparties through our credit committee, which utilizes a number of qualitative and quantitative tools to assess credit risk and takes mitigative actions if deemed necessary. While we believe that our credit risk analysis and monitoring procedures are reasonable, no amount of analysis can assure performance by our counterparties.

Our oil and gas exploration and production business's crude oil, natural gas and NGLs sales are concentrated with a few predominately large customers. This concentrates our credit risk exposure with a small number of large customers.

Amounts due to our gas marketing business are from a diverse group of entities, including major upstream and midstream energy companies, financial institutions and end-users in various industries. The underlying operations of these entities are geographically concentrated in the same region, which increases the credit risk associated with this business. As natural gas prices continue to remain depressed, certain third-party producers relating to our gas marketing business continue to experience financial distress, which has led to certain contractual defaults and litigation; however, to date, we have had no material counterparty default losses. We have initiated several legal actions for breach of contract, collection and related claims against certain third-party producers that are delinquent in their payment obligations, which have to date resulted in two default judgments. We expect this trend to continue for this business.

We primarily use financial institutions which are lenders in our revolving credit facility as counterparties for our derivative financial instruments. Disruption in the credit markets, changes in commodity prices and other factors may have a significant adverse impact on a number of financial institutions. To date, we have had no material counterparty default losses from our commodity derivative financial instruments. See the footnote titled Commodity Derivative Financial Instruments to our condensed consolidated financial statements included elsewhere in this report for more detail on our commodity derivative financial instruments.

Disclosure of Limitations

Because the information above included only those exposures that existed at ~~September~~June 30, ~~2017,~~2018, it does not consider those exposures or positions which could arise after that date. As a result, our ultimate realized gain or loss with respect to interest rate and commodity price fluctuations will depend on the exposures that arise during the period, our commodity price risk management strategies at the time and interest rates and commodity prices at the time.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of ~~September~~June 30, ~~2017,~~2018, we carried out an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e).

Based on the results of this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of ~~September~~June 30, 2018 because of the material weaknesses in our internal control over financial reporting described below.

Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

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PDC ENERGY, INC.

During 2017, we did not maintain a sufficient complement of personnel within the Land Department as a result of increased volume of leases, which contributed to the ineffective design and maintenance of controls to verify the completeness and accuracy of land administrative records associated with unproved leases, which are used in verifying the completeness, accuracy, valuation, rights and obligations over the accounting of properties and equipment, sales and accounts receivable and costs and expenses. These control deficiencies resulted in immaterial adjustments of our unproved properties, impairment of unproved properties, sales, accounts receivable and depletion expense accounts and related disclosures during 2017.

Additionally, these control deficiencies could result in misstatements of substantially all accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that these control deficiencies constitute material weaknesses.

Remediation Plan for Material Weaknesses

In response to the identified material weaknesses, our management, with the oversight of the Audit Committee of our Board of Directors, has begun the process of assessing a number of different remediation initiatives to improve our internal control over financial reporting for the year ended December 31, 2018. We are currently in the process of evaluating the material weaknesses and are developing a plan of remediation to strengthen our overall controls over the sufficient complement of personnel within the Land Department and the completeness and accuracy of land administration records. We are committed to continuing to improve our internal control processes and will continue to review, optimize and enhance our internal control environment. These material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control over Financial Reporting

During the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2018, we made no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II

~~Table of contents~~

ITEM 1. LEGAL PROCEEDINGS

~~From time to time, we are a party to various~~Information regarding our legal proceedings can found in the ordinary course of business. We are not currently a party to any litigation that we believe would have a materially adverse effect on our business, financial condition, results of operations, or liquidity.

footnote titled Commitments and Contingencies -

~~Environmental~~Litigation and Legal Items

~~Due~~ to the nature of the natural gas and oil industry, we are exposed to environmental risks. We have various policies and procedures to minimize and mitigate the risks from environmental contamination. We conduct periodic reviews and simulated drills to identify changes in our environmental risk profile. Liabilities are recorded when environmental damages resulting from past events are probable and the costs can be reasonably estimated. Except as discussed herein, we are not aware of any environmental claims existing as of September 30, 2017 which have not been provided for or would otherwise have a material impact on our financial statements; however, there can be no assurance that current regulatory requirements will not change or that unknown past non-compliance with environmental laws will not be discovered on our properties. Accrued environmental liabilities are recorded in other accrued expenses on the condensed consolidated ~~balance sheets.~~

~~Clean Air Act Tentative Agreement and Related Consent Decree~~

In August 2015, we received a Clean Air Act Section 114 Information Request (the "Information Request") from the U.S. Environmental Protection Agency ("EPA"). The Information Request sought, among other things, information related to the design, operation, and maintenance of our Wattenberg Field production facilitiesfinancial statements included elsewhere in the Denver-Julesburg Basin of Colorado ("DJ Basin"). The Information Request focused on historical operation and design information for 46 of our production facilities and requested sampling and analyses at the identified 46 facilities. We responded to the Information Request with the requested data in January 2016.

In addition, in December 2015, we received a Compliance Advisory pursuant to C.R.S. 25-7-115(2) from the Colorado Department of Public Health and Environment's (“CDPHE”) Air Quality Control Commission's Air Pollution Control Division alleging that we failed to design, operate, and maintain certain condensate collection, storage, processing, and handling operations to minimize leakage of volatile organic compounds at 65 facilities consistent with applicable standards under Colorado law.

For more than a year, we held a series of meetings with the EPA, Department of Justice (“DOJ”) and CDPHE on the above matters. On June 26, 2017, the DOJ on behalf of the EPA and the State of Colorado filed a complaint against us based on the above matters. We continued to conduct meetings with these agencies in working toward a resolution of the matters. On September 28, 2017, the parties jointly filed for an extension of time for PDC to reply to the complaint. The extension was requested because the parties reached an agreement to resolve the case subject to final approval by the appropriate persons within the federal government and state government, as well as outcome of the period of public comment on the proposed decree.

A consent decree was signed by all parties on October 31, 2017 and is subject to a 30-day comment period in which it will be publicly published in the Federal Register. The consent decree provides that we will implement changes to our design, operation, and maintenance of most of our field-wide storage tank systems to enhance our emission management in the DJ Basin. Agreed upon and planned efforts include, but are not limited to, vapor control system modifications and verification, increased inspection and monitoring, and installation of tank pressure monitors. We voluntarily included in the consent decree approximately 40 additional facilities associated with our pending acquisition of additional assets in the basin. The three primary elements of the consent decree are: (i) fine/supplemental environmental projects ($1.5 million cash fine, plus $1 million in supplemental environmental projects); (ii) injunctive relief with an estimated cost of approximately $18 million, primarily representing capital enhancements to our operations; and (iii) mitigation with an estimated cost of $1.7 million. Certain expenditures for the injunctive relief are believed to have been incurred in 2016 and 2017, with the remainder expected to be incurred over the next few years. We do not believe that the expenditures resulting from the settlement will have a material adverse effect on our consolidated financial statements. Although we believe the consent decree will be approved by the court following the comment period, this ~~cannot be guaranteed.~~ report.

~~Action Regarding Firm Transportation Contracts~~

In June 2016, a group of 42 independent West Virginia natural gas producers filed a lawsuit in Marshall County, West Virginia, naming Dominion Transmission, Inc. ("Dominion"), certain entities affiliated with Dominion, and our

~~Table of contents~~

subsidiary RNG as defendants, alleging various contractual, fiduciary and related claims against the defendants, all of which are associated with firm transportation contracts entered into by plaintiffs and relating to pipelines owned and operated by Dominion and its affiliates. The case has been transferred to the Business Court Division of the Circuit Court of Marshall County, West Virginia, and the parties are awaiting that court's ruling on previously-filed pre-trial pleadings. RNG is unable to estimate any potential damages associated with the claims, but believes the complaint is without merit and intends to vigorously pursue its defenses.

ITEM 1A. RISK FACTORS

We face many risks. Factors that could materially adversely affect our business, financial condition, operating results or liquidity and the trading price of our common stock are described under Item 1A, Risk Factors, of our ~~2016~~2017 Form 10-K. This information should be considered carefully, together with other information in this report and other reports and materials we file with the SEC.

There have been no material changes from the risk factors previously disclosed in our ~~2016~~2017 Form 10-K.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Period Total Number of Shares Purchased (1) Average Price Paid per Share

July 1 - 31, 2017 1,360
$ 42.68
August 1 - 31, 2017 —
—
September 1 - 30, 2017 12
39.58
Total third quarter 2017 purchases 1,372
$ 42.65



Period	Total Number of Shares Purchased (1)	Average Price Paid per Share

April 1 - 30, 2018	45,706	$	48.99
May 1 - 31, 2018	—	—
June 1 - 30, 2018	—	—
Total second quarter 2018 purchases	45,706	$	48.99

__________


(1)	Purchases ~~primarily~~ represent shares purchased from employees for the payment of their tax liabilities related to the vesting of securities issued pursuant to our stock-based compensation plans.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None.

ITEM 4. MINE SAFETY DISCLOSURES - Not applicable.

ITEM 5. OTHER INFORMATION - None.

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PDC ENERGY, INC.

ITEM 6. EXHIBITS

Incorporated by Reference

Exhibit Number

Exhibit Description

Form

SEC File Number

Exhibit

Filing Date

Filed Herewith

~~10.1~~

Sixth Amendment to the Third Amended and Restated Credit Agreement, dated as of October 6, 2017, among the Company, as Borrower, certain Subsidiaries of the Company, as Guarantors, the lenders from time to time party thereto (the “Lenders”) and JPMorgan Chase Bank, N.A., as Administrative Agent for the Lenders.

31.1

Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act Rules, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act Rules, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certifications by Chief Executive Officer and Chief Financial Officer pursuant to Title 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

* Furnished herewith.

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PDC ENERGY, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	PDC Energy, Inc.
	(Registrant)




Date: ~~November 6, 2017~~August 8, 2018	/s/ Barton R. Brookman
	Barton R. Brookman
	President and Chief Executive Officer
	(principal executive officer)

	/s/ ~~David W. Honeyfield~~R. Scott Meyers
	~~David W. Honeyfield~~R. Scott Meyers
	Senior Vice President and Chief Financial Officer
	(principal financial officer)

5960



	September 30, 2017
Acquisition costs:
Cash, net of cash acquired	$	905,962
Retirement of seller's debt	40,000
Total cash consideration	945,962
Common stock, 9.4 million shares	690,702
Other purchase price adjustments	426
Total acquisition costs	$	1,637,090

Recognized amounts of identifiable assets acquired and liabilities assumed:
Assets acquired:
Current assets	$	6,401
Crude oil and natural gas properties - proved	216,000
Crude oil and natural gas properties - unproved	1,697,000
Infrastructure, pipeline, and other	33,153
Construction in progress	12,323
Goodwill	75,121
Total assets acquired	2,039,998
Liabilities assumed:
Current liabilities	(24,496		)
Asset retirement obligations	(3,705		)
Deferred tax liabilities, net	(374,707		)
Total liabilities assumed	(402,908		)
Total identifiable net assets acquired	$	1,637,090



	Amount
	(in thousands)

Preliminary purchase price allocation	$	62,041
Adjustments	13,080
Final purchase price allocation	$	75,121



As of September 30, 2017	Derivative instruments, recorded in condensed consolidated balance sheet, gross		Effect of master netting agreements			Derivative instruments, net
	(in thousands)
Asset derivatives:
Derivative instruments, at fair value	$	27,521	$	(15,010	)	$	12,511

Liability derivatives:
Derivative instruments, at fair value	$	33,248	$	(15,010	)	$	18,238



As of December 31, 2016	Derivative instruments, recorded in condensed consolidated balance sheet, gross		Effect of master netting agreements			Derivative instruments, net
	(in thousands)
Asset derivatives:
Derivative instruments, at fair value	$	11,177	$	(10,930	)	$	247

Liability derivatives:
Derivative instruments, at fair value	$	81,190	$	(10,930	)	$	70,260



	Amount
	(in thousands)

Balance at December 31, 2016	$	92,387
Obligations incurred with development activities	3,296
Accretion expense	4,906
Revisions in estimated cash flows	155
Obligations discharged with asset retirements	(8,929		)
Balance at September 30, 2017	91,815
Less liabilities held for sale	(499		)
Less current portion	(13,128		)
Long-term portion	$	78,188



	Number of SARs	Weighted-Average Exercise Price		Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2016	244,078	$	41.36	6.9	$	7,620
Awarded	54,142	74.57		—	—
Outstanding at September 30, 2017	298,220	47.39		6.7	2,043
Exercisable at September 30, 2017	186,248	39.38		5.6	1,867



	Shares		Weighted-Average Grant Date Fair Value per Share

Non-vested at December 31, 2016	479,642		$	56.09
Granted	260,019		66.00
Vested	(206,242	)	56.44
Forfeited	(7,990	)	64.32
Non-vested at September 30, 2017	525,429		60.73



	Condensed Consolidating Statements of Operations
	Three Months Ended September 30, 2017
	Parent			Guarantor			Eliminations		Consolidated
	(in thousands)

Operating and other revenues	$	150,015		$	33,220		$	—	$	183,235
Production and other operating expenses	41,891			13,129			—		55,020
General and administrative	26,207			3,092			—		29,299
Exploration, geologic, and geophysical expense	217			41,691			—		41,908
Depreciation depletion and amortization	106,623			18,615			—		125,238
Impairment of properties and equipment	1,148			251,592			—		252,740
Impairment of goodwill	—			75,121			—		75,121
Interest (expense) income	(19,168		)	372			—		(18,796		)
Loss before income taxes	(45,239		)	(369,648		)	—		(414,887		)
Income tax benefit	30,274			92,076			—		122,350
Equity in loss of subsidiary	(277,572		)	—			277,572		—
Net loss	$	(292,537	)	$	(277,572	)	$	277,572	$	(292,537	)



	Condensed Consolidating Statements of Operations
	Nine Months Ended September 30, 2017
	Parent			Guarantor			Eliminations		Consolidated
	(in thousands)

Operating and other revenues	$	657,102		$	74,998		$	—	$	732,100
Production and other operating expenses	118,779			26,049			—		144,828
General and administrative	76,353			8,792			—		85,145
Exploration, geologic, and geophysical expense	744			43,151			—		43,895
Depreciation depletion and amortization	317,088			43,479			—		360,567
Impairment of properties and equipment	2,282			280,217			—		282,499
Impairment of goodwill	—			75,121			—		75,121
Provision for uncollectible notes receivable	(40,203		)	—			—		(40,203		)
Interest (expense) income	(57,557		)	685			—		(56,872		)
Income (loss) before income taxes	124,502			(401,126		)	—		(276,624		)
Income tax expense (benefit)	(32,174		)	103,657			—		71,483
Equity in loss of subsidiary	(297,469		)	—			297,469		—
Net loss	$	(205,141	)	$	(297,469	)	$	297,469	$	(205,141	)



	Fixed-Price Swaps
Commodity/ Index/ Maturity Period	Quantity (Oil - MBbls Gas and Basis- BBtu Propane - MBbls)	Weighted- Average Contract Price
Commodity/ Index/ Maturity Period	Quantity (Oil - MBbls Gas and Basis- BBtu Propane - MBbls)	Weighted- Average Contract Price
Crude Oil
NYMEX
2018	600.0	$	53.30
2019	600.0	$	51.43

Total Crude Oil	1,200.0

Basis Protection
CIG
2018	5,000.0	$	(0.51	)

El Paso
2018	3,000.0	$	(0.62	)

Total Basis Swaps	8,000.0

Rollfactor (1)
2018	3,648.0	$	0.03