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 ~~June 30, 2018~~March 31, 2019

£ 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 xNo 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 or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting ~~company,"~~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 oNo x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: ~~66,073,231~~66,282,650 shares of the Company's Common Stock ($0.01 par value) were outstanding as of ~~July 20, 2018.~~April 22, 2019.

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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	3731
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5549
Item 4.	Controls and Procedures	5650

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	5751
Item 1A.	Risk Factors	5751
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5852
Item 3.	Defaults Upon Senior Securities	5852
Item 4.	Mine Safety Disclosures	5852
Item 5.	Other Information	5852
Item 6.	Exhibits	5953

	SIGNATURES	6054

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 ("Securities Act"), Section 21E of the Securities Exchange Act of 1934 ("Exchange Act") and the United States ("U.S.") Private Securities Litigation Reform Act of 1995 regarding our business, financial condition, results of operations and prospects. All statements other than statements of historical fact included in and incorporated by reference into this report are "forward-looking statements." Words such as expect, anticipate, intend, plan, believe, seek, estimate, schedule and similar expressions or variations of such words are intended to identify forward-looking statements herein. Forward-looking statements include, among other things, statements regarding future: production, costs and cash flows; drilling locations, ~~and~~ zones and growth opportunities; commodity prices and differentials; capital expenditures and projects, including the number of rigs ~~employed; management~~employed, and that cash flows from operations will exceed expected capital investments in crude oil and natural gas properties for 2019 and 2020; anticipated stock repurchase program, which may be modified or discontinued at any time, and expected timing and amount of ~~lease expiration issues;~~such program; financial ratios and compliance with covenants in our revolving credit ~~facility;~~facility and other debt instruments; impacts of certain accounting and tax changes; anticipated sale of our Delaware Basin midstream assets and the timing of those sales and whether closing will occur timely or at all; timing and adequacy of infrastructure projects of our midstream providers and the related impact on our midstream capacity and related curtailments; fractionation capacity; impacts of ~~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~~reclassification of the Denver Metro/North Front Range NAA ozone classification ~~will be reclassified~~ to ~~serious; and timing and adequacy of infrastructure projects of our midstream providers.~~serious.

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

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

changes in ~~worldwide~~global production volumes and demand, including economic conditions that might impact demand and prices for the products we produce;

volatility of commodity prices for crude oil, natural gas and natural gas liquids ("NGLs") and the risk of an extended period of depressed prices;

impact to our operations, personnel retention, strategy, stock price and expenses caused by the actions of activist shareholders;

volatility and widening of differentials;

reductions in the borrowing base under our revolving credit facility;

impact of governmental policies and/or regulations, including changes in environmental and other laws, the interpretation and enforcement of those laws and regulations, liabilities arising thereunder and the costs to comply with those laws and regulations;

declines in the value of our crude oil, natural gas and NGLs properties resulting in impairments;

changes in estimates of proved reserves;

inaccuracy of reserve estimates and expected production rates;

potential for production decline rates from our wells being greater than expected;

timing and extent of our success in discovering, acquiring, developing and producing reserves;

availability of sufficient pipeline, gathering and other transportation facilities and related infrastructure to process and transport our production and the impact of these facilities and regional capacity on the prices we receive for our production;

timing and receipt of necessary regulatory permits;

risks incidental to the drilling and operation of crude oil and natural gas wells;

difficulties in integrating our operations as a result of any significant acquisitions ~~and~~or acreage exchanges;

increases or changes in costs and expenses;

availability of supplies, materials, contractors and services that may delay the drilling or completion of our wells;

potential losses of acreage due to lease expirations or otherwise;

increases or ~~adverse~~ changes in ~~construction~~costs and ~~procurement costs associated with future build out~~expenses;

Table of ~~midstream-related assets;~~contents

future cash flows, liquidity and financial condition;

possibility that one or more sales of our Delaware Basin midstream assets will not close when expected or at all;

competition within the oil and gas industry;

availability and cost of capital;

our success in marketing crude oil, natural gas and NGLs;

effect of crude oil and natural gas ~~derivatives~~derivative activities;

~~Table of contents~~

impact of environmental events, governmental and other third-party responses to such events and our ability to insure adequately against such events;

cost of pending or future litigation;

effect that acquisitions we may pursue have on our capital requirements;

our ability to retain or attract senior management and key technical employees; and

success of strategic plans, expectations and objectives for our future operations.

Further, we urge you to carefully review and consider the cautionary statements and disclosures, specifically those under the heading "Risk Factors," made in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 filed with the U.S. Securities and Exchange Commission ("SEC") on February ~~27, 2018 and as amended on May 1, 2018~~28, 2019 (the ~~"2017~~"2018 Form 10-K"), and our other filings with the SEC for further information on risks and uncertainties that could affect our business, financial condition, results of operations and prospects, which are incorporated by this reference as though fully set forth herein. We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to update any forward-looking statements in order to reflect any event or circumstance occurring after the date of this report or currently unknown facts or conditions or the occurrence of unanticipated events. All forward-looking statements are qualified in their entirety by this cautionary statement.

REFERENCES

Unless the context otherwise requires, references in this report to "PDC Energy," "PDC," "the Company," "we," "us," "our" or "ours" refer to the registrant, PDC Energy, Inc. and all subsidiaries consolidated for the purposes of its financial statements, including our proportionate share of the financial position, results of operations, cash flows and operating activities of our affiliated partnerships.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PDC ENERGY, INC.

Condensed Consolidated Balance Sheets

(unaudited; in thousands, except share and per share data)


	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	1,425		$	180,675		$	1,112		$	1,398
Accounts receivable, net	195,317			197,598			190,844			181,434
Fair value of derivatives	14,817			14,338			13,330			84,492
Prepaid expenses and other current assets	6,744			8,613			7,870			7,136
Total current assets	218,303			401,224			213,156			274,460
Properties and equipment, net	4,192,608			3,933,467			4,121,649			4,002,862
Assets held-for-sale, net	—			40,084			152,847			140,705
Fair value of derivatives							24,225			93,722
Other assets	31,243			45,116			52,051			32,396
Total Assets	$	4,442,154		$	4,419,891		$	4,563,928		$	4,544,145

Liabilities and Stockholders' Equity
Liabilities
Current liabilities:
Accounts payable	$	215,150		$	150,067		$	215,555		$	181,864
Production tax liability	56,766			37,654			55,430			60,719
Fair value of derivatives	186,605			79,302			43,899			3,364
Funds held for distribution	102,354			95,811			91,615			105,784
Accrued interest payable	12,561			11,815			15,194			14,150
Other accrued expenses	35,888			42,987			68,836			75,133
Total current liabilities	609,324			417,636			490,529			441,014
Long-term debt	1,179,117			1,151,932			1,289,046			1,194,876
Deferred income taxes	141,811			191,992			160,609			198,096
Asset retirement obligations	73,549			71,006			82,497			85,312
Liabilities held-for-sale							4,614			4,111
Fair value of derivatives	36,430			22,343			1,815			1,364
Other liabilities	61,617			57,333			125,063			92,664
Total liabilities	2,101,848			1,912,242			2,154,173			2,017,437

Commitments and contingent liabilities

Stockholders' equity
Common shares - par value $0.01 per share, 150,000,000 authorized, 66,133,025 and 65,955,080 issued as of June 30, 2018 and December 31, 2017, respectively	661			659
Common shares - par value $0.01 per share, 150,000,000 authorized, 66,196,863 and 66,148,609 issued as of March 31, 2019 and December 31, 2018, respectively							662			661
Additional paid-in capital	2,509,693			2,503,294			2,521,558			2,519,423
Retained earnings (deficit)	(166,692		)	6,704			(111,449		)	8,727
Treasury shares - at cost, 67,169 and 55,927 as of June 30, 2018 and December 31, 2017, respectively	(3,356		)	(3,008		)
Treasury shares - at cost, 22,635 and 45,220 as of March 31, 2019 and December 31, 2018, respectively							(1,016		)	(2,103		)
Total stockholders' equity	2,340,306			2,507,649			2,409,755			2,526,708
Total Liabilities and Stockholders' Equity	$	4,442,154		$	4,419,891		$	4,563,928		$	4,544,145

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PDC ENERGY, INC.

Condensed Consolidated Statements of Operations

(unaudited; in thousands, except per share data)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Revenues
Crude oil, natural gas and NGLs sales	$	325,933		$	213,602		$	631,158		$	403,294		$	321,099		$	305,225
Commodity price risk management gain (loss), net	(116,126		)	57,932			(163,366		)	138,636
Commodity price risk management loss, net													(190,074		)	(47,240		)
Other income	2,724			3,624			5,339			6,935			3,475			2,615
Total revenues	212,531			275,158			473,131			548,865			134,500			260,600
Costs, expenses and other
Lease operating expenses	32,260			20,028			61,896			39,817			35,221			29,636
Production taxes	22,604			15,042			42,773			27,441			22,168			20,169
Transportation, gathering and processing expenses	8,964			6,488			16,277			12,390			11,424			7,313
Exploration, geologic and geophysical expense	875			1,033			3,521			1,987			2,643			2,646
Impairment of properties and equipment	159,554			27,566			192,742			29,759			7,875			33,188
General and administrative expense	37,247			29,531			72,943			55,846			39,598			35,696
Depreciation, depletion and amortization	135,624			126,013			262,412			235,329			151,422			126,788
Accretion of asset retirement obligations	1,285			1,666			2,573			3,434			1,584			1,288
(Gain) loss on sale of properties and equipment	(351		)	(532		)	1,081			(692		)	(369		)	1,432
Provision for uncollectible note receivable	—			(40,203		)	—			(40,203		)
Other expenses	2,708			3,890			5,476			7,418			3,554			2,768
Total costs, expenses and other	400,770			190,522			661,694			372,526			275,120			260,924
Income (loss) from operations	(188,239		)	84,636			(188,563		)	176,339
Loss from operations													(140,620		)	(324		)
Interest expense	(17,410		)	(19,617		)	(34,939		)	(39,084		)	(16,978		)	(17,529		)
Interest income	69			768			217			1,008			10			148
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
Loss before income taxes													(157,588		)	(17,705		)
Income tax benefit													37,412			4,566
Net loss													$	(120,176	)	$	(13,139	)

Earnings per share:
Basic	$	(2.43	)	$	0.63		$	(2.63	)	$	1.33		$	(1.82	)	$	(0.20	)
Diluted	$	(2.43	)	$	0.62		$	(2.63	)	$	1.32		$	(1.82	)	$	(0.20	)

Weighted-average common shares outstanding:
Basic	66,066			65,859			66,012			65,804			66,182			65,957
Diluted	66,066			66,019			66,012			66,066			66,182			65,957

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PDC ENERGY, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited; in thousands)


	Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2019			2018
Cash flows from operating activities:
Net income (loss)	$	(173,396	)	$	87,396
Adjustments to net income (loss) to reconcile to net cash from operating activities:
Net loss							$	(120,176	)	$	(13,139	)
Adjustments to net loss to reconcile to net cash from operating activities:
Net change in fair value of unsettled commodity derivatives	120,920			(126,070		)	181,622			21,202
Depreciation, depletion and amortization	262,412			235,329			151,422			126,788
Impairment of properties and equipment	192,742			29,759			7,875			33,188
Provision for uncollectible notes receivable	—			(40,203		)
Accretion of asset retirement obligations	2,573			3,434			1,584			1,288
Non-cash stock-based compensation	10,779			9,826			4,683			5,261
(Gain) loss on sale of properties and equipment	1,081			(692		)	(369		)	1,432
Amortization of debt discount and issuance costs	6,372			6,399			3,349			3,246
Deferred income taxes	(50,181		)	50,767			(37,487		)	(4,809		)
Other	974			670			21			515
Changes in assets and liabilities	6,581			15,832			(10,671		)	30,177
Net cash from operating activities	380,857			272,447			181,853			205,149
Cash flows from investing activities:
Capital expenditures for development of crude oil and natural gas properties	(432,635		)	(334,406		)	(266,940		)	(196,917		)
Capital expenditures for other properties and equipment	(2,450		)	(2,299		)	(4,826		)	(1,066		)
Acquisition of crude oil and natural gas properties, including settlement adjustments	(181,052		)	5,372
Acquisition of crude oil and natural gas properties							—			(180,825		)
Proceeds from sale of properties and equipment	1,782			1,293			102			20
Proceeds from divestiture	39,023			—			—			39,023
Sale of promissory note	—			40,203
Restricted cash	1,249			(9,250		)	—			1,249
Sale of short-term investments	—			49,890
Purchase of short-term investments	—			(49,890		)
Net cash from investing activities	(574,083		)	(299,087		)	(271,664		)	(338,516		)
Cash flows from financing activities:
Proceeds from revolving credit facility	233,000			—			432,000			35,000
Repayment of revolving credit facility	(211,000		)	—			(340,500		)	(35,000		)
Payment of debt issuance costs	(4,060		)	—
Purchases of treasury stock	(4,494		)	(5,274		)
Purchase of treasury stock							(1,460		)	(2,255		)
Other	(719		)	(645		)	(515		)	(379		)
Net cash from financing activities	12,727			(5,919		)	89,525			(2,634		)
Net change in cash, cash equivalents and restricted cash	(180,499		)	(32,559		)	(286		)	(136,001		)
Cash, cash equivalents and restricted cash, beginning of period	189,925			244,100			9,399			189,925
Cash, cash equivalents and restricted cash, end of period	$	9,426		$	211,541		$	9,113		$	53,924

Supplemental cash flow information:
Cash payments (receipts) for:
Interest, net of capitalized interest	$	27,817		$	32,647
Income taxes	393			(39		)
Non-cash investing and financing activities:
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	6,248			2,415
Purchase of properties and equipment under capital leases	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											Three Months Ended March 31, 2019
	Shares	Amount		Additional Paid-in Capital			Shares		Amount			Retained Earnings (Deficit)			Total Stockholders' Equity			Common Stock							Treasury Stock
																		Shares		Amount		Additional Paid-in Capital			Shares		Amount			Retained Earnings (Deficit)			Total Stockholders' Equity
Balance, December 31, 2017	65,955,080	$	659	$	2,503,294		(55,927	)	$	(3,008	)	$	6,704		$	2,507,649

Balance, December 31, 2018																		66,148,609		$	661	$	2,519,423		(45,220	)	$	(2,103	)	$	8,727		$	2,526,708
Net loss	—	—		—			—		—			(173,396		)	(173,396		)	—		—		—			—		—			(120,176		)	(120,176		)
Purchase of treasury shares	—	—		—			(87,063	)	(4,494		)	—			(4,494		)	—		—		—			(41,787	)	(1,460		)	—			(1,460		)
Issuance of treasury shares	—	—		(4,288		)	78,395		4,288			—			—			(64,372	)	1		(1		)	64,372		—			—			—
Non-employee directors' deferred compensation plan	—	—		—			(2,574	)	(142		)	—			(142		)	—		—		—			—		—			—			—
Issuance of stock awards, net of forfeitures	177,945	2		(2		)	—		—			—			—			112,626		—		(2,547		)	—		2,547			—			—
Stock-based compensation expense	—	—		10,779			—		—			—			10,779			—		—		4,683			—		—			—			4,683
Other	—	—		(90		)	—		—			—			(90		)	—		—		—			—		—			—			—
Balance, June 30, 2018	66,133,025	$	661	$	2,509,693		(67,169	)	$	(3,356	)	$	(166,692	)	$	2,340,306
Balance, March 31, 2019																		66,196,863		$	662	$	2,521,558		(22,635	)	$	(1,016	)	$	(111,449	)	$	2,409,755



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

Balance, December 31, 2017	65,955,080	$	659	$	2,503,294		(55,927	)	$	(3,008	)	$	6,704		$	2,507,649
Net loss	—	—		—			—		—			(13,139		)	(13,139		)
Purchase of treasury shares	—	—		—			(41,357	)	(2,255		)	—			(2,255		)
Issuance of treasury shares	—	—		(3,891		)	70,603		3,891			—			—
Non-employee directors' deferred compensation plan	—	—		—			(2,574	)	(142		)	—			(142		)
Issuance of stock awards, net of forfeitures	43,930	1		(1		)	—		—			—			—
Stock-based compensation expense	—	—		5,261			—		—			—			5,261
Balance, March 31, 2018	65,999,010	$	660	$	2,504,663		(29,255	)	$	(1,514	)	$	(6,435	)	$	2,497,374

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2018~~March 31, 2019

(unaudited)

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION

PDC Energy, Inc. is a domestic independent exploration and production company that acquires, explores and develops properties for the production of crude oil, natural gas and NGLs, with operations in the Wattenberg Field in Colorado and the Delaware Basin in Texas. Our operations in the Wattenberg Field are focused in the rural areas of the horizontal Niobrara and Codell plays and our Delaware Basin operations are primarily focused in the Wolfcamp zones. We previously operated properties in the Utica Shale in Southeastern Ohio; however, we divested these properties during the first quarter of 2018. As of ~~June 30, 2018,~~March 31, 2019, we owned an interest in approximately ~~3,000~~2,800 gross productive wells. We are engaged in two operating segments: our oil and gas exploration and production segment and our gas marketing segment. Our gas marketing segment does not meet the quantitative thresholds to require disclosure as a separate reportable segment. All of our material operations are attributable to our exploration and production business; therefore, all of our operations are presented as a single segment for all periods presented.

The accompanying unaudited condensed consolidated financial statements include the accounts of PDC, our wholly-owned subsidiaries and our proportionate share of our affiliated partnerships. Pursuant to the proportionate consolidation method, our accompanying condensed consolidated financial statements include our pro rata share of assets, liabilities, revenues and expenses of the entities which we proportionately consolidate. All material intercompany accounts and transactions have been eliminated in consolidation.

In our opinion, the accompanying condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of our financial statements for interim periods in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, pursuant to such rules and regulations, certain notes and other financial information included in audited financial statements have been condensed or omitted. The December 31, ~~2017~~2018 condensed consolidated balance sheet data was derived from audited statements, but does not include all disclosures required by U.S. GAAP. The information presented in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements and notes thereto included in our ~~2017~~2018 Form 10-K. Our results of operations and cash flows for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 are not necessarily indicative of the results to be expected for the full year or any other future period.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~Recently Adopted Accounting Standard~~

In May 2014, the 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 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. We adopted the standard effective January 1, 2018. In order to evaluate the impact that the adoption of the revenue standard had on our consolidated financial statements, we performed a comprehensive review of our significant revenue streams. The focus of this review 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 also reviewed our current accounting policies, procedures and controls with respect to these contracts and arrangements to determine what changes, if any, would be required by the adoption of the revenue standard. We determined that we would adopt the standard under the modified retrospective method. 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 changes in our revenue recognition resulting from the adoption of this standard.~~

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 the statement of cash flows explain the change during the period in the total of cash,Cash, cash equivalents and ~~amounts generally described as restricted~~

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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 permitted. The adoption of this standard impacted our condensed consolidated statements of cash flows.cash. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported on the condensed consolidated balance sheets at ~~June 30,~~March 31, 2019 and 2018 and ~~2017 and~~ December 31, 2018 and 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)						March 31, 2019		December 31, 2018		March 31, 2018		December 31, 2017
							(in thousands)
Cash and cash equivalents	$	1,425	$	180,675	$	202,291	$	1,112	$	1,398	$	45,923	$	180,675
Restricted cash	8,001		9,250		9,250		8,001		8,001		8,001		9,250
Cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	9,426	$	189,925	$	211,541
Cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows							$	9,113	$	9,399	$	53,924	$	189,925

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

Recently ~~Issued~~Adopted Accounting Standards

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

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

disclosing key information about related leasing ~~arrangements. The standard has been updated and now includes amendments.~~arrangements (the “New Lease Standard”). For leases with terms of more than 12 months, the accounting update requires lessees to recognize a right-of-use ("ROU") asset and lease liability for its right to use the underlying asset and the corresponding lease obligation. ~~Both~~As provided by practical expedients, we made accounting policy elections to not recognize ROU assets and lease liabilities that arise from short-term leases and to not separate lease and non-lease components for any class of underlying asset. The FASB issued an accounting update which provides an optional transition practical expedient for the ~~lease asset and liability will initially be measured at the present value~~adoption of the ~~future minimum~~New Lease Standard that, if elected, permits an organization to not evaluate the accounting for existing land easements that are not accounted for under the previous lease ~~payments over~~accounting standard. We elected this practical expedient, and accordingly, existing land easements at December 31, 2018 were not assessed. All new or modified land easements entered into after January 1, 2019 will be evaluated under the ~~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.~~New Lease Standard. 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 updateNew Lease Standard 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 2017, the FASB issued an accounting update to provide guidance for various components of hedge accounting, including hedge ineffectiveness, the expansion of types of permissible hedging strategies, reduced complexity in the applicationAdoption of the ~~long-haul method for fair value hedges~~New Lease Standard resulted in increases to other assets of $20.1 million, other accrued expenses of $4.6 million and ~~reduced complexity in assessment~~other liabilities of ~~effectiveness. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years,~~$15.5 million at January 1, 2019, with ~~early adoption permitted. We are currently evaluating~~no adjustment to the ~~impact these changes may have on our condensed consolidated financial statements.~~ opening balance of retained earnings.

~~NOTE 3 - BUSINESS COMBINATION~~

In January 2018, we closed the acquisition of properties from Bayswater Exploration and Production LLC (the "Bayswater Acquisition") for approximately $202.0 million in cash, including $21.0 million 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 24 operated horizontal wells that were either drilled uncompleted wells ("DUCs") or in-process wells at the time of closing.

The estimated allocation of the assets acquired and the liabilities assumed in the acquisition are presented below and are subject to customary post-closing adjustments. Adjustments to the preliminary purchase price 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. Such adjustments primarily relate to sales, operating expenses and capital costs from the effective date through closing.

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~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~June 30, 2018~~

~~(unaudited)~~

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

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. The allocation of the value to the underlying leases also requires significant judgment and 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.

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,~~of income from operations and $0.12and $0.18,respectively, of diluted~~earnings 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 43 - REVENUE RECOGNITION

On January 1, 2018, we adopted the new accounting standard that was issued by the FASB to provide a single, comprehensive model to determine the measurement of revenue and timing of when it is 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 New Revenue Standard would have reduced our crude oil, natural gas and NGLs sales by approximately $2.8 million and $5.4 million in the three and six months ended June 30, 2017, respectively, with a

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~~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 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 were not completed as of December 31, 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,~~March 31, 2019 and 2018 ~~and 2017~~ (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
Revenue by Commodity and Operating Region	2018		2017 (1)		Percentage Change		2018		2017 (1)		Percentage Change		2019		2018		Percent Change
Crude oil
Wattenberg Field	$	189,992	$	129,258	47.0	%	$	360,299	$	234,446	53.7	%	$	180,426	$	170,306	5.9	%
Delaware Basin	62,599		16,327		283.4	%	116,016		29,865		288.5	%	50,657		53,418		(5.2	)%
Utica Shale (2)	—		3,216		(100.0	)%	2,696		7,486		(64.0	)%
Utica Shale (1)													—		2,696		(100.0	)%
Total	$	252,591	$	148,801	69.8	%	$	479,011	$	271,797	76.2	%	$	231,083	$	226,420	2.1	%
Natural gas
Wattenberg Field	$	22,640	$	34,004	(33.4	)%	$	52,412	$	66,617	(21.3	)%	$	46,701	$	29,772	56.9	%
Delaware Basin	7,472		2,767		170.0	%	15,151		5,236		189.4	%	5,770		7,679		(24.9	)%
Utica Shale (2)	—		1,561		(100.0	)%	1,109		3,421		(67.6	)%
Utica Shale (1)													—		1,110		(100.0	)%
Total	$	30,112	$	38,332	(21.4	)%	$	68,672	$	75,274	(8.8	)%	$	52,471	$	38,561	36.1	%
NGLs
Wattenberg Field	$	30,271	$	21,923	38.1	%	$	59,041	$	47,242	25.0	%	$	27,722	$	28,770	(3.6	)%
Delaware Basin	12,959		3,680		252.1	%	23,594		6,626		256.1	%	9,823		10,635		(7.6	)%
Utica Shale (2)	—		866		(100.0	)%	840		2,355		(64.3	)%
Utica Shale (1)													—		839		(100.0	)%
Total	$	43,230	$	26,469	63.3	%	$	83,475	$	56,223	48.5	%	$	37,545	$	40,244	(6.7	)%
Revenue by Operating Region
Wattenberg Field	$	242,903	$	185,185	31.2	%	$	471,752	$	348,305	35.4	%	$	254,849	$	228,848	11.4	%
Delaware Basin	83,030		22,774		264.6	%	154,761		41,727		270.9	%	66,250		71,732		(7.6	)%
Utica Shale (2)	—		5,643		(100.0	)%	4,645		13,262		(65.0	)%
Utica Shale (1)													—		4,645		(100.0	)%
Total	$	325,933	$	213,602	52.6	%	$	631,158	$	403,294	56.5	%	$	321,099	$	305,225	5.2	%



~~________________________________________~~
(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 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 periods in which the related production is transferred to the customer.

~~The following table presents the changes in carrying amounts of the contract assets associated with our crude oil, natural gas and NGLs sales revenue for the six months ended June 30, 2018:~~

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

~~Customer Accounts Receivable.~~ 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 doubtful accounts for these receivables at June 30, 2018 or December 31, 2017.

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2018~~March 31, 2019

(unaudited)

NOTE 54 - FAIR VALUE OF FINANCIAL INSTRUMENTS

Determination of Fair Value

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

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

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

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

Derivative Financial Instruments

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

We validate our fair value measurement through the review of counterparty statements and other supporting documentation, determination that the source of the inputs is valid, corroboration of the original source of inputs through access to multiple quotes, if available, or other information and monitoring changes in valuation methods and assumptions. 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.~~2. Our collars ~~and propane fixed-price swaps~~ are included in Level ~~3 of the hierarchy.~~3. Our basis swaps are included in Level 2 and Level ~~3 of the hierarchy.~~3. The following table presents, for each applicable level within the fair value hierarchy, our derivative assets and liabilities, including both current and non-current portions, measured at fair value on a recurring basis:



	March 31, 2019									December 31, 2018
	Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total
	(in thousands)
Total assets	$	21,177		$	16,378		$	37,555		$	118,521		$	59,693		$	178,214
Total liabilities	(42,326		)	(3,388		)	(45,714		)	(3,364		)	(1,364		)	(4,728		)
Net asset (liability)	$	(21,149	)	$	12,990		$	(8,159	)	$	115,157		$	58,329		$	173,486

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 )

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2018~~March 31, 2019

(unaudited)

The following table presents a reconciliation of our Level 3 assets measured at fair value:



	Three Months Ended March 31,
	2019			2018
	(in thousands)
Fair value of Level 3 instruments, net asset (liability) beginning of period	$	58,329		$	(9,687	)
Changes in fair value included in condensed consolidated statement of operations line item:
Commodity price risk management loss, net	(43,520		)	(2,152		)
Settlements included in condensed consolidated statement of operations line items:
Commodity price risk management loss, net	(1,819		)	3,006
Fair value of Level 3 instruments, net liability end of period	$	12,990		$	(8,833	)

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

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 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.~~the financial statements.

Non-Derivative Financial Assets and Liabilities

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

We utilize fair value on a nonrecurring basis to review our proved crude oil and natural gas properties for possible impairment when events and circumstances indicate a possible decline in the recoverability of the carrying value of such assets. The fair value of the properties is determined based upon estimated future discounted cash flow, a Level 3 input, using estimated production and prices at which we reasonably expect the crude oil and natural gas will be sold.

The portion of our long-term debt related to our revolving credit facility approximates fair value due to the variable nature of related interest rates. We have not elected to account for the portion of our debt related to our senior notes under the fair value option; however, we have determined an estimate of the fair values based on measurements of trading activity and broker and/or dealer quotes, respectively, which are published market prices, and therefore are Level 2 inputs. The table below presents these estimates of the fair value of the portion of our long-term debt related to our senior notes and convertible notes as of:



		As of March 31, 2019				As of December 31, 2018
		Estimated Fair Value		Percent of Par		Estimated Fair Value		Percent of Par
		(in millions)
Senior notes:
	2021 Convertible Notes	$	188.1	94.1	%	$	175.4	87.7	%
	2024 Senior Notes	398.9		99.7	%	370.2		92.5	%
	2026 Senior Notes	583.7		97.3	%	532.4		88.7	%

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 carrying value of our capital lease obligations approximates fair value due to the variable nature of the imputed interest rates and the duration of the related vehicle lease.~~

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~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~June 30, 2018~~

~~(unaudited)~~

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

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

revolving credit facility as counterparties to our commodity derivative contracts. To date, we have had no derivative counterparty default losses. We have evaluated the credit risk of our derivative assets from our counterparties using relevant credit market default rates, giving consideration to amounts outstanding for each counterparty and the duration of each outstanding derivative position. Based on our evaluation, we have determined that the potential impact of nonperformance of our current counterparties on the fair value of our derivative instruments is not significant at ~~June 30, 2018, taking into account the estimated likelihood of nonperformance.~~

~~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 2017.2019.

Cash and Cash Equivalents. We consider all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents potentially subject us to a concentration of credit risk as substantially all of our deposits held in financial institutions were in excess of the FDIC insurance limits at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018. We maintain our cash and cash equivalents in the form of money market and checking accounts with financial institutions that we believe are creditworthy and are also ~~major~~ lenders under our revolving credit facility.

NOTE 65 - COMMODITY DERIVATIVE FINANCIAL INSTRUMENTS

Our results of operations and operating cash flows are affected by changes in market prices for crude oil, natural gas and NGLs. To manage a portion of our exposure to price volatility from producing crude oil and natural gas ~~and propane, which is an element of our NGLs,~~ we enter into commodity derivative contracts to protect against price declines in future periods. While we structure these commodity derivatives to reduce our exposure to decreases in commodity prices, they also limit the benefit we might otherwise receive from price increases.

We believe our commodity derivative instruments continue to be effective in achieving the risk management objectives for which they were intended. As of ~~June 30, 2018,~~March 31, 2019, we had derivative instruments, which were comprised of collars, fixed-price swaps and basis protection swaps, in place for a portion of our anticipated ~~2018,~~ 2019, 2020 and ~~2020~~2021 production. Our commodity derivative contracts have been entered into at no upfront cost to us as we hedge our anticipated production at the then-prevailing commodity market prices, without adjustment for premium or discount.

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~June 30, 2018~~

~~(unaudited)~~

As of ~~June 30, 2018,~~March 31, 2019, we had the following outstanding derivative contracts. When aggregating multiple contracts, the weighted average contract price is disclosed.

Collars Fixed-Price Swaps
Commodity/ Index/
Maturity Period

Quantity
(Crude oil -
MBls
Natural Gas - BBtu)

Weighted-Average
Contract Price

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

Weighted-
Average
Contract
Price

Fair Value
June 30,
2018 (1)
(in thousands)
Floors Ceilings
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 )



	Collars					Fixed-Price Swaps
Commodity/ Index/ Maturity Period	Quantity (Crude oil - MBls Natural Gas - BBtu)	Weighted-Average Contract Price				Quantity (Crude Oil - MBbls Gas and Basis- BBtu )	Weighted- Average Contract Price			Fair Value March 31, 2019 (1) (in thousands)
Commodity/ Index/ Maturity Period	Quantity (Crude oil - MBls Natural Gas - BBtu)	Floors		Ceilings		Quantity (Crude Oil - MBbls Gas and Basis- BBtu )	Weighted- Average Contract Price			Fair Value March 31, 2019 (1) (in thousands)
Crude Oil
NYMEX
2019	2,050	$	56.22	$	67.77	6,150	$	54.25		$	(35,191	)
2020	3,600	55.00		71.68		5,600	61.55			27,831
2021	—	—		—		600	57.23			350
Total Crude Oil	5,650					12,350				$	(7,010	)

Natural Gas
NYMEX
2019	—	$	—	$	—	22,746	$	2.91		$	2,641
Dominion South
2019	—	—		—		113	2.56			6
2020	—	—		—		14	2.54			—
Total Natural Gas	—					22,873				$	2,647

Basis Protection - Natural Gas
CIG
2019	—	$	—	$	—	22,683	$	(0.76	)	$	(3,796	)
Total Basis Protection - Natural Gas	—					22,683				$	(3,796	)

Commodity Derivatives Fair Value										$	(8,159	)

_____________


(1)	Approximately ~~29.9~~43.6 percent of the fair value of our commodity derivative assets and ~~10.5~~7.4 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	March 31, 2019		December 31, 2018
			(in thousands)
Derivative assets:	Current
	Commodity derivative contracts	Fair value of derivatives	$	13,330	$	84,492
	Non-current
	Commodity derivative contracts	Fair value of derivatives	24,225		93,722
Total derivative assets			$	37,555	$	178,214

Derivative liabilities:	Current
	Commodity derivative contracts	Fair value of derivatives	$	40,103	$	748
	Basis protection derivative contracts	Fair value of derivatives	3,796		2,616
			43,899		3,364
	Non-current
	Commodity derivative contracts	Fair value of derivatives	1,815		1,364
Total derivative liabilities			$	45,714	$	4,728

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

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

The following table presents the impact of our derivative instruments on our condensed consolidated statements of operations:



	Three Months Ended March 31,
Condensed Consolidated Statement of Operations Line Item	2019			2018
	(in thousands)
Commodity price risk management loss, net
Net settlements	$	(8,452	)	$	(26,038	)
Net change in fair value of unsettled derivatives	(181,622		)	(21,202		)
Total commodity price risk management loss, net	$	(190,074	)	$	(47,240	)

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.

~~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.

~~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 and liabilities:



As of March 31, 2019	Derivative Instruments, Gross		Effect of Master Netting Agreements			Derivative Instruments, Net
	(in thousands)
Asset derivatives:
Derivative instruments, at fair value	$	37,555	$	(27,793	)	$	9,762

Liability derivatives:
Derivative instruments, at fair value	$	45,714	$	(27,793	)	$	17,921

As of 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, 2018	Derivative Instruments, Gross		Effect of Master Netting Agreements			Derivative Instruments, Net
	(in thousands)
Asset derivatives:
Derivative instruments, at fair value	$	178,214	$	(3,985	)	$	174,229

Liability derivatives:
Derivative instruments, at fair value	$	4,728	$	(3,985	)	$	743

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

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

NOTE 76 - PROPERTIES AND EQUIPMENT

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



	March 31, 2019			December 31, 2018
	(in thousands)
Properties and equipment, net:
Crude oil and natural gas properties
Proved	$	5,681,685		$	5,452,613
Unproved	485,571			492,594
Total crude oil and natural gas properties	6,167,256			5,945,207
Infrastructure and other	59,510			60,612
Land and buildings	12,497			11,243
Construction in progress	404,229			356,095
Properties and equipment, at cost	6,643,492			6,373,157
Accumulated DD&A	(2,521,843		)	(2,370,295		)
Properties and equipment, net	$	4,121,649		$	4,002,862

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

Classification of Assets and Liabilities as Held-for-Sale. During the fourth quarter of 2018, as part of our plans to divest certain of our Delaware Basin crude oil gathering, natural gas gathering and produced water gathering and disposal assets, we began actively marketing the assets for sale; therefore, these assets are classified as held-for-sale as they met the criteria for such classification at March 31, 2019 and December 31, 2018. The planned disposition of our Delaware Basin crude oil gathering, natural gas gathering and produced water gathering and disposal assets does not represent a strategic shift in our operations or have a significant impact on our operations or financial results; therefore, we will not account for the disposition as a discontinued operation. Also included in assets held-for-sale are certain non-core Delaware Basin crude oil and natural gas properties.

The following table presents balance sheet data related to assets and liabilities held-for-sale:



	March 31, 2019		December 31, 2018
	(in thousands)
Assets
Properties and equipment, net	$	150,360	$	137,448
Other assets	2,487		3,257
Total assets	$	152,847	$	140,705

Liabilities
Asset retirement obligation	$	4,614	$	4,111
Total liabilities	$	4,614	$	4,111

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



	Three Months Ended March 31,
	2019		2018
	(in thousands)

Impairment of proved and unproved properties	$	7,875	$	33,130
Amortization of individually insignificant unproved properties	—		58
Impairment of crude oil and natural gas properties	$	7,875	$	33,188

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~~three months ended ~~June 30,~~March 31, 2019 and 2018, we recorded impairment charges totaling ~~$192.7~~$7.9 million ~~including $159.5~~and $26.9 million, ~~during~~respectively, related to the ~~three months ended June 30, 2018. During~~divestiture of leaseholds and the ~~three months ended June 30, 2018, we identified current~~then-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

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

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 fair value of the properties 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.

~~Additionally,~~During the three months ended March 31, 2018, we also corrected an error in our calculation of the unproved properties and goodwill impairment originally reported in the quarter ended September 30, 2017. The correction of the 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.

~~Utica Shale Divestiture.~~ In March 2018, we completed the disposition of our 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:



	March 31, 2019		December 31, 2018
	(in thousands, except for number of wells)

Beginning balance	$	12,188	$	15,448
Additions to capitalized exploratory well costs pending the determination of proved reserves	12,853		35,127
Reclassifications to proved properties	—		(38,387		)
Ending balance	$	25,041	$	12,188

Number of wells pending determination at period end	2		2

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

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2018~~March 31, 2019

(unaudited)

NOTE 87 - OTHER ACCRUED EXPENSES AND OTHER LIABILITIES

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



	March 31, 2019		December 31, 2018
	(in thousands)

Employee benefits	$	10,188	$	25,811
Asset retirement obligations	28,798		25,598
Environmental expenses	3,554		3,038
Operating and finance leases	6,645		—
Other	19,651		20,686
Other accrued expenses	$	68,836	$	75,133

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:



	March 31, 2019		December 31, 2018
	(in thousands)

Production taxes	$	78,805	$	61,310
Deferred oil gathering credit	22,207		22,710
Operating and finance leases	20,063		—
Other	3,988		8,644
Other liabilities	$	125,063	$	92,664

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 In January ~~31,~~ 2018, we received a payment ~~of $24.1 million~~ from ~~Saddle Butte Rockies Midstream, LLC~~a midstream service provider for the execution of an amendment to an existing crude oil ~~purchase and sale agreement~~PSA 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~~the midstream provider's gathering lines and extends the term of the agreement through December 2029. The payment ~~will be~~is being amortized using the straight-line method over the life of the amendment. Amortization charges totaling approximately ~~$0.4~~$0.5 million and ~~$0.7~~$0.4 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, respectively, related to the deferred oil gathering credit are included as a reduction to transportation, gathering and processing expenses onin our condensed consolidated statements of operations.

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2018~~March 31, 2019

(unaudited)

NOTE 98 - LONG-TERM DEBT

Long-term debt consisted of the following as of:



	March 31, 2019			December 31, 2018
	(in thousands)
Senior Notes:
1.125% Convertible Notes due September 2021:
Principal amount	$	200,000		$	200,000
Unamortized discount	(20,807		)	(22,766		)
Unamortized debt issuance costs	(2,397		)	(2,640		)
Net of unamortized discount and debt issuance costs	176,796			174,594

6.125% Senior Notes due September 2024:
Principal amount	400,000			400,000
Unamortized debt issuance costs	(5,346		)	(5,590		)
Net of unamortized debt issuance costs	394,654			394,410

5.75% Senior Notes due May 2026:
Principal amount	600,000			600,000
Unamortized debt issuance costs	(6,404		)	(6,628		)
Net of unamortized debt issuance costs	593,596			593,372

Total senior notes	1,165,046			1,162,376

Revolving Credit Facility:
Revolving credit facility due May 2023	124,000			32,500
Total long-term debt, net of unamortized discount and debt issuance costs	$	1,289,046		$	1,194,876

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~~semi-annually 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 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 were capitalized as debt issuance costs. As of ~~June 30, 2018,~~March 31, 2019, 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 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 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 15. Approximately $7.8 million in costs associated with the issuance of the 2024 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.

~~Table of contents~~

~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~June 30, 2018~~

~~(unaudited)~~

2026 Senior Notes. In November 2017, we issued $600 million aggregate principal amount of 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~~(the "2026 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.Notes"). 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

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

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.

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 Subsidiary Guarantor.

As of ~~June 30, 2018,~~March 31, 2019, 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 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~~and, as of March 31, 2019, a borrowing base of $1.3 ~~billion, an initial elected commitment~~billion. The amount ~~of $700 million and~~we may borrow under the Restated Credit Agreement is subject to certain limitations under our Notes. In addition, the Restated Credit Agreement extends the maturity date of the facility from May 2020 to May 2023, reflects improved covenant flexibility and certain reductions in interest rates applicable to borrowings under the facility and includes a $25.0 million swingline facility.

The revolving credit facility is available for working capital requirements, capital investments, acquisitions, to support letters of credit and for general corporate purposes. 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. Substantially all of our crude oil and natural gas properties, excluding our share of properties held by the limited partnerships that we sponsor, have been mortgaged or pledged as security for our revolving credit facility.

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~~the administrative agent'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 ~~June 30, 2018,~~March 31, 2019, 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 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,~~March 31, 2019, we were in compliance with all the revolving credit facility covenants.

As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, debt issuance costs related to our revolving credit facility were ~~$9.0~~$10.9 million and ~~$6.2~~$11.5 million, respectively, and are included in other assets on the condensed consolidated balance sheets. As of ~~June 30, 2018,~~March 31, 2019, the weighted-average interest rate on the outstanding balance on our revolving credit facility, exclusive of fees on the unused commitment, was ~~5.4~~4.5 percent.

NOTE 9 - LEASES

On January 1, 2019, we adopted the New Lease Standard issued by the FASB. We determine if an arrangement is representative of a lease under the New Lease Standard at contract inception. ROU assets represent our right to use the underlying assets for the lease term and the corresponding lease liabilities represent our obligations to make lease payments arising from the leases. Operating and finance lease ROU assets and liabilities are recognized at the commencement date based on the present value of the expected lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we utilize our incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments. Subsequent measurement, as well as presentation of expenses and cash flows, will depend upon the classification of the lease as either a finance or operating lease. Terms of our leases include options to extend or terminate the lease only when we can ascertain that it is reasonably certain we will exercise that option.

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2018~~March 31, 2019

(unaudited)

~~NOTE 10 - CAPITAL LEASES~~

We ~~periodically enter into non-cancelable~~have operating leases for office space and compressors and finance leases for vehicles. Our leases have remaining lease ~~agreements~~terms ranging from one to five years. The vehicle leases include options to renew for ~~vehicles utilized by our operations and field personnel. These~~up to four years. Lease payments associated with vehicle leases ~~are being accounted for as capital leases as the present value of minimum monthly lease payments, including the~~also include a contractually stated residual value ~~guarantee, exceeds 90 percent of the fair value of the leased vehicles at inception of the lease.~~

guarantee.

The following table presents ~~vehicles under capital~~the components of lease costs:



Lease Costs	Three Months Ended March 31, 2019
	(in thousands)
Operating lease costs	$	1,348

Finance lease costs:
Amortization of ROU assets	$	483
Interest on lease liabilities	60
Total finance lease costs	543

Short-term lease costs	61,030
Total lease costs	$	62,921

Our operating lease costs are recorded in lease operating expenses or general and administrative expense and our finance lease costs are recorded in DD&A expense and interest expense on our condensed consolidated statements of operations. Our short-term lease costs include amounts that are capitalized as part of the cost of another asset and are recorded as properties and equipment in our condensed consolidated balance sheets or amounts recognized as expense in our condensed consolidated statements of operations.

The following table presents leases and the balance sheet classification as of:



Leases	Condensed Consolidated Balance Sheet Line Item	March 31, 2019
		(in thousands)
Operating Leases:
Operating lease ROU assets	Other assets	$	19,535

Operating lease obligation - short-term	Other accrued expense	$	4,958
Operating lease obligation - long-term	Other liabilities	17,055
Total operating lease liabilities		$	22,013

Finance Leases:
Finance lease ROU assets	Properties and equipment, net	$	4,748

Finance lease obligation - short-term	Other accrued expense	$	1,687
Finance lease obligation - long-term	Other liabilities	3,008
Total finance lease liabilities		$	4,695

Weighted-average remaining lease term (years)
Operating leases		3.22
Finance leases		4.53

Weighted-average discount rate
Operating leases		5.0		%
Finance leases		5.0		%

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

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



	Operating Leases			Finance Leases			Total
	(in thousands)
2019	$	4,378		$	1,431		$	5,809
2020	5,910			1,716			7,626
2021	5,782			1,101			6,883
2022	4,851			528			5,379
2023	1,394			321			1,715
Thereafter	2,291			6			2,297
Total lease payments	24,606			5,103			29,709
Less interest and discount	(2,593		)	(408		)	(3,001		)
Present value of lease liabilities	$	22,013		$	4,695		$	26,708

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

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~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~June 30, 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 six months ended June 30, 2018 and June 30, 2017 are based upon a full year forecasted tax benefit on 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, federal tax credits impacted the effective income tax rate for the three and six months ended June 30, 2018. We anticipate the potential for increased periodic volatility in future effective 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 six months ended June 30, 2018 were 22.0 percent and 22.3 percent benefit on loss, respectively, compared to 37.3 percent and 36.8 percent expense on income for the three and six months ended June 30, 2017, respectively. The federal corporate statutory income tax rate decreased from 35 percent in 2017 to 21 percent in 2018 resulting from the 2017 Tax Cuts and Jobs Act (the "2017 Tax Act").

As of June 30, 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 2017 and 2018 tax years. We have received final acceptance of our 2016 federal income tax return from the IRS; however, this return is going through the Joint Tax Committee review process due to tax refunds requested.

NOTE 1210 - 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, 2018	$	115,021
Obligations incurred with development activities	2,807
Accretion expense	1,584
Revisions in estimated cash flows	3,200
Obligations discharged with asset retirements and divestiture	(6,703		)
Balance at March 31, 2019	115,909
Liabilities held-for-sale	(4,614		)
Current portion	(28,798		)
Long-term portion	$	82,497

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, abandonment and ~~abandonment~~surface reclamation costs considering federal and state regulatory requirements in ~~effect.~~effect at that time. The liability is discounted using the credit-adjusted risk-free rate estimated at the time the liability is incurred or revised. To the extent future revisions to these assumptions impact the present value of the existing asset retirement obligations liability, a corresponding adjustment is made to the properties and equipment balance. Changes in the liability due to the passage of time are recognized as an increase in the carrying amount of the liability and as ~~corresponding~~ accretion expense. Short-term asset retirement obligations are included in other accrued expenses on the condensed consolidated balance sheets.

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~~PDC ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~June 30, 2018~~

~~(unaudited)~~

NOTE 1311 - 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.

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

The following table presents gross volume information related to our long-term firm transportation, sales and processing agreements for pipeline ~~capacity:~~capacity and water delivery and disposal commitments:



	For the Twelve Months Ending March 31,
Area	2020		2021		2022		2023		2024 and Through Expiration		Total		Expiration Date

Natural gas (MMcf)
Wattenberg Field	26,772		31,025		31,025		31,025		85,290		205,137		April 30, 2026
Delaware Basin	47,150		33,410		16,097		—		—		96,657		December 31, 2021
Gas Marketing	7,136		7,117		6,966		2,830		—		24,049		August 31, 2022
Total	81,058		71,552		54,088		33,855		85,290		325,843

Crude oil (MBbls)
Wattenberg Field	9,740		6,227		5,475		5,475		450		27,367		April 30, 2023
Delaware Basin	8,227		8,580		8,030		8,030		6,050		38,917		December 31, 2023
Total	17,967		14,807		13,505		13,505		6,500		66,284

Water (MBbls)
Wattenberg Field	3,886		6,207		6,207		6,206		10,899		33,405		December 31, 2024
Delaware Basin	3,660		3,650		3,650		3,650		870		15,480		June 26, 2023
Total	7,546		9,857		9,857		9,856		11,769		48,885

Dollar commitment (in thousands)	$	104,504	$	80,633	$	73,851	$	68,882	$	94,836	$	422,706

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~~ 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 completed and turned on line the first of the two 200 MMcfd cryogenic plants in August 2018. The second plant is currently scheduled to be completed inby the end of the second quarter of 2019. We are bound to the volume requirements in these agreements on the first day of the calendar month following the actual in-service date of the relevant plant. 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 in these volume commitments may be offset by 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 meet both the baseline and incremental volumes and we believe that the contractual target profit margin will be achieved with minimal payment from us, if any.Payments made to date for such quantities have not been significant.

In April 2018, we entered into two five-year firm transportation agreements, effective May 1, 2018, with a third-party crude oil pipeline company to transport 15,000 barrels of crude oil per day from our Wattenberg Field via pipeline to Cushing, Oklahoma, and other area refineries.

Delaware Basin. In May 2018, we entered into ~~two~~a firm sales ~~agreements~~agreement 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. Contracted volumes are currently 17,200 barrels of crude oil per day and increase over time to 26,400 barrels of crude oil per day. 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~~Crude Oil, Natural Gas and NGLs Sales. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, ~~commitments for~~amounts related to long-term transportation volumes ~~net to our interest, for Wattenberg Field crude oil~~in the table above were $10.9 million and ~~Delaware Basin natural gas were~~ $2.6 million, ~~and $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 netted against our crude oil and natural gas sales in our condensed consolidated statements of operations. For the three and six months ended June 30, 2017, commitments for long-term transportation volumes for Wattenberg Field crude oil and Utica Shale natural gas were $2.6 million and $4.8 million, 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. We are involved in various legal proceedings. 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 our best 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. Although the results cannot be known with certainty, we currently believe that the ultimate results of such proceedings will not have a

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

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.~~Colorado (the "Dufresne Case"). The original complaint ~~states~~stated that it iswas 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 (collectively, the "Partnerships"), 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 and three independent members of our Board of Directors for ~~alleged~~allegedly aiding and abetting PDC's breach of fiduciary duty. The lawsuit accuses PDC, as the managing general partner of the ~~two partnerships,~~Partnerships, of, among other things, failing to maximize the productivity of the ~~partnerships’~~Partnerships’ crude oil and natural gas ~~wells. We filed a motion~~wells and improperly assigning the Partnerships only interests in the wells, as opposed 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.leasehold interests in surrounding acreage. In late April 2018, the plaintiffs filed an amendment to their ~~complaint. Such amendment primarily~~complaint, which 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. On February 19, 2019, the court granted the motion to dismiss, in part. It dismissed all claims against the individuals named as defendants. It also held that that the plaintiffs were time-barred from using the failure to assign acreage assignments to support their claims for breach of fiduciary duty against PDC. We filed an answer to the remaining claims on March 5, 2019. We understand that this action is stayed as a result of the partnership bankruptcy proceedings described in Partnership Bankruptcy Filings below. We are currently unable to estimate any potential damages resulting from this lawsuit.

Partnership Bankruptcy Filings. On October 30, 2018, the Partnerships filed petitions under Chapter 11 of the Bankruptcy Code (the "Chapter 11 Proceedings") in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "Bankruptcy Court"). The Partnerships intend to enter into a transaction with us, pursuant to which they will sell substantially all of their assets to us through a Chapter 11 plan of liquidation (the "Chapter 11 Plan") and provide a release of any claims, including those asserted in the Dufresne Case. The Partnerships remain in possession of their assets and continue to operate their businesses as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. In addition, a third-party (the “Responsible Party”) has been designated for the Partnerships. The Responsible Party is expected to oversee all actions for the Partnerships in connection with the Chapter 11 Proceedings, including actions relating to the anticipated transactions with us and seeking approval of the Chapter 11 Plan. In late November and early December 2018, the plaintiffs in the Dufresne Case filed several pleadings in the Bankruptcy Court, including one to dismiss the bankruptcy on grounds that PDC had no authority to hire the Responsible Party, the Responsible Party had no authority to cause the Partnerships to file bankruptcy, and the bankruptcy was filed solely for the purpose of gaining a litigation advantage in the Dufresne Case. The plaintiffs in the Dufresne Case also objected to the retention of the Responsible Party. PDC, the Partnerships and the plaintiffs in the Dufresne Case agreed to mediate their disputes. As a result, on December 17, 2018 the Bankruptcy Court entered an agreed order staying the bankruptcy motions and abating the Dufresne Case to allow the parties to mediate their disputes. The mediation was conducted in late February 2019, but the parties did not reach a settlement. As a result, on March 21, 2019, the Bankruptcy Court entered an agreed scheduling order with respect to the motion to dismiss and objection to the retention of the Responsible Party, with a hearing scheduled for June 2019. We do not believe that the Partnership's Chapter 11 Proceedings will have a material adverse effect on our financial position, results of operations or liquidity, but we cannot predict the outcome of such proceedings.

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 ~~June 30, 2018~~March 31, 2019 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. 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 Agreement and Related Consent Decree. In ~~August~~June 2017, following our receipt of a 2015 ~~we received a~~ Clean Air Act ~~Section 114 Information Request (the "Information Request")~~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~~a 2015 ~~we received a Compliance Advisory pursuant to C.R.S. 25-7-115(2)~~compliance advisory 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~~the U.S. Department of ~~volatile organic compounds at 65 facilities consistent with applicable standards under Colorado law.~~

Justice, on

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2018~~March 31, 2019

(unaudited)

~~In June 2017, the U.S. Department of Justice, on~~ behalf of the EPA and the state of Colorado, filed a complaint against us in the U.S. District Court for the District of Colorado, claiming that we failed to operate and maintain certain condensate collection facilities at 65 facilities so as to minimize leakage of volatile organic compounds in compliance with applicable law.

In October 2017, we entered into a consent decree to resolve the lawsuit and the ~~above referenced Compliance Advisory.~~compliance advisory. Pursuant to the consent decree, we agreed to implement a variety of operational enhancements and mitigation and similar projects, including vapor control system modifications and verification, increased inspection and monitoring and installation of tank pressure monitors. 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 and the full cost of supplemental environmental projects were paid in the first ~~quarter~~and third quarters of 2018, ~~and the environmental projects have been accrued in other accrued expenses on our consolidated balance sheet as of June 30, 2018,~~respectively, (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. We continue to incur costs associated with these activities. If we fail to comply fully with the requirements of the consent decree with respect to those matters, we could be subject to additional liability. ~~In addition, we could be the 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.

We are in the process of implementing ~~a program to comply with~~ the consent ~~decree. In July 2018,~~degree program. Over the course of its execution, we have identified certain immaterial deficiencies in our implementation of the program. We ~~have reported~~report these immaterial deficiencies to the appropriate authorities and ~~are in the process of remediating them.~~remediate them promptly. We do not believe that the penalties and expenditures associated with the consent decree, including any sanctions associated with these deficiencies, will have a material effect on our financial condition or results of operations, but they may exceed $100,000.

In addition, in December 2018, we were named as a nominal defendant in a derivative action filed in the Delaware chancery court. The complaint, which seeks unspecified monetary damages and various forms of equitable relief, alleges that certain current and former members of our Board of Directors violated their fiduciary duties, committed waste and were unjustly enriched by, among other things, failing to implement adequate environmental safeguards in connection with the issues that gave rise to the Department of Justice lawsuit and consent decree. We believe that this lawsuit is without merit but cannot predict its outcome.

Further, we could be the subject of other enforcement actions by regulatory authorities in the future relating to our past, present or future operations.

NOTE 1412 - COMMON STOCK

Stock-Based Compensation Plans

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 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~~However, 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 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 of continued service or the satisfaction of performance conditions set at the discretion of the Compensation Committee of our Board of Directors (the "Compensation Committee"), with ~~certain~~a minimum one-year vesting ~~periods.~~period applicable to most awards. With regard to SARs and options, awards have a maximum exercisable period of ten years. We began issuing shares from the 2018 Plan during the three months ended March 31, 2019. As of March 31, 2019, there were 1,772,088 shares available for grant under the 2018 plan.

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~~remains outstanding and we may continue to use the 2010 Plan to grant awards. ~~However, the share reserve of the 2010 Plan is nearly depleted.~~ As of ~~June 30, 2018,~~March 31, 2019, there were ~~256,059~~37,703 shares available for grant under the 2010 Plan.

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2018~~March 31, 2019

(unaudited)

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 March 31,
	2019			2018
	(in thousands)

Stock-based compensation expense	$	4,683		$	5,261
Income tax benefit	(1,120		)	(1,261		)
Stock-based compensation expense, net of tax	$	3,563		$	4,000

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

Stock-based compensation expense $ 5,518
$ 5,372
$ 10,779
$ 9,826
Income tax benefit (1,323 ) (2,010 ) (2,584 ) (3,676 )
Net stock-based compensation expense $ 4,195
$ 3,362
$ 8,195
$ 6,150

~~Stock Appreciation Rights~~

The 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. No SARs were awarded or expired during the three and six months ended June 30, 2018.

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

Restricted Stock ~~Awards~~Units

Time-Based Awards. The fair value of the time-based RSUs is amortized ratably over the requisite service period, primarily three years. The time-based ~~shares~~RSUs 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 RSUs to all employees, including executive officers, for the ~~six~~three months ended ~~June 30, 2018:~~March 31, 2019:


	Shares		Weighted-Average Grant Date Fair Value per Share		Shares		Weighted-Average Grant Date Fair Value per Share

Non-vested at December 31, 2017	472,132		$	60.23
Non-vested at December 31, 2018					618,407		$	54.16
Granted	373,788		49.73		189,137		38.59
Vested	(208,060	)	58.49		(93,685	)	54.64
Forfeited	(26,878	)	58.12		(12,186	)	48.38
Non-vested at June 30, 2018	610,982		54.49
Non-vested at March 31, 2019					701,673		50.00

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


	Six Months Ended June 30,				Three Months Ended March 31,
	2018		2017		2019		2018
	(in thousands, except per share data)				(in thousands, except per share data)

Total intrinsic value of time-based awards vested	$	10,482	$	13,103	$	3,311	$	3,530
Total intrinsic value of time-based awards non-vested	36,934		22,454		28,544		26,297
Market price per share as of June 30,	60.45		43.11
Market price per share as of March 31					40.68		49.03
Weighted-average grant date fair value per share	49.73		67.02		38.59		50.94

~~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 ~~June 30, 2018~~March 31, 2019 was ~~$26.8~~$23.8 million. This cost is expected to be recognized over a weighted-average period of ~~2.1~~1.9 years.

Performance Stock Units

Market-Based Awards. The fair value of the market-based 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.

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

The Compensation Committee awarded a total of ~~90,778~~139,197 market-based PSUs to our executive officers during the ~~six~~three months ended ~~June 30, 2018.~~March 31, 2019. In addition to continuous employment, the vesting of these ~~shares~~PSUs is contingent on our total stockholder return ("TSR"), which is essentially our stock price change including any dividends over a three-year period ending on December 31, 2021, as compared to the TSR of a group of peer ~~companies.~~companies over the same period. The ~~shares are measured over a three-year period ending on December 31, 2020, and can~~PSUs will result in a payout between ~~0 percent~~zero and 200 percent of the target PSUs awarded. The weighted-average grant date fair value per PSU granted was computed using the Monte Carlo pricing model using the following assumptions:



	Three Months Ended March 31,
	2019		2018

Expected term of award (in years)	3		3
Risk-free interest rate	2.5	%	2.4	%
Expected volatility	41.4	%	42.3	%

Six Months Ended June 30,
2018 2017

Expected term of award (in years) 3
3
Risk-free interest rate 2.4 % 1.4 %
Expected volatility 42.3 % 51.4 %
Weighted-average grant date fair value per share $ 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 ~~six~~three months ended ~~June 30, 2018:~~March 31, 2019:



	Shares	Weighted-Average Grant Date Fair Value per Share

Non-vested at December 31, 2018	102,914	$	74.88
Granted	139,197	56.68
Non-vested at March 31, 2019	242,111	64.42

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:



	Three Months Ended March 31,
	2019		2018
	(in thousands, except per share data)

Total intrinsic value of market-based awards non-vested	$	9,849	$	6,815
Market price per common share as of March 31,	40.68		49.03
Weighted-average grant date fair value per share	56.68		69.98

Six Months Ended June 30,
2018 2017
(in thousands, except per share data)

Total intrinsic value of market-based awards non-vested $ 8,402
$ 3,297
Market price per common share as of June 30, 60.45
43.11
Weighted-average grant date fair value per share 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 ~~June 30, 2018~~March 31, 2019 was ~~$7.0~~$11.6 million. This cost is expected to be recognized over a weighted-average period of ~~2.3~~2.2 years.

Stock Appreciation Rights

The SARs vest ratably over a three-year period and may generally 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. No SARs were awarded or expired during the three months ended March 31, 2019.

Total compensation cost related to non-vested SARs granted and not yet recognized in our condensed consolidated statements of operations as of March 31, 2019 was $0.4 million. The cost is expected to be recognized over a weighted-average period of 0.8 years.

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

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 ~~June 30, 2018,~~March 31, 2019, no shares of preferred ~~shares~~stock have been issued.

Stock Repurchase Program

In April 2019, our Board of Directors approved a stock repurchase program (the “Program”) to acquire up to $200 million of our outstanding common stock, depending on market conditions. The Program is expected to begin in the third quarter of 2019 with a target completion date of December 31, 2020. Repurchases under the Program can be made in open markets at our discretion and in compliance with safe harbor provisions, or in privately negotiated transactions. The Program does not require any specific number of shares to be acquired, and can be modified or discontinued by the Board of Directors at any time.

NOTE 13 - INCOME TAXES

We compute our quarterly tax provision using the effective tax rate method by applying the anticipated annual effective rate to our year-to-date income or loss, except for discrete items. Income tax on discrete items is computed and recorded in the period in which the specific transaction occurs. 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 effective income tax rates differ from the statutory federal tax rate, primarily due to state taxes, stock-based compensation, nondeductible officers’ compensation, nondeductible lobbying expenses, and federal tax credits. The effective income tax rate for the three months ended March 31, 2019 includes discrete income tax provision items of $0.5 million relating to the tax detriment on stock-based compensation, which resulted in a 0.3 percent decrease to our effective income tax rate. We anticipate the potential for increased periodic volatility in future effective tax rates from the impact of stock-based compensation tax deductions as they are treated as discrete tax items.

The effective income tax rate for the three months ended March 31, 2019 was a 23.7 percent benefit on loss, compared to a 25.8 percent benefit on loss for the three months ended March 31, 2018.

As of March 31, 2019, 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. The IRS partially accepted our 2017 tax return. The 2017 tax return is in the IRS CAP Program post-filing review process, with no significant tax adjustments currently proposed. We are currently participating in the CAP Program for the review of our 2018 and 2019 tax years. Participation in the CAP Program has enabled us to have minimal uncertain tax benefits associated with our federal tax return filings.

NOTE 1514 - 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.

The following table presents ~~a reconciliation of the~~our weighted-average basic and diluted shares outstanding:



	Three Months Ended March 31,
	2019	2018
	(in thousands)

Weighted-average common shares outstanding - basic	66,182	65,957
Weighted-average common shares and equivalents outstanding - diluted	66,182	65,957

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

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

Weighted-average common shares outstanding - basic 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 66,066
66,019
66,012
66,066

We reported a net loss for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018. As a result, our basic and diluted weighted-average common shares outstanding were the same for ~~that period~~those periods 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 March 31,
	2019	2018
	(in thousands)

Weighted-average common share equivalents excluded from diluted earnings per share due to their anti-dilutive effect:
RSUs and PSUs	895	613
Other equity-based awards	302	76
Total anti-dilutive common share equivalents	1,197	689

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

Weighted-average common share equivalents excluded from diluted earnings per share due to their anti-dilutive effect:
Restricted stock 624
376
558
119
Other equity-based awards 272
1
225
10
Total anti-dilutive common share equivalents 896
377
783
129

~~In September 2016, we issued the~~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 six~~ months ended ~~June 30,~~March 31, 2019 and 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.

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2018~~March 31, 2019

(unaudited)

NOTE 15 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION



	Three Months Ended March 31,
	2019		2018 (1)

Supplemental cash flow information:
Cash payments for:
Interest, net of capitalized interest	$	12,602	$	12,343
Income taxes	—		193

Non-cash investing and financing activities:
Change in accounts payable related to capital expenditures	$	14,941	$	51,093
Change in asset retirement obligations, with a corresponding change to crude oil and natural gas properties, net of disposals	2,794		5,354

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,441	$	—
Operating cash flows from finance leases	60		—
Financing cash flows from finance leases	494		—

ROU assets obtained in exchange for lease obligations:
Operating leases	$	481	$	—
Finance leases	624		—

(1) As we have elected the modified retrospective method of adoption for the New Lease Standard, cash flows related to lease liabilities have

not been restated for the three months ended March 31, 2018.

NOTE 16 - SUBSIDIARY GUARANTOR

PDC Permian, Inc., our wholly-owned subsidiary, guarantees our obligations under our publicly-registered 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 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 percent owned by the Parent. The 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 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.

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2018~~March 31, 2019

(unaudited)


	Condensed Consolidating Balance Sheets												Condensed Consolidating Balance Sheets
	June 30, 2018												March 31, 2019
	Parent			Guarantor			Eliminations			Consolidated			Parent			Guarantor			Eliminations			Consolidated
	(in thousands)												(in thousands)

Current assets:
Cash and cash equivalents	$	1,425		$	—		$	—		$	1,425		$	1,112		$	—		$	—		$	1,112
Accounts receivable, net	149,120			46,197			—			195,317			157,254			33,590			—			190,844
Fair value of derivatives	14,817			—			—			14,817			13,330			—			—			13,330
Prepaid expenses and other current assets	5,379			1,365			—			6,744			6,963			907			—			7,870
Total current assets	170,741			47,562			—			218,303			178,659			34,497			—			213,156
Properties and equipment, net	2,191,985			2,000,623			—			4,192,608			2,301,379			1,820,270			—			4,121,649
Assets held-for-sale													—			152,847			—			152,847
Intercompany receivable	352,436			—			(352,436		)	—			528,315			—			(528,315		)	—
Investment in subsidiaries	1,493,829			—			(1,493,829		)	—			1,309,187			—			(1,309,187		)	—
Fair value of derivatives													24,225			—			—			24,225
Other assets	27,069			4,174			—			31,243			44,755			7,296			—			52,051
Total Assets	$	4,236,060		$	2,052,359		$	(1,846,265	)	$	4,442,154		$	4,386,520		$	2,014,910		$	(1,837,502	)	$	4,563,928

Liabilities and Stockholders' Equity
Liabilities
Current liabilities:
Accounts payable	$	135,677		$	79,473		$	—		$	215,150		$	110,019		$	105,536		$	—		$	215,555
Production tax liability	52,768			3,998			—			56,766			51,558			3,872			—			55,430
Fair value of derivatives	186,605			—			—			186,605			43,899			—			—			43,899
Funds held for distribution	80,439			21,915			—			102,354			75,899			15,716			—			91,615
Accrued interest payable	12,556			5			—			12,561			15,190			4			—			15,194
Other accrued expenses	35,143			745			—			35,888			65,902			2,934			—			68,836
Total current liabilities	503,188			106,136			—			609,324			362,467			128,062			—			490,529
Intercompany payable	—			352,436			(352,436		)	—			—			528,315			(528,315		)	—
Long-term debt	1,179,117			—			—			1,179,117			1,289,046			—			—			1,289,046
Deferred income taxes	48,740			93,071			—			141,811			127,378			33,231			—			160,609
Asset retirement obligations	67,142			6,407			—			73,549			75,133			7,364			—			82,497
Liabilities held-for-sale													—			4,614			—			4,614
Fair value of derivatives	36,430			—			—			36,430			1,815			—			—			1,815
Other liabilities	61,137			480			—			61,617			120,926			4,137			—			125,063
Total liabilities	1,895,754			558,530			(352,436		)	2,101,848			1,976,765			705,723			(528,315		)	2,154,173

Commitments and contingent liabilities

Stockholders' Equity
Stockholders' equity
Common shares	661			—			—			661			662			—			—			662
Additional paid-in capital	2,509,693			1,766,775			(1,766,775		)	2,509,693			2,521,558			1,766,775			(1,766,775		)	2,521,558
Retained earnings	(166,692		)	(272,946		)	272,946			(166,692		)	(111,449		)	(457,588		)	457,588			(111,449		)
Treasury shares	(3,356		)	—			—			(3,356		)	(1,016		)	—			—			(1,016		)
Total stockholders' equity	2,340,306			1,493,829			(1,493,829		)	2,340,306			2,409,755			1,309,187			(1,309,187		)	2,409,755
Total Liabilities and Stockholders' Equity	$	4,236,060		$	2,052,359		$	(1,846,265	)	$	4,442,154		$	4,386,520		$	2,014,910		$	(1,837,502	)	$	4,563,928

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2018~~March 31, 2019

(unaudited)


	Condensed Consolidating Balance Sheets												Condensed Consolidating Balance Sheets
	December 31, 2017												December 31, 2018
	Parent			Guarantor			Eliminations			Consolidated			Parent			Guarantor			Eliminations			Consolidated
	(in thousands)												(in thousands)

Current assets:
Cash and cash equivalents	$	180,675		$	—		$	—		$	180,675		$	1,398		$	—		$	—		$	1,398
Accounts receivable, net	160,490			37,108			—			197,598			146,529			34,905			—			181,434
Fair value of derivatives	14,338			—			—			14,338			84,492			—			—			84,492
Prepaid expenses and other current assets	8,284			329			—			8,613			6,725			411			—			7,136
Total current assets	363,787			37,437			—			401,224			239,144			35,316			—			274,460
Properties and equipment, net	1,891,314			2,042,153			—			3,933,467			2,270,711			1,732,151			—			4,002,862
Assets held-for-sale, net	40,084			—			—			40,084
Assets held-for-sale													—			140,705			—			140,705
Intercompany receivable	250,279			—			(250,279		)	—			451,601			—			(451,601		)	—
Investment in subsidiaries	1,617,537			—			(1,617,537		)	—			1,316,945			—			(1,316,945		)	—
Fair value of derivatives													93,722			—			—			93,722
Other assets	42,547			2,569			—			45,116			30,084			2,312			—			32,396
Total Assets	$	4,205,548		$	2,082,159		$	(1,867,816	)	$	4,419,891		$	4,402,207		$	1,910,484		$	(1,768,546	)	$	4,544,145

Liabilities and Stockholders' Equity
Liabilities
Current liabilities:
Accounts payable	$	85,000		$	65,067		$	—		$	150,067		$	110,847		$	71,017		$	—		$	181,864
Production tax liability	35,902			1,752			—			37,654			53,309			7,410			—			60,719
Fair value of derivatives	79,302			—			—			79,302			3,364			—			—			3,364
Funds held for distribution	83,898			11,913			—			95,811			90,183			15,601			—			105,784
Accrued interest payable	11,812			3			—			11,815			14,143			7			—			14,150
Other accrued expenses	42,543			444			—			42,987			73,689			1,444			—			75,133
Total current liabilities	338,457			79,179			—			417,636			345,535			95,479			—			441,014
Intercompany payable	—			250,279			(250,279		)	—			—			451,601			(451,601		)	—
Long-term debt	1,151,932			—			—			1,151,932			1,194,876			—			—			1,194,876
Deferred income taxes	62,857			129,135			—			191,992			162,368			35,728			—			198,096
Asset retirement obligations	65,301			5,705			—			71,006			79,904			5,408			—			85,312
Liabilities held-for-sale													—			4,111			—			4,111
Fair value of derivatives	22,343			—			—			22,343			1,364			—			—			1,364
Other liabilities	57,009			324			—			57,333			91,452			1,212			—			92,664
Total liabilities	1,697,899			464,622			(250,279		)	1,912,242			1,875,499			593,539			(451,601		)	2,017,437

Commitments and contingent liabilities

Stockholders' Equity
Stockholders' equity
Common shares	659			—			—			659			661			—			—			661
Additional paid-in capital	2,503,294			1,766,775			(1,766,775		)	2,503,294			2,519,423			1,766,775			(1,766,775		)	2,519,423
Retained earnings	6,704			(149,238		)	149,238			6,704			8,727			(449,830		)	449,830			8,727
Treasury shares	(3,008		)	—			—			(3,008		)	(2,103		)	—			—			(2,103		)
Total stockholders' equity	2,507,649			1,617,537			(1,617,537		)	2,507,649			2,526,708			1,316,945			(1,316,945		)	2,526,708
Total Liabilities and Stockholders' Equity	$	4,205,548		$	2,082,159		$	(1,867,816	)	$	4,419,891		$	4,402,207		$	1,910,484		$	(1,768,546	)	$	4,544,145

Table of contents

PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2018~~March 31, 2019

(unaudited)


	Condensed Consolidating Statements of Operations											Condensed Consolidating Statements of Operations
	Three Months Ended June 30, 2018											Three Months Ended March 31, 2019
	Parent			Guarantor			Eliminations		Consolidated			Parent			Guarantor			Eliminations		Consolidated
	(in thousands)											(in thousands)

Revenues
Crude oil, natural gas and NGLs sales	$	242,903		$	83,030		$	—	$	325,933		$	254,849		$	66,250		$	—	$	321,099
Commodity price risk management loss, net	(116,126		)	—			—		(116,126		)	(190,074		)	—			—		(190,074		)
Other income	2,479			245			—		2,724			2,633			842			—		3,475
Total revenues	129,256			83,275			—		212,531			67,408			67,092			—		134,500
Costs, expenses and other
Lease operating expenses	23,432			8,828			—		32,260			23,634			11,587			—		35,221
Production taxes	16,189			6,415			—		22,604			15,885			6,283			—		22,168
Transportation, gathering and processing expenses	3,610			5,354			—		8,964			5,440			5,984			—		11,424
Exploration, geologic and geophysical expense	296			579			—		875			317			2,326			—		2,643
Impairment of properties and equipment	86			159,468			—		159,554			—			7,875			—		7,875
General and administrative expense	33,152			4,095			—		37,247			34,434			5,164			—		39,598
Depreciation, depletion and amortization	93,217			42,407			—		135,624			112,631			38,791			—		151,422
Accretion of asset retirement obligations	1,177			108			—		1,285			1,378			206			—		1,584
Gain on sale of properties and equipment	(351		)	—			—		(351		)
(Gain) loss on sale of properties and equipment												(382		)	13			—		(369		)
Other expenses	2,708			—			—		2,708			3,554			—			—		3,554
Total costs, expenses and other	173,516			227,254			—		400,770			196,891			78,229			—		275,120
Loss from operations	(44,260		)	(143,979		)	—		(188,239		)	(129,483		)	(11,137		)	—		(140,620		)
Interest expense	(17,915		)	505			—		(17,410		)	(17,935		)	957			—		(16,978		)
Interest income	69			—			—		69			10			—			—		10
Loss before income taxes	(62,106		)	(143,474		)	—		(205,580		)	(147,408		)	(10,180		)	—		(157,588		)
Income tax benefit	13,348			31,975			—		45,323			34,991			2,421			—		37,412
Equity in loss of subsidiary	(111,499		)	—			111,499		—			(7,759		)	—			7,759		—
Net loss	$	(160,257	)	$	(111,499	)	$	111,499	$	(160,257	)	$	(120,176	)	$	(7,759	)	$	7,759	$	(120,176	)

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2018~~March 31, 2019

(unaudited)


	Condensed Consolidating Statements of Operations											Condensed Consolidating Statements of Operations
	Three Months Ended June 30, 2017											Three Months Ended March 31, 2018
	Parent			Guarantor			Eliminations		Consolidated			Parent			Guarantor			Eliminations		Consolidated
	(in thousands)											(in thousands)

Revenues
Crude oil, natural gas and NGLs sales	$	190,828		$	22,774		$	—	$	213,602		$	233,494		$	71,731		$	—	$	305,225
Commodity price risk management gain, net	57,932			—			—		57,932
Commodity price risk management loss, net												(47,240		)	—			—		(47,240		)
Other income	3,586			38			—		3,624			2,516			99			—		2,615
Total revenues	252,346			22,812			—		275,158			188,770			71,830			—		260,600
Costs, expenses and other
Lease operating expenses	15,557			4,471			—		20,028			21,362			8,274			—		29,636
Production taxes	13,388			1,654			—		15,042			16,081			4,088			—		20,169
Transportation, gathering and processing expenses	5,767			721			—		6,488			3,231			4,082			—		7,313
Exploration, geologic and geophysical expense	256			777			—		1,033			313			2,333			—		2,646
Impairment of properties and equipment	531			27,035			—		27,566			6			33,182			—		33,188
General and administrative expense	26,617			2,914			—		29,531			31,559			4,137			—		35,696
Depreciation, depletion and amortization	108,727			17,286			—		126,013			94,376			32,412			—		126,788
Accretion of asset retirement obligations	1,589			77			—		1,666			1,200			88			—		1,288
Gain on sale of properties and equipment	(532		)	—			—		(532		)	1,432			—			—		1,432
Provision for uncollectible notes receivable	(40,203		)	—			—		(40,203		)
Other expenses	3,890			—			—		3,890			2,768			—			—		2,768
Total costs, expenses and other	135,587			54,935			—		190,522			172,328			88,596			—		260,924
Income (loss) from operations	116,759			(32,123		)	—		84,636			16,442			(16,766		)	—		(324		)
Interest expense	(19,800		)	183			—		(19,617		)	(18,097		)	568			—		(17,529		)
Interest income	768			—			—		768			148			—			—		148
Income (loss) before income taxes	97,727			(31,940		)	—		65,787
Income tax (expense) benefit	(36,285		)	11,748			—		(24,537		)
Loss before income taxes												(1,507		)	(16,198		)	—		(17,705		)
Income tax benefit												577			3,989			—		4,566
Equity in loss of subsidiary	(20,192		)	—			20,192		—			(12,209		)	—			12,209		—
Net income (loss)	$	41,250		$	(20,192	)	$	20,192	$	41,250
Net loss												$	(13,139	)	$	(12,209	)	$	12,209	$	(13,139	)

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PDC ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2018~~March 31, 2019

(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 )



	Condensed Consolidating Statements of Cash Flows
	Three Months Ended March 31, 2019
	Parent			Guarantor			Eliminations			Consolidated
	(in thousands)

Cash flows from operating activities	$	152,524		$	29,329		$	—		$	181,853
Cash flows from investing activities:
Capital expenditures for development of crude oil and natural gas properties	(161,482		)	(105,458		)	—			(266,940		)
Capital expenditures for other properties and equipment	(4,756		)	(70		)	—			(4,826		)
Proceeds from sale of properties and equipment	102			—			—			102
Intercompany transfers	(76,271		)	—			76,271			—
Net cash from investing activities	(242,407		)	(105,528		)	76,271			(271,664		)
Cash flows from financing activities:
Proceeds from revolving credit facility	432,000			—			—			432,000
Repayment of revolving credit facility	(340,500		)	—			—			(340,500		)
Purchase of treasury stock	(1,460		)	—			—			(1,460		)
Other	(443		)	(72		)	—			(515		)
Intercompany transfers	—			76,271			(76,271		)	—
Net cash from financing activities	89,597			76,199			(76,271		)	89,525
Net change in cash, cash equivalents and restricted cash	(286		)	—			—			(286		)
Cash, cash equivalents and restricted cash, beginning of period	9,399			—			—			9,399
Cash, cash equivalents and restricted cash, end of period	$	9,113		$	—		$	—		$	9,113



	Condensed Consolidating Statements of Cash Flows
	Three Months Ended March 31, 2018
	Parent			Guarantor			Eliminations			Consolidated
	(in thousands)

Cash flows from operating activities	$	149,009		$	56,140		$	—		$	205,149
Cash flows from investing activities:
Capital expenditures for development of crude oil and natural gas properties	(97,286		)	(99,631		)	—			(196,917		)
Capital expenditures for other properties and equipment	(701		)	(365		)	—			(1,066		)
Acquisition of crude oil and natural gas properties	(180,825		)	—			—			(180,825		)
Proceeds from sale of properties and equipment	20			—			—			20
Proceeds from divestiture	39,023			—			—			39,023
Restricted cash	1,249			—			—			1,249
Intercompany transfers	(43,891		)	—			43,891			—
Net cash from investing activities	(282,411		)	(99,996		)	43,891			(338,516		)
Cash flows from financing activities:
Proceeds from revolving credit facility	35,000			—			—			35,000
Repayment of revolving credit facility	(35,000		)	—			—			(35,000		)
Purchase of treasury stock	(2,255		)	—			—			(2,255		)
Other	(344		)	(35		)	—			(379		)
Intercompany transfers	—			43,891			(43,891		)	—
Net cash from financing activities	(2,599		)	43,856			(43,891		)	(2,634		)
Net change in cash, cash equivalents and restricted cash	(136,001		)	—			—			(136,001		)
Cash, cash equivalents and restricted cash, beginning of period	189,925			—			—			189,925
Cash, cash equivalents and restricted cash, end of period	$	53,924		$	—		$	—		$	53,924

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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

~~Table of contents~~

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 9.4 MMboe and 18.3~~of 11.2 MMboe for the three ~~and six~~ months ended ~~June 30, 2018, respectively, representing increases~~March 31, 2019 represent an increase of ~~17 percent and 25~~26 percent as compared to the three ~~and six~~ months ended ~~June 30, 2017, respectively.~~March 31, 2018. Crude oil production increased ~~22 percent and 35~~19 percent for the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019 compared to the three ~~and six~~ months ended ~~June 30, 2017.~~March 31, 2018. Crude oil production comprised approximately 4240 percent and 3943 percent of total production for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, respectively. Both natural gas and ~~2017, respectively.~~ NGLs production increased ~~10 percent and 14~~31 percent for the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019 compared to the three ~~and six~~ months ended ~~June 30, 2017. Natural gas production increased 16 percent and 21 percent for the three and six months ended June 30, 2018, respectively, compared to the three and six months ended June 30, 2017.~~March 31, 2018. For the month ended ~~June 30, 2018,~~March 31, 2019, we maintained an average daily production rate of approximately ~~102,000~~124,000 Boe per day, up from approximately ~~87,000~~96,000 Boe per day for the month ended ~~June 30, 2017.~~March 31, 2018.

On a sequential quarterly basis, total production and crude oil production volumes for the three months ended ~~June 30, 2018~~March 31, 2019 as compared to the three months ended ~~March~~December 31, 2018 ~~increased~~decreased by five percent and ~~four~~eight percent, respectively. ~~In the Wattenberg Field, continued high line pressures, which have been greater than anticipated, and unplanned gathering system facility downtime hampered our~~The decrease in these production ~~growth~~volumes was primarily related to fewer production days in the ~~field during~~first quarter of 2019 and the ~~three and six months ended June 30, 2018. These operating challenges are reflected in our expected full year 2018 production outlook as discussed under~~ ~~2018 Operational and Financial Outlook.~~ ~~We expect significant production growth~~natural decline of wells in the ~~Wattenberg Field~~Delaware Basin as we did not turn any wells in-line 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 and result in further widening of price differentials for our future production in the ~~basin. In an effort to address these issues, we entered into separate agreements during the second~~fourth quarter of ~~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.~~2018.

Crude oil, natural gas and NGLs sales revenue increased to ~~$325.9 million and $631.2~~$321.1 million for the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019, compared to ~~$213.6 million and $403.3~~$305.2 million for the three ~~and six~~ months ended ~~June 30, 2017, respectively.~~March 31, 2018. The 53five percent ~~and 57 percent increases~~increase in sales revenues ~~were~~was driven by the 1726 percent ~~and 25 percent increases~~increase in production, ~~and~~partially offset by the 3016 percent ~~and 25 percent increases~~decrease in weighted 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, 2018prices, 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.~~prior period.

We had negative net settlements from our commodity derivative contracts of ~~$16.4 million and $42.4~~$8.5 million for the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019 as compared to ~~positive~~negative net settlements of ~~$12.0 million and $12.6~~$26.0 million for the three ~~and six~~ months ended ~~June 30, 2017, respectively. The 2018 negative net settlements include an $11.3 million realized gain on the early settlement of certain commodity derivative basis protection positions.~~March 31, 2018. 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.

The combined revenue from crude oil, natural gas and NGLs sales and net settlements ~~received on~~from our commodity derivative instruments increased 3712 percent to ~~$309.5~~$312.6 million for the three months ended ~~June 30, 2018~~March 31, 2019 from ~~$225.6~~$279.2 million for the three months ended ~~June 30, 2017, and increased 42 percent to $588.7 million for the six months ended June 30, 2018 from $415.9 million for the six months ended June 30, 2017.~~March 31, 2018.

~~During the six months ended June 30, 2018, we recorded impairment charges totaling $192.7 million, including $159.5 million during~~For the three months ended ~~June 30,~~March 31, 2019, we generated a net loss of $120.2 million or $1.82 per diluted share, compared to a net loss of $13.1 million or $0.20 per diluted share for the comparable period in 2018. Our net loss for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018 was most negatively impacted by unrealized losses on our commodity derivative instruments.

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~~

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~~PDC ENERGY, INC.~~

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 fair value of the properties 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.

For the three and six months ended June 30, 2018, we generated net losses of $160.3 million and $173.4 million, respectively, or $2.43 and $2.63 per diluted share. Our net loss was most negatively impacted by the commodity price risk management loss and Delaware Basin leasehold impairments, partially offset by the increase in crude oil, natural gas and NGLs sales. During the same periods,March 31, 2019, our adjusted EBITDAX, a non-U.S. GAAP financial measure, was ~~$214.3~~$209.2 million ~~and $404.4~~compared to $190.1 million respectively. For the three and six months ended June 30, 2017, we generated net income of $41.3 million and $87.4 million, respectively, or $0.62 and $1.32 per diluted share, and our adjusted EBITDAX was $200.4 million and $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~~comparable period in 2018. The increase 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$15.9 million and a decrease in the loss on commodity derivative settlements of ~~$28.4~~$17.6 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 flows from operations were $380.9 million and our adjusted cash flow from operations, a non-U.S. GAAP financial measure, was $374.3 million for the six months ended June 30, 2018.$15.6 million. 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.

Our cash flows from operations were $181.9 million and $205.1 million and our adjusted cash flows from operations, a non-U.S. GAAP financial measure, were $192.6 million and $174.9 million for the three months ended March 31, 2019 and March 31, 2018, respectively.

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Liquidity

Available liquidity as of ~~June 30, 2018~~March 31, 2019 was ~~$679.4 million,~~$1.2 billion, which was comprised of ~~$1.4~~$1.1 million of cash and cash equivalents and ~~$678.0 million~~$1.2 billion available for borrowing under our revolving credit ~~facility at our current commitment level. 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.~~facility. Based on our current production forecast for ~~the remainder~~2019 and our average 2019 price assumptions of ~~2018 and assuming average~~$55.00 for NYMEX ~~prices for the remainder of the year of $65.00 per barrel of~~ crude oil and ~~$2.75 per Mcf of~~$3.00 for NYMEX natural gas, ~~less the anticipated differentials,~~ we expect ~~our 2018 capital investments to exceed our 2018~~2019 cash flows from operations to exceed our capital investments in crude oil and natural gas properties by ~~between $75 million~~approximately $65.0 million. Assuming a NYMEX crude oil price of $50.00, we expect cash flows from operations to exceed our capital investments in crude oil and ~~$100 million, of which we~~natural gas properties by approximately $25.0 million. We anticipate ~~approximately $65 million~~that capital investments will ~~be covered by an amendment to a midstream dedication agreement and the divestiture of our Utica Shale properties. We experienced this outspend~~exceed cash flows from operations during the first half of ~~2018~~2019 and expect cash flows from operations to exceed capital ~~investment~~investments during the ~~second half~~remainder of the year. ~~We expect to be undrawn on our credit facility at 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, utilization of our borrowing capacity under our revolving credit facility and, if warranted, capital markets transactions from time to time.

~~Acquisitions and Divestitures~~

~~Bayswater Acquisition.~~ ~~In January 2018, we closed the Bayswater Acquisition for $202.0 million, subject to certain customary post-closing adjustments. See the footnote titled~~ ~~Business Combination~~ ~~to our condensed consolidated financial statements included elsewhere in this report for further details.~~

~~Utica Shale Divestiture.~~ In March 2018, we 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 our condensed consolidated financial statements included elsewhere in this report for further details.~~

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Operational Overview

During the ~~six~~three months ended ~~June 30, 2018, we continued to execute our strategic plan to grow production while preserving our financial strength and liquidity. During the six months ended June 30, 2018,~~March 31, 2019, we ran three drilling rigs in the Wattenberg Field and briefly ran four drilling rigs in the Delaware Basin while we swapped out a rig to focus on improved drill times before returning to three rigs. We expect to maintain a three rig pace in botheach of the Wattenberg Field and the Delaware Basin ~~during~~and we expect to maintain a three-rig pace in the Wattenberg Field. In the Delaware Basin, we expect to operate at a three-rig pace through the second quarter of 2019 and at a two-rig pace throughout the remainder of ~~2018.~~the year.

The following tables ~~summarizes~~summarize our drilling and completion activity for the ~~six~~three months ended ~~June 30, 2018:~~March 31, 2019:

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



	Operated Wells
	Wattenberg Field				Delaware Basin				Total
	Gross		Net		Gross		Net		Gross		Net
In-process as of December 31, 2018	133		122.4		18		17.4		151		139.8
Spud	38		36.7		10		9.4		48		46.1
Turned-in-line	(32	)	(28.9	)	(9	)	(8.7	)	(41	)	(37.6	)
In-process as of March 31, 2019	139		130.2		19		18.1		158		148.3

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.~~



	Non-Operated Wells
	Wattenberg Field				Delaware Basin				Total
	Gross		Net		Gross		Net		Gross		Net
In-process as of December 31, 2018	5		2.0		6		0.9		11		2.9
Spud	12		1.7		2		0.4		14		2.1
Turned-in-line	(8	)	(0.1	)	(2	)	(0.1	)	(10	)	(0.2	)
In-process as of March 31, 2019	9		3.6		6		1.2		15		4.8

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~~drilled uncompleted wells are generally completed and turned-in-line within ~~three to nine months~~a year of drilling.

~~2018~~2019 Operational and Financial Outlook

~~We have updated~~As previously announced, we expect our ~~expected~~ production ~~guidance~~for 2019 to range ~~for 2018 to 40~~between 46 MMBoe to 4250 MMBoe, or approximately ~~110,000~~126,000 Boe ~~per day~~ to ~~115,000~~137,000 Boe per day. ~~The update assumes an adequate allocation of system capacity from our primary midstream service provider in the Wattenberg Field.~~ We ~~currently~~ expect that approximately 4241 to 45 percent of our ~~2018~~2019 production will be comprised of crude oil and approximately 1921 to 2223 percent will be NGLs, for total liquids of approximately 6162 to 6768 percent. ~~We are currently experiencing~~Our planned 2019 capital investments in crude oil and natural gas properties, which we expect to ~~continue to experience fewer days~~be between ~~the spudding~~$810 million and $870 million, are focused on continued execution of ~~wells resulting~~our development plans 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,~~

In 2019, we ~~have increased lateral lengths~~also expect to spend approximately $20 million for corporate capital, the majority of which is related to the implementation of an ERP system to replace our existing operating and financial systems. This long-planned investment is being made to enhance maintenance of our financial records, improve operational functionality and provide timely information to our management team related to the ~~number of frac stages per well in the Kersey area~~operation of the ~~Wattenberg Field. Accordingly, we have increased our 2018 capital investment forecast to between $950 million and $985 million.~~business.

We believe that weour disciplined approach in allocating our planned expenditures allows us to maintain ~~significant~~a degree of operational flexibility to control the pace of our capital spending. As we execute our capital investment program, we continually monitor, among other things, ~~commodity prices, development costs, midstream capacity~~cost efficiencies, expected rates of return, the political environment and ~~offset~~our remaining

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inventory in order to best meet our short- 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.~~long-term corporate strategy. Should commodity pricing or the operating environment deteriorate, we may determine that an adjustment to our development plan is appropriate. We believe we have ample opportunities to reduce capital spending if necessary in order to stay within our capital investment plan, including, but not limited to, reducing the number of rigs being utilized in our drilling program and/or managing our completion schedule. This flexibility is more limited in the Delaware Basin given leasehold maintenance requirements.

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~~PDC ENERGY, INC.~~

Wattenberg Field. We are drilling in the horizontal Niobrara and Codell plays ~~within~~in the ~~field~~rural areas of the core Wattenberg Field, which we have further delineated between the Kersey, Prairie and ~~anticipate spudding approximately 150 to 165 wells and turning-in-line approximately 145 to 160 operated wells in 2018, which is an increase over our previously-reported guidance for 2018.~~Plains development areas. Our ~~2018~~2019 capital investment program ~~is estimated to be approximately $525 million to $540 million in~~for the Wattenberg Field ~~with over~~is approximately 60 percent of our total capital investments in crude oil and natural gas properties, of which approximately 90 percent ~~anticipated~~is expected to be invested in operated drilling and completion activity. We plan to drill standard-reach lateral (“SRL”), mid-reach lateral (“MRL”) and extended-reach lateral (“XRL”) wells in 2019, the majority of which will be in the Kersey area of the field. In 2019, we anticipate spudding approximately 135 to 150 operated wells and turning-in-line approximately 110 to 125 operated wells. We expect to drill at a three-rig pace in 2019 with an average development cost per well of between $3 million and $5 million, depending upon the lateral length of the well. The remainder of the Wattenberg Field capital investment program is expected to be used for non-operated ~~wells~~drilling, land, capital workovers and ~~miscellaneous workover and capital~~facilities projects.

Delaware Basin. Our 2019 capital investment program for the Delaware Basin contemplates operating at a three-rig pace through the second quarter of 2019 and a two-rig pace throughout the remainder of the year. Total capital ~~investment~~investments in crude oil and natural gas properties in the Delaware Basin ~~in 2018 is estimated~~for 2019 are expected to be approximately ~~$425 million to $445 million,~~40 percent of our total capital investments in crude oil and natural gas properties, of which approximately 80 percent is allocated to ~~both~~ spud ~~and turn-in-line~~ approximately 25 to 30 operated wells ~~primarily targeting~~and turn-in-line approximately 20 to 25 operated wells. We plan to drill MRL and XRL wells in 2019 with an expected average development cost per well of between $11.5 million and $13 million, depending upon the ~~Wolfcamp formation.~~lateral length of the well. We do not plan to drill any SRL wells in the Delaware Basin in 2019. Based on the timing of our operations and requirements to ~~meet our drilling obligations,~~hold acreage, we may ~~adapt our capital investment program~~elect 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~~use approximately ~~five~~20 percent of our budgeted Delaware Basin capital for midstream assets, 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.~~ facilities.

In ~~addition,~~2018, we ~~are in~~began the process of ~~evaluating~~actively marketing our ~~strategic alternatives with respect~~Delaware Basin crude oil gathering, natural gas gathering and produced water gathering and disposal assets for sale. In the second quarter of 2019, we entered into definitive agreements to ~~our midstream~~divest the natural gas gathering and produced water gathering and disposal assets for an aggregate purchase price of approximately $310 million, subject to post-closing adjustments. These transactions are expected to close in mid-2019. We are also in the ~~Delaware Basin.~~final stages of negotiations regarding the sale of our crude oil gathering assets. We expect to use the proceeds from these divestitures to reduce the outstanding borrowings under our revolving credit facility and for our capital investment program.

Financial Guidance.

The following table ~~provides~~sets forth our previously-announced financial guidance for the year ended December 31, ~~2018~~2019 for certain expenses and price differentials:


	Low			High			Low			High
Operating Expenses
Lease operating expenses ($/Boe)	$	3.00		$	3.15		$	2.85		$	3.15
Transportation, gathering and processing expenses ("TGP") ($/Boe)	$	0.80		$	0.90		$	0.80		$	1.00
Production taxes (% of crude oil, natural gas and NGLs sales)	6		%	8		%	6		%	7		%
General and administrative expense ($/Boe)	$	3.40		$	3.70
General and administrative expense ("G&A") ($/Boe) (1)							$	3.00		$	3.40

Estimated Price Realizations (% of NYMEX, excludes TGP)
Crude oil	91%			95%			90%			95%
Natural gas	55%			60%			50%			55%
NGLs	30%			35%			30%			35%



(1)	The 2019 guidance for G&A does not include expenses associated with shareholder activism. Management is taking steps within its control to target full-year G&A per Boe, including these expenses, to be within range.

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Regulatory Update

~~Proposed Statutory Ballot Initiative.~~ ~~As previously disclosed, certain interest groups~~

Senate Bill 19-181. On April 16, 2019, Colorado Senate Bill 19-181 was signed into law and made a number of changes to oil and gas regulation in ~~Colorado opposed~~Colorado. Among other things, it gives local governments the option to regulate facility siting and surface impacts of oil and natural gas development, ~~generally,~~ and ~~hydraulic fracturing in particular, have advanced a ballot initiative~~it authorizes local governments to impose requirements that ~~would result in oil and natural gas development in~~are stricter than state requirements. It changes the ~~state being essentially eliminated. Proponents~~mission 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~~("COGCC") from “fostering” responsible and balanced development to “regulating” the industry, and it changes the composition and qualifications of the ~~proposed initiative would make drilling unlawful~~COGCC commissioners. In addition, it changes the standard for environmental regulation to require that such regulation be “reasonable” and to omit references to cost-effectiveness and technical feasibility. Furthermore, it changes requirements for spacing and compulsory pooling. It also calls for rulemaking on ~~approximately 85 percent~~several matters that bear on operations, including environmental protection, facility siting, cumulative impacts, flowlines, wells that are inactive, temporarily abandoned or shut-in, financial assurance, wellbore integrity and application fees. These rulemakings may create new application and operating requirements, but they are expected to take years to finalize. We primarily operate in the rural areas of the ~~non-federal surface area of the state of Colorado,~~core Wattenberg Field in Weld County 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 currenthave approved permits for development ~~plans. This would have a highly material and adverse effect on our results of operations, financial condition and reserves.~~into 2020.

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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~~Ozone measurements in the Denver Metro/North Front Range NAA ~~is at risk of being reclassified again~~exceeded the NAAQS during 2018, subjecting it to ~~“serious” if it does not meet~~a further reclassification to “serious.” In 2018, the ~~2008 NAAQS by 2018. The~~ Colorado Department of Public Health and Environment ~~("CDPHE"~~(“CDPHE”) ~~has~~ requested ~~that~~an extension to the “serious” ozone classification as a result of a year of compliant ozone monitoring in 2017. This extension request was withdrawn by Governor Polis in March 2019. The EPA ~~extend~~and CDPHE are currently determining the process for a “serious” designation, which is expected to occur later 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.year. A “serious” classification ~~would~~will 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~~which may in turn result in significant costs, and delays in obtaining necessary ~~permits.~~permits applicable to our operations.

~~2018 Colorado General Election.~~ ~~A general election will be held in November 2018, with high-profile races on~~Shareholder Activism

Kimmeridge Energy Management Company, LLC and its affiliates (collectively, “Kimmeridge”), a beneficial holder of approximately 5.1 percent of 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 portionoutstanding shares of our ~~current~~common stock (based on Kimmeridge's latest Schedule 13D/A filed with the SEC on March 18, 2019), has nominated for election a competing slate of director candidates to our Board of Directors in connection with our 2019 Annual Meeting of Stockholders (the “2019 Annual Meeting”). If elected, this competing slate would replace our three nominees, our Chief Executive Officer, Barton R. Brookman, and independent directors Mark E. Ellis and Larry F. Mazza, who currently comprise three of our eight member Board.

On April 17, 2019, we filed definitive proxy materials with the SEC nominating Messrs. Brookman, Ellis and Mazza to stand for re-election to the Board of Directors at the 2019 Annual Meeting. On April 18, 2019, Kimmeridge filed definitive proxy materials with the SEC regarding the election of Kimmeridge’s competing slate of director candidates.

Engaging in a proxy fight and responding to shareholder activism can be costly and time-consuming, disrupting our operations and ~~reserves are located~~diverting the attention of management and our employees. Activist campaigns can create perceived uncertainties as to our future direction, strategy and leadership and may result in ~~Colorado,~~ the ~~risks we face with respect~~loss of potential business opportunities, harm our ability to ~~the outcome~~pursue certain transactions and cause our stock price to experience periods 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.~~

volatility.

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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,							Three Months Ended March 31,
	2018			2017		Percentage Change		2018			2017		Percentage Change		2019			2018			Percent Change
	(dollars in millions, except per unit data)														(dollars in millions, except per unit data)
Production
Crude oil (MBbls)	3,948			3,237		22.0	%	7,745			5,745		34.8	%	4,525			3,798			19.1	%
Natural gas (MMcf)	20,687			17,783		16.3	%	40,274			33,367		20.7	%	25,651			19,587			31.0	%
NGLs (MBbls)	1,987			1,814		9.5	%	3,833			3,357		14.2	%	2,415			1,846			30.8	%
Crude oil equivalent (MBoe)	9,382			8,015		17.1	%	18,290			14,663		24.7	%	11,215			8,908			25.9	%
Average Boe per day (Boe)	103,099			88,078		17.1	%	101,049			81,011		24.7	%	124,611			98,980			25.9	%
Crude Oil, Natural Gas and NGLs Sales
Crude oil	$	252.6		$	148.8	69.8	%	$	479.0		$	271.8	76.2	%	$	231.1		$	226.4		2.1	%
Natural gas	30.0			38.3		(21.7	)%	68.7			75.3		(8.8	)%	52.5			38.6			36.0	%
NGLs	43.3			26.5		63.4	%	83.5			56.2		48.6	%	37.5			40.2			(6.7	)%
Total crude oil, natural gas and NGLs sales	$	325.9		$	213.6	52.6	%	$	631.2		$	403.3	56.5	%	$	321.1		$	305.2		5.2	%

Net Settlements on Commodity Derivatives
Crude oil	$	(25.5	)	$	5.1	*		$	(52.5	)	$	1.9	*		$	(2.9	)	$	(27.0	)	(89.3	)%
Natural gas	11.2			6.8		64.7	%	13.9			10.6		31.1	%	(5.6		)	2.7			*
NGLs (propane portion)	(2.1		)	0.1		*		(3.8		)	0.1		*		—			(1.7		)	(100.0	)%
Total net settlements on derivatives	$	(16.4	)	$	12.0	*		$	(42.4	)	$	12.6	*		$	(8.5	)	$	(26.0	)	(67.3	)%

Average Sales Price (excluding net settlements on derivatives)	Average Sales Price (excluding net settlements on derivatives)														Average Sales Price (excluding net settlements on derivatives)
Crude oil (per Bbl)	$	63.99		$	45.97	39.2	%	$	61.85		$	47.31	30.7	%	$	51.06		$	59.62		(14.4	)%
Natural gas (per Mcf)	1.46			2.16		(32.4	)%	1.71			2.26		(24.3	)%	2.05			1.97			4.1	%
NGLs (per Bbl)	21.76			14.59		49.1	%	21.78			16.75		30.0	%	15.55			21.80			(28.7	)%
Crude oil equivalent (per Boe)	34.74			26.65		30.4	%	34.51			27.50		25.5	%	28.63			34.26			(16.4	)%

Average Costs and Expenses (per Boe)
Lease operating expenses	$	3.44		$	2.50	37.6	%	$	3.38		$	2.72	24.3	%	$	3.14		$	3.33		(5.7	)%
Production taxes	2.41			1.88		28.2	%	2.34			1.87		25.1	%	1.98			2.26			(12.4	)%
Transportation, gathering and processing expenses	0.96			0.81		18.5	%	0.89			0.84		6.0	%	1.02			0.82			24.4	%
General and administrative expense	3.97			3.68		7.9	%	3.99			3.81		4.7	%	3.53			4.01			(12.0	)%
Depreciation, depletion and amortization	14.46			15.72		(8.0	)%	14.35			16.05		(10.6	)%	13.50			14.23			(5.1	)%

Lease Operating Expenses by Operating Region (per Boe)	Lease Operating Expenses by Operating Region (per Boe)														Lease Operating Expenses by Operating Region (per Boe)
Wattenberg Field	$	3.29		$	2.22	48.2	%	$	3.16		$	2.42	30.6	%	$	2.63		$	3.02		(12.9	)%
Delaware Basin	3.92			4.88		(19.7	)%	4.16			5.53		(24.8	)%	5.15			4.44			16.0	%
Utica Shale (1)	—			1.34		(100.0	)%	3.46			1.48		133.8	%	—			3.46			(100.0	)%



*	~~Percentage~~Percent change is not meaningful.
	Amounts may not recalculate due to rounding.
~~(1)~~	(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 six~~ months ended ~~June 30, 2018,~~March 31, 2019, crude oil, natural gas and NGLs sales revenue increased compared to the three ~~and six~~ months ended ~~June 30, 2017~~March 31, 2018 due to the ~~following (in millions):~~following:

June 30, 2018
Three Months Ended Six Months Ended
(in millions)
Increase in production $ 41.4
$ 118.2
Increase in average crude oil price 71.2
112.6
Decrease in average natural gas price (14.5 ) (22.2 )
Increase in average NGLs price 14.2
19.3
Total increase in crude oil, natural gas and NGLs sales revenue $ 112.3
$ 227.9



	Three Months Ended March 31, 2019
	(in millions)
Increase in production	$	67.7
Decrease in average crude oil price	(38.7		)
Increase in average natural gas price	2.0
Decrease in average NGLs price	(15.1		)
Total increase in crude oil, natural gas and NGLs sales revenue	$	15.9

Crude Oil, Natural Gas and NGLs Production

The following table presents crude oil, natural gas and NGLs production.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
Production by Operating Region		2018	2017	Percentage Change		2018	2017	Percentage Change			2019	2018	Percent Change
Crude oil (MBbls)
Wattenberg Field		2,943	2,798	5.2	%	5,823	4,940	17.9	%		3,571	2,881	24.0	%
Delaware Basin		1,005	364	176.1	%	1,876	639	193.6	%		954	871	9.5	%
Utica Shale (1)		—	75	(100.0	)%	46	166	(72.3	)%		—	46	(100.0	)%
Total		3,948	3,237	22.0	%	7,745	5,745	34.8	%		4,525	3,798	19.1	%
Natural gas (MMcf)
Wattenberg Field		15,836	15,192	4.2	%	31,360	28,906	8.5	%		20,961	15,524	35.0	%
Delaware Basin		4,851	2,025	139.6	%	8,500	3,271	159.9	%		4,690	3,649	28.5	%
Utica Shale (1)		—	566	(100.0	)%	414	1,190	(65.2	)%		—	414	(100.0	)%
Total		20,687	17,783	16.3	%	40,274	33,367	20.7	%		25,651	19,587	31.0	%
NGLs (MBbls)
Wattenberg Field		1,544	1,551	(0.5	)%	2,973	2,909	2.2	%		1,901	1,428	33.1	%
Delaware Basin		443	212	109.0	%	826	343	140.8	%		514	383	34.2	%
Utica Shale (1)		—	51	(100.0	)%	34	105	(67.6	)%		—	35	(100.0	)%
Total		1,987	1,814	9.5	%	3,833	3,357	14.2	%		2,415	1,846	30.8	%
Crude oil equivalent (MBoe)
Wattenberg Field		7,126	6,882	3.5	%	14,023	12,667	10.7	%		8,965	6,896	30.0	%
Delaware Basin		2,256	914	147.0	%	4,118	1,527	169.6	%		2,250	1,862	20.8	%
Utica Shale (1)		—	219	(100.0	)%	149	469	(68.2	)%		—	150	(100.0	)%
Total		9,382	8,015	17.1	%	18,290	14,663	24.7	%		11,215	8,908	25.9	%
Average crude oil equivalent per day (Boe)	Average crude oil equivalent per day (Boe)									Average crude oil equivalent per day (Boe)
Wattenberg Field		78,308	75,621	3.6	%	77,475	69,984	10.7	%		99,611	76,623	30.0	%
Delaware Basin		24,791	10,047	146.8	%	22,751	8,437	169.7	%		25,000	20,690	20.8	%
Utica Shale (1)		—	2,410	(100.0	)%	823	2,590	(68.2	)%		—	1,667	(100.0	)%
Total		103,099	88,078	17.1	%	101,049	81,011	24.7	%		124,611	98,980	25.9	%



	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
Three Months Ended March 31, 2019					Three Months Ended March 31, 2019

	Crude Oil	Natural Gas	NGLs	Total		Crude Oil	Natural Gas	NGLs	Total
Wattenberg Field	41%	37%	22%	100%		40%	39%	21%	100%
Delaware Basin	45%	36%	20%	100%		42%	35%	23%	100%

Three Months Ended June 30, 2017
Three Months Ended March 31, 2018					Three Months Ended March 31, 2018

	Crude Oil	Natural Gas	NGLs	Total		Crude Oil	Natural Gas	NGLs	Total
Wattenberg Field	41%	37%	23%	100%		42%	37%	21%	100%
Delaware Basin	40%	37%	23%	100%		47%	32%	21%	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%
Midstream Capacity

~~Wattenberg Field.~~ In Our ability to market our production depends substantially on the ~~Wattenberg Field, we rely on third-party midstream service providers to construct~~availability, proximity and capacity of gathering ~~compression~~systems, pipelines and processing facilities owned and operated by third parties. If adequate midstream facilities and services are not available to us on a timely basis and at acceptable costs, our production and results of operations could be adversely affected. Both of our current areas of operation have seen substantial development in recent years, and this has made it more difficult for providers of midstream infrastructure and services to keep pace with the corresponding increases in field-wide production. The ultimate timing and availability of adequate infrastructure is not within our control and ~~the overall field's natural gas production growth. During the three and six months ended June 30, 2018,~~we could experience capacity constraints for extended periods of time that would negatively impact our ability to meet our production ~~was adversely impacted by high~~targets. Weather, regulatory developments and other factors also affect the adequacy of midstream infrastructure.

Like other producers, we from time to time enter into volume commitments with midstream providers in order to induce them to provide increased capacity. If our production falls below the level required under these agreements, we could be subject to substantial penalties.

Wattenberg Field. Elevated line pressures on gas gathering facilities ~~primarily due to increases in field-wide~~have adversely affected production volumes, gathering line freezes that occur more often at higher line pressures and unexpected facility downtime. Line pressures did not materially affect our production during the three and six months ended June 30, 2017. During the six months ended June 30, 2018 and 2017, 97 percent and 92 percent, respectively, of our production infrom the Wattenberg Field ~~was delivered~~ from ~~horizontal wells, with the remaining production coming from vertical wells. The horizontal wells are less prone~~time to ~~curtailments than the vertical wells because they are newer~~time, most recently beginning in mid-2017 and have greater producing capacity and higher formation pressures and therefore tend to be more resilient to gas system pressure issues; however, currently all of our wells in the field are experiencing some adverse impact. We have continued to operate in a constrained environmentcontinuing into the ~~third~~first quarter of ~~2018. Additional processing capacity was brought into operation by~~2019. DCP Midstream, LP ~~("DCP"~~(“DCP”) completed its Mewbourn 3 Plant in August of 2018. This project, along with associated new compression, resulted in significant incremental capacity being added to the DCP system. System pressures began to decrease as this plant commenced operations and reached full capacity during the third and fourth quarters of 2018. Concurrently, additional residue pipeline capacity became available as pipeline expansion projects were completed and commissioned in November 2018. As a result, system pressures have been at lower levels than they were prior to the commissioning of the Mewbourn 3 Plant. These lower pressures, along with the system improvements implemented by DCP to prevent line freezes, combined with relatively mild weather in late 2018 ~~with further processing capacity scheduled~~and early 2019, resulted in significantly less plant downtime and lower system pressures as compared to the same period a year ago.

DCP continues to make progress on construction of its O’Conner 2 Plant, which we currently expect to be ~~brought into operation during~~completed by the end of the second quarter of 2019.

We ~~continue to work closely with our third-party midstream providers in an effort to ensure~~anticipate that ~~adequate midstream system capacity is available going forward in~~ the ~~Wattenberg Field. We, along with other operators, have made a commitment to DCP to support its construction~~start-up of ~~two additional processing facilities, including a plant that was completed and turned on line in August 2018, with associated gathering and compression in~~ the ~~field. These expansions are expected to increase DCP's system capacity, assist in the control of~~O’Conner 2 Plant will further reduce line pressures on ~~its natural gas gathering facilities and reduce~~the system while providing additional processing capacity for incremental production ~~curtailments in the field. We will be bound~~associated with our ongoing drilling program.

Agreements relating to the ~~incremental~~Mewbourn 3 and O’Conner 2 plants include baseline volume ~~requirements in these agreements~~commitments for us and the other operators and guarantee a specified profit margin to DCP for a three-year period ~~of seven years~~ beginning on the ~~first day of the calendar month after the actual in-service~~initial start-up date of the relevant plant. The second plant is scheduled to be completed and turned on line in the second quarter of 2019. These agreements impose a baseline volume commitment and guarantee a certain target profit margin to DCP on those volumes during the initial three years of the contracts. Under our current drilling plans, ~~and~~we expect to continue to satisfy the volume commitments under both agreements. However, in the current commodity pricing environment, we ~~expect to meet both~~have started making payments toward the ~~baseline and incremental volume commitments, and we believe that the contractual target~~ profit margin ~~will be achieved~~requirements associated with ~~minimal, if any, payment from us.~~the Mewbourn 3 Plant. Such payments made to date have not been significant; however, they may increase in the future. 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~~

We have ~~begun early discussions~~been engaged with DCP ~~with respect~~in planning for further incremental increases to ~~further increasing its~~the processing capacity in the ~~Wattenberg Field.~~field and it is currently our expectation that an additional plant will be constructed and commissioned on DCP’s system in mid-2020. We also continue to work with 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~~expansion are evaluated and implemented ~~where~~to the extent possible. ~~The ultimate timing and availability of adequate infrastructure is not within our control and if our midstream~~

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~~service providers' construction projects~~

Additional residue and NGLs takeaway pipeline expansions or conversions are ~~delayed, we could experience elevated gathering line pressures for extended periods of time that would negatively impact our ability~~expected to ~~meet our production targets.~~

~~Delaware Basin.~~ ~~Due to prolific development and the resulting increased production~~be completed in the ~~Delaware Basin,~~third and fourth quarters of 2019 to help ensure that all products associated with additional processing capacity will be transported to market. There is a risk that the residue takeaway pipeline expansions or conversions will not be completed in time to accommodate all of the incremental residue volume associated with the O’Conner 2 plant, which could potentially limit the incremental capacity benefits of the plant until the fourth quarter of 2019.

Limits on NGL fractionation capacity in the Gulf Coast can also affect our Wattenberg Field operations. While there has been some improvement in the availability of NGL fractionation on the Gulf Coast, capacity on the Gulf Coast and at Conway continues to run at very high rates. Our Wattenberg Field production is not currently being limited by NGL fractionation capacity constraints. However, limitations on downstream fractionation capacity could limit the ability of our service providers to adjust ethane and propane recoveries to optimize the plant product ~~takeaway infrastructure downstream of in-field gathering and processing facilities is operating near capacity. We are dependent upon third parties~~mix 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~~maximize revenue. Additional fractionation capacity is ~~added. We expect additional infrastructure~~scheduled to ~~be built starting~~come online later 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 shortage2019 and in ~~the basin could result in increased differentials.~~ 2020.

Delaware Basin. In the second quarter of 2018, we entered into ~~separate~~firm sales and pipeline 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~~all of our forecasted ~~2018 and~~ 2019 Delaware Basin crude oil volumes. ~~The~~This agreement provides us with price diversification through realization of export market pricing ~~via~~that includes access to 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~~2021 and provide for firm physical takeaway ~~capacity, which varies from approximately~~of amounts varying between ~~40,000~~50,000 MMbtu and ~~75,000~~115,000 MMbtu per day of our natural gas volumes from the basin during the term of the agreements. A significant portion of our Delaware Basin natural gas ~~volumes during~~sales are tied to Gulf Coast pricing, and as a result, we were able to somewhat mitigate the ~~period of~~impact that the ~~agreements. Our~~low Waha West Texas natural gas pricing had on our Delaware Basin natural gas sales ~~were partially curtailed~~prices during the ~~second~~first quarter of ~~2018 as a result of a shortage of our~~2019.

Our production from the Delaware Basin was not materially affected by midstream ~~compression~~or downstream capacity ~~in our Central area of the basin. We plan to install additional compression in this area~~constraints during the ~~third~~first quarter of ~~2018, which we expect will provide sufficient capacity to move our Central area~~2019. However, natural gas ~~volumes.~~takeaway capacity downstream of in-field gathering and processing facilities in the basin is operating close to capacity and near-term production constraints are possible.

As discussed above, NGL fractionation on the Gulf Coast and at Conway is running at high utilization rates and this could potentially impact the operation of gas plants in the Delaware Basin. In addition, residue pipeline and downstream crude oil pipelines in the Delaware Basin are also operating at high utilization rates. We expect additional residue gas and crude oil pipelines to be available in early 2020 and additional NGL fractionation infrastructure to be available starting in mid-2019, with more projects scheduled to be completed in 2020.

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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 NGLs prices have a high degree of volatility and our realizations can change substantially. Our realized sales prices for crude oil and NGLs ~~increased~~decreased during the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 compared to the three ~~and six~~ months ended ~~June 30, 2017.~~March 31, 2018. NYMEX average daily crude oil prices ~~increased 41 percent and 30~~decreased 13 percent and NYMEX first-of-the-month natural gas prices ~~decreased 12 percent and 11~~increased five percent for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 as compared to the ~~three and six months ended June 30, 2017.~~respective periods in 2018.

The following tables present weighted-average sales prices of crude oil, natural gas and NGLs for the periods presented.

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 2018 2017
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 March 31,
Weighted-Average Realized Sales Price by Operating Region					Percent Change
(excluding net settlements on derivatives)	2019		2018		Percent Change
Crude oil (per Bbl)
Wattenberg Field	$	50.52	$	59.13	(14.6	)%
Delaware Basin	53.11		61.34		(13.4	)%
Utica Shale (1)	—		58.10		(100.0	)%
Weighted-average price	51.06		59.62		(14.4	)%
Natural gas (per Mcf)
Wattenberg Field	$	2.23	$	1.92	16.1	%
Delaware Basin	1.23		2.10		(41.4	)%
Utica Shale (1)	—		2.68		(100.0	)%
Weighted-average price	2.05		1.97		4.1	%
NGLs (per Bbl)
Wattenberg Field	$	14.59	$	20.14	(27.6	)%
Delaware Basin	19.11		27.76		(31.2	)%
Utica Shale (1)	—		24.29		(100.0	)%
Weighted-average price	15.55		21.80		(28.7	)%
Crude oil equivalent (per Boe)
Wattenberg Field	$	28.43	$	33.18	(14.3	)%
Delaware Basin	29.45		38.52		(23.5	)%
Utica Shale (1)	—		30.98		(100.0	)%
Weighted-average price	28.63		34.26		(16.4	)%



	Amounts may not recalculate due to rounding.

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

Our crude oil, natural gas and NGLs sales are recorded 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 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~~a sales price fixed at index less specified deductions. The net-back method results in the recognition of a net sales price that is lower than the ~~indices~~

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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.

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We use the gross method of accounting when control of the crude oil, natural gas or NGLs is not transferred to the ~~purchasers~~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.

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~~on average daily prices throughout each month and, for natural gas, the average NYMEX pricing is based ~~upon~~on first-of-the-month index prices, as in each case this is the method used to sell the majority of these commodities pursuant to terms of the ~~respective~~relevant 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 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 Three Months Ended March 31, 2019	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)	$	54.90	$	51.06	93	%	$	1.21	$	49.85	91	%
Natural gas (per MMBtu)	3.15		2.05		65	%	0.19		1.86		59	%
NGLs (per Bbl)	54.90		15.55		28	%	0.24		15.31		28	%
Crude oil equivalent (per Boe)	41.17		28.63		70	%	0.98		27.65		67	%

For the Three Months Ended March 31, 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)	$	62.87	$	59.62	95	%	$	0.67	$	58.95	94	%
Natural gas (per MMBtu)	3.00		1.97		66	%	0.22		1.75		58	%
NGLs (per Bbl)	62.87		21.80		35	%	0.24		21.56		34	%
Crude oil equivalent (per Boe)	46.43		34.26		74	%	0.82		33.44		72	%

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) $ 65.37
$ 61.85
95 % $ 0.80
$ 61.05
93 %
Natural gas (per MMBtu) 2.90
1.71
59 % 0.23
1.48
51 %
NGLs (per Bbl) 65.37
21.78
33 % 0.21
21.57
33 %
Crude oil equivalent (per Boe) 47.77
34.51
72 % 0.89
33.62
70 %

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) $ 50.10
$ 47.31
94 % $ 1.44
$ 45.87
92 %
Natural gas (per MMBtu) 3.25
2.26
70 % 0.09
2.17
67 %
NGLs (per Bbl) 50.10
16.75
33 % 0.35
16.40
33 %
Crude oil equivalent (per Boe) 38.50
27.50
71 % 0.84
26.66
69 %

Our average realization percentages for crude oil and natural gas for the three months ended March 31, 2019 are consistent with those for the comparable periods of 2018. The realization percentage for our NGLs sales has decreased as compared to 2018, primarily due to decreases in prices for the individual NGLs components for the three months ended March 31, 2019 as compared to the same period in 2018.

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~~prices, including collars, fixed-price swaps and basis swaps on a portion of our estimated crude oil and natural gas ~~and propane~~ production. 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 ~~June 30, 2018.~~March 31, 2019.

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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 and natural gas ~~and propane~~ production. Commodity price risk management, net, does not include gains or losses from derivative transactions related to our gas marketing segment, which are included in other income and other expenses.

Net settlements of commodity derivative instruments are based on the difference between the crude oil and 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 and 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 June 30,						Six Months Ended June 30,					Three Months Ended March 31,
	2018			2017			2018			2017		2019			2018
	(in millions)											(in millions)
Commodity price risk management gain (loss), net:
Commodity price risk management loss, net:
Net settlements of commodity derivative instruments:
Crude oil fixed price swaps, collars and rollfactors	$	(37.2	)	$	5.1		$	(63.9	)	$	1.9	$	(2.9	)	$	(26.8	)
Crude oil basis protection swaps	11.7			—			11.4			—		—			(0.2		)
Natural gas fixed price swaps and collars	2.5			4.8			2.6			8.5		(1.6		)	0.1
Natural gas basis protection swaps	8.7			2.0			11.2			2.0		(4.0		)	2.6
NGLs (propane portion) fixed price swaps	(2.1		)	0.1			(3.8		)	0.1		—			(1.7		)
Total net settlements of commodity derivative instruments	(16.4		)	12.0			(42.5		)	12.5		(8.5		)	(26.0		)
Change in fair value of unsettled commodity derivative instruments:
Reclassification of settlements included in prior period changes in fair value of commodity derivative instruments	18.1			(5.1		)	32.0			18.4		(18.5		)	20.3
Crude oil fixed price swaps, collars and rollfactors	(111.4		)	43.1			(152.9		)	88.7		(159.4		)	(52.6		)
Natural gas fixed price swaps and collars	(2.3		)	8.3			(3.2		)	16.7		(0.3		)	(0.8		)
Natural gas basis protection swaps	(1.7		)	(0.2		)	5.0			2.3		(3.4		)	10.6
NGLs (propane portion) fixed price swaps	(2.4		)	(0.2		)	(1.8		)	—		—			1.3
Net change in fair value of unsettled commodity derivative instruments	(99.7		)	45.9			(120.9		)	126.1		(181.6		)	(21.2		)
Total commodity price risk management gain (loss), net	$	(116.1	)	$	57.9		$	(163.4	)	$	138.6
Total commodity price risk management loss, net												$	(190.1	)	$	(47.2	)

Lease Operating Expenses

Lease operating expenses increased 6119 percent to ~~$32.3~~$35.2 million in the three months ended ~~June 30, 2018~~March 31, 2019 compared to ~~$20.0~~$29.6 million in the three months ended ~~June 30, 2017.~~March 31, 2018. The increase was primarily due to a 26 percent increase in production volumes. Significant changes in lease operating expenses included increases of ~~$4.4~~$1.4 million for ~~increased workover projects, $1.6~~produced water disposal expense, $1.1 million ~~related to~~in additional compressor and equipment rentals ~~$1.2~~related to the increase in wells turned-in-line, $0.9 million related to midstream expense, $0.9 million in environmental remediation expense and $0.6 million for payroll and employee benefits primarily related to increases in ~~headcount, $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.~~headcount. Lease operating expense per Boe ~~increased~~decreased by 38six percent to ~~$3.44~~$3.14 for the three months ended ~~June 30, 2018~~March 31, 2019 from ~~$2.50~~$3.33 for the three months ended ~~June 30, 2017.~~March 31, 2018.

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, $3.1 million for payroll and employee benefits related to increases in headcount, $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 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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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, 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.

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Production taxes increased 5010 percent to ~~$22.6~~$22.2 million in the three months ended ~~June 30, 2018~~March 31, 2019 compared to ~~$15.0~~$20.2 million in the three months ended ~~June 30, 2017,~~March 31, 2018, primarily due to the 53five percent increase in crude oil, natural gas and NGLs sales for the three months ended ~~June 30, 2018~~March 31, 2019 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.~~March 31, 2018.

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 3856 percent to ~~$9.0~~$11.4 million in the three months ended ~~June 30, 2018~~March 31, 2019 compared to ~~$6.5 million in~~ the three months ended ~~June 30, 2017. The increase was~~March 31, 2018. Transportation, gathering and processing expenses are primarily ~~due to an increase of $5.2 million related to~~impacted by variances in the volumes delivered through pipelines and for natural gas gathering and transportation operations in the Delaware Basin and a $1.2 million increase in oil transportation costs due to additional volumes delivered through pipelines in the Wattenberg Field, 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 sales price and a $1.1 million decrease due to the disposition of the Utica Shale properties. Transportation, gathering and processing expenses per Boe increased to $0.96 for the three months ended June 30, 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 for the six months ended June 30, 2017.operations. As discussed in Crude Oil, Natural Gas and NGLs Pricing, whether transportation, gathering and processing costs are presented separately or are reflected as a reduction to net revenue is a function of the terms of the relevant marketing contract.

Impairment of Properties and Equipment

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2018		2017		2018		2017		2019		2018
	(in millions)								(in millions)

Impairment of proved and unproved properties	$	159.5	$	27.5	$	192.6	$	29.6	$	7.9	$	33.1
Amortization of individually insignificant unproved properties	—		0.1		0.1		0.2		—		0.1
Impairment of crude oil and natural gas properties	$	159.5	$	27.6	$	192.7	$	29.8	$	7.9	$	33.2

During the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, we recorded impairment charges ~~totaling $192.7 million, including $159.5 million during~~primarily related to the ~~three months ended June 30, 2018. During the three months ended June 30, 2018, we identified current~~divestiture of leaseholds and ~~anticipated near-term~~ leasehold expirations within our non-focus areas of the Delaware Basin ~~and made the determination that~~where we ~~would~~were no longer ~~pursue~~pursuing plans to develop ~~these~~the 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

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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 the properties 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.

General and Administrative Expense

General and administrative expense increased 2611 percent to ~~$37.2~~$39.6 million in the three months ended ~~June 30, 2018~~March 31, 2019 compared to ~~$29.5~~$35.7 million in the three months ended ~~June 30, 2017.~~March 31, 2018. The increase was primarily attributable to a ~~$4.1~~$2.2 million increase in ~~payroll~~legal-related costs, which include costs related to the marketing of our Delaware Basin midstream assets and ~~employee benefits,~~proxy-related activities, and a ~~$1.9~~$1.6 million increase related to professional ~~services and a $1.0 million increase related to government relations.~~services.

General and administrative expense increased 31 percent to $72.9 million in the six months ended June 30, 2018 compared to $55.8 million in the six months ended June 30, 2017. The increase was primarily attributable to a $10.3 million increase in payroll and employee benefits, a $4.0 million increase related to professional services and a $1.9 million increase in 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 ~~$133.6 million and $258.4~~$149.9 million for the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019 compared to ~~$124.4 million and $232.2~~$124.8 million for the three ~~and six~~ months ended ~~June 30, 2017,~~March 31, 2018, respectively.

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


	June 30, 2018
	Three Months Ended			Six Months Ended			Three Months Ended March 31, 2019
	(in thousands)						(in thousands)
Increase in production	$	25.6		$	58.2		$	34,551
Decrease in weighted-average depreciation, depletion and amortization rates	(16.4		)	(32.0		)	(9,427		)
Total increase in DD&A expense related to crude oil and natural gas properties	$	9.2		$	26.2		$	25,124

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



	Three Months Ended March 31,
Operating Region/Area	2019		2018
	(per Boe)
Wattenberg Field	$	12.44	$	13.53
Delaware Basin	17.08		16.91
Total weighted-average	$	13.37	$	14.01

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



~~(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 $2.0 million and $4.0 million for the three and six months ended June 30, 2018, respectively, compared to $1.7 million and $3.2 million for the three and six months ended June 30, 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 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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~~Interest Expense~~

~~Interest expense decreased $2.2 million to $17.4~~$1.5 million for the three months ended ~~June 30, 2018~~March 31, 2019 compared to ~~$19.6~~$2.0 million for the three months ended ~~June 30, 2017.~~March 31, 2018.

Interest Expense

Interest expense decreased $0.6 million to $17.0 million for the three months ended March 31, 2019 compared to $17.5 million for the three months ended March 31, 2018. The decrease was primarily related to a ~~$10.0 million decrease in interest expense relating to the net settlement of $500 million 7.75% senior notes in December 2017 and a $1.1~~$1.2 million increase in capitalized interest. The ~~decreases were~~decrease was partially offset by ~~an $8.8~~a $0.5 million increase in interest ~~expense~~ related to ~~the issuance of~~ our ~~2026 Senior Notes in November 2017.~~revolving credit facility.

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 $17.6 million increase in interest expense related to the issuance of our 2026 Senior Notes in November 2017.

Provision for Income Taxes

The effective income tax rates for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 were a ~~22.0 percent and 22.3~~23.7 percent benefit on the loss ~~respectively,~~before income taxes compared to ~~37.3~~a 25.8 percent ~~and 36.8 percent expense~~benefit on the loss before income ~~respectively,~~taxes for the three ~~and six~~ months ended ~~June 30, 2017.~~March 31, 2018. The effective income tax rates are based upon a full year forecasted pre-tax income for the year adjusted for permanent differences. The ~~federal corporate statutory~~forecasted full year effective income tax rate ~~decreased from 35 percent in 2017 to 21 percent in 2018 pursuant~~has been applied to the ~~2017 Tax Act.~~quarterly pre-tax loss, resulting in an income tax benefit for the period. The quarterly rates are proportionately impacted by updates to previously-forecasted pre-tax earnings.

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

The factors resulting ~~in changes~~ in net loss in the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 of ~~$160.3~~$120.2 million and ~~$173.4 million, respectively, and~~a net ~~income~~loss in the three ~~and six~~ months ended ~~June 30, 2017~~March 31, 2018 of ~~$41.2~~$13.1 million ~~and $87.4 million, respectively,~~ are discussed ~~above.~~above, with the net change in the fair value of unsettled commodity derivatives having the most significant impact. Adjusted ~~net loss, a non-U.S. GAAP financial measure, 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~~$18.0 million for the three ~~and six~~ months ended ~~June 30, 2017, respectively.~~March 31, 2019 and $3.0 million for the three months ended March 31, 2018. With the exception of the ~~tax affected~~tax-affected net change in fair value of unsettled derivatives of ~~$75.8 million and $92.0~~$138.2 million for the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019, and ~~$28.7 million and $78.9~~$16.1 million for the three ~~and six~~ months ended ~~June 30, 2017, respectively,~~March 31, 2018, these same factors impacted adjusted net income (loss), a non-U.S. GAAP financial measure. 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.

Financial Condition, Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operating activities, our revolving credit facility, asset sales and proceeds raised in debt and equity capital market ~~transactions and asset sales.~~transactions. For the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, our net cash flows from operating activities were ~~$380.9~~$181.9 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 over the past year, 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~~

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We may use our ~~current hedge position~~available liquidity for operating activities, capital investments, working capital requirements, acquisitions, support for letters of credit and ~~assuming forward strip pricing~~for general corporate purposes. We maintain a significant capital investment program to execute our development plans, which requires capital expenditures to be made in periods prior to initial production from newly developed wells.

From time to time, these activities may result in a working capital deficit; however, we do not believe that our working capital deficit as of ~~June 30, 2018, our derivatives are expected to be~~March 31, 2019 is an indication of a ~~source~~lack of ~~net cash 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.liquidity. We had working capital deficits of ~~$391.0~~$277.4 million and ~~$16.4~~$166.6 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The increase in the working capital deficit as of ~~June 30, 2018~~March 31, 2019 of ~~$374.6~~$110.8 million is primarily the result of a decrease in cash and cash equivalents of $179.3 million related to the Bayswater Acquisition, partially offset by the proceeds received from the Utica Shale Divestiture and an amendment to a midstream

~~dedication agreement,~~ a decrease in the net fair value of our unsettled commodity derivative instruments of ~~$106.8~~$111.7 million and an increase in accounts payable of ~~$65.1~~$33.7 million related to our increased development ~~and exploration activity,~~activities. The changes were partially offset by the decrease in funds held for distribution of $14.2 million and an increase in ~~production tax liability~~accounts receivable of ~~$19.1 million.~~$9.4 million primarily related to our crude oil, natural gas and NGLs sales. 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 favorable rates of return, protection of cash flows on a portion of our anticipated sales through the use of an active commodity derivative hedging program, utilization of the borrowing capacity under our revolving credit facility and, if warranted, capital markets transactions from time to time.

Our cash and cash equivalents were ~~$1.4~~$1.1 million at ~~June 30, 2018~~March 31, 2019 and availability under our revolving credit facility was ~~$678.0 million,~~$1.2 billion, providing for a total liquidity position of ~~$679.4 million~~$1.2 billion as of ~~June 30, 2018.~~ March 31, 2019.Based on ~~the pricing~~our current production forecast for 2019 and our average 2019 price assumptions ~~described in~~ ~~Executive Summary - Liquidity~~,of $55.00 for NYMEX crude oil and $3.00 for NYMEX natural gas, we expect our 2018 capital investments to exceed our 2018 cash flows from 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 during the first half of 2018 and expect2019 cash flows from operations to exceed our capital ~~investment during~~investments in crude oil and natural gas properties by approximately $65.0 million.

In 2018, we began the process of actively marketing our Delaware Basin crude oil gathering, natural gas gathering and produced water gathering and disposal assets for sale. In the second ~~half~~quarter of 2019, we entered into definitive agreements to divest the ~~year.~~natural gas gathering and produced water gathering and disposal assets for an aggregate purchase price of approximately $310 million, subject to post-closing adjustments. These transactions are expected to close in mid-2019. We are also in the final stages of negotiations regarding the sale of our crude oil gathering assets. We expect to ~~be undrawn on~~use the proceeds from these divestitures to reduce the outstanding borrowings under our revolving credit facility atand for our capital investment program.

In April 2019, our Board of Directors approved the Program to acquire up to $200 million of our outstanding common stock, depending on market conditions. The Program is expected to begin in the third quarter of 2019 with a target completion date of December 31, ~~2018.~~2020. We currently project that we will generate a sufficient level of free cash flow in this period to fund the Program while maintaining the ability to pursue additional future return of capital programs, depending on market conditions. Repurchases under the Program can be made in open markets at our discretion and in compliance with safe harbor provisions, or in privately negotiated transactions. The Program does not require any specific number of shares to be acquired, and can be modified or discontinued by the Board of Directors at any time.

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 through the 12-month period following the filing of this report.

Our revolving credit facility is aavailable for working capital requirements, capital investments, acquisitions, to support letters of credit and for general corporate purposes. The borrowing base ~~facility and availability under~~is based on, among other things, the ~~facility is subject~~loan value assigned to ~~redetermination, generally each May and November, based upon a quantification of our~~the proved reserves ~~at each December 31 and June 30, respectively. The maturity date of our revolving credit facility is May 2023.~~

In May 2018, we entered into 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 dated as of May 21, 2013. See the footnote titled ~~Long-Term Debt~~ attributable to our ~~condensed consolidated financial statements included elsewhere in this report foradditional information regarding the Restated Credit Agreement.~~

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 June 30, 2018, the applicable 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.

We had a $22.0 million outstanding balance on our revolving credit facility as of June 30, 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 provider to secure a firm transportation obligation with a cash deposit, which is classified as restricted cash and is included in other assets on the condensed consolidated balance sheet. As of June 30, 2018 and December 31, 2017, we had $8.0 million 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~~interests.

The revolving credit facility ~~are added to~~contains covenants customary for agreements of this type, with the ~~current asset calculation and~~most restrictive being certain financial tests on a quarterly basis. The financial tests, as defined per the ~~current portion of our~~ revolving credit facility, ~~debt is eliminated from the~~include requirements to: (a) maintain a minimum current ~~liabilities calculation.~~ratio of 1.0:1.0 and (b) not exceed a maximum leverage ratio of 4.0:1.0. At ~~June 30, 2018,~~March 31, 2019, we were in compliance with all ~~debt~~ covenants in the revolving credit facility with a current ratio of 3.1:1.0 and a leverage ratio of ~~1.6:1.0 and a current ratio of 2.1:~~1.5:1.0. We expect to remain in compliance throughout the 12-month period following the filing of this report.

The indentures governing our 2024 Senior Notes and 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 June 30, 2018, we were in compliance with all covenants and expect~~See the footnote titled Long-Term Debt 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 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~~accompanying condensed consolidated financial statements included elsewhere in this report for more information regarding our ~~2026 Senior Notes issued in November 2017.~~revolving credit facility.

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~~decreased by ~~$108.4~~$23.3 million to ~~$380.9~~$181.9 million for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 compared to the ~~six~~three months ended ~~June 30, 2017,~~March 31, 2018, primarily due to a decrease in changes in assets and liabilities of $40.8 million, as well as increases in lease operating expenses of $5.6 million, transportation, gathering and processing expense of $4.1 million, general and administrative expenses of $3.9 million and production taxes of $2.0 million. These changes were partially offset by increases in commodity derivative settlements of $17.6 million and crude oil, natural gas and NGLs sales of ~~$227.9~~$15.9 million. This increase was offset in part by a decrease in commodity derivative settlements of $55.0 million and increases in lease operating expenses of $22.1 million, general and administrative expenses of $17.1 million and production taxes of $15.3 million.

Adjusted cash flows from operations, a non-U.S. GAAP financial measure, increased by ~~$117.7~~$17.7 million to ~~$374.3~~$192.6 million during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 compared to the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018. 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~~During the three months ended March 31, 2019, our adjusted EBITDAX, a non-U.S. GAAP financial measure, ~~increased by $73.8~~was $209.2 million ~~during~~compared to $190.1 million for the ~~six~~comparable period in 2018. The 10 percent increase in our adjusted EBITDAX for the three months ended ~~June 30, 2018,~~March 31, 2019 as compared to the ~~six~~three months ended ~~June 30, 2017. The increase~~March 31, 2018 was primarily due to the ~~result of an~~ increase in crude oil, natural gas and NGLs sales of ~~$227.9~~$15.9 million and a decrease in the loss on commodity derivative settlements of $17.6 million. ~~This~~The increase was partially offset by ~~a decrease~~an increase in ~~commodity derivative settlements~~operating costs of $55.0 million, the reversal of a provision for uncollectible notes receivable of $40.2 million in the six months ended June 30, 2017, and increases in lease operating expenses of $22.1 million, general and administrative expenses of $17.1 million and production taxes of $15.3$15.6 million. 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.

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 ~~$574.1~~$271.7 million during the ~~six~~three months ended ~~June 30,~~March 31, 2019 was primarily related to our drilling and completion activities of $266.9 million. Net cash used in investing activities of $338.5 million during the three months ended March 31, 2018 was primarily related to cash utilized toward the purchase price of the Bayswater Acquisition of ~~$181.1~~$180.8 million and our drilling and completion activities of ~~$432.6~~$196.9 million. Partially offsetting these investments was the receipt of approximately $39.0 million related to the Utica Shale Divestiture.

Financing Activities. Net cash received from financing activities of ~~$12.7~~$89.5 million during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 was primarily comprised of net borrowings from our credit facility of ~~$22.0 million, which was partially offset by $4.5 million related to purchases of our stock and $4.1 million of debt issuance costs, primarily related to our Restated Credit Agreement.~~$91.5 million.

Off-Balance Sheet Arrangements

At ~~June 30, 2018,~~March 31, 2019, 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.

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.

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

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consolidated financial statements and accompanying notes contained in our ~~2017~~2018 Form 10-K filed with the SEC on February ~~27, 2018 and amended on May 1, 2018.~~28, 2019.

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PDC ENERGY, INC.

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. 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 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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~~PDC ENERGY, INC.~~

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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PDC ENERGY, INC.

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 June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
	(in millions)												(in millions)
Adjusted cash flows from operations:
Net cash from operating activities	$	175.7		$	132.9		$	380.9		$	272.4		$	181.9		$	205.1
Changes in assets and liabilities	23.6			10.0			(6.6		)	(15.8		)	10.7			(30.2		)
Adjusted cash flows from operations	$	199.3		$	142.9		$	374.3		$	256.6		$	192.6		$	174.9

Adjusted net income (loss):
Net income (loss)	$	(160.3	)	$	41.2		$	(173.4	)	$	87.4
(Gain) loss on commodity derivative instruments	116.1			(57.9		)	163.4			(138.6		)
Adjusted net income:
Net loss													$	(120.2	)	$	(13.1	)
Loss on commodity derivative instruments													190.1			47.2
Net settlements on commodity derivative instruments	(16.4		)	12.0			(42.4		)	12.5			(8.5		)	(26.0		)
Tax effect of above adjustments	(23.9		)	17.2			(29.0		)	47.2			(43.4		)	(5.1		)
Adjusted net income (loss)	$	(84.5	)	$	12.5		$	(81.4	)	$	8.5
Adjusted net income													$	18.0		$	3.0

Net income (loss) to adjusted EBITDAX:
Net income (loss)	$	(160.3	)	$	41.2		$	(173.4	)	$	87.4
(Gain) loss on commodity derivative instruments	116.1			(57.9		)	163.4			(138.6		)
Net loss to adjusted EBITDAX:
Net loss													$	(120.2	)	$	(13.1	)
Loss on commodity derivative instruments													190.1			47.2
Net settlements on commodity derivative instruments	(16.4		)	12.0			(42.4		)	12.5			(8.5		)	(26.0		)
Non-cash stock-based compensation	5.5			5.4			10.8			9.8			4.7			5.3
Interest expense, net	17.3			18.9			34.7			38.1			17.0			17.4
Income tax expense (benefit)	(45.3		)	24.5			(49.9		)	50.9
Income tax benefit													(37.4		)	(4.6		)
Impairment of properties and equipment	159.5			27.6			192.7			29.8			7.9			33.2
Exploration, geologic and geophysical expense	0.9			1.0			3.5			2.0			2.6			2.6
Depreciation, depletion and amortization	135.6			126.0			262.4			235.3			151.4			126.8
Accretion of asset retirement obligations	1.4			1.7			2.6			3.4			1.6			1.3
Adjusted EBITDAX	$	214.3		$	200.4		$	404.4		$	330.6		$	209.2		$	190.1

Cash from operating activities to adjusted EBITDAX:
Net cash from operating activities	$	175.7		$	132.9		$	380.9		$	272.4		$	181.9		$	205.1
Interest expense, net	17.3			18.9			34.7			38.1			17.0			17.4
Amortization of debt discount and issuance costs	(3.1		)	(3.2		)	(6.4		)	(6.4		)	(3.3		)	(3.2		)
Gain (loss) on sale of properties and equipment	0.4			0.5			(1.1		)	0.7			0.4			(1.4		)
Exploration, geologic and geophysical expense	0.9			1.0			3.5			2.0			2.6			2.6
Other	(0.5		)	40.3			(0.6		)	39.6			(0.1		)	(0.2		)
Changes in assets and liabilities	23.6			10.0			(6.6		)	(15.8		)	10.7			(30.2		)
Adjusted EBITDAX	$	214.3		$	200.4		$	404.4		$	330.6		$	209.2		$	190.1

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PDC ENERGY, INC.

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 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 ~~June 30, 2018,~~March 31, 2019, our interest-bearing deposit accounts included money market accounts and checking accounts with various banks. The amount of our interest-bearing cash, cash equivalents and restricted cash as of ~~June 30, 2018~~March 31, 2019 was $0.6 million with a weighted-average interest rate of ~~1.3~~1.4 percent. Based on a sensitivity analysis of our interest-bearing deposits as of ~~June 30, 2018~~March 31, 2019 and assuming we had $0.6 million outstanding throughout the period, we estimate that a one percent increase in interest rates would not have had a material impact on interest income for the ~~six~~three months ended ~~June 30, 2018.~~March 31, 2019.

As of ~~June 30, 2018,~~March 31, 2019, we had ~~$22.0~~a $124.0 million outstanding balance on our revolving credit facility. If market interest rates would have increased or decreased one percent, our interest expense for the three months ended March 31, 2019 would have changed by approximately $0.3 million.

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 and 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. See the footnote titled Commodity Derivative Financial Instruments to our condensed consolidated financial statements included elsewhere in this report for a description of our open commodity derivative positions at ~~June 30, 2018.~~March 31, 2019.

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		Six Months Ended		Year Ended		Three Months Ended		Year Ended
	June 30, 2018		June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Average NYMEX Index Price:
Crude oil (per Bbl)	$	67.88	$	65.37	$	50.95	$	54.90	$	64.77
Natural gas (per MMBtu)	2.80		2.90		3.11		3.15		3.09

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)	$	63.99	$	61.85	$	48.45	$	51.06	$	61.19
Natural gas (per Mcf)	1.46		1.71		2.21		2.05		1.85
NGLs (per Bbl)	21.76		21.78		18.59		15.55		22.14

Based on a sensitivity analysis as of ~~June 30, 2018,~~March 31, 2019, we estimate that a ten percent increase in natural gas and crude oil, ~~and the propane portion of NGLs prices,~~ inclusive of basis, over the entire period for which we have commodity derivatives in place, would have resulted in a decrease in the fair value of our derivative positions of ~~$92.4~~$68.6 million, whereas a ten percent decrease in prices would have resulted in an increase in fair value of ~~$91.7~~$68.5 million.

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PDC ENERGY, INC.

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.~~exposure. 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 ~~June 30, 2018,~~March 31, 2019, 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 ~~June 30, 2018,~~March 31, 2019, 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~~defined in Rules 13a-15(e) and 15d-15(e). of the Exchange Act. 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 ~~June 30, 2018~~March 31, 2019 because of the material weaknesses in our internal control over financial reporting described below.

Management's Report on Internal Control over Financial Reporting

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~~CEO and ~~Chief Financial Officer,~~CFO, or persons performing similar functions, and effected by our ~~board~~Board of ~~directors,~~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.

Management has assessed the effectiveness of our internal control over financial reporting as of March 31, 2019, based upon the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

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PDC ENERGY, INC.

~~During 2017, we~~

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 ofto our unproved properties, impairment of unproved properties, sales, accounts receivable and depletion expense accounts and related disclosures ~~during 2017.~~in our consolidated financial statements for the years ended December 31, 2018 and 2017 and the quarter ended March 31, 2019.

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

We are committed to continuing to review, optimize and enhance our internal control over financial reporting. 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~~assessed a number of different remediation initiatives to improve our internal control over financial reporting. Building on our efforts during 2017, we continued throughout 2018 and the beginning of 2019 to dedicate significant resources and efforts to improve our internal control over financial reporting ~~for the year ended December 31, 2018. We are currently in the process of evaluating~~and to take steps to remediate the material weaknesses identified above. While certain remediation plans have been implemented, we continue to actively plan for and ~~are developing a plan of~~implement additional remediation measures.

During 2018 and 2019, we have taken steps to strengthen ~~our overall controls over~~ the ~~sufficient complement of personnel~~control activities within the Land Department, which include hiring additional personnel with relevant experience, increased layers of supervision, and division of responsibilities within the Land Department. We have also designed and implemented control activities to verify the completeness and accuracy of land ~~administration records. We are committed~~administrative records associated with unproved leases, including the verification of the reliability of underlying data used in the execution of the control activities. As we continue to ~~continuing~~evaluate and work to improve our internal control ~~processes and will continue~~over financial reporting, we may take additional measures to ~~review, optimize and enhance our internal~~address these control ~~environment.~~deficiencies, or we may modify certain of the remediation measures described above to improve the operating effectiveness of those measures. These material weaknesses will not be considered remediated until the applicable ~~remedial~~remediated 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 six months ended June 30, 2018, we made~~There were no changes in our internal control over financial reporting ~~(as such term is defined in Rules 13a-15(f) and 15d-15(f) of~~during the ~~Exchange Act)~~quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

Information regarding our legal proceedings can found in the footnote titled Commitments and Contingencies -

Litigation and Legal Items to our condensed consolidated financial statements included elsewhere in this report.

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 ~~2017~~2018 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 ~~2017~~2018 Form ~~10-K.~~10-K, except for the following:

Our business could be negatively affected as a result of actions of activist shareholders

Activist shareholders, such as Kimmeridge, may from time to time attempt to effect changes, engage in proxy solicitations or advance shareholder proposals. Activist shareholders may make strategic proposals and seek to effect changes concerning our operations, strategy, management and other matters. Engaging in a proxy fight and responding to shareholder activism can be costly and time-consuming, disrupting our operations and diverting the attention of management and our

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employees. Activist campaigns can create perceived uncertainties as to our future direction, strategy and leadership and may result in the loss of potential business opportunities, harm our ability to pursue certain transactions and cause our stock price to experience periods of volatility.

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

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



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

January 1 - 31, 2019	27,069	$	32.83
February 1 - 28, 2019	14,718	38.81
March 1 - 31, 2019	—	—
Total first quarter 2019 purchases	41,787	$	34.94

__________


(1)	Purchases 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

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.

99.1

Form of 2019 Performance Share Agreement.

99.2

Form of 2019 Restricted Stock Unit Agreement (Directors).

99.3

Form of 2019 Restricted Stock Unit Agreement (Executives) (Amended and Restated 2010 Long-Term Equity Compensation Plan).

99.4

Form of 2019 Restricted Stock Unit Agreement (Executives) (2018 Equity Incentive Plan).

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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: ~~August 8, 2018~~May 1, 2019	/s/ Barton Brookman
	Barton Brookman
	President and Chief Executive Officer
	(principal executive officer)

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

6054



	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



	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



		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	%



	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



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



	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



	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



	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, 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



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)	$	65.37	$	61.85	95	%	$	0.80	$	61.05	93	%
Natural gas (per MMBtu)	2.90		1.71		59	%	0.23		1.48		51	%
NGLs (per Bbl)	65.37		21.78		33	%	0.21		21.57		33	%
Crude oil equivalent (per Boe)	47.77		34.51		72	%	0.89		33.62		70	%

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)	$	50.10	$	47.31	94	%	$	1.44	$	45.87	92	%
Natural gas (per MMBtu)	3.25		2.26		70	%	0.09		2.17		67	%
NGLs (per Bbl)	50.10		16.75		33	%	0.35		16.40		33	%
Crude oil equivalent (per Boe)	38.50		27.50		71	%	0.84		26.66		69	%