PDC, Lime Rock Form JV to Develop Marcellus Shale Play

Petroleum Development Corporation ("PDC") and Lime Rock Partners  have announced the formation of PDC Mountaineer, LLC, a joint venture company ("JV") principally focused in the Marcellus shale region.

PDC will contribute acreage, producing properties, reserves and related gathering assets valued at approximately $158.5 million. Lime Rock funded $45 million as a return of capital at closing, and PDC has an option to take a second cash contribution of $11.5 million by year-end 2010. Subject to agreement provisions, Lime Rock has an obligation to fund in full by December 31, 2011 to earn a 50% interest in the joint venture. Lime Rock anticipates it will satisfy its funding obligation by early-to-mid 2011, at which time all costs and capital investment in the JV will be shared equally. PDC's interest in the joint venture, including; (1) land and drilling expenditures, (2) future net gas revenues, and (3) future gas reserves, will be reflected in its financial statements.

Under the terms of the agreement:

  • PDC will contribute approximately 115,000 net acres in the Appalachia Basin, of which approximately 55,000 acres are considered to be prospective in the Marcellus. The acreage has:
  1. Approximately 12 MMcf per day of current production
  2. 113 Bcfe of total proved reserves as of 12/31/08, primarily attributable to the shallow Devonian sands
  3. Existing low-pressure gathering and compression facilities
  4. Existing 2D and 3D seismic data
  • PDC Mountaineer plans to develop and construct a new gathering system for its Marcellus volumes primarily within its current right of ways

Mr. Dewey Gerdom has been appointed Chief Executive Officer of the JV. Mr. Gerdom previously served with the Company as Vice President - Eastern Operations. PDC has designated approximately ninety of its employees to directly support the JV, which will be headquartered in Bridgeport, West Virginia. PDC brings a 40-year track record of operating over 1,900 wells in the basin and a technical team with proven unconventional/tight rock completion and production expertise.

Mr. Richard W. McCullough, Chairman and Chief Executive Officer of Petroleum Development Corporation, said, "We are extremely pleased to partner with Lime Rock, whose team has a track record of successful value-adding energy investments. This new strategic JV will accelerate the growth and visibility of PDC's Marcellus Shale gas position. The Marcellus Shale provides the opportunity of strong economic scale and repeatability for long term growth. Partnering with Lime Rock provides the growth capital required to increase production, develop low cost reserves, and grow our acreage position in the Marcellus Shale fairway."

Will Franklin, Managing Director of Lime Rock Partners, noted, "For years, Lime Rock has been looking to partner with an experienced operator in Appalachia and the Marcellus Shale: a company with deep local roots, a company with a long history of successfully developing unconventional natural gas, and a company with both a robust current producing asset and real growth potential in the Marcellus. When we began discussions with PDC, we realized that it combines all these rare assets." Jonathan Farber, Managing Director and Co-Founder of Lime Rock, added, "We have long followed and admired the progress of PDC. As we have gotten to know better Dewey and the PDC Mountaineer team and Rick and the broader PDC team, we are even more confident that these are the right operators to capture the remaining value in the venture's existing assets and maximize its potential in the Marcellus. We look forward to the next exciting few years as we attempt to create significant value for our combined investors."

Mr. McCullough continued, "We are very pleased Dewey Gerdom is heading up this JV. He brings 30 years of industry experience to the JV and is highly respected within both the Company and the industry. This accretive and strategic transaction solidifies our commitment to the Marcellus Shale and complements our strong operating position in the Rocky Mountains. The JV's development plan includes approximately 500 potential horizontal and vertical wells on the existing net Marcellus acres. The initial focus will be to finalize our 2010 operating budget and to gather additional technical analysis from our first horizontal wells to better refine the potential upside associated with the JV's Marcellus acreage."

PDC has accelerated its Marcellus exploration efforts during the past year, recently completing its first 3D seismic shoot and the drilling of seven initial vertical wells. The JV is planning to drill its initial horizontal well in the first quarter of 2010.