SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
October
29, 2009
Date
of report (Date of earliest event reported)
Petroleum
Development Corporation
Exact
Name of Registrant as Specified in Charter
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Nevada
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0-7246
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95-2636730
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State
or Other Jurisdiction
of
Incorporation
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Commission
File
Number
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IRS
Employer
Identification
Number
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1775
Sherman Street, Suite 3000, Denver, CO 80203
Address
of Principal Executive Offices
303-860-5800
Registrant's
telephone number, including area code
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing
obligation
of the registrant under any of the following provisions (see General Instruction
A.2. below):
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[
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Written
communications pursuant to Rule 425 under Securities Act (17 CFR
230.425)
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[
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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[
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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[
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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No
Change
Former
Name or Former Address, if Changed Since Last Report
Item
1.01 Entry
into a Material Definitive Agreement
Item
2.01 Completion
of Acquisition or Disposition of Assets
Item
2.03 Creation
of a Direct Financial Obligation
Appalachian
Joint Venture
On
October 29, 2009, Petroleum Development Corporation (the “Company”) and
LR-Mountaineer Holdings, L.P. (“Investor”), a limited partnership managed and
advised by Lime Rock Partners (“Lime Rock”), a leading provider of growth
capital to energy companies worldwide, formed PDC Mountaineer, LLC, a joint
venture principally focused in the Marcellus Shale region (the “joint
venture”).
Pursuant
to a contribution agreement entered into in connection with the formation of the
joint venture, the Company contributed properties and assets valued at
approximately $158.5 million, consisting principally of 115,000 net acres in the
Appalachian Basin, including producing properties and approximately 55,000 acres
considered to be prospective in the Marcellus formation, and related gathering
assets and equipment.
Investor
made an initial contribution of $55 million to the joint venture, $45 million of
which was withdrawn by the Company as a return of capital. The
Company has the right to withdraw up to an additional $11.5 million as a return
of capital by December 31, 2010. Investor has agreed to fund 100% of
the joint venture’s next $58.5 million of expenditures (to be adjusted if the
additional $11.5 million is withdrawn by the Company as noted above) related to
the joint venture no later than December 31, 2011 (the “Minimum Funding
Obligation”). After Investor has satisfied the Minimum Funding
Obligation, the parties will fund joint venture expenditures in accordance with
their ownership interests, which the Company expects will be
50/50. The Company is entitled to dissolve the joint venture, make a
contribution in the form of a demand loan to Investor or make a dilutive
contribution if Investor defaults on its funding obligations prior to
satisfaction of the Minimum Funding Obligation. Thereafter, either
party can make a contribution in the form of a demand loan to the other party
for failure to make a required contribution. Until the Minimum
Funding Obligation is satisfied, Investor has the right to unilaterally suspend
substantially all activities of the joint venture, and after satisfaction of the
Minimum Funding Obligation, either party has the right to unilaterally suspend
substantially all such activities.
A board
of managers composed of an equal number of representatives of the Company and of
Investor, each with equal voting rights, will provide overall supervision and
direction of the joint venture. Mr. Dewey Gerdom, who previously
served as Vice President—Eastern Operations of the Company, has been appointed
Chief Executive Officer of the joint venture. The Company has
designated approximately 90 of its employees to provide operational services to
the joint venture and has also agreed to provide marketing and administrative
services based on semi-annual budgets (which require approval of the board of
managers) intended to reimburse the Company’s actual cost of providing such
services.
Investor
is entitled to receive 100% of liquidating distributions and proceeds from asset
dispositions and sales of ownership interests in the joint venture until it has
recovered its contributed capital, subject to exceptions for transactions below
specified thresholds and non-pro rata portions of ownership interest sales
(“Investor Preference”). Upon satisfaction of the Investor
Preference, such distributions will be made 100% to the Company until it has
received an amount equal to the Investor Preference, and thereafter such
distributions will be made in accordance with the parties’ ownership
interests. Distributions of available cash, if declared by the board
of managers, will be made in accordance with the parties’ ownership
interests.
As part
of the transaction, the parties agreed to enter into an area of mutual interest
covering designated areas of the Appalachian Basin wherein, subject to
exceptions, acquisitions of interests in oil and gas properties within the area
must be offered to the joint venture on the same terms and conditions or consent
must be obtained from the other party. On the fourth anniversary of
the closing of the joint venture, the area of mutual interest reduces to
specified locations surrounding ownership and leasehold interests of the joint
venture.
Subject
to exceptions for transfers to affiliates and other permitted transfers, the
parties are prohibited from transferring their ownership interests in the joint
venture until the fourth anniversary of the closing of the joint venture (the
“Restricted Period”). Thereafter, transfers of ownership interests
initiated by Investor or PDC are subject to rights of first offer, rights of
first refusal (at a specified premium to third party price) and “tag-along”
rights of the other (non-initiating) party. If the non-initiating
party does not exercise the foregoing rights in connection with a sale of all of
the initiating party’s ownership interest, the initiating party may elect to
compel the non-initiating party to sell all of its ownership interests in the
transaction pursuant to “drag-along” provisions of the limited liability company
agreement of the joint venture. Transfers of interests in the joint
venture initiated by third parties after the Restricted Period are subject to
rights of first refusal (at same terms) and “tag-along” rights of the party to
whom the offer was not made.
If the
Company experiences a change of control prior to the third anniversary of the
closing, the Restricted Period ends on such third anniversary, and until then
Investor is entitled to enhanced control over the joint venture’s budget and
expenditures. If the Company experiences a change of control between
the third and fourth anniversaries of the closing, the Restricted Period ends
upon the occurrence of such change of control. In addition, either
party may initiate a transfer of its ownership interest (subject to the rights
described above) or dissolve the joint venture if the operations of the joint
venture have been suspended for four consecutive six-month periods.
Concurrently
with the closing, the joint venture entered into commodity swaps with The Bank
of Nova Scotia fixing the price of approximately 25% of the joint venture’s
production through December 31, 2011.
The
contribution agreement was entered into by the Company, Investor and the joint
venture, and contains additional customary representations, warranties,
indemnities and price adjustment provisions. The limited liability
company agreement of the joint venture (together with the contribution
agreement, the “Joint Venture Documents”) was entered into by the Company and
Investor and contains customary representations, warranties, indemnities and
other provisions. The summary of the Joint Venture Documents in this
report does not purport to be complete and is qualified in its entirety by
reference to such agreements, which are filed as exhibits hereto. The
agreements contain representations, warranties and other provisions that were
made or agreed to, among other things, to provide the parties thereto with
specified rights and obligations and to allocate risk among
them. Accordingly, the agreements should not be relied upon as
constituting a description of the state of affairs of any of the parties thereto
or their affiliates at the time it was entered into or otherwise.
Seventh
Amendment to Credit Agreement
On
October 29, 2009, the Company entered into the Seventh Amendment (the “Seventh
Amendment”) to the Credit Agreement dated as of November 4, 2005 among the
Company, certain subsidiaries of the Company, the lenders party thereto and
JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent (the “Credit
Agreement”).
Pursuant
to the Seventh Amendment, the Credit Agreement was amended to, among other
things, permit the contribution by the Company of its oil and gas properties in
Pennsylvania and West Virginia, including in the Marcellus Shale play, to the
newly-formed joint venture (described above), facilitate other aspects of the
joint venture and permit the Company to make additional investments in the joint
venture so long as certain conditions are satisfied. During the
period in which Investor is responsible for 100% of the joint venture’s funding,
such additional investments are limited to $40 million.
The
Seventh Amendment also provides for a reduction in the Company’s borrowing base
under the Credit Agreement from $350 million to $305 million upon completion of
the contribution of the Company’s oil and gas properties in Pennsylvania and
West Virginia to the joint venture. The Company’s borrowing base is
scheduled to be redetermined in mid-November, and the Company expects that the
lenders party to its Credit Agreement will reaffirm the borrowing base at $305
million.
As
of October 29, 2009, $152.5 million principal amount was outstanding under the
Credit Agreement, bearing interest at a weighted average rate of 3.2531% per
annum.
The Bank
of Nova Scotia, which is one of the lenders under the Credit Agreement and is
the counterparty to the commodity swaps described above, is an affiliate of
Scotia Capital (USA) Inc. and Scotia Waterous (USA) Inc., which acted as sole
placement agent and exclusive financial advisor to the Company in connection
with the joint venture, and which received customary fees and expense
reimbursements therefor. JPMorgan and certain other lenders under the
Credit Agreement and their affiliates or predecessors have in the past
performed, and may in the future from time to time perform, investment banking,
advisory, general financial or commercial services for the Company and its
affiliates for which they have in the past received, and may in the future
receive, customary fees and reimbursement of expenses.
The
summary of the Seventh Amendment in this report does not purport to be complete
and is qualified in its entirety by reference to such agreement, which is filed
an exhibit hereto.
Certain
statements in this report, including but not limited to statements regarding
expectations regarding the joint venture and the Credit Facility borrowing base
that are not historical facts, are forward looking statements that are based on
current expectations. Although the Company believes that its expectations are
based on reasonable assumptions, it can give no assurance that these
expectations will prove correct. Important factors that could cause actual
results to differ materially from those in the forward-looking statements
include results of the joint venture’s operations, general market conditions, a
determination as to the amount of borrowings to be made under the amendment to
the credit facility and other risks described in “Risk Factors” and other
sections in the Company’s Form 10-K for the year ended December 31, 2008 and in
its other filings with the Securities and Exchange Commission.
Item
7.01 Regulation
FD Disclosure
Item
9.01 Financial
Statements and Exhibits
The
Company’s press release is filed as Exhibit 99.1 to this
report. Information included in this report, and in Exhibit 99.1,
shall not be deemed “filed” for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended (The Exchange Act), or incorporated by
reference in any filing under the Securities Act of 1933, as amended, or the
Exchange Act, except as expressly set forth by specific reference in the
filing.
The press
release furnished as an exhibit to this report includes forward-looking
statements within the meaning of the Securities Act of 1933 and the Securities
Exchange Act of 1934. Such forward-looking statements are subject to
certain risks and uncertainties, as disclosed by the Company from time to time
in its filings with the Securities and Exchange Commission. As a
result of these factors, the Company’s actual results may differ materially from
those indicated or implied by such forward-looking statements. Except
as required by law, we disclaim any obligation to publicly update or revise
forward looking statements after the date of this report to conform them to
actual results.
EXHIBIT
INDEX
Item
9.01. Financial
Statements and Exhibits.
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Exhibit
No.
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Description
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2.1
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Contribution
Agreement by and among PDC Mountaineer, LLC, as the Company, Petroleum
Development Corporation, as the Contributor, and LR-Mountaineer Holdings,
L.P., as the Investor, dated October 29, 2009
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10.1
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Limited
Liability Company Agreement of PDC Mountaineer, LLC, dated October 29,
2009
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10.2
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Seventh
Amendment to Amended and Restated Credit Agreement entered into as of
October 29, 2009, by and among Petroleum Development Corporation, certain
of its subsidiaries, JPMorgan Chase Bank, N.A. and various other
banks
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99.1
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Press
Release, November 1, 2009
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99.2
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Slide
Show Presentation, November 2, 2009
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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 hereunto
duly authorized.
PETROLEUM
DEVELOPMENT CORPORATION
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Date:
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November
4, 2009
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By:
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/s/
Richard W. McCullough
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Richard
W. McCullough
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Chairman
and CEO
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