Petroleum Development Corp. (Nasdaq:PETD) is a small cap exploration and production company with a stable base of assets in the Rocky Mountains and potential upside with an emerging position in the Marcellus Shale. (For a primer on the oil industry, refer to our Oil and Gas Industry Primer.)

IN PICTURES: Digging Out Of Debt In 8 Steps

The company has total reserves of 753 billion cubic feet equivalent (Bcfe) as of December 31, 2008. The reserves are distributed among five areas:

  1. Piceance Basin - 373 Bcfe
  2. Wattenberg Field - 199 Bcfe
  3. NECO - 47 Bcfe
  4. Appalachia - 113 Bcfe
  5. Michigan - 20 Bcfe

Petroleum Development Corp is looking for company-wide production growth of 43.4 Bcfe in 2009, up 12% from 2008.

Piceance Basin
The company's main asset is its properties in the Piceance Basin in Colorado. The company produced 34.1 Mcfe per day here at the end of 2008. Petroleum Development Corp has 285 gross wells already producing, and believes there are an additional 377 locations left to drill.

One problem for Petroleum Development Corp is that it has 50% of its reserves in the Piceance Basin. The Piceance needs a fairly high price for natural gas of around $6.00 per Mcf to make it cost effective to develop the acreage there. The company is using a break-even price of $4.50 per Mcf in its investor presentation for the Piceance.

If the company was unable to hedge its production above this price level, it might have to cut back on its drilling program there. This may explain why the company is not running any rigs in the area currently. (Learn more about corporate hedging in Corporate Use of Derivatives For Hedging.)

Marcellus Shale
Petroleum Development Corp. has 53,000 acres under net lease in Pennsylvania and West Virginia, in the fairway of the Marcellus Shale. The company has drilled four vertical wells to date, and plans 5 more in 2009 before beginning its horizontal drilling program in 2010.

This is an early stage operation in the Marcellus Shale, and although it provides some good upside to a shareholder, there are other exploration and production companies with more advanced development of its acreage in the Marcellus Shale. Range Resources (NYSE:RRC), for example, has more than a million acres and has already drilled hundreds of wells.

Another company with a large prospective acreage position in the Marcellus Shale is Ultra Petroleum (NYSE:UPL). Although this acreage is also at an early stage of development, Ultra Petroleum has the benefit of its low cost and high cash flow properties in the Pinedale to see it through the development of the Marcellus Shale.

Petroleum Development Corp is rebalancing its capitalization structure and issued equity in August 2009, raising $49 million after expenses. The company will use the proceeds to pay down part of its credit line.

Petroleum Development Corp might want to consider a joint venture with a larger company to expedite and support development of its acreage in the Marcellus. Rex Energy (NYSE:REXX), another small cap company active in this area, recently teamed up with Williams Co. to develop its Marcellus Shale properties.

The Bottom Line
Petroleum Development Corp has acreage in one of the hottest shale plays in North America, but is farther behind its peers in developing this acreage. The company might benefit from a joint venture with a larger partner here as it begins its horizontal drilling program in 2010.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  3. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  4. Stock Analysis

    What Exactly Does Warren Buffett Own?

    Learn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
  5. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  6. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  7. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  8. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  9. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  10. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Trading Center