Petroleum Development Corp. CEO Lessens His Portfolios and His Companys Exposure to Natural Gas

Petroleum Development Corp. CEO Lessens His Portfolios and His Companys Exposure to Natural Gas

After instituting floors on over two-thirds of its natural gas production and part of its oil production, the CEO of Petroleum Development Corporation also decided to lessen his exposure to volatile natural gas prices by selling stock.

On September 28th, CEO Steven R. Williams sold 100K shares at $40.66 to reduce his holdings to 319.7K shares. Williams joined Petroleum Development Corp. in 1983 as president, and he was named CEO and chairman in January 2004, taking over for retired co-founder James N. Ryan. In 2005, Williams earned a base salary of $318.0K, a bonus of $271.6K, and other compensation of $11.9K. For 2006, Williams received a raise to up his base salary to $345K, and his maximum bonus for the year is set at $517.5K. In 2004, Williams was granted 8.1K restricted shares and options to purchase 5.9K shares of common stock at $37.15 per share, and in March 2006, he was granted 9.3K restricted shares and options to purchase 7.5K shares of common stock at $43.74 per share.

On the same day Williams was selling his shares, Petroleum Development Corp. was purchasing natural gas and oil put options (floors). While oil prices have declined recently, natural gas prices have been plummeting as a result of increased inventories following a seasonally warm winter. In response, Petroleum Development Corp. decided to up its floors to cover two-thirds of its natural gas production in the Appalachian, Michigan, and Neco Fields basins and 90% of its Piceance Basin natural gas production. In addition, the company also set up floors on one-third of its current production from two oil fields. The details of the company’s hedging activities can be found in its press release.

The decline in natural gas prices showed up in the West Virginia oil and natural gas company’s second-quarter results ended June, as both revenue and earnings fell year over year. For the quarter, the company generated $63.0M in revenue versus $81.1M a year ago. On the bottom line, the company earned $7.6M, or 47 cents per share, compared to $10.4M, or 63 cents per share, in Q2 2005. Despite the drop on the top and bottom lines, natural gas and oil sales were up 24%.

President Thomas Riley stated: “The decrease in net income was due primarily to the decrease in partnership drilling in the second quarter. However, the Company was able to utilize drilling activity for its own account, which should be reflected in increased oil and gas sales in future quarters.”

Petroleum Development Corp. is currently trading just above the middle of its 52-week range. The stock hit a 52-week high of $46.10 on March 30th, rallying from an October 20th, 2005 52-week low of $30.09. Petroleum Development Corp. shares got a nice boost on July 21st after it sold leaseholds for 8.7K acres in Colorado to Marathon Oil for $354 million in cash.

Worth Noting: While Petroleum Development Corp. is lightly covered, it does have its fans. In July, New Constructs named the stock to its July Most Attractive Stocks list. Meanwhile, on September 20th, Wachovia initiated coverage of the firm with an “outperform” rating. In addition, Steinberg Asset Management popped up as a new 10% owner on August 23rd with a 10.12% stake.

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