Energy, Utilities & Water  August 22, 2014

Class-action suit targets PDC Energy

PDC Energy Inc. says a jury trial is scheduled for September in a class-action lawsuit where plaintiffs are seeking approximately $175 million plus interest, according to a company filling with the U.S. Securities and Exchange Commission.

Denver-based PDC Energy (Nasdaq: PDCE), a Nevada corporation and a major oil and natural-gas producer in Weld County, reported a second-quarter charge of $20.8 million related to the lawsuit in its report filed with the SEC on Aug. 8.

The charge stems from the lawsuit filed in U.S. District Court for the Central District of California in December 2011 by owners of limited partnership units. The plaintiffs in the lawsuit allege that PDC made “false” and “misleading” statements in proxy statements related to the limited partnerships, violating federal securities laws.

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A PDC representative declined to comment and the company’s outside counsel did not respond to requests for comment. Attorneys for plaintiffs in the case did not return phone calls and emails.

Contact information for Orange County, Calif., residents Jeffrey Schulein and Linda Schulein, listed as plaintiffs in the lawsuit, was not publicly listed. In all, the lawsuit lists 13 plaintiffs, although an estimated 10,000 limited partners invested a total of more than $294 million in the limited partnerships formed from 2002 to 2005.

In 2013, PDC reported a net loss of $22.3 million, down from a net loss of $130.7 million the prior year. Total revenue hit $411.3 million in 2013, up from $320.6 million in 2012. PDC said in December that it would invest $469 million in Weld County in 2014, up from the $272 million invested in 2013. The investment in Northern Colorado represents the lion’s share of PDC’s $647 million capital budget for 2014.

The lawsuit centers on the contents of the proxy statements made by PDC to a dozen limited partnerships acquired by the company in 2010 and 2011. The statements allegedly omitted material facts about the value of assets held by the partnerships, which PDC had formed to raise funding to finance oil and gas development in Weld County and on the Western Slope.

After issuing proxy statements that urged the limited partners to vote in favor of mergers, PDC merged the limited partnerships and cashed out the owners at “grossly unfair prices and thereby enriched PDC at the limited partners’ expense,” according to the lawsuit.

The proxy statements stated that declining natural gas prices along with the prospect of prolonged reductions in cash distributions to the limited partners offered compelling reasons for limited partners to agree to the mergers, according to the lawsuit.

“PDC claimed in each of the proxy statements that the revenue from the partnerships’ assets would not be able to support the future development of the partnerships’ assets,” the lawsuit says. “As a consequence, PDC asserted that the cash distributions owed to the limited partners would continue to be reduced in order to fund the development of each partnership’s assets.”

In January, plaintiffs in the case were certified as a class. A jury trial originally scheduled for May was rescheduled to begin in September.
PDC said in its SEC filing that the company has held mediation meetings with plaintiffs and has proposed a settlement to resolve the allegations. The proposal includes a transfer of mostly profit interests in a certain number of wells that would generate cash in future years, plus a lesser value in an up-front cash payment.

“The mediation effort is ongoing, but there can be no assurance that the mediation meetings will continue or will result in a settlement on the terms we proposed or at all,” PDC said in its SEC filing.

The company has accrued a total of $24.1 million in liability in the case as of the second quarter ended June 30.

“We continue to believe we have good defenses to both the asserted claims and plaintiffs’ damage calculations,” the company added in the filing.
The lawsuit has not dampened analysts’ expectations for PDC. Fourteen of 23 analysts polled by Thomson Reuters have rated the stock as “outperform.” Four other analysts have rated the stock a “buy.”

Following the $250 million sale of its natural-gas assets in the Marcellus in West Virginia, PDC is leaner and financially positioned to execute on its investments in Weld County, according to an Aug. 11 report by Gabriele Sorbara, vice president for exploration and production at New York City-based Topeka Capital Markets.

“With the sale of the Marcellus, PDCE will make a turn to a top-tier liquids growth company, with stronger margins,” reads the report.
PDC reported a net loss of $28.2 million during the second quarter, down from net income of $19.9 million. The company blamed the loss in part on the litigation charge.

PDC shares have risen about 8 percent from a year ago to $56.95 as of Aug. 18.

Steve Lynn can be reached at 970-232-3147, 303-630-1968 or slynn@bizwestmedia.com. Follow him on Twitter at @SteveLynnBW.

PDC Energy Inc. says a jury trial is scheduled for September in a class-action lawsuit where plaintiffs are seeking approximately $175 million plus interest, according to a company filling with the U.S. Securities and Exchange Commission.

Denver-based PDC Energy (Nasdaq: PDCE), a Nevada corporation and a major oil and natural-gas producer in Weld County, reported a second-quarter charge of $20.8 million related to the lawsuit in its report filed with the SEC on Aug. 8.

The charge stems from the lawsuit filed in U.S. District Court for the Central District of California in December 2011 by owners of limited partnership units. The…

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