PDC Energy settles 2011 lawsuit for up to $35 million

DENVER – PDC Energy Inc. (Nasdaq: PDCE) has agreed to settle for as much as $35 million a lawsuit alleging that the company made “false” and “misleading” statements in proxy statements made to limited partnerships acquired by the company in 2010 and 2011.

Denver-based PDC, a Nevada corporation and major oil and natural-gas producer in Weld County, said it agreed to make a cash payment of $11.5 million as well as transfer net profit interests from oil and gas wells that will generate cash in future years to plaintiffs in the lawsuit. PDC estimated the total value of the settlement at $30 million to $35 million, according to a statement issued by the company Friday.

PDC shares jumped more than 2 percent to $55.01 in afternoon trading.

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The settlement is expected to end a lawsuit filed in 2011 in U.S. District Court for the Central District of California. 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.

The plaintiffs had sought $175 million plus interest from the lawsuit. Under the settlement, the lawsuit will be dismissed, according to PDC. After this year, the company does not anticipate any material impact to its operations or cash flow from the settlement.

New York City-based analyst Topeka Capital Markets viewed the settlement as a “tremendous positive.” The firm has rated the stock a “buy” with a price target of $78.

“It is significantly below the plaintiffs’ claim of (approximately) $175 million and relieves the litigation overhang that has weighed on shares,” says a report by Gabriele Sorbara, vice president for exploration and production at New York City-based Topeka Capital Markets.

PDC reported a total of $24.1 million in liability in the case as of the second quarter ended June 30.

The lawsuit centers on the contents of 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.

PDC maintains that the lawsuit is without merit, and the company denies any wrongdoing.

A PDC representative and an attorney for the plaintiffs did not immediately return phone messages seeking comment.