STEVEN WILLIAMS - PETROLEUM DEVELOPMENT CORPORATION (PETD)
CEO Interview - published 08/02/2001

DOCUMENT # MAZ204

STEVEN R. WILLIAMS has been the President and a Director of Petroleum
Development Corporation since joining the company in 1983. Mr. Williams
has nearly 20 years of oil and gas operations experience, including
service with Exxon, Texas Oil and Gas, and Exco Enterprises. An Engineer
with an MBA, he has the training and experience to direct PDC's
extensive operations in six states. Mr. Williams has served as a member
of the Resources Committee of the Interstate Oil and Gas Commerce
Commission, the Executive Committee of the Independent Petroleum
Association of America (IAFP) and the Board of Directors of the
Independent Oil and Gas Association of West Virginia (IOGA). He also
served as President of the Independent Oil and Gas Association of West
Virginia, and Chairman of the West Virginia Public Energy Authority. 

Sector: independent oil & gas

TWST: Can we start with a history and overview of Petroleum Development
Corporation?

Mr. Williams: Petroleum Development Corporation became a public company
in 1969 and operated exclusively in the Appalachian Basin for almost 30
years. In 1997, we started geographic expansion to US onshore areas
where we can leverage our extensive technical and geological expertise.
The geographic expansion is a fundamental part of our business plan
going forward. Another significant event from an historical standpoint
is our sponsoring of drilling partnerships. In 1984, we began to form
partnerships as the general partner. Our work in public partnerships
commenced in 1989. The public partnerships represent, for us, a built-in
joint venture partner for the drilling projects that we do. Through the
hard work of more than 100 broker-dealer firms nationwide, we have
become what I believe to be the largest seller of public drilling
projects in the country at this point in time; last year we raised a
record $55 million through that source.

TWST: Why Appalachia? What's the appeal?

Mr. Williams: We started here because this is where the founders were
located. They had done some drilling here and operated here. The
Appalachian Basin provides a good place for a beginning company ' it has
relatively inexpensive wells, it is close to end-use markets so you have
good, strong pricing, and the technology and geology is pretty basic.
What we've found, as we've grown bigger, particularly over the last few
years, is that you reach a point where the relatively low cost of
Appalachian Basin wells becomes something of a challenge. If you have
$50 million in investment capital, you need to drill 200 or 300 wells in
the Appalachian Basin. The same $50 million investment would require
only 40-50 wells in Colorado's Piceance Basin, for example, and we
expect to get significantly more reserves and production for the same
investment. It takes just about as much work to plan and prepare to
drill a $200,000 well as it does a $1 million well. One of the things we
found is that, as we were more and more successful with our
partnerships, we needed to drill fewer wells with greater reserves in
order to be able to get the work done more effectively. That led to our
geographic expansion in 1997, into Michigan, for the Antrim Shale wells,
and more recently in 1999 into the Rocky Mountain region, in
particularly Colorado's Wattenberg Field in the DJ Basin and Grand
Valley field in the Piceance Basin.

TWST: Your original market is Pennsylvania, and West Virginia, then
Michigan, and most recently the Rocky Mountains ' is there anybody else
in the marketplace?

Mr. Williams: In Michigan the Antrim shale is pretty fully developed.
The Antrim shale has been the driving force in Michigan for the last 10
years or so, and I think the drilling activity there has tapered off a
good bit. The Appalachian Basin activity is also relatively calm. There
has been an increase in activity with the price surges, but activity has
not climbed back up like some of the other areas of the country. A lot
of people in the industry expect the Rockies to be the big growth area
onshore in the United States for natural gas development. We foresaw
that several years ago and have acquired a pretty good acreage position
there. We've seen the activity in the Rockies increase much more than
our other operating areas over the last 12 to 18 months.

TWST: What is your position in the Rockies now?

Mr. Williams: We have over 70,000 acres, including about 200 development
locations in Wattenberg Field and 20-30 development locations in the
Piceance Basin.

TWST: What do you bring to that geography that wasn't there?

Mr. Williams: When we began our geographic expansion, we began by
assessing our capabilities. Our experience was drilling shallow, natural
gas, development wells in the Appalachian Basin. Both the Michigan
Antrim Shale Project and the Rocky Mountain projects we are pursuing
share a lot of characteristics with the Appalachian Basin. The projects
we're looking at are relatively shallow natural gas projects. In both
the Piceance Basin and Wattenberg Field, there are large areas where you
can drill wells with a very high probability of developing a successful,
producing well. Not all wells are equal, but the driving force is being
able to drill, complete, and put wells into production quickly,
efficiently, and economically. So, they are quite similar to the
Appalachian Basin.

TWST: What have you done in the Rockies so far?

Mr. Williams: We've drilled just over 100 wells there between Wattenberg
Field and the Piceance Basin. The majority of about 85 of the wells are
in Wattenberg Field and about 15 are in the Piceance Basin. We also
acquired, in 1999 and 2000, about 228 producing wells in Wattenberg
Field. Many of the wells have recompletion potential in the Codell
formation. We're continuing to pursue both acquisition and development
opportunities in the area.

TWST: What's been the success rate?

Mr. Williams: So far, our success rate in both areas is over 90%.
They're both very high percentage completion rate type plays. The
Piceance Basin targets natural gas, while Wattenberg Field wells produce
both oil and gas production.

TWST: What is the mix of production that you have today?

Mr. Williams: We're between 85% and 90% natural gas. We were essentially
100% natural gas until we got into Wattenberg Field, so it has added on
the order of 10% to 15% oil to our mix.

TWST: As we look out over the next year or two, what are the drilling
plans?

Mr. Williams: We expect to continue to focus very heavily on the two
fields that we've been talking about: Piceance and Wattenberg. We are
also looking at additional plays in the Rocky Mountain region. In Utah,
we recently farmed into an opportunity to drill some wells in an old
field that we think has additional development potential. We're in the
process of getting ready to drill a well there. There's also some work
over potential in the existing field wells in that project. We're
looking in Utah, Wyoming, and Colorado for additional natural gas
drilling opportunities. We expect to continue to add to our opportunity
inventory over the next year or two.

TWST: Have you set out how many wells you're going to develop over the
next year or two?

Mr. Williams: Our capital budget is $25 million in 2001, and will
probably be $25 million to $30 million (net to PDC) next year. Depending
on the well mix, we should add 30-50 new wells each year. Including our
partnerships, we will need to drill well over 100 wells each year.

TWST: When you do these drilling partnerships, are they partially tax-
based?

Mr. Williams: Yes. They can be a very attractive tax-advantaged
investment. They afford the investors in the partnership a significant
initial write-off, about 87% of the investment, and offer ongoing tax
advantages from depletion.

TWST: Are there any changes in the tax codes that are going to affect
us?

Mr. Williams: At this point in time, I don't see any on the horizon.
There are a number of efforts going on by industry groups to get
additional tax advantages. I am a skeptic as far as the probability of
success for new tax benefits.

TWST: For investors in Petroleum Development Corporation, what can they
expect from you in the way of growth over the next two or three years?

Mr. Williams: We've been growing rapidly for the past decade and we
expect to continue to do so. Including Q-1 2001, our investors have
enjoyed 26 consecutive quarters with net income. This year our growth
will be driven by increased partnership sales, increased production and
strong product prices. Our production growth target is 30%-40% per year.

TWST: Do you have the properties to support that kind of expectation?

Mr. Williams: Yes. We have on in the order of 200 to 300 locations in
Wattenberg Field, and we've got a large acreage position in the Piceance
Basin, with at last 20-30 proved undeveloped locations. Given the
geology of the Piceance Basin, we expect to generate additional proved
undeveloped locations as we continue drilling.

TWST: The growth we're talking about, I'm sure, is internal. Are there
any expectations of doing acquisitions?

Mr. Williams: We're constantly looking for targeted acquisitions in our
core areas. We've made several acquisitions over the last four or five
years. As a matter of fact, acquisitions were a significant part of the
reserve growth last year. Between a third and half of the reserve and
production growth last year was attributable to acquisitions. We've got
our ear to the ground, especially in the Rockies. When prices were
really high, it was difficult for buyers and sellers to reach agreement
on value. With prices stabilizing somewhat, it may become easier. I
anticipate we'll have additional acquisitions in our future when we find
the right property ' at the right price.

TWST: What are you looking for?

Mr. Williams: Basically, one of two things. We are interested,
primarily, in natural gas, and we like acquisition opportunities that
either add to our position in an area where we are already an operator
or which help us launch a new operation in an area where we want to
drill. For example, we would look at additional producing properties in
the Appalachian Basin or Wattenberg Field or the Piceance Basin as being
very attractive. We're not really interested in owning piecemeal-
producing properties all over the country. We'd rather maintain several
focused development areas and use our acquisitions to help build
critical mass or to add to the economies of scale if we already have a
significant operation.

TWST: What do you need in the way of pricing to make all this work?

Mr. Williams: It's tough at $2 for anybody. I think NYMEX prices in
excess of $3 will keep us going. The farther they go above $3, the
faster everything happens and the better it goes. At $4, we're extremely
profitable.

TWST: What's the spread of your production now between your older
markets and the Rockies?

Mr. Williams: We're pretty nearly a third, a third, a third,
(Appalachian, Michigan, Rocky Mountains) which I think is pretty good
given we've only been in Michigan for four years and the Rockies for
two. To have that kind of split in production that quickly is a strong
indication of the success of our geographic diversification efforts.

TWST: Do you have the capital to support your drilling plans?

Mr. Williams: Yes. We're in excellent financial condition. Our leverage
is very low by industry standards. Currently, we have about $15 million
in debt. Our market cap, has remained north of $100 million for some
time, so our debt is less that 20% of our capitalization. As a result
we've got a lot of incremental debt capacity that we can use to fund
acquisitions or additional drilling. We tend to try to match borrowing
with acquisitions and to fund drilling from cash flow. The more
predictable cash flow of an acquisition helps to reduce the risk
associated with borrowing. We have strong cash flow out of our
production and partnership operations to fund our drilling activity.
About half of our drilling right now is being funded by profits from
partnership activities, with the balance being funded by cash flow from
production.

TWST: What's the risk here, other than pricing?

Mr. Williams: We have historically been less risky than most oil and gas
companies that rely solely on their profits from production.  The
partnerships have provided us with a smoothing effect. Oil and gas
pricing are a significant issue for us, as for any oil and gas company.
A significant drop in prices would impact both our oil and gas sales, as
well as our partnership sales. In the intermediate to longer term, being
able to generate quality prospects fast enough is a challenge,
especially since we need to always supply both PDC's needs and the needs
of our partnerships.

TWST: As far as acquisitions, are valuations attractive?

Mr. Williams: So far this year we haven't found one that we were
interested in and that we thought was priced right. We will continue to
look but if the price isn't right we aren't buying. There is a steady
stream of new properties on the market, so I'm optimistic.

TWST: How do you feel about the value the market is currently putting on
your company?

Mr. Williams: I don't think the market is giving us credit for the
growth that we anticipate. We expect earnings of around $1 per share in
2001. Historically, we've traded at roughly 10 times our earnings. Right
now we're trading at right around 7 times that expected earnings. If we
reach $1.00 per share of earnings, we think our price should be closer
to $10.00 per share. This has been a real show-me market, though, as far
as oil and gas stock prices go.

TWST: Is that the issue, people want to see the numbers?

Mr. Williams: I think so. I don't think many oil and gas companies get
credit for growth potential.

TWST: When you talk to investors, what are they concerned about, in your
case?

Mr. Williams: What are gas and oil prices going to do? Can we continue
to increase production? Can we generate enough drilling prospects for
both PDC and the partnerships? We are bullish on prices over the next
several years, have an excellent acreage position, and see continuing
strong partnership sales. While success is never guaranteed, we are in
an excellent position to continue profitable growth.

TWST: What two or three reasons would you give to investors to buy your
stock today?

Mr. Williams: One is the success of our geographic diversification. Our
growth in production and reserves over the last five years has been
pretty spectacular. Given our position in the Rocky Mountains, we're in
an excellent position to expand our operations there, and to continue
our production and reserve growth. Helping to fund growth is our
successful partnership program. We've gone from $30 million to $50
million, and we think we are looking at $70 million this year in
partnership subscriptions. This will help to accelerate our growth.

TWST: Thank you. (TM)

STEVEN R. WILLIAMS
 President & CEO
 Petroleum Development Corporation
 103 East Main Street
 Bridgeport, WV 26330
 (304) 842-3597
 (800) 624-3821 - TOLL FREE
 (304) 842-0913 - FAX
 www.petd.com
 e-mail: petd@petd.com

Each Executive who is the featured subject of a TWST Interview is
offered the opportunity to include an Investors Brief or other highlight
material to be provided and sponsored by and for the company. This
Interview with Steven R. Williams, President & CEO, Petroleum
Development Corp., is accompanied by an Investors Brief containing
corporate information.

Copyright 2001 The Wall Street Transcript Corporation
All Rights Reserved


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