Petroleum Development Corp., doing business as PDC Energy, has gone through several changes in strategy, assets and management in the past five years. More recently, James M. Trimble became president and chief executive officer of the Denver-based company last June. He had been a director since 2009.

At year-end 2011, PDC reached a critical milestone, reporting slightly over 1 trillion cubic feet equivalent (Tcfe) of proved reserves, up 18% over the prior year. Its internal estimate of proved, probable and possible reserves increased 50% to 2.1 Tcfe, and production rose 26% to 47.5 billion cubic feet equivalent.

This was despite the fact that the company has been selling assets and refocusing. In December, PDC announced the $175-million sale to Concho Resources of its remaining Wolfberry assets in the Permian Basin.

Going forward, PDC will be active in the liquids-rich horizontal Niobrara play in Wattenberg Field, the Marcellus shale (some 148,000 acres in West Virginia and 9,000 in Pennsylvania) and the Utica shale in Ohio. It holds more than 264,000 acres total in the Appalachian Basin. (For more details on PDC's activity in Wattenberg Field, see the accompanying cover story on the Niobrara).

Like many executives, PDC Energy Corp. chief executive James M. Trimble is transitioning the company to a liquids focus.

The company recently acquired 40,000 net acres prospective for the Utica shale in Noble, Monroe, Guernsey, Morgan and Washington counties in southeastern Ohio. Now, it is looking for a joint-venture industry partner, and it expects to announce a deal in late June or early July.

For more insight into the company's strategy, Oil and Gas Investor talked with Trimble, a petroleum engineering graduate from Mississippi State, right after he had returned from a road trip to meet with investors.

Investor: What with the crash in gas prices since you joined the company in June 2011, the past few months must have been tumultuous.

Trimble: I was recently on a trip to Baltimore and Philadelphia doing one-on-ones with investors, telling our story and discussing the initiatives we have recently undertaken. PDC was traditionally a gassy company, but our 2012 development budget is primarily focused on the Niobrara interests we have in Wattenberg Field in Colorado, where we are 80% liquids. We have added a significant amount of liquids to our production and reserves and will continue to do so.

Investor: Is PDC through with its transformation, or do you foresee more changes?

Trimble: We are well positioned where we want to be for now. We are operating in two regions: Colorado, with the Wattenberg horizontal Niobrara, and the Appalachian Basin, with the Marcellus and Utica, so we are very focused. We are not looking to expand into other basins at this time.

Investor: The market has been concerned that you are outspending cash flow.

Trimble: Although we have recently outspent cash flow, the sale of the Permian Basin assets will largely pay down our revolver. I believe we'll end the year with our debt-to-equity ratio below 40%. There was concern from investors that financially we had too much going on and might have to sell some equity. I sense the market is now a lot more comfortable with our divestiture strategy to maintain a strong balance sheet.

Investor: What was your first goal when you became CEO?

Trimble: The board wanted someone with more of an operations background. The first thing I did was sit down with our team and talk about refocusing our spending. We stopped our activity in the Piceance Basin, for example, and then we talked about our Permian operations and what we felt were limited capabilities there due to the size of our acreage position, which resulted in the divestiture plan.

Investor: You've made a lot of changes at PDC, and you did recently sell your Permian assets.

Trimble: The Permian assets totaled only 13,000 acres and we could not grow it in a meaningful way. With the Permian Basin so hot right now, it made sense for us to sell the asset and redeploy that money into kicking off our Utica play in Ohio, where economies of scale work better for us, and drilling more wells in our liquid-rich Wattenberg assets.

Now we are focused in two main areas, Wattenberg and the Appalachian Basin. We have 225,000 acres in West Virginia and Pennsylvania in a joint venture with another party (157,000 focused in the Marcellus), and have established a new position in the Utica shale in Ohio.

Investor: Are you looking to acquire more in the Utica?

Trimble: Yes. We are still acquiring acreage and testing our first well there now. It's still early, but we have about 40,000 acres. Our goal is to acquire 80,000 to 100,000 acres and work with an industry partner such as a large U.S. independent.

Investor: What is your time frame on the JV?

Trimble: We hope to identify a partner by the end of June. The data room is open now. We're looking for a working-interest partner with PDC retaining operatorship. We have one vertical well down now and plan two horizontal wells by this summer, so we believe we'll be in good shape.

Investor: Given all the changes, what is your outlook for the year?

Trimble: We are not opportunity constrained, however, we want to keep our balance sheet strong and maintain ample liquidity. I want to get the Utica acreage purchased and finalize the JV deal. And we plan to drill additional wells in the Niobrara; last year in the Niobrara we drilled 17 horizontal wells and completed 180 refracs, this year we plan 27 to 30 horizontal wells and 210 refracs. The Niobrara horizontals and Codell refracs have great rates of return, and we currently have a five- to 10-year program there.

Investor: You are very enthusiastic about the Niobrara.

Trimble: Approximately 85% of our 2012 budget will be spent in Wattenberg. At three wells per section we have calculated 387 locations, and that is not including any downspacing which some other companies are testing. We will drill these horizontally, and next year we plan to drill at a faster pace.

The refracs are in the Codell formation, which was probably the main zone five or six years ago. After refracing, production increases to 70% or 80% of the original initial production rate and repeats the same decline. The rate of return is over 100%, payout is in a couple of months, and you can potentially refrac a third time at a later date.

When we refrac these vertical wells, we complete them in the Niobrara too. Vertical fracs cost around $200,000 whereas horizontal fracs run approximately $2 million.

Investor: Do you see any softening of frac costs?

Trimble: No, not yet, but we are seeing more availability of rigs and frac services. Over time I would expect costs to decline as people back off drilling gas wells.

Investor: What is your plan in the Marcellus?

Trimble: Our thoughts are to continue focusing our drilling in West Virginia where we have had great well results. This is dry gas, but we are getting a premium price because it is 1,050 Btu. We flow to sales in four days after completion because we don't require processing, and we laid our own infrastructure to tie into EQT. When we began, we estimated EURs at 3- to 5 billion cubic feet. Now that we have drilled a number of wells, we've increased the estimate to 5- to 7 billion. The economics are good, we are well hedged and all our acreage is held by production.

Investor: Are Utica leasing costs going up?

Trimble: There is a lot of activity, so we are being very selective. We entered the play fairly early, at $1,750 an acre all-in, which is about half what we're seeing right now in the southern area of the play.

Investor: What does the Street misunderstand about PDC?

Trimble: Last summer the Niobrara story was getting very hot, yet a lot of companies reported mediocre results and people assumed the play wasn't that good. Unfortunately we got lumped in with those companies reporting mediocre results on the Wyoming border.

But PDC is the third-largest Niobrara producer in the core of Wattenberg, where our horizontal wells have been 100% successful, all our acreage is held by production, and our production is 80% liquids.

At the moment we are staying with the 4,000-foot laterals and are not down spacing; however, we're watching what other companies are doing in that regard.

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