Oil and natural gas sales revenues from the company’s producing properties for the first quarter 2009 were down 44.5% to $39.7 million, a decrease of $31.9 million from $71.6 million for the same 2008 period. The average realized price of oil and gas, including realized gains and losses on derivatives, was $7.08 per Mcfe in the first quarter 2009 compared to $8.16 in the first quarter 2008. The average sales price for oil and natural gas during this year’s first quarter was $3.79 per Mcfe, a decrease of about 55% from $8.45 per Mcfe for the same quarter 2008. The net loss for the first quarter 2009 was impacted by a $12.9 million net decrease in the mark to market value of the company’s derivatives resulting from contracts settled during the quarter. This unrealized loss was offset by realized gains of $36.6 million during the quarter, resulting in a net gain from price risk management activities in the first quarter 2009 of $23.7 million, compared to a net loss of $42.3 million in the same first quarter period of 2008.

Adjusted net income (a non-GAAP measure defined as net income adjusted for unrealized gains and losses on derivative positions and corresponding tax impacts) for the first quarter of 2009 was $4.1 million or $0.27 per diluted share, compared to $10.9 million or $0.74 per diluted share in the first quarter 2008. Adjusted cash flow from operations, declined slightly to $39.7 million for the quarter ended March 31, 2009, compared to $40.4 million in the same period of 2008.

Oil and gas production and well operations costs decreased 11% to $16.2 million, or $1.45 per Mcfe for the first quarter 2009 from $18.1 million, or $2.14 per Mcfe for the first quarter of 2008. The reduction was primarily attributable to a 17.7% decrease in lifting costs to $0.93 per Mcfe for first quarter 2009 from $1.13 per Mcfe for first quarter 2008. The decrease was due to increased production in the first quarter 2009, and lower oil and gas service provider rates.

Additionally, production taxes, which fluctuate with oil and natural gas prices, decreased $3.1 million or 61.9% to $1.9 million for the first quarter 2009 versus $5 million for the same period of 2008. First quarter 2009 lifting costs results were lower on a per Mcfe basis than the guidance the company provided on March 19, 2009.

First quarter 2009 production increased 32% over the same period in 2008, to 11.2 Bcfe from 8.5 Bcfe. Growth in this first quarter was all organic from development of Petroleum Development’s existing core operating areas. During the first quarter 2009 the company drilled 24.9 total net wells compared to 67.7 total net wells drilled in the same 2008 period. The 2009 first quarter total was comprised of 21.9 net development wells drilled and 3 net exploratory wells drilled.

Richard W. McCullough, chairman and chief executive officer stated, “As we expected entering the year, the first quarter of 2009 was a difficult operating environment. The industry continues to be in a gas over-supply situation. This situation, along with the economic recession, has placed considerable downward pressure on commodity prices.

Fortunately for us a significant portion of Petroleum Development’s production is hedged into 2010 at prices above the current market and we have strong balance sheet and liquidity positions. Additionally, first quarter 2009 production was strong due to robust capital spending in the latter portion of 2008 and operating costs have begun to show meaningful unit rate reductions.

“We significantly reduced our 2009 CAPEX budget due to low commodity prices and a constrained capital environment. While we do not believe prices are sustainable indefinitely at these low levels, we will continue being very selective on capital project spending and focus on cost reductions in these extremely tough markets.”

Financial Results

The company’s exploration expense increased from $4.3 million in the first quarter 2008 to $5.6 million in the first quarter of 2009, predominately a result of $1.6 million in tubular inventory impairments and drilling rig demobilization expenses.

Depreciation, depletion and amortization expense for the 2009 first quarter increased to $34.3 million or $3.08 per Mcfe, from $21.1 million or $2.49 per Mcfe in the respective quarter 2008. This increase was largely due to reserve reductions associated with year-end 2008 and related valuation decreases, as well as increased costs related to acquiring acreage, drilling, completing, and equipping new wells during 2008.

General and administrative expenses increased to $12.1 million in the first quarter 2009 from $9.8 million in the same period of 2008, however, on a per Mcfe basis, general and administrative expenses declined to $1.08 per Mcfe for first quarter 2009 from $1.16 per Mcfe for first quarter 2008. The increase for first quarter 2009 was primarily related to increased staffing and payroll benefits of $2 million, and $1.5 million for the expensing of previously capitalized acquisition costs pursuant to the adoption of a new accounting standard. General and administrative expense for first quarter 2008 included $3.2 million in payroll and payroll related expenses relating to the separation agreement with Petroleum Development’s former president. The company’s first quarter 2009 payroll benefits are in line with fourth quarter 2008 actuals.

Interest expense increased to $8.4 million in the first quarter 2009, from $4.9 million in the same period of 2008, a result of a full quarter’s expense related to the 12% senior notes issued on February 8, 2008, and higher average outstanding balances on the bank credit facility, offset by lower average interest rates.

2009 Outlook

2009 production is estimated to be about 42.5 Bcfe to 44 Bcfe, or a 10% to 14% increase over production for 2008 of 38.7 Bcfe. The 2009 capital budget of $108 million to $120 million represents an approximate 65% decrease compared to 2008.

Estimated production and capital levels are consistent with the guidance numbers provided March 19, 2009. The reduction in 2009 capital spending results in an estimated year-end 2009 net debt level which is about flat to 2008 year end levels, thus liquidity is anticipated to be sufficient during 2009. The company’s biannual borrowing base redetermination on its $375 million revolving credit facility is expected to be completed by mid-May 2009.

The company has executed oil and natural gas derivative contracts for 58% and 62% of its forecasted oil and natural gas production, respectively, for the remainder of 2009. Hedged prices are well above the current market at an average $90.52 per Bbl and $6.83 per Mcf. Additionally, a significant portion of 2010 forecasted production is hedged at prices which exceed current market prices. Results for the full year 2009 are projected to trend to the middle or low point of Petroleum Development guidance ranges because of the continuation of the low oil and gas price environment.

Operations

Petroleum Development’s 2009 drilling plans continue to be focused primarily in the Rocky Mountain region. The company plans to drill about 105 gross wells to 155 gross wells excluding exploratory wells. Exclusive of exploratory wells, through March 31, 2009, the company has drilled 24 gross wells compared to 92 gross wells for the same period last year. The company is currently evaluating the exploration potential of the Marcellus Formation in the Appalachian basin. Through a combination of lease, farmout and wellbore ownership, the company operates over 2,100 wells within the Marcellus Fairway area. The company drilled a total of four Marcellus wells, two of which are in line, and five additional vertical tests are planned in 2009.