COMMITMENTS AND CONTINGENCIES

Firm Transportation, Processing and Sales Agreements. We enter into contracts that provide firm transportation, sales and processing services on pipeline systems through which we transport or sell crude oil and natural gas. Satisfaction of the volume requirements includes volumes produced by us, purchased from third parties and produced by PDCM and other third-party working interest owners. We record in our financial statements only our share of costs based upon our working interest in the wells. These contracts require us to pay these transportation and processing charges whether or not the required volumes are delivered. With the exception of contracts entered into by PDCM, the costs of any volume shortfalls are borne by PDC.

The following table presents gross volume information, including our proportionate share of PDCM, related to our long-term firm transportation, sales and processing agreements for pipeline capacity as of September 30, 2014:



	For the Twelve Months Ending September 30,
Area	2015		2016		2017		2018		2019 and Through Expiration		Total		Expiration Date

Natural gas (MMcf)
Appalachian Basin	18,993		20,368		20,987		20,987		109,638		190,973		January 31, 2026
Utica Shale	2,737		2,745		2,737		2,737		13,239		24,195		July 22, 2023
Total	21,730		23,113		23,724		23,724		122,877		215,168

Crude oil (MBbls)
Wattenberg Field	1,210		2,420		2,414		2,414		3,616		12,074		March 31, 2020

Dollar commitment (in thousands)	$	14,101	$	20,678	$	20,654	$	19,508	$	52,129	$	127,070

In September 2014, we entered into a long-term agreement with White Cliffs Pipeline, LLC, to ship crude oil from southern Weld County, Colorado, to Cushing, Oklahoma. The primary term of the agreement is five years commencing on the first delivery of crude oil to the pipeline system. We currently expect crude oil delivery to the pipeline system to begin in April 2015. The agreement includes minimum volume commitments as shown in the table above, with certain fees assessed for any shortfall.

On October 14, 2014, we closed the sale of our entire 50% ownership interest in PDCM to an unrelated third-party. The transaction includes the buyer's assumption of approximately 134,875 MMcf and $30.4 million of our Appalachian Basin firm transportation obligation. See Note 15, Subsequent Event, for additional information.

Litigation. The Company is involved in various legal proceedings that it considers normal to its business. The Company reviews the status of these proceedings on an ongoing basis and, from time to time, may settle or otherwise resolve these matters on terms and conditions that management believes are in the best interests of the Company. There is no assurance that settlements can be reached on acceptable terms or that adverse judgments, if any, in the remaining litigation will not exceed the amounts reserved. Although the results cannot be known with certainty, we currently believe that the ultimate results of such proceedings will not have a material adverse effect on our financial position, results of operations or liquidity.

Class Action Regarding 2010 and 2011 Partnership Purchases

In December 2011, the Company and its wholly-owned merger subsidiary were served with an alleged class action on behalf of unit holders of 12 former limited partnerships, related to its repurchase of the 12 partnerships, which were formed beginning in late 2002 through 2005. The mergers were completed in 2010 and 2011. The action was filed in U.S. District Court for the Central District of California and is titled Schulein v. Petroleum Development Corp. The complaint primarily alleges that the disclosures in the proxy statements issued in connection with the mergers were inadequate, and a state law breach of fiduciary duty. In January 2014, the plaintiffs were certified as a class by the court.

In October 2014, the Company and plaintiffs’ counsel reached an oral settlement agreement, subject to the contingencies noted below. Under this agreement the plaintiffs would receive a cash payment of $37.5 million, of which PDC would pay $31.5 million and insurers would pay $6 million directly to the plaintiffs. This all-cash settlement agreement is a different structure than the initial agreement in principle, which was structured as part up-front cash and part interests in future wells. The proposed all-cash settlement remains subject to the satisfaction of various conditions, including but not limited to the following: execution of a written settlement agreement; preliminary approval by the court; payments to plaintiffs by the Company’s insurance carriers; and final court approval following notice to members of the class. As a result, the Company accrued an additional $7.4 million of expense during the quarter ended September 30, 2014, which is included in general and administrative expense in the condensed consolidated statement of operations. As of September 30, 2014, the Company has accrued a total liability of $31.5 million related to this litigation, which is our best estimate of the amount required to settle the case. The liability is included in other accrued expenses in the condensed consolidated balance sheet.

Under this settlement agreement, the class action would be dismissed with prejudice and all claims would be released. If the matter proceeds to trial, the plaintiffs have indicated that they will seek damages of approximately $175 million, plus pre-judgment interest. In such event, we continue to believe we would have good defenses to both the asserted claims and plaintiffs’ damage calculations.

Partnership Liquidation Lawsuit

In October 2014, PDC entered into a preliminary settlement agreement pursuant to which PDC will pay approximately $8.8 million in resolution of an adversary proceeding filed in June 2014 titled Eastern 1996D Limited Partnership, et al. v. PDC Energy, Inc. Adv. Pro. No. 14-03080 (the “Adversary Proceeding”) related to bankruptcy Case No. 13-34773-HDH-11, currently pending in the United States Bankruptcy Court for the Northern District of Texas (the “Bankruptcy Court”). The bankruptcy case relates to 12 limited partnerships formed from1996 to 2002, for which PDC is the managing general partner. These partnerships filed bankruptcy in September 2013 to pursue an orderly liquidation of their assets and distribute the resulting proceeds to limited partners and the managing general partner. The Adversary Proceeding primarily alleges claims for breach of fiduciary duty and breach of contract against PDC as managing general partner of the partnerships. On October 28, 2014, the Bankruptcy Court approved the proposed disclosure statement in support of the debtors’ joint liquidating plan and the manner of solicitation of votes on such plan. The plan incorporates and seeks approval of the above proposed settlement. The plan is expected to be mailed to the limited partners in November 2014, and the Bankruptcy Court is expected to hold a hearing in December 2014 regarding final approval of the plan and settlement agreement. During the quarter ended September 30, 2014, we recorded a litigation charge of $8.8 million related to this matter, included in general and administrative expense in the condensed consolidated statements of operations, of which an accrued liability of $7 million and a $1.8 million reduction in related-party accounts receivable are included in other accrued expenses and accounts receivable affiliates, respectively, at September 30, 2014 in the condensed consolidated balance sheet.

Environmental. Due to the nature of the natural gas and oil industry, we are exposed to environmental risks. We have various policies and procedures designed to mitigate the risks of environmental contamination and related liabilities. We conduct periodic reviews to identify changes in our environmental risk profile. Liabilities are recorded when environmental damages resulting from past events are probable and the costs can be reasonably estimated. As of September 30, 2014 and December 31, 2013, we had accrued environmental liabilities in the amount of $1.9 million and $5.4 million, respectively, included in other accrued expenses on the condensed consolidated balance sheets. We are not aware of any environmental claims existing as of September 30, 2014 which have not been provided for or would otherwise be expected to have a material impact on our financial statements. However, there can be no assurance that current regulatory requirements will not change or unknown past non-compliance with environmental laws will not be discovered on our properties.

In June 2014, we received an information request from the Environmental Protection Agency (the "EPA") pursuant to Sections 308 and 311 of the Clean Water Act (the "CWA") regarding a discharge of oil and related materials that occurred in May related to a mechanical failure during drilling at an Ohio location. The requested information relates to the facility from which the discharge occurred and details regarding the discharge. To date, the EPA has not issued any notice that a violation of the CWA occurred or sought to impose any fine or other relief in connection with the discharge. While the results cannot be predicted with certainty, we do not expect the ultimate resolution of this information request or any subsequent proceedings to have a material adverse effect on our financial condition or results of operation.

Employment Agreements with Executive Officers. Each of our senior executive officers, except the current Chief Executive Officer, may be entitled to a severance payment and certain other benefits upon the termination of the officer's employment pursuant to the officer's employment agreement and/or the Company's executive severance compensation plan. The nature and amount of such benefits would vary based upon, among other things, whether the termination followed a change of control of the Company. In June 2014, we announced a leadership transition and entered into a consulting agreement with our current Chief Executive Officer pursuant to which he will provide consulting services to the Company in 2015. Under the agreement, the current Chief Executive Officer ceased to be a participant in our executive severance plan.