NATURE OF OPERATIONS AND BASIS OF PRESENTATION

PDC Energy, Inc. (the "Company," "we," "us," or "our") is a domestic independent exploration and production company that produces, develops, acquires and explores for crude oil, natural gas and NGLs, with primary operations in the Wattenberg Field in Colorado and the Utica Shale in southeastern Ohio. Our operations in the Wattenberg Field are focused in the horizontal Niobrara and Codell plays and our Ohio operations are focused in the Utica Shale play. As of December 31, 2015, we owned an interest in approximately 3,000 gross wells. We are engaged in two business segments: Oil and Gas Exploration and Production and Gas Marketing. In October 2014, we sold our entire 50% ownership interest in our joint venture, PDCM, to an unrelated third-party. See Note 15, Assets Held for Sale, Divestitures and Discontinued Operations, for additional information.

The accompanying audited consolidated financial statements include the accounts of PDC, our wholly-owned subsidiary Riley Natural Gas ("RNG"), our proportionate share of our four affiliated partnerships and, for the year ended December 31, 2014 and 2013, our proportionate share of PDCM. As of December 31, 2015, we had four remaining affiliated partnerships that continue to conduct crude oil and natural gas producing activities. Pursuant to the proportionate consolidation method, our accompanying consolidated financial statements include our pro rata share of assets, liabilities, revenues and expenses of the entities which we proportionately consolidate. All material intercompany accounts and transactions have been eliminated in consolidation.

The preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Estimates which are particularly significant to our consolidated financial statements include estimates of crude oil, natural gas and NGLs sales revenue, crude oil, natural gas and NGLs reserves, future cash flows from crude oil and natural gas properties, valuation of derivative instruments, impairment of proved and unproved properties and valuation of deferred income tax assets.

During the fourth quarter of 2015, we reclassified certain amounts within our costs and expenses in the consolidated statements of operations and assets and liabilities in the consolidated balance sheets. Specifically, production costs has been segregated into lease operating expenses, production taxes and transportation, gathering and processing expenses. This reclassification has been made to prior period financial statements to conform to the current year presentation. We believe these changes allow users of our financial statements to better understand our expense structure and make our financial statements more comparable to those of peer companies.

Further, we have noted the following misclassifications in prior year filings, which have been corrected in the current year presentation:


•	Production-related general and administrative costs totaling $7.7 million and $3.8 million for 2014 and 2013, respectively, have been reclassified from production costs to general and administrative expense;


•	Prepaid well costs write-offs totaling $3.3 million and $0.4 million for 2014 and 2013, respectively, have been reclassified from production costs to impairment of crude oil and natural gas properties; and


•	Prepaid well costs totaling $27.3 million in the December 31, 2014 consolidated balance sheet have been reclassified from other assets to properties and equipment, net;

We evaluated the impact of these misclassifications and determined they were not material to the prior periods presented.

Additionally, as a result of adopting the accounting standards update on the balance sheet classification of debt issuance costs and deferred taxes, the following reclassifications have been made to the prior period financial statements:


•	Debt issuance costs totaling $9.4 million in the December 31, 2014 consolidated balance sheet have been reclassified from other assets and are presented as a direct deduction from the carrying amount of long-term debt; and


•	Current deferred income tax liabilities totaling $59.2 million in the December 31, 2014 consolidated balance sheet have been reclassified to non-current pursuant to the income tax accounting standards update issued and adopted in 2015.

These reclassifications had no impact on previously reported cash flows, net income, earnings per share or shareholders' equity.