CONFORMED COPY

Washington, D.C. 20549

[X] Quarterly Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

For the period ended March 31, 2004

[ ] Transition Report Pursuant to Section 13 of 15(d) of

the Securities Exchange Act of 1934

For the transition period from to

Commission file number 0-7246

I.R.S. Employer Identification Number 95-2636730

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes XX No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 16,245,484 shares of the Company's Common Stock ($.01 par value) were outstanding as of March 31, 2004.

Indicate by check mark whether the registrant is an accelerated filer (as definition in Rule 12b-2 of the Exchange Act). Yes XX No

PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES

INDEX

PART I - FINANCIAL INFORMATION

The Board of Directors

Petroleum Development Corporation:

We have reviewed the accompanying condensed consolidated balance sheet of Petroleum Development Corporation and subsidiaries as of March 31, 2004, the related condensed consolidated statements of income for the three-month periods ended March 31, 2004 and 2003, and the related condensed consolidated statements of cash flows for the three-month periods ended March 31, 2004 and 2003. These condensed consolidated financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

KPMG LLP

Pittsburgh, Pennsylvania

May 2, 2004

PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

March 31, 2004 and December 31, 2003

(Continued)

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PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets, Continued

March 31, 2004 and December 31, 2003

See accompanying notes to unaudited condensed consolidated financial statements.

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PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Income

Three Months ended March 31, 2004 and 2003

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2004 and 2003

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2004

(Unaudited)

1. Accounting Policies

2. Stock Compensation

3. Basis of Presentation

4. Oil and Gas Properties

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5. Earnings Per Share

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6. Business Segments (Thousands)

8. Commitments and Contingencies

9. Common Stock Repurchase

10. Change in Accounting Principle

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Revenues

Total revenues for the three months ended March 31, 2004 were $71.0 million compared to $54.0 million for the three months ended March 31, 2003, an increase of approximately $17.0 million or 31.5 percent. Such increase was a result of increased drilling revenues, sales from gas marketing activities, oil and gas sales and well operations and pipeline income.

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Drilling Revenues

Drilling revenues for the three months ended March 31, 2004 were $29.5 million compared to $21.5 million for the three months ended March 31, 2003, an increase of approximately $8.0 million or 37.2 percent. Such increase was due to the increased drilling funds raised through the Company's Public Drilling Programs. The Company started the first quarter of 2004 with advances for future drilling from December 31, 2003 of $50.5 million compared with advances for future drilling of $37.3 million at the beginning of the first quarter of 2003. We believe this increase is fueled by the increase in oil and natural gas prices which has improved the performance of our prior programs which in turn has helped to increase our current drilling program sales.

Natural Gas Marketing Activities

Natural gas sales from the marketing activities of Riley Natural Gas (RNG), the Company's marketing subsidiary for the three months ended March 31, 2004 were $23.5 million compared to $21.6 million for the three months ended March 31, 2003, an increase of approximately $1.9 million or 8.8 percent. Such increase was due to higher volumes of natural gas sold, offset in part by slightly lower average sales prices.

Oil and Gas Sales

Oil and gas sales from the Company's producing properties for the three months ended March 31, 2004 were $16.2 million compared to $8.9 million for the three months ended March 31, 2003 an increase of $7.3 million or 82.0 percent. The increase was due to significantly increased volumes sold at higher average sales prices of oil and natural gas. The volume of natural gas sold for the three months ended March 31, 2004 was 2.6 million Mcf at an average sales price of $4.91 per Mcf compared to 1.6 million Mcf at an average sales price of $4.49 per Mcf for the three months ended March 31, 2003. Oil sales were 104,000 barrels at an average sales price of $31.84 per barrel for the three months ended March 31, 2004 compared to 57,000 barrels at an average sales price of $26.02 per barrel for the three months ended March 31, 2003. The increase in natural gas volumes was the result of the Company's increased investment in oil and gas properties, primarily the Williams property acquisition in the sec ond quarter of 2003, recompletions of existing wells, two fourth quarter 2003 acquisitions of oil and gas properties in Colorado and Kansas and the investment in oil and gas properties we own in our public drilling program partnerships.

Oil and Gas Production

The Company's oil and gas production by area of operations along with average sales price is presented below:

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Our financial results depend upon many factors, particularly the price of natural gas and our ability to market our production on economically attractive terms. Price volatility in the natural gas and oil markets has remained prevalent in the last few years and can have a material impact on our financial results. Natural gas prices declined dramatically at the end of 2001 and during the entire first quarter of 2002. However, in the second quarter of 2002, the Company saw a significant strengthening of natural gas prices in its Appalachian and Michigan producing areas. Natural gas prices in Colorado remained low for most of 2002. In the fourth quarter of 2002 and continuing in 2003 and 2004, Colorado prices began to increase, although they continue to trail prices in other areas. The Company believes the lower prices in the Rocky Mountain Region, including Colorado, resulted from increasing local supplies that exceeded the local demand and pipeline capacity available to move gas from the re gion. On May 1st of 2003, the Kern River pipeline expansion was completed and placed into service. The Kern River Pipeline Company has announced that the additional facilities added about 900 million cubic feet per day of capacity for deliveries to Arizona, Nevada and southern California. This represents almost 30% of the prior pipeline capacity from the region to the West Coast and other markets outside the region. The Company believes that the completion and start-up of the pipeline eliminated or reduced the local supply surplus, leading to improved natural gas prices in the region. Since the startup of the new Kern River pipeline the Colorado Interstate Gas price index has improved to a range of from 83% to over 90% of the NYMEX price, levels consistent with historical price relationships before the local demand/pipeline capacity problem. The Company has commodity price hedging contracts for oil and natural gas production from April 2004 through October 2005 to protect against possible short-term price we aknesses.

Oil and Gas Hedging Activities

Because of uncertainty surrounding natural gas prices we have used various hedging instruments to manage some of the impact of fluctuations in prices. Through October of 2005 we have in place a series of floors and ceilings on part of our natural gas production. Under the arrangements, if the applicable index rises above the ceiling price, we pay the counterparty, however if the index drops below the floor the counterparty pays us. During the three months ended March 31, 2004 the Company averaged natural gas volumes sold of 874,000 Mcf per month and oil sales of 34,700 barrels per month. The current positions in effect on the Company's share of production are shown in the following table.

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Well Operations, Pipeline and Other Income

Well operations and pipeline income for the three months ended March 31, 2004 was $1.8 million compared to $1.6 million for the three months ended March 31, 2003, an increase of approximately $200,000 or 12.5 percent. Such increase was due to an increase in the number of wells and pipeline systems operated by the Company for our drilling fund partnerships as well as third parties . Other income for the three months ended March 31, 2004 was $58,000 compared to $385,000 for the three months ended March 31, 2003. Such decrease was due to a decrease in interest income as the Company had lower average cash balances during the first quarter of 2004 compared to 2003. The Company utilized its cash balances to reduce its line of credit during the period.

Costs and Expenses

Costs and expenses for the three months ended March 31, 2004 were $57.9 million compared to $46.5 million for the three months ended March 31, 2003, an increase of approximately $11.4 million or 24.5 percent. Such increase was primarily the result of increased cost of oil and gas well drilling operations, cost of gas marketing activities, oil and gas production costs and depreciation, depletion and amortization.

Oil and Gas Well Drilling Operations Costs

Oil and gas well drilling operations costs for the three months ended March 31, 2004 were $25.4 million compared to $17.7 million for the three months ended March 31, 2003, an increase of approximately $7.7 million or 43.5 percent. Such increase was due to the higher levels of drilling activity from our Public Drilling Programs referred to above. In addition, the gross margin on the drilling activities for the three months ended March 31, 2004 was 14.1% compared with 17.8% for the three months ended March 31, 2003, a decrease in gross margin of 3.7%. Such decrease was due to increasing well drilling costs particularly the cost of well fracturing and rising steel costs for casing and other well equipment. For competitive reasons the company currently does not plan to increase charges to its investor partners at this time and as a result anticipates a continuation of lower margins in 2004 compared to the prior year.

Cost of Gas Marketing Activities

The cost of gas marketing activities for the three months ended March 31, 2004 were $22.9 million compared to $21.5 million for the three months ended March 31, 2003, an increase of $1.4 million or 6.5 percent. The increase was due to higher volumes of natural gas purchased for resale, offset in part by slightly lower average purchase prices. Income before income taxes for the Company's natural gas marketing subsidiary improved from $120,000 for the three months ended March 31, 2003 to $601,000 for the three months ended March 31, 2004. Based on the nature of the Company's gas marketing activities, hedging did not have a significant impact on the Company's net margins from marketing activities during either period.

Oil and Gas Production Costs

Oil and gas production costs from the Company's producing properties for the three months ended March 31, 2004 were $3.9 million compared to $2.7 million for the three months ended March 31, 2003, an increase of approximately $1.2 million or 44.4 percent. Such increase was due to the increased production costs on the increased volumes of natural gas and oil sold, along with the increased number of wells and pipelines operated by the Company. Lifting cost per Mcfe decreased from $1.02 per Mcfe during the three months ended March 31, 2003 to $.98 per Mcfe during the three months ended March 31, 2004.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2004 were $994,000 compared to $1.2 million for the three months ended March 31, 2003, a decrease of approximately $200,000 or 16.7%. Such decrease was due to the change of and restructuring of executives' compensation offset in part by increased administrative activity associated with an expanding Company.

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Depreciation, Depletion, and Amortization

Depreciation, depletion, and amortization costs for the three months ended March 31, 2004 increased to $4.5 million from approximately $3.2 million for the three months ended March 31, 2003, an increase of approximately $1.3 million or 40.6 percent. Such increase was due to the significantly increased production and investment in oil and gas properties by the Company.

Interest Expense

Interest costs for the three months ended March 31, 2004 and 2003 remained relatively constant at approximately $250,000 in both periods. The Company utilizes its daily cash balances to reduce its line of credit to lower its costs of interest.

Provision for Income Taxes

The effective income tax rate for the Company's provision for income taxes increased from approximately 33 percent to 36 percent primarily as a result of the application of higher tax rates due to significantly increased earnings of the Company during 2004 and the utilization in 2003 of alternative minimum tax credit carry-forwards and other miscellanenous permanent differences which are not expected in 2004.

Change in Accounting Principle

The Company adopted SFAS No. 143 "Accounting for Asset Retirement Obligations" on January 1, 2003 and recorded the cumulative effect on prior years of $198,600 (net of taxes of $121,700).

Net income and Earnings Per Share

Net income for the three months ended March 31, 2004 was $8.4 million compared to a net income of $4.8 million for the three months ended March 31, 2003, an increase of approximately $3.6 million or 75% percent.

Diluted earnings per share for the three months ended March 31, 2004 was $0.52 per share compared to $0.30 per share for the three months ended March 31, 2003, an increase of $0.22 per share or 73.3 percent.

The Company funds its operations through a combination of cash flow from operations, capital raised through drilling partnerships and use of the Company's credit facility. Operational cash flow is generated by sales of natural gas and oil from the Company's well interests, natural gas marketing, well drilling and operating activities from the Company's public drilling programs, and natural gas gathering and transportation. Cash payments from Company-sponsored partnerships are used to drill and complete wells for the partnerships, with operating cash flow accruing to the Company to the extent payments exceed drilling costs. The Company utilizes its revolving credit arrangement to meet the cash flow requirements of its operating and investment activities.

Natural Gas Pricing and Pipeline Capacity

Natural gas and oil prices have been volatile in the past, and the Company anticipates continued volatility in the future. Currently, the NYMEX futures reflect a market expectation of gas prices at Henry Hub of continuing strong natural gas prices. Although prices look strong for the remainder of 2004, natural gas storage levels are near normal levels following a period when storage levels had been at five-year lows. The Company believes this situation creates the possibility of periods of both low prices and continued high prices.

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Natural gas prices declined dramatically at the end of 2001 and during the entire first quarter of 2002. However, in the second quarter of 2002, the Company saw a significant strengthening of natural gas prices in its Appalachian and Michigan producing areas. Natural gas prices in Colorado remained low for most of 2002. In the fourth quarter of 2002 and continuing in 2003 and 2004, Colorado prices began to increase, although they continue to trail prices in other areas. The Company believes the lower prices in the Rocky Mountain Region, including Colorado, resulted from increasing local supplies that exceeded the local demand and pipeline capacity available to move gas from the region. On May 1st of 2003, the Kern River pipeline expansion was completed and placed into service. The Kern River Pipeline Company has announced that the additional facilities added about 900 million cubic feet per day of capacity for deliveries to Arizona, Nevada and southern California. This represents almost 30 % of the prior pipeline capacity from the region to the West Coast and other markets outside the region. The Company believes that the completion and start-up of the pipeline eliminated or reduced the local supply surplus, leading to improved natural gas prices in the region. Since the startup of the new Kern River pipeline the Colorado Interstate Gas price index has improved to a range of from 83% to over 90% of the NYMEX price, levels consistent with historical price relationships before the recent local demand/pipeline capacity problem.

Oil and Gas Hedging Activities

Because of the uncertainty surrounding natural gas and oil prices we have used various hedging instruments to manage some of the impact of fluctuations in gas prices. Through October 2005 we have in place a series of floors and ceilings on part of our natural gas production. Under the arrangements, if the applicable index rises above the ceiling price, we pay the counterparty, however if the index drops below the floor the counterparty pays us. See previous pages in this Management's Discussion and Analysis for the schedule of hedging positions.

The Company hedges prices for its partners' share of production as well as its own production. Actual wellhead prices will vary based on local contract conditions, gathering and other costs and factors.

Oil Pricing

Oil prices have strengthened since the middle of 2003. While oil prices are influenced by supply and demand, global geopolitics may be the single most important determinant. Since the percentage of the Company's production reflected by oil sales has increased to approximately 20% during the first quarter of 2004, variations in oil prices will have a greater impact on the Company than in the past. The Company also has in place hedges on 10,000 barrels a month for its Wattenberg Field oil production for the period from April 2004 through December 2004 at a price of $31.60 per barrel.

Public Drilling Programs

During the first quarter of 2004, the Company commenced sales of the first Partnership (PDC 2004-A) in its PDC 2004-2006 Drilling Program. Sales have been very strong and on May 3, 2004 the Company closed the program at approximately $30 million of subscriptions for wells to be drilled during the second and third quarters of 2004. Sales of the PDC 2004-A partnership significantly exceed sales of the first programs sold in prior years. The largest first program in prior years had $9.3 million in subscriptions.

Additional programs are scheduled to close in August, October and December of 2004. The maximum total subscriptions the company plans to accept in 2004 is $100 million. The Company invests, as its equity contribution to each drilling partnership, an additional sum of 22% of the aggregate investor subscriptions received for that particular drilling partnership. As a result, the Company is subject to substantial cash commitments at the closing of each drilling partnership. No assurance can be made that the Company will continue to receive this level of funding from these or future programs.

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Substantially all of the Company's drilling programs contain a repurchase provision where Investors may request the Company to repurchase their partnership units at any time beginning with the third anniversary of the first cash distribution. The provision provides that the Company is obligated to purchase an aggregate of 10% of the initial subscriptions per calendar year (at a minimum price of four times the most recent 12 months' cash distributions), only if investors request the Company to repurchase such units subject to the Company's financial ability to do so. The maximum annual 10% repurchase obligation, if requested by the investors, is currently approximately $5.2 million. The Company has adequate liquidity to meet this obligation. During the first three months of 2004 the Company has spent $134,200 under this provision.

Common Stock Repurchase

On March 13, 2003 the Company publicly announced a common stock repurchase program to repurchase up to 5% of the Company's outstanding common stock (785,000 shares) expiring on December 31, 2004. From inception of the program until March 31, 2004, the Company has repurchased 109,200 shares at an average price of $6.86 per share. The Company intends to fund this repurchase of common stock through internally generated cash flow.

Long-Term Debt

The Company has a credit facility with Bank One, NA and BNP Paribas of $100 million subject to adequate oil and natural gas reserves. Currently the borrowing base is set at $80 million while the Company's total oil and gas reserves calculated under this method is in excess of $100 million. As of March 31, 2004 the Company had activated $60 million of this facility. As of March 31, 2004, the outstanding balance on the line of credit was $42.0 million of which $10.0 million was subject to an interest rate swap at a rate of 8.39% and $32.0 million was subject to a prime rate of 4.00%. The line of credit is at prime, with LIBOR alternatives available at the discretion of the Company. No principal payments are required until the credit agreement expires on July 3, 2005. The Company anticipates extending the expiration date during the second quarter of 2004.

Contractual Obligations

Contractual obligations and due dates are as follows:

The Company continues to pursue capital investment opportunities in producing natural gas properties as well as its plan to participate in its sponsored natural gas drilling partnerships, while pursuing opportunities for operating improvements and cost efficiencies. Management believes that the Company has adequate capital to meet its operating requirements.

Commitments and Contingencies

As Managing General Partner of 10 private partnership and 58 public partnerships, the Company has liability for any potential casualty losses in excess of the partnership assets and insurance. The Company believes its casualty insurance coverage is adequate to meet this potential liability.

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Critical Accounting Policies and Estimates

We have identified the following policies as critical to our busi