SRC ENERGY INC. : Other Events (form 8-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 3, 2020

SRC Energy Inc.

(Exact name of registrant as specified in its charter)

Colorado
 001-35245
 20-2835920
(State or other jurisdiction of 

incorporation or organization) 
 
(Commission 

File Number) 
 
(I.R.S. Employer Identification 

Number) 

1675 Broadway, Suite 2600
Denver, Colorado80202

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including
area code: (720) 616-4300

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

x Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock $.001 par value

SRCI

NYSE American

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Item 8.01

Other Events.

Introductory Note

As previously disclosed,
on August 25, 2019, PDC Energy, Inc. (“PDC”) entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with SRC Energy Inc. (“SRC”), providing for the merger of SRC with and into PDC, with
PDC continuing as the surviving corporation (the “Merger”). On December 9, 2019, PDC and SRC filed with the
Securities and Exchange Commission (the “SEC”) a definitive joint proxy statement, which also constitutes a
prospectus of PDC, for the solicitation of proxies in connection with special meetings of PDC’s stockholders and SRC’s
shareholders, each to be held on January 13, 2020, for purposes of voting, among other things, on matters necessary to complete
the Merger (the “Proxy Statement”).

While SRC and PDC believe that the disclosures set forth in the Proxy Statement comply fully with applicable law, SRC and PDC have determined to voluntarily supplement the Proxy Statement with various disclosures. These disclosures are provided in this Current Report on Form 8-K. Nothing in this Current Report on Form 8-K will be deemed an admission of the legal necessity or materiality under applicable laws of any of the disclosures set forth herein. These disclosures should be read in connection with the Proxy Statement, which should be read in its entirety. Defined terms used but not defined herein have the meanings set forth in the Proxy Statement. Without agreeing in any way that the disclosures below are material or otherwise required by law, PDC and SRC make the following amended and supplemental disclosures:

SUPPLEMENT TO JOINT PROXY STATEMENT/PROSPECTUS

The disclosure on page 70 of the Proxy Statement in the section captioned “The Merger—Background of the Merger” is hereby supplemented by revising the second complete paragraph on the page in its entirety as follows:

In recent years, the strategy and prospects of PDC and SRC, like those of other oil and gas producers with properties in Colorado, have been significantly impacted by new and proposed regulatory requirements. In particular, in 2014, 2016 and 2018, opponents of hydraulic fracturing sought to implement statewide ballot initiatives intended to impose new restrictions on oil and gas development in the state. Proponents of the 2018 initiative, known as Proposition 112, were successful in qualifying the initiative for the ballot for the election held in November 2018. Proposition 112 would have amended the Colorado Oil and Gas Conservation Act to require all new oil and gas development not on federal land to be located at least 2,500 feet away from any occupied structure or broadly defined “vulnerable area”. If enacted, Proposition 112 would have effectively prohibited the vast majority of both PDC’s and SRC’s planned future drilling activities in Colorado. Although Proposition 112 was defeated in the November 2018 election, a new law, referred to as Senate Bill 19-181, was enacted in April 2019. Senate Bill 19-181 made a number of changes to oil and gas regulation in Colorado, in particular through “local control” provisions that give county and municipal governmental authorities the ability to regulate facility siting and surface impacts of oil and natural gas development and to impose requirements that are stricter than state requirements.

The disclosure on page 71 of the Proxy Statement in the section captioned “The Merger—Background of the Merger” is hereby supplemented by revising the second complete paragraph on the page in its entirety as follows:

During 2018 and early 2019, PDC analyzed a number of potential merger and acquisition opportunities, including acquisitions in the Permian Basin in Texas and a combination with SRC. As it continued its dialogue with SRC, it determined that the possibility of a merger of the two companies was potentially attractive. First, PDC believed that the high quality of SRC’s assets and their close proximity to PDC’s DJ Basin properties would enable the combined company to generate significant financial and ongoing operational synergies and, therefore, to further the goals of improving returns and reducing costs. In addition, although PDC, like SRC, recognizes the continuing challenges posed by the changing regulatory environment in Colorado, it also believes that economically viable drilling will continue to be permitted in Weld County. Because each company’s principal assets are located in Weld County, PDC believes this strengthens the rationale for a combination with SRC relative to some other potential growth opportunities. Similarly, PDC and SRC each recognized that the effect of Colorado regulatory concerns would present challenges to completing a significant transaction with a non-Colorado operator that may not be familiar with the regulatory environment in the state and may have reservations about the level of regulatory risk. In addition, both companies believed that the effect of developments in the Colorado regulatory environment on the trading prices of their securities could make the completion of a significant transaction with a non-Colorado operator more challenging and complex, and less likely to succeed.

In March 2019, Messrs. Brookman
and Peterson met again in person at an industry conference and discussed various issues relating to a potential transaction, including
the possibility that SRC would be entitled to designate candidates for seats on the combined company’s board and other post-closing
governance issues relating to the combined company. However, Mr. Peterson also indicated that SRC wanted to defer further
discussion until PDC’s then on-going proxy contest with Kimmeridge Energy Management, LLC (“Kimmeridge”)
was resolved so that SRC would have a better understanding of any impact the proxy contest would have on PDC’s leadership
and strategic direction. Messrs. Brookman and Peterson met periodically while the proxy contest was ongoing, but Mr. Peterson
continued to indicate that SRC would not be interested in a transaction until the proxy contest was resolved without significant
changes to PDC’s leadership or business.

Citi performed a net
asset value analysis of SRC based on the SRC forecasts utilizing New York Mercantile Exchange strip pricing (referred to as NYMEX
Strip Pricing), public filings and other publicly available information. An implied aggregate reference range for SRC’s proved
developed producing reserves and currently undeveloped resources was derived by calculating the net present values (as of June 30,
2019) of the unlevered, after-tax free cash flows that SRC was projected to generate from such assets based on the SRC forecasts
utilizing NYMEX Strip Pricing using a selected range of discount rates of 9.5% to 11.0%. In performing its analysis, Citi took
into account, based on the SRC forecasts, public filings and other publicly available information, as applicable, (a) the
net present value (as of June 30, 2019, utilizing a discount rate range of 9.5% to 11.0%) of SRC’s estimated post-tax
corporate expenses and net hedge gains and losses, and (b) SRC’s estimated net debt of approximately $677 million as
of June 30, 2019. This analysis indicated an approximate implied per share equity value reference range for SRC of $3.00 to
$3.80.