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): August 4, 2011
PETROQUEST ENERGY, INC.
(Exact name of registrant as specified in its charter)
         
DELAWARE   : 001-32681   72-1440714
         
(State or other jurisdiction
of incorporation)
  (Commission File Number)   (IRS Employer Identification No.)
     
400 E. Kaliste Saloom Rd., Suite 6000
Lafayette, Louisiana
   
70508
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: (337) 232-7028
(Former name or former address, if changed since last report.)
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:
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 


 

Item 2.02  
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On August 4, 2011, PetroQuest Energy, Inc. (the “Company”) announced a net loss available to common stockholders for the quarter ended June 30, 2011 of ($3,045,000) or ($0.05) per share, compared to second quarter 2010 net income available to common stockholders of $5,248,000, or $0.08 per share. For the first six months of 2011, the Company reported a net loss available to common stockholders of ($1,148,000), or ($0.02) per share, compared to net income available to common stockholders of $34,965,000, or $0.56 per share, for the comparable 2010 period. During the second quarter of 2011, the Company recorded a non-cash ceiling test write-down of $12,973,000 as a result of the impact of low natural gas prices and higher estimated future development costs on the discounted net cash flows from its estimated proved reserves. During the six month period ended June 30, 2011, the Company’s ceiling test write-down totaled $18,907,000.
Discretionary cash flow for the second quarter of 2011 was $27,009,000, as compared to $25,367,000 for the comparable 2010 period. Net cash flow provided by operating activities totaled $41,632,000 and $13,610,000 during the second quarters of 2011 and 2010, respectively. For the first six months of 2011, discretionary cash flow was $52,120,000, compared to discretionary cash flow of $66,131,000 for the first six months of 2010. Net cash flow provided by operating activities totaled $59,891,000 and $66,318,000 during the first six months of 2011 and 2010, respectively. See the attached schedule for a reconciliation of net cash flow provided by operating activities to discretionary cash flow.
Production for the second quarter of 2011 was 7.4 Bcfe, compared to 7.3 Bcfe for the comparable period of 2010. For the first six months of 2011, production was 14.7 Bcfe, compared to 15.1 Bcfe for the comparable period of 2010. Approximately 62% of the Company’s second quarter 2011 production was from long-lived basins, which is a Company record. Stated on an Mcfe basis, unit prices including the effects of hedges for the second quarter of 2011 were $5.69 per Mcfe, as compared to $5.71 per Mcfe in the second quarter of 2010. For the first six months of 2011, unit prices including the effects of hedges, were $5.66 per Mcfe, as compared to $5.94 per Mcfe for the first six months of 2010. Oil and gas sales during the second quarter of 2011 were $41,920,000, as compared to $41,857,000, in the second quarter of 2010. For the first six months of 2011, oil and gas sales were $83,466,000 compared to oil and gas sales of $89,402,000 for the first six months of 2010.
Lease operating expenses (“LOE”) for the second quarter of 2011 increased to $10,206,000, as compared to $9,020,000 in the second quarter of 2010. LOE per Mcfe was $1.38 for the second quarter of 2011, as compared to $1.23 in the second quarter of 2010. For the first six months of 2011, lease operating expenses increased to $1.34 per Mcfe from $1.24 per Mcfe in the comparable period of 2010. The increases in lease operating expenses for the 2011 periods are primarily due to expensed workovers in Texas and Oklahoma.
Depreciation, depletion and amortization (“DD&A”) on oil and gas properties for the second quarter of 2011 was $1.95 per Mcfe, as compared to $1.84 per Mcfe in the second quarter of 2010. For the first six months of 2011, DD&A on oil and gas properties was $1.91 per Mcfe compared to $1.87 per Mcfe for the comparable period of 2010. DD&A during the second quarter of 2010 was lower than the second quarter of 2011 as a result of the impact of the Woodford joint venture closed in May 2010.
Interest expense for the second quarter of 2011 decreased to $2,255,000, as compared to $2,379,000 in the second quarter of 2010. For the first six months of 2011, interest expense was $4,949,000 compared to $4,189,000 for the comparable period of 2010. The increase in interest expense during the six month 2011 period is primarily the result of lower unevaluated properties after the May 2010 Woodford joint venture.
Production taxes for the second quarter of 2011 were ($538,000), as compared to $1,599,000 in the second quarter of 2010. For the first six months of 2011, production taxes were $624,000 compared to $2,947,000 for the comparable period of 2010. The three and six month periods of 2011 included production tax refunds from the Company’s Oklahoma and East Texas properties.

 

2


 

General and administrative expenses during the quarter and six months ended June 30, 2011 totaled $4,280,000 and $8,678,000, respectively, as compared to expenses of $5,816,000 and $10,325,000 during the comparable 2010 periods. The decrease in general and administrative expenses for the 2011 periods is primarily due to lower non-cash stock compensation expense.
The following table sets forth certain information with respect to the oil and gas operations of the Company for the three and six month periods ended June 30, 2011 and 2010:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Production:
                               
Oil (Bbls)
    140,049       154,285       315,313       298,926  
Gas (Mcf)
    5,995,945       5,812,268       11,773,285       12,057,516  
Ngl (Mcfe)
    533,067       594,442       1,073,537       1,209,057  
Total Production (Mcfe)
    7,369,306       7,332,420       14,738,700       15,060,129  
Total Daily Production (Mmcfe)
    81.0       80.6       81.4       83.2  
 
                               
Sales:
                               
Total oil sales
  $ 15,722,784     $ 11,910,281     $ 32,895,484     $ 23,287,394  
Total gas sales
    21,490,412       25,568,663       40,616,107       56,340,777  
Total ngl sales
    4,706,280       4,378,233       9,953,890       9,773,750  
 
                       
Total oil and gas sales
  $ 41,919,476     $ 41,857,177     $ 83,465,481     $ 89,401,921  
 
                       
 
                               
Average sales prices:
                               
Oil (per Bbl)
  $ 112.27     $ 77.20     $ 104.33     $ 77.90  
Gas (per Mcf)
    3.58       4.40       3.45       4.67  
Ngl (per Mcfe)
    8.83       7.37       9.27       8.08  
Per Mcfe
    5.69       5.71       5.66       5.94  
The above sales and average sales prices include increases (reductions) to revenue related to the settlement of gas hedges of $186,000 and $4,756,000 and oil hedges of ($289,000) and zero for the three months ended June 30, 2011 and 2010, respectively. The above sales and average sales prices include increases (reductions) to revenue related to the settlement of gas hedges of $386,000 and $6,287,000 and oil hedges of ($389,000) and zero for the six months ended June 30, 2011 and 2010, respectively.

 

3


 

The following initiates guidance for the third quarter of 2011:
     
    Guidance for
Description   3rd Quarter 2011
 
   
Production volumes (MMcfe/d)
  80 - 84
 
   
Percent Gas
  82%
Percent Oil
  11%
Percent NGL
  7%
 
   
Expenses:
   
Lease operating expenses (per Mcfe)
  $1.25 - $1.35
Production taxes (per Mcfe)
  $0.20 - $0.25
Depreciation, depletion and amortization (per Mcfe)
  $1.90 - $2.00
General and administrative (in millions)
  $    4.5 - $5.0
Interest expense (in millions)
  $    2.5 - $2.7
The following updates guidance for the full year of 2011:
     
    Guidance for
Description   Full Year 2011
 
   
Production volumes (MMcfe/d)
  80 - 88
 
   
Percent Gas
  80%
Percent Oil
  13%
Percent NGL
  7%
 
   
Expenses:
   
Lease operating expenses (per Mcfe)
  $1.20 - $1.30
Production taxes (per Mcfe)
  $0.10 - $0.15
Depreciation, depletion and amortization (per Mcfe)
  $1.90 - $2.00
General and administrative (in millions)
  $      19 - $20
Interest expense (in millions)
  $      10 - $11
 
   
2011 Capital Expenditures (in millions)
  $   120- $130
Operations Update
In the Gulf Coast basin, the Company’s La Cantera discovery has been logged and fully evaluated. Porosity tools and sidewall cores have confirmed 248 net feet of pay in the Cris R massive objective. Casing has been set to protect the entire sand package through 18,400 feet and the Company is currently drilling ahead with expectations of reaching its proposed total depth of 19,300 feet within two weeks. The Company has a 16% net revenue interest in the well and expects production to commence early next year. In addition, the Company is currently planning to spud a delineation well in first quarter of 2012 to further evaluate the size of this discovery.
In the Woodford, the Company recently completed two Woodford operated wells. The following is a detailed summary of the results:
                                 
Well Number   NRI     Initial Sales Date     Lateral Length (ft.)     24 Hour Gross Rate (Mcf/d)  
PQ 53
    41 %     7/26/2011       5,200       6,848  
PQ 55
    39 %     7/27/2011       5,143       6,308  

 

4


 

In addition to the above completions, the Company has two Woodford operated wells (PQ #58 — PQ #59) that are in the early stages of completion and has reached total depth on four additional wells (PQ #54 — PQ #56 — PQ #57 — PQ #61). Including the four wells that have reached total depth, the Company expects to complete 10-12 additional Woodford operated wells before year end and currently has four operated rigs working in the basin.
In East Texas, the Company has reached total depth on its second operated horizontal Cotton Valley well (WI — 50%) and expects to complete the well at the end of the month. In addition, the Company’s third and fourth Classic operated horizontal Cotton Valley wells (WI — 30%) have reached total depth and are expected to be completed in two weeks. The Company expects to drill one more operated and two more non-operated horizontal Cotton Valley wells by the end of the year.
In South Texas, the Company’s second operated Eagle Ford Shale well (NRI — 38%) located in La Salle County was recently completed and is in the early stages of flow back. In addition, the Company’s third operated Eagle Ford Shale well (WI — 44%) located in La Salle County has reached total depth and is expected to be completed next week. At the end of the second quarter, the Company acquired an additional 638 gross acres (319 net) in La Salle County. The Company expects to participate in two non-operated wells during 2011on this acreage, one of which is in progress.
During July 2011, the Company entered into a purchase and sale agreement to acquire a private company’s leasehold position in the Mississippi Lime play. The Company expects to close this acquisition during September 2011 using a portion of its cash on hand. If consummated, this acquisition, combined with ongoing leasing efforts in the play, would bring the Company’s net acreage position in northern Oklahoma and southern Kansas to approximately 40,000 acres at blended cost of approximately $750 per acre. The Company plans to begin its initial Mississippi Lime drilling program late in the fourth quarter of 2011. The Company is continuing to build its position in this emerging oil focused trend and is evaluating partnership opportunities.
Management’s Comment
“Our La Cantera discovery should provide us with high cash margin production, which has driven our decision to continue to deploy capital in this region.” said Charles T. Goodson, Chairman, Chief Executive Officer and President. “I am very proud of our Gulf Coast team that has worked tirelessly to make this project an enormous success. This type of discovery, as well as our other Gulf Coast properties, allows us to execute our strategy of growing our long-lived asset base while operating within cash flow. Entering the Mississippi Lime play along the Oklahoma-Kansas border will be a strategic fit for our Tulsa office and staff who have worked hard to deliver industry leading results in the Woodford.”
About the Company
PetroQuest Energy, Inc. is an independent energy company engaged in the exploration, development, acquisition and production of oil and natural gas reserves in the Arkoma Basin, Wyoming, Texas, South Louisiana and the shallow waters of the Gulf of Mexico. PetroQuest’s common stock trades on the New York Stock Exchange under the ticker PQ.
Forward-Looking Statements
This news release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Among those risks, trends and uncertainties are our ability to find oil and natural gas reserves that are economically recoverable, the volatility of oil and natural gas prices and significantly depressed natural gas prices since the middle of 2008, the uncertain economic conditions in the United States and globally, the declines in the values of our properties that have resulted in and may in the future result in additional ceiling test write-downs, our ability to replace reserves and sustain production, our estimate of the sufficiency of our existing capital sources, our ability to raise additional capital to fund cash requirements for future operations, the uncertainties involved in prospect development and property acquisitions or dispositions and in projecting future rates of production or future reserves, the timing of development expenditures and drilling of wells, hurricanes and other natural disasters, changes in laws and regulations as they relate to our operations, including our fracing operations in shale plays or our operations in the Gulf of Mexico, and the operating hazards attendant to the oil and gas business. In particular, careful consideration should be given to cautionary statements made in the various reports PetroQuest has filed with the Securities and Exchange Commission. PetroQuest undertakes no duty to update or revise these forward-looking statements.
Click here for more information: “http://www.petroquest.com/news.html?=BizID=1690&1=1”

 

5


 

PETROQUEST ENERGY, INC.
Consolidated Balance Sheets (Amounts in Thousands)
(unaudited)
                 
    June 30,     December 31,  
    2011     2010  
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 50,641     $ 63,237  
Revenue receivable
    9,667       13,386  
Joint interest billing receivable
    26,169       12,193  
Other receivable
    13,906       13,795  
Prepaid drilling costs
    1,007       789  
Drilling pipe inventory
    5,986       11,711  
Other current assets
    4,052       1,827  
 
           
Total current assets
    111,428       116,938  
 
           
Property and equipment:
               
Oil and gas properties:
               
Oil and gas properties, full cost method
    1,477,448       1,433,642  
Unevaluated oil and gas properties
    81,162       54,851  
Accumulated depreciation, depletion and amortization
    (1,222,663 )     (1,175,553 )
 
           
Oil and gas properties, net
    335,947       312,940  
Gas gathering assets
    4,177       4,177  
Accumulated depreciation and amortization of gas gathering assets
    (1,645 )     (1,496 )
 
           
Total property and equipment
    338,479       315,621  
 
           
Other assets, net of accumulated depreciation and amortization of $7,221 and $6,435, respectively
    6,191       6,958  
 
           
Total assets
  $ 456,098     $ 439,517  
 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable to vendors
  $ 42,377     $ 26,097  
Advances from co-owners
    12,297       7,963  
Oil and gas revenue payable
    4,622       7,220  
Accrued interest and preferred stock dividend
    6,073       6,575  
Hedge liability
          1,089  
Asset retirement obligation
    674       1,517  
Other accrued liabilities
    5,200       7,380  
 
           
Total current liabilities
    71,243       57,841  
10% Senior Notes
    150,000       150,000  
Asset retirement obligation
    24,684       23,075  
Other liabilities
    490       439  
Commitments and contingencies
               
Stockholders’ equity:
               
Preferred stock, $.001 par value; authorized 5,000 shares; issued and outstanding 1,495 shares
    1       1  
Common stock,$.001 par value; authorized 150,000 shares; issued and outstanding 62,020 and 61,565 shares, respectively
    62       62  
Paid-in capital
    267,928       266,907  
Accumulated other comprehensive income (loss)
    557       (1,089 )
Accumulated deficit
    (58,867 )     (57,719 )
 
           
Total stockholders’ equity
    209,681       208,162  
 
           
Total liabilities and stockholders’ equity
  $ 456,098     $ 439,517  
 
           

 

6


 

PETROQUEST ENERGY, INC.
Consolidated Statements of Operations
(unaudited)
(Amounts in Thousands, Except Per Share Data)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Revenues:
                               
Oil and gas sales
  $ 41,920     $ 41,857     $ 83,466     $ 89,402  
Gas gathering revenue
    58       61       122       130  
 
                       
 
    41,978       41,918       83,588       89,532  
 
                       
 
                               
Expenses:
                               
Lease operating expenses
    10,206       9,020       19,709       18,715  
Production taxes
    (538 )     1,599       624       2,947  
Depreciation, depletion and amortization
    14,657       13,744       28,719       28,728  
Ceiling test writedown
    12,973             18,907        
Gas gathering costs
    3             10       11  
General and administrative
    4,280       5,816       8,678       10,325  
Accretion of asset retirement obligation
    427       408       1,179       876  
Interest expense
    2,255       2,379       4,949       4,189  
 
                       
 
    44,263       32,966       82,775       65,791  
 
                       
 
                               
Gain on legal settlement
                      12,400  
Other income
    197       94       277       11  
 
                       
 
                               
Income (loss) from operations
    (2,088 )     9,046       1,090       36,152  
 
                               
Income tax expense (benefit)
    (330 )     2,511       (329 )     (1,380 )
 
                       
 
                               
Net income (loss)
    (1,758 )     6,535       1,419       37,532  
 
                               
Preferred stock dividend
    1,287       1,287       2,567       2,567  
 
                       
 
                               
Net income (loss) available to common stockholders
  $ (3,045 )   $ 5,248     $ (1,148 )   $ 34,965  
 
                       
 
                               
Earnings per common share:
                               
Basic
                               
Net income (loss) per share
  $ (0.05 )   $ 0.08     $ (0.02 )   $ 0.56  
 
                       
Diluted
                               
Net income (loss) per share
  $ (0.05 )   $ 0.08     $ (0.02 )   $ 0.56  
 
                       
 
                               
Weighted average number of common shares:
                               
Basic
    61,917       61,425       61,793       61,335  
 
                       
Diluted
    61,917       62,421       61,793       67,356  
 
                       

 

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PETROQUEST ENERGY, INC.
Consolidated Statements of Cash Flows
(unaudited)
(Amounts in Thousands)
                 
    Six Months Ended  
    June 30,  
    2011     2010  
Cash flows from operating activities:
               
Net income
  $ 1,419     $ 37,532  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Deferred tax benefit
    (329 )     (1,380 )
Depreciation, depletion and amortization
    28,719       28,728  
Ceiling test writedown
    18,907        
Non-cash gain on legal settlement
          (4,164 )
Accretion of asset retirement obligation
    1,179       876  
Share based compensation expense
    1,917       3,752  
Amortization costs and other
    308       787  
Payments to settle asset retirement obligations
    (513 )     (5,389 )
Changes in working capital accounts:
               
Revenue receivable
    3,719       2,659  
Joint interest billing receivable
    (13,976 )     (7,110 )
Prepaid drilling and pipe costs
    5,507       4,034  
Accounts payable and accrued liabilities
    (3,358 )     8,359  
Advances from co-owners
    18,235       (423 )
Other
    (1,843 )     (1,943 )
 
           
Net cash provided by operating activities
    59,891       66,318  
 
           
Cash flows used in investing activities:
               
Investment in oil and gas properties
    (69,006 )     (54,822 )
Proceeds from sale of unevaluated properties
          22,473  
Proceeds from sale of oil and gas properties
          35,000  
 
           
Net cash provided by (used in) investing activities
    (69,006 )     2,651  
 
           
Cash flows used in financing activities:
               
Net payments for share based compensation
    (896 )     (228 )
Deferred financing costs
    (16 )     (104 )
Payment of preferred stock dividend
    (2,569 )     (2,565 )
Repayment of bank borrowings
          (29,000 )
 
           
Net cash used in financing activities
    (3,481 )     (31,897 )
 
           
Net (decrease) increase in cash and cash equivalents
    (12,596 )     37,072  
Cash and cash equivalents, beginning of period
    63,237       20,772  
 
           
Cash and cash equivalents, end of period
  $ 50,641     $ 57,844  
 
           
Supplemental disclosure of cash flow information:
               
Cash paid during the period for:
               
Interest
  $ 8,291     $ 8,237  
 
           
Income taxes
  $ 1     $ 3  
 
           

 

8


 

PETROQUEST ENERGY, INC.
Non-GAAP Disclosure Reconciliation
(Amounts In Thousands)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Net income (loss)
  $ (1,758 )   $ 6,535     $ 1,419     $ 37,532  
 
                               
Reconciling items:
                               
Deferred tax expense (benefit)
    (330 )     2,511       (329 )     (1,380 )
Non-cash gain on legal settlement
                      (4,164 )
Depreciation, depletion and amortization
    14,657       13,744       28,719       28,728  
Ceiling test writedown
    12,973             18,907        
Accretion of asset retirement obligation
    427       408       1,179       876  
Share based compensation expense
    885       1,770       1,917       3,752  
Amortization costs and other
    155       399       308       787  
 
                       
 
                               
Discretionary cash flow
    27,009       25,367       52,120       66,131  
 
                       
Changes in working capital accounts
    14,623       (6,885 )     8,284       5,576  
Settlement of asset retirement obligations
          (4,872 )     (513 )     (5,389 )
 
                       
 
                               
Net cash flow provided by operating activities
  $ 41,632     $ 13,610     $ 59,891     $ 66,318  
 
                       
 
     
Note: Management believes that discretionary cash flow is relevant and useful information, which is commonly used by analysts, investors and other interested parties in the oil and gas industry as a financial indicator of an oil and gas company’s ability to generate cash used to internally fund exploration and development activities and to service debt. Discretionary cash flow is not a measure of financial performance prepared in accordance with generally accepted accounting principles (“GAAP”) and should not be considered in isolation or as an alternative to net cash flow provided by operating activities. In addition, since discretionary cash flow is not a term defined by GAAP, it might not be comparable to similarly titled measures used by other companies.

 

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  PETROQUEST ENERGY, INC.
 
 
Date: August 4, 2011  By:   /s/ J. Bond Clement    
    J. Bond Clement   
    Executive Vice President, Chief Financial Officer and Treasurer   
 

 

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