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): November 3, 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 November 3, 2011, PetroQuest Energy, Inc. (the “Company”) announced net income available to common stockholders for the quarter ended September 30, 2011 of $3,727,000, or $0.06 per share, compared to third quarter 2010 net income available to common stockholders of $4,939,000, or $0.08 per share. For the first nine months of 2011, the Company reported net income available to common stockholders of $2,579,000, or $0.04 per share, compared to net income available to common stockholders of $39,904,000, or $0.63 per share, for the first nine months of 2010. Net income for the nine month 2011 period was impacted by $18.9 million in ceiling test writedowns recognized during the first six months of 2011.
Discretionary cash flow for the third quarter of 2011 was $21,099,000, as compared to $30,109,000 for the comparable 2010 period. Net cash flow provided by operating activities totaled $31,222,000 and $29,876,000 during the third quarters of 2011 and 2010, respectively. For the first nine months of 2011, discretionary cash flow was $73,219,000. Discretionary cash flow for the first nine months of 2010 was $96,240,000. Net cash flow provided by operating activities totaled $91,113,000 and $96,194,000 during the first nine 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 third quarter of 2011 was 7.4 Bcfe (80.9 MMcfe/d), compared to 7.9 Bcfe (86.4 MMcfe/d) for the comparable period of 2010. For the first nine months of 2011, production was 22.2 Bcfe (81.2 MMcfe/d), compared to 23.0 Bcfe (84.3 MMcfe/d) for the comparable period of 2010. Approximately 68% of the Company’s third quarter 2011 production was from long-lived basins and 18% of third quarter 2011 production came from oil and natural gas liquids.
Stated on an Mcfe basis, unit prices received during the third quarter and the first nine months of 2011 were 10% and 6% lower, respectively, than the comparable 2010 periods. Oil and gas sales during the third quarter of 2011 decreased 16% to $38,980,000, as compared to $46,229,000 in the third quarter of 2010. For the first nine months of 2011, oil and gas sales decreased 10% to $122,446,000 from $135,631,000 in the first nine months of 2010.
Lease operating expenses for the third quarter of 2011 were $1.39 per Mcfe as compared to $1.23 per Mcfe in the third quarter of 2010. For the first nine months of 2011, lease operating expenses per Mcfe increased 10% to $1.36 from $1.24 in the comparable period of 2010. Per unit lease operating expenses increased primarily due to the overall reduction in produced volumes and higher overall costs of materials and services.
Depreciation, depletion and amortization (“DD&A”) on oil and gas properties for the third quarter of 2011 was $1.94 per Mcfe as compared to $1.82 per Mcfe in the third quarter of 2010. For the first nine months of 2011, DD&A per Mcfe increased 4% to $1.92 per Mcfe from $1.85 per Mcfe for the comparable period of 2010.
Interest expense for the third quarter of 2011 decreased to $2,299,000, as compared to $3,147,000 in the third quarter of 2010. For the first nine months of 2011, interest expense was $7,248,000, compared to $7,336,000 for the comparable period of 2010.
General and administrative expenses decreased $591,000 and $2,238,000 for the third quarter and nine months ended September 30, 2011, as compared to the respective 2010 periods. The decreases during the 2011 periods are primarily due to lower employee related expenses including non-cash stock compensation expense.
Production taxes for the third quarter of 2011 totaled $1,446,000, as compared to $361,000 in the third quarter of 2010. For the first nine months of 2011, production taxes were $2,070,000 compared to $3,308,000 for the comparable period of 2010. Production taxes for the first nine months of 2011 included $2.4 million of refunds of taxes previously paid in Oklahoma and Texas and production taxes for the third quarter of 2010 included $1.2 million of refunds of taxes previously paid in Oklahoma.

 

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Capital expenditures during the nine months ended September 30, 2011 totaled approximately $132 million and were comprised of $28 million in acquisition costs, $91 million in drilling and completion costs and $13 million in capitalized interest and overhead. The Company expects to finance its 2011 capital spending internally through cash flow from operations, cash on hand and $28 million in payments expected to be received during the fourth quarter of 2011 related to the Woodford joint venture.
The following table sets forth certain information with respect to the oil and gas operations of the Company for the three-and nine-month periods ended September 30, 2011 and 2010:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
Production:
                               
Oil (Bbls)
    130,144       190,070       445,457       488,996  
Gas (Mcf)
    6,073,776       6,194,862       17,847,061       18,252,378  
Ngl (Mcfe)
    584,786       614,260       1,658,323       1,823,317  
Total Production (Mcfe)
    7,439,426       7,949,542       22,178,126       23,009,671  
Total Daily Production (MMcfe)
    80.9       86.4       81.2       84.3  
 
                               
Sales:
                               
Total oil sales
  $ 13,508,377     $ 14,552,796     $ 46,403,861     $ 37,840,190  
Total gas sales
    19,865,595       27,506,045       60,481,702       83,846,822  
Total ngl sales
    5,606,335       4,170,453       15,560,225       13,944,203  
 
                       
Total oil and gas sales
  $ 38,980,307     $ 46,229,294     $ 122,445,788     $ 135,631,215  
 
                       
 
                               
Average sales prices:
                               
Oil (per Bbl)
  $ 103.80     $ 76.57     $ 104.17     $ 77.38  
Gas (per Mcf)
    3.27       4.44       3.39       4.59  
Ngl (per Mcfe)
    9.59       6.79       9.38       7.65  
Per Mcfe
    5.24       5.82       5.52       5.89  
The above sales and average sales prices include increases to revenue related to the settlement of gas hedges of $478,000 and $4,550,000 and oil hedges of $178,000 and zero for the three months ended September 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 $864,000 and $10,837,000 and oil hedges of ($211,000) and zero for the nine months ended September 30, 2011 and 2010, respectively.

 

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The following initiates guidance for the fourth quarter of 2011:
     
    Guidance for
Description   4th Quarter 2011
 
   
Production volumes (MMcfe/d)
  84 – 88
 
   
Percent Gas
  82%
Percent Oil
  10%
Percent NGL
  8%
 
   
Expenses:
   
Lease operating expenses (per Mcfe)
  $1.20 – $1.30
Production taxes (per Mcfe)
  $0.20 – $0.25
Depreciation, depletion and amortization (per Mcfe)
  $1.90 – $2.00
General and administrative (in millions)
  $5.0 – $5.5
Interest expense (in millions)
  $2.5 – $2.7
 
   
2011 Capital Expenditures (in millions)
  $130 – $140 *
     
*  
Excludes $28 million in leasehold acquisition costs funded with cash on hand
Management Statement
“Through the success of our increased operational activity focused on our resource basins, I am pleased to announce we are forecasting production growth during the fourth quarter. We have grown our Woodford production by 20% this year, and in connection with these results, expect to earn the full $28 million in payments available under the Woodford joint venture,” said Charles T. Goodson, Chairman, Chief Executive Officer and President. “These payments support the success and benefits we and our partner derive from the Woodford JV. This relationship, which began in May 2010, has now expanded across multiple resource plays, the latest being the Mississippian Lime, and illustrates how two vastly different companies can each benefit from a joint venture. Our Tulsa team has done a great job executing our Woodford program and will now lead our Mississippian Lime development. This newly acquired property, along with our other core assets, will offer us attractive future growth opportunities.”
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”

 

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PETROQUEST ENERGY, INC.
Consolidated Balance Sheets
(unaudited)
(Amounts in
Thousands)
                 
    September 30,     December 31,  
    2011     2010  
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 22,269     $ 63,237  
Revenue receivable
    5,299       13,386  
Joint interest billing receivable
    46,839       12,193  
Other receivable
    13,963       13,795  
Prepaid drilling costs
    4,353       789  
Drilling pipe inventory
    4,983       11,711  
Hedge asset
    4,178        
Other current assets
    3,929       1,827  
 
           
Total current assets
    105,813       116,938  
 
           
Property and equipment:
               
Oil and gas properties:
               
Oil and gas properties, full cost method
    1,544,614       1,433,642  
Unevaluated oil and gas properties
    75,481       54,851  
Accumulated depreciation, depletion and amortization
    (1,237,075 )     (1,175,553 )
 
           
Oil and gas properties, net
    383,020       312,940  
Gas gathering assets, net of accumulated depreciation and amortization of $1,720 and $1,496, respectively
    2,457       2,681  
 
           
Total property and equipment
    385,477       315,621  
 
           
Other assets, net of accumulated depreciation and amortization of $7,641 and $6,435, respectively
    6,133       6,958  
 
           
Total assets
  $ 497,423     $ 439,517  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
               
Accounts payable to vendors
  $ 57,080     $ 23,847  
Advances from co-owners
    25,889       7,963  
Oil and gas revenue payable
    6,402       7,220  
Accrued interest and preferred stock dividend
    2,435       6,575  
Asset retirement obligation
    2,483       1,517  
Other accrued liabilities
    10,338       10,719  
 
           
Total current liabilities
    104,627       57,841  
10% Senior Notes
    150,000       150,000  
Asset retirement obligation
    24,867       23,075  
Deferred income taxes
    1,132        
Other liabilities
          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 62,071 and 61,565 shares, respectively
    62       62  
Paid-in capital
    268,915       266,907  
Accumulated other comprehensive income (loss)
    2,959       (1,089 )
Accumulated deficit
    (55,140 )     (57,719 )
 
           
Total stockholders’ equity
    216,797       208,162  
 
           
Total liabilities and stockholders’ equity
  $ 497,423     $ 439,517  
 
           

 

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PETROQUEST ENERGY, INC.
Consolidated Statements of Income
(unaudited)
(Amounts in Thousands, Except Per Share Data)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
Revenues:
                               
Oil and gas sales
  $ 38,980     $ 46,229     $ 122,446     $ 135,631  
Net gas gathering revenue
    49       45       161       164  
 
                       
 
    39,029       46,274       122,607       135,795  
 
                       
 
                               
Expenses:
                               
Lease operating expenses
    10,376       9,742       30,085       28,457  
Production taxes
    1,446       361       2,070       3,308  
Depreciation, depletion and amortization
    14,696       14,739       43,415       43,467  
Ceiling test writedown
                18,907        
General and administrative
    4,990       5,581       13,668       15,906  
Accretion of asset retirement obligation
    433       424       1,612       1,300  
Interest expense
    2,299       3,147       7,248       7,336  
 
                       
 
    34,240       33,994       117,005       99,774  
 
                       
 
                               
Gain on legal settlement
                      12,400  
Loss on early extinguishment of debt
          (5,973 )           (5,973 )
Other income (expense)
    (40 )     218       237       229  
 
                       
 
                               
Income from operations
    4,749       6,525       5,839       42,677  
 
                               
Income tax expense (benefit)
    (265 )     299       (594 )     (1,081 )
 
                       
 
                               
Net income
    5,014       6,226       6,433       43,758  
 
                               
Preferred stock dividend
    1,287       1,287       3,854       3,854  
 
                       
 
                               
Net income available to common stockholders
  $ 3,727     $ 4,939     $ 2,579     $ 39,904  
 
                       
 
                               
Earnings per common share:
                               
Basic
                               
Net income per share
  $ 0.06     $ 0.08     $ 0.04     $ 0.63  
 
                       
Diluted
                               
Net income per share
  $ 0.06     $ 0.08     $ 0.04     $ 0.63  
 
                       
 
                               
Weighted average number of common shares:
                               
Basic
    62,041       61,446       61,876       61,372  
 
                       
Diluted
    62,415       61,814       62,278       61,744  
 
                       

 

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PETROQUEST ENERGY, INC.
Consolidated Statements of Cash Flows
(unaudited)
(Amounts in Thousands)
                 
    Nine Months Ended  
    September 30,  
    2011     2010  
Cash flows from operating activities:
               
Net income
  $ 6,433     $ 43,758  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Deferred tax benefit
    (594 )     (1,081 )
Depreciation, depletion and amortization
    43,415       43,467  
Ceiling test writedown
    18,907        
Non-cash gain on legal settlement
          (4,164 )
Loss on early extinguishment of debt
          5,973  
Accretion of asset retirement obligation
    1,612       1,300  
Share based compensation expense
    2,985       5,863  
Amortization costs and other
    461       1,124  
Payments to settle asset retirement obligations
    (551 )     (5,672 )
Changes in working capital accounts:
               
Revenue receivable
    8,087       6,807  
Joint interest billing receivable
    (34,646 )     (384 )
Prepaid drilling and pipe costs
    3,164       3,504  
Accounts payable and accrued liabilities
    26,914       (55 )
Advances from co-owners
    17,926       (2,162 )
Other
    (3,000 )     (2,084 )
 
           
Net cash provided by operating activities
    91,113       96,194  
 
           
Cash flows used in investing activities:
               
Investment in oil and gas properties
    (141,687 )     (78,015 )
Proceeds from sale of unevaluated properties
    14,461       22,473  
Proceeds from sale of oil and gas properties
          35,000  
 
           
Net cash used in investing activities
    (127,226 )     (20,542 )
 
           
Cash flows used in financing activities:
               
Net payments for share based compensation
    (977 )     (223 )
Deferred financing costs
    (24 )     (8 )
Proceeds from issuance of 10% Sr. Notes
          150,000  
Costs to issue 10% Sr. Notes
          (4,117 )
Redemption of 10 3/8% Sr. Notes
          (150,000 )
Costs to redeem 10 3/8% Sr. Notes
          (4,187 )
Payment of preferred stock dividend
    (3,854 )     (3,852 )
Proceeds from bank borrowings
    22,000        
Repayment of bank borrowings
    (22,000 )     (29,000 )
 
           
Net cash used in financing activities
    (4,855 )     (41,387 )
 
           
Net (decrease) increase in cash and cash equivalents
    (40,968 )     34,265  
Cash and cash equivalents, beginning of period
    63,237       20,772  
 
           
Cash and cash equivalents, end of period
  $ 22,269     $ 55,037  
 
           
Supplemental disclosure of cash flow information:
               
Cash paid during the period for:
               
Interest
  $ 15,870     $ 10,923  
 
           
Income taxes
  $ 51     $ 192  
 
           

 

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PETROQUEST ENERGY, INC.
Non-GAAP Disclosure Reconciliation
(Amounts In Thousands)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
Net income
  $ 5,014     $ 6,226     $ 6,433     $ 43,758  
 
                               
Reconciling items:
                               
Deferred tax expense (benefit)
    (265 )     299       (594 )     (1,081 )
Depreciation, depletion and amortization
    14,696       14,739       43,415       43,467  
Ceiling test writedown
                18,907        
Non-cash gain on legal settlement
                      (4,164 )
Loss on early extinguishment of debt
          5,973             5,973  
Accretion of asset retirement obligation
    433       424       1,612       1,300  
Share based compensation expense
    1,068       2,111       2,985       5,863  
Amortization expense and other
    153       337       461       1,124  
 
                       
Discretionary cash flow
    21,099       30,109       73,219       96,240  
 
                       
Changes in working capital accounts
    10,161       50       18,445       5,626  
Settlement of asset retirement obligations
    (38 )     (283 )     (551 )     (5,672 )
 
                       
 
                               
Net cash provided by operating activities
  $ 31,222     $ 29,876     $ 91,113     $ 96,194  
 
                       
     
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.

 

8


 

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: November 3, 2011  By:   /s/ J. Bond Clement    
    J. Bond Clement   
    Executive Vice President,
Chief Financial Officer and Treasurer
 

 

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