PETROQUEST ENERGY INC - FORM 10-K/A

Attached files

file	filename
EX-32.4 - EXHIBIT 32.4 - PETROQUEST ENERGY INC	exhibit324123117.htm
EX-32.3 - EXHIBIT 32.3 - PETROQUEST ENERGY INC	exhibit323123117.htm
EX-31.6 - EXHIBIT 31.6 - PETROQUEST ENERGY INC	exhibit316123117.htm
EX-31.5 - EXHIBIT 31.5 - PETROQUEST ENERGY INC	exhibit315123117.htm
EX-23.3 - EXHIBIT 23.3 - PETROQUEST ENERGY INC	exhibit233123117.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 2

(Mark One)



ý	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2017



	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-32681

PETROQUEST ENERGY, INC.

(Exact name of registrant as specified in its charter)



Delaware		72-1440714
State of incorporation:		I.R.S. Employer Identification No.

400 E. Kaliste Saloom Road, Suite 6000

Lafayette, Louisiana 70508

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (337) 232-7028

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



Title of each class		Name of each exchange on which registered
Common Stock, par value $.001 per share		New York Stock Exchange

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

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨ Yes ý No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

¨ Yes ý No

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.

ý Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

ý Yes ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	¨¨		Accelerated filer	¨
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	x
			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. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

¨ Yes ý No

The aggregate market value of the voting common equity held by non-affiliates of the registrant as of June 30, 2017, based on the $1.98 per share closing price for the registrant's Common Stock, par value $.001 per share, as quoted on the New York Stock Exchange, was approximately $38,595,000 (for purposes of this disclosure, the registrant assumed its directors and executive officers were affiliates).

As of February 28, 2018, the registrant had outstanding 25,587,441 shares of Common Stock, par value $.001 per share.

Document incorporated by reference: portions of the definitive Proxy Statement of PetroQuest Energy, Inc. to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 with respect to the Annual Meeting of Stockholders to be held on May16, 2018, which are incorporated by reference into Part III of this Form 10-K.

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Explanatory Note

PetroQuest Energy, Inc. (the “Company”) is filing this Amendment No. 2 to its Annual Report on Form 10-K for the year ended December 31, 2017 (the “Form 10-K”), filed with the Securities and Exchange Commission on March 8, 2018, solely to amend the audit report of Ernst & Young LLP (“E&Y”) that was included in Item 15 of the Form 10-K.

E&Y inadvertently omitted certain sentences in the basis for opinion section of the audit report regarding the scope of procedures with respect to internal control over financial reporting. While the Company does not believe E&Y’s omission was material in nature, E&Y has requested the audit report be corrected by including the omitted sentences in E&Y’s revised report filed with this Form 10-K/A. No other information included in the Form 10-K is being amended by this Form 10-K/A.

This Form 10-K/A includes the financial statements originally filed in the Form 10-K as well as the amended audit report. There have been no changes to the financial statements or XBRL data filed in Exhibit 101 of the Form 10-K. This Form 10-K/A is accurate as of the date of the Form 10-K and has not been updated to reflect any events that occurred subsequent to March 8, 2018.


Item 15.	Exhibits, Financial Statement Schedules


(a)	1. FINANCIAL STATEMENTS

The following financial statements of the Company and the Report of the Company’s Independent Registered Public Accounting Firm thereon are included on pages F-1 through F-80 of this Form 10-K:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2017 and 2016

Consolidated Statements of Operations for the three years ended December 31, 2017

Consolidated Statements of Comprehensive Loss for the three years ended December 31, 2017

Consolidated Statements of Cash Flows for the three years ended December 31, 2017

Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2017

Notes to Consolidated Financial Statements



	2. FINANCIAL STATEMENT SCHEDULES:

All schedules are omitted because the required information is inapplicable or the information is presented in the Financial Statements or the notes thereto.

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3.	EXHIBITS:




** 2.1			Plan and Agreement of Merger by and among Optima Petroleum Corporation, Optima Energy (U.S.) Corporation, its wholly-owned subsidiary, and Goodson Exploration Company, NAB Financial L.L.C., Dexco Energy, Inc., American Explorer, L.L.C. (incorporated herein by reference to Appendix G of the Proxy Statement on Schedule 14A filed July 22, 1998).

** 2.2			Purchase and Sale Agreement dated as of June 19, 2013, between PetroQuest Energy, L.L.C. and Hall-Houston Exploration II, L.P. (incorporated herein by reference to Exhibit 2.1 to Form 8-K filed on June 20, 2013).

** 2.3			Purchase and Sale Agreement dated as of June 19, 2013, between PetroQuest Energy, L.L.C. and Hall-Houston Exploration III, L.P. (incorporated herein by reference to Exhibit 2.2 to Form 8-K filed on June 20, 2013).

** 2.4			Purchase and Sale Agreement dated as of June 19, 2013, between PetroQuest Energy, L.L.C. and Hall-Houston Exploration IV, L.P. (incorporated herein by reference to Exhibit 2.3 to Form 8-K filed on June 20, 2013).

** 2.5			Purchase and Sale Agreement dated as of June 19, 2013, between PetroQuest Energy, L.L.C. and GOM-H Exploration, LLC (incorporated herein by reference to Exhibit 2.4 to Form 8-K filed on June 20, 2013).

**#2.6			Purchase and Sale Agreement dated as of June 4, 2015, by and between PetroQuest Energy, L.L.C. and WSGP Gas Producing, LLC (incorporated herein by reference to Exhibit 2.1 to Form 10-Q filed on August 5, 2015).

**#2.7			Purchase and Sale Agreement dated as of April 20, 2016, by and between PetroQuest Energy, L.L.C. and GR Woodford Properties, LLC (incorporated herein by reference to Exhibit 2.1 to Form 10-Q filed on August 3, 2016).

3.1			Certificate of Incorporation of PetroQuest Energy, Inc. (incorporated herein by reference to Exhibit 4.1 to Form 8-K filed September 16, 1998).

3.2			Certificate of Domestication of Optima Petroleum Corporation (incorporated herein by reference to Exhibit 4.4 to Form 8-K filed September 16, 1998).

3.3			Certificate of Designations, Preferences, Limitations and Relative Rights of The Series a Junior Participating Preferred Stock of PetroQuest Energy, Inc. (incorporated herein by reference to Exhibit A of the Rights Agreement attached as Exhibit 1 to Form 8-A filed November 9, 2001).



3.4			Certificate of Designations establishing the 6.875% Series B Cumulative Convertible Perpetual Preferred Stock, dated September 24, 2007 (incorporated herein by reference to Exhibit 3.1 to Form 8-K filed on September 24, 2007).

3.5			Certificate of Amendment to Certificate of Incorporation dated May 14, 2008 (incorporated herein by reference to Exhibit 3.1 to Form 8-K filed June 23, 2009).

3.6			Certificate of Amendment to Certificate of Incorporation dated May 18, 2016 (incorporated herein by reference to Exhibit 3.1 to Form 8-K filed on May 20, 2016).

3.7			Certificate of Amendment to Certificate of Incorporation dated May 18, 2016 (incorporated herein by reference to Exhibit 3.2 to From 8-K filed on May 20, 2016).

3.8			Bylaws of PetroQuest Energy, Inc., as amended of February 19, 2016 (incorporated herein by reference to Exhibit 3.1 to Form 8-K filed February 22, 2016).

4.1			Indenture, dated August 19, 2010, between PetroQuest Energy, Inc. and The Bank of New York Mellon Trust Company, N.A. (incorporated herein by reference to Exhibit 4.2 to Form 8-K filed on August 19, 2010).

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4.2			First Supplemental Indenture, dated August 19, 2010, among PetroQuest Energy, Inc., the Subsidiary Guarantors identified therein, and The Bank of New York Mellon Trust Company, N.A. (incorporated herein by reference to Exhibit 4.3 to Form 8-K filed on August 19, 2010).

4.3			Second Supplemental Indenture, dated July 3, 2013, among PetroQuest Energy, Inc., the Subsidiary Guarantors identified therein, and The Bank of New York Mellon Trust Company, N.A. (incorporated herein by reference to Exhibit 4.2 to Form 8-K filed on July 3, 2013).

4.4			Third Supplemental Indenture, dated October 23, 2013, among PetroQuest Energy, Inc., the Subsidiary Guarantors identified therein, and The Bank of New York Mellon Trust Company, N.A.(incorporated herein by reference to Exhibit 4.7 to Form 10-K filed on March 6, 2015).

4.5			Fourth Supplemental Indenture, dated February 1, 2015, among PetroQuest Energy, Inc., the Subsidiary Guarantors identified therein, and U.S. Bank National Association, as successor trustee to The Bank of New York Mellon Trust Company, N.A. (incorporated herein by reference to Exhibit 4.1 to Form 8-K filed on February 3, 2016).

4.6			Registration Rights Agreement, dated February 17, 2016, among PetroQuest Energy, Inc., the Subsidiary Guarantors identified therein, and Seaport Global Securities LLC, as representative of the several investors named therein (incorporated herein by reference to Exhibit 4.2 to Form 8-K filed on February 18, 2016).

4.7			Indenture, dated February 17, 2016, between PetroQuest Energy, Inc., the Subsidiary Guarantors identified therein, and Wilmington Trust, National Association (incorporated herein by reference to Exhibit 4.1 to Form 8-K filed on February 18, 2016).

4.8			First Supplemental Indenture, dated as of September 13, 2016, among PetroQuest Energy, Inc., the Subsidiary Guarantors identified therein, and Wilmington Trust, National Association (incorporated herein by reference to Exhibit 4.1 to Form 8-K filed on September 14, 2016).

4.9			Registration Rights Agreement, dated July 3, 2013, among PetroQuest Energy, Inc., the Subsidiary Guarantors identified therein, and J.P. Morgan Securities LLC, as representative of the several initial purchasers named therein (incorporated herein by reference to Exhibit 4.3 to Form 8-K filed on July 3, 2013).

4.10			Waiver of Registration Rights, dated as of September 13, 2016, among PetroQuest Energy, Inc., the Subsidiary Guarantors and Seaport Global Securities LLC (incorporated herein by reference to Exhibit 4.2 to Form 8-K filed on September 14, 2016).

4.11			Indenture, dated September 27, 2016, among PetroQuest Energy, Inc., the Subsidiary Guarantors identified therein, and Wilmington Trust, National Association (incorporated herein by reference to Exhibit 4.1 to Form 8-K filed on September 27, 2016).

4.12			Registration Rights Agreement, dated September 27, 2016, among PetroQuest Energy, Inc., the Subsidiary Guarantors identified therein, Jefferies LLC and Seaport Global Securities LLC (incorporated herein by reference to Exhibit 4.2 to Form 8-K filed on September 27, 2016).

†10.1			PetroQuest Energy, Inc. 1998 Incentive Plan, as amended and restated effective May 14, 2008 (the “Incentive Plan”) (incorporated herein by reference to Appendix A of the Proxy Statement on Schedule 14A filed April 9, 2008).

†10.2			Form of Incentive Stock Option Agreement for executive officers (including Charles T. Goodson, Arthur M. Mixon, III, J. Bond Clement and Edward E. Abels, Jr.) under the PetroQuest Energy, Inc. 1998 Incentive Plan (incorporated herein by reference to Exhibit 10.2 to Form 10-K filed February 27, 2009).

†10.3			Form of Nonstatutory Stock Option Agreement under the PetroQuest Energy, Inc. 1998 Incentive Plan (incorporated herein by reference to Exhibit 10.3 to Form 10-K filed February 27, 2009).

†10.4			Form of Restricted Stock Agreement for executive officers (including Charles T. Goodson, Arthur M. Mixon, III, J. Bond Clement and Edward E. Abels, Jr.) under the PetroQuest Energy, Inc. 1998 Incentive Plan (incorporated herein by reference to Exhibit 10.4 to Form 10-K filed February 27, 2009).

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†10.5			PetroQuest Energy, Inc. Annual Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Form 8-K filed on May 13, 2010).

†10.6			PetroQuest Energy, Inc. Annual Incentive Plan, as amended and restated (incorporated herein by reference to Exhibit 10.1 to Form 8-K filed on June 8, 2010).

†10.7			PetroQuest Energy, Inc. 2012 Employee Stock Purchase Plan (incorporated herein by reference to Appendix A to Schedule 14A filed March 28, 2012).

†10.8			PetroQuest Energy, Inc. Long-Term Cash Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Form 8-K filed November 15, 2012).

†10.9			PetroQuest Energy, Inc. 2013 Incentive Plan (incorporated herein by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed on April 9, 2013).

†10.10			Form of Award Notice of Restricted Stock Units - Employees (including Charles T. Goodson, Arthur M. Mixon, III, J. Bond Clement and Edward E. Abels, Jr.) under the PetroQuest Energy, Inc. Long-Term Cash Incentive Plan (incorporated herein by reference to Exhibit 10.2 to Form 8-K filed November 15, 2012).

†10.11			Form of Award Notice of Restricted Stock Units - Outside Director/Consultant under the PetroQuest Energy, Inc. Long-Term Cash Incentive Plan (incorporated herein by reference to Exhibit 10.3 to Form 8-K filed November 15, 2012).

†10.12			Form of Restricted Stock Agreement - Executive Officers (including Charles T. Goodson, Arthur M. Mixon, III, J. Bond Clement and Edward E. Abels, Jr.) under the PetroQuest Energy, Inc. 1998 Incentive Plan (incorporated herein by reference to Exhibit 10.4 to Form 8-K filed November 15, 2012).

†10.13			Form of Restricted Stock Units Agreement - Employees (including Charles T. Goodson, Arthur M. Mixon, III, J. Bond Clement and Edward E. Abels, Jr.) under the PetroQuest Energy, Inc. 2013 Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Form 8-K filed November 19, 2014).

†10.14			Form of Award Notice of Phantom Stock Units - Employees (including Charles T. Goodson, Arthur M. Mixon, III, J. Bond Clement and Edward E. Abels, Jr.) under the PetroQuest Energy, Inc. Long-Term Cash Incentive Plan (incorporated herein by reference to Exhibit 10.2 to Form 8-K filed November 19, 2014).

†10.15			Form of Performance Unit Notice and Award- Employees (including Charles T. Goodson, Arthur M. Mixon, III, J. Bond Clement and Edward E. Abels, Jr.) under the PetroQuest Energy, Inc. Long-Term Cash Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Form 8-K filed November 21, 2014).

†10.16			Amended Executive Employment Agreement dated effective as of December 31, 2008, between Charles T. Goodson and PetroQuest Energy, Inc. (incorporated herein by reference to Exhibit 10.1 to Form 8-K filed January 6, 2009).

†10.17			Amended Executive Employment Agreement dated effective as of December 31, 2008, between Arthur M. Mixon, III and PetroQuest Energy, Inc. (incorporated herein by reference to Exhibit 10.3 to Form 8-K filed January 6, 2009).



†10.18			Amended Executive Employment Agreement dated effective as of December 31, 2008, between J. Bond Clement and PetroQuest Energy, Inc. (incorporated herein by reference to Exhibit 10.21 to Form 10-K filed February 27, 2009).

†10.19			Executive Employment Agreement dated February 1, 2014 between PetroQuest Energy, Inc. and Edward E. Abels, Jr. (incorporated herein by reference to Exhibit 10.1 to Form 8-K filed February 5, 2014).

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†10.20			Form of Amended Termination Agreement between the Company and each of its executive officers, including Charles T. Goodson, Arthur M. Mixon, III, and J. Bond Clement (incorporated herein by reference to Exhibit 10.6 to Form 8-K filed January 6, 2009).

†10.21			Termination Agreement dated February 1, 2014 between PetroQuest Energy, Inc. and Edward E. Abels, Jr. (incorporated herein by reference to Exhibit 10.2 to Form 8-K filed February 5, 2014).

†10.22			Form of Indemnification Agreement between PetroQuest Energy, Inc. and each of its directors and executive officers, including Charles T. Goodson, Arthur M. Mixon, III, , J. Bond Clement, Edward E. Abels, Jr., William W. Rucks, IV, E. Wayne Nordberg, J. Gerard Jolly, W.J. Gordon, III and Charles F. Mitchell, II (incorporated herein by reference to Exhibit 10.21 to Form 10-K filed March 13, 2002).

†10.23			Form of Surrender and Cancellation Agreement for Directors and Executive Officers (incorporated herein by reference to Exhibit 10.1 to Form 8-K filed on September 16, 2010).

†10.24			PetroQuest Energy, Inc. 2016 Long Term Incentive Plan (incorporated herein by reference to Appendix A to the Company's Definitive Proxy Statement on Schedule 14A filed on April 7, 2016).

10.25			Collateral Trust Agreement, dated February 17, 2016, among PetroQuest Energy, Inc., the guarantors from time to time party thereto, Wilmington Trust, National Association, as Trustee, the other Parity Lien Debt Representatives from time to time party thereto and Wilmington Trust, National Association, as Collateral Trustee (incorporated herein by reference to Exhibit 10.1 to Form 8-K filed on February 18, 2016).

10.26			Intercreditor Agreement, dated February 17, 2016, by and between JPMorgan Chase Bank, N.A., as Priority Lien Agent, and Wilmington Trust, National Association, as Second Lien Collateral Trustee (incorporated herein by reference to Exhibit 10.2 to Form 8-K filed on February 18, 2016).

10.27			Multidraw Term Loan Agreement, dated as of October 17, 2016, among PetroQuest Energy, Inc., PetroQuest Energy, L.L.C., Franklin Custodian Funds - Franklin Income Fund, and Wells Fargo Bank, National Association, as administrative agent (incorporated herein by reference to Exhibit 10.1 to Form 8-K filed on October 17, 2016).

##10.28			Lease Acquisition Agreement, effective as of December 18, 2017, between Navitas Oil & Gas, LLC and PetroQuest Energy, L.L.C. (incorporated herein by reference to Exhibit 10.28 to Form 10-K filed on March 8, 2018).

14.1			Code of Business Conduct and Ethics (incorporated herein by reference to Exhibit 14.1 to Form 10-K filed on March 8, 2018).

21.1			Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to Form 10-K filed on March 8, 2018).

23.1			Consent of Independent Registered Public Accounting Firm (incorporated herein by reference to Exhibit 23.1 to Form 10-K filed on March 8, 2018).

23.2			Consent of Ryder Scott Company, L.P. (incorporated herein by reference to Exhibit 23.2 to Form 10-K filed on March 8, 2018).

* 23.3			Consent of Independent Registered Public Accounting Firm.

31.1			Certification of Chief Executive Officer pursuant to Rule 13-a-14(a) / Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended (incorporated herein by reference to Exhibit 31.1 to Form 10-K filed on March 8, 2018).

31.2			Certification of Chief Financial Officer pursuant to Rule 13-a-14(a) / Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended (incorporated herein by reference to Exhibit 31.2 to Form 10-K filed on March 8, 2018).

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31.3			Certification of Chief Executive Officer pursuant to Rule 13-a-14(a)/Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended (incorporated herein by reference to Exhibit 31.3 to Form 10-K/A filed on March 29, 2018).

31.4			Certification of Chief Financial Officer pursuant to Rule 13-a-14(a)/Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended (incorporated herein by reference to Exhibit 31.4 to Form 10-K/A filed on March 29, 2018).

*31.5			Certification of Chief Executive Officer pursuant to Rule 13-a-14(a)/Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

*31.6			Certification of Chief Financial Officer pursuant to Rule 13-a-14(a)/Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

32.1			Certification pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Executive Officer (incorporated herein by reference to Exhibit 32.1 to Form 10-K filed on March 8, 2018).

32.2			Certification pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Financial Officer (incorporated herein by reference to Exhibit 32.2 to Form 10-K filed on March 8, 2018).

*32.3			Certification pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Executive Officer.

*32.4			Certification pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Financial Officer.

99.1			Reserve report letter as of December 31, 2017, as prepared by Ryder Scott Company, L.P. (incorporated herein by reference to Exhibit 99.1 to Form 10-K filed on March 8, 2018).



101.INS		XBRL Instance Document (incorporated herein by reference to Exhibit 101.INS to Form 10K filed on March 8, 2018).

101.SCH		XBRL Taxonomy Extension Schema Document (incorporated herein by reference to Exhibit 101.SCH to Form 10K filed on March 8, 2018).

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (incorporated herein by reference to Exhibit 101.CAL to Form 10K filed on March 8, 2018).

101.DEF		XBRL Taxonomy Definitions Linkbase Document (incorporated herein by reference to Exhibit 101.DEF to Form 10K filed on March 8, 2018).

101.LAB		XBRL Taxonomy Extension Label Linkbase Document (incorporated herein by reference to Exhibit 101.LAB to Form 10K filed on March 8, 2018).

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (incorporated herein by reference to Exhibit 101.PRE to Form 10K filed on March 8, 2018).



*	Filed herewith.
**	The registrant agrees to furnish supplementally a copy of any omitted schedule to the Agreements to the SEC upon request.

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†	Management contract or compensatory plan or arrangement
#	Confidential treatment has been granted for portions of this exhibit. Omissions are designated with brackets containing asterisks. As part of our confidential treatment request, a complete version of this exhibit was filed separately with the SEC.
##	Confidential treatment has been requested for portions of this exhibit. Omissions are designated with brackets containing asterisks. As part of our confidential treatment request, a complete version of this exhibit has been filed separately with th SEC.


(b)	Exhibits. See Item 15 (a) (3) above.


(c)	Financial Statement Schedules. None

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on April 27, 2018.



	PETROQUEST ENERGY, INC.

	By:		/s/ J. Bond Clement
			J. BOND CLEMENT
			Executive Vice President, Chief Financial Officer and Treasurer

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INDEX TO FINANCIAL STATEMENTS




Report of Independent Registered Public Accounting Firm		F-1

Consolidated Balance Sheets of PetroQuest Energy, Inc. as of December 31, 2017 and 2016		F-2

Consolidated Statements of Operations of PetroQuest Energy, Inc. for the three years ended December 31, 2017		F-3

Consolidated Statements of Comprehensive Loss of PetroQuest Energy, Inc. for the three years ended December 31, 2017		F-4

Consolidated Statements of Cash Flows of PetroQuest Energy, Inc. for the three years ended December 31, 2017		F-5

Consolidated Statements of Stockholders’ Equity of PetroQuest Energy, Inc. for the three years ended December 31, 2017		F-6

Notes to Consolidated Financial Statements		F-7

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

PetroQuest Energy, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of PetroQuest Energy, Inc. (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive loss, cash flows and stockholders’ equity for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company's auditor since 2002.

New Orleans, Louisiana

March 8, 2018

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PETROQUEST ENERGY, INC.

Consolidated Balance Sheets

(Amounts in Thousands)



	December 31, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	15,655		$	28,312
Revenue receivable	15,340			10,294
Joint interest billing receivable	6,597			7,632
Other receivable	7,750			—
Derivative asset	1,174			—
Deposit for surety bonds	8,300			—
Other current assets	2,125			2,353
Total current assets	56,941			48,591
Property and equipment:
Oil and gas properties:
Oil and gas properties, full cost method	1,369,861			1,323,333
Unevaluated oil and gas properties	21,854			9,015
Accumulated depreciation, depletion and amortization	(1,285,660		)	(1,243,286		)
Oil and gas properties, net	106,055			89,062
Other property and equipment	9,353			10,951
Accumulated depreciation of other property and equipment	(8,843		)	(10,109		)
Total property and equipment	106,565			89,904
Other assets, net of accumulated amortization of $0 and $4,385, respectively	792			6,365
Total assets	$	164,298		$	144,860
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable to vendors	$	36,179		$	25,265
Advances from co-owners	1,730			2,330
Oil and gas revenue payable	19,344			22,146
Accrued interest	1,724			2,047
Asset retirement obligation	687			4,160
Derivative liability	731			3,947
10% Senior Unsecured Notes due 2017	—			22,568
Other accrued liabilities	2,445			3,938
Total current liabilities	62,840			86,401
Multi-draw Term Loan	27,963			7,249
10% Senior Secured Notes due 2021	9,821			15,228
10% Senior Secured PIK Notes due 2021	271,577			248,600
Asset retirement obligation	30,623			32,450
Other long-term liabilities	10,409			6,027
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 25,521 and 21,197 shares, respectively	26			21
Paid-in capital	313,244			304,341
Accumulated other comprehensive income (loss)	278			(4,750		)
Accumulated deficit	(562,484		)	(550,708		)
Total stockholders’ equity	(248,935		)	(251,095		)
Total liabilities and stockholders’ equity	$	164,298		$	144,860

See accompanying Notes to Consolidated Financial Statements.

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PETROQUEST ENERGY, INC.

Consolidated Statements of Operations

(Amounts in Thousands, Except Per Share Data)



	Year Ended
	December 31,
	2017			2016			2015
Revenues:
Oil and gas sales	$	108,287		$	66,667		$	115,969
Expenses:
Lease operating expenses	33,162			28,508			40,130
Production taxes	3,302			354			2,470
Depreciation, depletion and amortization	32,053			28,720			63,497
Ceiling test write-down	—			40,304			266,562
General and administrative	15,860			26,040			20,777
Accretion of asset retirement obligation	2,252			2,515			3,259
Interest expense	28,836			30,019			33,766
	115,465			156,460			430,461
Other income (expense):
Gain on sale of assets	—			—			21,937
Other income (expense)	(408		)	(560		)	391
	(408		)	(560		)	22,328
Loss from operations	(7,586		)	(90,353		)	(292,164		)
Income tax expense (benefit)	(949		)	543			2,626
Net loss	(6,637		)	(90,896		)	(294,790		)
Preferred stock dividend	5,139			5,349			5,139
Net loss available to common stockholders	$	(11,776	)	$	(96,245	)	$	(299,929	)
Loss per common share:
Basic
Net loss per share	$	(0.55	)	$	(5.24	)	$	(18.45	)
Diluted
Net loss per share	$	(0.55	)	$	(5.24	)	$	(18.45	)
Weighted average number of common shares:
Basic	21,330			18,354			16,256
Diluted	21,330			18,354			16,256

See accompanying Notes to Consolidated Financial Statements.

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PETROQUEST ENERGY, INC.

Consolidated Statements of Comprehensive Loss

(Amounts in Thousands)



	Year Ended
	December 31,
	2017			2016			2015
Net loss	$	(6,637	)	$	(90,896	)	$	(294,790	)
Change in fair value of derivatives, net of income tax (expense) benefit of ($165), $561 and $2,650, respectively	5,028			(5,697		)	(4,473		)
Comprehensive loss	$	(1,609	)	$	(96,593	)	$	(299,263	)

See accompanying Notes to Consolidated Financial Statements.

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PETROQUEST ENERGY, INC.

Consolidated Statements of Cash Flows

(Amounts in Thousands)



	Year Ended
	December 31,
	2017			2016			2015
Cash flows provided by (used in) operating activities:
Net loss	$	(6,637	)	$	(90,896	)	$	(294,790	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Deferred tax (benefit) expense	(949		)	543			2,626
Depreciation, depletion and amortization	32,053			28,720			63,497
Ceiling test writedown	—			40,304			266,562
Accretion of asset retirement obligation	2,252			2,515			3,259
Share based compensation expense	1,447			1,444			4,617
Gain on sale of assets	—			—			(21,937		)
Amortization costs and other	554			2,106			2,259
Non-cash PIK interest	22,895			5,722			—
Payments to settle asset retirement obligations	(3,364		)	(3,169		)	(2,776		)
Costs incurred to issue 2021 Notes and 2021 PIK Notes	—			10,139			—
Gain on extinguishment of debt	(403		)	—			—
Changes in working capital accounts:
Revenue receivable	(5,046		)	(3,818		)	10,009
Joint interest billing receivable	610			41,400			223
Accounts payable and accrued liabilities	2,970			(72,760		)	(9,400		)
Advances from co-owners	(600		)	(13,788		)	3,299
Other	(1,629		)	(5,060		)	2,657
Net cash provided by (used in) operating activities	44,153			(56,598		)	30,105
Cash flows (used in) provided by investing activities:
Investment in oil and gas properties	(64,613		)	(30,366		)	(90,218		)
Investment in other property and equipment	(54		)	(24		)	(454		)
Sale of oil and gas properties	10,707			25,482			271,769
Net cash (used in) provided by investing activities	(53,960		)	(4,908		)	181,097
Cash flows used in financing activities:
Net payments for share based compensation	(26		)	11			(199		)
Deferred financing costs	(174		)	(3,156		)	(1,094		)
Payment of preferred stock dividend	—			(1,285		)	(5,139		)
Proceeds from borrowings	20,000			10,000			70,000
Repayment of borrowings	—			—			(145,000		)
Redemption of 2017 Notes	(22,650		)	(53,626		)	—
Costs incurred to issue 2021 Notes and 2021 PIK Notes	—			(10,139		)	—
Net cash used in financing activities	(2,850		)	(58,195		)	(81,432		)
Net (decrease) increase in cash and cash equivalents	(12,657		)	(119,701		)	129,770
Cash and cash equivalents, beginning of period	28,312			148,013			18,243
Cash and cash equivalents, end of period	$	15,655		$	28,312		$	148,013
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest	$	7,432		$	33,206		$	36,217
Income taxes	$	(94	)	$	(18	)	$	—

See accompanying Notes to Consolidated Financial Statements.

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PetroQuest Energy Inc.

Consolidated Statements of Stockholders’ Equity

(Amounts in Thousands)



	Common Stock		Preferred Stock		Paid-In Capital			Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity
December 31, 2014	$	16	$	1	$	286,006		$	5,420		$	(154,534	)	$	136,909
Options exercised	—		—		61			—			—			61
Retirement of shares upon vesting of restricted stock	—		—		(451		)	—			—			(451		)
Share-based compensation expense	—		—		4,617			—			—			4,617
Issuance of shares under employee stock purchase plan	—		—		199			—			—			199
Derivative fair value adjustment, net of tax	—		—		—			(4,473		)	—			(4,473		)
Preferred stock dividend	—		—		—			—			(5,139		)	(5,139		)
Net loss	—		—		—			—			(294,790		)	(294,790		)
December 31, 2015	$	16	$	1	$	290,432		$	947		$	(454,463	)	$	(163,067	)
Issuance of shares in debt exchange	5		—		12,520			—			—			12,525
Retirement of shares upon vesting of restricted stock	—		—		(200		)	—			—			(200		)
Share-based compensation expense	—		—		1,444			—			—			1,444
Issuance of shares under employee stock purchase plan	—		—		145			—			—			145
Derivative fair value adjustment, net of tax	—		—		—			(5,697		)	—			(5,697		)
Preferred stock dividend	—		—		—			—			(5,349		)	(5,349		)
Net loss	—		—		—			—			(90,896		)	(90,896		)
December 31, 2016	$	21	$	1	$	304,341		$	(4,750	)	$	(550,708	)	$	(251,095	)
Issuance of shares	5		—		7,441			—			—			7,446
Retirement of shares upon vesting of restricted stock	—		—		(10		)	—			—			(10		)
Share-based compensation expense	—		—		1,447			—			—			1,447
Issuance of shares under employee stock purchase plan	—		—		25			—			—			25
Derivative fair value adjustment, net of tax	—		—		—			5,028			—			5,028
Preferred stock dividend	—		—		—			—			(5,139		)	(5,139		)
Net loss	—		—		—			—			(6,637		)	(6,637		)
December 31, 2017	$	26	$	1	$	313,244		$	278		$	(562,484	)	$	(248,935	)

See accompanying Notes to Consolidated Financial Statements.

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PETROQUEST ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Organization and Summary of Significant Accounting Policies

PetroQuest Energy, Inc. (a Delaware Corporation) (“PetroQuest”) is an independent oil and gas company headquartered in Lafayette, Louisiana with an exploration office in The Woodlands, Texas. It is engaged in the exploration, development, acquisition and operation of oil and gas properties in Texas and Louisiana.

Principles of Consolidation

The consolidated financial statements include the accounts of PetroQuest and its subsidiaries, PetroQuest Energy, L.L.C., PetroQuest Oil & Gas, L.L.C, Pittrans, Inc. and TDC Energy LLC (collectively, the "Company"). All intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates of proved oil and gas reserves and future net cash flows from estimated proved reserves are based on geological and engineering data and depend upon a number of variable factors and assumptions. Changes in estimated proved oil and gas reserves used in the calculation of depreciation, depletion and amortization of oil and gas properties or the present value of the estimated future net cash flows from estimated proved reserves used in the ceiling test could have a material impact on future results of operations.

Oil and Gas Properties

The Company utilizes the full cost method of accounting, which involves capitalizing all acquisition, exploration and development costs incurred for the purpose of finding oil and gas reserves including the costs of drilling and equipping productive wells, dry hole costs, lease acquisition costs and delay rentals. The Company also capitalizes the portion of general and administrative costs that can be directly identified with acquisition, exploration or development of oil and gas properties. Unevaluated property costs are transferred to evaluated property costs at such time as wells are completed on the properties, the properties are sold, or management determines these costs to have been impaired. Interest is capitalized on unevaluated property costs. Transactions involving sales of reserves in place are recorded as adjustments to accumulated depreciation, depletion and amortization with no gain or loss recognized, unless such adjustments would cause a significant alteration in the relationship between capitalized costs and proved reserves.

Depreciation, depletion and amortization of oil and gas properties is computed using the unit-of-production method based on estimated proved reserves. All costs associated with evaluated oil and gas properties, including an estimate of future development costs associated therewith, are included in the depreciable base. The costs of investments in unevaluated properties are excluded from this calculation until the related properties are evaluated, proved reserves are established or the properties are determined to be impaired. Proved oil and gas reserves are estimated annually by independent petroleum engineers.

The capitalized costs of proved oil and gas properties cannot exceed the present value of the estimated net future cash flows from proved reserves based on historical twelve-month, first day of the month, average oil, gas and natural gas liquid prices, including the effect of hedges in place (the full cost ceiling). If the capitalized costs of proved oil and gas properties exceed the full cost ceiling, the Company is required to write-down the value of its oil and gas properties to the full cost ceiling amount. The Company follows the provisions of Staff Accounting Bulletin (“SAB”) No. 106, regarding the application of Accounting Standards Codification ("ASC") Topic 410-20 by companies following the full cost accounting method. SAB No. 106 indicates that estimated future dismantlement and abandonment costs that are recorded on the balance sheet are to be included in the costs subject to the full cost ceiling limitation. The estimated future cash outflows associated with settling the recorded asset retirement obligations are excluded from the computation of the present value of estimated future net revenues used in applying the ceiling test.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a stated maturity of three months or less to be cash and cash equivalents. The majority of the Company’s cash and cash equivalents are in overnight securities made through its commercial bank accounts, which result in available funds the next business day.

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Accounts Receivable

In its capacity as operator, the Company incurs drilling and operating costs that are billed to its partners based on their respective working interests.

Other Property and Equipment

The costs related to other furniture and fixtures are depreciated on a straight line basis over estimated useful lives ranging from three to five years.

Deposit For Surety Bonds

The deposit for surety bonds of $8.3 million at December 31, 2017 represents cash collateral paid with respect to the Company's surety bonds which secure its offshore decommissioning obligations. As a result of the sale of the Company's Gulf of Mexico assets in January 2018, the Company expects these deposits will be refunded during 2018 (subject to the Company's obligation to pay approximately $3.8 million to the purchaser of these assets). At December 31, 2016, deposits for surety bonds totaled $6.2 million and were included in other assets in the Company's consolidated financial statements.

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740. Provisions for income taxes include deferred taxes resulting primarily from temporary differences due to different reporting methods for oil and gas properties for financial reporting purposes and income tax purposes. For financial reporting purposes, all exploratory and development expenditures are capitalized and depreciated, depleted and amortized on the unit-of-production method. For income tax purposes, only the equipment and leasehold costs relative to successful wells are capitalized and recovered through depreciation or depletion. Generally, most other exploratory and development costs are charged to expense as incurred; however, the Company may use certain provisions of the Internal Revenue Code that allow capitalization of intangible drilling costs. Other financial and income tax reporting differences occur primarily as a result of statutory depletion. Deferred tax assets are assessed for realizability and a valuation allowance is established for any portion of the asset for which it is more likely than not will not be realized.

Revenue Recognition

The Company records natural gas and oil revenue under the sales method of accounting. Under the sales method, the Company recognizes revenues based on the amount of natural gas or oil sold to purchasers, which may differ from the amounts to which the Company is entitled based on its interest in the properties. See "Recently Issued Accounting Standards" below for discussion of the adoption of the new revenue recognition standard.

Concentrations

The Company’s production is sold on month to month contracts at prevailing prices. The Company attempts to diversify its sales among multiple purchasers and obtain credit protection such as letters of credit and parental guarantees when necessary.

The following table identifies customers from whom the Company derived 10% or more of its oil and gas revenues during the years presented. Based on the availability of other customers, the Company does not believe the loss of any of these customers would have a significant effect on its business or financial condition.



	Year Ended December 31,
	2017	2016	2015
Superior Natural Gas	29%	14%	(a)
Shell Trading Company	24%	23%	18%
Laclede Energy Resources	(a)	17%	21%
BG Group	(a)	10%	10%
Unimark, LLC	(a)	(a)	17%


(a)	Less than 10 percent

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Derivative Instruments

Under ASC Topic 815, the nature of a derivative instrument must be evaluated to determine if it qualifies for hedge accounting treatment. Instruments qualifying for hedge accounting treatment are recorded as an asset or liability measured at fair value and subsequent changes in fair value are recognized in stockholders’ equity through other comprehensive income (loss), net of related taxes, to the extent the hedge is effective. If a hedge becomes ineffective because the hedged production does not occur, or the hedge otherwise does not qualify for hedge accounting treatment, the changes in the fair value of the derivative are recorded in the statement of operations as derivative income (expense). The Company does not offset fair value amounts recognized for derivative instruments.

The Company’s hedges are specifically referenced to NYMEX prices for oil and natural gas. The effectiveness of hedges is evaluated at the time the contracts are entered into, as well as periodically over the life of the contracts, by analyzing the correlation between NYMEX prices and the posted prices received from the designated production. Through this analysis, the Company is able to determine if a high correlation exists between the prices received for its designated production and the NYMEX prices at which the hedges will be settled. At December 31, 2017, the Company’s derivative instruments were designated as effective cash flow hedges. See Note 7 for further discussion of the Company’s derivative instruments.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” to clarify the principles for recognizing revenue and to develop a common revenue standard and disclosure requirements. The core principle of ASU 2014-09 is that an entity will recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods and or services. In August 2015, the FASB issued ASU 2015-14 deferring the effective date of ASU 2014-09 by one year to interim and annual periods beginning on or after December 31, 2017. Entities can choose to apply the standard using either a full retrospective approach or a modified retrospective approach, with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. The Company adopted the new standard effective January 1, 2018 using the modified retrospective approach. The adoption of the standard did not have a material impact on the Company's consolidated financial statements, but will result in increased disclosures related to revenue recognition policies and disaggregation of revenues.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard is effective for public entities for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years, with earlier application permitted. Upon adoption the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently evaluating the effect that this new standard may have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718)," to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and forfeitures, as well as classification in the statement of cash flows. The Company adopted ASU 2016-09 on January 1, 2017, and the adoption of the standard did not have a material impact on the Company's consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, "Derivative and Hedging," to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its consolidated financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current US GAAP. ASU 2017-12 is effective for public entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with earlier application permitted. The Company is currently evaluating the effect that this new standard may have on its consolidated financial statements.

Note 2—Acquisitions and Divestitures

Divestitures:

On June 4, 2015, the Company completed the sale of a majority of its interests in the Woodford Shale and Mississippian Lime for $280 million, subject to customary post-closing purchase price adjustments, effective January 1, 2015. At closing, the Company received $257.7 million in cash and recognized a receivable of $13.9 million, which was received in full during the third quarter of 2015.

At December 31, 2014, the estimated proved reserves attributable to the assets sold totaled approximately 227.2 Bcfe (unaudited), which represented approximately 57% (unaudited) of the Company's estimated proved reserves. Under the full cost

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method of accounting, sales of oil and gas properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless the adjustment significantly alters the relationship between capitalized costs and proved reserves. A significant alteration is generally not expected to occur for sales involving less than 25% of the total proved reserves. If the sale was accounted for as an adjustment of capitalized costs with no gain or loss recognized, the adjustment would have significantly altered the relationship between capitalized costs and proved reserves. Accordingly, the Company recognized a gain on the sale of $23.2 million during 2015. The carrying value of the properties sold was determined by allocating total capitalized costs within the full cost pool between properties sold and properties retained based on their relative fair values.

In March 2016, the Company sold certain non-producing assets in East Texas for $7 million to a potential joint venture partner. This sale was accounted for as an adjustment to the capitalized costs of oil and gas properties. After determining it would not pursue a joint venture with this party, the Company repurchased the non-producing assets for $5 million in December, 2016 as per the terms of the purchase and sale agreement. The Company subsequently entered into a new drilling joint venture in East Texas with another group of partners.

On April 20, 2016, the Company completed the sale of a majority of its remaining Woodford Shale assets in the East Hoss field for approximately $18 million, subject to customary post-closing purchase price adjustments, effective April 1, 2016. This sale was accounted for as an adjustment to the capitalized costs of oil and gas properties.

On October 31, 2016, the Company completed the sale of its remaining Oklahoma assets for approximately $0.7 million, subject to customary post-closing purchase-price adjustments, effective November 1, 2016. This sale was accounted for as an adjustment to the capitalized costs of oil and gas properties.

On April 17, 2017, the Company completed the sale of its interest in the East Lake Verret field in Louisiana for approximately $2.2 million. This sale was accounted for as an adjustment to the capitalized costs of oil and gas properties.

On December 15, 2017, the Company completed the sale of its saltwater disposal assets in East Texas for approximately $8.5 million. This sale was accounted for as an adjustment to the capitalized costs of oil and gas properties.

Acquisitions:

On December 20, 2017, the Company entered into an oil focused play in central Louisiana targeting the Austin Chalk formation through the execution of agreements to acquire interests in approximately 24,600 gross acres for a purchase price of approximately $9.3 million and the issuance of 2.0 million shares of common stock.

Subsequent Event:

On January 31, 2018, the Company sold its Gulf of Mexico properties (the "Sold Assets"). The Company received no consideration from the sale of these properties and is required to contribute approximately $3.8 million towards the future abandonment costs for the properties. As a result of the sale, the Company extinguished approximately $28.4 million of its discounted asset retirement obligation subsequent to December 31, 2017 (see Note 6). In connection with the sale, the Company expects to receive a cash refund of approximately $10.7 million related to a depositary account that served to collateralize a portion of the Company's offshore bonds related to these properties (subject to the Company's obligation to pay approximately $3.8 million to the purchaser of these properties), $8.3 million of which is included in deposits for surety bonds on the Company's Consolidated Balance Sheet as of December 31, 2017.

Note 3—Equity

Common Stock

On May 18, 2016, the Company effected a reverse split of its common stock at a ratio of one share of newly issued common stock for each four shares of issued and outstanding common stock (the "Reverse Split"). The purpose of the Reverse Split was to increase the per share trading price of the Company's common stock in order to regain compliance with the New York Stock Exchange continued listing standards. The Reverse Split proportionately reduced the total number of outstanding shares of common stock from approximately 70.5 million shares to approximately 17.6 million shares. All references in the consolidated financial statements and notes to consolidated financial statements to the number of shares, per share data, restricted stock and stock option data have been retroactively adjusted to give effect to the Reverse Split.

During December 2017, the Company issued 2.0 million shares of common stock in connection with the acquisition of Austin Chalk acreage. Additionally, during December 2017, the Company issued appoximately 2.2 million shares of common stock related to the extinguishment of a portion of the outstanding 2021 Notes (see Note 9).

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Convertible Preferred Stock

The Company has 1,495,000 shares of 6.875% Series B Cumulative Convertible Perpetual Preferred Stock (the “Series B Preferred Stock”) outstanding.

The following is a summary of certain terms of the Series B Preferred Stock:

Dividends. The Series B Preferred Stock accumulates dividends at an annual rate of 6.875% for each share of Series B Preferred Stock. Dividends are cumulative from the date of first issuance and, to the extent payment of dividends is not prohibited by the Company’s debt agreements, assets are legally available to pay dividends and the Company’s board of directors or an authorized committee of the board declares a dividend payable, the Company pays dividends in cash, every quarter.

In connection with an amendment to the Company's bank credit facility (which was terminated and replaced by the Multidraw Term Loan Agreement with Franklin Custodian Funds in October 2016) prohibiting the Company from declaring or paying dividends on the Series B Preferred Stock, the Company suspended the quarterly cash dividend on it Series B Preferred Stock beginning with the dividend payment due on April 15, 2016. The Multidraw Term Loan Agreement also prohibits the Company from declaring and paying cash dividends on the Series B Preferred Stock. Under the terms of the Series B Preferred Stock, any unpaid dividends will accumulate. As of December 31, 2017, the Company has deferred seven quarterly dividend payments and has accrued a $10.3 million payable related to the seven deferred quarterly dividends and the quarterly dividend that was payable on January 15, 2018, which is included in other long-term liabilities on the Consolidated Balance Sheet. As a result of the restrictions under the Multidraw Term Loan Agreement, the Company did not pay the dividend that was payable on July 15, 2017, which represented the sixth deferred dividend payment. As a result, the holders of the Series B Preferred Stock, voting as a single class, currently have the right to elect two additional directors to the Company's Board of Directors (the "Board") until all accumulated and unpaid dividends on the Series B Preferred Stock are paid in full. On August 23, 2017, the Board received written notice from two affiliated holders of the Series B Preferred Stock (the "Requesting Holders") exercising this right by requesting that the Board call a special meeting of the holders of the Preferred Stock for the purposes of electing the additional directors, as set forth in Section 4(ii) of the Certificate of Designations establishing the Preferred Stock, dated September 24, 2007. However, on October 20, 2017, as a result of discussions between the Company's management and certain holders of the Series B Preferred Stock, the Requesting Holders withdrew their request that the Board call the special meeting of the holders of the Series B Preferred Stock, and the Board determined not to call a special meeting of the holders of the Series B Preferred Stock at that time. The Company is committed to working with holders of the Series B Preferred Stock as they identify and evaluate potential candidates to add to the existing Board in 2018.

Mandatory conversion. The Company may, at its option, cause shares of the Series B Preferred Stock to be automatically converted at the applicable conversion rate, but only if the closing sale price of the Company’s common stock for 20 trading days within a period of 30 consecutive trading days ending on the trading day immediately preceding the date the Company gives the conversion notice equals or exceeds 130% of the conversion price in effect on each such trading day.

Conversion rights. Each share of Series B Preferred Stock may be converted at any time, at the option of the holder, into 0.8608 shares of the Company’s common stock (which is based on an initial conversion price of approximately $58.08 per share of common stock, subject to further adjustment) plus cash in lieu of fractional shares, subject to the Company’s right to settle all or a portion of any such conversion in cash or shares of the Company’s common stock. If the Company elects to settle all or any portion of its conversion obligation in cash, the conversion value and the number of shares of the Company’s common stock it will deliver upon conversion (if any) will be based upon a 20 trading day averaging period.

Upon any conversion, the holder will not receive any cash payment representing accumulated and unpaid dividends on the Series B Preferred Stock, whether or not in arrears, except in limited circumstances. The conversion rate is equal to $50 divided by the conversion price at the time. The conversion price is subject to adjustment upon the occurrence of certain events. The conversion price on the conversion date and the number of shares of the Company’s common stock, as applicable, to be delivered upon conversion may be adjusted if certain events occur.

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Note 4—Earnings Per Share

A reconciliation between the basic and diluted earnings per share computations (in thousands, except per share amounts) is as follows:



For the Year Ended December 31, 2017	Loss(Numerator)			Shares (Denominator)	Per Share Amount
BASIC EPS
Net loss available to common stockholders	$	(11,776	)	21,330	$	(0.55	)
Stock options	—			—
Attributable to participating securities	—			—
DILUTED EPS	$	(11,776	)	21,330	$	(0.55	)

For the Year Ended December 31, 2016	Loss(Numerator)			Shares (Denominator)	Per Share Amount
BASIC EPS
Net loss available to common stockholders	$	(96,245	)	18,354	$	(5.24	)
Stock options	—			—
Attributable to participating securities	—			—
DILUTED EPS	$	(96,245	)	18,354	$	(5.24	)

For the Year Ended December 31, 2015	Loss(Numerator)			Shares (Denominator)	Per Share Amount
BASIC EPS
Net loss available to common stockholders	$	(299,929	)	16,256	$	(18.45	)
Stock options	—			—
Attributable to participating securities	—			—
DILUTED EPS	$	(299,929	)	16,256	$	(18.45	)

An aggregate of 1.6 million shares of common stock representing options to purchase common stock and unvested shares of restricted common stock and common shares issuable upon the assumed conversion of the Series B Preferred Stock totaling 1.3 million shares were not included in the computation of diluted earnings per share for the year ended December 31, 2017, because the inclusion would have been anti-dilutive as a result of the net loss reported for the year.

An aggregate of 0.9 million shares of common stock representing options to purchase common stock and unvested shares of restricted common stock and common shares issuable upon the assumed conversion of the Series B Preferred Stock totaling 1.3 million shares were not included in the computation of diluted earnings per share during the year ended December 31, 2016, because the inclusion would have been anti-dilutive as a result of the net loss reported for the year.

An aggregate of 0.1 million shares of common stock representing options to purchase common stock and unvested shares of restricted common stock and common shares issuable upon the assumed conversion of the Series B Preferred Stock totaling 1.3 million shares were not included in the computation of diluted earnings per share during the year ended December 31, 2015, because the inclusion would have been anti-dilutive as a result of the net loss reported for the year.

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Note 5—Share-Based Compensation

The Company accounts for share-based compensation in accordance with ASC Topic 718. Share-based compensation cost is recognized over the requisite service period. Compensation cost for awards with graded vesting is recognized using the accelerated attribution method. Share-based compensation cost is reflected as a component of general and administrative expenses. A detail of share-based compensation cost for the years ended December 31, 2017, 2016 and 2015 is as follows (in thousands):



	Year Ended December 31,
	2017		2016		2015
Stock options:
Incentive Stock Options (share settled)	$	820	$	206	$	243
Non-Qualified Stock Options (share settled)	387		164		71
Restricted stock (share settled)	197		1,073		4,303
Cash settled stock units	245		244		(439		)
Share-based compensation	$	1,649	$	1,687	$	4,178

During each of the years ended December 31, 2017 and 2016, the Company capitalized $0.1 million of compensation cost related to cash settled restricted stock units to oil and gas properties. No such amounts were capitalized during the year ended December 31, 2015. During the years ended December 31, 2017, 2016 and 2015, the Company recorded income tax benefits of approximately $0.3 million, $0.5 million and $1.5 million, respectively, related to share-based compensation expense recognized during those periods. As a result of the Company’s net operating loss position, no excess tax benefits have been recognized for any periods presented.

Share-Based compensation settled in shares

At December 31, 2017, the Company had $3.9 million of unrecognized compensation cost related to unvested restricted stock and stock options. This amount will be recognized as compensation expense over a weighted average period of approximately three years.

Stock Options

Stock options may be granted to employees and consultants and generally vest ratably over a three-year period. Stock options may also be granted to directors and generally vest one year or less from the date of grant to align with their term on the board. Stock options must be exercised within 10 years of the grant date. The exercise price of each option may not be less than the fair market value of a share of common stock on the date of grant. Upon a change in control of the Company, all outstanding options become immediately exercisable.

The Company computes the fair value of its stock options using the Black-Scholes option-pricing model assuming an expected term based on historical activity and expected volatility computed using historical stock price fluctuations on a weekly basis for a period of time equal to the expected term of the option. Periodically, the Company adjusts compensation expense based on the difference between actual and estimated forfeitures.

There were no stock options granted in 2015. The following table outlines the assumptions used in computing the fair value of stock options granted during 2017 and 2016:



	Years Ended December 31,
	2017	2016
Dividend yield	—%	—%
Expected volatility	80.44%	62.0%-79.99%
Risk-free rate	1.925%	1.255%-2.09%
Expected term	6 years	6 years
Stock options granted	219,130	1,168,754
Wgtd. avg. grant date fair value per share	$1.28	$1.96
Fair value of grants	$280,000	$2,293,000

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The following table details stock option activity during the year ended December 31, 2017:



	Number of Options		Wgtd. Avg. Exercise Price		Wgtd. Avg. Remaining Life	Aggregate Intrinsic Value (000’s)
Outstanding at beginning of year	1,412,940		$	7.13
Granted	219,130		1.85
Expired/cancelled/forfeited	(23,424	)	21.49
Exercised	—
Outstanding at end of year	1,608,646		6.20		8.08	$	9

Options exercisable at end of year	705,594		$	10.34	7.00	$	—
Options expected to vest	1,563,493		6.29		8.06	$	8

The total fair value of stock options that vested during the years ended December 31, 2017, 2016 and 2015 was $1.6 million, $0.4 million and $0.8 million, respectively. The intrinsic value of stock options exercised was immaterial for all periods presented.

The following table summarizes information regarding stock options outstanding at December 31, 2017:




Range of	Options	Wgtd. Avg.	Wgtd. Avg.	Options	Wgtd. Avg.
Exercise	Outstanding	Remaining	Exercise	Exercisable	Exercise
Price	12/31/2017	Contractual Life	Price	12/31/2017	Price
$0.00-$2.49	285,503	9.48	$1.97	22,150	$2.37
$2.50-$3.49	878,833	8.74	$3.17	362,973	$3.17
$3.50-$4.99	206,769	8.38	$4.26	82,930	$4.23
$15.00-$30.32	237,541	3.71	$24.18	237,541	$24.18
	1,608,646			705,594	$10.34

Restricted Stock

The Company computes the fair value of its service based restricted stock using the closing price of the Company’s stock at the date of grant. Restricted stock granted to employees generally vests ratably over a three-year period. Restricted stock granted to directors vests one year or less from the date of grant to align with their term on the board. Upon a change in control of the Company, all outstanding shares of restricted stock will become immediately vested.

The following table details restricted stock activity during the year ended December 31, 2017:



	Number of Shares		Wgtd. Avg. Fair Value per Share
Outstanding at beginning of year	78,557		$16.57
Granted	487,502		$1.87
Lapse of restrictions	(78,557	)	$16.57
Outstanding at December 31, 2017	487,502		$1.87

The weighted average grant date fair value of restricted stock granted during the years ended December 31, 2017 and 2015 was $1.87 and $5.08, respectively, per share. No restricted stock was granted in 2016. The total fair value of restricted stock that vested during the years ended December 31, 2017, 2016 and 2015 was $1.3 million, $2.4 million and $4.7 million, respectively.

Share-Based compensation settled in cash

Restricted Stock Units

The Company may grant restricted stock units ("RSUs") to employees that vest ratably over a three-year period. Cash payment will be made to employees on each vesting date based upon the Company's closing stock price on that date. Upon change in control of the Company, all of the RSUs will immediately vest. The Company computes the fair value of the RSUs using the closing price of the Company's stock at the end of each period and records a liability based on the percentage of requisite service

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rendered at the reporting date. During 2017 and 2016, the Company paid $0.1 million and $0.3 million, respectively, to settle 31,703 and 111,461 RSUs, respectively, that vested during the period.

Market Based Restricted Stock Units

The Company granted 60,767 market based restricted stock units ("MRSUs") to executive officers during November 2014. The executive officers can earn between 0-200% of the MRSUs granted based on the Company's performance versus a defined peer group. The 2014 MRSUs vest in one-third increments on each of the first, second and third annual anniversaries starting January 1, 2016. Upon change in control of the Company, all of the MRSUs will immediately vest. The number of MRSUs that ultimately vest is based on the Company's total shareholder return in the last 20 days of the fiscal year in relation to the last 20 days of the previous fiscal year in comparison to a group of 12 selected peer stocks of similar sized companies which operate within the same sector. The performance period ended on December 31, 2015 and executive officers earned 50% of the MRSUs. The MRSUs are cash settled on each vesting date based on the number of MRSUs that vest multiplied by the Company's closing stock price. In November 2017, the Company granted an additional 270,269 MRSUs. The performance period is scheduled to end on December 31, 2018 for these grants. The Company estimates the fair value of the outstanding MRSUs using a Monte Carlo valuation model and records a liability based on the percentage of requisite service rendered at the reporting date. The Monte Carlo valuation model considers such inputs as the stock prices of the Company and its peer group, a risk-free interest rate, and an estimated volatility for the Company and its peer group. As of December 31, 2017 and December 31, 2016, the Company had a liability for RSUs and MRSUs outstanding in the amount of $0.3 million and $0.1 million, respectively, based upon the closing stock price at December 31, 2017 and December 31, 2016.

The following table details MRSU and RSU activity during the year ended December 31, 2017:



	MRSU		RSU		Total
Outstanding at beginning of year	14,929		31,979		46,908
Granted	270,269		889,587		1,159,856
Expired/Cancelled/Forfeited	—		(276	)	(276	)
Vested/Paid	(7,465	)	(31,703	)	(39,168	)
Outstanding at December 31, 2017	277,733		889,587		1,167,320

Note 6—Asset Retirement Obligation

The Company accounts for asset retirement obligations in accordance with ASC Topic 410-20, which requires recording the fair value of an asset retirement obligation associated with tangible long-lived assets in the period incurred. Asset retirement obligations associated with long-lived assets included within the scope of ASC Topic 410-20 are those for which there is a legal obligation to settle under existing or enacted law, statute, written or oral contract or by legal construction under the doctrine of promissory estoppel. The Company has legal obligations to plug, abandon and dismantle existing wells and facilities that it has acquired and constructed.

The following table summarizes the changes to the Company’s asset retirement obligation (in thousands):



	Year Ended December 31,
	2017			2016
Asset retirement obligation, beginning of period	$	36,610		$	42,556
Liabilities incurred	574			—
Liabilities settled	(3,364		)	(3,296		)
Accretion expense	2,252			2,515
Revisions in estimated cash flows	(4,514		)	(1,746		)
Divestiture of oil and gas properties	(248		)	(3,419		)
Asset retirement obligation, end of period	31,310			36,610
Less: current portion of asset retirement obligation	(687		)	(4,160		)
Long-term asset retirement obligation	$	30,623		$	32,450

Divestitures of oil and gas properties during 2016 included $3.3 million as a result of the sale of our remaining Oklahoma assets. The liabilities incurred, revisions in estimated cash flows and divestitures represent non-cash investing activities for purposes

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of the statement of cash flows. In January 2018, the Company completed the sale of the Sold Assets, which resulted in a reduction of $28.4 million to our discounted asset retirement obligation subsequent to December 31, 2017.

Note 7—Derivative Instruments

The Company seeks to reduce its exposure to commodity price volatility by hedging a portion of its production through commodity derivative instruments. When the conditions for hedge accounting are met, the Company may designate its commodity derivatives as cash flow hedges. The changes in fair value of derivative instruments that qualify for hedge accounting treatment are recorded in other comprehensive income (loss) until the hedged oil or natural gas quantities are produced. If a derivative does not qualify for hedge accounting treatment, the changes in the fair value of the derivative are recorded in the statement of operations as derivative income (expense). At December 31, 2017 and 2016, all of the Company's outstanding derivative instruments were designated as cash flow hedges.

Oil and gas sales include additions related to the settlement of gas hedges of $1.5 million, $1.8 million and $15.9 million, for the years ended December 31, 2017, 2016 and 2015, respectively. There were no settlements of Ngl or oil hedges for the years ended December 31, 2017 and 2016. Oil and gas sales include $0.5 million and $0.6 million related to settlements of Ngl and oil hedges, respectively, for the year ended December 31, 2015.

As of December 31, 2017, the Company had entered into the following gas and oil hedge contracts:



Production Period	Instrument Type	Daily Volumes	Weighted Average Price
Natural Gas:
January 2018 - March 2018	Swap	35,000 Mmbtu	$3.24

Crude Oil:
January 2018 - December 2018	Swap	250 Bbl	$55.00

At December 31, 2017, the Company had recognized a net asset of approximately $0.4 million related to the estimated fair value of these derivative contracts. Based on estimated future commodity prices as of December 31, 2017, the Company would realize a $0.3 million gain, net of taxes, during the next 12 months. This gain is expected to be reclassified to oil and gas sales based on the schedule of volumes stipulated in the derivative contracts.

Derivatives designated as hedging instruments:

The following tables reflect the fair value of the Company’s effective cash flow hedges in the consolidated financial statements (in thousands):

Effect of Cash Flow Hedges on the Consolidated Balance Sheet at December 31, 2017 and December 31, 2016:



	Commodity Derivatives
Period	Balance Sheet Location	Fair Value
December 31, 2017	Derivative asset	$	1,174
December 31, 2017	Derivative liability	$	(731	)
December 31, 2016	Derivative liability	$	(3,947	)
December 31, 2016	Other long-term liabilities	$	(803	)

Effect of Cash Flow Hedges on the Consolidated Statement of Operations for years ended December 31, 2017, 2016 and 2015:



Instrument	Amount of Gain (Loss) Recognized in Other Comprehensive Income			Location of Gain Reclassified into Income	Amount of Gain Reclassified into Income
Commodity Derivatives at December 31, 2017	$	6,654		Oil and gas sales	$	1,461
Commodity Derivatives at December 31, 2016	$	(4,447	)	Oil and gas sales	$	1,811
Commodity Derivatives at December 31, 2015	$	9,991		Oil and gas sales	$	17,114

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Note 8 - Fair Value Measurements

ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. As presented in the tables below, this hierarchy consists of three broad levels:


•	Level 1: valuations consist of unadjusted quoted prices in active markets for identical assets and liabilities and has the highest priority;


•	Level 2: valuations rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability;


•	Level 3: valuations are based on prices or third party or internal valuation models that require inputs that are significant to the fair value measurement and are less observable and thus have the lowest priority.

The Company classifies its commodity derivatives based upon the data used to determine fair value. The Company's derivative instruments at December 31, 2017 and 2016 were in the form of swaps based on NYMEX pricing for oil and natural gas. The fair value of these derivatives is derived using an independent third-party’s valuation model that utilizes market-corroborated inputs that are observable over the term of the derivative contract. The Company’s fair value calculations also incorporate an estimate of the counterparties’ default risk for derivative assets and an estimate of the Company’s default risk for derivative liabilities. As a result, the Company designates its commodity derivatives as Level 2 in the fair value hierarchy.

The following table summarizes the Company’s assets (liabilities) that are subject to fair value measurement on a recurring basis as of December 31, 2017 and December 31, 2016 (in thousands):



	Fair Value Measurements Using
Instrument	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Commodity Derivatives:
At December 31, 2017	$	—	$	443		$	—
At December 31, 2016	$	—	$	(4,750	)	$	—

The fair value of the Company's cash and cash equivalents approximated book value at December 31, 2017 and 2016. The fair value of the Multidraw Term Loan Agreement approximated face value as of December 31, 2017 and 2016. The fair value of the Company's 2017 Notes, 2021 Notes and 2021 PIK Notes was determined based upon market quotes provided by an independent broker, which represents a Level 2 input. The following table summarizes the fair value of the 2017 Notes, 2021 Notes and 2021 PIK Notes as of December 31, 2017 and 2016, respectively (in thousands).



	Fair Value at 12/31/17		Face Value at 12/31/17		Carrying value at 12/31/17		Fair Value at 12/31/16		Face Value at 12/31/16		Carrying value at 12/31/16
2017 Notes	$	—	$	—	$	—	$	21,970	$	22,650	$	22,568
2021 Notes	7,306		9,427		9,821		12,192		14,177		15,228
2021 PIK Notes	198,717		263,202		271,577		177,732		243,468		248,600
	$	206,023	$	272,629	$	281,398	$	211,894	$	280,295	$	286,396

Note 9—Long-Term Debt

On August 19, 2010, the Company issued $150 million in principal amount of its 10% Senior Notes due 2017. On July 3, 2013, the Company issued an additional $200 million in principal amount of its 10% Senior Notes due 2017 (collectively, the "2017 Notes").

On February 17, 2016, the Company closed a private exchange offer (the "February Exchange") and consent solicitation (the "February Consent Solicitation") to certain eligible holders of its outstanding 2017 Notes. In satisfaction of the tender of $214.4 million in aggregate principal amount of the 2017 Notes, representing approximately 61% of the then outstanding aggregate principal amount of 2017 Notes, the Company (i) paid approximately $53.6 million of cash, (ii) issued $144.7 million aggregate principal amount of its new 10% Second Lien Senior Secured Notes due 2021 (the "2021 Notes") and (iii) issued approximately 1.1 million shares of common stock. Following the completion of the February Exchange, $135.6 million in aggregate principal

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amount of the 2017 Notes remained outstanding. The February Consent Solicitation eliminated or waived substantially all of the restrictive covenants contained in the indenture governing the 2017 Notes.

On September 27, 2016, the Company closed private exchange offers (the "September Exchange") and a consent solicitation (the "September Consent Solicitation") to certain eligible holders of its outstanding 2017 Notes and 2021 Notes. In satisfaction of the consideration of $113.0 million in aggregate principal amount of the 2017 Notes, representing approximately 83% of the then outstanding aggregate principal amount of 2017 Notes, and $130.5 million in aggregate principal amount of the 2021 Notes, representing approximately 90% of the then outstanding aggregate principal amount of 2021 Notes, the Company issued (i) $243.5 million in aggregate principal amount of its new 10% Second Lien Senior Secured PIK Notes due 2021 (the "2021 PIK Notes") and (ii) approximately 3.5 million shares of common stock. The Company also paid, in cash, accrued and unpaid interest on the 2017 Notes and 2021 Notes accepted in the September Exchange from the last applicable interest payment date to, but not including, September 27, 2016. Following the consummation of the September Exchange, there were $22.7 million in aggregate principal amount of the 2017 Notes outstanding and $14.2 million in aggregate principal amount of the 2021 Notes outstanding. The September Consent Solicitation amended certain provisions of the indenture governing the 2021 Notes and amended the registration rights agreement with respect to the 2021 Notes.

On March 31, 2017, the Company redeemed its remaining outstanding 2017 Notes at a redemption price of $22.8 million. The redemption was funded by cash on hand and amounts borrowed under the Multidraw Term Loan Agreement described below. On December 28, 2017, the Company issued 2.2 million shares of common stock to extinguish approximately $4.8 million of outstanding principal amount of 2021 Notes.

The 2021 PIK Notes bear interest at a rate of 10% per annum on the principal amount and interest is payable semi-annually in arrears on February 15 and August 15 of each year, starting on February 15, 2017. The Company was permitted, at its option, for one or more of the first three interest payment dates of the 2021 PIK Notes, to instead pay interest at (i) the annual rate of 1% in cash plus (ii) the annual rate of 9% PIK (the "PIK Interest") payable by increasing the principal amount outstanding of the 2021 PIK Notes or by issuing additional 2021 PIK Notes in certificated form. The Company exercised this PIK option in connection with the interest payments due on February 15, 2017, August 15, 2017 and February 15, 2018. As of December 31, 2017, the Company was in compliance with all of the covenants under the 2021 PIK Notes.

The 2021 Notes bear interest at a rate of 10% per annum on the principal amount and interest is payable semi-annually in arrears on February 15 and August 15 of each year. As of December 31, 2017, the Company was in compliance with all of the covenants under the 2021 Notes.

The February Exchange and September Exchange were accounted for as troubled debt restructurings pursuant to ASC Topic 470-60 "Troubled Debt Restructurings by Debtors." The Company determined that the future undiscounted cash flows from the 2021 PIK Notes issued in the September Exchange through the maturity date exceeded the adjusted carrying amount of the 2017 Notes and the 2021 Notes tendered in the September Exchange. Accordingly, no gain or loss on extinguishment of debt was recognized in connection with the September Exchange. The net shortfall of the remaining carrying value of the 2017 Notes and 2021 Notes tendered as compared to the principal amount of the 2021 PIK Notes issued in the September Exchange of $0.6 million is reflected as part of the carrying value of the 2021 PIK Notes. Such shortfall is being amortized under the effective interest method over the term of the 2021 PIK Notes. At December 31, 2017, $0.5 million of the excess remained as part of the carrying value of the 2021 PIK Notes and the Company recognized $0.1 million of amortization expense as a increase to interest expense during the year ended December 31, 2017.

The Company previously determined that the future undiscounted cash flows from the 2021 Notes issued in the February Exchange through the maturity date exceeded the adjusted carrying amount of the 2017 Notes tendered in the February Exchange. Accordingly, no gain on extinguishment of debt was recognized in connection with the February Exchange. The excess of the remaining carrying value of the 2017 Notes tendered over the principal amount of the 2021 Notes issued in the February Exchange of $13.9 million was reflected as part of the carrying value of the 2021 Notes. The amount of the excess carrying value attributable to the 2021 Notes tendered in the September Exchange is now reflected as part of the carrying value of the 2021 PIK Notes. The excess carrying value attributable to the remaining 2021 Notes is being amortized under the effective interest method over the term of the 2021 Notes. At December 31, 2017, $0.6 million of the excess remained as part of the carrying value of the 2021 Notes and the Company recognized $0.6 million of amortization expense as a reduction to interest expense during the year ended December 31, 2017.

The issuance of the 2021 Notes, 2021 PIK Notes and shares of common stock, as wells as the exchange of the 2017 Notes and 2021 Notes in the February Exchange and September Exchange, represent non-cash financing activities for purposes of the statement of cash flows.

The indentures governing the 2021 PIK Notes and the 2021 Notes contain affirmative and negative covenants that, among other things, limit the ability of the Company and the subsidiary guarantors of the 2021 PIK Notes and the 2021 Notes to incur indebtedness; purchase or redeem stock; make certain investments; create liens that secure debt; enter into transactions with affiliates; sell assets; refinance certain indebtedness; merge with or into other companies or transfer substantially all of their assets;

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and, in certain circumstances, to pay dividends or make other distributions on stock. The 2021 PIK Notes and the 2021 Notes are fully and unconditionally guaranteed on a senior basis, jointly and severally, by certain wholly-owned subsidiaries of the Company.

The 2021 PIK Notes and the 2021 Notes are secured equally and ratably by second-priority liens on substantially all of the Company's and the subsidiary guarantors' oil and gas properties and substantially all of their other assets to the extent such properties and assets secure the Multidraw Term Loan Agreement (as defined below), except for certain excluded assets. Pursuant to the terms of an intercreditor agreement, the security interest in those properties and assets that secure the 2021 PIK Notes and the 2021 Notes and the guarantees are contractually subordinated to liens that secure the Multidraw Term Loan Agreement and certain other permitted indebtedness. Consequently, the 2021 PIK Notes and the 2021 Notes and the guarantees will be effectively subordinated to the Multidraw Term Loan Agreement and such other indebtedness to the extent of the value of such assets.

On October 17, 2016, the Company entered into the Multidraw Term Loan Agreement (the "Multidraw Term Loan Agreement") with Franklin Custodian Funds - Franklin Income Fund ("Franklin"), as a lender, and Wells Fargo Bank, National Association, as administrative agent, replacing the credit agreement with JPMorgan Chase Bank, N.A. The Multidraw Term Loan Agreement provides a multi-advance term loan facility, with borrowing availability for three years, in a principal amount of up to $50.0 million. The loans drawn under the Multidraw Term Loan Agreement (collectively, the “Term Loans”) may be used to repay existing debt, to pay transaction fees and expenses, to provide working capital for exploration and production operations and for general corporate purposes. The Term Loans mature on October 17, 2020. As of December 31, 2017, the Company has $30.0 million of borrowings outstanding under the Term Loans.

The Company’s obligations under the Multidraw Term Loan Agreement and the Term Loans are secured by a first priority lien on substantially all of the assets of the Company and certain of its subsidiaries, including a lien on all equipment and at least 90% of the aggregate total value of the oil and gas properties of the Company and its subsidiaries, a pledge of the equity interests of PetroQuest Energy, L.L.C. (the "Borrower") and certain of the Company’s other subsidiaries, and corporate guarantees of the Company and certain of the Company’s other subsidiaries of the indebtedness of the Borrower. Term Loans under the Multidraw Term Loan Agreement bear interest at the rate of 10% per annum.

The Company and its subsidiaries are subject to a restrictive financial covenant under the Multidraw Term Loan Agreement, consisting of maintaining a ratio of (i) the present value, discounted at 10% per annum, of the estimated future net revenues in respect of the Company’s and its subsidiaries’ oil and gas properties, before any state, federal, foreign or other income taxes, attributable to proved developed reserves, using three-year strip prices in effect at the end of each calendar quarter, including swap agreements in place at the end of each quarter, to (ii) the sum of the outstanding Term Loans and the then outstanding commitments to provide Term Loans, that shall not be less than 2.0 to 1.0 as measured on the last day of each calendar quarter (the "Coverage Ratio").

Sales of the Company’s and its subsidiaries’ oil and gas properties outside the ordinary course of business are limited under the terms of the Multidraw Term Loan Agreement. In addition, the Multidraw Term Loan Agreement prohibits the Company from declaring and paying dividends on its Series B Preferred Stock.

The Multidraw Term Loan Agreement also includes customary restrictions with respect to debt, liens, dividends, distributions and redemptions, investments, loans and advances, nature of business, international operations and foreign subsidiaries, leases, sale or discount of receivables, mergers or consolidations, sales of properties, transactions with affiliates, negative pledge agreements, gas imbalances and swap agreements. As of December 31, 2017, no default or event of default existed under the Multidraw Term Loan Agreement and the Company was in compliance with all covenants contained in the Multidraw Term Loan Agreement, including the Coverage Ratio.

The 2017 Notes are reflected net of $0.1 million of related unamortized financing costs at December 31, 2016. The 2021 Notes are reflected net of $0.2 million and $0.1 million of related unamortized financing costs as of December 31, 2017 and 2016, respectively, and the Term Loans are reflected net of $2.0 million and $2.8 million of related unamortized financing costs as of December 31, 2017 and 2016, respectively.

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The following table reconciles the face value of the 2017 Notes, 2021 Notes, 2021 PIK Notes and Term Loans to the carrying value included in the consolidated balance sheet as of December 31, 2017 and 2016 (in thousands):



	December 31, 2017											December 31, 2016
	2017 Notes		2021 Notes			2021 PIK Notes			Term Loans			2017 Notes			2021 Notes			2021 PIK Notes			Term Loans
Face Value	$	—	$	9,427		$	263,202		$	30,000		$	22,650		$	14,177		$	243,468		$	10,000
Unamortized Deferred Financing Costs	—		(212		)	—			(2,037		)	(82		)	(108		)	—			(2,751		)
Excess (shortfall) Carrying Value	—		606			(508		)	—			—			1,159			(590		)	—
Accrued PIK Interest	—		—			8,883			—			—			—			5,722			—
Carrying Value	$	—	$	9,821		$	271,577		$	27,963		$	22,568		$	15,228		$	248,600		$	7,249

Note 10—Related Party Transactions

Two of the Company’s senior officers, Charles T. Goodson and Stephen H. Green, or their affiliates, are working interest owners and overriding royalty interest owners in certain properties operated by the Company or in which the Company also holds a working interest. As working interest owners, they are required to pay their proportionate share of all costs and are entitled to receive their proportionate share of revenues in the normal course of business. As overriding royalty interest owners, they are entitled to receive their proportionate share of revenues in the normal course of business.

During 2017, in their capacities as working interest owners or overriding royalty interest owners, revenues, net of costs, were disbursed to (received from) Messrs. Goodson and Green, or their affiliates, in the amounts of $(107,000) and $41,000, respectively. During 2016, in their capacities as working interest owners or overriding royalty interest owners, revenues, net of costs, were disbursed to (received from) Messrs. Goodson and Green, or their affiliates, in the amounts of $(15,000) and $25,000, respectively. During 2015, in their capacities as working interest owners or overriding royalty interest owners, revenues, net of costs, were disbursed to (received from) Messrs. Goodson and Green, or their affiliates, in the amounts of $(45,000) and $30,000, respectively. With respect to Mr. Goodson, gross revenues attributable to interests, properties or participation rights held by him prior to joining the Company as an officer and director on September 1, 1998 represent all of the gross revenue received by him during these periods.

In its capacity as operator, the Company incurs drilling and operating costs that are billed to its partners based on their respective working interests. At December 31, 2017, the Company’s joint interest billing receivable included approximately $89,000 from the related parties discussed above or their affiliates, attributable to their share of costs. This represents 1% of the Company’s total joint interest billing receivable at December 31, 2017.

In December 2017, the Company sold certain saltwater disposal assets in East Texas to a third party purchaser. In connection with the sale, the Company also entered into a volumetric commitment to deliver saltwater volumes to the purchaser of the saltwater disposal assets over a six year period. One of the minority owners of the purchaser is the son of Dr. Charles Mitchell, II, a member of our board of directors. The transactions were approved by the Audit Committee.

Note 11—Ceiling Test Write-down

The Company uses the full cost method to account for its oil and gas properties. Accordingly, the costs to acquire, explore for and develop oil and gas properties are capitalized. Capitalized costs of oil and gas properties, net of accumulated DD&A and related deferred taxes, are limited to the estimated future net cash flows from estimated proved oil and gas reserves, including the effects of cash flow hedges in place, discounted at 10%, plus the lower of cost or fair value of unproved properties, as adjusted for related income tax effects (the full cost ceiling). If capitalized costs exceed the full cost ceiling, the excess is charged to ceiling test write-down of oil and gas properties in the quarter in which the excess occurs.

In accordance with SEC requirements, the estimated future net cash flows from estimated proved reserves are based on an average of the first day of the month spot price for a historical 12-month period, adjusted for quality, transportation fees and market differentials. At December 31, 2016 and 2015, the prices used in computing the estimated future net cash flows from the Company’s estimated proved reserves, including the effect of hedges in place at that date, averaged $2.51 and $2.42, respectively, per Mcf of natural gas, $40.85 and $50.29, respectively, per barrel of oil and $1.82 and $2.21, respectively, per Mcfe of Ngl. As a result of lower commodity prices and their negative impact on the Company's estimated proved reserves and estimated future net cash flows, the Company recognized ceiling test write-downs of approximately $40.3 million and $266.6 million, respectively, during the years ended December 31, 2016 and 2015. The Company’s cash flow hedges in place decreased these ceiling test write-

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downs by approximately $8 million and $1.1 million for the years ended December 31, 2016 and 2015, respectively. The Company did not recognize a ceiling test write-down during the year ended December 31, 2017.

Note 12—Other Comprehensive Income (Loss)

The following table represents the changes in accumulated other comprehensive income (loss), net of tax, for the year ended December 31, 2015 (in thousands):



	Gains and Losses on Cash Flow Hedges
Balance as of December 31, 2014	$5,420
Other comprehensive income before reclassifications:
Change in fair value of derivatives	9,991
Income tax effect	(3,716	)
Net of tax	6,275
Amounts reclassified from accumulated other comprehensive income:
Oil and gas sales	(17,114	)
Income tax effect	6,366
Net of tax	(10,748	)
Net other comprehensive loss	(4,473	)
Balance as of December 31, 2015	$947

The following table represents the changes in accumulated other comprehensive income (loss), net of tax, for the year ended December 31, 2016 (in thousands):



	Gains and Losses on Cash Flow Hedges			Change in Valuation Allowance			Total
Balance as of December 31, 2015	$	947		$	—		$	947
Other comprehensive income before reclassifications:
Change in fair value of derivatives	(4,447		)	—			(4,447		)
Income tax effect	1,654			(1,654		)	—
Net of tax	(2,793		)	(1,654		)	(4,447		)
Amounts reclassified from accumulated other comprehensive income:
Oil and gas sales	(1,811		)	—			(1,811		)
Income tax effect	674			(113		)	561
Net of tax	(1,137		)	(113		)	(1,250		)
Net other comprehensive loss	(3,930		)	(1,767		)	(5,697		)
Balance as of December 31, 2016	$	(2,983	)	$	(1,767	)	$	(4,750	)

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The following table represents the changes in accumulated other comprehensive income (loss), net of tax, for the year ended December 31, 2017 (in thousands):



	Gains and Losses on Cash Flow Hedges			Change in Valuation Allowance			Total
Balance as of December 31, 2016	$	(2,983	)	$	(1,767	)	$	(4,750	)
Other comprehensive income before reclassifications:
Change in fair value of derivatives	6,654			—			6,654
Income tax effect	(2,475		)	1,767			(708		)
Net of tax	4,179			1,767			5,946
Amounts reclassified from accumulated other comprehensive income:
Oil and gas sales	(1,461		)	—			(1,461		)
Income tax effect	543			—			543
Net of tax	(918		)	—			(918		)
Net other comprehensive loss	3,261			1,767			5,028
Balance as of December 31, 2017	$	278		$	—		$	278

Note 13—Income Taxes

The Company typically provides for income taxes at the statutory federal income tax rate adjusted for permanent differences expected to be realized, primarily statutory depletion, non-deductible stock compensation expenses and state income taxes. As a result of ceiling test write-downs, the Company has incurred a three-year cumulative loss. Because of the impact the cumulative loss had on the determination of the recoverability of deferred tax assets through future earnings, the Company assessed the realizability of its deferred tax assets based on the future reversals of existing deferred tax liabilities. The Company had a valuation allowance of $115.9 million as of December 31, 2017 and $177.4 million as of December 31, 2016.

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act, among other things, reduces the U.S. federal corporate tax rate from 35% to 21%, eliminates the corporate alternative minimum tax and changes how existing alternative minimum tax credits are realized, creates a new limitation on deductible interest expense and changes the rules related to uses and limitations of net operating loss carryforwards generated in tax years beginning after December 31, 2017. As of December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the Act. However, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and recognized a provisional amount of $64.9 million to remeasure deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. This amount is included as a component of income tax expense (benefit) from continuing operations and is fully offset by the related adjustment to the Company’s valuation allowance. The Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.

As a result of the adoption of ASU 2016-09, the Company recognized an additional deferred tax asset of $4.7 million related to net operating loss carryforwards for excess tax benefits on share-based compensation that did not meet the criteria for recognition under previous guidance. This additional deferred tax asset was fully offset by the related adjustment to the Company's valuation allowance. The cumulative effect adjustment to record the previously unrecognized excess tax benefits and the related adjustment to the valuation allowance, were recorded in retained earnings on the date of adoption.

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An analysis of the Company’s deferred tax assets and liabilities follows (amounts in thousands):



	December 31,
	2017			2016
Net operating loss carryforwards	$	78,541		$	92,072
Percentage depletion carryforward	5,701			9,372
Alternative minimum tax credits	—			784
Contributions carryforward and other	192			282
Temporary differences:
Oil and gas properties	8,279			27,992
Asset retirement obligation	7,602			13,620
Derivatives	(107		)	1,767
Share-based compensation	1,269			1,870
Original issue discount on debt exchanges	14,429			29,646
Valuation allowance	(115,906		)	(177,405		)
Deferred tax asset (liability)	$	—		$	—

At December 31, 2017, the Company had approximately $332.1 million of federal net operating loss carryforwards. If not utilized, approximately $6.9 million of such carryforwards would expire in 2025 and the remainder would expire by the year 2037. The Company also had approximately $139.4 million of Louisiana state net operating loss carryforwards as of December 31, 2017. If not utilized, approximately $3.2 million of such carryforwards would expire during 2018 and the remainder would expire by the year 2036. The Company has available for tax reporting purposes $26.9 million in statutory depletion deductions that may be carried forward indefinitely.

Income tax expense (benefit) for each of the years ended December 31, 2017, 2016 and 2015 was different than the amount computed using the federal statutory rate (35%) for the following reasons (amounts in thousands):



	For the Year Ended December 31,
	2017			2016			2015
Amount computed using the statutory rate	$	(2,655	)	$	(31,623	)	$	(102,257	)
Increase (reduction) in taxes resulting from:
Impact of rate change on deferred tax	64,915			—			—
State & local taxes	(368		)	(2,000		)	(6,477		)
Percentage depletion carryforward	(66		)	(163		)	(404		)
Non-deductible stock option expense (1)	305			77			90
Share-based compensation (2)	64			707			1,317
Other	(21		)	1,415			113
Change in valuation allowance	(63,123		)	32,130			110,244
Income tax expense (benefit)	$	(949	)	$	543		$	2,626


(1)	Relates to compensation expense related to Incentive Stock Options.


(2)	Relates to the write-off of deferred tax assets associated with share-based compensation that will not be deductible for tax purposes.

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Note 14—Commitments and Contingencies

The Company is involved in litigation relating to claims arising out of its operations in the normal course of business, including worker's compensation claims, tort claims and contractual disputes. Some of the existing known claims against us are covered by insurance subject to the limits of such policies and the payment of deductible amounts by us. Although we cannot predict the outcome of these proceedings with certainty, management believes that the ultimate disposition of all uninsured or unindemnified matters resulting from existing litigation will not have a material adverse effect on the Company's business or financial position.

Lease Commitments

The Company has operating leases for office space and equipment, which expire on various dates through 2023. Future minimum lease commitments as of December 31, 2017 under these operating leases are as follows (in thousands):



2018	$	1,278
2019	1,242
2020	1,175
2021	447
2022	433
Thereafter	392
	$	4,967

Total rent expense under operating leases was approximately $1.5 million, $1.5 million and $1.7 million in 2017, 2016 and 2015, respectively.

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Note 15—Supplementary Information on Oil and Gas Operations—Unaudited

The following tables disclose certain financial data relative to the Company’s oil and gas producing activities, which are located onshore and offshore in the continental United States:

Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities

(amounts in thousands)



	For the Year-Ended December 31,
	2017			2016			2015
Acquisition costs:
Proved	$	1,330		$	3,346		$	2,287
Unproved (1)	12,762			2,197			2,550
Divestiture of proved leasehold	(4,795		)	(7,000		)	—
Exploration costs:
Proved	9,466			715			29,322
Unproved	(287		)	603			7,677
Development costs	32,622			1,522			9,888
Capitalized general and administrative and interest costs	8,269			7,558			12,881
Total costs incurred	$	59,367		$	8,941		$	64,605



	For the Year-Ended December 31,
	2017			2016			2015
Accumulated depreciation, depletion and amortization (DD&A)
Balance, beginning of year	$	(1,243,286	)	$	(1,157,455	)	$	(1,648,060	)
Provision for DD&A	(31,667		)	(27,962		)	(62,138		)
Ceiling test writedown	—			(40,304		)	(266,562		)
Sale of proved properties and other (2) (3)	(10,707		)	(17,565		)	819,305
Balance, end of year	$	(1,285,660	)	$	(1,243,286	)	$	(1,157,455	)

DD&A per Mcfe	$	1.15		$	1.19		$	1.82


(1)	During 2017, the Company acquired approximately 24,600 gross acres for approximately $9.3 million of cash and 2.0 million shares of common stock.


(2)	During 2015, the Company sold its Woodford Shale and Mississippian Lime assets for an aggregate cash purchase price of $274.1 million (see Note 2).

(3)

During 2017, the Company sold its East Lake Verret assets for net proceeds of approximately $2.2 million and its East Texas saltwater disposal assets for net proceeds of $8.5 million. During 2016, the Company sold its remaining Oklahoma producing assets for an aggregate purchase price of $17.6 million. During 2015, the Company sold its Fort Trinidad assets for net proceeds of approximately $0.5 million and its East Haynesville assets for net proceeds of approximately $0.1 million.

At December 31, 2017 and 2016, unevaluated oil and gas properties totaled $21.9 million and $9.0 million, respectively, and were not subject to depletion. Unevaluated costs at December 31, 2017 included $0.7 million related to two facilities in progress at year-end. At December 31, 2016, unevaluated costs included $0.4 million related to one development well in progress at year-end, which were transferred to evaluated oil and gas properties during 2017. The Company capitalized $1.6 million, $0.9 million and $4.7 million of interest during 2017, 2016 and 2015, respectively. Of the total unevaluated oil and gas property costs of $21.9 million at December 31, 2017, $14.6 million, or 67%, was incurred in 2017, $2.0 million, or 9%, was incurred in 2016 and $5.2 million, or 24%, was incurred in prior years. In connection with the sale of the Company's Gulf of Mexico assets, approximately $5.5 million, or 25% of the total unevaluated balance at December 31, 2017, was transferred to evaluated oil and

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gas properties in 2018. Of the remaining unevaluated balance at December 31, 2017, the Company expects the majority of the costs will be evaluated within the next three years, including $4.1 million expected to be evaluated during 2018.

Oil and Gas Reserve Information

The Company’s net proved oil and gas reserves at December 31, 2017 have been estimated by independent petroleum engineers in accordance with guidelines established by the SEC using a historical 12-month, first of month, average pricing assumption.

The estimates of proved oil and gas reserves constitute those quantities of oil, gas,and natural gas liquids, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. However, there are numerous uncertainties inherent in estimating quantities of proved reserves and in providing the future rates of production and timing of development expenditures. The following reserve data represents estimates only and should not be construed as being exact. In addition, the present values should not be construed as the current market value of the Company’s oil and gas properties or the cost that would be incurred to obtain equivalent reserves.

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The following table sets forth an analysis of the Company’s estimated quantities of net proved and proved developed oil (including condensate), gas and natural gas liquid reserves, all located onshore and offshore in the continental United States:



	Oil in MBbls		NGL in MMcfe		Natural Gas in MMcf		Total Reserves in MMcfe
Proved reserves as of December 31, 2014	2,437		73,498		309,025		397,148
Revisions of previous estimates	(211	)	(3,571	)	(9,852	)	(14,698	)
Extensions, discoveries and other additions	163		16,078		45,645		62,702
Sale of reserves in place	(54	)	(45,692	)	(186,972	)	(232,988	)
Production	(529	)	(5,487	)	(25,502	)	(34,160	)
Proved reserves as of December 31, 2015	1,806		34,826		132,344		178,004
Revisions of previous estimates	247		(4,380	)	(11,854	)	(14,748	)
Extensions, discoveries and other additions	—		—		1,485		1,485
Sale of reserves in place	(154	)	—		(24,834	)	(25,759	)
Production	(502	)	(3,871	)	(16,617	)	(23,501	)
Proved reserves as of December 31, 2016	1,397		26,575		80,524		115,481
Revisions of previous estimates	308		(7,269	)	381		(5,040	)
Extensions, discoveries and other additions	777		4,565		64,704		73,931
Purchase of producing properties	48		—		473		761
Sale of reserves in place	(90	)	—		(1,033	)	(1,573	)
Production	(592	)	(4,450	)	(19,611	)	(27,613	)
Proved reserves as of December 31, 2017	1,848		19,421		125,438		155,947

Proved developed reserves

As of December 31, 2015	1,549		15,792		78,533		103,615

As of December 31, 2016	1,212		13,073		47,349		67,694

As of December 31, 2017	1,078		12,564		57,409		76,441

Proved undeveloped reserves

As of December 31, 2015	257		19,034		53,811		74,389

As of December 31, 2016	185		13,502		33,175		47,787

As of December 31, 2017	770		6,857		68,029		79,506

Year Ended December 31, 2017

During 2017, the Company’s estimated proved reserves increased by 35%. The increase in reserves was the result of 73.9 Bcfe added due to the Company's drilling program in East Texas where it drilled eight gross wells during 2017. In response to low ethane prices, during 2017 the Company elected to bypass ethane processing on a portion of its East Texas production. As a result, the Company reduced its estimated proved ngl reserves to reflect the assumption that ethane would continue to not be recovered as natural gas liquids. Overall, the Company had a 100% drilling success rate during 2017.

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Year Ended December 31, 2016

During 2016, the Company’s estimated proved reserves decreased by 35% primarily due to the divestiture of the Company's remaining Oklahoma assets and significant reductions in capital spending during 2016 . Extensions, discoveries and other additions of 1.5 Bcfe were primarily due to the successful completion of the Company's final Oklahoma wells. Revisions of previous estimates included the reclassification of certain PUD reserves to probable reserves as a result of the Company's assessment of the timing of development. Overall, the Company had a 100% drilling success rate during 2016 on 5 gross wells drilled.

Year Ended December 31, 2015

During 2015, the Company's estimated proved reserves decreased by 55% primarily due to the divestiture of the majority of the Company's Woodford Shale and Mississippian Lime assets. Extensions, discoveries and other additions of 63 Bcfe were primarily due to successful drilling programs in the Company's Oklahoma and East Texas fields. The Company added approximately 17 Bcfe of proved reserves in Oklahoma and 44 Bcfe in Texas. Overall, the Company had a 95% drilling success rate during 2015 on 56 gross wells drilled.

The following tables (amounts in thousands) present the standardized measure of future net cash flows related to proved oil and gas reserves together with changes therein, as defined by ASC Topic 932. Future production and development costs are based on current costs with no escalations. Estimated future cash flows have been discounted to their present values based on a 10% annual discount rate.

Standardized Measure



	December 31,
	2017			2016			2015
Future cash flows	$	539,244		$	299,035		$	487,834
Future production costs	(184,171		)	(117,283		)	(171,678		)
Future development costs	(128,447		)	(83,720		)	(116,591		)
Future income taxes	—			—			—
Future net cash flows	226,626			98,032			199,565
10% annual discount	(99,329		)	(30,763		)	(71,880		)
Standardized measure of discounted future net cash flows	$	127,297		$	67,269		$	127,685

Changes in Standardized Measure



	Year Ended December 31,
	2017			2016			2015
Standardized measure at beginning of year	$	67,269		$	127,685		$	548,562

Sales and transfers of oil and gas produced, net of production costs	(70,362		)	(35,993		)	(55,849		)
Changes in price, net of future production costs	53,516			(30,427		)	(267,710		)
Extensions and discoveries, net of future production and development costs	50,977			864			70,928
Changes in estimated future development costs, net of development costs incurred during this period	17,144			26,356			31,007
Revisions of quantity estimates	(7,482		)	(14,889		)	(14,427		)
Accretion of discount	6,727			12,769			60,071
Net change in income taxes	—			—			52,149
Purchase of reserves in place	549			—			—
Sale of reserves in place	(1,305		)	(16,701		)	(194,454		)
Changes in production rates (timing) and other	10,264			(2,395		)	(102,592		)
Net increase (decrease) in standardized measure	60,028			(60,416		)	(420,877		)
Standardized measure at end of year	$	127,297		$	67,269		$	127,685

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The historical twelve-month, first day of the month, average prices of oil, gas and natural gas liquids used in determining standardized measure were:



	2017	2016	2015
Oil, $/Bbl	$52.49	$40.85	$50.29
Ngls, $/Mcfe	3.23	2.40	2.24
Natural Gas, $/Mcf	3.03	1.82	2.41

Note 16 - Summarized Quarterly Financial Information - Unaudited

Summarized quarterly financial information is as follows (amounts in thousands except per share data):



	Quarter Ended
	March 31			June 30			September 30			December 31
2017
Revenues	$	20,772		$	24,251		$	28,184		$	35,080
Income (loss) from operations	(3,633		)	(2,289		)	(1,885		)	221
Loss available to common stockholders	(4,918		)	(3,385		)	(3,085		)	$	(389	)
Loss per share:
Basic	$	(0.23	)	$	(0.16	)	$	(0.15	)	$	(0.02	)
Diluted	$	(0.23	)	$	(0.16	)	$	(0.15	)	$	(0.02	)

2016:
Revenues	$	17,320		$	15,824		$	17,094		$	16,429
Loss from operations (1)	(37,557		)	(22,383		)	(22,039		)	(8,374		)
Loss available to common stockholders (1)	(39,137		)	(24,143		)	(23,306		)	(9,659		)
Loss per share:
Basic	$	(2.09	)	$	(1.38	)	$	(1.31	)	$	(0.46	)
Diluted	$	(2.09	)	$	(1.38	)	$	(1.31	)	$	(0.46	)

(1) Loss from operations and loss available to common stockholders reported during the three months ended March 31, June 30 and September 30, 2016 included pretax ceiling test write-downs of $18.9 million, $12.8 million and $8.7 million, respectively.

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