PetroQuest Energy Announces 2010 Year-End and Fourth Quarter Results

LAFAYETTE, La., Feb. 24, 2011 /PRNewswire/ -- PetroQuest Energy, Inc. (NYSE: PQ) announced today net income available to common stockholders for the quarter ended December 31, 2010 of $2,083,000, or $0.03 per share, compared to fourth quarter 2009 net loss available to common stockholders of ($40,572,000), or ($0.66)  per share. For the year ended December 31, 2010, the Company reported net income available to common shareholders of $41,987,000, or $0.66 per share, compared to net loss available to common shareholders of ($95,330,000), or ($1.72) per share, for the year ended December 31, 2009. The 2009 results included ceiling test write downs of $52.5 million and $156.1 million during the fourth quarter and twelve month periods ended December 31, 2009, respectively.

Discretionary cash flow for the fourth quarter of 2010 was $23,428,000 as compared to $36,783,000 for the comparable 2009 period.  For the year ended December 31, 2010, discretionary cash flow was $119,668,000 compared to $146,801,000 for 2009. See the attached schedule for a reconciliation of net cash flow provided by operating activities to discretionary cash flow.

Oil and gas sales during the fourth quarter of 2010 were $43,407,000 as compared to $53,852,000 in the fourth quarter of 2009.  For the year ended December 31, 2010, oil and gas sales decreased 18% to $179,038,000 as compared to $218,644,000 in the year ended December 31, 2009.  Included in oil and gas sales were hedge settlements totaling $17,538,000 in 2010 compared to $79,892,000 in 2009.  Production for the fourth quarter and year ended December 31, 2010 was 5% higher and 9% lower, respectively, than production for the comparable periods of 2009.  Stated on an Mcfe basis, unit prices (including the effects of hedging) received during the fourth quarter and the year ended December 31, 2010 were lower by 23% and 10%, respectively, as compared to the prices received during the comparable 2009 periods.

Lease operating expenses for the fourth quarter of 2010 were $1.33 per Mcfe as compared to $1.24 per Mcfe in the fourth quarter of 2009.  For the year ended December 31, 2010, lease operating expenses increased to $1.26 per Mcfe from $1.13 per Mcfe in 2009. Per unit and absolute lease operating expenses increased during the 2010 periods as compared to the 2009 periods primarily due to the overall reduction in produced volumes, higher maintenance costs, as well as the overall increase in the cost of services.  During the fourth quarter of 2010, the Company incurred $1.6 million of unscheduled expenses related to enhancing production and maintaining facilities.

Depreciation, depletion and amortization ("DD&A") on oil and gas properties for the fourth quarter of 2010 was $1.95 per Mcfe as compared to $2.16 per Mcfe in the fourth quarter of 2009. For the year ended December 31, 2010, DD&A on oil and gas properties decreased 23% to $1.88 per Mcfe from $2.44 per Mcfe for the comparable period of 2009.  The decline in DD&A per Mcfe during the 2010 periods was the result of the ceiling test write-downs during 2009, the impact of the previously announced Woodford joint venture and reserve additions during 2010.

Interest expense for the fourth quarter of 2010 increased to $2,616,000, as compared to $2,520,000 in the fourth quarter of 2009. For the year ended December 31, 2010, interest expense was $9,952,000, compared to $12,615,000 for the comparable period of 2009. The decrease in interest expense is primarily due to the repayment of $130,000,000 of bank debt since August 2009.

General and administrative expenses decreased $270,000 and increased $2,472,000 for the fourth quarter and year ended December 31, 2010, as compared to the respective 2009 periods. The increase during the year ended December 31, 2010 was  primarily due to higher employee related expenses, which includes a non-cash compensation charge related to the cancellation of certain stock options during the third quarter of 2010.

Other expense during the fourth quarter of 2010 includes accruals for potential liabilities associated with certain pending legal matters.

The following table sets forth certain information with respect to the oil and gas operations of the Company for the three-month periods and years ended December 31, 2010 and 2009:

The above sales and average sales prices include increases (reductions) to revenue related to the settlement of gas hedges of $17,538,000, $74,333,000 and ($6,160,000) and oil hedges of $0, $5,559,000 and ($2,124,000) for the years ended December 31, 2010, 2009 and 2008, respectively.  

During the first quarter of 2011, the Company experienced production downtime in all of its operating areas and operational delays at its Gulf Coast and Woodford properties due to inclement weather.  

The following updates guidance for the first quarter and full year of 2011:

Operations Update

The Company recently completed its forty-fourth Woodford operated horizontal well (4,220 foot lateral). The well is in the early stages of flowback and has not had sufficient time to establish a clean 24 hour initial production rate.  In addition, the Company has commenced completion activities on its forty-fifth operated horizontal well (5,026 foot lateral) and has reached total depth on its forty-sixth operated horizontal well (4,906 foot lateral). The Company expects to commence completion activities on its forty-sixth operated well in approximately three weeks and expects to provide an update on all three wells (PQ #44-46) in its first quarter operations update.  The Company has also taken delivery of its third operated rig and expects to utilize a three rig program and drill approximately 30 gross operated wells during 2011.

In the Niobrara, the drilling site work has been finalized in preparation for the Company's third well, Hester #3 (WI-25%), and the well is expected to be spudded in approximately two weeks. The Company's second well, Nevis #2 (NRI-20%), is currently flowing with the assistance of artificial lift at 335 barrels of oil per day after 79 days of production.  In addition, the Company expects to participate in a well (WI-19%) with another operator, which is also expected to spud in approximately two weeks.

In the Gulf Coast Basin, the Company recently performed a workover and recompletion at its shallow-water Gulf of Mexico Ship Shoal 72 field resulting in an initial 24 hour gross daily production rate of approximately 300 barrels of oil and 360 mcf of gas. The Company expects to perform two additional recompletions and a multi-well sidetrack drilling program targeting oil during the year. In addition, the Company expects to spud its La Cantera prospect (WI-23%) in March 2011.

In East Texas, the Company expects to commence completion operations on its second non-operated horizontal Cotton Valley well (WI-26%) near the end of the first quarter.  The Company expects to drill seven horizontal Cotton Valley wells during 2011.  

The Company continues to actively pursue additional Eagle Ford acreage acquisitions. The Company has acquired approximately 3,200 acres (1,600 net acres) located in Dimmit and LaSalle Counties in Texas. The Company expects to spud its first operated Eagle Ford Shale well during the second quarter of 2011 and plans to drill three operated wells during 2011.  

Management Statement

"2010 was a significant year for our Company; we posted reserve growth of 24% (excluding the impact of reserves sold), paid back our bank debt, and established a joint venture partnership in the Woodford, which ultimately led to new positions in the Niobrara and Eagle Ford," said Charles T. Goodson, Chairman, Chief Executive Officer and President. "This year is similar to 2003, in that we enter another phase of diversification; we now look to enhance our liquids production, which will generate a more balanced production profile.  As previously mentioned, we are forecasting our oil production to grow in excess of 10% during 2011."

About the Company

PetroQuest Energy, Inc. is an independent energy company engaged in the exploration, development, acquisition and production of oil and natural gas reserves in the Arkoma Basin, Wyoming, Texas, South Louisiana and the shallow waters of the Gulf of Mexico.  PetroQuest's common stock trades on the New York Stock Exchange under the ticker PQ.

Forward-Looking Statements

This news release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected.  Among those risks, trends and uncertainties are our ability to find oil and natural gas reserves that are economically recoverable, the volatility of oil and natural gas prices and significantly depressed natural gas prices since the middle of 2008, the uncertain economic conditions in the United States and globally, the declines in the values of our properties that have resulted in and may in the future result in additional ceiling test write-downs, our ability to replace reserves and sustain production, our estimate of the sufficiency of our existing capital sources, our ability to raise additional capital to fund cash requirements for future operations, the uncertainties involved in prospect development and property acquisitions or dispositions and in projecting future rates of production or future reserves, the timing of development expenditures and drilling of wells, hurricanes and other natural disasters, including the impact of the oil spill in the Gulf of Mexico on our present and future operations, and the operating hazards attendant to the oil and gas business.  In particular, careful consideration should be given to cautionary statements made in the various reports PetroQuest has filed with the Securities and Exchange Commission. PetroQuest undertakes no duty to update or revise these forward-looking statements.

Click here for more information: "http://www.petroquest.com/news.html?=BizID=1690&1=1"

Note:  Management believes that discretionary cash flow is relevant and useful information, which is commonly used by analysts, investors and other interested parties in the oil and gas industry as a financial indicator of an oil and gas company's ability to generate cash used to internally fund exploration and development activities and to service debt.  Discretionary cash flow is not a measure of financial performance prepared in accordance with generally accepted accounting principles ("GAAP") and should not be considered in isolation or as an alternative to net cash flow provided by operating activities.  In addition, since discretionary cash flow is not a term defined by GAAP, it might not be comparable to similarly titled measures used by other companies.

SOURCE PetroQuest Energy, Inc.