PetroQuest Energy Announces Third Quarter 2011 Results

Nov 03, 2011, 05:30 ET from PetroQuest Energy, Inc.

LAFAYETTE, La., Nov. 3, 2011 /PRNewswire/ -- PetroQuest Energy, Inc. (NYSE: PQ) announced today net income available to common stockholders for the quarter ended September 30, 2011 of  $3,727,000, or $0.06 per share, compared to third quarter 2010 net income available to common stockholders of $4,939,000, or $0.08 per share. For the first nine months of 2011, the Company reported net income available to common stockholders of $2,579,000, or $0.04 per share, compared to net income available to common stockholders of $39,904,000, or $0.63 per share, for the first nine months of 2010. Net income for the nine month 2011 period was impacted by $18.9 million in ceiling test writedowns recognized during the first six months of 2011.

Discretionary cash flow for the third quarter of 2011 was $21,099,000, as compared to $30,109,000 for the comparable 2010 period. For the first nine months of 2011, discretionary cash flow was $73,219,000. Discretionary cash flow for the first nine months of 2010 was $96,240,000. See the attached schedule for a reconciliation of net cash flow provided by operating activities to discretionary cash flow.

Production for the third quarter of 2011 was 7.4 Bcfe (80.9 MMcfe/d), compared to 7.9 Bcfe (86.4 MMcfe/d) for the comparable period of 2010. For the first nine months of 2011, production was 22.2 Bcfe (81.2 MMcfe/d), compared to 23.0 Bcfe (84.3 MMcfe/d) for the comparable period of 2010. Approximately 68% of the Company's third quarter 2011 production was from long-lived basins and 18% of third quarter 2011 production came from oil and natural gas liquids.

Stated on an Mcfe basis, unit prices received during the third quarter and the first nine months of 2011 were 10% and 6% lower, respectively, than the comparable 2010 periods. Oil and gas sales during the third quarter of 2011 decreased 16% to $38,980,000, as compared to $46,229,000 in the third quarter of 2010. For the first nine months of 2011, oil and gas sales decreased 10% to $122,446,000 from $135,631,000 in the first nine months of 2010.

Lease operating expenses for the third quarter of 2011 were $1.39 per Mcfe as compared to $1.23 per Mcfe in the third quarter of 2010. For the first nine months of 2011, lease operating expenses per Mcfe increased 10% to $1.36 from $1.24 in the comparable period of 2010.  Per unit lease operating expenses increased primarily due to the overall reduction in produced volumes and higher overall costs of materials and services.

Depreciation, depletion and amortization ("DD&A") on oil and gas properties for the third quarter of 2011 was $1.94 per Mcfe as compared to $1.82 per Mcfe in the third quarter of 2010.  For the first nine months of 2011, DD&A per Mcfe increased 4% to $1.92 per Mcfe from $1.85 per Mcfe for the comparable period of 2010.

Interest expense for the third quarter of 2011 decreased to $2,299,000, as compared to $3,147,000 in the third quarter of 2010. For the first nine months of 2011, interest expense was $7,248,000, compared to $7,336,000 for the comparable period of 2010.

General and administrative expenses decreased $591,000 and $2,238,000 for the third quarter and nine months ended September 30, 2011, as compared to the respective 2010 periods.  The decreases during the 2011 periods are primarily due to lower employee related expenses including non-cash stock compensation expense.

Production taxes for the third quarter of 2011 totaled $1,446,000, as compared to $361,000 in the third quarter of 2010.  For the first nine months of 2011, production taxes were $2,070,000 compared to $3,308,000 for the comparable period of 2010. Production taxes for the first nine months of 2011 included $2.4 million of refunds of taxes previously paid in Oklahoma and Texas and production taxes for the third quarter of 2010 included $1.2 million of refunds of taxes previously paid in Oklahoma.  

Capital expenditures during the nine months ended September 30, 2011 totaled approximately $132 million and were comprised of $28 million in acquisition costs, $91 million in drilling and completion costs and $13 million in capitalized interest and overhead.  The Company expects to finance its 2011 capital spending internally through cash flow from operations, cash on hand and $28 million in payments expected to be received during the fourth quarter of 2011 related to the Woodford joint venture.

The following table sets forth certain information with respect to the oil and gas operations of the Company for the three-and nine-month periods ended September 30, 2011 and 2010:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2011

2010

2011

2010

Production:

 Oil (Bbls)

        130,144

        190,070

          445,457

          488,996

 Gas (Mcf)

     6,073,776

     6,194,862

     17,847,061

     18,252,378

 Ngl (Mcfe)

        584,786

        614,260

       1,658,323

       1,823,317

 Total Production (Mcfe)

     7,439,426

     7,949,542

     22,178,126

     23,009,671

 Total Daily Production (MMcfe)

              80.9

              86.4

                81.2

                84.3

Sales:

 Total oil sales

$ 13,508,377

$ 14,552,796

$   46,403,861

$   37,840,190

 Total gas sales

   19,865,595

   27,506,045

     60,481,702

     83,846,822

 Total ngl sales

     5,606,335

     4,170,453

     15,560,225

     13,944,203

 Total oil and gas sales

$ 38,980,307

$ 46,229,294

$ 122,445,788

$ 135,631,215

Average sales prices:

 Oil (per Bbl)

$        103.80

$          76.57

$          104.17

$            77.38

 Gas (per Mcf)

              3.27

              4.44

                3.39

                4.59

 Ngl (per Mcfe)

              9.59

              6.79

                9.38

                7.65

 Per Mcfe

              5.24

              5.82

                5.52

                5.89

The above sales and average sales prices include increases to revenue related to the settlement of gas hedges of $478,000 and $4,550,000 and oil hedges of $178,000 and zero for the three months ended September 30, 2011 and 2010, respectively.  The above sales and average sales prices include increases (reductions) to revenue related to the settlement of gas hedges of $864,000 and $10,837,000 and oil hedges of ($211,000) and zero for the nine months ended September 30, 2011 and 2010, respectively.  

The following initiates guidance for the fourth quarter of 2011:

Guidance for

Description

4th Quarter 2011

Production volumes (MMcfe/d)

84 - 88

Percent Gas

82%

Percent Oil

10%

Percent NGL

8%

Expenses:

 Lease operating expenses (per Mcfe)

$1.20 - $1.30

 Production taxes (per Mcfe)

$0.20 - $0.25

 Depreciation, depletion and amortization (per Mcfe)

$1.90 - $2.00

 General and administrative (in millions)

$5.0 - $5.5

 Interest expense (in millions)

$2.5 - $2.7

2011 Capital Expenditures (in millions)

$130 - $140 *

* Excludes $28 million in leasehold acquisition costs funded with cash on hand

Management Statement

"Through the success of our increased operational activity focused on our resource basins, I am pleased to announce we are forecasting production growth during the fourth quarter. We have grown our Woodford production by 20% this year, and in connection with these results, expect to earn the full $28 million in payments available under the Woodford joint venture," said Charles T. Goodson, Chairman, Chief Executive Officer and President. "These payments support the success and benefits we and our partner derive from the Woodford JV.  This relationship, which began in May 2010, has now expanded across multiple resource plays, the latest being the Mississippian Lime, and illustrates how two vastly different companies can each benefit from a joint venture.  Our Tulsa team has done a great job executing our Woodford program and will now lead our Mississippian Lime development. This newly acquired property, along with our other core assets, will offer us attractive future growth opportunities."

About the Company

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

Forward-Looking Statements

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

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

PETROQUEST ENERGY, INC.

Consolidated Balance Sheets

(unaudited)

(Amounts in Thousands)

September 30,

December 31,

2011

2010

ASSETS

Current assets:

       Cash and cash equivalents

$         22,269

$        63,237

       Revenue receivable

5,299

13,386

       Joint interest billing receivable

46,839

12,193

       Other receivable

13,963

13,795

       Prepaid drilling costs

4,353

789

       Drilling pipe inventory

4,983

11,711

       Hedge asset

4,178

-

       Other current assets

3,929

1,827

Total current assets

105,813

116,938

Property and equipment:

       Oil and gas properties:

          Oil and gas properties, full cost method

1,544,614

1,433,642

          Unevaluated oil and gas properties

75,481

54,851

          Accumulated depreciation, depletion and amortization

(1,237,075)

(1,175,553)

                 Oil and gas properties, net

383,020

312,940

      Gas gathering assets, net of accumulated depreciation and

        amortization of $1,720 and $1,496, respectively

2,457

2,681

Total property and equipment

385,477

315,621

Other assets, net of accumulated depreciation and amortization

       of $7,641 and $6,435, respectively

6,133

6,958

Total assets

$       497,423

$      439,517

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

       Accounts payable to vendors

$         57,080

$        23,847

       Advances from co-owners

25,889

7,963

       Oil and gas revenue payable

6,402

7,220

       Accrued interest and preferred stock dividend

2,435

6,575

       Asset retirement obligation

2,483

1,517

       Other accrued liabilities

10,338

10,719

Total current liabilities

104,627

57,841

10% Senior Notes

150,000

150,000

Asset retirement obligation

24,867

23,075

Deferred income taxes

1,132

-

Other liabilities

-

439

Commitments and contingencies

Stockholders' equity:

       Preferred stock, $.001 par value; authorized 5,000

        shares; issued and outstanding 1,495 shares

1

1

       Common stock, $.001 par value; authorized 150,000

        shares; issued and outstanding 62,071 and 61,565

        shares, respectively

62

62

       Paid-in capital

268,915

266,907

       Accumulated other comprehensive income (loss)

2,959

(1,089)

       Accumulated deficit

(55,140)

(57,719)

Total stockholders' equity

216,797

208,162

Total liabilities and stockholders' equity

$       497,423

$      439,517

PETROQUEST ENERGY, INC.

Consolidated Statements of Income

(unaudited)

(Amounts in Thousands, Except Per Share Data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2011

2010

2011

2010

Revenues:

       Oil and gas sales

$ 38,980

$ 46,229

$ 122,446

$ 135,631

       Net gas gathering revenue

49

45

161

164

39,029

46,274

122,607

135,795

Expenses:

       Lease operating expenses

10,376

9,742

30,085

28,457

       Production taxes

1,446

361

2,070

3,308

       Depreciation, depletion and amortization

14,696

14,739

43,415

43,467

       Ceiling test writedown

-

-

18,907

-

       General and administrative

4,990

5,581

13,668

15,906

       Accretion of asset retirement obligation

433

424

1,612

1,300

       Interest expense

2,299

3,147

7,248

7,336

34,240

33,994

117,005

99,774

      Gain on legal settlement

-

-

-

12,400

      Loss on early extinguishment of debt

-

(5,973)

-

(5,973)

      Other income (expense)

(40)

218

237

229

Income from operations

4,749

6,525

5,839

42,677

       Income tax expense (benefit)

(265)

299

(594)

(1,081)

Net income

5,014

6,226

6,433

43,758

Preferred stock dividend

1,287

1,287

3,854

3,854

Net income available to common stockholders

$   3,727

$   4,939

$     2,579

$   39,904

Earnings per common share:

 Basic

      Net income per share

$     0.06

$     0.08

$       0.04

$       0.63

 Diluted

      Net income per share

$     0.06

$     0.08

$       0.04

$       0.63

Weighted average number of common shares:

       Basic

62,041

61,446

61,876

61,372

       Diluted

62,415

61,814

62,278

61,744

PETROQUEST ENERGY, INC.

Consolidated Statements of Cash Flows

(unaudited)

(Amounts in Thousands)

Nine Months Ended

September 30,

2011

2010

Cash flows from operating activities:

Net income

$    6,433

$  43,758

Adjustments to reconcile net income to net cash provided by

 operating activities:

       Deferred tax benefit

(594)

(1,081)

       Depreciation, depletion and amortization

43,415

43,467

       Ceiling test writedown

18,907

-

       Non-cash gain on legal settlement

-

(4,164)

       Loss on early extinguishment of debt

-

5,973

       Accretion of asset retirement obligation

1,612

1,300

       Share based compensation expense

2,985

5,863

       Amortization costs and other

461

1,124

Payments to settle asset retirement obligations

(551)

(5,672)

Changes in working capital accounts:

       Revenue receivable

8,087

6,807

       Joint interest billing receivable

(34,646)

(384)

       Prepaid drilling and pipe costs

3,164

3,504

       Accounts payable and accrued liabilities

26,914

(55)

       Advances from co-owners

17,926

(2,162)

       Other

(3,000)

(2,084)

Net cash provided by operating activities

91,113

96,194

Cash flows used in investing activities:

       Investment in oil and gas properties

(141,687)

(78,015)

       Proceeds from sale of unevaluated properties

14,461

22,473

       Proceeds from sale of oil and gas properties

-

35,000

Net cash used in investing activities

(127,226)

(20,542)

Cash flows used in financing activities:

       Net payments for share based compensation

(977)

(223)

       Deferred financing costs

(24)

(8)

       Proceeds from issuance of 10% Sr. Notes

-

150,000

       Costs to issue 10% Sr. Notes

-

(4,117)

       Redemption of 10 3/8% Sr. Notes

-

(150,000)

       Costs to redeem 10 3/8% Sr. Notes

-

(4,187)

       Payment of preferred stock dividend

(3,854)

(3,852)

       Proceeds from bank borrowings

22,000

-

       Repayment of bank borrowings

(22,000)

(29,000)

Net cash used in financing activities

(4,855)

(41,387)

Net (decrease) increase in cash and cash equivalents

(40,968)

34,265

Cash and cash equivalents, beginning of period

63,237

20,772

Cash and cash equivalents, end of period

$  22,269

$  55,037

Supplemental disclosure of cash flow information:

       Cash paid during the period for:

               Interest

$  15,870

$  10,923

               Income taxes

$         51

$       192

PETROQUEST ENERGY, INC.

Non-GAAP Disclosure Reconciliation

(Amounts In Thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2011

2010

2011

2010

Net income

$   5,014

$   6,226

$   6,433

$ 43,758

Reconciling items:

     Deferred tax expense (benefit)

(265)

299

(594)

(1,081)

     Depreciation, depletion and amortization

14,696

14,739

43,415

43,467

     Ceiling test writedown

-

-

18,907

-

     Non-cash gain on legal settlement

-

-

-

(4,164)

     Loss on early extinguishment of debt

-

5,973

-

5,973

     Accretion of asset retirement obligation

433

424

1,612

1,300

     Share based compensation expense

1,068

2,111

2,985

5,863

     Amortization expense and other

153

337

461

1,124

Discretionary cash flow

21,099

30,109

73,219

96,240

     Changes in working capital accounts

10,161

50

18,445

5,626

     Settlement of asset retirement obligations

(38)

(283)

(551)

(5,672)

Net cash provided by operating activities

$ 31,222

$ 29,876

$ 91,113

$ 96,194

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

www.petroquest.com

SOURCE PetroQuest Energy, Inc.



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