UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
November 2, 2006
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 Rd., Suite 6000 | |
| | |
Lafayette, Louisiana | 70508 |
| | |
| (Address of Principal Executive Offices) | (Zip Code) |
Commission File Number: 0-019020
Registrant’s telephone number, including area code: (337) 232-7028
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 | RESULTS OF OPERATIONS AND FINANCIAL CONDITION |
On November 2, 2006, PetroQuest Energy, Inc. (the “Company”) announced net income for the quarter ended September 30, 2006 of $6,544,000 or $0.13 per share, compared to third quarter 2005 net income of $5,045,000 or $0.10 per share. Net cash flow provided by operating activities before working capital changes for the third quarter of 2006 was $37,448,000, as compared to $19,115,000 for the comparable 2005 period. Net cash flow provided by operating activities totaled $36,698,000 and $30,187,000 during the third quarters of 2006 and 2005, respectively. For the first nine months of 2006, the Company reported net income of $23,675,000 or $0.49 per share. The Company reported net income of $13,097,000 or $0.27 per share for the first nine months of 2005. For the first nine months of 2006, net cash flow provided by operating activities before working capital changes was $106,210,000. Net cash flow provided by operating activities before working capital changes for the first nine months of 2005 was $55,474,000. Net cash flow provided by operating activities totaled $111,846,000 and $63,377,000 during the nine month periods ended September 30, 2006 and 2005, respectively. See the attached schedule for a reconciliation of net cash flow provided by operating activities to net cash flow provided by operating activities before working capital changes.
Oil and gas sales during the third quarter of 2006 increased 73% to $53,310,000 as compared to $30,859,000 in the third quarter of 2005. Production for the third quarter of 2006 was 80% higher than production for the comparable period of 2005. The increase in production in the third quarter of 2006 as compared to the third quarter of 2005 was the result of the restoration of production at our Main Pass 74 Field in January 2006, the impact of acquisitions of producing properties made during 2005, and production attributable to the 91% and 93% drilling success rates we achieved during 2005 and during the first nine months of 2006, respectively. Stated on an Mcfe basis, unit prices received during the third quarter of 2006 were 4% lower than the prices received during the comparable 2005 period. For the first nine months of 2006, oil and gas sales increased 82% to $150,194,000 from $82,508,000 in the first nine months of 2005. Production for the first nine months of 2006 was 64% higher than production for the comparable period of 2005. Stated on an Mcfe basis, unit prices received during the first nine months of 2006 were 11% higher than the prices received during the comparable 2005 period.
Lease operating expenses for the third quarter of 2006 decreased 25% to $1.28 per Mcfe as compared to $1.70 per Mcfe in the third quarter of 2005. For the first nine months of 2006, lease operating expenses decreased 2% to $1.28 per Mcfe from $1.31 per Mcfe in the comparable period of 2005. In addition, depreciation, depletion and amortization (“DD&A”) on oil and gas properties for the third quarter of 2006 increased 28% to $3.32 per Mcfe as compared to $2.59 per Mcfe in the third quarter of 2005. For the first nine months of 2006, depreciation, depletion and amortization increased 25% to $3.15 per Mcfe from $2.53 per Mcfe for the comparable period of 2005. General and administrative expenses increased $2,990,000 and $4,981,000 for the third quarter and nine months ended September 30, 2006, as compared to the respective 2005 periods. These increases included approximately $2,122,000 and $3,169,000, respectively, of non-cash stock compensation expense recognized in conjunction with the adoption of SFAS 123R on January 1, 2006 and current year equity grants.
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, 2006 and 2005:
| | | Three Months Ended | | Nine Months Ended | |
| | | September 30, | | September 30, | |
| | | 2006 | | 2005 | | 2006 | | 2005 | |
| Production: | | | | | | | | | |
| Oil (Bbls) | | | 206,576 | | | 138,013 | | | 548,999 | | | 536,568 | |
| Gas (Mcf) | | | 5,738,895 | | | 3,046,211 | | | 16,023,905 | | | 8,547,834 | |
| Total Production (Mcfe) | | | 6,978,351 | | | 3,874,289 | | | 19,317,899 | | | 11,767,242 | |
| | | | | | | | | | | | | | |
| Sales: | | | | | | | | | | | | | |
| Total oil sales | | $ | 13,721,525 | | $ | 6,711,423 | | $ | 34,741,192 | | $ | 24,331,122 | |
| Total gas sales | | | 39,587,994 | | | 24,147,980 | | | 115,452,309 | | | 58,176,498 | |
| Total oil and gas sales | | | 53,309,519 | | | 30,859,403 | | | 150,193,501 | | | 82,507,620 | |
| | | | | | | | | | | | | | |
| Average sales prices: | | | | | | | | | | | | | |
| Oil (per Bbl) | | $ | 66.42 | | $ | 48.63 | | $ | 63.28 | | $ | 45.35 | |
| Gas (per Mcf) | | | 6.90 | | | 7.93 | | | 7.21 | | | 6.81 | |
| Per Mcfe | | | 7.64 | | | 7.97 | | | 7.77 | | | 7.01 | |
The above sales and average sales prices include additions (reductions) related to gas hedges of $2,765,000 and ($1,563,000) and oil hedges of ($804,000) and ($1,688,000) for the three months ended September 30, 2006 and 2005, respectively. The above sales and average sales prices include additions (reductions) related to gas hedges of $6,132,000 and ($2,641,000) and oil hedges of ($2,289,000) and ($4,029,000) for the nine months ended September 30, 2006 and 2005, respectively.
Operations Update
During late September 2006, we shut-in the majority of production at our Ship Shoal Block 72 Field in order to repair a main field pipeline. This project was necessitated by the associated production from the first four successful wells drilled in our ongoing drilling program. Production from Ship Shoal 72 accounted for approximately 24% of our total third quarter 2006 production. We expect to have production fully restored in November 2006.
As a result of the shut-in at our Ship Shoal 72 Field and the expected sale of certain Gulf of Mexico producing properties, we expect a decline in our production during the fourth quarter of 2006, as compared to the third quarter of 2006.
Guidance
The following initiates guidance for the fourth quarter of 2006:
Description | | Guidance for 4th Quarter 2006 | |
| | | | |
| Production volumes (MMcfe/d) | | | 69 - 73 | |
| | | | | |
| Percent gas | | | 83% | |
| | | | | |
| Expenses: | | | | |
| Lease operating expenses (per Mcfe) | | | | |
| Production taxes (per Mcfe) | | | | |
| Depreciation, depletion and amortization (per Mcfe) | | | | |
| General and administrative (in millions) | | | | |
| Interest expense (in millions) | | | | |
| | | | | |
| Effective tax rate (all deferred) | | | 37% | |
The following updates guidance for the full year of 2006:
Description | | Guidance for Full Year 2006 | |
| | | | |
| Production volumes (MMcfe/d) | | | 70 - 72 | |
| | | | | |
| Percent gas | | | 83% | |
| | | | | |
| Expenses: | | | | |
| Lease operating expenses (per Mcfe) | | | | |
| Production taxes (per Mcfe) | | | | |
| Depreciation, depletion and amortization (per Mcfe) | | | | |
| General and administrative (in millions) | | | | |
| Interest expense (in millions) | | | | |
| | | | | |
| Effective tax rate (all deferred) | | | 37% | |
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, East Texas, South Louisiana and the shallow waters of the Gulf of Mexico. PetroQuest trades on the New York Stock Exchange under the ticker symbol “PQ.”
Forward-Looking Statements
This press 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, declines in the values of our properties resulting in ceiling test write-downs, our ability to replace reserves and sustain production, our ability to restore production in our Ship Shoal Block 72 Field in a timely manner, 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 estimating quantities of proved oil and natural gas reserves, in prospect development and property acquisitions or dispositions and in projecting future rates of production, the timing of development expenditures and drilling of wells, hurricanes and other natural disasters, 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.
PETROQUEST ENERGY, INC.
(unaudited)
(Amounts in Thousands)
| | | September 30, 2006 | | | |
ASSETS |
| Current assets: | | | | | |
| Cash and cash equivalents | | $ | 6,112 | | $ | 6,703 | |
| Revenue receivable | | | 22,899 | | | 22,492 | |
| Joint interest billing receivable | | | 14,974 | | | 17,567 | |
| Hedging asset | | | 8,374 | | | - | |
| Prepaids and other assets | | | 7,280 | | | 3,441 | |
| Total current assets | | | 59,639 | | | 50,203 | |
| | | | | | | | |
| Property and equipment: | | | | | | | |
| Oil and gas properties: | | | | | | | |
| Oil and gas properties, full cost method | | | 661,167 | | | 523,212 | |
| Unevaluated oil and gas properties | | | 47,220 | | | 52,745 | |
| Accumulated depreciation, depletion and amortization | | | (275,545 | ) | | (210,774 | ) |
| Oil and gas properties, net | | | 432,842 | | | 365,183 | |
| Gas gathering assets | | | 18,570 | | | 10,861 | |
| Accumulated depreciation and amortization of gas gathering assets | | | (2,858 | ) | | (1,055 | ) |
| Total property and equipment | | | 448,554 | | | 374,989 | |
| | | | | | | | |
| Hedging asset | | | 1,489 | | | - | |
| Other assets, net of accumulated depreciation and amortization of $11,328 and $10,353, respectively | | | 6,639 | | | 6,278 | |
| | | | | | | | |
| Total assets | | $ | 516,321 | | $ | 431,470 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY |
| Current liabilities: | | | | | | | |
| Accounts payable to vendors | | $ | 37,195 | | $ | 41,462 | |
| Advances from co-owners | | | 5,150 | | | 5,874 | |
| Oil and gas revenue payable | | | 13,794 | | | 8,090 | |
| Accrued interest on senior notes | | | 5,836 | | | 1,945 | |
| Hedging liability | | | - | | | 15,987 | |
| Deposit on asset sale | | | 2,116 | | | - | |
| Other accrued liabilities | | | 13,885 | | | 8,597 | |
| Total current liabilities | | | 77,976 | | | 81,955 | |
| | | | | | | | |
| Bank debt | | | 34,000 | | | 10,000 | |
| 10 3/8% senior notes | | | 148,485 | | | 148,340 | |
| Asset retirement obligation | | | 18,897 | | | 19,257 | |
| Deferred income taxes | | | 49,286 | | | 27,139 | |
| Other liabilities | | | 258 | | | 242 | |
| | | | | | | | |
| Commitments and contingencies | | | | | | | |
| | | | | | | | |
| Stockholders' equity: | | | | | | | |
| Common stock, $.001 par value; authorized 75,000shares; issued and outstanding 47,772 and 47,325 shares, respectively | | | 48 | | | 47 | |
| Paid-in capital | | | 122,292 | | | 117,441 | |
| Accumulated other comprehensive income (loss) | | | 6,911 | | | (7,444 | ) |
| Retained earnings | | | 58,168 | | | 34,493 | |
| Total stockholders' equity | | | 187,419 | | | 144,537 | |
| | | | | | | | |
| Total liabilities and stockholders' equity | | $ | 516,321 | | $ | 431,470 | |
PETROQUEST ENERGY, INC.
(unaudited)
(Amounts in Thousands, Except Per Share Data)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | | 2006 | | 2005 | | 2006 | | 2005 | |
| Revenues: | | | | | | | | | |
| Oil and gas sales | | $ | 53,310 | | $ | 30,859 | | $ | 150,194 | | $ | 82,508 | |
| Gas gathering revenue and other income | | | 1,776 | | | 1,017 | | | 4,746 | | | 1,390 | |
| | | | 55,086 | | | 31,876 | | | 154,940 | | | 83,898 | |
| | | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | | |
| Lease operating expenses | | | 8,960 | | | 6,601 | | | 24,738 | | | 15,448 | |
| Production taxes | | | 1,772 | | | 1,081 | | | 4,554 | | | 2,217 | |
| Depreciation, depletion and amortization | | | 23,923 | | | 10,485 | | | 62,994 | | | 30,539 | |
| Gas gathering costs | | | 998 | | | 495 | | | 2,642 | | | 495 | |
| General and administrative | | | 4,561 | | | 1,571 | | | 10,060 | | | 5,079 | |
| Accretion of asset retirement obligation | | | 387 | | | 424 | | | 1,140 | | | 829 | |
| Interest expense | | | 3,756 | | | 3,456 | | | 10,755 | | | 9,141 | |
| | | | 44,357 | | | 24,113 | | | 116,883 | | | 63,748 | |
| | | | | | | | | | | | | | |
| Income from operations | | | 10,729 | | | 7,763 | | | 38,057 | | | 20,150 | |
| | | | | | | | | | | | | | |
| Income tax expense | | | 4,185 | | | 2,718 | | | 14,382 | | | 7,053 | |
| | | | | | | | | | | | | | |
| Net income | | $ | 6,544 | | $ | 5,045 | | $ | 23,675 | | $ | 13,097 | |
| | | | | | | | | | | | | | |
| Earnings per common share: | | | | | | | | | | | | | |
| Basic | | $ | 0.14 | | $ | 0.11 | | $ | 0.50 | | $ | 0.28 | |
| | | | | | | | | | | | | | |
| Diluted | | $ | 0.13 | | $ | 0.10 | | $ | 0.49 | | $ | 0.27 | |
| | | | | | | | | | | | | | |
| Weighted average number of common shares: | | | | | | | | | | | | | |
| Basic | | | 47,643 | | | 47,213 | | | 47,454 | | | 46,514 | |
| Diluted | | | 48,999 | | | 48,576 | | | 48,747 | | | 48,086 | |
PETROQUEST ENERGY, INC.
(unaudited)
(Amounts in Thousands)
| | | Nine Months Ended September 30, | |
| | | 2006 | | 2005 | |
| Cash flows from operating activities: | | | | | |
| Net income | | $ | 23,675 | | $ | 13,097 | |
| | | | | | | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
| Deferred tax expense | | | 14,382 | | | 7,053 | |
| Depreciation, depletion and amortization | | | 62,994 | | | 30,539 | |
| Accretion of asset retirement obligation | | | 1,140 | | | 829 | |
| Amortization of debt issuance costs | | | 705 | | | 1,239 | |
| Write-off of debt issuance costs | | | - | | | 2,439 | |
| Amortization of bond discount | | | 145 | | | 65 | |
| Stock based compensation expense | | | 3,169 | | | - | |
| Compensation expense | | | - | | | 213 | |
| Changes in working capital accounts: | | | | | | | |
| Accounts receivable | | | (407 | ) | | (3,129 | ) |
| Joint interest billing receivable | | | 2,593 | | | (6,566 | ) |
| Accounts payable and accrued liabilities | | | 9,243 | | | 17,160 | |
| Advances from co-owners | | | (724 | ) | | 6,728 | |
| Prepaids and other assets | | | (5,069 | ) | | (6,290 | ) |
| | | | | | | | |
| Net cash provided by operating activities | | | 111,846 | | | 63,377 | |
| | | | | | | | |
| Cash flows from investing activities: | | | | | | | |
| Investment in oil and gas properties | | | (136,709 | ) | | (124,532 | ) |
| Sale of oil and gas properties | | | 4,859 | | | - | |
| Investment in gas gathering assets | | | (5,861 | ) | | (9,650 | ) |
| | | | | | | | |
| Net cash used in investing activities | | | (137,711 | ) | | (134,182 | ) |
| | | | | | | | |
| Cash flows from financing activities: | | | | | | | |
| Proceeds from exercise of options | | | 1,380 | | | 883 | |
| Deferred financing costs | | | (106 | ) | | (5,543 | ) |
| Proceeds from issuance of 10 3/8% senior notes | | | - | | | 148,229 | |
| Issuance of common stock, net of expenses | | | - | | | 4,051 | |
| Repayment of bank borrowings | | | (6,000 | ) | | (73,000 | ) |
| Proceeds from bank borrowings | | | 30,000 | | | 34,500 | |
| | | | | | | | |
| Net cash provided by financing activities | | | 25,274 | | | 109,120 | |
| | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | (591 | ) | | 38,315 | |
| | | | | | | | |
| Cash and cash equivalents, beginning of period | | | 6,703 | | | 1,529 | |
| | | | | | | | |
| Cash and cash equivalents, end of period | | $ | 6,112 | | $ | 39,844 | |
| | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | |
| Cash paid during the period for: | | | | | | | |
| Interest | | $ | 9,124 | | $ | 1,593 | |
| Income taxes | | $ | - | | $ | - | |
PETROQUEST ENERGY, INC.
Non-GAAP Disclosure Reconciliation
(Amounts In Thousands)
| | | Three Months Ended | | Nine Months Ended | |
| | | September 30, | | September 30, | |
| | | 2006 | | 2005 | | 2006 | | 2005 | |
| Net cash flow provided by operating activities | | $ | 36,698 | | $ | 30,187 | | $ | 111,846 | | $ | 63,377 | |
| Changes in working capital accounts | | | 750 | | | (11,072 | ) | | (5,636 | ) | | (7,903 | ) |
| | | | | | | | | | | | | | |
| Net cash flow provided by operating activities before working capital changes | | $ | 37,448 | | $ | 19,115 | | $ | 106,210 | | $ | 55,474 | |
| Note: | Management believes that net cash flow provided by operating activities before working capital changes 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. Net cash flow provided by operating activities before working capital changes 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 net cash flow provided by operating activities before working capital changes is not a term defined by GAAP, it might not be comparable to similarly titled measures used by other companies. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | PETROQUEST ENERGY, INC. |
| | | |
| Date: November 2, 2006 | By: | /s/ Daniel G. Fournerat |
| | | Daniel G. Fournerat |
| | | Executive Vice President, General |
| | | Counsel and Secretary |
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