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):
May 3, 2007
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 May 3, 2007, PetroQuest Energy, Inc. (the “Company”) announced that it achieved record net income for the quarter ended March 31, 2007 of $10,814,000 or $0.22 per share, compared to first quarter 2006 net income of $9,149,000 or $0.19 per share. Net cash flow provided by operating activities before working capital changes for the first quarter of 2007 was $48,241,000, as compared to $33,933,000 for the comparable 2006 period. Net cash flow provided by operating activities during the first quarters of 2007 and 2006 totaled $68,447,000 and $29,974,000, 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 first quarter of 2007 increased 32% to $61,884,000 as compared to $47,016,000 in the first quarter of 2006. Production for the first quarter of 2007 was a Company record and was 32% higher than production for the comparable period of 2006. The 132% increase in oil production was the result of our Ship Shoal 72 Field coming back on-line in December 2006 and producing at a record rate during the current quarter. Stated on an Mcfe basis, unit prices received during the first quarter of 2007 were 1% lower than the comparable 2006 period.
Lease operating expenses for the first quarter of 2007 were $0.90 per Mcfe as compared to $1.20 per Mcfe in the first quarter of 2006. Decreased unit costs during the current quarter were primarily the result of the Company record production in the current quarter and the absence of operating expenses related to high cost properties that were sold in November 2006. In addition, depreciation, depletion and amortization (“DD&A”) on oil and gas properties for the first quarter of 2007 was $3.48 per Mcfe as compared to $3.12 per Mcfe in the first quarter of 2006. The increase in DD&A is primarily due to increased costs to drill for, develop and acquire oil and gas reserves. General and administrative expenses during the first quarter of 2007 increased 140% to $5,180,000 as compared to $2,155,000 in the first quarter of 2006. The primary reason for the increase is due to non-cash expense related to SFAS 123(R) which increased approximately $2,700,000 during the current quarter.
The following table sets forth certain information with respect to the oil and gas operations of the Company for the three-month periods ended March 31, 2007 and 2006:
| | | Three Months Ended March 31, | |
| | | 2007 | | | 2006 | |
| Production: | | | | | | |
| Oil (Bbls) | | | 359,781 | | | | 154,974 | |
| Gas (Mcf) | | | 5,532,314 | | | | 4,876,963 | |
| Total Production (Mcfe) | | | 7,691,000 | | | | 5,806,807 | |
| | | | | | | | | |
| Sales: | | | | | | | | |
| Total oil sales | | $ | 21,587,900 | | | $ | 8,765,568 | |
| Total gas sales | | | 40,295,694 | | | | 38,250,353 | |
| Total oil and gas sales | | | 61,883,594 | | | | 47,015,921 | |
| | | | | | | | | |
| Average sales prices: | | | | | | | | |
| Oil (per Bbl) | | $ | 60.00 | | | $ | 56.56 | |
| Gas (per Mcf) | | | 7.28 | | | | 7.84 | |
| Per Mcfe | | | 8.05 | | | | 8.10 | |
The above sales and average sales prices include increases (reductions) related to gas hedges of $2,523,000 and $1,039,000 and oil hedges of $210,000 and ($677,000) for the three months ended March 31, 2007 and 2006, respectively.
The following initiates guidance for the second quarter of 2007:
Description | Guidance for 2nd Quarter 2007 |
| | |
| Production volumes (MMcfe/d) | 80 - 85 |
| | |
| Percent gas | 75% |
| | |
| Expenses: | |
| Lease operating expenses (per Mcfe) | $1.10 - $1.20 |
| Production taxes (per Mcfe) | $0.33 - $0.37 |
| Depreciation, depletion and amortization (per Mcfe) | $3.60 - $3.70 |
| General and administrative (in millions) | $5 - $6 |
| Interest expense (in millions) | $3.5 - $4.0 |
| | |
| Effective tax rate (all deferred) | 37% |
The following updates guidance for the full year of 2007:
Description | Guidance for Full Year 2007 |
| | |
| Production volumes (MMcfe/d) | 80 - 85 |
| | |
| Percent gas | 75% |
| | |
| Expenses: | |
| Lease operating expenses (per Mcfe) | $1.05 - $1.15 |
| Production taxes (per Mcfe) | $0.33 - $0.37 |
| Depreciation, depletion and amortization (per Mcfe) | $3.50 - $3.60 |
| General and administrative (in millions) | $21 - $22 |
| Interest expense (in millions) | $16 - $17 |
| | |
| Effective tax rate (all deferred) | 37% |
Operations Update
Drilling activity during the first quarter of 2007 included two successful horizontal Woodford Shale wells in the Arkoma Basin, four successful horizontal coalbed methane wells in the Arkoma Basin and seven successful wells in East Texas.
A total of six successful wells were drilled in the Arkoma Basin during the first quarter of 2007 resulting in an 86% success rate. As previously disclosed, the Company has completed its second operated horizontal well in the Woodford Shale, which has averaged approximately 1.7 MMcfe per day over the last 20 days. The Company has reached total depth in its third operated horizontal Woodford well and the well is expected to be completed during the next seven days. Drilling continues in the Arkoma Basin with one operated rig drilling horizontal wells targeting the Woodford Shale as well as other non-operated activity.
PetroQuest participated in the drilling and completion of seven wells in the East Texas Basin during the first quarter of 2007. The Company drilled its first well at its Toms prospect during the first quarter and is currently constructing facilities for the field. The second well in the Toms prospect has been drilled and is currently in the completion phase. Initial production from these wells is expected during the second quarter.
In the Gulf Coast Basin, the Company’s Atchafalaya prospect is currently drilling and is expected to reach total depth in approximately one week. The Company has a 23% working interest in this well.
The Company’s Pelican Point #2 prospect is currently drilling and is expected to reach total depth in approximately five weeks. The Company has a 25% working interest in the well.
The Company’s Bandon Dunes prospect is currently drilling and is expected to reach total depth during the second quarter. The Company has a 28% working interest in the well.
The Company’s Poppy Hills prospect in the Gulf of Mexico began producing during April and is currently producing at a gross rate of approximately 14 MMcfe per day. The Company has an approximate 11% NRI in this well.
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 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 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)
| | | March 31, 2007 | | | December 31, 2006 | |
ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 7,179 | | | $ | 4,795 | |
| Revenue receivable | | | 20,795 | | | | 21,767 | |
| Joint interest billing receivable | | | 16,721 | | | | 20,072 | |
| Hedging asset | | | 1,203 | | | | 10,527 | |
| Prepaid drilling costs | | | 1,642 | | | | 4,886 | |
| Other current assets | | | 6,826 | | | | 2,143 | |
| Total current assets | | | 54,366 | | | | 64,190 | |
| | | | | | | | | |
| Property and equipment: | | | | | | | | |
| Oil and gas properties: | | | | | | | | |
| Oil and gas properties, full cost method | | | 744,942 | | | | 695,116 | |
| Unevaluated oil and gas properties | | | 55,320 | | | | 51,567 | |
| Accumulated depreciation, depletion and amortization | | | (341,296 | ) | | | (314,869 | ) |
| Oil and gas properties, net | | | 458,966 | | | | 431,814 | |
| Gas gathering assets | | | 19,571 | | | | 19,072 | |
| Accumulated depreciation and amortization of gas gathering assets | | | (4,312 | ) | | | (3,562 | ) |
| Total property and equipment | | | 474,225 | | | | 447,324 | |
| | | | | | | | | |
| Other assets, net of accumulated depreciation and amortization of $12,057 and $11,719, respectively | | | 6,825 | | | | 6,776 | |
| | | | | | | | | |
| Total assets | | $ | 535,416 | | | $ | 518,290 | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable to vendors | | $ | 41,445 | | | $ | 32,049 | |
| Advances from co-owners | | | 12,966 | | | | 13,391 | |
| Oil and gas revenue payable | | | 7,919 | | | | 6,935 | |
| Accrued interest | | | 6,227 | | | | 2,453 | |
| Asset retirement obligation | | | 8,968 | | | | 9,028 | |
| Other accrued liabilities | | | 7,355 | | | | 8,225 | |
| Total current liabilities | | | 84,880 | | | | 72,081 | |
| | | | | | | | | |
| Bank debt | | | 40,000 | | | | 47,000 | |
| 10 3/8% senior notes | | | 148,589 | | | | 148,537 | |
| Asset retirement obligation | | | 11,687 | | | | 11,211 | |
| Deferred income taxes | | | 52,734 | | | | 49,646 | |
| Other liabilities | | | 104 | | | | 104 | |
| | | | | | | | | |
| Commitments and contingencies | | | | | | | | |
| | | | | | | | | |
| Stockholders' equity: | | | | | | | | |
| Common stock, $.001 par value; authorized 75,000 shares; issued and outstanding 47,788 shares | | | 48 | | | | 48 | |
| Paid-in capital | | | 127,323 | | | | 124,552 | |
| Accumulated other comprehensive income | | | 758 | | | | 6,632 | |
| Retained earnings | | | 69,293 | | | | 58,479 | |
| Total stockholders' equity | | | 197,422 | | | | 189,711 | |
| | | | | | | | | |
| Total liabilities and stockholders' equity | | $ | 535,416 | | | $ | 518,290 | |
PETROQUEST ENERGY, INC.
(unaudited)
(Amounts in Thousands, Except Per Share Data)
| | | Three Months Ended March 31, | |
| | | 2007 | | | 2006 | |
| Revenues: | | | | | | |
| Oil and gas sales | | $ | 61,884 | | | $ | 47,016 | |
| Gas gathering revenue and other income | | | 2,124 | | | | 1,342 | |
| | | | 64,008 | | | | 48,358 | |
| | | | | | | | | |
| Expenses: | | | | | | | | |
| Lease operating expenses | | | 6,937 | | | | 6,951 | |
| Production taxes | | | 2,130 | | | | 1,570 | |
| Depreciation, depletion and amortization | | | 27,613 | | | | 18,719 | |
| Gas gathering costs | | | 950 | | | | 717 | |
| General and administrative | | | 5,180 | | | | 2,155 | |
| Accretion of asset retirement obligation | | | 215 | | | | 370 | |
| Interest expense | | | 3,632 | | | | 3,372 | |
| | | | 46,657 | | | | 33,854 | |
| | | | | | | | | |
| Income from operations | | | 17,351 | | | | 14,504 | |
| | | | | | | | | |
| Income tax expense | | | 6,537 | | | | 5,355 | |
| | | | | | | | | |
| Net income | | $ | 10,814 | | | $ | 9,149 | |
| | | | | | | | | |
| Earnings per common share: | | | | | | | | |
| Basic | | $ | 0.23 | | | $ | 0.19 | |
| | | | | | | | | |
| Diluted | | $ | 0.22 | | | $ | 0.19 | |
| | | | | | | | | |
| Weighted average number of common shares: | | | | | | | | |
| Basic | | | 47,788 | | | | 47,326 | |
| | | | | | | | | |
| Diluted | | | 49,451 | | | | 48,718 | |
PETROQUEST ENERGY, INC.
(unaudited)
(Amounts in Thousands)
| | | Three Months Ended March 31, | |
| | | 2007 | | | 2006 | |
| Cash flows from operating activities: | | | | | | |
| Net income | | $ | 10,814 | | | $ | 9,149 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
| Deferred tax expense | | | 6,537 | | | | 5,355 | |
| Depreciation, depletion and amortization | | | 27,613 | | | | 18,719 | |
| Accretion of asset retirement obligation | | | 215 | | | | 370 | |
| Amortization of debt issuance costs | | | 239 | | | | 233 | |
| Amortization of bond discount | | | 52 | | | | 47 | |
| Share based compensation expense | | | 2,771 | | | | 60 | |
| Changes in working capital accounts: | | | | | | | | |
| Revenue receivable | | | 972 | | | | (5,388 | ) |
| Joint interest billing receivable | | | 3,351 | | | | (1,060 | ) |
| Accounts payable and accrued liabilities | | | 18,120 | | | | 12,824 | |
| Advances from co-owners | | | (425 | ) | | | (3,475 | ) |
| Other assets and liabilities | | | (1,812 | ) | | | (6,860 | ) |
| | | | | | | | | |
| Net cash provided by operating activities | | | 68,447 | | | | 29,974 | |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Investment in oil and gas properties | | | (58,214 | ) | | | (46,086 | ) |
| Investment in gas gathering assets | | | (499 | ) | | | (3,596 | ) |
| Other | | | (336 | ) | | | - | |
| | | | | | | | | |
| Net cash used in investing activities | | | (59,049 | ) | | | (49,682 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Proceeds from exercise of options | | | - | | | | 13 | |
| Deferred financing costs | | | (14 | ) | | | (15 | ) |
| Repayment of bank borrowings | | | (7,000 | ) | | | - | |
| Proceeds from bank borrowings | | | - | | | | 15,000 | |
| | | | | | | | | |
| Net cash provided by (used in) financing activities | | | (7,014 | ) | | | 14,998 | |
| | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | 2,384 | | | | (4,710 | ) |
| | | | | | | | | |
| Cash and cash equivalents, beginning of period | | | 4,795 | | | | 6,703 | |
| | | | | | | | | |
| Cash and cash equivalents, end of period | | $ | 7,179 | | | $ | 1,993 | |
| | | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | | |
| Cash paid during the period for: | | | | | | | | |
| Interest | | $ | 918 | | | $ | 161 | |
| Income taxes | | $ | - | | | $ | - | |
PETROQUEST ENERGY, INC.
Non-GAAP Disclosure Reconciliation
(Amounts In Thousands)
| | | Three Months Ended March 31, | |
| | | 2007 | | | 2006 | |
| Net cash flow provided by operating activities | | $ | 68,447 | | | $ | 29,974 | |
| Changes in working capital accounts | | | (20,206 | ) | | | 3,959 | |
| Net cash flow provided by operating activities before working capital changes | | $ | 48,241 | | | $ | 33,933 | |
| 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: May 3, 2007 | By: | /s/ Daniel G. Fournerat |
| | | Daniel G. Fournerat |
| | | Executive Vice President, General Counsel and Secretary |
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