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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2000
[ ] 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: 019020
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PETROQUEST ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 98-0115468
(State of Incorporation) (I.R.S. Employer Identification No.)
400 E. KALISTE SALOOM RD., 70508
SUITE 3000 LAFAYETTE, LOUISIANA
(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code: (337) 232-7028
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.
Yes X No
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As of May 9, 2000 there were 24,089,222 shares of the Registrant's
Common Stock, par value $.001 per share, outstanding.
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PETROQUEST ENERGY, INC.
INDEX
Page
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Part I
Item 1. Financial Statements:
Consolidated Balance
Sheets as of March 31, 2000
and December 31, 1999............................................................ 3
Consolidated Statements of
Operations for the three-month periods ended
March 31, 2000 and 1999.......................................................... 4
Consolidated Statements of Stockholders' Equity
for the three months ended March 31, 2000 and 1999.............................. 5
Consolidated Statements of
Cash Flows for the three months
ended March 31, 2000 and 1999.................................................... 6
Notes to Consolidated Financial Statements.......................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 8
Item 3. Quantitative and Qualitative disclosures about market risk............................ 11
Part II
Item 1. Legal Proceedings...................................................................... 11
Item 2. Changes in Securities and Use of Proceeds.............................................. 11
Item 3. Defaults Upon Senior Securities........................................................ 11
Item 4. Submission of matters to a vote of security holders................................... 11
Item 5 Other Information..................................................................... 11
Item 6. Exhibits and Reports on Form 8-K...................................................... 12
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PETROQUEST ENERGY, INC.
Consolidated Balance Sheets
(amounts in thousands)
March 31, December 31,
2000 1999
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(Unaudited)
ASSETS
Current Assets:
Cash $ 1,713 $ 3,006
Oil and Gas Revenues Receivable 2,049 2,337
Joint Interest Billing Receivable 1,349 2,190
Other Current Assets 253 235
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Total Current Assets 5,364 7,768
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Oil and Gas Properties
Oil and Gas Properties, Full Cost Method 53,137 51,149
Unevaluated Oil and Gas Properties 6,001 5,753
Accumulated Depreciation,
Depletion and Amortization (36,512) (35,412)
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Oil and Gas Properties, Net 22,626 21,490
Plugging and Abandonment Escrow 315 255
Other Assets 423 388
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$ 28,728 $ 29,901
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable & Accrued Liabilities $ 4,124 $ 3,215
Advances from Co-Owners -- 3,157
Current Portion of Long-Term Debt 1,851 1,942
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Total Current Liabilities 5,975 8,314
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Commitments and Contingencies -- --
Long-term Debt 3,346 2,927
Other Liabilities 555 555
Stockholders' Equity
Common Stock 24 24
Paid-in Capital 48,987 48,869
Accumulated Deficit (30,159) (30,788)
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Total Stockholders' Equity 18,852 18,105
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$ 28,728 $ 29,901
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The accompanying notes are an integral part of these statements.
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PETROQUEST ENERGY, INC.
Consolidated Statements of Operations
(Unaudited)
(amounts in thousands, except per share amounts)
Three Month Ended
March 31,
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2000 1999
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Revenues:
Oil and Gas Sales $ 3,099 $ 1,217
Interest Income 52 20
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$ 3,151 1,237
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Expenses:
Lease Operating Expenses 603 408
Production Taxes 173 64
Depreciation, Depletion and Amortization 1,100 886
General and Administrative 646 283
Interest Expense -- 69
Other Income -- (10)
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2,522 1,770
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Net Income (Loss) Before Income Taxes 629 (463)
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Income Tax Provision (Benefit) -- --
Net Income (Loss) $ 629 $ (463)
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Net Income (Loss) Per Common Share
Basic $ 0.03 $ (0.02)
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Diluted $ 0.03 $ (0.02)
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Average Shares Outstanding 24,048 18,537
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Average Shares Outstanding Assuming Dilution 25,541 18,537
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The accompanying notes are an integral part of these statements.
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PETROQUEST ENERGY, INC.
Consolidated Statements of Stockholders' Equity
(Unaudited)
(amounts in thousands)
Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity
----------- ----------- ----------- -----------
December 31, 1999 $ 24 $ 48,869 $ (30,788) $ 18,105
Stock Based Employee Compensation
(81,000 Shares) -- 56 -- 56
Option Exercises -- 116 -- 116
Costs Associated With Sale of Common
Stocks and Warrants -- (54) -- (54)
Net Income -- -- 629 629
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March 31, 2000 $ 24 $ 48,987 $ (30,159) $ 18,852
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The accompanying notes are an integral part of these statements.
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PETROQUEST ENERGY, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(amounts in thousands)
Three Months Ended
March 31,
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2000 1999
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Cash Flows from Operating Activities:
Net (loss) $ 629 $ (463)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation, Depletion and Amortization 1,100 886
Non-Cash Employee Compensation Expense 56 --
Changes in Working Capital Accounts:
Accounts Receivable 288 (1,702)
Advances from Co-owners (3,157) --
Other Current Assets (18) 99
Joint Interest Billing Receivable 841 --
Accounts Payable & Accrued Liabilities 909 2,950
Plugging and Abandonment Escrow (60) 127
Other (35) (191)
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Net Cash Provided by (Used in) Operating Activities 553 (1,706)
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Cash Flows from Investing Activities:
Investment in Oil and Gas Properties (2,236) (2,743)
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Net Cash (Used in) Investing Activities (2,236) (2,743)
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Cash Flows From Financing Activities:
Costs Associated With Sale of Common
Stock and Warrants (54) --
Option Exercises 116 --
Proceeds from Borrowings 3,100 2,004
Repayment of Debt (2,772) (600)
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Net Cash Provided by Financing Activities 390 1,404
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Net Increase (Decrease) in Cash (1,293) 367
Cash Balance Beginning of Period 3,006 1,081
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Cash Balance End of Period $ 1,713 $ 1,448
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Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period For:
Interest $ 77 $ 69
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The accompanying notes are an integral part of these statements.
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PETROQUEST ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS -
The consolidated financial statements of PetroQuest Energy, Inc. (the
"Company") at March 31, 2000 and for the three-month period then ended are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim
period. The financial statements reflect the results of the Company and its
predecessor entity, Optima Petroleum Corporation ("Optima"), for all periods
presented. The consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999. The results of operations for the three-month period
ended March 31, 2000 are not necessarily indicative of future financial
results. Certain prior period amounts have been reclassified to conform to
current period presentation.
NOTE 2 - EARNINGS PER SHARE -
Basic net income per share of common stock was calculated by dividing
net income applicable to common stock by the weighted-average number of common
shares outstanding during the periods. Diluted net income per share of common
stock was calculated by dividing net income applicable to common stock by the
weighted average number of common shares outstanding during the period plus the
weighted average number of dilutive stock options and warrants granted to
outside directors and certain employees which totaled approximately 1,493,088
shares in the first quarter of 2000. No options or warrants were excluded from
the computation of dilutive earnings per share for the first quarter of 2000
because they were antidilutive. For the three-month period of 1999, all options
were excluded from the computation of diluted loss per share because they were
diluted. The contingent stock rights assigned in connection with the merger are
excluded from the calculation of diluted earnings per share.
NOTE 3 - LONG-TERM DEBT -
The Company's borrowing base is currently $4,000,000. It reduces
$225,000 per month beginning May 1, 2000. At March 31, 2000, $3,100,000 was
outstanding under this facility. The next redetermination is scheduled for
August 1, 2000. Interest under the loan is payable monthly at prime plus 1/2%
(9-1/2 at March 31, 2000).
On April 21, 1999, the Company entered into a loan agreement for
non-recourse financing to fund completion, flow line and facility costs of its
High Island Block 494 property. The property is security for the loan. Interest
is payable at 12% and the lender receives a 2 1/2% overriding royalty interest
in the property. For the first three production months, all of the cash flow
from the property was dedicated to payment of principal and interest on the
loan. Subsequently, 85% of the cash flow from the property (assuming certain
production levels) was dedicated to debt service. At March 31, 2000,
approximately $2,100,000 was unpaid on this loan.
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NOTE 4 - NEW ACCOUNTING STANDARDS -
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards that require every derivative instrument (including certain
derivative instruments embedded in other contracts) to be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
SFAS No. 133 is effective for fiscal years beginning after June 15,
2000. Because the Company does not currently use derivative instruments, the
adoption of SFAS No. 133 will not impact the Company's financial statements.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
PetroQuest Energy, Inc. is an independent oil and gas company engaged
in the development, exploration, acquisition and operation of oil and gas
properties onshore and offshore in the Gulf Coast Region. The Company and its
predecessors have been active in this area since 1986, which gives the Company
extensive geophysical, technical and operational expertise in this area. The
Company's business strategy is to increase production, cash flow and reserves
through exploration, development and acquisition of properties located in the
Gulf Coast Region.
RESULTS OF OPERATIONS
The following table sets forth certain operating information with
respect to the oil and gas operations of the Company for the three-month
periods ended March 31, 2000 and 1999.
Three Months Ended
March 31,
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2000 1999
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Production:
Oil (Bbls) 34,230 22,765
Gas (Mcf) 831,019 510,095
Total Production (Mcfe) 1,036,399 646,685
Sales:
Total Oil Sales $ 939,123 $ 237,977
Total Gas Sales $ 2,159,633 $ 959,454
Average Sales Prices:
Oil (per Bbl) $ 27.44 $ 10.45
Gas (per Mcf) $ 2.60 $ 1.88
Per (Mcfe) $ 2.99 $ 1.85
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The Company had net income of $629,000 for the first quarter of 2000
compared to a net loss of $463,000 for the first quarter of 1999. The improved
operating results are due to both increased production and product prices,
combined with a reduction in the Company's depreciation, depletion and
amortization rate.
On a thousand cubic feet equivalent (Mcfe) basis, first quarter 2000
production volumes increased 60% over first quarter 1999 production volumes.
This is the result of the Company's successful exploration program which added
High Island Block 494, CL&F #13 and CL&F #14 in the second half of 1999.
Oil and gas sales during the first quarter of 2000 increased 155% to
$3,099,000, as compared to first quarter 1999 revenues of $1,217,000. In
addition to production increases discussed above product prices increased
significantly. Prices received during the first quarter of 2000 averaged $27.44
per barrel of oil and $2.60 per Mcf of gas, as compared to averages of $10.45
per barrel and $1.88 per Mcf received in the 1999 period. Stated on a Mcfe
basis, unit prices received during the first quarter of 2000 were 62% higher
than the prices received during the comparable 1999 period.
Operating expenses for the first quarter of 2000 increased to $603,000
from $408,000 during the first quarter of 1999 due primarily to the new
discoveries discussed above. On a Mcfe basis, operating expenses decreased from
$.63 per Mcfe in 1999 to $.58 in 2000.
General and administrative expenses during the first quarter of 2000
totaled $646,000 as compared to $283,000 during the 1999 quarter. This is due
to the increased head count and support activities associated with the
Company's higher level of development and production.
Interest expense decreased because the Company capitalized interest of
$96,000 in 2000. No interest was capitalized in the first quarter of 1999.
Depreciation, depletion and amortization ("DD&A") expense for the
three months ended March 31, 2000 increased 24% from the 1999 period. This
resulted from increased production for the quarter and increased property cost
associated with the Company's drilling program. On a Mcfe basis, which reflects
the changes in production, the DD&A rate for the first three months of 2000 was
$1.06 per Mcfe compared to $1.37 per Mcfe for the same period in 1999. This
decrease is due primarily to new discoveries of non-producing reserves.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Cash Flow. Working capital (before considering the
current portion of debt) did not change significantly from December 31, 1999.
This is the result of improved operating results offset by increases to
property due to the Company's drilling program.
The Company maintains a reducing revolving line of credit to provide
for borrowings of up to $25 million, subject to a cap calculated on the
Company's borrowing base, as defined. The Company's borrowing base is currently
$4,000,000 and reduces $225,000 per month beginning on May 1, 2000. At March
31, 2000, $3,100,000 was outstanding under the line of credit. The borrowing
base amount and the amount by which it will be reduced, is established by the
lender and is
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based on their evaluation of the Company's oil and gas properties. The next
redetermination is scheduled for August 1, 2000. Interest is payable monthly at
prime plus 1/2% (9-1/2% at March 31, 2000). The line of credit is secured by
substantially all of the Company's oil and gas properties. A commitment fee of
.5% per annum on the unused available borrowing base is payable quarterly.
On April 21, 1999, the Company entered into a loan agreement for
non-recourse financing to fund completion, flow line and facility costs of its
High Island Block 494 property. The property is security for the loan. Interest
is payable at 12% and the lender receives a 2 1/2% overriding royalty interest
in the property. Eighty Five Percent (85%) of the cash flow from the property
(assuming certain production levels) is dedicated to debt service. At March 31,
2000, approximately $2,100,000 was unpaid on this loan.
Net cash flow from operations before working capital changes increased
for the first quarter of 2000 to $1,785,000 compared to $423,000 for 1999. This
is the result of increased production due to the Company's drilling program and
higher product prices.
Although the Company has no commitments for capital expenditures for
2000, it does have an exploration and development program for the year 2000
which will require significant capital. In order to fund its cash requirements
for continued oil and gas exploration and development activities, the Company
plans to obtain additional financing which could include the sale of additional
equity and debt securities and additional bank financing. Management intends
for a substantial portion of anticipated capital expenditures to be funded
through drilling ventures with industry partners; however, there is no
assurance that such plans will be successful. If the Company is unable to
obtain additional financing, it could be forced to delay or even abandon some
of its exploration and development opportunities.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Form 10-Q contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements other than statements of
historical facts included in and incorporated by reference into this Form 10Q
are forward-looking statements. These forward-looking statements include,
without limitation, statements regarding the Company's estimate of the
sufficiency of its existing capital resources and its ability to raise
additional capital to fund cash requirements for future operations, and
regarding the uncertainties involved in estimating quantities of proved oil and
natural gas reserves and in projecting future rates or production and timing of
development expenditures. Although the Company believes that the expectations
reflected in these forward-looking statements are reasonable, it cannot give
any assurance that such expectation reflected in these forward-looking
statements will prove to have been correct.
When used in this Form 10-Q, the words, "expect," "anticipate,"
"intend," "plan," "believe," "seek," "estimate" and similar expressions are
intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. Because these
forward-looking statements involve risks and uncertainties, actual results
could differ materially from those expressed or implied by these
forward-looking statements for a number of important reasons, including those
discussed under "Management's Discussions and Analysis of Financial Condition
and Results of Operations", and elsewhere in this Form 10-Q.
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You should read these statements carefully because they discuss the
Company's expectations about its future performance, contain projections of our
future operating results or our future financial condition, or state other
"forward-looking" information. Before you invest in the Company's common stock,
you should be aware that the occurrence of any of the events described in this
Form 10-Q could substantially harm the Company's business, results of
operations and financial condition and that upon the occurrence of any of these
events, the trading price of the Company's common stock could decline, and you
could lose all or part of your investment.
The Company cannot guarantee any future results, levels of activity,
performance or achievements. Excepts as required by law, the Company undertakes
no obligation to update any of the forward-looking statements in this Form 10Q
after the date of this Form 10Q.
Item 3. DISCLOSURE ABOUT MARKET RISKS
The Company's indebtedness under its line of credit is variable
rate financing. The Company believes that its exposure to market risk relating
to interest rate risk is not material. The Company believes that its business
operations are not exposed to market risks relating to foreign currency
exchange risk or equity price risk.
Price Risk
The Company's revenues are derived from the sale of its crude oil
and natural gas production. Based on projected annual sales volumes for the
remaining nine months of 2000, a 10% decline in the prices the Company receives
for its crude oil and natural gas production would have an approximate $1.2
million impact on the Company's revenues.
PART II
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5 OTHER INFORMATION
None
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial data schedule
(b) The Company filed a Form 8-K on April 20, 2000 reporting
that two new directors were added to its board of directors.
The Company filed a Form 8-K/A on April 5, 2000, amending
its report on Form 8-K filed on August 9, 1999 relating to
its private placement of securities.
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 15, 2000 By: /s/ Robert R. Brooksher
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Robert R. Brooksher
Chief Financial Officer and
Secretary (Authorized Officer and
Principal Financial Officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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27.1 Financial data schedule