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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: June 30, 2001
[ ] 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 72-1440714
(State of Incorporation) (I.R.S. Employer Identification No.)
400 E. KALISTE SALOOM RD., SUITE 3000
LAFAYETTE, LOUISIANA 70508
(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
---- ----
As of July 27, 2001, there were 32,481,657 shares of the Registrant's
Common Stock, par value $.001 per share, outstanding.
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PETROQUEST ENERGY, INC.
Table of Contents
<Table>
<Caption>
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 2001 and December 31, 2000..................................................... 3
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2001 and 2000....................................... 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2001 and 2000................................................. 5
Notes to Consolidated Financial Statements.................................................. 6
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. Other Information
Item 1. Legal Proceedings........................................................................... 12
Item 2. Changes in Securities and Use of Proceeds................................................... 12
Item 3. Defaults upon Senior Securities............................................................. 12
Item 4. Submission of Matters to a Vote of Security Holders......................................... 12
Item 5. Other Information........................................................................... 13
Item 6. Exhibits and Reports on Form 8-K............................................................ 13
</Table>
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PETROQUEST ENERGY, INC.
Consolidated Balance Sheets
(Amounts in Thousands)
<Table>
<Caption>
June 30, December 31,
2001 2000
--------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,346 $ 7,549
Oil and gas revenue receivable 7,515 5,148
Joint interest billing receivable 5,017 10,151
Other current assets 1,124 1,432
--------- ---------
Total current assets 15,002 24,280
--------- ---------
Oil and gas properties:
Oil and gas properties, full cost method 122,566 85,443
Unevaluated oil and gas properties 13,454 12,431
Accumulated depreciation, depletion and amortization (49,627) (41,530)
--------- ---------
Oil and gas properties, net 86,393 56,344
--------- ---------
Plugging and abandonment escrow 615 495
Other assets, net of accumulated depreciation and amortization
of $1,502 and $558, respectively 1,515 1,953
--------- ---------
Total Assets $ 103,525 $ 83,072
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 17,458 $ 18,893
Advances from co-owners 3,213 7,297
Current portion of long-term debt 11 7,873
--------- ---------
Total current liabilities 20,682 34,063
Commitments and contingencies -- --
Current portion of long-term debt expected to be refinanced 7,500 --
Long-term debt 20,203 6,804
Other liabilities 4,803 749
Stockholders' equity:
Common stock, $.001 par value; authorized 75,000
shares; issued and outstanding 32,344 and 30,256
shares, respectively 32 30
Paid-in capital 63,555 62,290
Other comprehensive income 473 --
Unearned deferred compensation (855) --
Accumulated deficit (12,868) (20,864)
--------- ---------
Total stockholders' equity 50,337 41,456
--------- ---------
Total liabilities and stockholders' equity $ 103,525 $ 83,072
========= =========
</Table>
See accompanying Notes to Consolidated Financial Statements.
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PETROQUEST ENERGY, INC.
Consolidated Statements of Operations
(unaudited)
(Amounts in Thousands, Except Per Share Data)
<Table>
<Caption>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
June 30, June 30,
---------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues:
Oil and gas sales $ 14,590 $ 3,803 $ 26,935 $ 6,902
Interest and other income 298 56 506 108
----------- ----------- ----------- -----------
14,888 3,859 27,441 7,010
----------- ----------- ----------- -----------
Expenses:
Lease operating expenses 1,908 694 3,156 1,297
Production taxes 243 177 505 350
Depreciation, depletion and amortization 4,848 1,204 8,190 2,347
General and administrative 1,255 739 1,916 1,341
Interest expense 517 9 983 9
----------- ----------- ----------- -----------
Income from operations 6,117 1,036 12,691 1,666
Income tax expense 2,263 -- 4,696 --
Net income $ 3,854 $ 1,036 $ 7,995 $ 1,666
=========== =========== =========== ===========
Earnings per common share:
Basic $ 0.12 $ 0.04 $ 0.26 $ 0.07
=========== =========== =========== ===========
Diluted $ 0.11 $ 0.04 $ 0.24 $ 0.07
=========== =========== =========== ===========
Weighted average number of common shares:
Basic 31,737 24,110 31,125 24,119
=========== =========== =========== ===========
Diluted 34,376 25,201 33,637 25,157
=========== =========== =========== ===========
</Table>
See accompanying Notes to Consolidated Financial Statements.
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PETROQUEST ENERGY, INC.
Consolidated Statements of Cash Flows
(unaudited)
(Amounts in Thousands)
<Table>
<Caption>
Six Months Ended
-------------------------------
June 30,
-------------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net income $ 7,995 $ 1,666
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred tax expense 4,696 --
Depreciation, depletion and amortization 8,190 2,346
Amortization of debt issuance costs 851
Compensation expense 180 --
Stock based compensation -- 116
Derivative mark to market (294) --
Changes in working capital accounts:
Accounts receivable (2,367) (356)
Joint interest billing receivable 5,134 (2,739)
Other assets (697) (51)
Accounts payable and accrued liabilities (3,132) 2,491
Advances from co-owners (4,083) 2,667
Plugging and abandonment escrow (120) (120)
Other 364 (17)
------------ ------------
Net cash provided by operating activities 16,717 6,003
------------ ------------
Cash flows from investing activities:
Investment in oil and gas properties (36,448) (8,159)
------------ ------------
Net cash used in investing activities (36,448) (8,159)
------------ ------------
Cash flows from investing activities:
Exercise of options and warrants 491 481
Proceeds from borrowings 14,500 3,100
Repayment of debt (1,463) (3,107)
Issue of common stock -- 9,367
------------ ------------
Net cash provided by financing activities 13,528 9,841
------------ ------------
Net decrease in cash and cash equivalents 6,203 7,685
Cash balance and cash equivalent, beginning of period $ 7,549 $ 3,006
============ ============
Cash balance and cash equivalent, end of period $ 1,346 $ 10,691
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 637 $ 205
============ ============
Income taxes $ -- $ --
============ ============
</Table>
See accompanying Notes to Consolidated Financial Statements.
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PETROQUEST ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
The consolidated financial information for the three- and six-month periods
ended June 30, 2001 and 2000, respectively, have been prepared by the Company
and was not audited by its independent public accountants. In the opinion of
management, all normal and recurring adjustments have been made to present
fairly the financial position, results of operations, and cash flows of the
Company at June 30, 2001 and for all reported periods. Results of operations for
the interim periods presented are not necessarily indicative of the operating
results for the full year or any future periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted. These consolidated
financial statements should be read in conjunction with the financial statements
and related notes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2000.
Unless the context otherwise indicates, any references in this Quarterly Report
on Form 10-Q to the "Company" refer to PetroQuest Energy, Inc. (Delaware) and
its wholly-owned consolidated subsidiaries, PetroQuest Energy, L.L.C. (a single
member Louisiana limited liability company) and PetroQuest Oil & Gas, L.L.C. (a
single member Louisiana limited liability company).
Certain reclassifications of prior year amounts have been made to conform with
the current year presentation.
NOTE 2 EARNINGS PER SHARE
Basic earnings per common share was computed based on the weighted average
number of common shares issued and outstanding during the relevant periods.
Diluted earnings per common share was computed based on the weighted average
number of common shares issued and outstanding plus all potentially dilutive
common shares that would have been outstanding in the relevant periods assuming
the issuance of common shares for stock options and warrants through the
application of the treasury stock method. Options to purchase 80,000 and 192,500
shares of common stock were outstanding during the three- and six-month periods
ended June 30, 2001, respectively, but were not included in the computation of
diluted earnings per share because the options' exercise prices were greater
than the average market prices of the common shares during the periods. These
options' exercise prices were $7.65 and between $5.89-$7.65, respectively, and
expire in 2011. There were no antidilutive shares for the three- and six-month
periods ended June 30, 2000.
NOTE 3 LONG-TERM DEBT
On May 11, 2001, the Company and its subsidiary PetroQuest Energy, L.L.C., (the
"Borrower") amended the existing credit agreement with Hibernia National Bank to
increase the existing $50 million revolving credit facility to $100 million,
increase the borrowing base from $14.3 million to $36 million, and add lenders
to the facility. At June 30, 2001, $19,500,000 of the existing credit facility
with Hibernia National Bank was outstanding and classified as long-term debt.
Also, a $2,600,000 letter of credit was outstanding at June 30, 2001. The unused
portion of the existing credit facility at June 30, 2001 was $6,400,000.
On July 17, 2001, the borrowing base under the revolving credit facility was
increased from $36 million to $50 million. The borrowing base availability was
$18.4 million as of July 17, 2001 and is subject to quarterly reductions
commencing October 31, 2001 unless the scheduled redetermination occurring on
that date results in a borrowing base higher than $50 million. Outstanding
balances on the revolving credit facility bear interest at either the prime rate
or the Eurodollar rate plus a margin (based on a sliding scale of 1.375% to
2.125% depending on borrowing base usage). The credit facility matures on June
30, 2004. In addition, the credit facility allows the Borrower to use up to $10
million of the borrowing base for letters of credit for fees of 2% per annum.
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At June 30, 2001, $7,500,000 was outstanding on the bridge facility with EnCap
Energy Capital Fund III, L.P., which matures on September 18, 2001, subject to
two extensions of thirty days each. However, the outstanding balance was
classified as long-term debt as the Company intends to pay off the debt by
drawing on the amended credit facility. The loan carries a fixed interest rate
of 10%, and is secured by a second mortgage on substantially all of the
Borrower's oil and gas properties.
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. The loan agreement requires 85% of the net cash flow from the property
(assuming production levels of 12.5 MMcf/day) to be dedicated to debt service.
At June 30, 2001, $714,000 remained outstanding under this loan.
NOTE 4 NEW ACCOUNTING STANDARDS
On January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, as amended (SFAS 133), pertaining to the
accounting for derivative instruments and hedging activities. SFAS 133 requires
an entity to recognize all of its derivatives as either assets or liabilities on
its balance sheet and measure those instruments at fair value. If the conditions
specified in SFAS 133 are met, those instruments may be designated as hedges.
Changes in the value of hedge instruments would not impact earnings, except to
the extent that the instrument is not effective as a hedge. At January 1, 2001,
the Company recognized a liability of $609,295 before tax, related to costless
collars; the cumulative catch-up adjustment was recorded as a charge to other
comprehensive income.
The Company incurred a $145,000 charge to oil and gas revenues during
the six months ended June 30, 2001 as a result of the settlement of costless
collars. As of June 30, 2001, the fair value of the open collar contracts was an
asset of $1,045,000. During the six months ended June 30, 2001, the Company
recognized $294,000 in other income related to marking-to-market of the collars.
The remaining adjustment to the fair value of the collars was recorded in other
comprehensive income.
As of June 30, 2001, the Company had open costless collar contracts
with third parties whereby minimum floor prices and maximum ceiling prices are
contracted and applied to related contract volumes. These agreements in effect
for the remainder of 2001 are for gas volume of 6,000 MMBtu per day at weighted
average ceiling and floor prices of $8.93 and $4.00, respectively. Additionally,
the Company entered into a costless collar contract for the period from July 1,
2001 through December 31, 2001 for 750 barrels of oil per day with a floor price
of $26.00 and a ceiling price of $30.90.
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations," which requires recording the fair value of a liability for an
asset retirement obligation in the period incurred. The standard is effective
for fiscal years beginning after June 15, 2002, with earlier application
permitted. The Company has not completed an evaluation of the impact of this new
standard.
NOTE 5 EQUITY
Other Comprehensive Income
The following table presents a recap of the Company's comprehensive
income for the six-month period ended June 30, 2001 (in thousands):
<Table>
Net income $ 7,995
Cumulative effect of change in accounting principle, net of taxes 35
Change in fair value of derivative instruments, net of taxes 438
--------
Comprehensive income $ 8,468
</Table>
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Common Stock Issue Rights
Pursuant to the September 1, 1998 merger and reorganization (the
"Merger"), the Company issued to the original owners (the "Original Owners") of
American Explorer L.L.C. and their respective affiliates, certain of whom
currently serve as officers and directors of the Company, 7,335,001 shares of
the Company's common stock, par value $.001 per share (the "Common Stock"), and
1,667,001 Contingent Stock Issue Rights (the "CSIRs"). The CSIRs entitle the
holders to receive an additional 1,667,001 shares of Common Stock at such time
within three years of the anniversary date of the issuance of the CSIRs as the
trading price for the Common Stock closes at $5.00 or higher for 20 consecutive
trading days. On May 3, 2001 the Common Stock closed higher than $5.00 for the
twentieth consecutive trading day, and 1,667,001 shares of Common Stock were
issued under the terms of the CSIRs.
In April 2001, the Original Owners of American Explorer L.L.C. entered into an
agreement with an officer of the Company whereby the Original Owners granted to
the officer an option to acquire, at a fixed price, certain of the original
shares the Original Owners were issued in the Merger. As the fixed price of the
April grant was below the market price as of the date of grant, the Company will
recognize non-cash compensation expense over the three-year vesting period of
the option. In addition, the Original Owners granted to the officer an interest
in a portion of the Common Stock issuable pursuant to the CSIRs, if any, that
might be issued. This agreement is similar to agreements previously entered into
with two other officers of the Company. Non-cash compensation expense will be
recognized for the Common Stock issuable pursuant to the CSIRs granted to the
three officers over the three-year vesting period based on the fair value of the
Common Stock issuable pursuant to the CSIRs in May 2001, when the Common Stock
issuable pursuant to the CSIRs was issued to the Original Owners. The Company
has recorded the effects of the transactions as deferred compensation until
fully amortized. The Company recorded non-cash compensation expense of $180,000
during the quarter and six months ended June 30, 2001, which is included in
general and administrative expense.
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
exploration, development, 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. At June 30, 2001, the Company operated approximately
95% of all of its proved reserves. For the six months ended June 30, 2001,
approximately 42% of the Company's equivalent production was oil and 58% was
gas.
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RESULTS OF OPERATIONS
The following table (unaudited) sets forth certain operating information with
respect to our oil and gas operations for the periods noted.
<Table>
<Caption>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
June 30, June 30,
---------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Production:
Oil (Bbls) 225,462 34,112 364,542 68,341
Gas (Mcf) 1,854,611 829,085 3,045,088 1,660,105
Total Production (Mcfe) 3,207,383 1,033,757 5,232,340 2,070,151
Sales:
Total oil sales $ 6,065,190 $ 887,807 $ 9,959,999 $ 1,826,930
Total gas sales 8,524,812 2,915,637 16,975,026 5,075,255
Average sales prices:
Oil (per Bbl) $ 26.90 $ 26.03 $ 27.32 $ 26.73
Gas (per Mcf) 4.60 3.52 5.57 3.06
Per Mcfe 4.55 3.68 5.15 3.33
</Table>
Net income totaled $3,854,000 and $1,036,000 for the quarters ended June 30,
2001 and 2000, respectively. Net income totaled $7,995,000 and $1,666,000 for
the six-month periods ended June 30, 2001 and 2000, respectively. The positive
results are attributable to the following components:
PRODUCTION. Oil production in 2001 increased 561% and 433% over the second
quarter and six months ended June 30, 2000, respectively. Natural gas production
in 2001 increased 124% and 83% over the second quarter and six months ended June
30, 2000, respectively. On a Mcfe basis, production for the second quarter and
six months ended June 30, 2001 increased 210% and 153%, respectively, over the
same periods in 2000.
The increase in 2001 production volumes, as compared to 2000, was due primarily
to twelve new offshore wells and one new onshore well that were not producing in
2000.
PRICES. Average oil prices per Bbl for the second quarter and six months ended
June 30, 2001 were $26.90 and $27.32, respectively, as compared to $26.03 and
$26.73 for the same periods in 2000. Average gas prices per Mcf were $4.60 and
$5.57 for the second quarter and six months ended June 30, 2001, respectively,
as compared to $3.52 and $3.06 for the same periods in 2000. Stated on a Mcfe
basis, unit prices received during the second quarter and first six months of
2001 were 24% and 55% higher, respectively, than the prices received during the
comparable 2000 periods.
REVENUE. Oil and gas sales during the second quarter ended June 30, 2001
increased 284% to $14,590,000, as compared to second quarter 2000 revenues of
$3,803,000. For the six months ended June 30, 2001, oil and gas sales increased
290% to $26,935,000, as compared to 2000 revenues of $6,902,000. The strong rise
in product prices coupled with the growth in production volumes resulted in
significant increases in revenue.
EXPENSES. Lease operating expenses for the second quarter of 2001 increased to
$1,908,000 from $694,000 during the second quarter of 2000. For the six months
ended June 30, 2001, lease operating expenses increased to $3,156,000 from
$1,297,000 during the six months ended June 30, 2000. The increases for the
second quarter and six months ended June 30, 2001, as compared to the same
periods in 2000 are primarily due to the 210% and 153% increases in production
on a Mcfe basis, respectively. On a Mcfe basis, lease operating expenses for the
second quarter decreased from $0.67 per Mcfe in 2000 to $0.59 in 2001. For the
six months ended June 30, lease operating expenses per Mcfe decreased from $0.63
in 2000 to $0.60 in 2001. These decreases are due to increased production, which
lowers the effects of fixed operating costs.
General and administrative expenses during the second quarter of 2001 totaled
$1,255,000 as compared to expenses of $739,000 during the 2000 quarter, net of
amounts capitalized of $614,000 and $423,000, respectively. General
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and administrative expenses during the six-month period ended June 30, 2001
increased to $1,916,000 as compared to expenses of $1,341,000 during the 2000
period, net of amounts capitalized of $1,236,000 and $973,000, respectively. The
increases in general and administrative expenses are primarily due to a 108%
increase in staffing levels related to the generation of prospects, exploration
for oil and gas reserves and operation of properties. Additionally, we have
recognized $180,000 of non-cash compensation expense during the quarter and six
months ended June 30, 2001.
Depreciation, depletion and amortization ("DD&A") expense for the three- and
six-month periods ended June 30, 2001 increased 303% and 249%, respectively,
from the 2000 periods. The rise in DD&A is primarily due to increased production
from bringing new wells on-line since the first quarter of 2000. On a Mcfe
basis, which reflects the changes in production, the DD&A rate for the second
quarter of 2001 was $1.51 per Mcfe as compared to $1.16 per Mcfe for the same
period in 2000. The DD&A rate for the six months ended June 30, 2001 was $1.57
per Mcfe compared to $1.13 per Mcfe for the same period in 2000. The increase in
2001 as compared to 2000 is due primarily to the significant capital and future
development costs related to our offshore projects.
Interest expense, net of amounts capitalized on unevaluated prospects, increased
$508,000 and $974,000 during the second quarter and six months ended June 30,
2001, respectively, as compared to same periods in 2000. The increases are the
result of an increase in debt levels at the end of 2000 and into 2001 resulting
from property acquisitions and a higher capital budget, which has been partially
funded by borrowings. We capitalized $308,000 and $132,000 of interest during
the three months ended June 30, 2001 and 2000, respectively, and $608,000 and
$229,000 during the six months ended June 30, 2001 and 2000, respectively.
Income tax expense of $2,263,000 and $4,696,000 was recognized during the second
quarter and six months ended June 30, 2001, respectively, as compared to no
provision being recorded in the same periods of 2000. The increases are the
result of fully reversing the valuation allowance on our deferred tax asset
during 2000. We provide for income taxes at a statutory rate of 37%.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our exploration and development activities to date principally
through bank borrowings, cash flow from operations, and private placements of
Common Stock. Net cash flow from operations before working capital changes
during the six-month period increased from $4,128,000 in 2000 to $21,618,000 in
2001. Operations in 2001 improved because of better product prices and increased
production as the result of successful exploration and development activities.
However, working capital (before considering debt) decreased from $(1.9) million
at December 31, 2000 to $(5.7) million at June 30, 2001. This was caused
primarily by significant capital expenditures related to our active exploration
and development during the first six months of 2001.
On May 11, 2001, we and our subsidiary PetroQuest Energy, L.L.C., (the
"Borrower") amended our existing credit agreement with Hibernia National Bank to
increase the existing $50 million revolving credit facility to $100 million,
increase the borrowing base from $14.3 million to $36 million, and add lenders
to the facility. At June 30, 2001, $19,500,000 of the existing credit facility
with Hibernia National Bank was outstanding and classified as long-term debt.
Also, a $2,600,000 letter of credit was outstanding at June 30, 2001. The unused
portion of the existing credit facility at June 30, 2001 was $6,400,000.
On July 17, 2001, the borrowing base under the revolving credit facility was
increased from $36 million to $50 million. The borrowing base availability was
$18.4 million as of July 17, 2001 and is subject to quarterly reductions
commencing October 31, 2001 unless the scheduled redetermination occurring on
that date results in a borrowing base higher than $50 million. Outstanding
balances on the revolving credit facility bear interest at either the prime rate
or the Eurodollar rate plus a margin (based on a sliding scale of 1.375% to
2.125% depending on borrowing base usage). The credit facility matures on June
30, 2004. In addition, the credit facility allows the Borrower to use up to $10
million of the borrowing base for letters of credit for fees of 2% per annum.
At June 30, 2001, $7,500,000 was outstanding on the bridge facility with Encap
Energy Capital Fund III, L.P., which matures on September 18, 2001, subject to
two extensions of thirty days each. However, the outstanding balance was
classified as long-term debt as we intend to pay off the debt by drawing on the
amended credit facility. The loan carries a fixed interest rate of 10%, and is
secured by a second mortgage on substantially all of the Borrower's oil and gas
properties.
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On April 21, 1999, we entered into a loan agreement for non-recourse financing
to fund completion, flow line and facility costs of our 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. The
loan agreement requires 85% of the net cash flow from the property (assuming
production levels of 12.5 MMcf/day) is dedicated to debt service. At June 30,
2001, $714,000 remains outstanding under this loan.
We have budgeted for capital expenditures for 2001 and have an exploration and
development program for the year 2001 which will require significant capital.
Our budget for direct capital for new projects in 2001 is approximately
$51,620,000 of which approximately $36,302,000 has been incurred as of June 30,
2001. Our management believes the cash flows from operations and additional
borrowing capacity will be sufficient in the near term to fund exploration and
development activities. In the future, our exploration activities could require
additional financings, which may include sales of additional equity or debt
securities, additional bank borrowings, or joint venture arrangements with
industry partners. There can be no assurances that such additional financings
will be available on acceptable terms, if at all. If we are unable to obtain
additional financing, we could be forced to delay or even abandon some of our
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 10-Q are
forward-looking statements. 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 the Company's estimate of the sufficiency of its existing
capital sources, its 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 and in projecting future rates
of production, the timing of development expenditures 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 the Company
has filed with the Securities and Exchange Commission. The Company undertakes no
duty to update or revise these forward-looking statements.
When used in the 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company experiences market risks primarily in two areas: interest rates and
commodity prices. The Company believes that its business operations are not
exposed to significant market risks relating to foreign currency exchange 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 six
months of 2001, a 10% decline in the prices the Company receives for its crude
oil and natural gas production would have an approximate $2.4 million impact on
the Company's revenues.
In a typical hedge transaction, the Company will have the right to receive from
the counterparts to the hedge, the excess of the fixed price specified in the
hedge over a floating price based on a market index, multiplied by the quantity
hedged. If the floating price exceeds the fixed price, the Company is required
to pay the counterparts this difference multiplied by the quantity hedged. The
Company is required to pay the difference between the floating price and the
fixed price (when the floating price exceeds the fixed price) regardless of
whether the Company has sufficient production to cover the quantities specified
in the hedge. Significant reductions in production at times when the floating
price exceeds the fixed price could require the Company to make payments under
the hedge agreements even though such payments are not offset by sales of
production. Hedging will also prevent the
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Company from receiving the full advantage of increases in oil or gas prices
above the fixed amount specified in the hedge. As of June 30, 2001, the Company
had open collar contracts with third parties whereby minimum floor prices and
maximum ceiling prices are contracted and applied to related contract volumes.
These agreements in effect for the remainder of 2001 are for gas volume of 6,000
MMBtu per day at weighted average ceiling and floor prices of $8.93 and $4.00,
respectively. Additionally, the Company entered into a costless collar contract
for the period from July 1, 2001 to December 31, 2001 for 750 barrels of oil per
day with a floor price of $26.00 and ceiling price of $30.90. At June 30, 2001,
the Company recognized an asset of $1,045,000 related to these costless collars.
The Company also evaluated the potential effect that reasonably possible near
term changes may have on the Company's facility. Debt outstanding under the
facility is subject to a floating interest rate and represents approximately 70%
of the Company's total debt as of June 30, 2001. Based upon an analysis,
utilizing the actual interest rate in effect and balances outstanding as of June
30, 2001 and assuming a 10% increase in interest rates and no changes in the
amount of debt outstanding, the potential effect on interest expense for the
remaining six months of 2001 is approximately $68,000.
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
On May 23, 2001, an annual meeting of the stockholders of the Company was held.
The holders of 17,222,140 shares of Common Stock were present in person or
represented by proxy at the meeting. At the meeting, the stockholders took the
following actions:
(a) Election of Directors
The stockholders elected the following persons to serve as directors of
the Company until the next annual meeting of stockholders, or until
their successors are duly elected and qualified:
<Table>
<Caption>
NUMBER OF NUMBER OF NUMBER OF
NAME VOTES FOR VOTES WITHHELD VOTES ABSTAINING
---- --------- -------------- ----------------
Charles T. Goodson 17,211,012 2,429 8,699
Alfred J. Thomas, II 17,210,992 2,449 8,699
Ralph J. Daigle 17,211,012 2,429 8,699
Michael O. Aldridge 17,210,992 2,449 8,699
Daniel G. Fournerat 17,199,012 14,429 8,699
William W. Rucks, IV 17,211,012 2,429 8,699
Jay B. Langner 17,211,012 2,429 8,699
Francisco A. Garcia 17,199,012 2,449 8,699
E. Wayne Nordberg 17,210,992 2,449 8,699
</Table>
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(b) Adoption of the 1998 Incentive Plan
The stockholders voted to adopt the amended and restated 1998 Incentive
Plan as follows:
<Table>
<Caption>
Number of Votes For Number of Votes Against Number of Votes Withheld
------------------- ----------------------- ------------------------
16,517,572 692,885 11,683
</Table>
Item 5. OTHER INFORMATION
NONE.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
NONE.
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K on April 12,
2001 relating to the Company's drilling results at Ship Shoal
72 Field.
The Company filed a report on Form 8-K on April 19,
2001 relating to the Company's drilling results at Ship Shoal
72 Field.
The Company filed a report on Form 8-K on May 8, 2001
relating to the Company's first quarter results.
The Company filed a report on Form 8-K on May 9, 2001
amending its report on Form 8-K filed on May 8, 2001 relating
to the Company's first quarter results.
The Company filed a report on Form 8-K on June 7,
2001 relating to the Company's average daily production.
The Company filed a report on Form 8-K on June 27,
2001 relating to the Company's proposed offering of common
stock.
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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: July 31, 2001 By: /s/ Michael O. Aldridge
--------------------- ---------------------------------
Michael O. Aldridge
Senior Vice President, Chief
Financial Officer and Treasurer
(Authorized Officer and Principal
Financial and Accounting Officer)
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