PetroQuest (ticker: PQ) put forth its Q2’12 results today. Three month and six month revenues were $33.4MM and $69.5MM, respectively. Discretionary cash flow, a non-GAAP calculation, was $20.1MM for Q2 and $39.7MM for the first six months of 2012. These 2012 figures are less than 2011 due primarily in the change in commodity prices.
Production volumes for Q2’12 were 8.4 Bcfe, 14% better than Q2’11. First half 2012 production was 16.6 Bcfe, 13% better than 2011’s corresponding period. Equivalent pricing year-over-year was down 26%.
Project-wise, the company announced on August 1 that its Broussard Estates #2 well (17% Net Revenue Interest), within the company’s La Cantera prospect area, reached total depth and logged with 310 feet of Cris R Massive sand pay. To think about how tall 310 feet is, this is equivalent to a 31-story building. The company’s first La Cantera discovery, the Thibodeaux #1 (~16% NRI), was logged to have approximately 248 net feet of productive pay. Since coming on line in late March 2012, the Thibodeaux #1 produced approximately 3 Bcf of gas and 170,000 barrels of liquids.
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The company noted on its conference call that the completion for the Broussard Estates #2 well was designed to accommodate a 30% higher production rate than the Thibodeaux #1 well. PQ said it is expecting to commence production in mid-September 2012 at 2,000 barrels of liquids and 35 million cubic feet of gas per day. When both wells are producing, PQ expects total gross daily production volumes from its LaCantera facilities of approximately 3,500 barrels of liquids and 65 million cubic feet of gas per day capable of generating somewhere around $400,000 of revenue on a daily basis.
In northern Oklahoma, the Company has drilled and completed the first five wells of a 15 to 20 gross drilling program targeting the Mississippian Lime play. Two Mississippian Lime wells: PQML #1 (NRI – 41%) and PQML #2 (NRI – 36%) tested, on a 24-hour basis, gross rates of approximately 320 Boe (81% oil) and 661 Boe (71% oil), respectively. The Company has three wells in various stages of completion. PetroQuest owns 27,000 acres prospective for the Mississippian Lime. It is early stages to think about returns. SandRidge Energy (ticker: SD), a company that has drilled and completed more MS Lime wells than any company, provides interested investors with their view of how the play sits in Oklahoma and Kansas.
PetroQuest’s JV partnership marches on. As of June 30, 2012 PQ and its partner completed spending under Phase I of the JV, and estimates the company has utilized approximately 4% of the $93 million Phase II drilling carry. All else being equal, PQ assumes the drilling carry could last into the second half of 2014. If the partnership continues to see strong results in the Mississippian Lime and the Woodford shale, the length of the carry could be extended with additional capital being allocated to the Mississippian. More than 100 gross wells have been drilled and completed in this JV. PQ estimates current net daily production from its Oklahoma properties is approximately 42,000 Mcf of gas and 600 barrels of natural gas liquids. The Company is currently completing eight wells in the liquids rich portion of the trend, and continues to run two rigs in this area.
Regarding the economics of drilling a Woodford shale well, PQ estimates the Estimated Ultimate Recovery (EUR) for a Woodford well is 830 MBOE, 44% liquids. The average cost to drill and complete a Woodford is $5MM. Using EnerCom’s Woodford decline curve with PQ’s reported data points, EnerCom estimates an internal rate of return (IRR) of 27.8% using $85 per barrel of oil and $2.50 per Mcf of natural gas. Giving zero value to the natural gas, a Woodford well could generate a 10% IRR, considered breakeven, with a blended per barrel rate (crude oil and NGLs) of $44.92.
