PetroQuest Energy (ticker: PQ) 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 Gulf of Mexico. The company has largely transitioned from gas drilling to focusing on liquids-rich projects and expects 2014 to be its best year in company history. The company is ramping up its production levels – a second rig will be added to its West Relay field in July 2014 and another rig spud the Thunder Bayou prospect (50% working interest) in June.
On June 30, 2014, PetroQuest Energy announced a joint venture (JV) with Midstates Petroleum (ticker: MPO) on its Fleetwood project onshore Louisiana. Per the transaction, PQ acquires a 50% interest (37% working interest) for an aggregate purchase price of $24 million which includes $10 million in cash and $14 million in future operational expenditures.
The Fleetwood, located just west of Baton Rouge, consists of approximately 30,000 leased gross acres. A 3D survey of 197 miles revealed “over 12 prospects and leads to date, with unrisked resource potential greater than 300 MMBOE” according to MPO’s news release. PetroQuest identified the Lower Oligocene and Eocene oil reservoirs as the primary targets.
PetroQuest will serve as the operator for all but one of the drilling projects and plans to drill two wells in the area in 2014. The first prospect well, named “Widgeon (25% WI to PQ),” will target the Cockfield formation which has been tested through 13 nearby vertical wells (estimated 80 MBO of lifetime production). The Widgeon will be drilled horizontally and is expected to spud in August 2014.
The “Mallard” prospect (25% WI) is planned to be spud in October 2014 and will involve a four way anticline for the Lower Wilcox formation. Unrisked reserve potential of the project is estimated at 1,885 MBOE.
In the PQ press release, Charles Goodson, Chairman, Chief Executive Officer and President of PetroQuest, said: “(Our) team members have significant experience levels in this trend and have been directly involved in large Wilcox/Eocene oil discoveries, The opportunity to combine our resource project expertise of horizontal drilling and hydraulic fracturing, on another substantial acreage footprint like our tight sands horizontal Cotton Valley trend, draws us to this area.”
PQ Operational Update
PetroQuest is currently drilling a six well project in the Cotton Valley and announced its PQ #12 (80% net revenue interest) horizontal well reached a peak 24-hour gross rate of 2,025 BOEPD (28% liquids). The rate is the highest of any well drilled in the region to date. The previous record of 1,859 BOEPD was held by the PQ #10, which was drilled on the same pad and announced on June 9, 2014. Total peak 24-hour production from the two completed wells is 3,884 BOEPD (approximately 30% liquids) and four more wells, one of which has reached total depth, are planned to be added to the mix. PQ expects to report additional results in its Q2’14 earnings release.
PQ’s increased knowledge of the formation is increasing returns, said Goodson while presenting at EnerCom’s London Oil & Gas Conference™ 6. “It’s really to understand where you should land your horizontals and what type of crack spacing do you need,” he said. “We’re seeing about a 10 to 15 times increase of a vertical versus a horizontal well. A vertical well would cost us several million dollars and make about 0.5 Bcf to 1.0 Bcf, and now we’re drilling horizontal wells which, at its best, will probably have about 10 Bcf.”
Pro forma for the JV, PetroQuest revised its 2014 capital expenditures to $170 million to $180 million, upwards from previous estimates of $140 million to $150 million. Included in the increase is the $10 million in cash relative to the transaction along with $17.5 million is anticipated non-cash expenditures associated with the JV purchase price.
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