PetroQuest Energy, Inc. (NYSE: PQ) today announced the closing of the sale of the majority of its interests in the Woodford and Mississippian Lime (the “Sold Assets”) for gross proceeds of $280 million, subject to estimated purchase price adjustments between the effective date of January 1, 2015 and the closing date.  During the first quarter of 2015, the Sold Assets produced approximately 46 MMcfe/d and generated net operating cash flow of approximately $7.5 million.  As of December 31, 2014, the Company’s estimated proved reserves attributable to the Sold Assets totaled approximately 227 Bcfe (63% proved developed) with estimated discounted net cash flow (PV-10) of $249 million, using SEC pricing ($3.58 per Mcf of gas, $21.47 per barrel of natural gas liquids and $93.48 per barrel of oil).

The Company will retain a small working interest in the Sold Assets as well as maintain its working interest in the Woodford assets located on the east side of its acreage position (East Hoss).  As a result, the Company will continue to drill and operate all wells throughout its Woodford acreage position under a services agreement.  The Company is in the process of flowing back eight wells (average NRI 14%) in the East Hoss area with two rigs expected to continue working for the remainder of 2015.

Borrowing Base Update

In conjunction with the divestiture, the Company’s bank credit facility was amended to extend the maturity date from October 2016 to June 2020, subject to certain conditions.  In addition, the borrowing base was revised from $190 million to $70 million, with the lender’s commitments fixed at $70 million.  The next redetermination is scheduled to occur on or around September 1, 2015.

The Company used a portion of the proceeds from the divestiture to repay all borrowings outstanding under its bank credit facility.  In addition to having an undrawn revolver, the Company currently has approximately $130 million in cash with an additional $14 million in deferred sales proceeds to be received prior to December 31, 2015.

As a result of the asset sale, the Company plans to unwind certain of its 2015 gas hedge contracts in order to comply with the covenants in its bank credit facility.  The Company is currently evaluating its gas hedge positions and expects to complete this process by June 30, 2015.

Operations Update

In the Gulf Coast, the Company is nearing completion of construction work at its Thunder Bayou facility.  All critical production equipment has been installed and only a minimal amount of pipe and electrical interconnections remain.  As result, the Company expects that its Thunder Bayou project will commence production next week.  Investors interested in viewing the facility and construction progress can access a short video posted on the Company’s website athttp://www.petroquest.com/thunder-bayou-production-facilities/

In East Texas, the Company recently completed its PQ #18 (NRI – 38%) horizontal Cotton Valleywell. The well achieved a maximum 24-hour gross rate of 8,219 Mcf of gas, 547 barrels of natural gas liquids and 37 barrels of oil.  While PQ #18 was the last scheduled Cotton Valley well in the original 2015 capital budget, the Company is evaluating the potential timing of restarting itsCotton Valley drilling program in 2015.

The following updates guidance for the second quarter of 2015 and initiates guidance for the third quarter of 2015 to reflect the estimated impact of the Arkoma divestiture:

Guidance for

Description

2nd Quarter 2015

Production volumes (MMcfe/d)

105 – 108

Percent Gas

74%

Percent Oil

9%

Percent NGL

17%

Expenses:

Lease operating expenses (per Mcfe)

$1.10 – $1.20

Production taxes (per Mcfe)

$0.08 – $0.12

Depreciation, depletion and amortization (per Mcfe)

$1.85 – $1.95

General and administrative (in millions)*

$5.0 – $5.5

Interest expense (in millions)

$7.9 – $8.4

* Includes non-cash stock compensation estimate of $1.6 million

 

Guidance for

Description

3rd Quarter 2015

Production volumes (MMcfe/d)

75 – 81

Percent Gas

73%

Percent Oil

12%

Percent NGL

15%

Expenses:

Lease operating expenses (per Mcfe)

$1.25 – $1.35

Production taxes (per Mcfe)

$0.08 – $0.12

Depreciation, depletion and amortization (per Mcfe)

$2.30 – $2.40

General and administrative (in millions)*

$5.0 – $5.5

* Includes non-cash stock compensation estimate of $1.6 million

Management Statement

“This asset sale is transformational in terms of its impact to our leverage and liquidity.  Additionally, by consolidating down to two primary operating regions we will now be able to focus our efforts on the multi-year development of the Carthage field in East Texas, where we believe based upon outstanding recent results, that we have assembled a premier asset in the core of the Cotton Valley trend.  Our Gulf Coast free cash flow can now be redirected to the consistent development of the more than 200 identified Cotton Valley locations, which we expect will provide PetroQuest a long-term platform for substantial growth and strong returns,” saidCharles T. Goodson, Chairman, Chief Executive Officer and President. “Our Tulsa team has done an extraordinary job over the last 10 years developing our Woodford asset into one of the leading properties in the Arkoma basin. This group’s experience in delivering value and driving returns is expected to play an integral role in the continued development of these assets.”

The Company’s board of directors was advised by Evercore regarding certain financial matters associated with the transaction.

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 Texas, Oklahoma,Louisiana and the shallow waters of the Gulf of Mexico.  PetroQuest’s common stock trades on the New York Stock Exchange under the ticker PQ.