May 3, 2017 - 4:01 PM EDT
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PetroQuest Energy Announces First Quarter 2017 Earnings; Provides Hedging and Operations Update

LAFAYETTE, La., May 03, 2017 (GLOBE NEWSWIRE) -- PetroQuest Energy, Inc. (NYSE:PQ) (the "Company") today announced results for the first quarter ended March 31, 2017.  The following are recent Company highlights:

  • Discretionary cash flow increased 156% from fourth quarter 2016 and 516% from first quarter 2016
  • Production increased 13% from fourth quarter 2016
  • Redemption of all remaining 2017 Senior Notes
  • Return to full compliance with NYSE continued listing standards 

Loss available to common stockholders for the quarter ended March 31, 2017 totaled $4,918,000, or $0.23 per share, compared to first quarter 2016 loss available to common stockholders of $39,137,000, or $2.31 per share.

Discretionary cash flow for the first quarter of 2017 was $9,206,000, as compared to $(2,210,000) for the comparable 2016 period, and $3,591,000 for the fourth quarter of 2016.  See the attached schedule for a reconciliation of net cash flow provided by operating activities to discretionary cash flow. 

Production for the first quarter of 2017 was 5.2 Bcfe, compared to 7.6 Bcfe for the comparable period of 2016. The reduction in production volumes during the 2017 period is primarily attributable to the sale of the remainder of the Company's Arkoma assets in April 2016, as well as a significant reduction in capital spending during 2016.

Stated on an Mcfe basis, unit prices including the effects of hedges for the first quarter of 2017 were $3.98  per Mcfe, as compared to $2.27 per Mcfe in the first quarter of 2016. Despite lower production, as a result of 75% higher realized pricing on an Mcfe basis, oil and gas sales during the first quarter of 2017 increased 20% to $20,772,000, as compared to $17,320,000 in the first quarter of 2016.

Lease operating expenses (“LOE”) for the first quarter of 2017 decreased to $7,076,000, as compared to $8,177,000 in the first quarter of 2016. LOE per Mcfe was $1.35 for the first quarter of 2017, as compared to $1.07 in the first quarter of 2016. The increase in per unit lease operating expenses is primarily due to the Arkoma asset sale, which included properties with a lower relative per unit cost, as well as the impact of lower production resulting from reduced capital expenditures during 2016.

Depreciation, depletion and amortization (“DD&A”) on oil and gas properties for the first quarter of 2017 was $1.15 per Mcfe, as compared to $1.30 per Mcfe in the first quarter of 2016. The decrease in the per unit DD&A rate is primarily the result of recent ceiling test write-downs in 2016.

Interest expense for the first quarter of 2017 decreased to $7,258,000, as compared to $8,257,000 in the first quarter of 2016. During the three month period ended March 31, 2017, capitalized interest totaled $305,000, as compared to $309,000 during the 2016 period. The decrease in interest expense during the 2017 period is primarily attributable to a lower debt balance after the completion of the Company's debt exchange in February 2016.  

General and administrative expenses for the quarter ended March 31, 2017 totaled $3,153,000, as compared to $8,599,000 for the comparable 2016 period. Capitalized general and administrative expenses during the quarter ended March 31, 2017 totaled $1,334,000, as compared to $1,489,000 during the comparable 2016 period. The decrease in general and administrative expenses during the quarter ended March 31, 2017 is primarily due to lower employee related expenses and approximately $4,740,000 of expenses related to the issuance of the Company's 2021 Secured Senior  Notes during the first quarter of 2016.

The following table sets forth certain information with respect to the oil and gas operations of the Company for the three month periods ended March 31, 2017 and 2016:

 Three Months Ended March 31,
 2017 2016
Oil (Bbls)132,678  139,989 
Gas (Mcf)3,524,966  5,547,477 
Ngl (Mcfe)904,206  1,246,632 
Total Production (Mcfe)5,225,240  7,634,043 
Avg. Daily Production (MMcfe/d)58.1  83.9 
Total oil sales$6,871,409  $4,358,744 
Total gas sales10,662,342  10,718,208 
Total ngl sales3,238,546  2,242,762 
Total oil and gas sales$20,772,297  $17,319,714 
Average sales prices:   
Oil (per Bbl)$51.79  $31.14 
Gas (per Mcf)3.02  1.93 
Ngl (per Mcfe)3.58  1.80 
Per Mcfe3.98  2.27 

The above sales and average sales prices include increases (decreases) to revenues related to the settlement of gas hedges of ($321,000) and $1,032,000 for the three months ended March 31, 2017 and 2016, respectively. 

Second and Third Quarter Production Guidance
The Company expects to begin completion operations on a three well pad in East Texas within one week with initial flowback expected in early June.  In the Gulf Coast, the Company had planned to recomplete a well at its Ship Shoal 72 field in May with initial production expected in June.  Due to timing of rig availability, this recompletion is now scheduled for June with initial production in July.  As a result of the limited impact that these operations will have on second quarter production, the Company is guiding production for the second quarter of 2017 at 62-65 MMcfe/d.

With a full quarter of production expected from the three well Cotton Valley pad, along with the anticipated impact of the Ship Shoal 72 recompletion, the Company is guiding production for the third quarter of 2017 at 80-84 MMcfe/d (72% gas,  11% oil and  17% NGL).  The mid-point of the third quarter 2017 production guidance would represent a 64% increase from the average daily production for the fourth quarter of 2016.

The following provides guidance for the second quarter of 2017:

 Guidance for
Description2nd Quarter 2017
Production volumes (MMcfe/d)62 - 65
Percent Gas67%
Percent Oil14%
Percent NGL19%
Lease operating expenses (per Mcfe)$1.20 - $1.30
Production taxes (per Mcfe)$0.09 - $0.12
Depreciation, depletion and amortization (per Mcfe)$1.20 - $1.30
General and administrative (in millions)*$3.50 - $4.00
Interest expense (in millions)**$7.30 - $7.50
* Includes non-cash stock compensation estimate of approximately $0.3 million 
** Includes non-cash interest expense of approximately $5.7 million 

Hedging Update
The Company recently initiated the following hedging transaction:

Production PeriodTypeDaily VolumesPrice
Jan 18 - March 18Swap5,000 MMBtu$3.40

After executing the above transaction, the Company has approximately 9.2 Bcf and 3.2 Bcf of gas volumes hedged for 2017 and the first quarter of 2018, respectively, with average floor prices of approximately $3.22 per Mcf and $3.24 per Mcf, respectively.

Operations Update
In East Texas, the Company recently established production on its PQ #22 well (NRI 39%), which is located on the PQ/CVX acreage.  The well achieved a maximum 24 hour rate of approximately 11,000 Mcfe/d (7,000 Mcf/d of gas, 530 Bbls/d of natural gas liquids and 70 Bbls/d of oil).  The Company estimates the drilling and completion cost of PQ#22 was  approximately $800/lateral foot.

The Company recently reached total depth on the final well of a three well pad (PQ #23-25 - avg WI 75%).  The middle well (PQ #24) will test a secondary Cotton Valley bench (E-Sand).  In addition, the Company plans to obtain micro-seismic data as well as utilize varying sizes of proppant per well in connection with this upcoming three well program. The micro-seismic work should provide significant data on frack heights and propagation in order to benefit future completion operations.  The Company expects to drill and complete 8 wells in East Texas during 2017 and plans to have a three well pad in progress at the end of the year.

In South Louisiana, the Company's Thunder Bayou well is currently flowing at approximately 61,000 Mcfe/d (NRI - 37%). The production mix consists of approximately 39,000 Mcf/d of gas, 1,500 Bbls/d of oil and 2,200 Bbls/d of natural gas liquids. The Company estimates that Thunder Bayou generated approximately $2.3 million in field level cash flow, net to the Company, during March 2017 after be completed in February 2017.

Management’s Comment
“Our accelerating cash flow and production profiles during the first quarter of 2017 clearly indicate we have returned to growth as we reported sequential quarterly increases of 156% and 13%, respectively,” said Charles T. Goodson, Chairman, Chief Executive Officer and President. “Since the first quarter of 2016, we have refinanced or repaid all of our $350 million of 10% Senior Notes due 2017, secured an East Texas joint venture, commenced our Cotton Valley drilling program and recompleted Thunder Bayou resulting in a 61 MMcfe/d current production rate.  These milestones were made possible due to the quality of our assets and people and the flexibility exhibited by our stakeholders.”

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 the Texas, 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.

Forward-Looking Statements
This news release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this news release are forward-looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, these statements are based upon assumptions and anticipated results that are subject to numerous uncertainties and risks. Actual results may vary significantly from those anticipated due to many factors, including the volatility of oil and natural gas prices and significantly depressed oil prices since the end of 2014; our indebtedness and the significant amount of cash required to service our indebtedness; our estimate of the sufficiency of our existing capital sources, including availability under our new multi-draw term loan facility; our ability to post additional collateral to satisfy our offshore decommissioning obligations; our ability to execute our 2017 drilling and recompletion program as planned and to increase our production; our ability to hedge future production to reduce our exposure to price volatility in the current commodity pricing market; our ability to find, develop and produce oil and natural gas reserves that are economically recoverable and to replace reserves and sustain and/or increase production; ceiling test write-downs resulting, and that could result in the future, from lower oil and natural gas prices; our ability to raise additional capital to fund cash requirements for future operations; limits on our growth and our ability to finance our operations, fund our capital needs and respond to changing conditions imposed by our multi-draw term loan facility and restrictive debt covenants; approximately 50% of our production being exposed to the additional risk of severe weather, including hurricanes, tropical storms and flooding, and natural disasters; losses and liabilities from uninsured or underinsured drilling and operating activities; changes in laws and governmental regulations as they relate to our operations; the operating hazards attendant to the oil and gas business; the volatility of our stock price; and our ability to continue to meet the continued listing standards of the New York Stock Exchange with respect to our common stock or to cure any deficiency with respect thereto. In particular, careful consideration should be given to cautionary statements made in the various reports the Company has filed with the SEC. The Company undertakes no duty to update or revise these forward-looking statements.
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Consolidated Balance Sheets
  (Amounts in Thousands)
 March 31,
 December 31,
Current assets:   
Cash and cash equivalents$28,191  $28,312 
Revenue receivable9,269  10,294 
Joint interest billing receivable7,172  7,632 
Derivative asset168   
Other current assets3,794  2,353 
Total current assets48,594  48,591 
Oil and gas properties:   
Oil and gas properties, full cost method1,331,930  1,323,333 
Unevaluated oil and gas properties11,909  9,015 
Accumulated depreciation, depletion and amortization(1,249,300) (1,243,286)
Oil and gas properties, net94,539  89,062 
Other property and equipment9,315  10,951 
Accumulated depreciation of other property and equipment(8,560) (10,109)
Total property and equipment95,294  89,904 
Other assets6,364  6,365 
Total assets$150,252  $144,860 
Current liabilities:   
Accounts payable to vendors$30,808  $25,265 
Advances from co-owners3,879  2,330 
Oil and gas revenue payable22,639  22,146 
Accrued interest874  2,047 
Asset retirement obligation3,291  4,160 
Derivative liability1,729  3,947 
10% Senior Unsecured Notes due 2017  22,568 
Other accrued liabilities3,211  3,938 
Total current liabilities66,431  86,401 
Multi-draw Term Loan27,429  7,249 
10% Senior Secured Notes due 202115,174  15,228 
10% Senior Secured PIK Notes due 2021254,130  248,600 
Asset retirement obligation32,958  32,450 
Other long-term liabilities6,491  6,027 
Commitments and contingencies   
Stockholders’ equity:   
Preferred stock, $.001 par value; authorized 5,000 shares; issued and
outstanding 1,495 shares
1  1 
Common stock, $.001 par value; authorized 150,000 shares; issued and
outstanding 21,214 and 21,197 shares, respectively
21  21 
Paid-in capital304,805  304,341 
Accumulated other comprehensive loss(1,562) (4,750)
Accumulated deficit(555,626) (550,708)
Total stockholders’ equity(252,361) (251,095)
Total liabilities and stockholders’ equity$150,252  $144,860 

Consolidated Statements of Operations
(Amounts in Thousands, Except Per Share Data)
 Three Months Ended
 March 31,
 2017 2016
Oil and gas sales$20,772  $17,320 
Lease operating expenses7,076  8,177 
Production taxes308  338 
Depreciation, depletion and amortization6,117  10,138 
Ceiling test write-down  18,857 
General and administrative3,153  8,599 
Accretion of asset retirement obligation547  608 
Interest expense7,258  8,257 
 24,459  54,974 
Other income:   
Other income54  97 
 54  97 
Loss from operations(3,633) (37,557)
Income tax expense  86 
Net loss(3,633) (37,643)
Preferred stock dividend1,285  1,494 
Loss available to common stockholders$(4,918) $(39,137)
Loss per common share:   
Net loss per share$(0.23) $(2.31)
Net loss per share$(0.23) $(2.31)
Weighted average number of common shares:   
Basic21,208  16,956 
Diluted21,208  16,956 

 Consolidated Statements of Cash Flows
  (Amounts in Thousands)
 Three Months Ended
 March 31,
 2017 2016
Cash flows from operating activities:   
Net loss$(3,633) $(37,643)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:   
Deferred tax expense  86 
Depreciation, depletion and amortization6,117  10,138 
Non-cash PIK Interest5,512   
Ceiling test writedown  18,857 
Accretion of asset retirement obligation547  608 
Share-based compensation expense425  442 
Amortization costs and other238  562 
Payments to settle asset retirement obligations(402) (464)
Costs incurred to issue 2021 Notes  4,740 
Changes in working capital accounts:   
Revenue receivable1,025  (842)
Joint interest billing receivable460  10,709 
Accounts payable and accrued liabilities3,037  (20,413)
Advances from co-owners1,549  (12,021)
Other(1,462) (949)
Net cash provided by (used in) operating activities13,413  (26,190)
Cash flows used in investing activities:   
Investment in oil and gas properties(10,898) (15,812)
Investment in other property and equipment(16) (23)
Sale of oil and gas properties  7,000 
Net cash used in investing activities(10,914) (8,835)
Cash flows used in financing activities:   
Net proceeds from share based compensation40  65 
Deferred financing costs(10) (38)
Payment of preferred stock dividend  (1,284)
Redemption of 2017 Notes(22,650) (53,626)
Costs incurred to issue 2021 Notes  (4,740)
Proceeds from borrowings20,000   
Net cash used in financing activities(2,620) (59,623)
Net decrease in cash and cash equivalents(121) (94,648)
Cash and cash equivalents, beginning of period28,312  148,013 
Cash and cash equivalents, end of period$28,191  $53,365 
Supplemental disclosure of cash flow information:   
Cash paid during the period for:   
Interest$2,975  $16,781 
Income taxes$  $ 

Non-GAAP Disclosure Reconciliation
(Amounts In Thousands)
 Three Months EndedThree Months Ended
 March 31,December 31,
 2017 20162016
Net loss$(3,633) $(37,643)$(8,374)
Reconciling items:    
Deferred tax expense (benefit)  86  
Depreciation, depletion and amortization6,117  10,138 5,359 
Ceiling test writedown  18,857  
Accretion of asset retirement obligation547  608 619 
Non-cash share based compensation expense425  442 83 
Non-cash PIK interest5,512   5,722 
Amortization costs and other238  562 116 
Costs incurred to issue 2021 Senior Secured Notes  4,740 66 
Discretionary cash flow9,206  (2,210)3,591 
Changes in working capital accounts4,609  (23,516)(8,167)
Settlement of asset retirement obligations(402) (464)(285)
Net cash flow provided by (used in) operating activities$13,413  $(26,190)$(4,861)

Note: Management believes that discretionary cash flow is relevant and useful information, which is commonly used by analysts, investors and other interested parties in the oil and gas industry as a financial indicator of an oil and gas company’s ability to generate cash used to internally fund exploration and development activities and to service debt.  Discretionary cash flow is not a measure of financial performance prepared in accordance with generally accepted accounting principles (“GAAP”) and should not be considered in isolation or as an alternative to net cash flow provided by operating activities.  In addition, since discretionary cash flow is not a term defined by GAAP, it might not be comparable to similarly titled measures used by other companies.

For further information, contact:	
Matt Quantz, Manager – Corporate Communications
(337) 232-7028,

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Source: GlobeNewswire (May 3, 2017 - 4:01 PM EDT)

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