PetroQuest Energy Announces Second Quarter Results

LAFAYETTE, La., Aug. 5 /PRNewswire-FirstCall/ -- PetroQuest Energy, Inc. (NYSE: PQ) announced today that the Company recorded net income available to common stockholders for the quarter ended June 30, 2010 of $5,248,000 or $0.08 per share, compared to second quarter 2009 net income available to common stockholders of $7,746,000, or $0.15 per share. For the first six months of 2010, the Company reported net income available to common stockholders of $34,965,000, or $0.56 per share, compared to net loss available to common stockholders of $59,211,000, or $1.20 per share, for the comparable 2009 period.

Discretionary cash flow for the second quarter of 2010 was $25,367,000, as compared to $37,788,000 for the comparable 2009 period.  For the first six months of 2010, discretionary cash flow was $66,131,000, compared to discretionary cash flow of $76,256,000 for the first six months of 2009. See the attached schedule for a reconciliation of net cash flow provided by operating activities to discretionary cash flow.

Production for the second quarter of 2010 was 7.3 Bcfe, compared to 8.6 Bcfe for the comparable period of 2009. For the first six months of 2010, production was 15.1 Bcfe, compared to 18.7 Bcfe for the comparable period of 2009. Production during the 2010 periods was negatively impacted by the reduced capital spending during 2009.  Approximately 54% of the Company's second quarter 2010 production was from long-lived basins.  Stated on an Mcfe basis, unit prices including the effects of hedges, were 12% and 3% lower during the second quarter and six months ended June 30, 2010, respectively, as compared to the 2009 periods. Oil and gas sales during the second quarter of 2010 were $41,857,000, as compared to $55,376,000, in the second quarter of 2009. For the first six months of 2010, oil and gas sales were $89,402,000 compared to oil and gas sales of $114,610,000 for the first six months of 2009.

Lease operating expenses ("LOE") for the second quarter of 2010 increased to $9,020,000, as compared to $8,373,000 in the second quarter of 2009. The increase in lease operating expenses for the second quarter of 2010 is primarily due to unanticipated maintenance costs. LOE per Mcfe was $1.23 for the second quarter of 2010, as compared to $0.98 in the second quarter of 2009. For the first six months of 2010, lease operating expenses increased to $1.24 per Mcfe from $1.05 per Mcfe in the comparable period of 2009. Although per unit lease operating expenses increased, absolute lease operating expenses during the first six months of 2010 decreased when compared to the 2009 period primarily due to the overall reduction in produced volumes as well as lower insurance costs.

Depreciation, depletion and amortization ("DD&A") on oil and gas properties for the second quarter of 2010 was $1.84 per Mcfe, as compared to $2.11 per Mcfe in the second quarter of 2009. For the first six months of 2010, DD&A on oil and gas properties was $1.87 per Mcfe compared to $2.66 per Mcfe for the comparable period of 2009. The decline in DD&A per Mcfe for the six month period was the result of the ceiling test write-downs of a substantial portion of the Company's proved oil and gas properties during 2009, the impact of the previously announced Woodford joint development agreement, and the addition of proved reserves at attractive development costs from the Company's Woodford operated drilling program.

Interest expense for the second quarter of 2010 decreased to $2,379,000, as compared to $3,388,000 in the second quarter of 2009. For the first six months of 2010, interest expense was $4,189,000 compared to $6,564,000 for the comparable period of 2009. The decrease in interest expense is primarily due to the repayment of $130,000,000 of bank debt in the last half of 2009 and the first half of 2010.

General and administrative expenses during the quarter and six months ended June 30, 2010 totaled $5,816,000 and $10,325,000, respectively, as compared to expenses of $4,197,000 and $9,022,000 during the comparable 2009 periods. The increase in general and administrative expenses for the 2010 periods is primarily due to incentive compensation payments during the second quarter of 2010.

The following table sets forth certain information with respect to the oil and gas operations of the Company for the three and six month periods ended June 30, 2010 and 2009:

The above sales and average sales prices include additions related to the settlement of gas hedges of $4,756,000 and $22,441,000 and the settlement of oil hedges of zero and $1,470,000 for the three months ended June 30, 2010 and 2009, respectively.  The above sales and average sales prices include additions related to the settlement of gas hedges of $6,287,000 and $36,419,000 and the settlement of oil hedges of zero and $3,515,000 for the six months ended June 30, 2010 and 2009, respectively.

The following initiates guidance for the third quarter of 2010:

The following updates guidance for the full year of 2010:

Operations Update

The Company completed two Woodford operated horizontal wells during late July, PQ37 (2,522 foot lateral) and PQ38 (3,727 foot lateral). Both wells are in the early stages of flowback and have not had sufficient time to establish a clean 24 hour initial production rate. However, due to the shorter than average lateral length, the Company expects both wells to achieve a 24 hour initial production rate of 2,000 – 4,000 Mcf per day. In addition to the above completions, the Company has reached total depth on PQ39 (4,723 foot lateral), is near total depth on PQ40 and expects to drill one additional well utilizing the pad of PQ40. The Company expects to complete all three wells during the fourth quarter. In addition, the Company has procured a second Woodford rig and expects to commence drilling operations in September, with a third rig expected to begin operations in late 2010.  The Company estimates that its current net production from its Oklahoma properties is approximately 30 MMcfe per day.

In the Gulf Coast Basin, the Company's Southern Hills prospect, located in its onshore South Louisiana South Chauvin field, reached total depth and has encountered approximately 64 net feet of pay from two objectives. Production from the lower objective is expected to commence in approximately one week at an initial gross rate of approximately 4,000 – 5,000 Mcfe per day. Upon depletion of the lower objective, which is expected to occur in 2011, the Company expects to recomplete and produce from the upper objective at an initial gross rate of approximately 10,000 – 12,000 Mcfe per day. The Company has an approximate 36% net revenue interest in the well.  

Management's Comment

"We are extremely pleased with our recent Woodford results and the closing of our previously announced joint venture," said Charles T. Goodson, Chairman, Chief Executive Officer and President. "The joint venture builds upon our already strong liquidity position and enhances our future Woodford drilling economics."

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 Arkoma Basin, East Texas, South Louisiana and the shallow waters of the Gulf of Mexico.  PetroQuest 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.  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 our ability to find oil and natural gas reserves that are economically recoverable, the volatility of oil and natural gas prices and significantly depressed natural gas prices since the middle of 2008, the uncertain economic conditions in the United States and globally, the declines in the values of our properties that have resulted in and may in the future result in additional ceiling test write-downs, our ability to replace reserves and sustain production, our estimate of the sufficiency of our existing capital sources, our ability to raise additional capital to fund cash requirements for future operations, the uncertainties involved in prospect development and property acquisitions or dispositions and in projecting future rates of production or future reserves, the timing of development expenditures and drilling of wells, hurricanes and other natural disasters, including the impact of the oil spill in the Gulf of Mexico on our present and future operations, 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 PetroQuest has filed with the Securities and Exchange Commission. PetroQuest undertakes no duty to update or revise these forward-looking statements.

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SOURCE PetroQuest Energy, Inc.