PetroQuest Energy Announces Third Quarter 2010 Results

LAFAYETTE, La., Nov. 3, 2010 /PRNewswire-FirstCall/ -- PetroQuest Energy, Inc. (NYSE: PQ) announced today net income available to common stockholders for the quarter ended September 30, 2010 of $4,939,000, or $0.08 per share, compared to third quarter 2009 net income available to common stockholders of $4,453,000, or $0.07 per share. For the first nine months of 2010, the Company reported net income available to common stockholders of $39,904,000, or $0.63 per share, compared to net loss available to common stockholders of $54,758,000, or $1.03 per share, for the first nine months of 2009.

During the third quarter of 2010, the Company completed the public offering of $150 million aggregate principal amount of 10% Senior Notes due 2017. The net proceeds of the offering plus cash on hand were used to fund the tender offer and consent solicitation and redemption of the Company's outstanding 10 3/8% Senior Notes due 2012. In conjunction with this refinancing, the Company incurred a loss totaling $5,973,000 relating to the early retirement of the 10 3/8% Senior Notes. Approximately $1,785,000 million of the loss related to non-cash amortization of deferred financing costs and discount associated with the 10 3/8% Senior Notes.  

Discretionary cash flow for the third quarter of 2010 was $30,109,000, as compared to $33,762,000 for the comparable 2009 period. For the first nine months of 2010, discretionary cash flow was $96,240,000. Discretionary cash flow for the first nine months of 2009 was $110,018,000. See the attached schedule for a reconciliation of net cash flow provided by operating activities to discretionary cash flow.

Production for the third quarter of 2010 was 7.9 Bcfe (86.4 MMcfe/d), compared to 8.0 Bcfe (86.9 MMcfe/d) for the comparable period of 2009. For the first nine months of 2010, production was 23.0 Bcfe (84.3 MMcfe/d), compared to 26.7 Bcfe (97.6 MMcfe/d) for the comparable period of 2009. Approximately 54% of the Company's third quarter 2010 production was from long-lived basins and 22% of third quarter 2010 production came from oil and natural gas liquids.  Stated on an Mcfe basis, unit prices received during the third quarter and the first nine months of 2010 were 7% and 5% lower, respectively, than the comparable 2009 periods. Oil and gas sales during the third quarter of 2010 decreased 8% to $46,229,000, as compared to $50,182,000 in the third quarter of 2009. For the first nine months of 2010, oil and gas sales decreased 18% to $135,631,000 from $164,792,000 in the first nine months of 2009.

Oil production for the third quarter of 2010 increased 39% to 190,070 Bbls, as compared to 137,077 Bbls in the third quarter of 2009.  Oil revenues for the third quarter of 2010, increased 41% to $14,553,000, as compared to $10,325,000 in the third quarter of 2009. The increase in oil production is primarily due to recompletion activities and drilling success in the Gulf Coast basin.

Lease operating expenses for the third quarter of 2010 were $1.23 per Mcfe as compared to $1.21 per Mcfe in the third quarter of 2009. For the first nine months of 2010, lease operating expenses per Mcfe increased 14% to $1.24 from $1.09 in the comparable period of 2009. Per unit lease operating expenses increased and total lease operating expenses decreased during the first nine months of 2010 as compared to the 2009 period primarily due to the overall reduction in production volumes.  Additionally, lower insurance costs contributed to the decrease in total lease operating expenses for the nine months ended September 30, 2010.

Depreciation, depletion and amortization ("DD&A") on oil and gas properties for the third quarter of 2010 was $1.82 per Mcfe as compared to $2.21 per Mcfe in the third quarter of 2009.  For the first nine months of 2010, DD&A decreased 27% to $1.85 per Mcfe from $2.52 per Mcfe for the comparable period of 2009. The decline in DD&A per Mcfe during the 2010 periods 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 venture and reserve additions during 2010.

Interest expense for the third quarter of 2010 decreased to $3,147,000, as compared to $3,531,000 in the third quarter of 2009. For the first nine months of 2010, interest expense was $7,336,000, compared to $10,095,000 for the comparable period of 2009. The decrease in interest expense is primarily due to the repayment of $130,000,000 of bank debt since August of 2009.

General and administrative expenses increased $1,439,000 and $2,742,000 for the third quarter and nine months ended September 30, 2010, as compared to the respective 2009 periods.  The increases during the 2010 periods are primarily due to higher employee related expenses, which includes a non-cash compensation charge related to the cancellation of certain stock options during the third quarter of 2010.

Production taxes for the third quarter of 2010 totaled $361,000, as compared to $176,000 in the third quarter of 2009.  For the first nine months of 2010, production taxes were $3,308,000 compared to $3,196,000 for the comparable period of 2009.   Third quarter 2010 and 2009 production taxes included significant production tax refunds.

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

The above sales and average sales prices include additions related to the settlement of gas hedges of $4,550,000 and $20,996,000 and the settlement of oil hedges of zero and $1,167,000 for the three months ended September 30, 2010 and 2009, respectively.  The above sales and average sales prices include additions related to the settlement of gas hedges of $10,837,000 and $57,415,000 and the settlement of oil hedges of zero and $4,682,000 for the nine months ended September 30, 2010 and 2009, respectively.

The following initiates guidance for the fourth quarter of 2010:

Operations Update

The Company completed three operated horizontal Woodford Shale wells during October. These wells were brought online within the last week, and have recovered approximately 15% of the frac load and have reached an average per well flow rate of 4.3 million cubic feet per day. The following is a detailed summary of the results:

In addition to the above completions, the Company has reached total depth on its forty-second Woodford operated horizontal well (5,068 foot lateral). The Company expects to drill and complete two additional wells before the end of the year. The Company currently has one operated rig working in the basin and is currently taking delivery of its second operated rig.

During October, the Company reached total depth on two non-operated horizontal Niobrara wells, Peterson #1 (WI-25%) and Nevis #2 (WI-25%). The wells are in various stages of completion and during the fourth quarter the Company plans to update the results of both wells, along with the potential for future development activities.

In East Texas, the Company has reached total depth on its first non-operated horizontal Cotton Valley well (2,592 foot lateral) (WI-30%) and an operated vertical Travis Peak/Cotton Valley combination well (WI-26%). The Company expects to commence completion activities on the horizontal Cotton Valley well in approximately two weeks and the combination well during the first quarter of 2011. In addition, the Company recently spud its second horizontal Cotton Valley well (WI-26%) and expects to reach total depth by year-end.

In the Gulf Coast, the Company recently recompleted a well in its shallow water Gulf of Mexico Ship Shoal 72 field.  The well achieved a gross initial production rate of approximately 300 barrels of oil and 300 mcf of gas. The Company has an approximate 40% net revenue interest in the well.  The Company has additional oil focused recompletion opportunities in its Gulf Coast inventory.

Hedging Update

The Company initiated the following commodity hedging transaction during October 2010:

Management Statement

"Through our financial discipline over the last two years and the recent extension of the maturity of our high-yield debt to 2017, we have achieved the strongest financial position in the Company's history with over $150 million in liquidity," said Charles T. Goodson, Chairman, Chief Executive Officer and President.  "Our Woodford wells continue to provide outstanding results and our recent Gulf Coast activities have significantly grown our oil and natural gas liquids production to 22% of our total volumes.  To build upon our success in growing our liquids production, we will continue to allocate capital to liquid rich targets in our existing Gulf Coast and East Texas properties, and potentially to our venture in the Niobrara."        

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.

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