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PetroQuest Energy Inc. Reports Operating Results (10-K)

February 28, 2011 | About:

PetroQuest Energy Inc. (NYSE:PQ) filed Annual Report for the period ended 2010-12-31.

Petroquest Energy Inc has a market cap of $551.58 million; its shares were traded at around $8.73 with a P/E ratio of 15.05 and P/S ratio of 3.08. Hedge Fund Gurus that owns PQ: Louis Moore Bacon of Moore Capital Management, LP, Bruce Kovner of Caxton Associates, Jim Simons of Renaissance Technologies LLC. Mutual Fund and Other Gurus that owns PQ: NWQ Managers of NWQ Investment Management Co, Mario Gabelli of GAMCO Investors, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

During late 2008, in response to declining commodity prices and the global financial crisis, we shifted our focus from increasing reserves and production to building liquidity and strengthening our balance sheet. Because of our significant operational control, we were able to reduce our capital expenditures from $358 million in 2008 to $59 million in 2009 thus allowing us to utilize our cash flow from operations, combined with proceeds from an equity offering, to repay $130 million of bank debt since the end of 2008. While we achieved our goal of strengthening the financial position of the Company, because of the reduced capital investments during 2009, our production declined by 9% during 2010.

During 2010 we refocused on the key elements of our business strategy with the goal of growing reserves and production in a fiscally prudent manner. To that end, in May 2010, we entered into a joint development agreement with WSGP Gas Producing LLC (WSGP), a subsidiary of NextEra Energy Resources, LLC, whereby WSGP acquired approximately 29 Bcfe of our Woodford proved undeveloped reserves as well as the right to earn 50% of our undeveloped Woodford acreage position through a two phase drilling program. We received approximately $57 million in cash at closing, net of $2.6 million in transaction fees, and will receive an additional $14 million on November 30, 2011. If certain production performance metrics are achieved, we will receive an additional $14 million, which we estimate could occur during 2011. Additionally, WSGP will fund a share of our future drilling costs under a long-term drilling program. The additional capital provided by this agreement allows us to accelerate the pace of our development of the Woodford Shale and pursue opportunities in other basins.

Maintain Our Financial Flexibility. Because we operate approximately 70% of our total estimated proved reserves and manage the drilling and completion activities on an additional 11% of such reserves, we expect to be able to control the timing of a substantial portion of our capital investments. Our 2011 capital expenditures, which include capitalized interest and overhead, are expected to range between $110 million and $120 million. In order to maintain our financial flexibility, we plan to fund our 2011 capital expenditures budget with cash flow from operations and $14 million in additional proceeds to be received in 2011 under the Woodford joint development agreement. We expect to be able to actively manage our 2011 capital budget in the event commodity prices or the health of the global financial markets do not match our expectations. During 2011, we also plan to also maintain a commodity hedging program and, as we did during prior years, we may opportunistically dispose of non-core or mature assets to provide capital for higher potential exploration and development properties that fit our long-term growth strategy.

In August 2010, we issued $150 million in principal amount of 10% Senior Notes due 2017 (the Notes) in a public offering. The net proceeds of the offering, together with cash on hand, were used to fund the tender offer and consent solicitation and redemption of our 10 3/8% Senior Notes due 2012. We incurred a loss totaling $6 million relating to the early retirement of the 10 3/8% Senior Notes. Approximately $1.8 million of the loss related to non-cash amortization of deferred financing costs and discount associated with the 10 3/8% Senior Notes.

Our estimated proved reserves under the revised SEC guidelines at December 31, 2010 increased 8% from 2009 totaling 1,623 MBbls of oil, 8,373 MMcfe of natural gas liquids (Ngls) and 174,566 MMcf of natural gas, with a pre-tax present value, discounted at 10%, of the estimated future net revenues based on average prices during 2010 (PV-10) of $256 million. At December 31, 2010, our standardized measure of discounted cash flows, which includes the estimated impact of future income taxes, totaled $236.4 million. Our standardized measure of discounted cash flows at December 31, 2010 was 36% higher than 2009 as we utilized prices of $79.72 per barrel of oil, $7.00 per Mcfe of Ngls and $3.56 per Mcf of natural gas (adjusted for field differentials), compared to $60.57 per barrel of oil, $4.89 per Mcfe of Ngls and $2.84 per Mcf of natural gas (adjusted for field differentials) at December 31, 2009. See the reconciliation of PV-10 to the standardized measure of discounted cash flows below.

Approximately 70% of our total PUDs at December 31, 2010 were associated with the future development of our Oklahoma properties. We expect all of our PUDs at December 31, 2010 to be developed over the next five years. At December 31, 2010, we had no PUDs that had been booked for longer than five years. Estimated future costs related to the development of PUDs are expected to total $47 million in 2011, $58 million in 2012 and $5 million in 2013.

Read the The complete Report

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