10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2018

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from:                    to:                    

Commission file number: 001-32681

_________________________________________________________________

PETROQUEST ENERGY, INC.

(Exact name of registrant as specified in its charter)

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

DELAWARE	72-1440714
(State of Incorporation)	(I.R.S. Employer Identification No.)

400 E. Kaliste Saloom Rd., Suite 6000 Lafayette, Louisiana	70508
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (337) 232-7028

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of April 26, 2018 there were 25,587,441 shares of the registrant’s common stock, par value $.001 per share, outstanding.

PETROQUEST ENERGY, INC.

Table of Contents

	Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets of PetroQuest Energy, Inc. as of March 31, 2018 and December 31, 2017	1
Consolidated Statements of Operations of PetroQuest Energy, Inc. for the Three Months Ended March 31, 2018 and 2017	2
Consolidated Statements of Comprehensive Loss of PetroQuest Energy, Inc. for the Three Months Ended March 31, 2018 and 2017	3
Consolidated Statements of Cash Flows of PetroQuest Energy, Inc. for the Three Months Ended March 31, 2018 and 2017	4
Notes to Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3. Quantitative and Qualitative Disclosures About Market Risk	24
Item 4. Controls and Procedures	25
Part II. Other Information
Item 1. Legal Proceedings	25
Item 1A. Risk Factors	26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3. Defaults upon Senior Securities	29
Item 4. Mine Safety Disclosures	29
Item 5. Other Information	29
Item 6. Exhibits	29

PETROQUEST ENERGY, INC.

Consolidated Balance Sheets

(Amounts in Thousands)

	March 31, 2018			December 31, 2017
	(unaudited)			(Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	14,178		$	15,655
Revenue receivable	7,847			15,340
Joint interest billing receivable	3,024			6,597
Other receivable	6,000			7,750
Derivative asset	—			1,174
Deposit for surety bonds	11,100			8,300
Other current assets	1,960			2,125
Total current assets	44,109			56,941
Property and equipment:
Oil and gas properties:
Oil and gas properties, full cost method	1,351,048			1,369,861
Unevaluated oil and gas properties	16,918			21,854
Accumulated depreciation, depletion and amortization	(1,285,640		)	(1,285,660		)
Oil and gas properties, net	82,326			106,055
Other property and equipment	9,451			9,353
Accumulated depreciation of other property and equipment	(8,894		)	(8,843		)
Total property and equipment	82,883			106,565
Other assets	792			792
Total assets	$	127,784		$	164,298
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable to vendors	$	15,382		$	32,148
Advances from co-owners	1,181			1,730
Oil and gas revenue payable	18,451			19,344
Accrued interest	4,689			1,724
Asset retirement obligation	938			687
Derivative liability	718			731
Other accrued liabilities	11,318			6,476
Total current liabilities	52,677			62,840
Multi-draw Term Loan	28,131			27,963
10% Senior Secured Notes due 2021	9,788			9,821
10% Senior Secured PIK Notes due 2021	274,563			271,577
Asset retirement obligation	2,304			30,623
Preferred stock dividend payable	11,563			10,278
Other long-term liabilities	567			131
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 25,550 and 25,521 shares, respectively	26			26
Paid-in capital	313,637			313,244
Accumulated other comprehensive income (loss)	(718		)	278
Accumulated deficit	(564,755		)	(562,484		)
Total stockholders’ equity	(251,809		)	(248,935		)
Total liabilities and stockholders’ equity	$	127,784		$	164,298

See accompanying Notes to Consolidated Financial Statements.

1

PETROQUEST ENERGY, INC.

Consolidated Statements of Operations

(unaudited)

(Amounts in Thousands, Except Per Share Data)

	Three Months Ended
	March 31,
	2018			2017
Revenues:
Oil and gas sales	$	24,917		$	20,772
Expenses:
Lease operating expenses	7,040			7,076
Production taxes	1,227			308
Depreciation, depletion and amortization	6,505			6,117
General and administrative	3,300			3,153
Accretion of asset retirement obligation	198			547
Interest expense	7,481			7,258
	25,751			24,459
Other income:
Other income	13			54
Loss from operations	(821		)	(3,633		)
Income tax expense	106			—
Net loss	(927		)	(3,633		)
Preferred stock dividend	1,285			1,285
Loss available to common stockholders	$	(2,212	)	$	(4,918	)
Loss per common share:
Basic
Net loss per share	$	(0.09	)	$	(0.23	)
Diluted
Net loss per share	$	(0.09	)	$	(0.23	)
Weighted average number of common shares:
Basic	25,540			21,208
Diluted	25,540			21,208

See accompanying Notes to Consolidated Financial Statements.

2

PETROQUEST ENERGY, INC.

Consolidated Statements of Comprehensive Loss

(unaudited)

(Amounts in Thousands)

	Three Months Ended
	March 31,
	2018			2017
Net loss	$	(927	)	$	(3,633	)
Change in fair value of derivative instruments, accounted for as hedges, net of income tax benefit of $106 and $0, respectively	(996		)	3,188
Comprehensive loss	$	(1,923	)	$	(445	)

See accompanying Notes to Consolidated Financial Statements.

3

PETROQUEST ENERGY, INC.

Consolidated Statements of Cash Flows

(unaudited)

(Amounts in Thousands)

	Three Months Ended
	March 31,
	2018			2017
Cash flows from operating activities:
Net loss	$	(927	)	$	(3,633	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred tax expense	106			—
Depreciation, depletion and amortization	6,505			6,117
Accretion of asset retirement obligation	198			547
Share-based compensation expense	340			425
Amortization costs and other	211			238
Non-cash interest expense on PIK Notes	2,961			5,512
Payments to settle asset retirement obligations	(3		)	(402		)
Changes in working capital accounts:
Revenue receivable	7,493			1,025
Joint interest billing receivable	3,016			460
Accounts payable and accrued liabilities	(11,583		)	3,037
Advances from co-owners	(549		)	1,549
Deposit for surety bonds	(2,800		)	—
Other	112			(1,462		)
Net cash provided by operating activities	5,080			13,413
Cash flows used in investing activities:
Investment in oil and gas properties	(5,810		)	(10,898		)
Investment in other property and equipment	(98		)	(16		)
Disposition of oil and gas properties	(2,405		)	—
Sale of unevaluated oil and gas properties	1,750			—
Net cash used in investing activities	(6,563		)	(10,914		)
Cash flows provided by (used in) financing activities:
Net proceeds from share based compensation	43			40
Deferred financing costs	(26		)	(10		)
Redemption of 2017 Notes	—			(22,650		)
Costs incurred to redeem 2021 Notes	(11		)	—
Proceeds from borrowings	—			20,000
Net cash provided by (used in) financing activities	6			(2,620		)
Net decrease in cash and cash equivalents	(1,477		)	(121		)
Cash and cash equivalents, beginning of period	15,655			28,312
Cash and cash equivalents, end of period	$	14,178		$	28,191
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	1,789		$	2,975

See accompanying Notes to Consolidated Financial Statements.

4

PETROQUEST ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—Basis of Presentation

The consolidated financial information for the three month periods ended March 31, 2018 and 2017, have been prepared by the Company and were not audited by its independent registered public accountants. In the opinion of management, all normal and recurring adjustments have been made to present fairly the financial position, results of operations, and cash flows of the Company at March 31, 2018 and for all reported periods. Results of operations for the interim periods presented are not necessarily indicative of the operating results for the full year or any future periods.

The balance sheet at December 31, 2017 has been derived from the audited financial statements at that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the audited financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Certain prior period amounts have been reclassified to conform to current year presentation.

Unless the context otherwise indicates, any references in this Quarterly Report on Form 10-Q to the “Company,” "we," or "us" refer to PetroQuest Energy, Inc. ("PetroQuest") and its wholly-owned consolidated subsidiaries, PetroQuest Energy, L.L.C. (a single member Louisiana limited liability company), PetroQuest Oil & Gas, L.L.C. (a single member Louisiana limited liability company), TDC Energy LLC (a single member Louisiana limited liability company) and Pittrans, Inc. (an Oklahoma corporation).

Note 2—Acquisitions and Divestitures

Divestitures:

On April 17, 2017, the Company completed the sale of its interest in the East Lake Verret field in Louisiana for approximately $2.2 million. This sale was accounted for as an adjustment to the capitalized costs of oil and gas properties. On December 15, 2017, the Company completed the sale of its saltwater disposal assets in East Texas for approximately $8.5 million. This sale was accounted for as an adjustment to the capitalized costs of oil and gas properties.

On January 31, 2018, the Company sold its Gulf of Mexico properties. The Company received no consideration from the sale of these properties and is required to contribute approximately $3.8 million towards the future abandonment costs for the properties. As a result of the sale, the Company extinguished approximately $28.2 million of its discounted asset retirement obligations. In connection with the sale, the Company expects to receive a cash refund of $11.5 million ($11.1 million at March 31, 2018) related to a depositary account that serves to collateralize a portion of the Company's offshore bonds related to these properties (subject to the Company's obligation to pay approximately $3.8 million to the purchaser of these properties), which is included in deposits for surety bonds on the Company's Consolidated Balance Sheet as of March 31, 2018. This sale was accounted for as an adjustment to the capitalized costs of oil and gas properties.

Acquisitions:

In December 2017, the Company entered into an oil focused play in central Louisiana targeting the Austin Chalk formation through the execution of agreements to acquire interests in approximately 24,600 gross acres for a purchase price of approximately $9.3 million and the issuance of 2.0 million shares of common stock.

Note 3—Equity

Common Stock

During December 2017, the Company issued 2.0 million shares of common stock in connection with the acquisition of Austin Chalk acreage (see Note 2). Additionally, during December 2017, the Company issued approximately 2.2 million shares of common stock related to the extinguishment of a portion of the outstanding 2021 Notes (see Note 5).

5

Convertible Preferred Stock

The Company has 1,495,000 shares of 6.875% Series B Cumulative Convertible Perpetual Preferred Stock (the “Series B Preferred Stock”) outstanding.

The following is a summary of certain terms of the Series B Preferred Stock:

Dividends. The Series B Preferred Stock accumulates dividends at an annual rate of 6.875% for each share of Series B Preferred Stock. Dividends are cumulative from the date of first issuance and, to the extent payment of dividends is not prohibited by the Company’s debt agreements, assets are legally available to pay dividends and the Company’s board of directors or an authorized committee of the board declares a dividend payable, the Company pays dividends in cash, every quarter.

In connection with an amendment to the Company's prior bank credit facility (which was terminated and replaced by the Multidraw Term Loan Agreement with Franklin Custodian Funds in October 2016) prohibiting the Company from declaring or paying dividends on the Series B Preferred Stock, the Company suspended the quarterly cash dividend on its Series B Preferred Stock beginning with the dividend payment due on April 15, 2016. The Multidraw Term Loan Agreement also prohibits the Company from declaring and paying cash dividends on the Series B Preferred Stock. Under the terms of the Series B Preferred Stock, any unpaid dividends will accumulate. As of March 31, 2018, the Company has deferred eight dividend payments and has accrued an $11.6 million payable related to the eight deferred payments and the quarterly dividend that was payable on April 15, 2018, which is included in Preferred stock dividend payable on the Consolidated Balance Sheet. As a result of the restrictions under the Multidraw Term Loan Agreement, the Company did not pay the dividend that was payable on July 15, 2017, which represented the sixth deferred dividend payment. As a result, the holders of the Series B Preferred Stock, voting as a single class, currently have the right to elect two additional directors to the Company's Board of Directors (the "Board") until all accumulated and unpaid dividends on the Series B Preferred Stock are paid in full. On April 12, 2018, the Company received written notice from a holder of the Series B Preferred Stock (the "Requesting Holder") exercising this right by requesting that the Board call a special meeting of the holders of the preferred stock for the purposes of electing the additional directors, as set forth in Section 4(ii) of the Certificate of Designations establishing the preferred stock, dated September 24, 2007. The Company intends to comply with the Certificate of Designations, which provides that the Board will provide notice of such meeting within 60 days of such request.

Mandatory conversion. The Company may, at its option, cause shares of the Series B Preferred Stock to be automatically converted at the applicable conversion rate, but only if the closing sale price of the Company’s common stock for 20 trading days within a period of 30 consecutive trading days ending on the trading day immediately preceding the date the Company gives the conversion notice equals or exceeds 130% of the conversion price in effect on each such trading day.

Conversion rights. Each share of Series B Preferred Stock may be converted at any time, at the option of the holder, into 0.8608 shares of the Company’s common stock (which is based on a conversion price of approximately $58.08 per share of common stock, subject to further adjustment) plus cash in lieu of fractional shares, subject to the Company’s right to settle all or a portion of any such conversion in cash or shares of the Company’s common stock. If the Company elects to settle all or any portion of its conversion obligation in cash, the conversion value and the number of shares of the Company’s common stock it will deliver upon conversion (if any) will be based upon a 20 trading day averaging period.

Upon any conversion, the holder will not receive any cash payment representing accumulated and unpaid dividends on the Series B Preferred Stock, whether or not in arrears, except in limited circumstances. The conversion rate is equal to $50 divided by the conversion price at the time. The conversion price is subject to adjustment upon the occurrence of certain events. The conversion price on the conversion date and the number of shares of the Company’s common stock, as applicable, to be delivered upon conversion may be adjusted if certain events occur.

6

Note 4—Earnings Per Share

A reconciliation between the basic and diluted earnings per share computations (in thousands, except per share amounts) is as follow:

For the Three Months Ended March 31, 2018	Loss (Numerator)			Shares (Denominator)	Per Share Amount
BASIC EPS
Net loss available to common stockholders	$	(2,212	)	25,540	$	(0.09	)
Stock options	—			—
Attributable to participating securities	—			—
DILUTED EPS	$	(2,212	)	25,540	$	(0.09	)
For the Three Months Ended March 31, 2017	Loss (Numerator)			Shares (Denominator)	Per Share Amount
BASIC EPS
Net loss available to common stockholders	$	(4,918	)	21,208	$	(0.23	)
Stock options	—			—
Attributable to participating securities	—			—
DILUTED EPS	$	(4,918	)	21,208	$	(0.23	)

An aggregate of 2.0 million and 1.5 million shares of common stock representing options to purchase common stock and unvested shares of restricted common stock and common shares issuable upon the assumed conversion of the Series B Preferred Stock totaling 1.3 million shares were not included in the computation of diluted earnings per share for the three month periods ended March 31, 2018 and 2017, respectively, because the inclusion would have been anti-dilutive as a result of the net loss reported for such periods.    

Note 5—Long-Term Debt

On August 19, 2010, the Company issued $150 million in principal amount of its 10% Senior Notes due 2017. On July 3, 2013, the Company issued an additional $200 million in principal amount of its 10% Senior Notes due 2017 (collectively, the "2017 Notes").

On February 17, 2016, the Company closed a private exchange offer (the "February Exchange") and consent solicitation (the "February Consent Solicitation") to certain eligible holders of its outstanding 2017 Notes. In satisfaction of the tender of $214.4 million in aggregate principal amount of the 2017 Notes, representing approximately 61% of the then outstanding aggregate principal amount of 2017 Notes, the Company (i) paid approximately $53.6 million of cash, (ii) issued $144.7 million aggregate principal amount of its new 10% Second Lien Senior Secured Notes due 2021 (the "2021 Notes") and (iii) issued approximately 1.1 million shares of its common stock. Following the completion of the February Exchange, $135.6 million in aggregate principal amount of the 2017 Notes remained outstanding. The February Consent Solicitation eliminated or waived substantially all of the restrictive covenants contained in the indenture governing the 2017 Notes.

On September 27, 2016, the Company closed private exchange offers (the "September Exchange") and a consent solicitation (the "September Consent Solicitation") to certain eligible holders of its outstanding 2017 Notes and 2021 Notes. In satisfaction of the consideration of $113.0 million in aggregate principal amount of the 2017 Notes, representing approximately 83% of the then outstanding aggregate principal amount of 2017 Notes, and $130.5 million in aggregate principal amount of the 2021 Notes, representing approximately 90% of the then outstanding aggregate principal amount of 2021 Notes, the Company issued (i) $243.5 million in aggregate principal amount of its new 10% Second Lien Senior Secured PIK Notes due 2021 (the "2021 PIK Notes") and (ii) approximately 3.5 million shares of its common stock. The Company also paid, in cash, accrued and unpaid interest on the 2017 Notes and 2021 Notes accepted in the September Exchange from the last applicable interest payment date to, but not including, September 27, 2016. Following the consummation of the September Exchange, there were $22.7 million in aggregate principal amount of the 2017 Notes outstanding and $14.2 million in aggregate principal amount of the 2021 Notes outstanding. The September Consent Solicitation amended certain provisions of the indenture governing the 2021 Notes and amended the registration rights agreement with respect to the 2021 Notes.

On March 31, 2017, the Company redeemed its remaining outstanding 2017 Notes at a redemption price of $22.8 million. The redemption was funded by cash on hand and amounts borrowed under the Multidraw Term Loan Agreement described below.

7

On December 28, 2017, the Company issued approximately 2.2 million shares of common stock to extinguish approximately $4.8 million of outstanding principal amount of 2021 Notes.

The 2021 PIK Notes bear interest at a rate of 10% per annum on the principal amount and interest is payable semi-annually in arrears on February 15 and August 15 of each year. The Company was permitted, at its option, for the first three interest payment dates of the 2021 PIK Notes, to instead pay interest at (i) the annual rate of 1% in cash plus (ii) the annual rate of 9% PIK (the "PIK Interest") payable by increasing the principal amount outstanding of the 2021 PIK Notes or by issuing additional 2021 PIK Notes in certificated form. The Company exercised this PIK option in connection with the interest payments due on February 15, 2017, August 15, 2017 and February 15, 2018. As of March 31, 2018, the Company was in compliance with all of the covenants under the 2021 PIK Notes.

The 2021 Notes bear interest at a rate of 10% per annum on the principal amount and interest is payable semi-annually in arrears on February 15 and August 15 of each year. As of March 31, 2018, the Company was in compliance with all of the covenants under the 2021 Notes.

The February Exchange and September Exchange were accounted for as troubled debt restructurings pursuant to guidance provided by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 470-60 "Troubled Debt Restructurings by Debtors." The Company determined that the future undiscounted cash flows from the 2021 PIK Notes issued in the September Exchange through the maturity date exceeded the adjusted carrying amount of the 2017 Notes and the 2021 Notes tendered in the September Exchange. Accordingly, no gain or loss on extinguishment of debt was recognized in connection with the September Exchange. The net shortfall of the remaining carrying value of the 2017 Notes and 2021 Notes tendered as compared to the principal amount of the 2021 PIK Notes issued in the September Exchange of $0.6 million is reflected as part of the carrying value of the 2021 PIK Notes. Such shortfall is being amortized under the effective interest method over the term of the 2021 PIK Notes. At March 31, 2018, $0.5 million of the shortfall remained as part of the carrying value of the 2021 PIK Notes and the Company recognized $26,000 of amortization expense as an increase to interest expense during the three months ended March 31, 2018.

The Company previously determined that the future undiscounted cash flows from the 2021 Notes issued in the February Exchange through the maturity date exceeded the adjusted carrying amount of the 2017 Notes tendered in the February Exchange. Accordingly, no gain on extinguishment of debt was recognized in connection with the February Exchange. The excess of the remaining carrying value of the 2017 Notes tendered over the principal amount of the 2021 Notes issued in the February Exchange of $13.9 million was reflected as part of the carrying value of the 2021 Notes. The amount of the excess carrying value attributable to the 2021 Notes tendered in the September Exchange is now reflected as part of the carrying value of the 2021 PIK Notes. The excess carrying value attributable to the remaining 2021 Notes is being amortized under the effective interest method over the term of the 2021 Notes. At March 31, 2018, $0.6 million of the excess remained as part of the carrying value of the 2021 Notes and the Company recognized $43,000 of amortization expense as a reduction to interest expense during the three months ended March 31, 2018.

The indentures governing the 2021 PIK Notes and the 2021 Notes contain affirmative and negative covenants that, among other things, limit the ability of the Company and the subsidiary guarantors of the 2021 PIK Notes and the 2021 Notes to incur indebtedness; purchase or redeem stock; make certain investments; create liens that secure debt; enter into transactions with affiliates; sell assets; refinance certain indebtedness; merge with or into other companies or transfer substantially all of their assets; and, in certain circumstances, to pay dividends or make other distributions on stock. The 2021 PIK Notes and the 2021 Notes are fully and unconditionally guaranteed on a senior basis, jointly and severally, by certain wholly-owned subsidiaries of the Company.

The 2021 PIK Notes and the 2021 Notes are secured equally and ratably by second-priority liens on substantially all of the Company's and the subsidiary guarantors' oil and gas properties and substantially all of their other assets to the extent such properties and assets secure the Multidraw Term Loan Agreement (as defined below), except for certain excluded assets. Pursuant to the terms of an intercreditor agreement, the security interest in those properties and assets that secure the 2021 PIK Notes and the 2021 Notes and the guarantees are contractually subordinated to liens that secure the Multidraw Term Loan Agreement and certain other permitted indebtedness. Consequently, the 2021 PIK Notes and the 2021 Notes and the guarantees will be effectively subordinated to the Multidraw Term Loan Agreement and such other indebtedness to the extent of the value of such assets.

On October 17, 2016, the Company entered into the Multidraw Term Loan Agreement (the "Multidraw Term Loan Agreement") with Franklin Custodian Funds - Franklin Income Fund ("Franklin"), as a lender, and Wells Fargo Bank, National Association, as administrative agent, replacing the prior credit agreement with JPMorgan Chase Bank, N.A. The Multidraw Term Loan Agreement provides a multi-advance term loan facility, with borrowing availability for three years, in a principal amount of up to $50 million. The loans drawn under the Multidraw Term Loan Agreement (collectively, the “Term Loans”) may be used to repay existing debt, to pay transaction fees and expenses, to provide working capital for exploration and production operations and for general corporate purposes. The Term Loans mature on October 17, 2020. As of March 31, 2018, the Company had $30.0 million of borrowings outstanding under the Term Loans and $20.0 million of available borrowings under the Multidraw Term Loan Agreement.

8

The Company’s obligations under the Multidraw Term Loan Agreement and the Term Loans are secured by a first priority lien on substantially all of the assets of the Company and certain of its subsidiaries, including a lien on all equipment and at least 90% of the aggregate total value of the oil and gas properties of the Company and its subsidiaries, a pledge of the equity interests of PetroQuest Energy, L.L.C. (the "Borrower") and certain of the Company’s other subsidiaries, and corporate guarantees of the Company and certain of the Company’s other subsidiaries of the indebtedness of the Borrower. Term Loans under the Multidraw Term Loan Agreement bear interest at the rate of 10% per annum.

The Company and its subsidiaries are subject to a restrictive covenant under the Multidraw Term Loan Agreement, consisting of maintaining a ratio of (i) the present value, discounted at 10% per annum, of the estimated future net revenues in respect of the Company’s and its subsidiaries’ oil and gas properties, before any state, federal, foreign or other income taxes, attributable to proved developed reserves, using three-year strip prices in effect at the end of each calendar quarter, including swap agreements in place at the end of each quarter, to (ii) the sum of the outstanding Term Loans and the then outstanding commitments to provide Term Loans, that shall not be less than 2.0 to 1.0 as measured on the last day of each calendar quarter (the "Coverage Ratio"). If the Coverage Ratio is less than 2.0 to 1.0 as of any quarterly measurement date, the Company may, at its option, prepay outstanding Term Loans or permanently reduce the then outstanding Term Loan Commitments (i.e. the available borrowings) under the Multidraw Term Loan Agreement, or a combination thereof, by a proportionate amount. The Coverage Ratio was greater than 2.0 to 1.0 as of March 31, 2018.

Sales of the Company’s and its subsidiaries’ oil and gas properties outside the ordinary course of business are limited under the terms of the Multidraw Term Loan Agreement. In addition, the Multidraw Term Loan Agreement prohibits the Company from declaring and paying dividends on its Series B Preferred Stock.

The Multidraw Term Loan Agreement also includes customary restrictions with respect to debt, liens, dividends, distributions and redemptions, investments, loans and advances, nature of business, international operations and foreign subsidiaries, leases, sale or discount of receivables, mergers or consolidations, sales of properties, transactions with affiliates, negative pledge agreements, gas imbalances and swap agreements. As of March 31, 2018, no default or event of default existed under the Multidraw Term Loan Agreement and the Company was in compliance with all covenants contained in the Multidraw Term Loan Agreement.

The 2021 Notes are reflected net of $0.2 million of related unamortized financing costs as of March 31, 2018 and December 31, 2017 and the Term Loans are reflected net of $1.9 million and $2.0 million of related unamortized financing costs as of March 31, 2018 and December 31, 2017, respectively.

The following table reconciles the face value of the 2021 Notes, 2021 PIK Notes and Term Loans to the carrying value included in the Company's Consolidated Balance Sheet as of March 31, 2018 and December 31, 2017 (in thousands):

	March 31, 2018									December 31, 2017
	2021 Notes			2021 PIK Notes			Term Loans			2021 Notes			2021 PIK Notes			Term Loans
Face Value	$	9,427		$	275,046		$	30,000		$	9,427		$	263,202		$	30,000
Unamortized Deferred Financing Costs	(201		)	—			(1,869		)	(212		)	—			(2,037		)
Excess (Shortfall) Carrying Value	562			(483		)	—			606			(508		)	—
Accrued PIK Interest	—			—			—			—			8,883			—
Carrying Value	$	9,788		$	274,563		$	28,131		$	9,821		$	271,577		$	27,963

9

Note 6—Asset Retirement Obligation

The following table describes the changes to the Company’s asset retirement obligation liability (in thousands):

	Three Months Ended March 31,
	2018			2017
Asset retirement obligation, beginning of period	$	31,310		$	36,610
Liabilities incurred	7			13
Liabilities settled	(57		)	(540		)
Accretion expense	198			547
Revisions in estimates	(2		)	(381		)
Divestiture of oil and gas properties	(28,214		)	—
Asset retirement obligation, end of period	3,242			36,249
Less: current portion of asset retirement obligation	(938		)	(3,291		)
Long-term asset retirement obligation	$	2,304		$	32,958

The divestiture of oil and gas properties during 2018 totaling $28.2 million relates to the sale of the Company's Gulf of Mexico assets. The liabilities incurred, revisions in estimated cash flows and divestitures represent non-cash investing activities for purposes of the statement of cash flows.

Note 7—Derivative Instruments

The Company seeks to reduce its exposure to commodity price volatility by hedging a portion of its production through commodity derivative instruments. When the conditions for hedge accounting are met, the Company may designate its commodity derivatives as cash flow hedges. The changes in fair value of derivative instruments that qualify for hedge accounting treatment are recorded in other comprehensive income (loss) until the hedged oil or natural gas quantities are produced. If a derivative does not qualify for hedge accounting treatment, the changes in the fair value of the derivative are recorded in the income statement as derivative income (expense). At March 31, 2018, the Company's derivative instrument was designated as an effective cash flow hedge.

Oil and gas sales include additions (reductions) related to the settlement of gas hedges of $804,000 and ($321,000) for the three months endedMarch 31, 2018 and 2017, respectively. Oil and gas sales include reductions related to the settlement of oil hedges of $264,000 and $0 for the three months endedMarch 31, 2018 and 2017, respectively.

As of March 31, 2018, the Company had entered into the following commodity derivative instrument:

Production Period	Instrument Type	Daily Volumes	Weighted Average Price
Crude Oil:
2018	Swap	250 Bbl	$55.00

At March 31, 2018, the Company had recognized an accumulated other comprehensive loss of approximately $0.7 million related to the estimated fair value of its effective cash flow hedge. Based on estimated future commodity prices as of March 31, 2018, the Company would reclassify approximately $0.5 million, net of taxes, of accumulated other comprehensive loss into oil and gas sales during the next twelve months.

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Derivatives designated as hedging instruments:

The following tables reflect the fair value of the Company’s effective cash flow hedges in the consolidated financial statements (in thousands):

Effect of Cash Flow Hedges on the Consolidated Balance Sheets at March 31, 2018 and December 31, 2017:

	Commodity Derivatives
Period	Balance Sheet Location	Fair Value
March 31, 2018	Derivative liability	$	(718	)
December 31, 2017	Derivative asset	$	1,174
December 31, 2017	Derivative liability	$	(731	)

Effect of Cash Flow Hedges on the Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2018 and 2017:

Instrument	Amount of Gain (Loss) Recognized in Other Comprehensive Income			Location of Gain Reclassified into Income	Amount of Gain (Loss) Reclassified into Oil and Gas Sales
Commodity Derivatives at March 31, 2018	$	(545	)	Oil and gas sales	$	540
Commodity Derivatives at March 31, 2017	$	2,867		Oil and gas sales	$	(321	)

Note 8 – Fair Value Measurements

As defined in ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. As presented in the tables below, this hierarchy consists of three broad levels:

• Level 1: valuations consist of unadjusted quoted prices in active markets for identical assets and liabilities and has the highest priority;

• Level 2: valuations rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability;

• Level 3: valuations are based on prices or third party or internal valuation models that require inputs that are significant to the fair value measurement and are less observable and thus have the lowest priority.

The Company classifies its commodity derivatives based upon the data used to determine fair value. The Company’s derivative instruments at March 31, 2018 and December 31, 2017 were in the form of swaps based on NYMEX pricing for oil and natural gas. The fair value of these derivatives are derived using an independent third-party’s valuation model that utilizes market-corroborated inputs that are observable over the term of the derivative contract. The Company’s fair value calculations also incorporate an estimate of the counterparties’ default risk for derivative assets and an estimate of the Company’s credit risk for derivative liabilities. As a result, the Company designates its commodity derivatives as Level 2 in the fair value hierarchy.

The following table summarizes the fair value of the Company’s derivatives subject to fair value measurement on a recurring basis as of March 31, 2018 and December 31, 2017 (in thousands):

	Fair Value Measurements Using
Instrument	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Commodity Derivatives:
March 31, 2018	$	—	$	(718	)	$	—
December 31, 2017	$	—	$	443		$	—

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The fair value of the Company's cash and cash equivalents approximated book value at March 31, 2018 and December 31, 2017. The fair value of the Term Loans was determined using Level 2 inputs and approximated face value as of March 31, 2018 and December 31, 2017. The fair value of the 2021 Notes and 2021 PIK Notes was determined based upon market quotes provided by an independent broker, which represents a Level 2 input. The following table summarizes the fair value, carrying value and face value of the 2021 Notes and 2021 PIK Notes as of March 31, 2018 and December 31, 2017 (in thousands):

	March 31, 2018						December 31, 2017
	Fair Value		Face Value		Carrying Value		Fair Value		Face Value		Carrying Value
2021 Notes	$	7,580	$	9,427	$	9,788	$	7,306	$	9,427	$	9,821
2021 PIK Notes	219,419		275,046		274,563		198,717		263,202		271,577
	$	226,999	$	284,473	$	284,351	$	206,023	$	272,629	$	281,398

Note 9—Income Taxes

The Company typically provides for income taxes at a statutory rate adjusted for permanent differences expected to be realized, primarily statutory depletion, non-deductible stock compensation expenses and state income taxes. As a result of ceiling test write-downs recognized, the Company has incurred a cumulative three year loss. Because of the impact the cumulative loss has on the determination of the recoverability of deferred tax assets through future earnings, the Company assessed the realizability of its deferred tax assets based on the future reversals of existing deferred tax liabilities. Accordingly, the Company established a valuation allowance for a portion of the deferred tax asset. The valuation allowance was $116.3 million and $115.9 million as of March 31, 2018 and December 31, 2017, respectively.

The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act, among other things, reduces the U.S. federal corporate tax rate from 35% to 21%, eliminates the corporate alternative minimum tax and changes how existing alternative minimum tax credits are realized, creates a new limitation on deductible interest expense and changes the rules related to uses and limitations of net operating loss carryforwards generated in tax years beginning after December 31, 2017. As of March 31, 2018, the Company has not completed its accounting for the tax effects of enactment of the Act. However, the Company made a reasonable estimate of the effects on its existing deferred tax balances and recognized a provisional amount of $64.9 million as of December 31, 2017 to remeasure deferred tax assets and liabilities based on the rate at which they are expected to reverse in the future, which is generally 21%. This amount was included as a component of income tax expense (benefit) from continuing operations and was fully offset by the related adjustment to the Company's valuation allowance. The Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.

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Note 10 - Other Comprehensive Income

The following table represents the changes in accumulated other comprehensive income (loss), net of tax, for the three month period ended March 31, 2018 (in thousands):

	Gains and Losses on Cash Flow Hedges			Change in Valuation Allowance			Total
Balance as of December 31, 2017	$	278		$	—		$	278
Other comprehensive income before reclassifications:
Change in fair value of derivatives	(545		)	—			(545		)
Income tax effect	131			(131		)	—
Net of tax	(414		)	(131		)	(545		)
Amounts reclassified from accumulated other comprehensive loss:
Oil and gas sales	(540		)	—			(540		)
Income tax effect	130			(41		)	89
Net of tax	(410		)	(41		)	(451		)
Net other comprehensive income	(824		)	(172		)	(996		)
Balance as of March 31, 2018	$	(546	)	$	(172	)	$	(718	)

The following table represents the changes in accumulated other comprehensive income (loss), net of tax, for the three month period ended March 31, 2017 (in thousands):

	Gains and Losses on Cash Flow Hedges			Change in Valuation Allowance			Total
Balance as of December 31, 2016	$	(2,983	)	$	(1,767	)	$	(4,750	)
Other comprehensive income before reclassifications:
Change in fair value of derivatives	2,867			—			2,867
Income tax effect	(1,066		)	1,066			—
Net of tax	1,801			1,066			2,867
Amounts reclassified from accumulated other comprehensive income:
Oil and gas sales	321			—			321
Income tax effect	(120		)	120			—
Net of tax	201			120			321
Net other comprehensive loss	2,002			1,186			3,188
Balance as of March 31, 2017	$	(981	)	$	(581	)	$	(1,562	)

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Note 11 - Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” to clarify the principles for recognizing revenue and to develop a common revenue standard and disclosure requirements. The core principle of ASU 2014-09 is that an entity will recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods and or services. In August 2015, the FASB issued ASU 2015-14 deferring the effective date of ASU 2014-09 by one year to interim and annual periods beginning on or after December 31, 2017. Entities can choose to apply the standard using either a full retrospective approach or a modified retrospective approach, with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. The Company adopted the new standard effective January 1, 2018 using the modified retrospective approach, which resulted in no cumulative effect adjustment upon adoption.

The Company’s sources of revenue are oil, natural gas and NGL production from its oil and gas properties. Oil and natural gas production is typically sold to purchasers through monthly contracts at negotiated sales prices based on published market indices. The sale takes place at the wellhead for oil production and at the wellhead or gas processing plant for natural gas. NGL production is sold once natural gas is processed and the related liquids are removed at the processing plant. The contracts for sale of NGL production are with the processing plant with prices based on what the processing plant is able to receive from third party purchasers.

Sales of oil, natural gas and NGL production are recognized when the product is delivered and title transfers to the purchaser and payment is generally received one to two months after the sale has occurred. The Company had $7.8 million of revenue receivable at March 31, 2018, comprised of $2.2 million of oil revenue, $4.3 million of natural gas revenue and $1.3 million of NGL revenue.

The following table includes a disaggregation of revenue by product (in thousands):

	Three Months Ended March 31,
	2018		2017
Oil production	$	6,322	$	6,871
Natural gas production	14,884		10,662
Natural gas liquids production	3,711		3,239
Total	$	24,917	$	20,772

In February 2016, the FASB issued ASU 2016-02, "Leases" (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard is effective for public entities for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years, with earlier application permitted. Upon adoption the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently evaluating the impact of the new standard on its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, "Derivative and Hedging," to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its consolidated financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current US GAAP. ASU 2017-12 is effective for public entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with earlier application permitted. The Company is currently evaluating the effect that this new standard may have on its consolidated financial statements.

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

PetroQuest Energy, Inc. is an independent oil and gas company incorporated in the State of Delaware with primary operations in Texas and Louisiana. We seek to grow our production, proved reserves, cash flow and earnings at low finding and development costs through a balanced mix of exploration, development and acquisition activities. From the commencement of our operations through 2002, we were focused exclusively in the Gulf Coast Basin with onshore properties principally in southern Louisiana and offshore properties in the shallow waters of the Gulf of Mexico shelf. During 2003, we began the implementation of our strategic goal of diversifying our reserves and production into longer life and lower risk onshore properties with our acquisition of the Carthage Field in East Texas. From 2005 through 2015, we further implemented this strategy by focusing our efforts in the Woodford Shale play in Oklahoma. In response to lower commodity prices and to strengthen our balance sheet, we sold all of our Oklahoma assets in three transactions that closed in June 2015, April 2016 and October 2016. In December 2017, we acquired approximately 24,600 gross acres in central Louisiana targeting the Austin Chalk to attempt to increase our oil production and reserves. During January 2018, we sold all of our Gulf of Mexico assets to further reduce our liabilities and strengthen our liquidity position.

Our liquidity position has been negatively impacted by lower commodity prices. In response to the lower commodity prices, we executed the following actions aimed at preserving liquidity, reducing overall debt levels and extending debt maturities:

• Completed the sale of our Oklahoma assets for $292.6 million;

• Completed two debt exchanges to extend maturities on a significant portion of debt;

• Reduced total debt 26% from $425 million at December 31, 2014 to $314.5 million at March 31, 2018;

• Entered into a new $50 million Multidraw Term Loan Agreement maturing in 2020,

• Sold our Gulf of Mexico assets resulting in the extinguishment of $28.2 million of discounted asset retirement obligations from our balance sheet and the expected refund of $11.5 million of cash collateral used to secure our offshore bonding (subject to our obligation to pay approximately $3.8 million to the purchaser of these assets);

In addition to extending the maturity on approximately $113 million of debt due in 2017 to 2021, our September 2016 debt exchange permitted us to reduce our cash interest expense on our 2021 PIK Notes (as defined below) from 10% in cash to 1% in cash and 9% in payment-in-kind for the first three semi-annual interest payments ending with the February 2018 interest payment, which provided us with approximately $31.6 million of cash interest savings.

As a result of our successful recompletion and drilling operations during 2017, we grew production and estimated proved reserves significantly during 2017 as compared to 2016. Our average daily production during the year ended December 31, 2017 increased 17% over average daily production during the year ended December 31, 2016 and our estimated proved reserves at December 31, 2017 grew 35% from 2016. However, our production has declined by 29% in the first quarter of 2018 when compared to the fourth quarter of 2017 due to the sale of our Gulf of Mexico properties in January 2018 and normal production declines. In addition, beginning with the August 15, 2018 interest payment, we will be required to pay the entire 10% interest payment in cash with respect to the 2021 PIK Notes. The return of higher cash interest costs will have a significant impact on our cash available for capital expenditures. As a result, we expect capital expenditures during 2018 to be greatly reduced from capital spending in 2017. The combined impact of reduced capital spending and the sale of our Gulf of Mexico production in January 2018 is expected to result in declining production, proved reserves and cash flow from operations during 2018, as compared to 2017. See - "Liquidity and Capital Resources."

Critical Accounting Policies

Reserve Estimates

Our estimates of proved oil and gas reserves constitute those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. At the end of each year, our proved reserves are estimated by independent petroleum engineers in accordance with guidelines established by the SEC. These estimates, however, represent projections based on geologic and engineering data. Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that are difficult to measure. The accuracy of any reserve estimate is a function of the quantity and quality of available data, engineering and geological interpretation and professional judgment. Estimates of economically

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recoverable oil and gas reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effect of regulations by governmental agencies, and assumptions governing future oil and gas prices, future operating costs, severance taxes, development costs and workover costs. The future drilling costs associated with reserves assigned to proved undeveloped locations may ultimately increase to the extent that these reserves may be later determined to be uneconomic. Any significant variance in the assumptions could materially affect the estimated quantity and value of the reserves, which could affect the carrying value of our oil and gas properties and/or the rate of depletion of such oil and gas properties.

Disclosure requirements under Staff Accounting Bulletin 113 (“SAB 113”) include provisions that permit the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserve volumes. The rules also allow companies the option to disclose probable and possible reserves in addition to the existing requirement to disclose proved reserves. The disclosure requirements also require companies to report the independence and qualifications of third party preparers of reserves and file reports when a third party is relied upon to prepare reserves estimates. Pricing is based on a 12-month, first day of month, average price during the 12-month period prior to the ending date of the balance sheet to report oil and natural gas reserves. In addition, the 12-month average will also be used to measure ceiling test impairments and to compute depreciation, depletion and amortization.

Full Cost Method of Accounting

We use the full cost method of accounting for our investments in oil and gas properties. Under this method, all acquisition, exploration and development costs, including certain related employee costs, incurred for the purpose of exploring for and developing oil and natural gas are capitalized. Acquisition costs include costs incurred to purchase, lease or otherwise acquire property. Exploration costs include the costs of drilling exploratory wells, including those in progress and geological and geophysical service costs in exploration activities. Development costs include the costs of drilling development wells and costs of completions, platforms, facilities and pipelines. Costs associated with production and general corporate activities are expensed in the period incurred. Sales of oil and gas properties, whether or not being amortized currently, are accounted for as adjustments of capitalized costs, with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas.

The costs associated with unevaluated properties are not initially included in the amortization base and primarily relate to ongoing exploration activities, unevaluated leasehold acreage and delay rentals, seismic data and capitalized interest. These costs are either transferred to the amortization base with the costs of drilling the related well or are assessed quarterly for possible impairment or reduction in value.

We compute the provision for depletion of oil and gas properties using the unit-of-production method based upon production and estimates of proved reserve quantities. Unevaluated costs and related carrying costs are excluded from the amortization base until the properties associated with these costs are evaluated. In addition to costs associated with evaluated properties, the amortization base includes estimated future development costs related to non-producing reserves. Our depletion expense is affected by the estimates of future development costs, unevaluated costs and proved reserves, and changes in these estimates could have an impact on our future earnings.

We capitalize certain internal costs that are directly identified with acquisition, exploration and development activities. The capitalized internal costs include salaries, employee benefits, costs of consulting services and other related expenses and do not include costs related to production, general corporate overhead or similar activities. We also capitalize a portion of the interest costs incurred on our debt. Capitalized interest is calculated using the amount of our unevaluated property and our effective borrowing rate.

Capitalized costs of oil and gas properties, net of accumulated DD&A and related deferred taxes, are limited to the estimated future net cash flows from proved oil and gas reserves, including the effect of cash flow hedges in place, discounted at 10 percent, plus the lower of cost or fair value of unproved properties, as adjusted for related income tax effects (the full cost ceiling). If capitalized costs exceed the full cost ceiling, the excess is charged to write-down of oil and gas properties in the quarter in which the excess occurs.

Given the volatility of oil and gas prices, it is probable that our estimate of discounted future net cash flows from proved oil and gas reserves will change in the near term. If oil or gas prices decline, even for only a short period of time, or if we have downward revisions to our estimated proved reserves, it is possible that write-downs of oil and gas properties could occur in the future.

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Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” to clarify the principles for recognizing revenue and to develop a common revenue standard and disclosure requirements. The core principle of ASU 2014-09 is that an entity will recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods and or services. In August 2015, the FASB issued ASU 2015-14 deferring the effective date of ASU 2014-09 by one year to interim and annual periods beginning on or after December 31, 2017. Entities can choose to apply the standard using either a full retrospective approach or a modified retrospective approach, with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. The Company adopted the new standard effective January 1, 2018 using the modified retrospective approach, which resulted in no cumulative effect adjustment upon adoption. See Note 11 for additional disclosures.

Future Abandonment Costs

Future abandonment costs include costs to dismantle and relocate or dispose of our production platforms, gathering systems, wells and related structures and restoration costs of land and seabed. We develop estimates of these costs for each of our properties based upon the type of production structure, depth of water, reservoir characteristics, depth of the reservoir, market demand for equipment, currently available procedures and consultations with construction and engineering consultants. Because these costs typically extend many years into the future, estimating these future costs is difficult and requires management to make estimates and judgments that are subject to future revisions based upon numerous factors, including changing technology, the timing of estimated costs, the impact of future inflation on current cost estimates and the political and regulatory environment.

Derivative Instruments

We seek to reduce our exposure to commodity price volatility by hedging a portion of our production through commodity derivative instruments. The estimated fair values of our commodity derivative instruments are recorded in the consolidated balance sheet. The changes in fair value of those derivative instruments that qualify for hedge accounting treatment are recorded in other comprehensive income (loss) until the hedged oil and natural gas quantities are produced. If a hedge becomes ineffective because the hedged production does not occur, or the hedge otherwise does not qualify for hedge accounting treatment, the changes in the fair value of the derivative are recorded in the income statement as derivative income (expense).

Our hedge is specifically referenced to NYMEX prices for oil. We evaluate the effectiveness of our hedges at the time we enter the contracts, and periodically over the life of the contracts, by analyzing the correlation between NYMEX prices and the posted prices we receive from our designated production. Through this analysis, we are able to determine if a high correlation exists between the prices received for the designated production and the NYMEX prices at which the hedges will be settled. At March 31, 2018, our derivative instrument was designated as an effective cash flow hedge.

Estimating the fair value of derivative instruments requires valuation calculations incorporating estimates of future NYMEX prices, discount rates and price movements. As a result, we calculate the fair value of our commodity derivatives using an independent third-party’s valuation model that utilizes market-corroborated inputs that are observable over the term of the derivative contract. Our fair value calculations also incorporate an estimate of the counterparties’ default risk for derivative assets and an estimate of our credit risk for derivative liabilities.

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Results of Operations

The following table sets forth certain information with respect to our oil and gas operations for the periods noted. These historical results are not necessarily indicative of results to be expected in future periods.         

	Three Months Ended March 31,
	2018		2017
Production:
Oil (Bbls)	100,175		132,678
Gas (Mcf)	4,604,021		3,524,966
Ngl (Mcfe)	897,103		904,206
Total Production (Mcfe)	6,102,174		5,225,240
Sales:
Total oil sales	$	6,321,857	$	6,871,409
Total gas sales	14,884,113		10,662,342
Total ngl sales	3,711,475		3,238,546
Total oil, gas, and ngl sales	$	24,917,445	$	20,772,297
Average sales prices:
Oil (per Bbl)	$	63.11	$	51.79
Gas (per Mcf)	3.23		3.02
Ngl (per Mcfe)	4.14		3.58
Per Mcfe	4.08		3.98

The above sales and average sales prices include increases (decreases) to revenue related to the settlement of gas hedges of $804,000 and ($321,000) for the three months endedMarch 31, 2018 and 2017, respectively. The above sales and average sales prices include decreases to revenue related to the settlement of oil hedges of $264,000 and $0 for the three months endedMarch 31, 2018 and 2017, respectively. Please see Item 3. Quantitative and Qualitative Disclosures About Market Risk in this Form 10-Q for further details on our hedging program and our current hedging arrangements.

In January 2018, we completed the sale of our Gulf of Mexico assets. During the first quarter of 2017, these assets contributed the following to our oil and gas operations:

	Three months ended March 31, 2017		Percent of Total Company
Production:
Oil (Bbls)	80,473		61	%
Gas (Mcf)	815,836		23	%
Ngl (Mcfe)	95,046		11	%
Total Production (Mcfe)	1,393,720		27	%
Sales:
Total oil sales	$	4,189,103	61	%
Total gas sales	2,582,765		24	%
Total ngl sales	297,564		9	%
Total oil and gas sales	$	7,069,432	34	%

Net loss available to common stockholders totaled $2,212,000 and $4,918,000 for the three months ended March 31, 2018 and 2017, respectively. The primary fluctuations were as follows:

Production Total production increased17% during the three month period ended March 31, 2018 as compared to the 2017 period, but was down 29% as compared to the fourth quarter of 2017. The increase in production as compared to the first quarter of 2017 was due primarily to the successful drilling of ten East Texas wells and the successful recompletion of our Thunder Bayou well in the first quarter of 2017. Partially offsetting the increase were decreases due to the sale of our Gulf of Mexico assets in January 2018 and normal production declines at our legacy Gulf Coast and East Texas fields. As a result of reduced capital spending and the sale of our Gulf of Mexico assets which contributed 25% of our total production in 2017, we expect our total production during the remainder of 2018 to decline as compared to 2017.

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Gas production during the three month period ended March 31, 2018increased31% from the comparable period in 2017 but was down 28% as compared to the fourth quarter of 2017. The increase in gas production as compared to the first quarter of 2017 was primarily the result of our successful East Texas drilling program and the successful recompletion of our Thunder Bayou well. Partially offsetting the increase were decreases due to the sale of our Gulf of Mexico assets and normal production declines at our legacy Gulf Coast and East Texas fields. As a result of reduced capital spending and the sale of our Gulf of Mexico assets which contributed 24% of our gas production in 2017, we expect our 2018 average daily gas production to decline as compared to the average daily gas production realized during 2017.

Oil production during the three month period ended March 31, 2018decreased24% from the comparable 2017 period but was down 40% as compared to the fourth quarter of 2017. The decrease in oil production as compared to the first quarter of 2017 was due primarily to the divestiture of our Gulf of Mexico assets and the sale of our E. Lake Verret field during the second quarter of 2017. Partially offsetting the decrease was an increase as a result of the the successful recompletion of our Thunder Bayou wells and our successful East Texas drilling program. As a result of reduced capital spending and the sale of our Gulf of Mexico assets which contributed 51% of our oil production in 2017, we expect our 2018 average daily oil production to decline as compared to the average daily oil production realized during 2017.

Ngl production during the three month period ended March 31, 2018decreased1% from the comparable 2017 period primarily as a result of the sale of our Gulf of Mexico assets and normal production declines at our legacy Gulf Coast and East Texas fields. This decrease was partially offset by the successful recompletion of our Thunder Bayou well during the first quarter of 2017 and our successful drilling program in East Texas. We expect our 2018 average daily Ngl production to decline as compared to the average daily Ngl production realized during 2017.

Prices Including the effects of our hedges, average gas prices per Mcf for the three month period ended March 31, 2018 were $3.23 as compared to $3.02 for the 2017 period. Average oil prices per Bbl for the three months ended March 31, 2018 were $63.11 as compared to $51.79 for the 2017 period and average Ngl prices per Mcfe for the three month period ended March 31, 2018 were $4.14 as compared to $3.58 for the 2017 period. Stated on an Mcfe basis, unit prices received during the three months ended March 31, 2018 were 3%higher than the prices received during the comparable 2017 period.

Revenue Including the effects of hedges, oil and gas sales during the three months endedMarch 31, 2018increased20% to $24,917,000, as compared to oil and gas sales of $20,772,000 during the 2017 period. This increase was primarily the result of the production increases noted above as well as higher average realized prices for our production during 2018. However, oil and gas sales for the first quarter of 2018 were down 29% from the previous quarter due to the sale of our Gulf of Mexico assets.

Expenses Lease operating expenses for the three months ended March 31, 2018 totaled $7,040,000, or $1.15 per Mcfe, as compared to $7,076,000, or $1.35 per Mcfe, during the 2017 period. The decrease in per unit lease operating expenses for the three months ended March 31, 2018 is primarily a result of the divestiture of our Gulf of Mexico wells which had a higher per unit rate as compared to our remaining East Texas and South Louisiana wells. We expect lease operating expenses during the remainder of 2018 to decrease on an absolute value basis and a per unit basis as compared to 2017 as a result of the Gulf of Mexico sale.

Production taxes for the three months ended March 31, 2018 totaled $1,227,000, or $0.20 per Mcfe, as compared to $308,000, or $0.06 per Mcfe, during the 2017 period. The increase in production taxes was primarily due to the expiration of the two-year tax exemption on our Thunder Bayou well in June 2017. Additionally, as severance taxes for the majority of our properties that are subject to severance taxes are assessed on the value of oil and gas sales, the amount also increased as a result of the increase in revenue noted above.

General and administrative expenses during the three months ended March 31, 2018 totaled $3,300,000 as compared to $3,153,000 during the 2017 period. Share-based compensation costs totaled $184,000 during the three months ended March 31, 2018 as compared to $420,000 during the 2017 period. We capitalized $1,430,000 of general and administrative expenses during the three month period ended March 31, 2018 compared to $1,334,000 during the 2017 period.

Depreciation, depletion and amortization (“DD&A”) expense on oil and gas properties for the three months ended March 31, 2018 totaled $6,454,000, or $1.06 per Mcfe, as compared to $6,014,000, or $1.15 per Mcfe, during the 2017 period. The decrease in the per unit DD&A rate for the three months endedMarch 31, 2018 is primarily the result of divestiture of our Gulf of Mexico assets in January 2018 and the sale of our East Texas saltwater assets during the fourth quarter of 2017. We expect our DD&A rate to approximate the first quarter rate during the remainder of 2018.

Interest expense, net of amounts capitalized on unevaluated properties, totaled $7,481,000 during the three months ended March 31, 2018, as compared to $7,258,000 during the 2017 period. During the three month period ended March 31, 2018, our capitalized interest totaled $421,000 as compared to $305,000 during the 2017 period. The terms of our 2021 PIK Notes allowed us the option to pay interest on the 2021 PIK Notes at 1% in cash and 9% in payment in kind through the payment due on February 15, 2018. Starting with the interest payment due on August 15, 2018, we will be required to pay interest at 10% in cash only. Therefore,

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although our total interest expense for the year ended 2018 is expected to approximate interest expense during 2017, we expect our cash interest expense to be significantly higher during the remainder of 2018 as compared to 2017.

Income tax expense during the three month period ended March 31, 2018 was $106,000. We had no such income tax expense during the 2017 period. We typically provide for income taxes at a statutory federal income tax rate adjusted for permanent differences expected to be realized, primarily statutory depletion, non-deductible stock compensation expenses and state income taxes.

As a result of ceiling test write-downs recognized in 2016 and prior years, we have incurred a three-year cumulative loss. Because of the impact the cumulative loss has on the determination of the recoverability of deferred tax assets through future earnings, we assessed the realizability of our deferred tax assets based on the future reversals of existing deferred tax liabilities. Accordingly, we established a valuation allowance for a portion of our deferred tax asset. The valuation allowance was $116,316,000 as of March 31, 2018.

The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. We have not yet completed our accounting for the tax effects of enactment of the Act. However, we have made a reasonable estimate of the effects on existing deferred tax balances and recognized a provisional amount of approximately $64.9 million as of December 31, 2017 to remeasure deferred tax assets and liabilities based on the rate at which they are expected to reverse in the future, which is generally 21%. We are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.

Liquidity and Capital Resources

At March 31, 2018, we had a working capital deficit of approximately $8.6 million as compared to a working capital deficit of approximately $5.9 million as of December 31, 2017. We have historically financed our acquisition, exploration and development activities principally through cash flow from operations, borrowings from banks and other lenders, issuances of equity and debt securities, joint ventures and sales of assets. However, our liquidity position has been negatively impacted by lower commodity prices. In response to lower commodity prices we executed a number of transactions aimed at preserving liquidity, reducing overall debt levels and extending debt maturities. Through these transactions, which included two debt exchanges, we refinanced or repaid all debt that was scheduled to mature in 2017 and reduced the face value of our total debt 26% from $425 million at December 31, 2014 to $314.5 million at March 31, 2018. In addition our September 2016 debt exchange permitted us to reduce our cash interest expense on our 2021 PIK Notes from 10% in cash to 1% in cash and 9% in payment-in-kind for the first three semi-annual interest payments ending with the February 2018 interest payment, which provided us with approximately $31.6 million of total cash interest savings during 2017 and 2018.

However, beginning with the interest payment on August 15, 2018, we will be required to pay the entire 10% interest payment in cash with respect to the 2021 PIK Notes. As a result, we expect our cash interest expense will be significantly higher during 2018 as compared to 2017, which will limit our cash available for capital expenditures. Cash interest expense on our outstanding indebtedness of $314.5 million at March 31, 2018, is expected to total approximately $19.1 million for the remainder of 2018 (or approximately $31 million per year) as compared to $7.4 million in 2017. As a result of lower capital spending and the sale of our Gulf of Mexico assets, we expect production, proved reserves and cash flow from operations to decline in 2018 as compared to 2017. We are evaluating additional sources of liquidity to provide capital for our exploration and development activities and to service our indebtedness. These additional sources of liquidity include joint ventures, asset sales, credit facilities, as well as alternate financing arrangements, including additional debt exchanges or other capital raising transactions. We cannot assure you that such additional liquidity sources will be available on acceptable terms, if at all, and our attempts to obtain additional sources of liquidity may be unsuccessful or may not permit us to meet scheduled debt service obligations, which could cause us to default on our obligations and could further impair our liquidity. See "Part II, Item 1A. Risk Factors" of this Form 10-Q for additional information.

Source of Capital: Operations

Net cash flow provided by operations decreased from $13.4 million during the three months ended March 31, 2017 to $5.1 million during the 2018 period. The decrease in operating cash flow during 2018 as compared to 2017 is primarily attributable to payments made to reduce our accounts payable to vendors and additional payments made to post collateral into a depositary account to support the bonds that cover our offshore decommissioning liabilities, which we expect will be refunded during 2018. Our operating cash flow during the remainder of 2018 is expected to be negatively impacted by higher cash interest expense related to our 2021 PIK Notes.

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Source of Capital: Divestitures

We do not budget for property divestitures; however, we are continuously evaluating our property base to determine if there are assets in our portfolio that no longer meet our strategic objectives. From time to time we may divest certain assets in order to provide liquidity to strengthen our balance sheet or capital to be reinvested in higher rate of return projects. We cannot assure you that we will be able to sell any of our assets in the future.

On January 31, 2018, we sold our Gulf of Mexico properties. Although we received no cash proceeds from the sale of these properties and are required to contribute approximately $3.8 million toward future abandonment costs, we will no longer have an obligation for $35.1 million of estimated undiscounted future abandonment costs related to the properties sold. Additionally, we expect to receive a refund of $11.5 million ($11.1 million at March 31, 2018) related to a depositary account that served to collateralize a portion of our offshore bonds related to these properties (subject to our obligation to pay approximately $3.8 million to the purchaser of these properties). See "Item 1A Risk Factors - Our ability to receive a refund of our cash deposits posted as collateral to support certain bonds that satisfy our offshore decommissioning obligations with respect to our recently sold Gulf of Mexico assets is dependent on the successful assumption of operatorship and the posting of bonds or other acceptable assurances with respect to these assets by the purchaser of the assets".

Source of Capital: Debt

On August 19, 2010, we issued $150 million in principal amount of our 10% Senior Notes due 2017. On July 3, 2013, we issued an additional $200 million in principal amount of our 10% Senior Notes due 2017 (collectively, the "2017 Notes").

On February 17, 2016, we closed a private exchange offer (the "February Exchange") and consent solicitation (the "February Consent Solicitation") to certain eligible holders of our outstanding 2017 Notes. In satisfaction of the tender of $214.4 million in aggregate principal amount of the 2017 Notes, representing approximately 61% of the then outstanding aggregate principal amount of 2017 Notes, we (i) paid approximately $53.6 million of cash, (ii) issued $144.7 million aggregate principal amount of our new 10% Second Lien Senior Secured Notes due 2021 (the "2021 Notes") and (iii) issued approximately 1.1 million shares of our common stock. Following the completion of the February Exchange, $135.6 million in aggregate principal amount of the 2017 Notes remained outstanding. The February Consent Solicitation eliminated or waived substantially all of the restrictive covenants contained in the indenture governing the 2017 Notes.

On September 27, 2016, we closed private exchange offers (the "September Exchange") and a consent solicitation (the "September Consent Solicitation") to certain eligible holders of our outstanding 2017 Notes and 2021 Notes. In satisfaction of the consideration of $113.0 million in aggregate principal amount of the 2017 Notes, representing approximately 83% of the then outstanding aggregate principal amount of 2017 Notes, and $130.5 million in aggregate principal amount of the 2021 Notes, representing approximately 90% of the then outstanding aggregate principal amount of 2021 Notes, we issued (i) $243.5 million in aggregate principal amount of our new 10% Second Lien Senior Secured PIK Notes due 2021 (the "2021 PIK Notes") and (ii) approximately 3.5 million shares of our common stock. We also paid, in cash, accrued and unpaid interest on the 2017 Notes and 2021 Notes accepted in the September Exchange from the last applicable interest payment date to, but not including, September 27, 2016. Following the consummation of the September Exchange, there was $22.7 million in aggregate principal amount of the 2017 Notes outstanding and $14.2 million in aggregate principal amount of the 2021 Notes outstanding. The September Consent Solicitation amended certain provisions of the indenture governing the 2021 Notes and amended the registration rights agreement with respect to the 2021 Notes.

On March 31, 2017, we redeemed our remaining outstanding 2017 Notes at a redemption price of $22.8 million. The redemption was funded by cash on hand and $20 million borrowed under the Multidraw Term Loan Agreement described below. On December 28, 2017, we issued approximately 2.2 million shares of common stock to extinguish $4.8 million of outstanding principal amount of 2021 Notes.

The 2021 PIK Notes bear interest at a rate of 10% per annum on the principal amount and interest is payable semi-annually in arrears on February 15 and August 15 of each year. We were permitted, at our option, for the first three interest payment dates of the 2021 PIK Notes ending with the February 2018 interest payment, to instead pay interest at (i) the annual rate of 1% per annum in cash plus (ii) the annual rate of 9% PIK (the "PIK Interest") payable by increasing the principal amount outstanding of the 2021 PIK Notes or by issuing additional 2021 PIK Notes in certificated form. We exercised this PIK option in connection with the interest payments due on February 15, 2017, August 15, 2017 and February 15, 2018. As of the date hereof, we are in compliance with all of the covenants under the 2021 PIK Notes.

The 2021 Notes bear interest at a rate of 10% per annum on the principal amount and interest is payable semi-annually in arrears on February 15 and August 15 of each year. As of the date hereof, we are in compliance with all of the covenants under the 2021 Notes.

The February Exchange and September Exchange were accounted for as troubled debt restructurings pursuant to guidance provided by ASC 470-60 "Troubled Debt Restructurings by Debtors." We determined that the future undiscounted cash flows from the 2021 PIK Notes issued in the September Exchange through the maturity date exceeded the adjusted carrying amount of

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the 2017 Notes and the 2021 Notes tendered in the September Exchange. Accordingly, no gain or loss on extinguishment of debt was recognized in connection with the September Exchange. The net shortfall of the remaining carrying value of the 2017 Notes and 2021 Notes tendered as compared to the principal amount of the 2021 PIK Notes issued in the September Exchange of $0.6 million is reflected as part of the carrying value of the 2021 PIK Notes. Such shortfall is being amortized under the effective interest method as an addition to interest expense over the term of the 2021 PIK Notes. At March 31, 2018, $0.5 million of the shortfall remained as part of the carrying value of the 2021 PIK Notes and we recognized $26,000 of amortization expense as an increase to interest expense during the three months ended March 31, 2018.

We previously determined that the future undiscounted cash flows from the 2021 Notes issued in the February Exchange through the maturity date exceeded the adjusted carrying amount of the 2017 Notes tendered in the February Exchange. Accordingly, no gain on extinguishment of debt was recognized in connection with the February Exchange. The excess of the remaining carrying value of the 2017 Notes tendered over the principal amount of the 2021 Notes issued in the February Exchange of $13.9 million was reflected as part of the carrying value of the 2021 Notes. The amount of the excess carrying value attributable to the 2021 Notes tendered in the September Exchange is now reflected as part of the carrying value of the 2021 PIK Notes. The excess carrying value attributable to the remaining 2021 Notes is being amortized under the effective interest method over the term of the 2021 Notes. At March 31, 2018, $0.6 million of the excess remained as part of the carrying value of the 2021 Notes and the Company recognized $43,000 of amortization expense as a reduction to interest expense during the three months ended March 31, 2018.

The indentures governing the 2021 PIK Notes and the 2021 Notes contains affirmative and negative covenants that, among other things, limit our ability and the subsidiary guarantors of the 2021 PIK Notes and the 2021 Notes to incur indebtedness; purchase or redeem stock; make certain investments; create liens that secure debt; enter into transactions with affiliates; sell assets; refinance certain indebtedness; merge with or into other companies or transfer substantially all of our assets; and, in certain circumstances, to pay dividends or make other distributions on stock. The 2021 PIK Notes and the 2021 Notes are fully and unconditionally guaranteed on a senior basis by certain of our wholly-owned subsidiaries.

The 2021 PIK Notes and the 2021 Notes are equally and ratably secured by second-priority liens on substantially all of our and the subsidiary guarantors' oil and gas properties and substantially all of our other assets to the extent such properties and assets secure the Multidraw Term Loan Agreement (as defined below), except for certain excluded assets. Pursuant to the terms of an intercreditor agreement, the security interest in those properties and assets that secure the 2021 PIK Notes and the 2021 Notes and the guarantees are contractually subordinated to liens that secure the Multidraw Term Loan Agreement and certain other permitted indebtedness. Consequently, the 2021 PIK Notes and the 2021 Notes and the guarantees will be effectively subordinated to the Multidraw Term Loan Agreement and such other indebtedness to the extent of the value of such assets.

On October 17, 2016, we entered into the Multidraw Term Loan Agreement (the “Multidraw Term Loan Agreement”) with Franklin Custodian Funds - Franklin Income Fund ("Franklin"), as a lender, and Wells Fargo Bank, National Association, as administrative agent, replacing the prior credit agreement with JPMorgan Chase Bank, N.A. The Multidraw Term Loan Agreement provides a multi-advance term loan facility, with borrowing availability for three years, in a principal amount of up to $50 million. The loans drawn under the Multidraw Term Loan Agreement (collectively, the “Term Loans”) may be used to repay existing debt, including the 2017 Notes, to pay transaction fees and expenses, to provide working capital for exploration and production operations and for general corporate purposes. The Term Loans mature on October 17, 2020. As of the date hereof, we had $30 million of borrowings outstanding under the Term Loans and $20.0 million of available borrowings under the Multidraw Term Loan Agreement.

Our obligations under the Multidraw Term Loan Agreement and the Term Loans are secured by a first priority lien on substantially all of our assets, including a lien on all equipment and at least 90% of the aggregate total value of our oil and gas properties, a pledge of the equity interests of PetroQuest Energy, L.L.C. (the "Borrower") and certain of our other subsidiaries, and corporate guarantees by us and certain of our subsidiaries of the indebtedness of the Borrower. Term Loans under the Multidraw Term Loan Agreement bear interest at the rate of 10% per annum.

We are subject to a restrictive covenant under the Multidraw Term Loan Agreement, consisting of maintaining a ratio of (i) the present value, discounted at 10% per annum, of the estimated future net revenues in respect of our oil and gas properties, before any state, federal, foreign or other income taxes, attributable to proved developed reserves, using three-year strip prices in effect at the end of each calendar quarter, including swap agreements in place at the end of each quarter, to (ii) the sum of the outstanding Term Loans and the then outstanding commitments to provide Term Loans, that shall not be less than 2.0 to 1.0 as measured on the last day of each calendar quarter (the "Coverage Ratio"). If the Coverage Ratio is less than 2.0 to 1.0 as of any quarterly measurement date, we may, at our option, prepay outstanding Term Loans or permanently reduce the then outstanding Term Loan Commitments (i.e. the available borrowings) under the Multidraw Term Loan Agreement, or a combination thereof, by a proportionate amount. The Coverage Ratio was greater than 2.0 to 1.0 as of March 31, 2018.

Sales of our oil and gas properties outside the ordinary course of business are limited under the terms of the Multidraw Term Loan Agreement. In addition, the Multidraw Term Loan Agreement prohibits us from declaring and paying dividends on the Series B Preferred Stock.

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The Multidraw Term Loan Agreement also includes customary restrictions with respect to debt, liens, dividends, distributions and redemptions, investments, loans and advances, nature of business, international operations and foreign subsidiaries, leases, sale or discount of receivables, mergers or consolidations, sales of properties, transactions with affiliates, negative pledge agreements, gas imbalances and swap agreements. As of the date hereof, no default or event of default exists under the Multidraw Term Loan Agreement and we were in compliance with all covenants contained in the Multidraw Term Loan Agreement.

The following table reconciles the face value of the 2021 Notes, 2021 PIK Notes and Term Loans to the carrying value included in our Consolidated Balance Sheet as of March 31, 2018 and December 31, 2017 (in thousands):

	March 31, 2018									December 31, 2017
	2021 Notes			2021 PIK Notes			Term Loans			2021 Notes			2021 PIK Notes			Term Loans
Face Value	$	9,427		$	275,046		$	30,000		$	9,427		$	263,202		$	30,000
Unamortized Deferred Financing Costs	(201		)	—			(1,869		)	(212		)	—			(2,037		)
Excess (Shortfall) Carrying Value	562			(483		)	—			606			(508		)	—
Accrued PIK Interest	—			—			—			—			8,883			—
Carrying Value	$	9,788		$	274,563		$	28,131		$	9,821		$	271,577		$	27,963

Use of Capital: Exploration and Development

Our 2018 capital budget is expected to be substantially reduced as compared to 2017 as a result of the expected increase in our cash interest expense during 2018. During the first quarter of 2018 we incurred $4.5 million in capital expenditures primarily related to the last two completions in our East Texas drilling program and various plugging and abandonment projects. Because we operate the majority of our drilling activities, we expect to be able to control the timing of a substantial portion of our capital investments. We plan to fund our capital expenditures with cash flow from operations and cash on hand. To the extent additional capital is required, we may utilize our Multidraw Term Loan Agreement, sales of equity or debt securities, evaluate the sale of additional assets, enter into joint venture arrangements or we may reduce our capital expenditures to manage our liquidity position.

Use of Capital: Acquisitions

In December 2017, we entered into an oil focused play in central Louisiana targeting the Austin Chalk formation through the execution of agreements to acquire interest in approximately 24,600 gross acres for a purchase price of approximately $9.3 million and the issuance of 2.0 million shares of common stock. We plan to drill our initial horizontal test well during the third quarter of 2018 utilizing data from existing vertical and unfracked horizontal wells that have been drilled in the area.

We do not budget for acquisitions; however, we are continuously evaluating opportunities to expand our existing asset base or establish positions in new core areas.

We expect to finance our future acquisition activities, if consummated, with cash on hand, sales of equity or debt securities, borrowings under our Multidraw Term Loan Agreement, sales of properties or assets or joint venture arrangements with industry partners, if necessary. We cannot assure you that such additional financings will be available on acceptable terms, if at all.

Disclosure Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included in and incorporated by reference into this Form 10-Q are forward looking statements. 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: the volatility of oil and natural gas prices; 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 the Multidraw Term Loan Agreement; our ability to raise additional capital to fund cash requirements for future operations and to service our indebtedness; our ability to fund and execute our Cotton Valley and Austin Chalk development programs as planned; our ability to increase recoveries in the Austin Chalk formation and to increase our overall oil production as planned; our estimates with respect to fracked Austin Chalk wells in Louisiana, including production EURs and costs; our estimates with respect to production, reserve replacement ratio and finding and development costs; our receipt of a cash refund with respect to our offshore bonds and the timing and amount of the same; our responsibility for offshore decommissioning liabilities for offshore interests we no longer own; our ability to hedge future production to reduce our exposure to price volatility

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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; limits on our growth and our ability to finance our operations, fund our capital needs and respond to changing conditions imposed by the Multidraw Term Loan Agreement and restrictive debt covenants; approximately 46% 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 the limited trading market for our common stock.

Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that such expectations reflected in these forward looking statements will prove to have been correct.

When used in this Quarterly Report on Form 10-Q, the words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

You should read these statements carefully because they discuss our expectations about our future performance, contain projections of our future operating results or our future financial condition, or state other “forward-looking” information. You should be aware that the occurrence of any of the events described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q could substantially harm our business, results of operations and financial condition and that upon the occurrence of any of these events, the trading price of our common stock could decline, and you could lose all or part of your investment.

We cannot guarantee any future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update any of the forward-looking statements in this Quarterly Report on Form 10-Q after the date of this Quarterly Report on Form 10-Q.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We experience market risks primarily with respect to commodity prices. Because our properties are located within the United States, we do not believe that our business operations are exposed to significant foreign currency exchange risks.

Commodity Price Risk

Our revenues are derived from the sale of our crude oil, natural gas and natural gas liquids production. Based on projected sales volumes for the remainder of 2018, a 10% decline in the estimated average prices we expect to receive for our crude oil, natural gas and natural gas liquids production would result in an approximate $3.9 million decline in our revenues for 2018.

We periodically seek to reduce our exposure to commodity price volatility by hedging a portion of our production through commodity derivative instruments. In the settlement of a typical hedge transaction, we will have the right to receive from the counterparties to the hedge the excess of the fixed price specified in the hedge over a floating price based on a market index multiplied by the quantity hedged. If the floating price exceeds the fixed price, we are required to pay the counterparties this difference multiplied by the quantity hedged. During the three months ended March 31, 2018, we received$0.5 millionfrom the counterparties to our derivative instruments in connection with hedge settlements.

We are required to pay the difference between the floating price and the fixed price (when the floating price exceeds the fixed price) regardless of whether we have sufficient production to cover the quantities specified in the hedge. Significant reductions in production at times when the floating price exceeds the fixed price could require us to make payments under the hedge agreements even though such payments are not offset by sales of production. Hedging will also prevent us from receiving the full advantage of increases in oil or gas prices above the fixed amount specified in the hedge.

Our Multidraw Term Loan Agreement requires that the counterparties to our hedge contracts be rated A-/A3 or higher by S&P or Moody's. Currently, the counterparty to our existing hedge contract is Koch Supply and Trading LP.

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As of March 31, 2018, we had entered into the following commodity derivative instrument:

Production Period	Instrument Type	Daily Volumes	Weighted Average Price
Crude Oil:
2018	Swap	250 Bbl	$55.00

We have approximately 69,000 Bbls of oil volumes, at an average price of $55.00 per Bbl hedged for 2018. For further discussion of our commodity derivative instruments, please see Item 1, Note 8 "Derivative Instruments" in this Form 10-Q.

Interest Rate Risk

As of March 31, 2018, we had no debt subject to variable interest rates.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, completed an evaluation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded:

i. that the Company’s disclosure controls and procedures are designed to ensure (a) that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (b) that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure; and

ii. that the Company's disclosure controls and procedures are effective.

Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to disclose material information otherwise required to be set forth in the Company’s periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or that are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II

Item 1. LEGAL PROCEEDINGS

The Company is involved in litigation relating to claims arising out of its operations in the normal course of business, including worker's compensation claims, tort claims and contractual disputes. Some of the existing known claims against us are covered by insurance subject to the limits of such policies and the payment of deductible amounts by us. Although a single or multiple adverse rulings or settlements could possibly have a material adverse effect on the Company's business or financial position, the Company only accrues for losses from litigation and claims if the Company determines that a loss is probable and the amount can be reasonably estimated.

There have been no significant changes with respect to the legal matters disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.

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Item 1A. RISK FACTORS

We are subject to certain risks. For a discussion of these risks, see "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2017. Except as set forth below, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K.

Our outstanding indebtedness may adversely affect our cash flow and our ability to operate our business, remain in compliance with debt covenants and make payments on our debt.

The aggregate principal amount of our outstanding indebtedness, net of cash on hand, as of March 31, 2018 was $298.3 million. We currently have $20 million of additional availability under the Multidraw Term Loan Agreement, subject to compliance with the covenants contained therein. We may also incur additional indebtedness in the future. Our high level of debt could have important consequences for you, including the following:

• it may be more difficult for us to satisfy our obligations with respect to our outstanding indebtedness, including our 2021 Notes, 2021 PIK Notes and amounts borrowed under the Multidraw Term Loan Agreement, and any failure to comply with the obligations of any of our debt agreements, including financial and other restrictive covenants, could result in an event of default under the agreements governing such indebtedness;

• the covenants contained in our debt agreements limit our ability to borrow money in the future for acquisitions, capital expenditures or to meet our operating expenses or other general corporate obligations and may limit our flexibility in operating our business;

• we will need to use a substantial portion of our cash flows to pay interest on our debt, approximately $19.1 million in the remainder of 2018 for interest on our 2021 Notes, 2021 PIK Notes and amounts borrowed under our Multidraw Term Loan Agreement alone and to pay quarterly dividends (which we suspended beginning with the dividend payment due in April 2016), if permissible under the terms of our debt agreements and declared by our Board of Directors, on our Series B Preferred Stock of approximately $5.1 million per year, which will reduce the amount of money we have for operations, capital expenditures, expansion, acquisitions or general corporate or other business activities;

• we may have a higher level of debt than some of our competitors, which may put us at a competitive disadvantage;

• we may be more vulnerable to economic downturns and adverse developments in our industry or the economy in general, especially extended or further declines in oil and natural gas prices; and

• our debt level could limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.

Our ability to meet our expenses and debt obligations will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors. We will not be able to control many of these factors, such as economic conditions and governmental regulation. We cannot be certain that our cash flow from operations will be sufficient to allow us to pay the principal and interest on our debt, including our 2021 Notes, 2021 PIK Notes and amounts borrowed under the Multidraw Term Loan Agreement, and meet our other obligations. If we do not have enough cash to service our debt, we may be required to refinance all or part of our existing debt, including our 2021 Notes, 2021 PIK Notes and the Multidraw Term Loan Agreement, sell assets, borrow more money or raise equity. We may not be able to refinance our debt, sell assets, borrow more money or raise equity on terms acceptable to us, if at all.

To service or refinance our indebtedness and to fund planned capital expenditures, we will require a significant amount of cash. Our ability to generate cash will be limited by our cash interest expense, which is expected to be significantly higher in 2018 than in 2017, and any failure to meet our debt obligations could harm our business, financial condition and results of operations.

Our ability to make payments on and to refinance our indebtedness, including our 2021 Notes, 2021 PIK Notes and amounts borrowed under the Multidraw Term Loan Agreement, and to fund planned capital expenditures will depend on our ability to generate sufficient cash flow from operations in the future. To a certain extent, this is subject to general economic, financial, competitive, legislative and regulatory conditions and other factors that are beyond our control, including the prices that we receive for our oil and natural gas production. In particular, our ability to fund planned capital expenditures and generate cash flow from operations will be limited by our cash interest expense, which is expected to be significantly higher in 2018 as compared to 2017 as a result of the expiration of the PIK option related to our 2021 PIK Notes. Cash interest expense on our outstanding indebtedness of $314.5 million at March 31, 2018, is expected to total approximately $19.1 million for the remainder of 2018 (or approximately $31 million per year), as compared to $7.4 million in 2017. As a result of higher cash interest expense and the impact of the sale

26

of our Gulf of Mexico properties in January 2018, we expect production, proved reserves and cash flow from operations to decline in 2018 as compared to 2017.

Accordingly, we cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the Multidraw Term Loan Agreement in an amount sufficient to enable us to pay principal and interest on our indebtedness, including our 2021 Notes and 2021 PIK Notes, or to fund our other liquidity needs. We are evaluating additional sources of liquidity to service our indebtedness and to provide capital to fund our planned capital expenditures. These additional sources of liquidity include joint ventures, asset sales, credit facilities, as well as alternate financing arrangements, including additional debt exchanges or other capital raising transactions. We cannot assure you that such additional liquidity sources will be available on acceptable terms, if at all, and our attempts to obtain additional sources of liquidity may be unsuccessful or may not permit us to meet scheduled debt service obligations, which could cause us to default on our obligations and could further impair our liquidity.

Our hedging program may limit potential gains from increases in commodity prices or may result in losses or may be inadequate to protect us against continuing and prolonged declines in commodity prices.

We enter into hedging arrangements from time to time to reduce our exposure to fluctuations in oil and natural gas prices and to achieve more predictable cash flows. Our hedge at March 31, 2018 and as of the date of this report is in the form of a swap placed with Koch Supply and Trading LP. We cannot assure you that this or future counterparties will not become credit risks in the future. Hedging arrangements expose us to risks in some circumstances, including situations when the counterparty to the hedging contract defaults on the contractual obligations or there is a change in the expected differential between the underlying price in the hedging agreement and actual prices received. This hedging arrangement may also limit the benefit we could receive from increases in the market or spot prices for oil and natural gas. For the three months endedMarch 31, 2018, our total oil and gas sales included additions related to the settlement of oil and gas hedges of $0.5 million, which in total represented approximately 2% of our total oil and gas sales for the period. We cannot assure you that the hedging transactions we have entered into, or will enter into, will adequately protect us from fluctuations in oil and natural gas prices. In addition, as of the date of this report, we had approximately 69,000 barrels of oil volumes hedged for the remainder of 2018. This hedge may be inadequate to protect us from continuing and prolonged declines in oil and natural gas prices. To the extent that oil and natural gas prices remain at current levels or decline further, we will not be able to hedge future production at the same pricing level as our current hedges and our results of operations and financial condition would be negatively impacted.

Our ability to receive a refund of our cash deposits posted as collateral to support certain bonds that satisfy our offshore decommissioning obligations with respect to our recently sold Gulf of Mexico assets is dependent on the successful assumption of operatorship and the posting of bonds or other acceptable assurances with respect to these assets by the purchaser of the assets.

To cover the costs for various obligations of lessees on the OCS, including costs for such decommissioning obligations as the plugging of wells, the removal of platforms and other facilities, the decommissioning of pipelines and the clearing of the seafloor of obstructions typically performed at the end of production, the BOEM generally requires that the lessees post substantial bonds or other acceptable financial assurances that such obligations will be met.

Because we were not exempt from the BOEM's supplemental bonding requirements, we engaged surety companies to post the requisite bonds. Pursuant to the terms of our agreements with these surety companies, we have provided cash deposits totaling $11.5 million ($11.1 million at March 31, 2018) as collateral to support certain of the bonds that are issued on our behalf with respect to the Gulf of Mexico assets that we sold in January 2018. We expect to receive a refund of these cash deposits (subject to our obligation to pay approximately $3.8 million to the purchaser of these assets) following the successful assumption of operatorship and the posting of bonds or other acceptable assurances with respect to these assets by the purchaser of the assets. While the purchaser of the assets has agreed to assume the operatorship of, and to post bonds or other acceptable assurances with respect to, the assets, this may not occur and we may not receive a refund of these cash deposits.

Our shares of common stock are quoted on the OTCQX and have a limited trading market.

On May 7, 2018, our shares of common stock commenced being quoted on the OTCQX market. The OTCQX is not an exchange and the quotation of our shares of common stock on the OTCQX does not assure that a liquid trading market exists or will develop. Securities traded on the OTCQX marketplace generally have limited trading volume and exhibit a wider spread between the bid/ask quotations compared to securities traded on national securities exchanges such as the NYSE, on which our shares of common stock were previously listed. As a result, investors may find it difficult to dispose of, or to obtain accurate quotations of the price of our shares of common stock. This significantly limits the liquidity of the common stock and may adversely affect the market price of our common stock. Moreover, a significant number of institutional investors have investment policies tha

27

t prohibit them from trading in securities on the OTCQX market. In addition, since our shares of common stock are quoted on the OTCQX, our shares of common stock are not "covered securities" for purposes of the Securities Act and our stockholders may face significant restrictions on the resale of our shares of common stock due to a state's own securities laws, often called "blue sky" laws. Not being listed on a national securities exchange and a limited trading market may also impair our ability to raise additional financing through public or private sales of equity securities and could also have other negative results, including the loss of institutional investor interest and fewer business development opportunities.

The terms of our debt agreements currently restrict, and Delaware law may restrict, us from making cash payments with respect to our Series B Preferred Stock, and as a result the holders of our Series B Preferred Stock are entitled to additional rights with respect to the management of the Company.

Quarterly dividends and cash payments upon conversion or repurchase of our Series B preferred stock will be paid only if payment of such amounts is not prohibited by our debt agreements, such as the Multidraw Term Loan Agreement, and assets are legally available to pay such amounts. Quarterly dividends will only be paid if such dividends are declared by our board of directors. The board of directors is not obligated or required to declare quarterly dividends even if we have funds available for such purposes.

In connection with an amendment to our prior bank credit facility (which was replaced by the Multidraw Term Loan Agreement in October 2016) restricting us from declaring or paying dividends on our Series B preferred stock, we suspended the cash dividend on our Series B preferred stock beginning with the dividend payment due on April 15, 2016. The terms of the Multidraw Term Loan Agreement also restrict us from declaring and paying cash dividends on our Series B preferred stock. Under the terms of the Series B preferred stock, any unpaid dividends will accumulate. As of March 31, 2018, the Company has deferred eight dividend payments and has accrued an $11.6 million payable related to the eight deferred payments and the quarterly dividend that was payable on April 15, 2018, which is included in Preferred stock dividend payable on the Consolidated Balance Sheet. As a result of the restrictions in the Multidraw Term Loan Agreement and our failure to pay six quarterly dividends on the Series B preferred stock as of the date hereof, holders of the Series B preferred stock, voting as a single class, currently have the right to elect two additional directors to our board of directors until all accumulated and unpaid dividends on the Series B preferred stock are paid in full. On April 12, 2018, we received written notice from a holder of the Series B preferred stock exercising this right by requesting that our board call a special meeting of the holders of the Series B preferred stock for the purposes of electing the additional directors as set forth in the certificate of designations establishing the Series B preferred stock. We intend to comply with the certificate of designations, which provides that the Board will provide notice of such meeting within 60 days of such request.

If in the future we are permitted to pay such cash dividends under the terms of our existing debt agreements, including the Multidraw Term Loan Agreement, and any debt agreements that we enter into in the future, we may continue to be limited in our ability to pay cash dividends on our Series B preferred stock and our ability to make any cash payment upon conversion or repurchase of our Series B preferred stock by the terms of such debt agreements. Furthermore, if we are in default under the Multidraw Term Loan Agreement or the indentures governing the 2021 Notes or the 2021 PIK Notes, we will not be permitted to pay any cash dividends on our Series B preferred stock or make any cash payment upon conversion or repurchase of our Series B preferred stock in the absence of a waiver of such default or an amendment or refinancing of such debt agreements.

Delaware law provides that we may pay dividends on our Series B preferred stock only to the extent that assets are legally available to pay such dividends. Cash payments we may make upon repurchase or conversion of our Series B preferred stock would be generally subject to the same restrictions under Delaware law. Legally available assets is defined as the amount of surplus. Our surplus is the amount by which the fair value of total assets exceeds the sum of:

•the fair value of our total liabilities, including our contingent liabilities; and

•the amount of our capital.

If there is no surplus, legally available assets will mean, in the case of a dividend, our net profits for the fiscal year in which the dividend payment occurs and/or the preceding fiscal year.

28

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no repurchases of our common stock during the quarter ended March 31, 2018.

We have not paid dividends on our common stock, in cash or otherwise, and intend to retain our cash flow from operations for the future operation and development of our business. We are currently restricted from paying dividends on our common stock by our Multidraw Term Loan Facility, the indentures governing the 2021 Notes and the 2021 PIK Notes and, in some circumstances, by the terms of our Series B Preferred Stock. Any future dividends also may be restricted by our then-existing debt agreements.

Item 3. DEFAULTS UPON SENIOR SECURITIES

The Company's Board of Directors did not declare a dividend on the Company's 6.875% Series B Cumulative Convertible Perpetual Preferred Stock for the quarterly periods starting with April 15, 2016. As of the date of this report, the Company had dividends in arrears of approximately $11.6 million.

Item 4. MINE SAFETY DISCLOSURES

NONE.

Item 5. OTHER INFORMATION

NONE.

Item 6. EXHIBITS

#Exhibit 10.1, Purchase and Sale Agreement executed as of January 31, 2018, between PetroQuest Energy LLC and Northstar Offshore Venture LLC.

Exhibit 31.1, Certification of Chief Executive Officer pursuant to Rule 13-a-14(a)/Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

Exhibit 31.2, Certification of Chief Financial Officer pursuant to Rule 13-a-14(a)/Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

Exhibit 32.1, Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2, Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101.INS, XBRL Instance Document

Exhibit 101.SCH, XBRL Taxonomy Extension Schema Document.

Exhibit 101.CAL, XBRL Taxonomy Extension Calculation Linkbase Document.

Exhibit 101.DEF, XBRL Taxonomy Definitions Linkbase Document

Exhibit 101.LAB, XBRL Taxonomy Extension Label Linkbase Document.

Exhibit 101.PRE, XBRL Taxonomy Extension Presentation Linkbase Document

# Confidential treatment has been requested for portions of this exhibit. Omissions are designated with brackets containing asterisks. As part of the Company's confidential treatment request, a complete version of this exhibit has been filed separately with the SEC.

29

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		PETROQUEST ENERGY, INC.
Date:	May 8, 2018	/s/ J. Bond Clement
		J. Bond Clement Executive Vice President, Chief Financial Officer (Authorized Officer and Principal Financial and Accounting Officer)

30

EX-10.1

Execution Version

CONFIDENTIAL INFORMATION, MARKED BY BRACKETS AND ASTERISKS ([***]), IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.

PURCHASE AND SALE AGREEMENT

between

PETROQUEST ENERGY, L.L.C.

as Seller

and

NORTHSTAR OFFSHORE VENTURES LLC

as Buyer

dated as of

January 31, 2018

TABLE OF CONTENTS

Page

ARTICLE IDEFINITIONS AND INTERPRETATION    5

1.1Defined Terms    5

1.2References    12

1.3Sections    13

1.4Number and Gender    13

ARTICLE IIPURCHASE AND SALE    13

2.1Purchase and Sale    13

2.2Excluded Assets    14

2.3Revenues and Expenses    14

ARTICLE IIIPURCHASE PRICE    15

3.1Purchase Price    15

3.2Seller Payment    15

3.3Adjustments to Purchase Price    16

3.4Adjustment Methodology    17

3.5Final Settlement Statement    17

3.6Disputes    17

3.7Allocation of Purchase Price / Allocated Values    18

ARTICLE IVREPRESENTATIONS AND WARRANTIES OF SELLER    18

4.1Organization, Existence    18

4.2Authorization    18

4.3No Conflicts    19

4.4Consents    19

4.5Bankruptcy    19

4.6Foreign Person    19

4.7Litigation    19

4.8Material Contracts    19

4.9[***].    20

4.10Preferential Rights    20

4.11[***].    20

4.12Imbalances    21

4.13Current Commitments    21

4.14Production Taxes    21

4.15Brokers Fees    21

4.16[***].    21

4.17Delivery of Hydrocarbons    22

4.18Suspense Accounts    22

4.19Non-Operated Assets    22

4.20Hedge Contracts    22

ARTICLE VBUYER’S REPRESENTATIONS AND WARRANTIES    22

5.1Organization; Existence    22

5.2Authorization    22

5.3No Conflicts    22

5.4Consents    23

5.5Bankruptcy    23

5.6Litigation    23

5.7Regulatory    23

5.8Independent Evaluation    23

5.9Brokers’ Fees    23

5.10Accredited Investor    23

ARTICLE VICERTAIN AGREEMENTS    24

6.1Successor Operator    24

6.2Governmental Bonds    24

6.3Record Retention    25

ARTICLE VIICLOSING AND POST-CLOSING    25

7.1Date of Closing    25

7.2Place of Closing    25

7.3Closing Obligations    25

7.4Records    26

7.5Further Assurances    26

ARTICLE VIIICONFIDENTIALITY/DISCLAIMERS    26

8.1Confidentiality    26

8.2[***].    27

ARTICLE IXTITLE MATTERS; CASUALTIES; TRANSFER RESTRICTIONS    29

9.1Seller’s Title    29

9.2Preferential Purchase Rights and Consents to Assign    29

ARTICLE XNORM    30

10.1NORM, Wastes and Other Substances    30

ARTICLE XIASSUMPTION; SURVIVAL, INDEMNIFICATION    31

11.1Assumption by Buyer    31

11.2Indemnities of Seller    32

11.3Indemnities of Buyer    32

11.4Limitation on Liability    33

11.5Express Negligence    33

11.6Exclusive Remedy    33

11.7Indemnification Procedures    33

11.8Survival    35

11.9Waiver of Right to Rescission    36

11.10Insurance, Taxes    36

11.11Non-Compensatory Damages    36

11.12Disclaimer of Application of Anti-Indemnity Statutes    36

11.13Further Cooperation and Access; Retained Liabilities and Excluded Assets    36

ARTICLE XIIMISCELLANEOUS    36

12.1Exhibits and Schedules    36

12.2Expenses and Taxes    37

12.3Assignment    37

12.4Preparation of Agreement    37

12.5Publicity    37

12.6Notices    38

12.7Removal of Name    39

12.8Further Cooperation    39

12.9Filings, Notices and Certain Governmental Approvals    39

12.10Entire Agreement; Conflicts    40

12.11Parties in Interest    40

12.12Amendment    40

12.13Waiver; Rights Cumulative    40

12.14Governing Law; Jurisdiction, Venue; Jury Waiver    41

12.15Severability    41

12.16Counterparts    41

LIST OF EXHIBITS AND SCHEDULES

Exhibits

Exhibit A        Leases

Exhibit B        Wells

Exhibit C        Form of Assignment and Assumption Agreement

Exhibit D        Excluded Assets

Exhibit E        Form of Transition Services Agreement

Schedules

Schedule 3.7        Allocated Values

Schedule 4.4        Consents

Schedule 4.7        Litigation

Schedule 4.8        Material Contracts

Schedule 4.9        Violation of Laws

Schedule 4.10        Preferential Rights

Schedule 4.12        Imbalances

Schedule 4.13        Current Commitments

Schedule 4.14        Production Taxes

Schedule 4.17        Delivery of Hydrocarbons

Schedule 4.18        Suspense Accounts

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, this “Agreement”) is executed as of this 31^st day of January, 2018, and is between PETROQUEST ENERGY, L.L.C., a Louisiana limited liability company (“Seller”), and NORTHSTAR OFFSHORE VENTURES LLC, a Delaware limited liability company (“Buyer”).

Recitals

Seller desires to sell and convey, and Buyer desires to purchase, the Assets (as defined hereinafter) effective as of the Effective Time (as defined hereinafter).

NOW, THEREFORE, for and in consideration of the mutual promises contained herein, the benefits to be derived by each party hereunder, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer agree as follows:

ARTICLE IDEFINITIONS AND INTERPRETATION

1.1Defined Terms. In addition to the terms defined in the introductory paragraph and the Recitals of this Agreement, for purposes hereof, the following expressions and terms shall have the meanings set forth in this Article I, unless the context otherwise requires:

“Accounting Arbitrator” shall have the meaning set forth in Section 3.6.

“Adjusted Purchase Price” shall have the meaning set forth in Section 3.3.

“AFE” shall have the meaning set forth in Section 4.13.

“Affiliate” shall mean any Person that, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, another Person. The term “control” and its derivatives with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” shall have the meaning set forth in the first paragraph herein.

“Allocated Value” with respect to any Asset, means the amount set forth on Schedule 3.7 under the column “Allocated Value” for such Asset.

“Applicable Contracts” means all Contracts by which the Properties and other Assets are bound or that primarily relate to the Properties or other Assets and (in each case) that will be binding on the Assets or Buyer after the Closing, including, without limitation; farmin and farmout agreements; bottomhole agreements; crude oil, condensate, and natural gas purchase and sale, gathering, transportation, and marketing agreements; hydrocarbon storage agreements; acreage contribution agreements; operating agreements; balancing agreements; pooling declarations or agreements; unitization agreements; processing agreements; saltwater disposal agreements; facilities or equipment leases; crossing agreements; letters of no objection; platform use agreements; production handling agreements; and other similar contracts and agreements, owned by Seller and primarily related to the Properties or other Assets, but exclusive of any master service agreements.

“Assets” shall have the meaning set forth in Section 2.1.

“Assignment and Assumption Agreement” means the Assignment and Assumption Agreement from Seller to Buyer, pertaining to the Assets, in the form attached to this Agreement as Exhibit C.

“Assumed Obligations” shall have the meaning set forth in Section 11.1.

“BOEM” means the Bureau of Ocean Energy Management, Department of the Interior, United States of America, the agency which assumed responsibility for managing environmentally and economically responsible development of the United States’ offshore resources from BOEMRE on October 1, 2011.

“BOEMRE” means the Bureau of Ocean Energy Management, Regulation and Enforcement, Department of the Interior, United States of America, formerly known as MMS.

“BSEE” means the Bureau of Safety and Environmental Enforcement, Department of the Interior, United States of America, the agency which assumed responsibility for safety and environmental oversight of U.S. offshore oil and gas operations from BOEMRE on October 1, 2011. For purposes of this Agreement, the term BSEE includes any predecessor Governmental Authorities.

“Business Day” means a Day other than a Day when federally chartered banks in the United States are required to be closed.

“Buyer” shall have the meaning set forth in the first paragraph herein.

“Buyer Indemnified Parties” shall have the meaning set forth in Section 11.2.

“Buyer’s Representatives” shall have the meaning set forth in Section 10.1(a).

“Claim” shall have the meaning set forth in Section 11.7(b).

“Claim Notice” shall have the meaning set forth in Section 11.7(c).

“Closing” shall have the meaning set forth in Section 7.1.

“Closing Date” shall have the meaning set forth in Section 7.1.

“Closing Deliverables” shall have the meaning set forth in Section 7.3.

“Code” means the Internal Revenue Code of 1986, as amended.

“Confidentiality Agreement” shall mean that certain Confidentiality Agreement between Seller and Buyer dated August 31, 2017.

“Contract” means any written contract, agreement, agreement regarding indebtedness, indenture, debenture, note, bond, loan, collective bargaining agreement, lease, mortgage, franchise, license agreement, purchase order, binding bid, commitment, letter of credit or any other legally binding arrangement, excluding, however, any Lease, easement, right-of-way, permit or other instrument creating or evidencing an interest in the Assets or a real or immovable property related to or used in connection with the operations of any Assets.

“Customary Post-Closing Consents” shall mean the consents and approvals from Governmental Authorities for the assignment of the Assets to Buyer, that are customarily obtained after the assignment of properties similar to the Assets.

“Day” means a calendar day consisting of twenty-four (24) hours from midnight to midnight.

“Dispute Notice” shall have the meaning set forth in Section 3.5.

“Dollars” means United States Dollars.

“Effective Time” shall mean 7:00 a.m. (Central Standard Time) on December 1, 2017.

“Encumbrance” shall mean any lien, security interest, pledge, charge or encumbrance.

[***].

[***].

“Excluded Assets” shall mean (a) all of Seller’s corporate minute books, financial records, and other business records that relate to Seller’s business generally (including the ownership and operation of the Assets); (b) all trade credits, all accounts, receivables and all other proceeds, income or revenues attributable to the Assets with respect to any period of time prior to the Effective Time; (c) all claims and causes of action of Seller arising under or with respect to any Contracts that are attributable to periods of time prior to the Effective Time (including claims for adjustments or refunds); (d) subject to Section 11.3, all rights and interests of Seller (A) under any policy or agreement of insurance or indemnity, (B) under any bond or (C) to any insurance or condemnation proceeds or awards arising, in each case, from acts, omissions or events, or damage to or destruction of property; (e) all Hydrocarbons produced and sold from the Properties with respect to all periods prior to the Effective Time; (f) all claims of Seller for refunds of or loss carry forwards with respect to (A) production or any other taxes attributable to any period prior to the Effective Time, (B) income or franchise taxes or (C) any taxes attributable to the Excluded Assets; (g) all personal computers and associated peripherals and all radio and telephone equipment; (h) all of Seller’s proprietary computer software, patents, trade secrets, copyrights, names, trademarks, logos and other intellectual property; (i) all documents and instruments of Seller that may be protected by an attorney-client privilege; (j) all data that cannot be disclosed to Buyer as a result of confidentiality arrangements under agreements with Third Parties; (k) all audit rights arising under any of the Applicable Contracts or otherwise with respect to any period prior to the Effective Time or to any of the Excluded Assets; (l) any engineering, geophysical, geologic and other seismic and related technical data and information relating to the Properties that cannot be conveyed to Buyer as contemplated in Section 2.1(h); (m) any reserve reports, economic valuation analyses or reports and any excerpts thereof (n) documents prepared or received by Seller with respect to (A) lists of prospective purchasers for such transactions compiled by Seller, (B) bids submitted by other prospective purchasers of the Assets, (C) analyses by Seller of any bids submitted by any prospective purchaser, (D) correspondence between or among Seller, its respective representatives, and any prospective purchaser other than Buyer and (E) correspondence between Seller or any of its respective representatives with respect to any of the bids, the prospective purchasers, or the transactions contemplated in this Agreement; (n) any offices, office leases or personal property located on such sites; (o) any Hedge Contracts; (p) any debt instruments; and (q) any assets specifically listed on Exhibit D.

“Final Price” shall have the meaning set forth in Section 3.5.

“Final Settlement Date” shall have the meaning set forth in Section 3.5

“Final Settlement Statement” shall have the meaning set forth in Section 3.5.

“Fundamental Representations” [***].

“Governmental Authority” shall mean any federal, state, local, municipal, tribal or other government; any governmental, regulatory or administrative agency, commission, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, belief, regulatory or taxing authority or power, including but not limited to, BOEM, BOEMRE and BSEE, the Texas Railroad Commission, the Texas General Land Office, the Louisiana Department of Mineral Resources and the Louisiana Office of Conservation; and any court or governmental tribunal, including any tribal authority having or asserting jurisdiction.

[***].

“Hedge Contract” shall mean any Contract to which Seller is a party with respect to any swap, forward, future or derivative transaction or option or similar agreement, whether exchange traded, “over-the-counter” or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions.

“Hydrocarbons” means oil and gas and other hydrocarbons produced or processed in association therewith.

“Imbalance” means (i) any imbalance at the wellhead between the amount of Hydrocarbons produced from a Well and allocable to the interests of Seller therein and the shares of production from the relevant Well to which Seller is entitled and (ii) any marketing imbalance between the quantity of Hydrocarbons required to be delivered by Seller under any Contract relating to the purchase and sale, gathering, transportation, storage, processing, or marketing of Hydrocarbons and the quantity of Hydrocarbons actually delivered by Seller pursuant to the relevant Contract, together with any appurtenant rights and obligations concerning future in-kind and/or cash balancing at the wellhead and production balancing at the delivery point into the relevant sale, gathering, transportation, storage, or processing facility.

“Indebtedness” of any Person shall mean, without duplication: (i) all obligations of such Person created, issued, or incurred for borrowed money (whether by loan, the issuance and sale of debt securities, or the sale of property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such property from such other Person); and (ii) all obligations of such Person evidenced by a note, bond, debenture, or similar instrument.

“Knowledge” shall mean with respect to Seller, the actual knowledge (without investigation) of the following Persons: [***].

“Lands” shall have the meaning set forth in Section 2.1(a).

“Law” shall mean any applicable statute, law, rule, regulation, ordinance, order, code, ruling, writ, injunction, decree or other official act of or by any Governmental Authority.

“Leases” shall have the meaning set forth in Section 2.1(a).

“Liabilities” shall mean any and all claims, causes of action, payments, charges, judgments, assessments, liabilities, losses, damages, penalties, fines and costs and expenses whether known or unknown, absolute or contingent, accrued or unaccrued, in contract, tort, strict liability, or otherwise, including any attorneys’ fees, legal or other expenses incurred in connection therewith and including liabilities, costs, losses and damages for personal injury or death or property damage, or if applicable, environmental damage or remediation.

“Material Adverse Effect” shall mean an event or circumstance that, individually or in the aggregate, results in a material adverse effect on the ownership, operations, or value of the Assets, taken as a whole and as currently operated as of the date of this Agreement or a material adverse effect on the ability of Seller to consummate the transactions contemplated by this Agreement; provided, however, that none of the following shall be deemed to constitute a Material Adverse Effect: (i) any effect resulting from entering into this Agreement or the announcement of the transactions contemplated by this Agreement; (ii) any effect resulting from changes in general market, economic, financial or political conditions in the area in which the Assets are located, the United States or worldwide, or any outbreak of hostilities or war, (iii) any effect resulting from a change in Laws from and after the date of this Agreement; (iv) any reclassification or recalculation of reserves in the ordinary course of business; (v) any changes in the prices of Hydrocarbons; and (vi) natural declines in well performance.

“Material Contract” shall have the meaning set forth in Section 4.8.

“MMS” shall mean the Minerals Management Service.

“Net Revenue Interest”, with respect to any Lease or Well, means the interest in and to all Hydrocarbons produced, saved, and sold from or allocated to such Lease or Well, after giving effect to all royalties, overriding royalties, production payments, carried interests, net profits interests, reversionary interests, and other burdens upon, measured by, or payable out of production therefrom.

“NORM” shall mean naturally occurring radioactive material.

“Operating Expenses” shall have the meaning set forth in Section 2.3.

“Permitted Encumbrances” shall mean:

(a)lessor’s royalties, non-participating royalties, overriding royalties, reversionary interests, and similar burdens upon, measured by, or payable out of production if the net cumulative effect of such burdens does not operate to reduce the Net Revenue Interest of Seller in any Well (or the specified zone(s) therein) to an amount less than the Net Revenue Interest set forth on Exhibit B for such Well (or the specified zone(s) therein) and do not obligate Seller to bear a Working Interest for such Lease or Well (or the specified zone(s) therein) in any amount greater than the Working Interest set forth on Exhibit A and Exhibit B for such Lease or Well (or the specified zone(s) therein) (unless the Net Revenue Interest for such Asset increases in the same proportion as any increase in such Working Interest);

(b)preferential rights to purchase and required third party consents to assignments and similar agreements;

(c)liens for taxes or assessments not yet due or delinquent or, if delinquent, that are being contested in good faith in the normal course of business;

(d)Customary Post-Closing Consents;

(e)conventional rights of reassignment;

(f)all applicable Laws, and rights reserved to or vested in any Governmental Authority (i) to control or regulate any Asset in any manner; (ii) by the terms of any right, power, franchise, grant, license, or permit, or by any provision of Law, to terminate such right, power, franchise grant, license, or permit or to purchase, condemn, expropriate, or recapture or to designate a purchaser of any of the Assets; (iii) to use such property in a manner which does not materially impair the use of such property for the purposes for which it is currently owned and operated and (iv) to enforce any obligations or duties affecting the Assets to any Governmental Authority, with respect to any franchise, grant, license, or permit;

(g)rights of a common owner of any interest in rights-of-way or easements currently held by Seller and such common owner as tenants in common or through common ownership;

(h)easements, conditions, covenants, restrictions, servitudes, permits, rights-of-way and other rights in the Assets which do not materially impair the use of the Assets as currently owned and operated;

(i)vendors, carriers, warehousemen’s, repairmen’s, mechanics, workmen’s, materialmen’s, construction or other like liens arising by operation of Law in the ordinary course of business or incident to the construction or improvement of any property in respect of obligations which are not yet due or which are being contested in good faith by appropriate proceedings by or on behalf of Seller;

(j)liens created under leases and/or operating agreements or by operation of Law in respect of obligations that are not yet due or that are being contested in good faith by appropriate proceedings by or on behalf of Seller;

(k)any encumbrance affecting the Assets which is expressly assumed, bonded or paid by Buyer at or prior to Closing or which is discharged by Seller at or prior to Closing;

(l)non-approval by Governmental Authority of an assignment into Seller of a Lease, Well, or other interest.

(m)any matters referenced on Exhibit A and Exhibit B; and

(n)the Leases and all other liens, charges, encumbrances, Contracts (including the Applicable Contracts), agreements, instruments, obligations, defects, and irregularities affecting the Assets that individually or in the aggregate are not such as to materially interfere with the operation or use of any of the Assets (as currently owned and operated), do not reduce the Net Revenue Interest of Seller in any Well (or the specified zone(s) therein) to an amount less than the Net Revenue Interest set forth on Exhibit B for such Well (or the specified zone(s) therein) and do not obligate Seller to bear a Working Interest for such Lease or Well (or the specified zone(s) therein) in any amount greater than the Working Interest set forth on Exhibit A and Exhibit B for such Lease or Well (unless the Net Revenue Interest for such Asset increases in the same proportion as any increase in such Working Interest).

“Person” shall mean any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Authority or any other entity.

“Personal Property” shall have the meaning set forth in Section 2.1(f).

“Property” or “Properties” shall have the meaning set forth in Section 2.1(b).

“Purchase Price” shall have the meaning set forth in Section 3.1

“Records” shall have the meaning set forth in Section 2.1(h).

“Remediate” or “Remediation” shall mean, with respect to an Environmental Condition, the implementation and completion of any remedial, removal, response, construction, closure, disposal or other corrective actions required under Environmental Laws to correct or remove such Environmental Condition.

“Retained Liabilities” shall have the meaning set forth in Section 11.1.

“Seller” shall have the meaning set forth in the first paragraph of this Agreement.

“Seller Indemnified Parties” shall have the meaning set forth in Section 11.3.

“Seller Payment” shall have the meaning set forth in Section 3.2.

“Survival Period” shall have the meaning set forth in Section 9.1(c).

“Third Party” shall mean any Person other than a party to this Agreement or an Affiliate of a party to this Agreement.

“Transaction Documents” means those documents executed pursuant to or in connection with this Agreement.

“Transition Services Agreement” means the Transition Services Agreement between Seller and Buyer in the form attached to this Agreement as Exhibit E.

“Treasury Regulations” means the regulations promulgated by the United States Department of the Treasury pursuant to and in respect of provisions of the Code. All references herein to sections of the Treasury Regulations shall include any corresponding provision or provisions of succeeding, similar, substitute, proposed or final Treasury Regulations.

“Wells” shall have the meaning set forth in Section 2.1(b).

“Working Interest”, with respect to any Lease or Well, means the interest in and to such Well as set forth in Exhibit A and Exhibit B that is burdened with the obligation to bear and pay costs and expenses of maintenance, development and operations on or in connection with such Lease or Well, but without regard to the effect of any royalties, overriding royalties, production payments, net profits interests and other similar burdens upon, measured by, or payable out of production therefrom.

1.2References. The words “hereby,” “herein,” “hereinabove,” “hereinafter,” “hereinbelow,” “hereof,” “hereto,” “hereunder,” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular article, section, or provision of this Agreement. References in this Agreement to articles, sections, exhibits, or schedules are to such articles, sections, exhibits, or schedules of this Agreement unless otherwise specified.

1.3Sections. This Agreement, for convenience only, has been divided into articles and sections. The rights and other legal relations of the parties hereto shall be determined from this Agreement as an entirety and without regard to the aforesaid division into articles and sections and without regard to headings prefixed to such articles.

1.4Number and Gender. Whenever the context requires, reference herein made to a single number shall be understood to include the plural; and likewise, the plural shall be understood to include the singular. Words denoting sex shall be construed to include the masculine, feminine, and neuter, when such construction is appropriate; and specific enumeration shall not exclude the general but shall be construed as cumulative. Definitions of terms defined in the singular or plural shall be equally applicable to the plural or singular, as applicable, unless otherwise indicated.

ARTICLE IIPURCHASE AND SALE

2.1Purchase and Sale. Subject to the terms and conditions of this Agreement, Seller agrees to sell, and Buyer agrees to purchase, all of Seller’s right, title and interest in and to the following (less and except for the Excluded Assets, collectively, the “Assets”):

(a)the oil and gas leases more particularly described in Exhibit A (collectively, the “Leases”), together with any and all other rights, titles, and interests of Seller in and to (i) the leasehold estates created thereby, subject to the terms, conditions, covenants, and obligations set forth in the Leases and/or Exhibit A and (ii) the subsea lands covered by the Leases or included in units with which the Leases may have been pooled or unitized (the “Lands”), including in each case, without limitation, overriding royalty interests, production payments, net profits interests, carried interests, reversionary interests, operating and record title interests (as such terms are commonly used by the BOEM), and all other interests of any kind or character;

(b)all oil and gas wells located on the Leases and the Lands or on other leases or lands with which the Leases and/or the Lands may have been pooled or unitized that are listed on Exhibit B (the “Wells”), and all Hydrocarbons produced therefrom or allocated thereto (the Leases, the Lands, and the Wells being collectively referred to hereinafter as the “Properties”);

(c)all rights and interests in, under, or derived from all unitization and pooling agreements in effect with respect to the Properties and the units created thereby which accrue or are attributable to the interests of Seller in the Properties;

(d)to the extent that they may be assigned, all Applicable Contracts;

(e)to the extent that they may be assigned, all permits, licenses, servitudes, easements, rights-of-way and other surface agreements to the extent used primarily in connection with the ownership or operation of the Properties or the Personal Property, including, without limitation, those permits, licenses, servitudes, easements, rights-of-way and other surface agreements set forth on Exhibit A;

(f)all equipment, machinery, fixtures, and other real, personal, and mixed property, operational and non-operational, known or unknown, located on the Properties or the other Assets described above as of the Effective Time, including, without limitation, saltwater disposal wells, well equipment, casing, rods, tanks, boilers, tubing, pumps, motors, fixtures, machinery, compression equipment, flow lines, pipelines, gathering systems, processing and separation facilities, platforms, structures, materials, and other items used or formerly used in the operation thereof (“Personal Property”), including, without limitation, those items of Personal Property set forth on Exhibit A;

(g)all Hydrocarbons produced from or attributable to the Assets after the Effective Time, and subject to the representation in Section 4.12, all Imbalances relating to the Properties or other Assets; and

(h)all of the rights, titles, and interests of Seller in and to all of the files, records, information, and data, whether written or electronically stored, primarily relating to the Assets, including, without limitation: (i) land and title records (including abstracts of title, title opinions, and title curative documents); (ii) contract files; (iii) correspondence; (iv) operations, environmental, production, and accounting records (v) facility and well records, well logs, facilities and platform design and construction files and records and (vi) all geophysical data, geologic data, engineering data and seismic data to the extent transferable to Buyer at no cost or expense to Seller, including, subject to any applicable privileges or confidentiality restrictions, any interpretations, analyses or other work product derived from such data, which, for the avoidance of doubt, are being provided by Seller to Buyer, in each case, subject in all respects to the disclaimers in Section 8.2, but excluding any of the foregoing items that are Excluded Assets (“Records”).

2.2Excluded Assets. Seller shall reserve and retain all of the Excluded Assets. If, after Closing, Buyer receives any Excluded Assets, then Buyer shall promptly notify Seller and take all actions necessary to ensure Seller receives or receives the benefit of such Excluded Assets, including without limitation transferring such Excluded Assets to Seller or making a payment to Seller in an amount that provides Seller with an equivalent value of the Excluded Asset (to the extent a monetary value can be reasonably attributed to such Excluded Asset).

2.3Revenues and Expenses. Subject to the provisions hereof, Seller shall remain entitled to all of the rights of ownership (including, without limitation, the right to all production, proceeds of production and other proceeds) and shall remain responsible for all Operating Expenses, in each case attributable to the Assets for the period of time prior to the Effective Time. Subject to the provisions hereof, and subject to the occurrence of the Closing, Buyer shall be entitled to all of the rights of ownership (including, without limitation, the right to all production, proceeds of production, and other proceeds), and shall be responsible for all Operating Expenses, in each case, attributable to the Assets for the period of time from and after the Effective Time. All Operating Expenses attributable to the Assets, in each case that are: (i) incurred with respect to operations conducted or production prior to the Effective Time shall be paid by or allocated to Seller and (ii) incurred with respect to operations conducted or production after the Effective Time shall be paid by or allocated to Buyer. “Operating Expenses” means all operating expenses (including without limitation ad valorem, property, severance, production and similar taxes based upon or measured by the ownership or operation of the Assets or the production of Hydrocarbons therefrom, but excluding any other taxes, and a reasonable allocation of the costs of insurance) and capital expenditures incurred in the ownership and operation of the Assets in the ordinary course of business and, where applicable, in accordance with the relevant operating or unit agreement, if any, but excluding Liabilities, attributable to (i) Liabilities for personal injury or death, property damage or violation of any Law, (ii) obligations to plug wells, dismantle or decommission facilities, close pits and restore the surface around such wells, facilities and pits, (iii) environmental Liabilities, including obligations to remediate any contamination of groundwater, surface water, soil, sediments or Personal Property under applicable Environmental Laws, (iv) obligations with respect to Imbalances, and (v) obligations to pay working interests, royalties, overriding royalties or other interest owners revenues or proceeds attributable to sales of Hydrocarbons relating to the Properties, including those held in suspense. If Buyer receives revenues for production from the Assets for the production period prior to Effective Time, then Buyer shall remit such revenues to Seller within five (5) Business Days, and Seller shall be responsible for distributing all such amounts, including distributions to royalty owners. Except as set forth below, after Closing, if Seller receives revenues for production from the Assets for the production period on or after the Effective Time, then Seller shall remit such revenues to Buyer within five (5) Business Days, and Buyer shall be responsible for distributing all such amounts, including distributions to royalty owners. If Buyer receives invoices, expenses or joint interest billings for expenses relating to periods prior to Effective Time, then Buyer shall remit such invoices, expenses and joint interest billings to Seller within five (5) Business Days, and Seller shall be responsible for payment of all such amounts. After Closing, if Seller receives invoices, expenses or joint interest billings for expenses relating to periods on or after the Effective Time, then Seller shall remit such invoices, expenses and joint interest billings to Buyer within five (5) Business Days for Buyer’s payment, and Buyer shall be responsible for payment of all such amounts. On or before February 28, 2018, Seller shall pay to Buyer an amount equal to: (i) the revenues for production from the Assets for the production period on or after the Effective Time that Seller has received and is holding as of the Closing Date less (i) (a) any marketing and transportation charges, royalties, overriding royalties, and other burdens upon, measured by, or paid out of such production, including severance taxes, that Seller has paid or that have been deducted by the purchaser of such production; and (b) any amounts set forth in Sections 3.3(a)(ii) and 3.3(a)(iii) that Seller has paid.

ARTICLE IIIPURCHASE PRICE

3.1Purchase Price. The Parties acknowledge and agree that some of the Properties have been allocated a positive value as shown on Schedule 3.7, while other of the Properties have been allocated a negative value as a result of Buyer’s assumption of the Assumed Obligations pursuant to Section 11.1(b) with respect to such Property.As a result, the Parties hereby agree that the consideration for the Assets shall be (A) cash consideration of ($0.00) (the “Purchase Price”), as adjusted and (B) Buyer’s assumption of the Assumed Obligations.

3.2Seller Payment. Upon the earlier of either: (i) Seller’s receipt from its surety of the first $3,750,000 out of the cash collateral securing Seller’s bonds posted with BOEM and BSEE with respect to the Assets or (ii) forty-five (45) Days after the acceptance of the Buyer’s replacement bonds posted with BOEM and any other applicable Government Authority, Seller shall pay to Buyer the cash amount of THREE MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($3,750,000) (the “Seller Payment”), which the Parties acknowledge and agree is the net amount owed to Buyer resulting from those Assets with negative Allocated Values as set forth on Schedule 3.7.

3.3Adjustments to Purchase Price. All adjustments to the Purchase Price shall be made post-Closing upon final settlement in Section 3.5. The Purchase Price shall be adjusted as follows, and the resulting amount shall be herein called the “Adjusted Purchase Price”:

(a)The Purchase Price shall be adjusted upward by the following amounts (without duplication):

(i)an amount equal to the value of all Hydrocarbons attributable to the Assets in storage or existing in stock tanks, pipelines, plants and/or platforms (including inventory but excluding line pack volumes or guarantees) as of the Effective Time, the value to be based upon the contract price in effect as of the Effective Time (or the market value, if there is no contract price, in effect as of the Effective Time), less marketing and transportation charges, amounts payable as royalties, overriding royalties, and other burdens upon, measured by, or payable out of such production and severance taxes deducted by the purchaser of such production (without duplication of any Operating Expenses already accounted for under other provisions of this Section 3.3);

(ii)an amount equal to all Operating Expenses and other costs and expenses that are attributable to the Assets on or after the Effective Time paid by Seller, whether paid before or after the Effective Time, including, without limitation, (A) bond premiums and a reasonable allocation of insurance premiums paid by or on behalf of Seller attributable to periods on or after the Effective Time (which have been prorated accordingly), (B) royalties or other burdens upon, measured by or payable out of proceeds of production, (C) rentals and other lease maintenance payments and (D) ad valorem, property, severance and production taxes and any other taxes (exclusive of income taxes) based upon or measured by the ownership of the Assets, the production of Hydrocarbons, or the receipt of proceeds therefrom;

(iii)without duplication of any other amounts set forth in this Section 3.3(a), the amount of all taxes prorated to Buyer but paid by Seller in accordance with Section 12.2; and

(iv)any other amount provided for elsewhere in this Agreement or otherwise agreed upon by Seller and Buyer.

(b)The Purchase Price shall be adjusted downward by the following amounts (without duplication):

(i)an amount equal to all proceeds received by Seller attributable to the sale of Hydrocarbons produced from or allocable to the Assets on or after the Effective Time, net of expenses (other than Operating Expenses) directly incurred in earning or receiving such proceeds, and any sales, excise or similar Taxes in connection therewith not reimbursed to Seller by a Third Party purchaser;

(ii)an amount equal to all other proceeds received by Seller (other than from the sale of Hydrocarbons produced from or allocable to the Assets) to which Buyer is entitled pursuant to Section 2.3;

(iii)the Allocated Value of the Assets excluded from the transactions contemplated hereby pursuant to Section 9.2, for any Properties and other Assets excluded from the Assets pursuant to such Section;

(iv)without duplication of any other amounts set forth in this Section 3.3, the amount of all taxes prorated to Seller but payable by Buyer in accordance with Section 12.2;

(v)any other amount provided for elsewhere in this Agreement or otherwise agreed upon by Seller and Buyer;and

(vi)vi.    an amount equal to all Operating Expenses and other costs and expenses that are attributable to the Assets before the Effective Time paid by Buyer.

3.4Adjustment Methodology. Actual figures will be used for the adjustments to the Purchase Price at the post-Closing pursuant to Section 3.3 and 3.5. To the extent actual figures are not available, estimates will be used subject to final adjustments in accordance with Section 3.5.

3.5Final Settlement Statement. On or before ninety (90) Days after the last day of the month following Closing (the “Final Settlement Date”), a final settlement statement (the “Final Settlement Statement”) will be prepared by Seller, which takes into account all final adjustments made to the Purchase Price and shows the resulting final Purchase Price (“Final Price”). The Final Settlement Statement shall set forth the actual proration of the amounts required by this Agreement. As soon as practicable, and in any event within thirty (30) Days, after receipt of the Final Settlement Statement, Buyer shall return a written report containing any proposed changes to the Final Settlement Statement and an explanation of any such changes and the reasons therefor (the “Dispute Notice”). If Buyer fails to timely deliver the Dispute Notice to Seller, the statement as delivered by Seller will be deemed to be correct and will be final and binding on the parties and not subject to further audit or arbitration. If the Final Price set forth in the Final Settlement Statement is mutually agreed upon by Seller and Buyer, the Final Settlement Statement and the Final Price, shall be final and binding on the parties hereto. Any difference in the Purchase Price and the Final Price will result in a payment to be made to the owed party by the owing party. All amounts paid pursuant to this Section 3.5 shall be delivered in United States currency by wire transfer of immediately available funds to the account specified in writing by the relevant party.

3.6Disputes. If Seller and Buyer are unable to resolve the matters addressed in the Dispute Notice, each of Buyer and Seller shall within fourteen (14) Days after the delivery of such Dispute Notice, summarize its position with regard to such dispute in a written document and submit such summaries to Grant Thornton, or such other party as the parties may mutually select (the “Accounting Arbitrator”), together with the Dispute Notice, the Final Settlement Statement and any other documentation such party may desire to submit. Within twenty (20) Business Days after receiving the parties’ respective submissions, the Accounting Arbitrator shall render a decision choosing either Seller’s position or Buyer’s position with respect to each matter addressed in any Dispute Notice, based on the materials described above. Any decision rendered by the Accounting Arbitrator pursuant hereto shall be final, conclusive and binding on Seller and Buyer and will be enforceable against any of the parties in any court of competent jurisdiction. The costs of such Accounting Arbitrators shall be borne one-half by Buyer and one-half by Seller.

3.7Allocation of Purchase Price / Allocated Values. Buyer and Seller agree that the aggregate of the unadjusted Purchase Price and the Seller Payment shall be allocated among the Assets, in accordance with the principles of Section 1060 of the Code and the Treasury Regulations, as set forth in Schedule 3.7 of this Agreement. The “Allocated Value” for any Asset equals the portion of the unadjusted Purchase Price and the Seller Payment allocated to such Asset on Schedule 3.7 and such Allocated Value shall be used in calculating adjustments to the aggregate of the Purchase Price and the Seller Payment as provided herein. Buyer and Seller agree (i) that the Allocated Values, as adjusted, shall be used by Seller and Buyer as the basis for reporting asset values and other items for purposes of all federal, state, and local tax returns, including without limitation Internal Revenue Service Form 8594 and (ii) that neither they nor their Affiliates will take positions inconsistent with such Allocated Values in notices to Governmental Authorities, in audit or other proceedings with respect to taxes, in notices to preferential purchaser right holders, or in other documents or notices relating to the transactions contemplated by this Agreement.

ARTICLE IVREPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyer the following:

4.1Organization, Existence. Seller is a limited liability company organized, validly existing and in good standing under the laws of the State of Louisiana and has all requisite power and authority to own and operate its property (including, without limitation, its interests in the Assets) and to carry on its business as now conducted.

4.2Authorization. Seller has full power and authority to enter into and perform this Agreement and the Transaction Documents to which it is a party and the transactions contemplated herein and therein. The execution, delivery, and performance by Seller of this Agreement and the Transaction Documents have been duly and validly authorized and approved by all necessary corporate or partnership action (as applicable) on the part of Seller. This Agreement is, and the Transaction Documents to which Seller is a party when executed and delivered by Seller will be, the valid and binding obligation of Seller and enforceable against Seller in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium, and similar Laws, as well as to principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at Law).

4.3No Conflicts. Subject to the receipt of all consents and approvals from Third Parties in connection with the transactions contemplated hereby, the execution, delivery, and performance by Seller of this Agreement and the consummation of the transactions contemplated herein will not (i) conflict with or result in a breach of any provisions of the organizational documents or other governing documents of Seller, (ii) result in a default or the creation of any Encumbrance or give rise to any right of termination, cancellation, or acceleration under any of the terms, conditions, or provisions of any Lease, Applicable Contract, note, bond, mortgage, indenture, license, or other material agreement to which any Seller is a party or by which any Seller or the Assets may be bound or (iii) violate any Law applicable to any Seller or any of the Assets, except in the case of clauses (ii) and (iii) where such default, Encumbrance, termination, cancellation, acceleration or violation would not have a Material Adverse Effect.

4.4Consents. Except as set forth in Schedule 4.4, for Customary Post-Closing Consents, under Contracts that are terminable upon not greater than sixty (60) Days’ notice without payment of any fee, and preferential purchase rights set forth in Schedule 4.10, there are no consents or other restrictions on assignment, including, but not limited to, requirements for consents from Third Parties to any assignment (in each case) that would be applicable in connection with the transfer of the Assets or the consummation of the transactions contemplated by this Agreement by Seller.

4.5Bankruptcy. There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by or, to Seller’s Knowledge, threatened against Seller.

4.6Foreign Person. Seller is not a “foreign person” within the meaning of Section 1445 of the Code.

4.7Litigation. Except as set forth in Schedule 4.7, there is no suit, action or litigation by any Person by or before any Governmental Authority, and no legal, administrative or arbitration proceedings, pending, or to Seller’s Knowledge, threatened against Seller or the Assets.

4.8Material Contracts.

[***].

4.9[***].

4.10Preferential Rights. Except as set forth in Schedule 4.10, there are no preferential rights to purchase that are applicable to the transfer of the Assets in connection with the transactions contemplated hereby.

4.11[***].

4.12Imbalances. Schedule 4.12 sets forth all material Imbalances associated with the Properties as of the Effective Time.

4.13Current Commitments. Schedule 4.13 sets forth, as of the date of this Agreement, any authority for expenditures (“AFE”) in excess of $100,000 (net to Seller’s interest) relating to the Properties to drill or rework Wells or for other capital expenditures pursuant to any of the Material Contracts or any applicable joint operating agreement for which all of the activities anticipated in such AFEs or commitments have not been completed by the date of this Agreement.

4.14Production Taxes.

[***].

4.15Brokers Fees. Seller has incurred no liability, contingent or otherwise, for brokers’ or finders’ fees relating to the transactions contemplated by this Agreement for which Buyer or any Affiliate of Buyer shall have any responsibility. 

4.16[***].

4.17Delivery of Hydrocarbons. Except as set forth on Schedule 4.17, Seller is not obligated by virtue of any take-or-pay payment, advance payment or other similar payment (other than gas balancing arrangements), to deliver Hydrocarbons, or proceeds from the sale thereof, attributable to the Assets at some future time without receiving payment therefor at or after the time of delivery. None of the revenues attributable to the Seller’s interests in any producing Well are being held in suspense.

4.18Suspense Accounts. Except as set forth in Schedule 4.18, as of the date set forth on such Schedule, Seller does not hold any funds in suspense with respect to any of the Assets.

4.19Non-Operated Assets. Any representation made by Seller in Section 4.8 through 4.18 with respect to Assets not operated by Seller shall be limited to Seller’s Knowledge.

4.20Hedge Contracts. There are no Hedge Contracts that will burden the Assets or that will be binding on Buyer, in each case, after Closing.

ARTICLE VBUYER’S REPRESENTATIONS AND WARRANTIES

Buyer represents and warrants to Seller the following:

5.1Organization; Existence. Buyer is a Delaware limited liability company duly organized, validly existing, and in good standing under the laws of the state of its formation and has all requisite power and authority to own and operate its property and to carry on its business as now conducted.

5.2Authorization. Buyer has full power and authority to enter into and perform this Agreement and the Transaction Documents to which it is a party and the transactions contemplated herein and therein. The execution, delivery, and performance by Buyer of this Agreement have been duly and validly authorized and approved by all necessary corporate or partnership action (as applicable) on the part of Buyer. This Agreement is, and the Transaction Documents to which Buyer is a party when executed and delivered by Seller will be, the valid and binding obligation of Buyer and enforceable against Buyer in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium, and similar laws, as well as to principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at Law).

5.3No Conflicts. The execution, delivery, and performance by Buyer of this Agreement and the consummation of the transactions contemplated herein will not (i) conflict with or result in a breach of any provisions of the organizational or other governing documents of Buyer, (ii) result in a default or the creation of any lien or encumbrance or give rise to any right of termination, cancellation, or acceleration under any of the terms, conditions, or provisions of any note, bond, mortgage, indenture, license, or other agreement to which Buyer is a party or by which Buyer or any of its property may be bound or (iii) violate any Law or order applicable to Buyer or any of its property, except in the case of clauses (ii) and (iii) where such default, Encumbrance, termination, cancellation, acceleration or violation would not have a material adverse effect upon the ability of Buyer to consummate the transactions contemplated by this Agreement.

5.4Consents. There are no consents or other restrictions on assignment, including, but not limited to, requirements for consents from Third Parties to any assignment (in each case) that would be applicable in connection with the consummation of the transactions contemplated by this Agreement by Buyer.

5.5Bankruptcy. There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by or, to Buyer’s knowledge, threatened against Buyer.

5.6Litigation. There is no suit, action, investigation or inquiry by any Person or by or before any Governmental Authority, and no legal, administrative, or arbitration proceedings pending, or to Buyer’s knowledge, threatened in writing against Buyer, or to which Buyer is a party, that would have a material adverse effect upon the ability of Buyer to consummate the transactions contemplated in this Agreement.

5.7Regulatory. Buyer is now, and hereafter shall continue to be, qualified to own and assume operatorship of federal and state oil, gas and mineral leases in all jurisdictions (including the federal and state waters in the Gulf of Mexico) where the Assets to be transferred to it are located, and the consummation of the transactions contemplated in this Agreement will not cause Buyer to be disqualified as such an owner or operator. To the extent required by any applicable Laws, Buyer or an affiliate of Buyer currently has, and will hereafter continue to maintain, lease bonds, area-wide bonds, parent company guarantees or any other surety bonds as may be required by, and in accordance with, all applicable Laws governing the ownership and operation of such leases and has filed any and all required reports necessary for such operations with all Governmental Authorities having jurisdiction over such operations.

5.8Independent Evaluation. Buyer is sophisticated in the evaluation, purchase, ownership and operation of oil and gas properties and related facilities. In making its decision to enter into this Agreement and to consummate the transaction contemplated herein, Buyer (a) has relied or shall rely solely on its own independent investigation and evaluation of the Assets and the advice of its own legal, tax, economic, environmental, engineering, geological and geophysical advisors and the express provisions of this Agreement and not on any comments, statements, projections or other materials made or given by any representatives or consultants or advisors engaged by Seller, and (b) has satisfied or shall satisfy itself through its own due diligence as to the environmental and physical condition of and contractual arrangements and other matters affecting the Assets. Buyer has no knowledge of any fact that results in the breach of any representation, warranty or covenant of Seller given hereunder.

5.9Brokers’ Fees. Buyer has incurred no liability, contingent or otherwise, for brokers’ or finders’ fees relating to the transactions contemplated by this Agreement for which Seller or Seller’s Affiliates shall have any responsibility.

5.10Accredited Investor. Buyer is an “accredited investor,” as such term is defined in Regulation D of the Securities Act of 1933, as amended, and will acquire the Assets for its own account and not with a view to a sale or distribution thereof in violation of the Securities Act of 1933, as amended, and the rules and regulations thereunder, any applicable state blue sky Laws or any other applicable securities Laws.

ARTICLE VICERTAIN AGREEMENTS

6.1Successor Operator. While Buyer acknowledges that it desires to succeed Seller as operator of those Assets or portions thereof that Seller may presently operate, Buyer acknowledges and agrees that Seller cannot and does not covenant or warrant that Buyer shall become successor operator of same since the Assets or portions thereof may be subject to operating or other agreements that control the appointment of a successor operator. Seller agrees, however, that as to the Assets it operates, it shall use its commercially reasonable efforts to support Buyer’s efforts to become successor operator effective as of the Closing at no cost or expense to Seller and to designate and/or appoint by assignment, to the extent legally possible, Buyer as successor operator effective as of the Closing.

6.2Governmental Bonds. Buyer acknowledges that none of the bonds, letters of credit and guarantees, if any, posted by Seller or its Affiliates with Governmental Authorities and relating to the Assets are transferable to Buyer. On or as soon as practicable after the Closing Date, Buyer shall obtain, or cause to be obtained in the name of Buyer or its designee, replacements for such bonds, letters of credit and guarantees, to the extent such replacements are necessary for Buyer’s ownership or operation of the Assets and Buyer agrees to use its commercially reasonable efforts to support Seller’s efforts to cause the cancellation or return to Seller of such bonds and guarantees posted (or supported) by Seller. In addition, at or prior to Closing or, to the extent necessary, promptly thereafter, Buyer shall deliver to Seller evidence of the posting of bonds or other security with all applicable Governmental Authorities meeting the requirements of such authorities to own and, where appropriate, operate, the Assets. Buyer also may provide evidence that such replacements are not necessary as a result of existing bonds and guarantees that Buyer has previously posted as long as such existing bonds or guarantees are adequate to secure the release of those bonds and guarantees posted (or supported) by Seller.

Notwithstanding anything herein to the contrary, if Buyer has not materially complied with its obligations to obtain or cause to be obtained all required replacement bonds, letters of credit, guarantees and/or other security with BOEM and/or BSEE as contemplated in this Section 6.2 within one hundred eighty (180) days after Closing, then, in addition to Seller’s other rights and remedies under this Agreement, at Law, and in equity, Seller shall have the right to elect, in its sole discretion (but after reasonable prior consultation with Buyer and subject to Buyer’s right to cure in the following sentence), to terminate and rescind this Agreement by sending written notice to Buyer. Buyer shall then have a period of thirty (30) days after receipt of such notice from Seller in which to attempt to obtain or cause to be obtained all such required replacement bonds, letters of credit, guarantees and/or other security with BOEM and/or BSEE as contemplated in this Section 6.2. If Buyer is unable to obtain or cause to be obtain such required replacement bonds, letters of credit, guarantees and/or other security within such 30-day period, then Seller may terminate and rescind this Agreement. Upon such termination and rescission, (i) this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby shall be considered void ab initio and (ii) the Parties shall thereafter cooperate in good faith to take all such actions as may be necessary or advisable to return each Party to the same position they were in before entering into this Agreement and the other Transaction Documents, including (but not limited to) a complete accounting and reconciliation of all net revenues received, all Operating Expenses and capital costs incurred, and any plugging and abandonment and decommissioning costs incurred, in each case, between the Effective Date and the date of termination of this Agreement; provided, however, Buyer shall have the right to retain all COPAS overhead amounts paid to Buyer by non-operators during such period.

6.3Record Retention. Buyer, for a period of seven (7) years following Closing, will (i) retain the Records, (ii) provide Seller, its Affiliates, and its and their officers, employees and representatives with access to the Records (to the extent that Seller has not retained the original or a copy) during normal business hours for review and copying at Seller’s expense, and (iii) provide Seller, its Affiliates, and its and their officers, employees and representatives with access, during normal business hours, to materials received or produced after Closing relating to any indemnity claim made under Section 13.2 of this Agreement for review and copying at Seller’s expense.

ARTICLE VIICLOSING AND POST-CLOSING

7.1Date of Closing. The sale by Seller and the purchase by Buyer of the Assets pursuant to this Agreement (the “Closing”) shall occur on January 31, 2018.

7.2Place of Closing. The Closing shall be held at the offices of Porter Hedges LLP, 1000 Main Street, 36^th Floor, Houston, Texas 77002, or at such other location as may be mutually agreed upon by Seller and Buyer.

7.3Closing Obligations. At the Closing, the following documents shall be delivered and the following events shall occur, the execution of each document and the occurrence of each event being a condition precedent to the others and each being deemed to have occurred simultaneously with the others (collectively, the “Closing Deliverables”):

(a)Seller and Buyer shall execute and deliver the Assignment and Assumption Agreement, in sufficient counterparts to facilitate recording in the applicable counties and parishes, covering the Assets, which instruments will each contain a special warranty of title.

(b)Seller and Buyer shall execute and deliver assignments, on appropriate forms, of state and of federal leases comprising portions of the Assets, if any.

(c)Seller and Buyer shall execute and deliver the Transition Services Agreement.

(d)Seller shall execute and deliver on forms supplied by Buyer and reasonably acceptable to Seller letters in lieu directing all purchasers of production to make payment to Buyer of proceeds attributable to production from the Assets from and after the Effective Time.

(e)Seller shall deliver an executed statement described in Treasury Regulation §1.1445-2(b)(2) certifying that Seller is not a foreign person within the meaning of the Code.

(f)Subject to Section 6.2, to the extent applicable and required under applicable Laws, for any state and/or federal lease included in the Assets, Seller shall deliver designation of operator forms.

(g)Seller shall deliver, or cause the delivery of, releases and terminations of any mortgages, deeds of trust, and financing statements burdening the Assets.

(h)Buyer shall deliver to Seller written evidence reasonably satisfactory to Seller, that Buyer’s surety is ready, willing and able, upon consummation of the transactions contemplated under this Agreement and the Transaction Documents, to provide the bonding and other security meeting the requirements of all applicable Governmental Authorities necessary for Buyer to own and, where appropriate, operate, the Assets, which such written evidence may consist of a letter signed by Buyer’s surety stating its commitment to provide such bonding and other security.

(i)Seller and Buyer shall execute and deliver any other agreements, instruments and documents which are required by other terms of this Agreement to be executed and/or delivered at the Closing.

7.4Records. In addition to the obligations set forth under Section 7.3 above, at any time after fifteen (15) Days following the Closing pursuant to Buyer’s reasonable instructions, Seller shall deliver to Buyer possession of the Records except for such Records necessary for Seller to perform its post-Closing obligations under this Agreement and/or the Transition Services Agreement; provided that Seller may make and retain copies of all Records for its own files.

7.5Further Assurances. After Closing, Seller and Buyer shall execute, acknowledge and deliver or cause to be executed, acknowledged and delivered such instruments, and shall take such other action as may be necessary or advisable to carry out their obligations under this Agreement and under any document, certificate or other instrument delivered pursuant hereto.

ARTICLE VIIICONFIDENTIALITY/DISCLAIMERS

8.1Confidentiality. Subject to Section 12.5 and without limiting the obligations of the parties under the Confidentiality Agreement, the parties shall keep all information and data relating to this Agreement, and the transactions contemplated hereby, strictly confidential except for (a) disclosures to (i) partners, employees, officers, directors, members, equity owners (existing and potential) and counsel of a party or any of its Affiliates; (ii) any consultant or agent retained by a party or the parties listed in subsection (i) above; and (iii) any bank, other financial institution or entity funding, or proposing to fund, such party’s acquisition of and operations in connection with the Assets, including any consultant retained by such bank, other financial institution or entity of the parties and (b) any disclosures required to perform this Agreement; provided, however, that the foregoing shall not restrict disclosures that are (i) included in any offering documents or financing documents related to any financing transaction of Buyer to be consummated in connection with the transactions contemplated hereby; or (ii) required (upon advice of counsel) by applicable securities or other Laws or regulations or the applicable rules of any stock exchange having jurisdiction over the parties or their respective Affiliates; and provided, further, that prior to making any such permitted disclosures, the party disclosing such information shall obtain an undertaking of confidentiality from each such receiving party to the extent practicable. The foregoing prohibitions shall not apply with respect to information that a party has lawfully received from a third person without a known obligation of confidentiality to such party or to information which is generally known or becomes known to the public without violation of such party’s non-disclosure obligations hereunder. If the Closing should occur, the foregoing confidentiality restriction of the parties, or the confidentiality restriction arising under the Confidentiality Agreement, shall terminate (except as to (i) such portion of the Assets that are not conveyed to Buyer pursuant to the provisions of this Agreement, and (ii) the Excluded Assets) and Seller’s rights under any other confidentiality agreements with other prospective purchasers of the Assets shall be deemed assigned to the Buyer. In the event of any conflict or ambiguity between this Agreement and the Confidentiality Agreement, the terms and conditions of this Agreement shall prevail.

8.2[***].

[***].

ARTICLE IXTITLE MATTERS; CASUALTIES; TRANSFER RESTRICTIONS

9.1Seller’s Title.

(a)General Disclaimer of Title Warranties and Representations. Except for the special warranty of title as set forth in Section 9.1(b), Seller makes no warranty or representation, express, implied, statutory or otherwise, with respect to Seller’s title to any of the Assets and Buyer hereby acknowledges and agrees that Buyer’s sole remedy for any defect of title, with respect to any of the Assets, shall be pursuant to the special warranty of title set forth in Section 9.1(b).

(b)Special Warranty of Title. Effective as of the Closing Date, Seller warrants title to the Assets (which for purposes of this special warranty of title will at least be equal to the Working Interest and Net Revenue Interest set forth on Exhibit A and Exhibit B in and to the respective Asset) unto Buyer against every Person whomsoever lawfully claiming or to claim the same or any part thereof by, through or under Seller or its Affiliates, but not otherwise, subject, however, to the Permitted Encumbrances; provided, however, that, except with respect to any liability of Seller for any claim asserted in writing by Buyer to Seller in accordance with Section 9.1(c) on or before the expiration of the Survival Period for breach of such special warranty, such special warranty shall cease and terminate at the end of such Survival Period.

(c)[***].

9.2Preferential Purchase Rights and Consents to Assign.

%3.    With respect to each preferential purchase right pertaining to an Asset and the transactions contemplated hereby, Seller, promptly after the Closing, shall send to the holder of each such right a notice, in material compliance with the contractual provisions applicable to such right. In addition, prior to the Closing, Seller shall send to each holder of a right to consent to assignment pertaining to the Assets and the transactions contemplated hereby a notice seeking such party’s consent to the transaction contemplated hereby.

(a)If any Asset is burdened by a preferential purchase right as of the Closing Date, then (i) such Asset shall be excluded from the Assets conveyed to Buyer at Closing and (ii) there shall be no adjustment to the Purchase Price. If prior to the Final Settlement Date, the holder of the preferential purchase right has elected in writing not to exercise such preferential purchase right or the time for the holder to exercise such preferential purchase right has expired without such holder having made an election, then (i) Seller shall convey the Asset burdened by such preferential purchase right to Buyer pursuant to an assignment in substantially the same form as the Assignment and Assumption Agreement and effective as of the Effective Date; and (ii) the Operating Expenses and revenues attributable to such Asset shall be taken into account in the Final Settlement Statement and calculation of the Final Price as contemplated in Section 2.3 and Article 3 of this Agreement. If the holder of the preferential purchase right elects to exercise such preferential purchase right, then (i) Seller may convey the Asset burdened by such preferential purchase right to the holder of the preferential purchase right in accordance with the terms and conditions of such preferential purchase right; (ii) the Operating Expenses and revenues attributable to such Asset shall not be taken into account in the Final Settlement Statement or calculation of the Final Price; and (iii) the proceeds paid for such Asset by the party exercising the preferential purchase right, if received prior to the Final Settlement Date, shall be credited to Buyer and accounted for in the Final Settlement Statement and calculation of the Final Price, or, if received after the Final Settlement Date, shall be promptly remitted by Seller to Buyer upon receipt of such proceeds.

(b)All Assets for which preferential purchase rights have been waived, or as to which the period to exercise such right has expired prior to the Closing, shall be sold to Buyer at the Closing pursuant to the provisions of this Agreement.

(c)If Seller fails to obtain a consent prior to the Closing (except for Customary Post-Closing Consents) and the failure to obtain such consent would cause the assignment of such Asset to Buyer to be void ab initio or the termination of a Lease, then the portion of the Assets subject to such failed consent shall be excluded from the Assets to be conveyed to Buyer to the extent of the interest affected by the consent, and the Seller Payment shall be reduced by the Allocated Value of the relevant Asset allocable to such interest. In the event that a consent (with respect to an Asset excluded pursuant to this Section 9.2(d)) that was not obtained prior to Closing is obtained prior to the date of delivery of the Final Settlement Statement, then, within ten (10) Business Days after such Consent is obtained (x) Buyer shall purchase the Asset (or portion thereof) that was so excluded as a result of such previously un-obtained Consent and Seller shall pay to Buyer the amount by which the Seller Payment was reduced at Closing with respect to the Asset (or portion thereof) so excluded and (y) Seller shall assign to Buyer the Asset (or portion thereof) so excluded at Closing pursuant to an instrument in substantially the same form as the Assignment and Assumption Agreement.

ARTICLE XNORM

10.1NORM, Wastes and Other Substances. Buyer acknowledges that the Assets have been used for exploration, development, and production of oil and gas and that there may be petroleum, produced water, wastes, or other substances or materials located in, on or under the Assets or associated with the Assets. Equipment and sites included in the Assets may contain asbestos, NORM or other Hazardous Substances. NORM may affix or attach itself to the inside of wells, materials, and equipment as scale, or in other forms. The Wells, Personal Property, materials, and equipment located on the Assets or included in the Assets may contain NORM and other wastes or Hazardous Substances. NORM containing material and/or other wastes or Hazardous Substances may have come in contact with various environmental media, including without limitation, water, soils or sediment. Special procedures may be required for the assessment, remediation, removal, transportation, or disposal of environmental media, wastes, asbestos, NORM and other Hazardous Substances from the Assets.

ARTICLE XIASSUMPTION; SURVIVAL, INDEMNIFICATION

11.1Assumption by Buyer. Without limiting Buyer’s rights to indemnity under this Article XI, from and after the Closing Buyer assumes and hereby agrees to fulfill, perform, pay and discharge (or cause to be fulfilled, performed, paid or discharged) the following: (a) all obligations and Liabilities, known or unknown, with respect to the Assets, arising on or after the Effective Time, to the extent relating to the use, ownership or operation of the Assets, including but not limited to obligations to (i) furnish makeup gas and/or settle Imbalances according to the terms of applicable gas sales, processing, gathering or transportation Contracts, and (ii) pay working interests, royalties, overriding royalties and other interest owners, revenues or proceeds attributable to sales of Hydrocarbons relating to the Assets, including those held in suspense; (b) all obligations and Liabilities, known or unknown, with respect to the Assets, arising prior to, on, or after the Effective Time, to the extent relating in any manner to the obligation to (i) properly plug and abandon any and all Wells, including inactive Wells or temporarily abandoned Wells, drilled on the Properties or otherwise pursuant to the Assets, (ii) replug any Well, wellbore, or previously plugged Well listed on Exhibit B on the Properties to the extent required or necessary, (iii) dismantle or decommission and remove any Personal Property and other property of whatever kind related to or associated with operations and activities conducted by whomever on the Properties or otherwise pursuant to the Assets, (iv) clean up, restore and/or Remediate the premises covered by or related to the Assets (including any Environmental Conditions) in accordance with applicable agreements, Laws, and Environmental Laws, (v) the actions, suits or proceedings set forth on Schedule 4.7, Part II and (vi) perform all obligations applicable to or imposed on the lessee, owner, or operator under the Leases and the Applicable Contracts, or as required by Laws (all of said obligations and Liabilities, subject to the exclusions below, herein being referred to as the “Assumed Obligations”).

Buyer does not assume any obligations or Liabilities of Seller to the extent that they are (x) related to or arising out of the ownership, use or operation of the Excluded Assets, or (y) related to or arising out of the following:

(a)the payment, underpayment or non-payment of taxes relating to the Assets for periods prior to the Effective Time for which Seller is responsible pursuant to Section 12.2(b);

(b)the actions, suits or proceedings, if any, set forth on Schedule 4.7, Part I and Schedule 4.14;

(c)any Indebtedness or security in respect thereof created by Seller;

(d)any Hedge Contracts or security in respect thereof created by Seller;

(e)personal injury or death relating to the Assets, to the extent that such personal injury or death occurred prior to the Effective Time and during Seller’s ownership of the Assets;

(f)any government fines or penalties resulting from the violation of any Laws (including Environmental Laws) by Seller or its Affiliates or their respective employees, agents or contractors (including any contractor or subcontractor of any of the foregoing) at any time prior to the Effective Time;

(g)the obligations and Liabilities, known or unknown, with respect to the Assets, arising prior to the Effective Time, expressly limited to the obligation to pay working interests, royalties, overriding royalties and other interest owners, revenues or proceeds attributable to sales of Hydrocarbons relating to the Properties, including those held in suspense (but only to the extent that such suspended funds are not transferred to Buyer, or under Buyer’s control at Closing); or

(h)any employment agreement relating to Seller’s personnel.

The items listed under Section11.1(y)(i) through 11.1(y)(vii) are hereinafter collectively referred to as the “Retained Liabilities”.

11.2Indemnities of Seller. [***].

11.3Indemnities of Buyer. [***].

11.4Limitation on Liability.

[***].

11.5Express Negligence. THE INDEMNIFICATION, RELEASE AND ASSUMED OBLIGATIONS PROVISIONS PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE LIABILITIES, LOSSES, COSTS, EXPENSES AND DAMAGES IN QUESTION AROSE OR RESULTED SOLELY OR IN PART FROM THE GROSS, SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY INDEMNIFIED PARTY. BUYER AND SELLER ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.

11.6Exclusive Remedy. Notwithstanding anything to the contrary contained in this Agreement, Sections 6.2, 9.1, 11.2 and 11.3 contain the parties’ exclusive remedy against each other with respect to breaches of the representations, warranties, covenants and agreements of the parties contained in this Agreement. Except for the remedies contained in Section 9.1 and 11.2, effective as of Closing, Buyer, on its own behalf and on behalf of its Affiliates, hereby releases, remises and forever discharges Seller and its Affiliates and all such parties' stockholders, partners, members, directors, officers, employees, agents and representatives from any and all suits, legal or administrative proceedings, claims, demands, damages, losses, costs, Liabilities, interest, or causes of action whatsoever, in Law or in equity, known or unknown, which Buyer or its Affiliates might now or subsequently may have, based on, relating to or arising out of this Agreement, the ownership, use or operation of the Assets, or the condition, quality, status or nature of the Assets, including rights to contribution under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, breaches of statutory or implied warranties, nuisance or other tort actions, rights to punitive damages, common law rights of contribution, and rights under insurance maintained by Seller or any of its Affiliates, excluding, however, any contractual rights (apart from this Agreement) existing as of the date hereof between (i) Buyer or any of Buyer's Affiliates, on the one hand and (ii) Seller or any of Seller's Affiliates, on the other hand, under contracts between them relating to the Assets (if any).

11.7Indemnification Procedures. All claims for indemnification under Sections 11.2 and 11.3 shall be asserted and resolved as follows:

(a)For purposes of this Article XI, the term “Indemnifying Party” when used in connection with particular Liabilities shall mean the party or parties having an obligation to indemnify another party or parties with respect to such Liabilities pursuant to this Article XI, and the term “Indemnified Party” when used in connection with particular Liabilities shall mean the party or parties having the right to be indemnified with respect to such Liabilities by another party or parties pursuant to this Article XI.

(b)To make claim for indemnification under Sections 1.2 or 11.3, an Indemnified Party shall notify the Indemnifying Party of its claim under this Section 11.7, including the specific details of and specific basis under this Agreement for its claim (the “Claim Notice”). In the event that the claim for indemnification is based upon a claim by a Third Party against the Indemnified Party (a “Claim”), the Indemnified Party shall provide its Claim Notice promptly after the Indemnified Party has actual knowledge of the Claim and shall enclose a copy of all papers (if any) served with respect to the Claim; provided that the failure of any Indemnified Party to give notice of a Claim as provided in this Section 11.7 shall not relieve the Indemnifying Party of its obligations under Sections 11.2 or 11.3 (as applicable) except to the extent such failure results in insufficient time being available to permit the Indemnifying Party to effectively defend against the Claim or otherwise materially prejudices the Indemnifying Party's ability to defend against the claim. In the event that the claim for indemnification is based upon an inaccuracy or breach of a representation, warranty, covenant or agreement, the Claim Notice shall specify the representation, warranty, covenant or agreement that was inaccurate or breached.

(c)In the case of a claim for indemnification based upon a Claim, the Indemnifying Party shall have thirty (30) Days from its receipt of the Claim Notice to notify the Indemnified Party whether it admits or denies its liability to defend the Indemnified Party against such Claim at the sole cost and expense of the Indemnifying Party. The Indemnified Party is authorized, prior to and during such thirty (30) Day period, to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party and that is not prejudicial to the Indemnifying Party.

(d)If the Indemnifying Party admits its liability, it shall have the right and obligation to diligently defend, at its sole cost and expense, the Claim. The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate in contesting any Claim which the Indemnifying Party elects to contest. The Indemnified Party may participate in, but not control, any defense or settlement of any Claim controlled by the Indemnifying Party pursuant to this Section 11.7(d). An Indemnifying Party shall not, without the written consent of the Indemnified Party, (i) settle any Claim or consent to the entry of any judgment with respect thereto which does not include an unconditional written release of the Indemnified Party from all liability in respect of such Claim or (ii) settle any Claim or consent to the entry of any judgment with respect thereto in any manner that may materially and adversely affect the Indemnified Party (other than as a result of money damages covered by the indemnity).

(e)If the Indemnifying Party does not admit its liability or admits its liability but fails to diligently prosecute or settle the Claim, then the Indemnified Party shall have the right to defend against the Claim at the sole cost and expense of the Indemnifying Party, with counsel of the Indemnified Party's choosing, subject to the right of the Indemnifying Party to admit its liability and assume the defense of the Claim at any time prior to settlement or final determination thereof. If the Indemnifying Party has not yet admitted its liability for a Claim, the Indemnified Party shall send written notice to the Indemnifying Party of any proposed settlement and the Indemnifying Party shall have the option for ten (10) Days following receipt of such notice to (i) admit in writing its liability for the Claim and (ii) if liability is so admitted, reject, in its reasonable judgment, the proposed settlement.

(f)In the case of a claim for indemnification not based upon a Claim, the Indemnifying Party shall have thirty (30) Days from its receipt of the Claim Notice to (i) cure the Liabilities complained of, (ii) admit its liability for such Liability or (iii) dispute the claim for such Liabilities. If the Indemnifying Party does not notify the Indemnified Party within such 30 Day period that it has cured the Liabilities or that it disputes the claim for such Liabilities, the amount of such Liabilities shall conclusively be deemed a liability of the Indemnifying Party hereunder.

(g)Notwithstanding anything herein to the contrary, Seller shall have the right, at its sole cost and expense and with counsel of its choosing, to defend, prosecute and manage the litigation and related proceedings retained by Seller under Section 11.1(b) and listed on Schedule 4.7, Part I. Seller shall have full and complete control of such defense, prosecution and management, including any compromise or settlement thereof, without requiring the consent or advice of Buyer. Buyer shall cooperate in good faith with Seller and, upon Seller’s reasonable request and at Seller’s direction, take all such actions (at no out of pocket cost or expense to Buyer, unless Seller agrees to reimburse Buyer for any such out of pocket costs or expenses) as may be necessary or advisable to facilitate Seller’s defense, prosecution and management of such litigation and related proceedings, including (without limitation) providing Seller with access to any relevant Records in Buyer’s possession and submitting any filings with, seeking any approvals of and making all appearances before any applicable Governmental Authority (provided that Seller and Seller’s representatives may accompany Buyer to any such appearances).

11.8Survival.

[***].

11.9Waiver of Right to Rescission. Except as provided in Section 6.2, Seller and Buyer acknowledge that the payment of money, as limited by the terms of this Agreement, shall be adequate compensation for breach of any representation, warranty, covenant or agreement contained herein or for any other claim arising in connection with or with respect to the transactions contemplated in this Agreement. Except as provided in Section 6.2, as the payment of money shall be adequate compensation, Buyer and Seller waive any right to rescind this Agreement or any of the transactions contemplated hereby.

11.10Insurance, Taxes. The amount of any Liabilities for which any of the Buyer Indemnified Parties is entitled to indemnification under this Agreement or in connection with or with respect to the transactions contemplated in this Agreement shall be reduced by any corresponding insurance actually received by Buyer attributable to insurance carried or provided by Seller.

11.11Non-Compensatory Damages. [***].

11.12Disclaimer of Application of Anti-Indemnity Statutes. The parties acknowledge and agree that the provisions of any anti-indemnity statute relating to oilfield services and associated activities shall not be applicable to this Agreement and/or the transactions contemplated hereby.

11.13Further Cooperation and Access; Retained Liabilities and Excluded Assets. Buyer acknowledges and agrees that Seller will need access to certain Assets after Closing to perform, fulfill and discharge certain of Seller’s obligations relating to its Retained Liabilities, including (without limitation) the decommissioning, removal or abandonment of Excluded Assets. Where Buyer is the operator of any such Asset, Buyer shall provide Seller with reasonable access to such Asset sufficient to allow Seller to perform, fulfill and discharge such obligations in accordance with good industry practice and in compliance with applicable Laws, subject to Seller and/or Seller’s representatives’ execution and delivery to Buyer of an industry standard boarding agreement. If Buyer is not the operator of any such Asset, then Buyer shall use its commercially reasonable efforts to cause the operator to provide Seller with such access, which may be subject to Seller and/or Seller’s representatives’ execution of an industry standard boarding agreement. Buyer acknowledges and agrees that Seller shall have the right, at its sole cost and expense and with personnel and contractors of its choosing and subject to Seller’s indemnity obligations under Section 11.2, to perform, fulfill and discharge any such obligations. Seller shall have full and complete control of the performance, fulfillment and discharge of any such obligations, without requiring the consent or advice of Buyer. Buyer shall cooperate in good faith with Seller and, upon Seller’s reasonable request and at Seller’s direction, take such actions as may be necessary or advisable to facilitate Seller’s performance, fulfillment and discharge of such obligations, including (without limitation) providing Seller with access to any relevant Records in Buyer’s possession.

ARTICLE XIIMISCELLANEOUS

12.1Exhibits and Schedules. All of the Exhibits and Schedules referred to in this Agreement are hereby incorporated into this Agreement by reference and constitute a part of this Agreement. Each party to this Agreement and its counsel has received a complete set of Exhibits and Schedules prior to and as of the execution of this Agreement.

12.2Expenses and Taxes.

%3.     Except as otherwise specifically provided, all fees, costs and expenses incurred by Buyer or Seller in negotiating this Agreement or in consummating the transactions contemplated by this Agreement shall be paid by the party incurring the same, including, without limitation, legal and accounting fees, costs and expenses.

(a)All required documentary, filing and recording fees and expenses in connection with the filing and recording of the assignments, conveyances or other instruments required to convey title to the Assets to Buyer shall be borne by Buyer. Seller shall assume responsibility for, and shall bear and pay, all federal income taxes, state income taxes, and other similar taxes (including any applicable interest or penalties) incurred or imposed with respect to the transactions described in this Agreement. Buyer shall assume responsibility for, and shall bear and pay, all state sales and use taxes (including any applicable interest or penalties) incurred or imposed with respect to the transactions described in this Agreement. Seller shall assume responsibility for, and shall bear and pay, all ad valorem, property, severance, production, and similar taxes and assessments based upon or measured by the ownership of the Assets, the production of Hydrocarbons, or the receipt of proceeds therefrom, but exclusive of income taxes (including any applicable penalties and interest) and assessed against the Assets by any taxing authority for any period prior to the Effective Time, and Buyer shall be responsible for, and shall bear and pay, all such taxes and assessments assessed against the Assets by any taxing authority for any period that begins on or after the Effective Time. For purposes of this Agreement, the foregoing proration of ad valorem and property taxes shall be accomplished at the Closing based on the ratio of the number of days in the year prior to (for Seller) and on and after (for Buyer) the Effective Time to the total number of days in the year as applied to the amount of ad valorem and property taxes for the most recent year for which the amount of such taxes can be finally determined at the Closing. Buyer shall be responsible for payment to the taxing authorities of all ad valorem and property taxes for the current year, except to the extent Seller has paid all or a portion of the ad valorem and property taxes to the taxing authorities for the current tax year.

12.3Assignment. This Agreement may not be assigned by Buyer or Seller without prior written consent of the other party, provided that Buyer may assign this Agreement or the Assets after Closing to an Affiliate (which remains an Affiliate of Buyer) upon prior written notice to Seller. No assignment of any rights hereunder by either party shall relieve such party of any obligations and responsibilities hereunder.

12.4Preparation of Agreement. Both Seller and Buyer and their respective counsel participated in the preparation of this Agreement. In the event of any ambiguity in this Agreement, no presumption shall arise based on the identity of the draftsman of this Agreement.

12.5Publicity. Seller and Buyer shall consult with each other with regard to all press releases or other public or private announcements issued or made at or prior to the Closing concerning this Agreement or the transactions contemplated herein, and, except as may be required by applicable laws or the applicable rules and regulations of any governmental agency or stock exchange, neither Buyer nor Seller shall issue any such press release or other publicity without the prior written consent of the other party, which shall not be unreasonably withheld.

12.6Notices. All notices and communications required or permitted to be given hereunder shall be in writing and shall be delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid, or sent by telex or facsimile transmission (provided any such telex or facsimile transmission is confirmed either orally or by written confirmation), addressed to the appropriate party at the address for such party shown below or at such other address as such party shall have theretofore designated by written notice delivered to the party giving such notice:

If to Seller:

PetroQuest Energy, L.L.C.

400 E. Kaliste Saloom Road, Suite 6000

Lafayette, Louisiana 70508

Attention: Ed Abels

Fax: (337) 232-0044

Email: eabels@petroquest.com

With a copy to:

Porter Hedges, LLP

1000 Main Street, 36^th Floor

Houston, Texas 77002

Attention: Robert H. Thomas

Fax: (713) 226-6236

Email: bthomas@porterhedges.com

If to Buyer:

Northstar Offshore Ventures LLC

11 Greenway Plaza, Suite 2800

Houston, TX 77046

Attention: Brian Macmillan

Sr. Vice President - Land

Fax: (713) 626-3444

Email: BMac@nstaroffshore.com

With a copy to:

Crady, Jewett & McCulley, LLP
2727 Allen Parkway, Suite 1700
Houston, Texas 77019-2125

Attention: Lawrence E. Glenn

Fax: (713) 739-8403

Email: lglenn@cjmlaw.com

Any notice given in accordance herewith shall be deemed to have been given when delivered to the addressee in person, or by courier, or transmitted by facsimile transmission during normal business hours, or upon actual receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the United States Mail, as the case may be. The parties hereto may change the address, telephone numbers, and facsimile numbers to which such communications are to be addressed by giving written notice to the other parties in the manner provided in this Section 15.6.

12.7Removal of Name. As promptly as practicable, but in any case within thirty (30) Days after the date Buyer is approved as owner and operator of the Assets by BOEM, Buyer shall eliminate the names PetroQuest Energy, LLC, “PetroQuest”, and any variants thereof from the Assets acquired pursuant to this Agreement and, except with respect to such grace period for eliminating existing usage, shall have no right to use any logos, trademarks or trade names belonging to Seller or any of its Affiliates.

12.8Further Cooperation. After the Closing, Buyer and Seller shall execute and deliver, or shall cause to be executed and delivered from time to time, such further instruments of conveyance and transfer, and shall take such other actions as any party may reasonably request, to convey and deliver the Assets to Buyer, to perfect Buyer’s title thereto, and to accomplish the orderly transfer of the Assets to Buyer in the manner contemplated by this Agreement. If any party hereto receives monies belonging to the other, such amount shall immediately be paid over to the proper party. If an invoice or other evidence of an obligation is received by a party, which is partially an obligation of both Seller and Buyer, then the parties shall consult with each other, and each shall promptly pay its portion of such obligation to the obligee.

12.9Filings, Notices and Certain Governmental Approvals. Promptly after Closing, Buyer shall (i) contemporaneously (x) file all state/federal assignments executed at Closing with all applicable state or federal agencies and (y) post all bonds, letters of credit, guarantees and other security with all applicable Governmental Authorities meeting the requirements of such authorities for Buyer to own and, where appropriate, operate, the Assets including, any and all bonds, letters of credit, guarantees and other security that may be required in excess of its existing lease, pipeline or Buyer’s existing area-wide bond in order for Seller’s bonds and other security to be released; and (ii) actively pursue the unconditional approval of all applicable Governmental Authorities of the Assignment of the Assets to Buyer and the designation of Buyer as the operator thereof. Buyer shall cooperate with Seller in Seller’s efforts to actively pursue all other consents and approvals that may be required in connection with the assignment of the Assets to Buyer and the assumption of the liabilities assumed by Buyer hereunder, that shall not have been obtained prior to Closing. Promptly after the date Buyer is approved as owner and operator of the Assets by BOEM and any other applicable Governmental Authority, but not before, Buyer shall (a) record the Assignment of the Assets executed at the Closing in all applicable real property records and/or, if applicable, all state or federal agencies (b) send notices to vendors supplying goods and services for the Assets of the assignment of the Assets to Buyer and, if applicable, the designation of Buyer as the operator thereof, (c) to the extent not already obtained, actively pursue the unconditional approval of all applicable Governmental Authorities of the Assignment of the Assets to Buyer and the designation of Buyer as the operator thereof and (d) to the extent not already obtained, actively pursue all other consents and approvals that may be required in connection with the assignment of the Assets to Buyer and the assumption of the liabilities assumed by Buyer hereunder. Buyer obligates itself to take any and all action required by any Governmental Authority in order to obtain such unconditional approval, including but not limited to, the posting of any and all bonds or other security that may be required in excess of its existing lease, pipeline or area-wide bond in order for Seller’s bonds to be released.

12.10Entire Agreement; Conflicts. THIS AGREEMENT, THE EXHIBITS AND SCHEDULES HERETO AND THE CONFIDENTIALITY AGREEMENT COLLECTIVELY CONSTITUTE THE ENTIRE AGREEMENT AMONG SELLER AND BUYER PERTAINING TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL PRIOR AGREEMENTS, UNDERSTANDINGS, NEGOTIATIONS, AND DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF THE PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF. THERE ARE NO WARRANTIES, REPRESENTATIONS, OR OTHER AGREEMENTS AMONG THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, AND NEITHER SELLER NOR BUYER SHALL BE BOUND BY OR LIABLE FOR ANY ALLEGED REPRESENTATION, PROMISE, INDUCEMENT, OR STATEMENTS OF INTENTION NOT SO SET FORTH. IN THE EVENT OF A CONFLICT BETWEEN THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TERMS AND PROVISIONS OF ANY EXHIBIT HERETO, THE TERMS AND PROVISIONS OF THIS AGREEMENT SHALL GOVERN AND CONTROL; PROVIDED, HOWEVER, THAT THE INCLUSION IN ANY OF THE EXHIBITS AND SCHEDULES HERETO OF TERMS AND PROVISIONS NOT ADDRESSED IN THIS AGREEMENT SHALL NOT BE DEEMED A CONFLICT, AND ALL SUCH ADDITIONAL PROVISIONS SHALL BE GIVEN FULL FORCE AND EFFECT, SUBJECT TO THE PROVISIONS OF THIS SECTION 12.10.

12.11Parties in Interest. The terms and provisions of this Agreement shall be binding upon and inure to the benefit of Seller and Buyer and their respective legal representatives, successors, and assigns. No other person shall have any right, benefit, priority, or interest hereunder or as a result hereof or have standing to require satisfaction of the provisions hereof in accordance with their terms.

12.12Amendment. This Agreement may be amended only by an instrument in writing executed by the parties hereto against whom enforcement is sought.

12.13Waiver; Rights Cumulative. Any of the terms, covenants, representations, warranties, or conditions hereof may be waived only by a written instrument executed by or on behalf of the party hereto waiving compliance. No course of dealing on the part of Seller or Buyer, or their respective officers, employees, agents, or representatives, nor any failure by Seller or Buyer to exercise any of its rights under this Agreement shall operate as a waiver thereof or affect in any way the right of such party at a later time to enforce the performance of such provision. No waiver by any party of any condition, or any breach of any term, covenant, representation, or warranty contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term, covenant, representation, or warranty. The rights of Seller and Buyer under this Agreement shall be cumulative, and the exercise or partial exercise of any such right shall not preclude the exercise of any other right.

12.14Governing Law; Jurisdiction, Venue; Jury Waiver. THIS AGREEMENT AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION. ALL OF THE PARTIES HERETO CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE OF TEXAS FOR ANY ACTION ARISING OUT OF THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS SHALL BE EXCLUSIVELY LITIGATED IN COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.

12.15Severability. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

12.16Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement. Any signature hereto delivered by a party by facsimile transmission shall be deemed an original signature hereto.

IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement on the date first above written.    

SELLER:

PETROQUEST ENERGY, L.L.C.            

By: /s/ Arthur M. Mixon, III                

Arthur M. Mixon, III

Executive Vice President – Operations & Production

BUYER:

NORTHSTAR OFFSHORE VENTURES LLC

By:    /s/ David L. Dean                

David L. Dean

President and Chief Executive Officer

EX-31.1

EXHIBIT 31.1

I, Charles T. Goodson, certify that:

1. I have reviewed this Form 10-Q of PetroQuest Energy, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Charles T. Goodson                            

Charles T. Goodson

Chief Executive Officer

May 8, 2018

EX-31.2

EXHIBIT 31.2

I, J. Bond Clement, certify that:

1. I have reviewed this Form 10-Q of PetroQuest Energy, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ J. Bond Clement                        

J. Bond Clement

Chief Financial Officer

May 8, 2018

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of PetroQuest Energy, Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2018 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Charles T. Goodson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Charles T. Goodson

Charles T. Goodson

Chief Executive Officer

May 8, 2018

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of PetroQuest Energy, Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2018 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, J. Bond Clement, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ J. Bond Clement

J. Bond Clement

Chief Financial Officer

May 8, 2018

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2018	Apr. 26, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	PETROQUEST ENERGY INC
Entity Central Index Key	0000872248
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
Amendment Flag	false
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		25,587,441

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 14,178	$ 15,655
Revenue receivable	7,847	15,340
Joint interest billing receivable	3,024	6,597
Other receivable	6,000	7,750
Derivative asset	0	1,174
Deposit for surety bonds	11,100	8,300
Other current assets	1,960	2,125
Total current assets	44,109	56,941
Oil and gas properties:
Oil and gas properties, full cost method	1,351,048	1,369,861
Unevaluated oil and gas properties	16,918	21,854
Accumulated depreciation, depletion and amortization	(1,285,640)	(1,285,660)
Oil and gas properties, net	82,326	106,055
Other property and equipment	9,451	9,353
Accumulated depreciation of other property and equipment	(8,894)	(8,843)
Total property and equipment	82,883	106,565
Other assets	792	792
Total assets	127,784	164,298
Current liabilities:
Accounts payable to vendors	15,382	32,148
Advances from co-owners	1,181	1,730
Oil and gas revenue payable	18,451	19,344
Accrued interest	4,689	1,724
Asset retirement obligation	938	687
Derivative liability	718	731
Other accrued liabilities	11,318	6,476
Total current liabilities	52,677	62,840
Multi-draw Term Loan	28,131	27,963
Asset retirement obligation	2,304	30,623
Preferred stock dividend payable	11,563	10,278
Other long-term liabilities	567	131
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 25,550 and 25,521 shares, respectively	26	26
Paid-in capital	313,637	313,244
Accumulated other comprehensive income (loss)	(718)	278
Accumulated deficit	(564,755)	(562,484)
Total stockholders’ equity	(251,809)	(248,935)
Total liabilities and stockholders’ equity	127,784	164,298
10% Senior Secured Notes due 2021 | Senior Notes
Current liabilities:
10% Senior Secured Notes	9,788	9,821
10% Senior Secured PIK Notes due 2021 | Payment in Kind (PIK) Note
Current liabilities:
10% Senior Secured Notes	$ 274,563	$ 271,577

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2018	Dec. 31, 2017
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	1,495,000	1,495,000
Preferred stock, shares outstanding	1,495,000	1,495,000
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	25,550,000	25,521,000
Common stock, shares outstanding	25,550,000	25,521,000
10% Senior Secured Notes due 2021 | Senior Notes
Stated interest rate	10.00%	10.00%
10% Senior Secured PIK Notes due 2021 | Payment in Kind (PIK) Note
Stated interest rate	10.00%	10.00%

XML

Consolidated Statements of Operations (unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Revenues:
Oil and gas sales	$ 24,917	$ 20,772
Expenses:
Lease operating expenses	7,040	7,076
Production taxes	1,227	308
Depreciation, depletion and amortization	6,505	6,117
General and administrative	3,300	3,153
Accretion of asset retirement obligation	198	547
Interest expense	7,481	7,258
Expenses	25,751	24,459
Other income:
Other income	13	54
Loss from operations	(821)	(3,633)
Income tax expense	106	0
Net loss	(927)	(3,633)
Preferred stock dividend	1,285	1,285
Loss available to common stockholders	$ (2,212)	$ (4,918)
Basic
Net loss per share (in usd per share)	$ (0.09)	$ (0.23)
Diluted
Net loss per share (in usd per share)	$ (0.09)	$ (0.23)
Weighted average number of common shares:
Basic (shares)	25,540	21,208
Diluted (shares)	25,540	21,208

XML

Consolidated Statements of Comprehensive Loss (unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Statement of Comprehensive Income [Abstract]
Net loss	$ (927)	$ (3,633)
Change in fair value of derivative instruments, accounted for as hedges, net of income tax benefit of $106 and $0, respectively	(996)	3,188
Comprehensive loss	$ (1,923)	$ (445)

XML

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Statement of Comprehensive Income [Abstract]
Income tax (expense) benefit related to other comprehensive income due to derivatives	$ (106)	$ 0

XML

Consolidated Statements of Cash Flows (unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash flows from operating activities:
Net loss	$ (927)	$ (3,633)
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred tax expense	106	0
Depreciation, depletion and amortization	6,505	6,117
Accretion of asset retirement obligation	198	547
Share-based compensation expense	340	425
Amortization costs and other	211	238
Non-cash interest expense on PIK Notes	2,961	5,512
Payments to settle asset retirement obligations	(3)	(402)
Changes in working capital accounts:
Revenue receivable	7,493	1,025
Joint interest billing receivable	3,016	460
Accounts payable and accrued liabilities	(11,583)	3,037
Advances from co-owners	(549)	1,549
Deposit for surety bonds	(2,800)	0
Other	112	(1,462)
Net cash provided by operating activities	5,080	13,413
Cash flows used in investing activities:
Investment in oil and gas properties	(5,810)	(10,898)
Investment in other property and equipment	(98)	(16)
Disposition of oil and gas properties	(2,405)	0
Sale of unevaluated oil and gas properties	1,750	0
Net cash used in investing activities	(6,563)	(10,914)
Cash flows provided by (used in) financing activities:
Net proceeds from share based compensation	43	40
Deferred financing costs	(26)	(10)
Redemption of 2017 Notes	0	(22,650)
Costs incurred to redeem 2021 Notes	(11)	0
Proceeds from borrowings	0	20,000
Net cash provided by (used in) financing activities	6	(2,620)
Net decrease in cash and cash equivalents	(1,477)	(121)
Cash and cash equivalents, beginning of period	15,655	28,312
Cash and cash equivalents, end of period	14,178	28,191
Cash paid during the period for:
Interest	$ 1,789	$ 2,975

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The consolidated financial information for the three month periods ended March 31, 2018 and 2017, have been prepared by the Company and were not audited by its independent registered public accountants. In the opinion of management, all normal and recurring adjustments have been made to present fairly the financial position, results of operations, and cash flows of the Company at March 31, 2018 and for all reported periods. Results of operations for the interim periods presented are not necessarily indicative of the operating results for the full year or any future periods.

The balance sheet at December 31, 2017 has been derived from the audited financial statements at that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the audited financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Certain prior period amounts have been reclassified to conform to current year presentation.

Unless the context otherwise indicates, any references in this Quarterly Report on Form 10-Q to the “Company,” "we," or "us" refer to PetroQuest Energy, Inc. ("PetroQuest") and its wholly-owned consolidated subsidiaries, PetroQuest Energy, L.L.C. (a single member Louisiana limited liability company), PetroQuest Oil & Gas, L.L.C. (a single member Louisiana limited liability company), TDC Energy LLC (a single member Louisiana limited liability company) and Pittrans, Inc. (an Oklahoma corporation).

XML

Acquisitions and Divestitures

3 Months Ended

Mar. 31, 2018

Business Combinations [Abstract]

Acquisitions and Divestitures

Acquisitions and Divestitures

Divestitures:

On April 17, 2017, the Company completed the sale of its interest in the East Lake Verret field in Louisiana for approximately $2.2 million. This sale was accounted for as an adjustment to the capitalized costs of oil and gas properties. On December 15, 2017, the Company completed the sale of its saltwater disposal assets in East Texas for approximately $8.5 million. This sale was accounted for as an adjustment to the capitalized costs of oil and gas properties.

On January 31, 2018, the Company sold its Gulf of Mexico properties. The Company received no consideration from the sale of these properties and is required to contribute approximately $3.8 million towards the future abandonment costs for the properties. As a result of the sale, the Company extinguished approximately $28.2 million of its discounted asset retirement obligations. In connection with the sale, the Company expects to receive a cash refund of $11.5 million ($11.1 million at March 31, 2018) related to a depositary account that serves to collateralize a portion of the Company's offshore bonds related to these properties (subject to the Company's obligation to pay approximately $3.8 million to the purchaser of these properties), which is included in deposits for surety bonds on the Company's Consolidated Balance Sheet as of March 31, 2018. This sale was accounted for as an adjustment to the capitalized costs of oil and gas properties.

Acquisitions:

In December 2017, the Company entered into an oil focused play in central Louisiana targeting the Austin Chalk formation through the execution of agreements to acquire interests in approximately 24,600 gross acres for a purchase price of approximately $9.3 million and the issuance of 2.0 million shares of common stock.

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Equity

3 Months Ended

Mar. 31, 2018

Equity [Abstract]

Equity

Equity

Common Stock

During December 2017, the Company issued 2.0 million shares of common stock in connection with the acquisition of Austin Chalk acreage (see Note 2). Additionally, during December 2017, the Company issued approximately 2.2 million shares of common stock related to the extinguishment of a portion of the outstanding 2021 Notes (see Note 5).

Convertible Preferred Stock

The Company has 1,495,000 shares of 6.875% Series B Cumulative Convertible Perpetual Preferred Stock (the “Series B Preferred Stock”) outstanding.

The following is a summary of certain terms of the Series B Preferred Stock:

Dividends. The Series B Preferred Stock accumulates dividends at an annual rate of 6.875% for each share of Series B Preferred Stock. Dividends are cumulative from the date of first issuance and, to the extent payment of dividends is not prohibited by the Company’s debt agreements, assets are legally available to pay dividends and the Company’s board of directors or an authorized committee of the board declares a dividend payable, the Company pays dividends in cash, every quarter.

In connection with an amendment to the Company's prior bank credit facility (which was terminated and replaced by the Multidraw Term Loan Agreement with Franklin Custodian Funds in October 2016) prohibiting the Company from declaring or paying dividends on the Series B Preferred Stock, the Company suspended the quarterly cash dividend on its Series B Preferred Stock beginning with the dividend payment due on April 15, 2016. The Multidraw Term Loan Agreement also prohibits the Company from declaring and paying cash dividends on the Series B Preferred Stock. Under the terms of the Series B Preferred Stock, any unpaid dividends will accumulate. As of March 31, 2018, the Company has deferred eight dividend payments and has accrued an $11.6 million payable related to the eight deferred payments and the quarterly dividend that was payable on April 15, 2018, which is included in Preferred stock dividend payable on the Consolidated Balance Sheet. As a result of the restrictions under the Multidraw Term Loan Agreement, the Company did not pay the dividend that was payable on July 15, 2017, which represented the sixth deferred dividend payment. As a result, the holders of the Series B Preferred Stock, voting as a single class, currently have the right to elect two additional directors to the Company's Board of Directors (the "Board") until all accumulated and unpaid dividends on the Series B Preferred Stock are paid in full. On April 12, 2018, the Company received written notice from a holder of the Series B Preferred Stock (the "Requesting Holder") exercising this right by requesting that the Board call a special meeting of the holders of the preferred stock for the purposes of electing the additional directors, as set forth in Section 4(ii) of the Certificate of Designations establishing the preferred stock, dated September 24, 2007. The Company intends to comply with the Certificate of Designations, which provides that the Board will provide notice of such meeting within 60 days of such request.

Mandatory conversion. The Company may, at its option, cause shares of the Series B Preferred Stock to be automatically converted at the applicable conversion rate, but only if the closing sale price of the Company’s common stock for 20 trading days within a period of 30 consecutive trading days ending on the trading day immediately preceding the date the Company gives the conversion notice equals or exceeds 130% of the conversion price in effect on each such trading day.

Conversion rights. Each share of Series B Preferred Stock may be converted at any time, at the option of the holder, into 0.8608 shares of the Company’s common stock (which is based on a conversion price of approximately $58.08 per share of common stock, subject to further adjustment) plus cash in lieu of fractional shares, subject to the Company’s right to settle all or a portion of any such conversion in cash or shares of the Company’s common stock. If the Company elects to settle all or any portion of its conversion obligation in cash, the conversion value and the number of shares of the Company’s common stock it will deliver upon conversion (if any) will be based upon a 20 trading day averaging period.

Upon any conversion, the holder will not receive any cash payment representing accumulated and unpaid dividends on the Series B Preferred Stock, whether or not in arrears, except in limited circumstances. The conversion rate is equal to $50 divided by the conversion price at the time. The conversion price is subject to adjustment upon the occurrence of certain events. The conversion price on the conversion date and the number of shares of the Company’s common stock, as applicable, to be delivered upon conversion may be adjusted if certain events occur.

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Earnings Per Share

3 Months Ended

Mar. 31, 2018

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

A reconciliation between the basic and diluted earnings per share computations (in thousands, except per share amounts) is as follow:

For the Three Months Ended March 31, 2018	Loss (Numerator)			Shares (Denominator)	Per Share Amount
BASIC EPS
Net loss available to common stockholders	$	(2,212	)	25,540	$	(0.09	)
Stock options	—			—
Attributable to participating securities	—			—
DILUTED EPS	$	(2,212	)	25,540	$	(0.09	)
For the Three Months Ended March 31, 2017	Loss (Numerator)			Shares (Denominator)	Per Share Amount
BASIC EPS
Net loss available to common stockholders	$	(4,918	)	21,208	$	(0.23	)
Stock options	—			—
Attributable to participating securities	—			—
DILUTED EPS	$	(4,918	)	21,208	$	(0.23	)

An aggregate of 2.0 million and 1.5 million shares of common stock representing options to purchase common stock and unvested shares of restricted common stock and common shares issuable upon the assumed conversion of the Series B Preferred Stock totaling 1.3 million shares were not included in the computation of diluted earnings per share for the three month periods ended March 31, 2018 and 2017, respectively, because the inclusion would have been anti-dilutive as a result of the net loss reported for such periods.

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Long-Term Debt

3 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

Long-Term Debt

Long-Term Debt

On August 19, 2010, the Company issued $150 million in principal amount of its 10% Senior Notes due 2017. On July 3, 2013, the Company issued an additional $200 million in principal amount of its 10% Senior Notes due 2017 (collectively, the "2017 Notes").

On February 17, 2016, the Company closed a private exchange offer (the "February Exchange") and consent solicitation (the "February Consent Solicitation") to certain eligible holders of its outstanding 2017 Notes. In satisfaction of the tender of $214.4 million in aggregate principal amount of the 2017 Notes, representing approximately 61% of the then outstanding aggregate principal amount of 2017 Notes, the Company (i) paid approximately $53.6 million of cash, (ii) issued $144.7 million aggregate principal amount of its new 10% Second Lien Senior Secured Notes due 2021 (the "2021 Notes") and (iii) issued approximately 1.1 million shares of its common stock. Following the completion of the February Exchange, $135.6 million in aggregate principal amount of the 2017 Notes remained outstanding. The February Consent Solicitation eliminated or waived substantially all of the restrictive covenants contained in the indenture governing the 2017 Notes.

On September 27, 2016, the Company closed private exchange offers (the "September Exchange") and a consent solicitation (the "September Consent Solicitation") to certain eligible holders of its outstanding 2017 Notes and 2021 Notes. In satisfaction of the consideration of $113.0 million in aggregate principal amount of the 2017 Notes, representing approximately 83% of the then outstanding aggregate principal amount of 2017 Notes, and $130.5 million in aggregate principal amount of the 2021 Notes, representing approximately 90% of the then outstanding aggregate principal amount of 2021 Notes, the Company issued (i) $243.5 million in aggregate principal amount of its new 10% Second Lien Senior Secured PIK Notes due 2021 (the "2021 PIK Notes") and (ii) approximately 3.5 million shares of its common stock. The Company also paid, in cash, accrued and unpaid interest on the 2017 Notes and 2021 Notes accepted in the September Exchange from the last applicable interest payment date to, but not including, September 27, 2016. Following the consummation of the September Exchange, there were $22.7 million in aggregate principal amount of the 2017 Notes outstanding and $14.2 million in aggregate principal amount of the 2021 Notes outstanding. The September Consent Solicitation amended certain provisions of the indenture governing the 2021 Notes and amended the registration rights agreement with respect to the 2021 Notes.

On March 31, 2017, the Company redeemed its remaining outstanding 2017 Notes at a redemption price of $22.8 million. The redemption was funded by cash on hand and amounts borrowed under the Multidraw Term Loan Agreement described below. On December 28, 2017, the Company issued approximately 2.2 million shares of common stock to extinguish approximately $4.8 million of outstanding principal amount of 2021 Notes.

The 2021 PIK Notes bear interest at a rate of 10% per annum on the principal amount and interest is payable semi-annually in arrears on February 15 and August 15 of each year. The Company was permitted, at its option, for the first three interest payment dates of the 2021 PIK Notes, to instead pay interest at (i) the annual rate of 1% in cash plus (ii) the annual rate of 9% PIK (the "PIK Interest") payable by increasing the principal amount outstanding of the 2021 PIK Notes or by issuing additional 2021 PIK Notes in certificated form. The Company exercised this PIK option in connection with the interest payments due on February 15, 2017, August 15, 2017 and February 15, 2018. As of March 31, 2018, the Company was in compliance with all of the covenants under the 2021 PIK Notes.

The 2021 Notes bear interest at a rate of 10% per annum on the principal amount and interest is payable semi-annually in arrears on February 15 and August 15 of each year. As of March 31, 2018, the Company was in compliance with all of the covenants under the 2021 Notes.

The February Exchange and September Exchange were accounted for as troubled debt restructurings pursuant to guidance provided by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 470-60 "Troubled Debt Restructurings by Debtors." The Company determined that the future undiscounted cash flows from the 2021 PIK Notes issued in the September Exchange through the maturity date exceeded the adjusted carrying amount of the 2017 Notes and the 2021 Notes tendered in the September Exchange. Accordingly, no gain or loss on extinguishment of debt was recognized in connection with the September Exchange. The net shortfall of the remaining carrying value of the 2017 Notes and 2021 Notes tendered as compared to the principal amount of the 2021 PIK Notes issued in the September Exchange of $0.6 million is reflected as part of the carrying value of the 2021 PIK Notes. Such shortfall is being amortized under the effective interest method over the term of the 2021 PIK Notes. At March 31, 2018, $0.5 million of the shortfall remained as part of the carrying value of the 2021 PIK Notes and the Company recognized $26,000 of amortization expense as an increase to interest expense during the three months ended March 31, 2018.

The Company previously determined that the future undiscounted cash flows from the 2021 Notes issued in the February Exchange through the maturity date exceeded the adjusted carrying amount of the 2017 Notes tendered in the February Exchange. Accordingly, no gain on extinguishment of debt was recognized in connection with the February Exchange. The excess of the remaining carrying value of the 2017 Notes tendered over the principal amount of the 2021 Notes issued in the February Exchange of $13.9 million was reflected as part of the carrying value of the 2021 Notes. The amount of the excess carrying value attributable to the 2021 Notes tendered in the September Exchange is now reflected as part of the carrying value of the 2021 PIK Notes. The excess carrying value attributable to the remaining 2021 Notes is being amortized under the effective interest method over the term of the 2021 Notes. At March 31, 2018, $0.6 million of the excess remained as part of the carrying value of the 2021 Notes and the Company recognized $43,000 of amortization expense as a reduction to interest expense during the three months ended March 31, 2018.

The indentures governing the 2021 PIK Notes and the 2021 Notes contain affirmative and negative covenants that, among other things, limit the ability of the Company and the subsidiary guarantors of the 2021 PIK Notes and the 2021 Notes to incur indebtedness; purchase or redeem stock; make certain investments; create liens that secure debt; enter into transactions with affiliates; sell assets; refinance certain indebtedness; merge with or into other companies or transfer substantially all of their assets; and, in certain circumstances, to pay dividends or make other distributions on stock. The 2021 PIK Notes and the 2021 Notes are fully and unconditionally guaranteed on a senior basis, jointly and severally, by certain wholly-owned subsidiaries of the Company.

The 2021 PIK Notes and the 2021 Notes are secured equally and ratably by second-priority liens on substantially all of the Company's and the subsidiary guarantors' oil and gas properties and substantially all of their other assets to the extent such properties and assets secure the Multidraw Term Loan Agreement (as defined below), except for certain excluded assets. Pursuant to the terms of an intercreditor agreement, the security interest in those properties and assets that secure the 2021 PIK Notes and the 2021 Notes and the guarantees are contractually subordinated to liens that secure the Multidraw Term Loan Agreement and certain other permitted indebtedness. Consequently, the 2021 PIK Notes and the 2021 Notes and the guarantees will be effectively subordinated to the Multidraw Term Loan Agreement and such other indebtedness to the extent of the value of such assets.

On October 17, 2016, the Company entered into the Multidraw Term Loan Agreement (the "Multidraw Term Loan Agreement") with Franklin Custodian Funds - Franklin Income Fund ("Franklin"), as a lender, and Wells Fargo Bank, National Association, as administrative agent, replacing the prior credit agreement with JPMorgan Chase Bank, N.A. The Multidraw Term Loan Agreement provides a multi-advance term loan facility, with borrowing availability for three years, in a principal amount of up to $50 million. The loans drawn under the Multidraw Term Loan Agreement (collectively, the “Term Loans”) may be used to repay existing debt, to pay transaction fees and expenses, to provide working capital for exploration and production operations and for general corporate purposes. The Term Loans mature on October 17, 2020. As of March 31, 2018, the Company had $30.0 million of borrowings outstanding under the Term Loans and $20.0 million of available borrowings under the Multidraw Term Loan Agreement.

The Company’s obligations under the Multidraw Term Loan Agreement and the Term Loans are secured by a first priority lien on substantially all of the assets of the Company and certain of its subsidiaries, including a lien on all equipment and at least 90% of the aggregate total value of the oil and gas properties of the Company and its subsidiaries, a pledge of the equity interests of PetroQuest Energy, L.L.C. (the "Borrower") and certain of the Company’s other subsidiaries, and corporate guarantees of the Company and certain of the Company’s other subsidiaries of the indebtedness of the Borrower. Term Loans under the Multidraw Term Loan Agreement bear interest at the rate of 10% per annum.

The Company and its subsidiaries are subject to a restrictive covenant under the Multidraw Term Loan Agreement, consisting of maintaining a ratio of (i) the present value, discounted at 10% per annum, of the estimated future net revenues in respect of the Company’s and its subsidiaries’ oil and gas properties, before any state, federal, foreign or other income taxes, attributable to proved developed reserves, using three-year strip prices in effect at the end of each calendar quarter, including swap agreements in place at the end of each quarter, to (ii) the sum of the outstanding Term Loans and the then outstanding commitments to provide Term Loans, that shall not be less than 2.0 to 1.0 as measured on the last day of each calendar quarter (the "Coverage Ratio"). If the Coverage Ratio is less than 2.0 to 1.0 as of any quarterly measurement date, the Company may, at its option, prepay outstanding Term Loans or permanently reduce the then outstanding Term Loan Commitments (i.e. the available borrowings) under the Multidraw Term Loan Agreement, or a combination thereof, by a proportionate amount. The Coverage Ratio was greater than 2.0 to 1.0 as of March 31, 2018.

Sales of the Company’s and its subsidiaries’ oil and gas properties outside the ordinary course of business are limited under the terms of the Multidraw Term Loan Agreement. In addition, the Multidraw Term Loan Agreement prohibits the Company from declaring and paying dividends on its Series B Preferred Stock.

The Multidraw Term Loan Agreement also includes customary restrictions with respect to debt, liens, dividends, distributions and redemptions, investments, loans and advances, nature of business, international operations and foreign subsidiaries, leases, sale or discount of receivables, mergers or consolidations, sales of properties, transactions with affiliates, negative pledge agreements, gas imbalances and swap agreements. As of March 31, 2018, no default or event of default existed under the Multidraw Term Loan Agreement and the Company was in compliance with all covenants contained in the Multidraw Term Loan Agreement.

The 2021 Notes are reflected net of $0.2 million of related unamortized financing costs as of March 31, 2018 and December 31, 2017 and the Term Loans are reflected net of $1.9 million and $2.0 million of related unamortized financing costs as of March 31, 2018 and December 31, 2017, respectively.

The following table reconciles the face value of the 2021 Notes, 2021 PIK Notes and Term Loans to the carrying value included in the Company's Consolidated Balance Sheet as of March 31, 2018 and December 31, 2017 (in thousands):

	March 31, 2018									December 31, 2017
	2021 Notes			2021 PIK Notes			Term Loans			2021 Notes			2021 PIK Notes			Term Loans
Face Value	$	9,427		$	275,046		$	30,000		$	9,427		$	263,202		$	30,000
Unamortized Deferred Financing Costs	(201		)	—			(1,869		)	(212		)	—			(2,037		)
Excess (Shortfall) Carrying Value	562			(483		)	—			606			(508		)	—
Accrued PIK Interest	—			—			—			—			8,883			—
Carrying Value	$	9,788		$	274,563		$	28,131		$	9,821		$	271,577		$	27,963

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Asset Retirement Obligation

3 Months Ended

Mar. 31, 2018

Asset Retirement Obligation Disclosure [Abstract]

Asset Retirement Obligation

Asset Retirement Obligation

The following table describes the changes to the Company’s asset retirement obligation liability (in thousands):

	Three Months Ended March 31,
	2018			2017
Asset retirement obligation, beginning of period	$	31,310		$	36,610
Liabilities incurred	7			13
Liabilities settled	(57		)	(540		)
Accretion expense	198			547
Revisions in estimates	(2		)	(381		)
Divestiture of oil and gas properties	(28,214		)	—
Asset retirement obligation, end of period	3,242			36,249
Less: current portion of asset retirement obligation	(938		)	(3,291		)
Long-term asset retirement obligation	$	2,304		$	32,958

The divestiture of oil and gas properties during 2018 totaling $28.2 million relates to the sale of the Company's Gulf of Mexico assets. The liabilities incurred, revisions in estimated cash flows and divestitures represent non-cash investing activities for purposes of the statement of cash flows.

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Derivative Instruments

3 Months Ended

Mar. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

The Company seeks to reduce its exposure to commodity price volatility by hedging a portion of its production through commodity derivative instruments. When the conditions for hedge accounting are met, the Company may designate its commodity derivatives as cash flow hedges. The changes in fair value of derivative instruments that qualify for hedge accounting treatment are recorded in other comprehensive income (loss) until the hedged oil or natural gas quantities are produced. If a derivative does not qualify for hedge accounting treatment, the changes in the fair value of the derivative are recorded in the income statement as derivative income (expense). At March 31, 2018, the Company's derivative instrument was designated as an effective cash flow hedge.

Oil and gas sales include additions (reductions) related to the settlement of gas hedges of $804,000 and ($321,000) for the three months endedMarch 31, 2018 and 2017, respectively. Oil and gas sales include reductions related to the settlement of oil hedges of $264,000 and $0 for the three months endedMarch 31, 2018 and 2017, respectively.

As of March 31, 2018, the Company had entered into the following commodity derivative instrument:

Production Period	Instrument Type	Daily Volumes	Weighted Average Price
Crude Oil:
2018	Swap	250 Bbl	$55.00

At March 31, 2018, the Company had recognized an accumulated other comprehensive loss of approximately $0.7 million related to the estimated fair value of its effective cash flow hedge. Based on estimated future commodity prices as of March 31, 2018, the Company would reclassify approximately $0.5 million, net of taxes, of accumulated other comprehensive loss into oil and gas sales during the next twelve months.

Derivatives designated as hedging instruments:

The following tables reflect the fair value of the Company’s effective cash flow hedges in the consolidated financial statements (in thousands):

Effect of Cash Flow Hedges on the Consolidated Balance Sheets at March 31, 2018 and December 31, 2017:

	Commodity Derivatives
Period	Balance Sheet Location	Fair Value
March 31, 2018	Derivative liability	$	(718	)
December 31, 2017	Derivative asset	$	1,174
December 31, 2017	Derivative liability	$	(731	)

Effect of Cash Flow Hedges on the Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2018 and 2017:

Instrument	Amount of Gain (Loss) Recognized in Other Comprehensive Income			Location of Gain Reclassified into Income	Amount of Gain (Loss) Reclassified into Oil and Gas Sales
Commodity Derivatives at March 31, 2018	$	(545	)	Oil and gas sales	$	540
Commodity Derivatives at March 31, 2017	$	2,867		Oil and gas sales	$	(321	)

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Fair Value Measurements

3 Months Ended

Mar. 31, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

As defined in ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. As presented in the tables below, this hierarchy consists of three broad levels:

• Level 1: valuations consist of unadjusted quoted prices in active markets for identical assets and liabilities and has the highest priority;

• Level 2: valuations rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability;

• Level 3: valuations are based on prices or third party or internal valuation models that require inputs that are significant to the fair value measurement and are less observable and thus have the lowest priority.

The Company classifies its commodity derivatives based upon the data used to determine fair value. The Company’s derivative instruments at March 31, 2018 and December 31, 2017 were in the form of swaps based on NYMEX pricing for oil and natural gas. The fair value of these derivatives are derived using an independent third-party’s valuation model that utilizes market-corroborated inputs that are observable over the term of the derivative contract. The Company’s fair value calculations also incorporate an estimate of the counterparties’ default risk for derivative assets and an estimate of the Company’s credit risk for derivative liabilities. As a result, the Company designates its commodity derivatives as Level 2 in the fair value hierarchy.

The following table summarizes the fair value of the Company’s derivatives subject to fair value measurement on a recurring basis as of March 31, 2018 and December 31, 2017 (in thousands):

	Fair Value Measurements Using
Instrument	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Commodity Derivatives:
March 31, 2018	$	—	$	(718	)	$	—
December 31, 2017	$	—	$	443		$	—

The fair value of the Company's cash and cash equivalents approximated book value at March 31, 2018 and December 31, 2017. The fair value of the Term Loans was determined using Level 2 inputs and approximated face value as of March 31, 2018 and December 31, 2017. The fair value of the 2021 Notes and 2021 PIK Notes was determined based upon market quotes provided by an independent broker, which represents a Level 2 input. The following table summarizes the fair value, carrying value and face value of the 2021 Notes and 2021 PIK Notes as of March 31, 2018 and December 31, 2017 (in thousands):

	March 31, 2018						December 31, 2017
	Fair Value		Face Value		Carrying Value		Fair Value		Face Value		Carrying Value
2021 Notes	$	7,580	$	9,427	$	9,788	$	7,306	$	9,427	$	9,821
2021 PIK Notes	219,419		275,046		274,563		198,717		263,202		271,577
	$	226,999	$	284,473	$	284,351	$	206,023	$	272,629	$	281,398

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Income Taxes

3 Months Ended

Mar. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company typically provides for income taxes at a statutory rate adjusted for permanent differences expected to be realized, primarily statutory depletion, non-deductible stock compensation expenses and state income taxes. As a result of ceiling test write-downs recognized, the Company has incurred a cumulative three year loss. Because of the impact the cumulative loss has on the determination of the recoverability of deferred tax assets through future earnings, the Company assessed the realizability of its deferred tax assets based on the future reversals of existing deferred tax liabilities. Accordingly, the Company established a valuation allowance for a portion of the deferred tax asset. The valuation allowance was $116.3 million and $115.9 million as of March 31, 2018 and December 31, 2017, respectively.

The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act, among other things, reduces the U.S. federal corporate tax rate from 35% to 21%, eliminates the corporate alternative minimum tax and changes how existing alternative minimum tax credits are realized, creates a new limitation on deductible interest expense and changes the rules related to uses and limitations of net operating loss carryforwards generated in tax years beginning after December 31, 2017. As of March 31, 2018, the Company has not completed its accounting for the tax effects of enactment of the Act. However, the Company made a reasonable estimate of the effects on its existing deferred tax balances and recognized a provisional amount of $64.9 million as of December 31, 2017 to remeasure deferred tax assets and liabilities based on the rate at which they are expected to reverse in the future, which is generally 21%. This amount was included as a component of income tax expense (benefit) from continuing operations and was fully offset by the related adjustment to the Company's valuation allowance. The Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.

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Other Comprehensive Income

3 Months Ended

Mar. 31, 2018

Equity [Abstract]

Other Comprehensive Income

Other Comprehensive Income

The following table represents the changes in accumulated other comprehensive income (loss), net of tax, for the three month period ended March 31, 2018 (in thousands):

	Gains and Losses on Cash Flow Hedges			Change in Valuation Allowance			Total
Balance as of December 31, 2017	$	278		$	—		$	278
Other comprehensive income before reclassifications:
Change in fair value of derivatives	(545		)	—			(545		)
Income tax effect	131			(131		)	—
Net of tax	(414		)	(131		)	(545		)
Amounts reclassified from accumulated other comprehensive loss:
Oil and gas sales	(540		)	—			(540		)
Income tax effect	130			(41		)	89
Net of tax	(410		)	(41		)	(451		)
Net other comprehensive income	(824		)	(172		)	(996		)
Balance as of March 31, 2018	$	(546	)	$	(172	)	$	(718	)

The following table represents the changes in accumulated other comprehensive income (loss), net of tax, for the three month period ended March 31, 2017 (in thousands):

	Gains and Losses on Cash Flow Hedges			Change in Valuation Allowance			Total
Balance as of December 31, 2016	$	(2,983	)	$	(1,767	)	$	(4,750	)
Other comprehensive income before reclassifications:
Change in fair value of derivatives	2,867			—			2,867
Income tax effect	(1,066		)	1,066			—
Net of tax	1,801			1,066			2,867
Amounts reclassified from accumulated other comprehensive income:
Oil and gas sales	321			—			321
Income tax effect	(120		)	120			—
Net of tax	201			120			321
Net other comprehensive loss	2,002			1,186			3,188
Balance as of March 31, 2017	$	(981	)	$	(581	)	$	(1,562	)

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Recently Issued Accounting Standards

3 Months Ended

Mar. 31, 2018

Revenue from Contract with Customer [Abstract]

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” to clarify the principles for recognizing revenue and to develop a common revenue standard and disclosure requirements. The core principle of ASU 2014-09 is that an entity will recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods and or services. In August 2015, the FASB issued ASU 2015-14 deferring the effective date of ASU 2014-09 by one year to interim and annual periods beginning on or after December 31, 2017. Entities can choose to apply the standard using either a full retrospective approach or a modified retrospective approach, with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. The Company adopted the new standard effective January 1, 2018 using the modified retrospective approach, which resulted in no cumulative effect adjustment upon adoption.

The Company’s sources of revenue are oil, natural gas and NGL production from its oil and gas properties. Oil and natural gas production is typically sold to purchasers through monthly contracts at negotiated sales prices based on published market indices. The sale takes place at the wellhead for oil production and at the wellhead or gas processing plant for natural gas. NGL production is sold once natural gas is processed and the related liquids are removed at the processing plant. The contracts for sale of NGL production are with the processing plant with prices based on what the processing plant is able to receive from third party purchasers.

Sales of oil, natural gas and NGL production are recognized when the product is delivered and title transfers to the purchaser and payment is generally received one to two months after the sale has occurred. The Company had $7.8 million of revenue receivable at March 31, 2018, comprised of $2.2 million of oil revenue, $4.3 million of natural gas revenue and $1.3 million of NGL revenue.

The following table includes a disaggregation of revenue by product (in thousands):

	Three Months Ended March 31,
	2018		2017
Oil production	$	6,322	$	6,871
Natural gas production	14,884		10,662
Natural gas liquids production	3,711		3,239
Total	$	24,917	$	20,772

In February 2016, the FASB issued ASU 2016-02, "Leases" (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard is effective for public entities for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years, with earlier application permitted. Upon adoption the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently evaluating the impact of the new standard on its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, "Derivative and Hedging," to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its consolidated financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current US GAAP. ASU 2017-12 is effective for public entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with earlier application permitted. The Company is currently evaluating the effect that this new standard may have on its consolidated financial statements.

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Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” to clarify the principles for recognizing revenue and to develop a common revenue standard and disclosure requirements. The core principle of ASU 2014-09 is that an entity will recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods and or services. In August 2015, the FASB issued ASU 2015-14 deferring the effective date of ASU 2014-09 by one year to interim and annual periods beginning on or after December 31, 2017. Entities can choose to apply the standard using either a full retrospective approach or a modified retrospective approach, with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. The Company adopted the new standard effective January 1, 2018 using the modified retrospective approach, which resulted in no cumulative effect adjustment upon adoption.

The Company’s sources of revenue are oil, natural gas and NGL production from its oil and gas properties. Oil and natural gas production is typically sold to purchasers through monthly contracts at negotiated sales prices based on published market indices. The sale takes place at the wellhead for oil production and at the wellhead or gas processing plant for natural gas. NGL production is sold once natural gas is processed and the related liquids are removed at the processing plant. The contracts for sale of NGL production are with the processing plant with prices based on what the processing plant is able to receive from third party purchasers.

Sales of oil, natural gas and NGL production are recognized when the product is delivered and title transfers to the purchaser and payment is generally received one to two months after the sale has occurred. The Company had $7.8 million of revenue receivable at March 31, 2018, comprised of $2.2 million of oil revenue, $4.3 million of natural gas revenue and $1.3 million of NGL revenue.

The following table includes a disaggregation of revenue by product (in thousands):

	Three Months Ended March 31,
	2018		2017
Oil production	$	6,322	$	6,871
Natural gas production	14,884		10,662
Natural gas liquids production	3,711		3,239
Total	$	24,917	$	20,772

In February 2016, the FASB issued ASU 2016-02, "Leases" (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard is effective for public entities for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years, with earlier application permitted. Upon adoption the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently evaluating the impact of the new standard on its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, "Derivative and Hedging," to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its consolidated financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current US GAAP. ASU 2017-12 is effective for public entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with earlier application permitted. The Company is currently evaluating the effect that this new standard may have on its consolidated financial statements.

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2018

Earnings Per Share [Abstract]

A reconciliation between basic and diluted earnings per share computations

A reconciliation between the basic and diluted earnings per share computations (in thousands, except per share amounts) is as follow:

For the Three Months Ended March 31, 2018	Loss (Numerator)			Shares (Denominator)	Per Share Amount
BASIC EPS
Net loss available to common stockholders	$	(2,212	)	25,540	$	(0.09	)
Stock options	—			—
Attributable to participating securities	—			—
DILUTED EPS	$	(2,212	)	25,540	$	(0.09	)
For the Three Months Ended March 31, 2017	Loss (Numerator)			Shares (Denominator)	Per Share Amount
BASIC EPS
Net loss available to common stockholders	$	(4,918	)	21,208	$	(0.23	)
Stock options	—			—
Attributable to participating securities	—			—
DILUTED EPS	$	(4,918	)	21,208	$	(0.23	)

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Long-Term Debt (Tables)

3 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

Schedule of Carrying Values and Estimated Fair Values of Debt Instruments

The following table reconciles the face value of the 2021 Notes, 2021 PIK Notes and Term Loans to the carrying value included in the Company's Consolidated Balance Sheet as of March 31, 2018 and December 31, 2017 (in thousands):

	March 31, 2018									December 31, 2017
	2021 Notes			2021 PIK Notes			Term Loans			2021 Notes			2021 PIK Notes			Term Loans
Face Value	$	9,427		$	275,046		$	30,000		$	9,427		$	263,202		$	30,000
Unamortized Deferred Financing Costs	(201		)	—			(1,869		)	(212		)	—			(2,037		)
Excess (Shortfall) Carrying Value	562			(483		)	—			606			(508		)	—
Accrued PIK Interest	—			—			—			—			8,883			—
Carrying Value	$	9,788		$	274,563		$	28,131		$	9,821		$	271,577		$	27,963

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Asset Retirement Obligation (Tables)

3 Months Ended

Mar. 31, 2018

Asset Retirement Obligation Disclosure [Abstract]

Changes to the Company's asset retirement obligation liability

The following table describes the changes to the Company’s asset retirement obligation liability (in thousands):

	Three Months Ended March 31,
	2018			2017
Asset retirement obligation, beginning of period	$	31,310		$	36,610
Liabilities incurred	7			13
Liabilities settled	(57		)	(540		)
Accretion expense	198			547
Revisions in estimates	(2		)	(381		)
Divestiture of oil and gas properties	(28,214		)	—
Asset retirement obligation, end of period	3,242			36,249
Less: current portion of asset retirement obligation	(938		)	(3,291		)
Long-term asset retirement obligation	$	2,304		$	32,958

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Derivative Instruments (Tables)

3 Months Ended

Mar. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Oil and gas contracts

As of March 31, 2018, the Company had entered into the following commodity derivative instrument:

Production Period	Instrument Type	Daily Volumes	Weighted Average Price
Crude Oil:
2018	Swap	250 Bbl	$55.00

Effect of Cash Flow Hedges on the Consolidated Balance Sheet

Effect of Cash Flow Hedges on the Consolidated Balance Sheets at March 31, 2018 and December 31, 2017:

	Commodity Derivatives
Period	Balance Sheet Location	Fair Value
March 31, 2018	Derivative liability	$	(718	)
December 31, 2017	Derivative asset	$	1,174
December 31, 2017	Derivative liability	$	(731	)

Effect of Cash Flow Hedges on the Consolidated Statement of Operations

Effect of Cash Flow Hedges on the Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2018 and 2017:

Instrument	Amount of Gain (Loss) Recognized in Other Comprehensive Income			Location of Gain Reclassified into Income	Amount of Gain (Loss) Reclassified into Oil and Gas Sales
Commodity Derivatives at March 31, 2018	$	(545	)	Oil and gas sales	$	540
Commodity Derivatives at March 31, 2017	$	2,867		Oil and gas sales	$	(321	)

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2018

Fair Value Disclosures [Abstract]

Net valuation of the Company's derivatives subject to fair value measurement on a recurring basis

The following table summarizes the fair value of the Company’s derivatives subject to fair value measurement on a recurring basis as of March 31, 2018 and December 31, 2017 (in thousands):

	Fair Value Measurements Using
Instrument	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Commodity Derivatives:
March 31, 2018	$	—	$	(718	)	$	—
December 31, 2017	$	—	$	443		$	—

Fair value of debt instruments

The following table summarizes the fair value, carrying value and face value of the 2021 Notes and 2021 PIK Notes as of March 31, 2018 and December 31, 2017 (in thousands):

	March 31, 2018						December 31, 2017
	Fair Value		Face Value		Carrying Value		Fair Value		Face Value		Carrying Value
2021 Notes	$	7,580	$	9,427	$	9,788	$	7,306	$	9,427	$	9,821
2021 PIK Notes	219,419		275,046		274,563		198,717		263,202		271,577
	$	226,999	$	284,473	$	284,351	$	206,023	$	272,629	$	281,398

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Other Comprehensive Income (Tables)

3 Months Ended

Mar. 31, 2018

Equity [Abstract]

Accumulated Other Comprehensive Income (Loss)

The following table represents the changes in accumulated other comprehensive income (loss), net of tax, for the three month period ended March 31, 2018 (in thousands):

	Gains and Losses on Cash Flow Hedges			Change in Valuation Allowance			Total
Balance as of December 31, 2017	$	278		$	—		$	278
Other comprehensive income before reclassifications:
Change in fair value of derivatives	(545		)	—			(545		)
Income tax effect	131			(131		)	—
Net of tax	(414		)	(131		)	(545		)
Amounts reclassified from accumulated other comprehensive loss:
Oil and gas sales	(540		)	—			(540		)
Income tax effect	130			(41		)	89
Net of tax	(410		)	(41		)	(451		)
Net other comprehensive income	(824		)	(172		)	(996		)
Balance as of March 31, 2018	$	(546	)	$	(172	)	$	(718	)

The following table represents the changes in accumulated other comprehensive income (loss), net of tax, for the three month period ended March 31, 2017 (in thousands):

	Gains and Losses on Cash Flow Hedges			Change in Valuation Allowance			Total
Balance as of December 31, 2016	$	(2,983	)	$	(1,767	)	$	(4,750	)
Other comprehensive income before reclassifications:
Change in fair value of derivatives	2,867			—			2,867
Income tax effect	(1,066		)	1,066			—
Net of tax	1,801			1,066			2,867
Amounts reclassified from accumulated other comprehensive income:
Oil and gas sales	321			—			321
Income tax effect	(120		)	120			—
Net of tax	201			120			321
Net other comprehensive loss	2,002			1,186			3,188
Balance as of March 31, 2017	$	(981	)	$	(581	)	$	(1,562	)

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Recently Issued Accounting Standards (Tables)

3 Months Ended

Mar. 31, 2018

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

The following table includes a disaggregation of revenue by product (in thousands):

	Three Months Ended March 31,
	2018		2017
Oil production	$	6,322	$	6,871
Natural gas production	14,884		10,662
Natural gas liquids production	3,711		3,239
Total	$	24,917	$	20,772

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Acquisitions and Divestitures (Details) $ in Thousands, shares in Millions		1 Months Ended	3 Months Ended
	Jan. 31, 2018 USD ($)	Dec. 31, 2017 USD ($) a shares	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)	Dec. 15, 2017 USD ($)	Apr. 17, 2017 USD ($)
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Liabilities related to oil and gas properties sold			$ 28,214	$ 0
Interests In East Lake Verret Field
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Net proceeds from sale of a majority of interests						$ 2,200
Saltwater Disposal Assets In East Texas
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Net proceeds from sale of a majority of interests					$ 8,500
Gulf Of Mexico Properties
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Purchase commitment, remaining minimum amount committed	$ 3,800
Liabilities related to oil and gas properties sold	28,200
Refund receivable	$ 11,500	$ 11,100
Austin Chalk Acreage
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Acres acquired | a		24,600
Purchase price		$ 9,300
Common shares issued in connection with acquisition (in shares) | shares		2.0

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Equity - Common Stock (Details) - shares shares in Millions		1 Months Ended
	Dec. 28, 2017	Dec. 31, 2017
Austin Chalk Acreage
Class of Stock [Line Items]
Common shares issued in connection with acquisition (in shares)		2.0
10% Senior Secured Notes due 2021
Class of Stock [Line Items]
Shares issued (in shares)	2.2	2.2

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Equity - Convertible Preferred Stock (Details)	3 Months Ended
	Mar. 31, 2018 USD ($) payment director $ / shares Rate shares	Dec. 31, 2017 USD ($) shares
Class of Stock [Line Items]
Preferred stock, shares outstanding | shares	1,495,000	1,495,000
Preferred stock dividend payable | $	$ 11,563,000	$ 10,278,000
Series B Preferred Stock
Class of Stock [Line Items]
Preferred stock, shares outstanding | shares	1,495,000
Series B cumulative convertible perpetual preferred stock interest rate	6.875%
Number of deferred dividend payments | payment	8
Number of additional directors to be elected after threshold of unpaid dividends reached (6 payments) | director	2
Number of trading days	20 days
Number of consecutive trading days	30 days
Closing price as percentage of conversion price | Rate	130.00%
Series B Preferred Stock converted into common stock (in shares) | shares	0.8608
Initial conversion price of common stock (in usd per share) | $ / shares	$ 58.08
Applicable settlement terms	If the Company elects to settle all or any portion of its conversion obligation in cash, the conversion value and the number of shares of the Company’s common stock it will deliver upon conversion (if any) will be based upon a 20 trading day averaging period.
Trading day averaging period for determining conversion value	20 days
Conversion rate numerator for Preferred Stock | $	$ 50
Other long-term liabilities | Series B Preferred Stock
Class of Stock [Line Items]
Preferred stock dividend payable | $	$ 11,600,000

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Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
A reconciliation between basic and diluted earnings per share computations
Loss available to common stockholders	$ (2,212)	$ (4,918)
Net income (loss) available to common stockholders (in shares)	25,540	21,208
Net income (loss) available to common stockholders (in dollars per share)	$ (0.09)	$ (0.23)
Stock options, Effect of dilutive securities	$ 0	$ 0
Stock options, effect of dilutive securities, (in shares)	0	0
Attributable to participating securities	$ 0	$ 0
Restricted stock, effect of dilutive securities (in shares)	0	0
DILUTED EPS, Income (Loss)	$ (2,212)	$ (4,918)
DILUTED EPS (in shares)	25,540	21,208
DILUTED EPS (in dollars per share)	$ (0.09)	$ (0.23)

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Earnings Per Share - Narrative (Details) - shares shares in Millions	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Common Stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share	2.0	0.0
Unvested Restricted Common Stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share	1.5	2.0
Convertible preferred stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share	1.3	1.3

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Long-Term Debt - Narrative (Details) shares in Millions					1 Months Ended	3 Months Ended
	Dec. 28, 2017 USD ($) shares	Oct. 17, 2016 USD ($)	Sep. 27, 2016 USD ($) payment shares	Feb. 17, 2016 USD ($) shares	Dec. 31, 2017 USD ($) shares	Mar. 31, 2018 USD ($)	Jul. 03, 2013 USD ($)	Aug. 19, 2010 USD ($)
Debt Instrument [Line Items]
Principal amount					$ 272,629,000	$ 284,473,000
10% Senior Secured Notes due 2021
Debt Instrument [Line Items]
Shares issued (in shares) | shares	2.2				2.2
Extinguishment of debt, amount	$ 4,800,000
Senior Notes | 10% Senior Unsecured Notes due 2017
Debt Instrument [Line Items]
Principal amount							$ 200,000,000	$ 150,000,000
Stated interest rate							10.00%	10.00%
Long-term debt				$ 135,600,000
Senior Notes | 10% Senior Secured Notes due 2021
Debt Instrument [Line Items]
Principal amount					$ 9,427,000	$ 9,427,000
Stated interest rate					10.00%	10.00%
Long-term debt					$ 9,821,000	$ 9,788,000
Excess (shortfall) carrying value					606,000	562,000
Deferred finance costs, net					(212,000)	(201,000)
Line of Credit | Multidraw Term Loan Agreement
Debt Instrument [Line Items]
Remaining borrowing capacity						20,000,000
Payment in Kind (PIK) Note | 10% Senior Secured PIK Notes due 2021
Debt Instrument [Line Items]
Principal amount					$ 263,202,000	$ 275,046,000
Stated interest rate					10.00%	10.00%
Long-term debt					$ 271,577,000	$ 274,563,000
Excess (shortfall) carrying value					(508,000)	(483,000)
Deferred finance costs, net					0	$ 0
Private Exchange Offer and Consent Solicitation
Debt Instrument [Line Items]
Repayments of debt				53,600,000
Private Exchange Offer and Consent Solicitation | Senior Notes | 10% Senior Unsecured Notes due 2017
Debt Instrument [Line Items]
Debt conversion, original debt, amount				$ 214,400,000
Debt conversion, original debt, percent of total				61.00%
Gain on extinguishment of debt				$ 0
Private Exchange Offer and Consent Solicitation | Senior Notes | 10% Senior Secured Notes due 2021
Debt Instrument [Line Items]
Stated interest rate				10.00%		10.00%
Debt conversion, amount				$ 144,700,000
Excess (shortfall) carrying value				$ 13,900,000
Amortization of financing costs						$ 0
Private Exchange Offer and Consent Solicitation | Payment in Kind (PIK) Note | 10% Senior Secured PIK Notes due 2021
Debt Instrument [Line Items]
Stated interest rate						10.00%
Excess (shortfall) carrying value			$ (600,000)			$ (500,000)
Amortization of financing costs						0
September Exchange and Consent Solicitation | Senior Notes | 10% Senior Unsecured Notes due 2017
Debt Instrument [Line Items]
Debt conversion, original debt, amount			$ 113,000,000
Debt conversion, original debt, percent of total			83.00%
Long-term debt			$ 22,700,000
Repayments of debt						22,800,000
Gain on extinguishment of debt			0
September Exchange and Consent Solicitation | Senior Notes | 10% Senior Secured Notes due 2021
Debt Instrument [Line Items]
Debt conversion, original debt, amount			$ 130,500,000
Debt conversion, original debt, percent of total			90.00%
Long-term debt			$ 14,200,000
September Exchange and Consent Solicitation | Payment in Kind (PIK) Note | 10% Senior Secured PIK Notes due 2021
Debt Instrument [Line Items]
Debt conversion, amount			$ 243,500,000
Number of interest payments with variable rate | payment			3
Common Stock | Private Exchange Offer and Consent Solicitation
Debt Instrument [Line Items]
Debt conversion, shares issued | shares			3.5	1.1
PIK Interest | September Exchange and Consent Solicitation | Payment in Kind (PIK) Note | 10% Senior Secured PIK Notes due 2021
Debt Instrument [Line Items]
Stated interest rate			1.00%
Basis spread on variable rate			9.00%
Term Loan | Line of Credit
Debt Instrument [Line Items]
Principal amount					30,000,000	30,000,000
Long-term debt					27,963,000	28,131,000
Excess (shortfall) carrying value					0	0
Deferred finance costs, net					$ (2,037,000)	(1,869,000)
Term Loan | Line of Credit | Loan Agreement
Debt Instrument [Line Items]
Stated interest rate		10.00%
Long-term debt						$ 30,000,000
First priority lien as percent of total value of oil and gas properties		90.00%
Borrowing availability period		3 years
Maximum borrowing capacity		$ 50,000,000
Covenant compliance, present value of estimated future net revenues, discount percent		10.00%
Covenant compliance, ratio of present value of estimated future net revenues to sum of outstanding term loans and commitments						2

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Long-Term Debt - Face Value to Carrying Value Reconciliation (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Debt Instrument [Line Items]
Face Value	$ 284,473	$ 272,629
Senior Notes | 10% Senior Secured Notes due 2021
Debt Instrument [Line Items]
Face Value	9,427	9,427
Unamortized Deferred Financing Costs	(201)	(212)
Excess (Shortfall) Carrying Value	562	606
Carrying Value	9,788	9,821
Payment in Kind (PIK) Note | 10% Senior Secured PIK Notes due 2021
Debt Instrument [Line Items]
Face Value	275,046	263,202
Unamortized Deferred Financing Costs	0	0
Excess (Shortfall) Carrying Value	(483)	(508)
Accrued PIK Interest	0	8,883
Carrying Value	274,563	271,577
Line of Credit | Term Loan
Debt Instrument [Line Items]
Face Value	30,000	30,000
Unamortized Deferred Financing Costs	(1,869)	(2,037)
Excess (Shortfall) Carrying Value	0	0
Carrying Value	$ 28,131	$ 27,963

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Asset Retirement Obligation (Details) - USD ($) $ in Thousands		3 Months Ended
	Jan. 31, 2018	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Changes to the Company's asset retirement obligation liability
Asset retirement obligation, beginning of period		$ 31,310	$ 36,610
Liabilities incurred		7	13
Liabilities settled		(57)	(540)
Accretion expense		198	547
Revisions in estimates		(2)	(381)
Divestiture of oil and gas properties		(28,214)	0
Asset retirement obligation, end of period		3,242	36,249
Less: current portion of asset retirement obligation		(938)	(3,291)	$ (687)
Long-term asset retirement obligation		$ 2,304	$ 32,958	$ 30,623
Gulf Of Mexico Properties
Changes to the Company's asset retirement obligation liability
Divestiture of oil and gas properties	$ (28,200)

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Derivative Instruments - Commodity Derivative Instruments (Details) - Swap - 2018 - Crude Oil:	3 Months Ended
	Mar. 31, 2018 MBbls $ / shares
Oil and gas contracts
Daily Volumes | MBbls	0.250
Weighted Average Price | $ / shares	$ 55.00

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Derivative Instruments - Fair Value of Effective Cash Flow Hedges (Details 1) - Commodity Derivatives - Designated as Hedging Instrument - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Derivative asset
Derivatives, Fair Value [Line Items]
Derivative asset		$ 1,174
Derivative liability
Derivatives, Fair Value [Line Items]
Derivative liability	$ (718)	$ (731)

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Derivative Instruments - Effect of Cash Flow Hedges on the Statement of Operations (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Other Comprehensive Income	$ (996)	$ 3,188
Designated as Hedging Instrument
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Other Comprehensive Income	(545)	2,867
Designated as Hedging Instrument | Oil and gas sales
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Reclassified into Oil and Gas Sales	$ 540	$ (321)

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Derivative Instruments - Textual (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Derivatives, Fair Value [Line Items]
Accumulated other comprehensive income (loss)	$ (718,000)		$ 278,000
Gain (loss) to be reclassified	(500,000)
Gas hedges
Derivatives, Fair Value [Line Items]
Gain or loss recognized in oil and gas contracts	804,000	$ (321,000)
Oil hedges
Derivatives, Fair Value [Line Items]
Gain or loss recognized in oil and gas contracts	$ (264,000)	$ 0

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Fair Value Measurements (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Net valuation of the Company's derivatives subject to fair value measurement on a recurring basis
Face Value	$ 284,473	$ 272,629
Senior Notes | 10% Senior Secured Notes due 2021
Net valuation of the Company's derivatives subject to fair value measurement on a recurring basis
Face Value	9,427	9,427
Payment in Kind (PIK) Note | 10% Senior Secured PIK Notes due 2021
Net valuation of the Company's derivatives subject to fair value measurement on a recurring basis
Face Value	275,046	263,202
Fair Value
Net valuation of the Company's derivatives subject to fair value measurement on a recurring basis
Long-term debt, fair value	226,999	206,023
Fair Value | Senior Notes | 10% Senior Secured Notes due 2021
Net valuation of the Company's derivatives subject to fair value measurement on a recurring basis
Long-term debt, fair value	7,580	7,306
Fair Value | Payment in Kind (PIK) Note | 10% Senior Secured PIK Notes due 2021
Net valuation of the Company's derivatives subject to fair value measurement on a recurring basis
Long-term debt, fair value	219,419	198,717
Carrying Value
Net valuation of the Company's derivatives subject to fair value measurement on a recurring basis
Long-term debt, fair value	284,351	281,398
Carrying Value | Senior Notes | 10% Senior Secured Notes due 2021
Net valuation of the Company's derivatives subject to fair value measurement on a recurring basis
Long-term debt, fair value	9,788	9,821
Carrying Value | Payment in Kind (PIK) Note | 10% Senior Secured PIK Notes due 2021
Net valuation of the Company's derivatives subject to fair value measurement on a recurring basis
Long-term debt, fair value	274,563	271,577
Quoted Prices in Active Markets (Level 1)
Derivatives, Fair Value [Line Items]
Commodity derivatives at fair value	0	0
Significant Other Observable Inputs (Level 2)
Derivatives, Fair Value [Line Items]
Commodity derivatives at fair value	(718)	443
Significant Unobservable Inputs (Level 3)
Derivatives, Fair Value [Line Items]
Commodity derivatives at fair value	$ 0	$ 0

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Income Taxes (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Income Tax Disclosure [Abstract]
Cumulative loss period	3 years
Valuation allowance	$ 116.3	$ 115.9
Tax Cuts And Jobs Act Of 2017, incomplete accounting, change in tax rate, provisional income tax expense (benefit)	$ 64.9

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Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Accumulated other Comprehensive Income [Roll Forward]
Beginning balance	$ (248,935)
Other comprehensive income before reclassifications:
Change in fair value of derivatives	(545)	$ 2,867
Income tax effect	0	0
Net of tax	(545)	2,867
Amounts reclassified from accumulated other comprehensive loss:
Oil and gas sales	(540)	321
Income tax effect	89	0
Net of tax	(451)	321
Net other comprehensive income (loss)	(996)	3,188
Ending balance	(251,809)
Gains and Losses on Cash Flow Hedges
Accumulated other Comprehensive Income [Roll Forward]
Beginning balance	278	(2,983)
Other comprehensive income before reclassifications:
Change in fair value of derivatives	(545)	2,867
Income tax effect	131	(1,066)
Net of tax	(414)	1,801
Amounts reclassified from accumulated other comprehensive loss:
Oil and gas sales	(540)	321
Income tax effect	130	(120)
Net of tax	(410)	201
Net other comprehensive income (loss)	(824)	2,002
Ending balance	(546)	(981)
Change in Valuation Allowance
Accumulated other Comprehensive Income [Roll Forward]
Beginning balance	0	(1,767)
Other comprehensive income before reclassifications:
Change in fair value of derivatives	0	0
Income tax effect	(131)	1,066
Net of tax	(131)	1,066
Amounts reclassified from accumulated other comprehensive loss:
Oil and gas sales	0	0
Income tax effect	(41)	120
Net of tax	(41)	120
Net other comprehensive income (loss)	(172)	1,186
Ending balance	(172)	(581)
Total
Accumulated other Comprehensive Income [Roll Forward]
Beginning balance	278	(4,750)
Amounts reclassified from accumulated other comprehensive loss:
Ending balance	$ (718)	$ (1,562)

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Recently Issued Accounting Standards (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Disaggregation of Revenue [Line Items]
Revenue receivable	$ 7,847		$ 15,340
Revenue	24,917	$ 20,772
Oil production
Disaggregation of Revenue [Line Items]
Revenue receivable	2,200
Revenue	6,322	6,871
Natural gas production
Disaggregation of Revenue [Line Items]
Revenue receivable	4,300
Revenue	14,884	10,662
Natural gas liquids production
Disaggregation of Revenue [Line Items]
Revenue receivable	1,300
Revenue	$ 3,711	$ 3,239
Minimum
Disaggregation of Revenue [Line Items]
Revenue recognized, period	1 month
Maximum
Disaggregation of Revenue [Line Items]
Revenue recognized, period	2 months