8-K 1 h29724e8vk.htm PETROQUEST ENERGY, INC. e8vk
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 8-K
Current Report
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
October 28, 2005
 
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)
Commission File Number: 0-019020
Registrant’s telephone number, including area code: (337) 232-7028
     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

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Item 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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Item 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On October 28, 2005, PetroQuest Energy, Inc. (the “Company”) announced net income for the quarter ended September 30, 2005 of $5,045,000 or $0.10 per share, compared to third quarter 2004 net income of $3,940,000 or $0.08 per share. Net cash flow provided by operating activities before working capital changes for the third quarter of 2005 was $19,115,000, as compared to $16,330,000 for the comparable 2004 period. Net cash flow provided by operating activities for the quarters ended September 30, 2005 and 2004 totaled $30,187,000 and $25,935,000, respectively. For the first nine months of 2005, the Company reported net income of $13,097,000 or $0.27 per share. The Company reported net income of $11,349,000 or $0.25 per share for the first nine months of 2004. For the first nine months of 2005, net cash flow provided by operating activities before working capital changes was $55,474,000. Net cash flow provided by operating activities before working capital changes for the first nine months of 2004 was $46,163,000. For the nine months ended September 30, 2005 and 2004, net cash flow provided by operating activities totaled $63,377,000 and $49,472,000, respectively. A reconciliation of net cash flow provided by operating activities to net cash flow provided by operating activities before working capital changes is attached in this release.
Oil and gas sales during the third quarter of 2005 increased 37% to $30,859,000 as compared to $22,516,000 in the third quarter of 2004. For the first nine months of 2005, sales increased 33% to $82,508,000 from $62,084,000 in the first nine months of 2004. On an Mcfe basis, production for the quarter and nine months ended September 30, 2005 increased 2% and 10% over the respective 2004 periods. Stated on an Mcfe basis, unit prices received during the third quarter and first nine months of 2005 were 34% and 20% higher, respectively, than the prices received during the comparable 2004 periods.
Lease operating expenses for the third quarter of 2005 increased 57% to $1.70 per Mcfe from $1.08 per Mcfe in the third quarter of 2004. For the first nine months of 2005, lease operating expenses increased 46% to $1.31 per Mcfe from $0.90 per Mcfe in the comparable period of 2004. The increase in lease operating expenses during the current year was the result of the increase in the number of producing wells, a general increase in field service costs and the major hurricanes during the current year. Depreciation, depletion and amortization on oil and gas properties for the third quarter of 2005 increased 3% to $2.59 per Mcfe from $2.52 per Mcfe in the third quarter of 2004. For the first nine months of 2005, depreciation, depletion and amortization on oil and gas properties increased 2% to $2.53 per Mcfe from $2.48 per Mcfe for the comparable period of 2004.
Drilling Update
During the quarter, PetroQuest operated the drilling and completion of three more wells in its Southeast Carthage Field which brings the 2005 total to nine wells drilled and completed in this field. Additionally, PetroQuest operated the drilling and completion of 14 coal bed methane wells in the Arkoma Basin, and participated in 10 additional successful non-operated coal bed methane wells. During the first nine months of 2005, PetroQuest has participated in 43 wells in the Arkoma Basin. Since entering East Texas and the Arkoma Basin, PetroQuest has achieved a 100% success rate in both areas.
As previously announced, the Company is completing its Pebble Beach Prospect in the Gulf of Mexico. The well is expected to begin producing during late December at a gross rate of approximately 15,000 Mcfe per day. PetroQuest owns an approximate 27% NRI in the well. Hurricanes Katrina and Rita have delayed the initial production of this prospect.
Drilling continues in the Company’s 10 to 15 well 2005 program in Southeast Carthage Field with two rigs currently running, and the 60 well 2005 program in the Arkoma Basin. The Company plans to keep two operated rigs in the Arkoma Basin during the fourth quarter and plans to participate in multiple outside operated wells. The Company is currently drilling its Pelican Point Prospect (25% working interest), its Chicory Prospect (38% working interest) and its Cayenne Prospect (50% working interest) in

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South Louisiana. The Company is drilling its Poppy Hills Prospect (25% working interest) in the Gulf of Mexico.
The Company expects to resume drilling on its Oakbourne Prospect (20% working interest) during the fourth quarter of 2005.
The following table sets forth certain information with respect to the oil and gas operations of the Company for the three- and nine-month periods ended September 30, 2005 and 2004:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2005     2004     2005     2004  
Production:
                                
Oil (Bbls)
     138,013       218,906       536,568       643,437  
Gas (Mcf)
     3,046,211       2,481,218       8,547,834       6,803,269  
Total Production (Mcfe)
     3,874,289       3,794,654       11,767,242       10,663,891  
 
                                
Sales:
                                
Total oil sales
   $ 6,711,423     $ 8,013,842     $ 24,331,122     $ 22,324,568  
Total gas sales
   $ 24,147,980     $ 14,502,074     $ 58,176,498     $ 39,759,829  
 
                        
Total oil and gas sales
   $ 30,859,403     $ 22,515,916     $ 82,507,620     $ 62,084,397  
 
                                
Average sales prices:
                                
(Including hedges)
                                
Oil (per Bbl)
   $ 48.63     $ 36.61     $ 45.35     $ 34.70  
Gas (per Mcf)
   $ 7.93     $ 5.84     $ 6.81     $ 5.84  
Per Mcfe
   $ 7.97     $ 5.93     $ 7.01     $ 5.82  
The above sales and average sales prices include reductions related to gas hedges of $1,563,000 and $119,000 and oil hedges of $1,688,000 and $1,295,000 for the three months ended September 30, 2005 and 2004, respectively. The above sales and average sales prices include reductions related to gas hedges of $2,641,000 and $486,000 and oil hedges of $4,029,000 and $2,468,000 for the nine months ended September 30, 2005 and 2004, respectively.

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The following initiates guidance for the fourth quarter of 2005:
     
    Guidance for
Description   4th Quarter 2005
Production volumes (MMcfe/d)
   40 - 45
 
    
Percent gas
   73%
 
    
Expenses:
    
Lease operating expenses (per Mcfe)
   $1.60 - $1.70
Production taxes (per Mcfe)
   $0.45 - $0.55
Depreciation, depletion and amortization (per Mcfe)
   $2.60 - $2.70
General and administrative (in millions)
   $2.0 - $2.5
Interest expense (in millions)
   $3.4 - $3.6
 
    
Effective tax rate (all deferred)
   35%
The following updates guidance for the year ended December 31, 2005:
     
    Guidance for
Description   Full year 2005
Production volumes (MMcfe/d)
   40 - 45
 
    
Percent gas
   73%
 
    
Expenses:
    
Lease operating expenses (per Mcfe)
   $1.40 - $1.50
Production taxes (per Mcfe)
   $0.25 - $0.35
Depreciation, depletion and amortization (per Mcfe)
   $2.60 - $2.70
General and administrative (in millions)
   $7.0 - $7.5
 
Interest expense (in millions)
   $12 - $13 (1)
 
    
Effective tax rate (all deferred)
   35%
 
(1)   Includes a $2.4 million pre-tax charge related to the write-off of deferred financing costs in conjunction with the notes offering consummated during the second quarter.
Conference call
Company management will be hosting a conference call with investors that will be broadcast live over the Internet on October 28, 2005 at 9:30 a.m. Eastern time. To access this call, log on to the Company’s website at www.petroquest.com.
About the Company
PetroQuest Energy, Inc. is an independent energy company engaged in the exploration, development, acquisition and production of oil and natural gas reserves in the Gulf Coast Basin, Texas and Oklahoma. PetroQuest trades on the Nasdaq National Market under the ticker symbol “PQUE.”
Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to certain risks, trends and uncertainties that could cause

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actual results to differ materially from those projected. Among those risks, trends and uncertainties are our estimate of the sufficiency of our existing capital sources, our ability to raise additional capital to fund cash requirements for future operations, the uncertainties involved in estimating quantities of proved oil and natural gas reserves, in prospect development and property acquisitions and in projecting future rates of production, the timing of development expenditures and drilling of wells, and the operating hazards attendant to the oil and gas business. In particular, careful consideration should be given to cautionary statements made in the various reports PetroQuest has filed with the Securities and Exchange Commission. PetroQuest undertakes no duty to update or revise these forward-looking statements.

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PETROQUEST ENERGY, INC.
Consolidated Statements of Income
(unaudited)
(Amounts in Thousands, Except Per Share Data)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2005     2004     2005     2004  
Revenues:
                                
Oil and gas sales
   $ 30,859     $ 22,516     $ 82,508     $ 62,084  
Interest and other income
     522       56       895       187  
 
                        
 
     31,381       22,572       83,403       62,271  
 
                        
 
                                
Expenses:
                                
Lease operating expenses
     6,601       4,087       15,448       9,593  
Production taxes
     1,081       300       2,217       1,164  
Depreciation, depletion and amortization
     10,485       9,701       30,539       26,774  
General and administrative
     1,571       1,589       5,079       4,716  
Accretion of asset retirement obligation
     424       210       829       611  
Interest expense
     3,456       622       9,141       1,968  
Derivative expense
     —       2       —       2  
 
                        
 
     23,618       16,511       63,253       44,828  
 
                        
 
                                
Income from operations
     7,763       6,061       20,150       17,443  
 
                                
Income tax expense
     2,718       2,121       7,053       6,094  
 
                        
 
                                
Net income
   $ 5,045     $ 3,940     $ 13,097     $ 11,349  
 
                        
 
                                
Earnings per common share:
                                
Basic
   $ 0.11     $ 0.09     $ 0.28     $ 0.25  
 
                        
 
                                
Diluted
   $ 0.10     $ 0.08     $ 0.27     $ 0.25  
 
                        
 
                                
Weighted average number of common shares:
                                
Basic
     47,213       44,631       46,514       44,593  
 
                        
Diluted
     48,576       46,905       48,086       46,243  
 
                        

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PETROQUEST ENERGY, INC.
Consolidated Balance Sheets
(unaudited)
(Amounts in Thousands)
                 
    September 30,     December 31,  
    2005     2004  
ASSETS
                
Current assets:
                
Cash and cash equivalents
   $ 39,844     $ 1,529  
Oil and gas revenue receivable
     12,521       9,392  
Joint interest billing receivable
     10,221       3,655  
Other current assets
     6,990       1,017  
 
            
Total current assets
     69,576       15,593  
 
            
 
                
Oil and gas properties:
                
Oil and gas properties, full cost method
     477,661       363,756  
Unevaluated oil and gas properties
     39,608       16,380  
Accumulated depreciation, depletion and amortization
     (198,072 )     (168,453 )
 
            
Oil and gas properties, net
     319,197       211,683  
 
            
 
                
Other assets, net of accumulated depreciation and amortization of $10,615 and $5,967, respectively
     15,204       4,341  
 
            
 
                
Total assets
   $ 403,977     $ 231,617  
 
            
 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
 
                
Current liabilities:
                
Accounts payable to vendors
   $ 27,776     $ 24,176  
Advances from co-owners
     8,993       2,265  
Hedging liability
     30,329       4,536  
Oil and gas revenue payable
     11,839       2,930  
Accrued interest on 10 3/8% Senior Notes
     6,016       —  
Other accrued liabilities
     8,918       6,115  
 
            
Total current liabilities
     93,871       40,022  
 
            
Bank debt
     —       38,500  
10 3/8% Senior Notes
     148,294       —  
Asset retirement obligation
     18,338       15,238  
Deferred income taxes
     13,792       14,606  
Long-term hedging liability
     4,724       1,974  
Other accrued liabilities
     227       —  
 
                
Commitments and contingencies
     —       —  
 
                
Stockholders’ equity:
                
Common stock, $.001 par value; authorized 75,000 shares; issued and outstanding 47,291 and 44,685 shares, respectively
     47       45  
Paid-in capital
     117,352       112,387  
Accumulated other comprehensive loss
     (18,841 )     (4,231 )
Retained earnings
     26,173       13,076  
 
            
Total stockholders’ equity
     124,731       121,277  
 
            
 
                
Total liabilities and stockholders’ equity
   $ 403,977     $ 231,617  
 
            

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PETROQUEST ENERGY, INC.
Consolidated Statements of Cash Flows
(unaudited)
(Amounts in Thousands)
                 
    Nine Months Ended  
    September 30,  
    2005     2004  
Cash flows from operating activities:
                
Net income
   $ 13,097     $ 11,349  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Deferred tax expense
     7,053       6,094  
Depreciation, depletion and amortization
     30,539       26,774  
Accretion of asset retirement obligation
     829       611  
Amortization of debt issuance costs
     1,239       1,232  
Compensation expense
     213       272  
Write-off of debt issuance costs
     2,439       —  
Amortization of bond discount
     65       —  
Derivative mark to market
     —       (169 )
Changes in working capital accounts:
                
Accounts receivable
     (3,129 )     (1,057 )
Joint interest billing receivable
     (6,566 )     (1,296 )
Other assets
     (6,290 )     (115 )
Accounts payable and accrued liabilities
     17,160       7,171  
Advances from co-owners
     6,728       (1,394 )
 
            
 
                
Net cash provided by operating activities
     63,377       49,472  
 
            
 
                
Cash flows from investing activities:
                
Investment in gas gathering assets
     (9,650 )     —  
Investment in oil and gas properties
     (124,532 )     (42,360 )
 
            
 
                
Net cash used in investing activities
     (134,182 )     (42,360 )
 
            
 
                
Cash flows from financing activities:
                
Proceeds from exercise of options
     883       170  
Proceeds from bank borrowings
     34,500       13,000  
Repayment of bank borrowings
     (73,000 )     (19,500 )
Proceeds from issuance of 10 3/8% senior notes
     148,229       —  
Deferred financing costs
     (5,543 )     (358 )
Issuance of common stock, net of expenses
     4,051       —  
 
            
 
                
Net cash provided by (used in) financing activities
     109,120       (6,688 )
 
            
 
                
Net increase in cash and cash equivalents
     38,315       424  
Cash and cash equivalents, beginning of period
     1,529       779  
 
            
 
                
Cash and cash equivalents, end of period
   $ 39,844     $ 1,203  
 
            
 
                
Supplemental disclosure of cash flow information:
                
Cash paid during the period for:
                
Interest
   $ 1,593     $ 1,250  
 
            
Income taxes
   $ —     $ —  
 
            

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Non-GAAP Disclosure Reconciliation
(Amounts In Thousands)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2005     2004     2005     2004  
Net cash flow provided by operating activities
   $ 30,187     $ 25,935     $ 63,377     $ 49,472  
Changes in working capital accounts
     (11,072 )     (9,605 )     (7,903 )     (3,309 )
 
                        
Net cash flow provided by operating activities before working capital changes
   $ 19,115     $ 16,330     $ 55,474     $ 46,163  
 
                        
 
Note:    Management believes that net cash flow provided by operating activities before working capital changes is relevant and useful information, which is commonly used by analysts, investors and other interested parties in the oil and gas industry as a financial indicator of an oil and gas company’s ability to generate cash used to internally fund exploration and development activities and to service debt. Net cash flow provided by operating activities before working capital changes is not a measure of financial performance prepared in accordance with generally accepted accounting principles (“GAAP”) and should not be considered in isolation or as an alternative to net cash flow provided by operating activities. In addition, since net cash flow provided by operating activities before working capital changes is not a term defined by GAAP, it might not be comparable to similarly titled measures used by other companies.

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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: October 28, 2005
  By:   /s/ Daniel G. Fournerat
 
       
 
      Daniel G. Fournerat
 
      Senior Vice President, General Counsel and Secretary

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