-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F2KUcxOeavz+q8I97vo44nWb2RRaW3nL+rXLszw1FtV0cbE7zaW4roOV/vijonGd xaiHd+jcM0fWVIPgxgeP+w== 0000950134-02-008958.txt : 20020802 0000950134-02-008958.hdr.sgml : 20020802 20020802114747 ACCESSION NUMBER: 0000950134-02-008958 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PETROQUEST ENERGY INC CENTRAL INDEX KEY: 0000872248 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 980115468 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19020 FILM NUMBER: 02718007 BUSINESS ADDRESS: STREET 1: 400 E KALISTE SALOOM RD SUITE 6000 CITY: LAFAYETTE STATE: LA ZIP: 70508 BUSINESS PHONE: 3372327028 MAIL ADDRESS: STREET 1: 600 595 HOWE ST CITY: VANCOUVER BC CANADA STATE: A1 ZIP: V6C 2T5 FORMER COMPANY: FORMER CONFORMED NAME: OPTIMA PETROLEUM CORP DATE OF NAME CHANGE: 19950726 10-Q 1 d98658e10vq.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2002 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: June 30, 2002 [ ] 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: 019020 ---------- 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 ------- ------- As of July 31, 2002, there were 37,852,394 shares of the registrant's common stock, par value $.001 per share, outstanding. 1 PETROQUEST ENERGY, INC. Table of Contents
Part I. Financial Information Page No. Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001..................................................... 3 Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2001...................................... 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001................................................ 5 Notes to Consolidated Financial Statements.................................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................... 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................. 12 Part II. Other Information Item 1. Legal Proceedings........................................................................... 12 Item 2. Changes in Securities and Use of Proceeds................................................... 12 Item 3. Defaults upon Senior Securities............................................................. 12 Item 4. Submission of Matters to a Vote of Security Holders........................................ 12 Item 5. Other Information........................................................................... 13 Item 6. Exhibits and Reports on Form 8-K............................................................ 13
2 PETROQUEST ENERGY, INC. Consolidated Balance Sheets (Amounts in Thousands)
June 30, December 31, 2002 2001 ------------ ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents $ 847 $ 1,063 Oil and gas revenue receivable 4,939 5,582 Joint interest billing receivable 1,536 4,609 Other current assets 767 135 ------------ ------------ Total current assets 8,089 11,389 ------------ ------------ Oil and gas properties: Oil and gas properties, full cost method 181,495 150,726 Unevaluated oil and gas properties 14,447 14,682 Accumulated depreciation, depletion and amortization (95,210) (64,379) ------------ ------------ Oil and gas properties, net 100,732 101,029 ------------ ------------ Plugging and abandonment escrow 715 1,034 Other assets, net of accumulated depreciation and amortization of $2,524 and $2,144, respectively 1,417 1,187 ------------ ------------ Total assets $ 110,953 $ 114,639 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 18,152 $ 19,749 Advances from co-owners 2,337 2,044 Current portion of long-term debt 4,600 329 ------------ ------------ Total current liabilities 25,089 22,122 ------------ ------------ Long-term debt 4,400 19,000 Debt subsequently refinanced -- 14,000 Deferred income taxes 4,696 4,690 Other liabilities 555 612 Commitments and contingencies -- -- Stockholders' equity: Common stock, $.001 par value; authorized 75,000 shares; issued and outstanding 37,851 and 32,530 shares, respectively 38 33 Paid-in capital 86,013 64,083 Other comprehensive income -- -- Unearned deferred compensation (510) (682) Accumulated deficit (9,328) (9,219) ------------ ------------ Total stockholders' equity 76,213 54,215 ------------ ------------ Total liabilities and stockholders' equity $ 110,953 $ 114,639 ============ ============
See accompanying Notes to Consolidated Financial Statements. 3 PETROQUEST ENERGY, INC. Consolidated Statements of Operations (unaudited) (Amounts in Thousands, Except Per Share Data)
Three Months Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Revenues: Oil and gas sales $ 11,357 $ 14,590 $ 21,866 $ 26,935 Interest and other income (255) 298 (268) 506 ---------- ---------- ---------- ---------- 11,102 14,888 21,598 27,441 ---------- ---------- ---------- ---------- Expenses: Lease operating expenses 2,404 1,908 4,752 3,156 Production taxes 120 243 322 505 Depreciation, depletion and amortization 6,627 4,848 13,722 8,190 General and administrative 1,542 1,255 2,743 1,916 Interest expense 17 517 227 983 ---------- ---------- ---------- ---------- 10,710 8,771 21,766 14,750 ---------- ---------- ---------- ---------- Income (loss) from operations 392 6,117 (168) 12,691 Income tax expense (benefit) 137 2,263 (59) 4,696 Net income (loss) $ 255 $ 3,854 $ (109) $ 7,995 ========== ========== ========== ========== Earnings (loss) per common share: Basic $ 0.01 $ 0.12 $ 0.00 $ 0.26 ========== ========== ========== ========== Diluted $ 0.01 $ 0.11 $ 0.00 $ 0.24 ========== ========== ========== ========== Weighted average number of common shares: Basic 37,883 31,737 36,287 31,125 ========== ========== ========== ========== Diluted 40,188 34,376 36,287 33,637 ========== ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements. 4 PETROQUEST ENERGY, INC. Consolidated Statements of Cash Flows (unaudited) (Amounts in Thousands)
Six Months Ended June 30, -------------------------- 2002 2001 ---------- ---------- Cash flows from operating activities: Net income (loss) $ (109) $ 7,995 Adjustments to reconcile net income to net cash provided by operating activities: Deferred tax expense (benefit) (59) 4,696 Depreciation, depletion and amortization 13,722 8,190 Amortization of debt issuance costs 169 851 Compensation expense 172 180 Derivative mark to market 240 (294) Changes in working capital accounts: Accounts receivable 643 (2,367) Joint interest billing receivable 3,073 5,134 Other assets (612) (697) Accounts payable and accrued liabilities (2,996) (3,132) Advances from co-owners 293 (4,083) Plugging and abandonment escrow 319 (120) Other (687) 364 ---------- ---------- Net cash provided by operating activities 14,168 16,717 ---------- ---------- Cash flows from investing activities: Investment in oil and gas properties (29,376) (36,448) Sale of oil and gas properties, net 17,321 -- ---------- ---------- Net cash used in investing activities (12,055) (36,448) ---------- ---------- Cash flows from investing activities: Exercise of options and warrants 173 491 Proceeds from borrowings 8,000 14,500 Repayment of debt (32,329) (1,463) Issuance of common stock, net of expenses 21,827 -- ---------- ---------- Net cash provided by (used in) financing activities (2,329) 13,528 ---------- ---------- Net decrease in cash and cash equivalents (216) (6,203) Cash balance and cash equivalents, beginning of period $ 1,063 $ 7,549 ========== ========== Cash balance and cash equivalents, end of period $ 847 $ 1,346 ========== ========== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 425 $ 637 ========== ========== Income taxes $ -- $ -- ========== ==========
See accompanying Notes to Consolidated Financial Statements. 5 PETROQUEST ENERGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 BASIS OF PRESENTATION The consolidated financial information for the three- and six-month periods ended June 30, 2002 and 2001, respectively, have been prepared by the Company and was not audited by its independent 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 June 30, 2002 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. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Unless the context otherwise indicates, any references in this Quarterly Report on Form 10-Q to "PetroQuest" or the "Company" refer to PetroQuest Energy, Inc. (Delaware) and its wholly-owned consolidated subsidiaries, PetroQuest Energy, L.L.C. (a single member Louisiana limited liability company) and PetroQuest Oil & Gas, L.L.C. (a single member Louisiana limited liability company). Certain reclassifications of prior year amounts have been made to conform with the current year presentation. NOTE 2 EARNINGS PER SHARE Basic earnings or loss per common share was computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the relevant periods. Diluted earnings or loss per common share is determined on a weighted average basis using common shares issued and outstanding adjusted for the effect of stock options considered common stock equivalents computed using the treasury stock method. For purposes of computing earnings per share in a loss period, common stock equivalents have been excluded from the computation of weighted average common shares outstanding because their effect is antidilutive. For the six months ended June 30, 2002, 3,476,749 of the Company's options and warrants were not included in the computation of diluted loss per share because the effect of the assumed exercise of these stock options as of the beginning of the year would have an antidilutive effect. Options to purchase 160,000 shares of common stock were outstanding during the three-month period ended June 30, 2002, but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market prices of the common shares during the periods. These options' exercise prices were between $6.25-$7.65 and expire in 2011. Options to purchase 80,000 and 192,500 shares of common stock were outstanding during the three- and six-month periods ended June 30, 2001, respectively, but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market prices of the common shares during the periods. These options' exercise prices were $7.65 and between $5.89-$7.65, respectively, and expire in 2011. NOTE 3 LONG-TERM DEBT PetroQuest and our subsidiary PetroQuest Energy, L.L.C. (the "Borrower") have a $100 million revolving credit facility with Hibernia National Bank, Royal Bank of Canada and Union Bank of California, N.A. which permits the Borrower to borrow amounts from time to time based on its available borrowing base as determined in the credit facility. The credit facility is secured by a mortgage on substantially all of the Borrower's oil and gas properties, a pledge of the membership interest of the Borrower and PetroQuest's corporate guarantee of the indebtedness of the Borrower. The borrowing base under this credit facility is based upon the valuation on March 31 and September 30 of the Borrower's mortgaged properties, projected oil and gas prices, and any other factors deemed relevant by the lenders. The Company or the lenders may also request additional borrowing base redeterminations. On April 30, 2002, the borrowing base under the credit facility was adjusted to $27 million and is subject to quarterly reductions of $5 million commencing on July 31, 2002. 6 Outstanding balances on the revolving credit facility bear interest at either the prime rate (plus 0.375% per year whenever the borrowing base usage under the credit facility is greater than or equal to 90%) or the Eurodollar rate plus a margin (based on a sliding scale of 1.625% to 2.375% depending on borrowing base usage). The credit facility also allows the Company to use up to $10 million of the borrowing base for letters of credit for fees of 2% per annum. At June 30, 2002, the Company had $9 million of borrowings and a $2.6 million letter of credit issued pursuant to the credit facility. The credit facility contains covenants and restrictions common to borrowings of this type, including maintenance of certain financial ratios. The Company was in compliance with all of its covenants at June 30, 2002. The credit facility matures on June 30, 2004. During the fourth quarter of 2001, the Company entered into three $5 million interest rate swaps covering its floating rate debt. The swaps which are for one, two and three year periods have fixed interest rates of 2.78%, 2.78%-4.56% and 3.05%-5.665%, respectively. The swaps are stated at their fair value and are marked-to-market through other income in the Company's income statement. At June 30, 2002, the Company recognized a liability of $301,000 related to these derivative instruments. NOTE 4 NEW ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations," which requires recording the fair value of a liability for an asset retirement obligation in the period incurred. The standard is effective for fiscal years beginning after June 15, 2002, with earlier application permitted. The Company expects to adopt this standard effective January 1, 2003. The Company has not completed an evaluation of the impact of this new standard. NOTE 5 EQUITY Other Comprehensive Income The following table presents a recap of the Company's comprehensive income for the three- and six-month periods ended June 30, 2002 and 2001 (in thousands):
Three Months Ended Six Months Ended June 30, June 30, --------------------- ---------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net income (loss) $ 255 $ 3,854 $ (109) $ 7,995 Cumulative effect of change in accounting principle, net of taxes -- 418 -- 35 Change in fair value of derivative instrument, accounted for as hedges, net of taxes 376 30 -- 438 -------- -------- -------- -------- Comprehensive income (loss) $ 631 $ 4,302 $ (109) $ 8,468
The Company accounts for derivatives in accordance with Statement of Financial Accounting Standards No. 133, as amended (SFAS 133). When the conditions specified in SFAS 133 are met, the Company may designate these derivatives as hedges. As of June 30, 2002, the Company had no open commodity hedging contracts. Unearned Deferred Compensation In April 2001, the original owners, (the "Original Owners") of American Explorer L.L.C. entered into an agreement with an officer of the Company whereby the Original Owners granted to the officer an option to acquire, at a fixed price, certain of the shares the Original Owners were issued in the September 1, 1998 merger and reorganization (the "Merger"). As the fixed price of the April grant was below the market price as of the date of grant, the Company is recognizing non-cash compensation expense over the three-year vesting period of the option. In addition, the Original Owners granted to the officer an interest in a portion of the 1,667,001 shares of common stock issuable pursuant to the Contingent Stock Issue Rights (the "CSIRs") issued to the Original Owners in the Merger, if any, 7 that might be issued. This agreement is similar to agreements previously entered into with two other officers of the Company. Non-cash compensation expense is being recognized for the common stock issuable pursuant to the CSIRs granted to the three officers over the three-year vesting period based on the fair value of the common stock issuable pursuant to the CSIRs in May 2001, when the common stock issuable pursuant to the CSIRs was issued to the Original Owners. The Company has recorded the effects of the transactions as deferred compensation until fully amortized. The Company recorded non-cash compensation expense of $86,000 and $172,000 during the quarter and six months ended June 30, 2002, respectively, which is included in general and administrative expense. The Company recorded non-cash compensation expense of $180,000 during the quarter and six months ended June 30, 2001. Public Offering During February and March 2002, the Company completed the offering of 5,193,600 shares of its common stock. The shares were sold to the public for $4.40 per share. After underwriting discounts, the Company realized proceeds of approximately $21.9 million. NOTE 6 DISPOSITION OF PROPERTY On March 1, 2002, the Company closed the sale of its interest in Valentine Field for $18.6 million. The transaction had an effective date of January 1, 2002. At December 31, 2001, the Company's independent reservoir engineering firm attributed 7.3 Bcfe of proved reserves net to the Company's interest in this field. Consistent with the full cost method of accounting, the Company did not recognize any gain or loss as a result of this sale. The proceeds were treated as a reduction of the full cost pool through an increase in accumulated depreciation, depletion and amortization. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL PetroQuest Energy, Inc. is an independent oil and gas company engaged in the exploration, development, acquisition and operation of oil and gas properties onshore and offshore in the Gulf Coast Region. The Company and its predecessors have been active in this area since 1986, which gives the Company extensive geophysical, technical and operational expertise in this area. The Company's business strategy is to increase production, cash flow and reserves through exploration, development and acquisition of properties located in the Gulf Coast Region. At June 30, 2002, the Company operated approximately 95% of all of its proved reserves. For the six months ended June 30, 2002, approximately 39% of the Company's equivalent production was oil and 61% was natural gas. RESULTS OF OPERATIONS The following table (unaudited) sets forth certain operating information with respect to our oil and gas operations for the periods noted:
Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ----------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Production: Oil (Bbls) 217,126 225,462 451,634 364,542 Gas (Mcf) 1,916,825 1,854,611 4,301,791 3,045,088 Total Production (Mcfe) 3,219,581 3,207,383 7,011,595 5,232,340 Sales: Total oil sales $ 5,539,229 $ 6,065,190 $ 10,392,670 $ 9,959,999 Total gas sales 5,817,365 8,524,812 11,472,862 16,975,026 Average sales prices: Oil (per Bbl) $ 25.51 $ 26.90 $ 23.01 $ 27.32 Gas (per Mcf) 3.03 4.60 2.67 5.57 Per Mcfe 3.53 4.55 3.12 5.15
Net income totaled $255,000 and $3,854,000 for the quarters ended June 30, 2002 and 2001, respectively. Net loss and income totaled $109,000 and $7,995,000 for the six-month periods ended June 30, 2002 and 2001, respectively. The results are attributable to the following components: PRODUCTION. Oil production in 2002 decreased and increased 4% and 24% over the second quarter and six months ended June 30, 2001, respectively. Natural gas production in 2002 increased 3% and 41% over the second quarter and six months ended June 30, 2001, respectively. On an Mcfe basis, production for the second quarter and six months remained flat and increased 34% over the same periods in 2001, respectively. The increase in production volumes for the six months ended June 30, 2002, as compared to 2001, was primarily due to our 77% drilling success rate during 2001. The decrease in production in the quarter ended June 30, 2002 as compared to the quarter ended March 31, 2002 was due to weather, third party pipeline mechanical problems, unscheduled repairs and maintenance, and certain well performance at the Ship Shoal 72 and Turtle Bayou fields. PRICES. Average oil prices per Bbl for the second quarter and six months ended June 30, 2002 were $25.51 and $23.01, respectively, as compared to $26.90 and $27.32, respectively, for the same periods in 2001. Average gas prices per Mcf were $3.03 and $2.67, respectively, for the second quarter and six months ended June 30, 2002, as compared to $4.60 and $5.57, respectively, for the same periods in 2001. Stated on a Mcfe basis, unit prices 9 received during the second quarter and six months of 2002 were 22% and 39% lower, respectively, than the prices received during the comparable 2001 periods. REVENUE. Oil and gas sales during the second quarter and six months ended June 30, 2002 decreased to $11,357,000 and $21,866,000, respectively, as compared to sales of $14,590,000 and $26,935,000, respectively for the same periods in 2001. The decrease in commodity prices, partially offset by a growth in production volumes, resulted in a decrease in revenue. EXPENSES. Lease operating expenses for the second quarter and six months ended June 30, 2002 increased to $2,404,000 and $4,752,000, respectively, as compared to $1,908,000 and $3,156,000, respectively, for the second quarter and six months ended June 30, 2001. On a Mcfe basis, lease operating expenses for the second quarter and six months ended June 30, 2002 increased to $0.75 and $0.68, respectively, as compared to $0.59 and $0.60, respectively, for the same periods in 2001. The increases during the second quarter and six months ended June 30, 2002, as compared to the same periods in 2001 are primarily due to an increase in the repairs and maintenance at the Ship Shoal 72 Field. General and administrative expenses during the second quarter and six months ended June 30, 2002 totaled $1,542,000 and $2,743,000, respectively, as compared to expenses of $1,255,000 and $1,916,000, respectively, during the 2001 periods. The Company capitalized $1,043,000 and $1,968,000, respectively, of general and administrative costs during the quarter and six months ended June 30, 2002 as compared to $614,000 and $1,236,000, respectively in the comparable 2001 periods. The increase in general and administrative expenses is primarily due to an increase in staffing levels related to the generation of prospects, exploration for oil and gas reserves and operation of properties. Additionally, we have recognized $86,000 and $172,000, respectively, of non-cash compensation expense during the quarter and six months ended June 30, 2002. We recorded non-cash compensation expense of $180,000 during the quarter and six months ended June 30, 2001. Depreciation, depletion and amortization ("DD&A") expense for the three- and six-month periods ended June 30, 2002 increased 37% and 68%, respectively, from the 2001 periods. On a Mcfe basis, which reflects the changes in production, the DD&A rate for the second quarter of 2002 was $2.06 per Mcfe as compared to $1.51 per Mcfe for the same period in 2001. The DD&A rate for the six months ended June 30, 2002 was $1.96 per Mcfe compared to $1.57 per Mcfe for the same period in 2001. The increase in 2002 as compared to 2001 is due primarily to the significant capital and future development costs related to our offshore projects, as well as drilling costs in excess of previous estimates during the previous twelve months. Interest expense, net of amounts capitalized on unevaluated prospects, decreased $500,000 and $756,000 during the second quarter and six months ended June 30, 2002, respectively, as compared to same periods in 2001. The decreases are the result of a decrease in the average debt levels and interest rates during the current year. We capitalized $144,000 and $308,000 of interest during the three months ended June 30, 2002 and 2001, respectively, and $307,000 and $608,000 during the six months ended June 30, 2002 and 2001, respectively. Income tax expense (benefit) of $137,000 and $(59,000) was recognized during the second quarter and six months ended June 30, 2002, respectively, as compared to $2,263,000 and $4,696,000 during the same periods of 2001. The decreases are the result of a decrease in the operating profit during the current year. We provide for income taxes at a statutory rate of 35%. LIQUIDITY AND CAPITAL RESOURCES We have financed our exploration and development activities to date principally through cash flow from operations, bank borrowings, and private and public offerings of our common stock. Net cash flow from operations before working capital changes during the six-month periods ended June 30, 2002 decreased from $21,618,000 in 2001 to $14,135,000 in 2002. This decrease is primarily a result of decreases in commodity prices during 2002. These decreases in commodity prices caused lower revenues and operating cash flows during the current year. The working capital deficit (before considering debt) increased from $(10.4) million at December 31, 2001 to $(12.4) million at June 30, 2002. The increase in our working capital deficit is due to a decrease in our receivables as a result of lower commodity prices and higher capital expenditures resulting from increased drilling activity. 10 During February and March 2002, we completed the offering of 5,193,600 shares of our common stock. The shares were sold to the public for $4.40 per share. After underwriting discounts, we realized proceeds of approximately $21.9 million. On March 1, 2002, we closed the sale of our interest in Valentine Field for $18.6 million. The transaction had an effective date of January 1, 2002. At December 31, 2001, our independent reservoir engineering firm attributed 7.3 Bcfe of proved reserves net to our interest in this field. Consistent with the full cost method of accounting, we did not recognize any gain or loss as a result of this sale. The proceeds were treated as a reduction of the full cost pool. PetroQuest and our subsidiary PetroQuest Energy, L.L.C. (the "Borrower") have a $100 million revolving credit facility with Hibernia National Bank, Royal Bank of Canada and Union Bank of California, N.A. which permits us to borrow amounts from time to time based on our available borrowing base as determined in the credit facility. The credit facility is secured by a mortgage on substantially all of the Borrower's oil and gas properties, a pledge of the membership interest of the Borrower and PetroQuest's corporate guarantee of the indebtedness of the Borrower. The borrowing base under this credit facility is based upon the valuation on March 31 and September 30 of the Borrower's mortgaged properties, projected oil and gas prices, and any other factors deemed relevant by the lenders. We or the lenders may also request additional borrowing base redeterminations. On April 30, 2002, the borrowing base under the credit facility was adjusted to $27 million and is subject to quarterly reductions of $5 million commencing on July 31, 2002. Based on the results of our recently drilled wells, we expect that our borrowing base will be adjusted upward at the September 30, 2002 redetermination. As of August 2, 2002, the borrowing base under the credit facility was $22 million. Outstanding balances on the revolving credit facility bear interest at either the prime rate (plus 0.375% per year whenever the borrowing base usage under the credit facility is greater than or equal to 90%) or the Eurodollar rate plus a margin (based on a sliding scale of 1.625% to 2.375% depending on borrowing base usage). The credit facility also allows us to use up to $10 million of the borrowing base for letters of credit for fees of 2% per annum. At June 30, 2002, we had $9 million of borrowings and a $2.6 million letter of credit issued pursuant to the credit facility. The credit facility contains covenants and restrictions common to borrowings of this type, including maintenance of certain financial ratios. We were in compliance with all of our covenants at June 30, 2002. The credit facility matures on June 30, 2004. We have an exploration and development program budget for the year 2002 which will require significant capital. Our budget for direct capital for new projects in 2002 is approximately $45-50 million of which approximately $29 million has been incurred as of June 30, 2002. Our management believes the cash flows from operations and anticipated available borrowing capacity under our credit facility will be sufficient to fund remaining planned 2002 exploration and development activities. In the future, our exploration and development activities could require additional financings, which may include sales of additional equity or debt securities, additional bank borrowings, or joint venture arrangements with industry partners. There can be no assurances that such additional financings will be available on acceptable terms, if at all. If we are unable to obtain additional financing, we could be forced to delay or even abandon some of our exploration and development opportunities. DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS This 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 Company's estimate of the sufficiency of its existing capital sources, its 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 the Company has filed with the Securities and Exchange Commission. The Company undertakes no duty to update or revise these forward-looking statements. 11 When used in the 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 Discussions and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-Q. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company experiences market risks primarily in two areas: interest rates and commodity prices. The Company believes that its business operations are not exposed to significant market risks relating to foreign currency exchange risk. The Company's revenues are derived from the sale of its crude oil and natural gas production. Based on projected annual sales volumes for the remaining six months of 2002, a 10% change in the prices the Company receives for its crude oil and natural gas production would have an approximate $2.1 million impact on the Company's revenues. In a typical hedge transaction, the Company will have the right to receive from the counterparts 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, the Company is required to pay the counterparts this difference multiplied by the quantity hedged. The Company is required to pay the difference between the floating price and the fixed price (when the floating price exceeds the fixed price) regardless of whether the Company has 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 the Company to make payments under the hedge agreements even though such payments are not offset by sales of production. Hedging will also prevent the Company from receiving the full advantage of increases in oil or gas prices above the fixed amount specified in the hedge. The Company had no open commodity hedging contracts as of June 30, 2002. During the fourth quarter of 2001, we entered into three $5 million interest rate swaps covering our floating rate debt. The swaps which are for one, two and three year periods have fixed interest rates of 2.78%, 2.78%-4.56% and 3.05%-5.665%, respectively. The swaps are stated at their fair value and are marked-to-market through other income in our income statement. At June 30, 2002, the Company recognized a liability of $301,000 related to these derivative instruments. The Company also evaluated the potential effect that reasonably possible near term changes may have on the Company's credit facility. Debt outstanding under the facility is subject to a floating interest rate and represents 100% of the Company's total debt as of June 30, 2002. Based upon an analysis, utilizing the actual interest rate in effect and balances outstanding as of June 30, 2002 and assuming a 10% increase in interest rates and no changes in the amount of debt outstanding, the potential effect on interest expense for the remaining six months of 2002 is approximately $17,000. PART II Item 1. LEGAL PROCEEDINGS NONE. Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS NONE. Item 3. DEFAULTS UPON SENIOR SECURITIES NONE. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12 On April 30, 2002, an annual meeting of stockholders of the Company was held. The holders of 30,373,129 shares of Common Stock were present in person or represented by proxy at the meeting. At the meeting, the stockholders elected the following persons to serve as directors of the Company until the next annual meeting of stockholders, or until their successors are duly elected and qualified:
Number of Votes Number of Votes Name For Withheld - ---- -------------- --------------- Charles T. Goodson 28,225,359 2,147,770 Alfred J. Thomas, III 28,225,331 2,147,798 Ralph J. Daigle 28,225,331 2,147,798 Michael O. Aldridge 28,225,359 2,147,770 William W. Rucks, IV 30,211,824 161,305 Jay B. Langner 30,211,796 161,333 E. Wayne Nordberg 30,211,796 161,333
Item 5. OTHER INFORMATION NONE. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 99.1, Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 Exhibit 99.2, Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K: The Company filed a report on Form 8-K on April 8, 2002 relating to the move of its headquarters. The Company filed a report on Form 8-K on May 1, 2002 relating to first quarter 2002 results. 13 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: August 2, 2002 By: /s/ Michael O. Aldridge -------------------- --------------------------------- Michael O. Aldridge Senior Vice President, Chief Financial Officer and Treasurer (Authorized Officer and Principal Financial and Accounting Officer) 14 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 99.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 99.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-99.1 3 d98658exv99w1.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 EXHIBIT 99.1 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 period ending June 30, 2002 (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. Section 1350, as adopted pursuant to Section 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 August 2, 2002 EX-99.2 4 d98658exv99w2.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 EXHIBIT 99.2 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 period ending June 30, 2002 (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, I, Michael O. Aldridge, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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/ MICHAEL O. ALDRIDGE - -------------------------------------- Michael O. Aldridge Chief Financial Officer August 2, 2002 -----END PRIVACY-ENHANCED MESSAGE-----