-----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, LiA6FaTmArFH7kog9S1mv9VJEsd4aCVkbyfwvmhQWlXdZf4NbkcXqtU6mEy+jv26 E6FJxmh0IjGqdAWD2nwhTw== 0000950134-02-014260.txt : 20021114 0000950134-02-014260.hdr.sgml : 20021114 20021114091713 ACCESSION NUMBER: 0000950134-02-014260 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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: 02822004 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 d01267e10vq.txt FORM 10-Q 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: September 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 November 8, 2002, there were 42,852,394 shares of the registrant's common stock, par value $.001 per share, outstanding. 1 PETROQUEST ENERGY, INC. Table of Contents Page No. Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001................................................ 3 Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001................................. 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 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................................. 13 Item 4. Controls and Procedures.................................................................... 13 Part II. Other Information Item 1. Legal Proceedings........................................................................... 14 Item 2. Changes in Securities and Use of Proceeds................................................... 14 Item 3. Defaults upon Senior Securities............................................................. 14 Item 4. Submission of Matters to a Vote of Security Holders........................................ 14 Item 5. Other Information........................................................................... 14 Item 6. Exhibits and Reports on Form 8-K............................................................ 14
2 PETROQUEST ENERGY, INC. Consolidated Balance Sheets (Amounts in Thousands)
September 30, December 31, 2002 2001 ------------- ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents $ 616 $ 1,063 Oil and gas revenue receivable 4,213 5,582 Joint interest billing receivable 6,821 4,609 Other current assets 506 135 --------- --------- Total current assets 12,156 11,389 --------- --------- Oil and gas properties: Oil and gas properties, full cost method 201,598 150,726 Unevaluated oil and gas properties 15,069 14,682 Accumulated depreciation, depletion and amortization (101,007) (64,379) --------- --------- Oil and gas properties, net 115,660 101,029 --------- --------- Plugging and abandonment escrow 765 1,034 Other assets, net of accumulated depreciation and amortization of $2,684 and $2,144, respectively 1,320 1,187 --------- --------- Total assets $ 129,901 $ 114,639 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 27,170 $ 19,749 Advances from co-owners 3,920 2,044 Current portion of long-term debt -- 329 --------- --------- Total current liabilities 31,090 22,122 --------- --------- Long-term debt 7,400 19,000 Debt subsequently refinanced 8,600 14,000 Deferred income taxes 5,167 4,690 Other liabilities 555 612 Commitments and contingencies -- -- Stockholders' equity: Common stock, $.001 par value; authorized 75,000 shares; issued and outstanding 37,852 and 32,530 shares, respectively 38 33 Paid-in capital 85,987 64,083 Other comprehensive income (134) -- Unearned deferred compensation (424) (682) Accumulated deficit (8,378) (9,219) --------- --------- Total stockholders' equity 77,089 54,215 --------- --------- Total liabilities and stockholders' equity $ 129,901 $ 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 Nine Months Ended September 30, September 30, ------------------------ ------------------------ 2002 2001 2002 2001 -------- -------- -------- -------- Revenues: Oil and gas sales $ 11,220 $ 15,611 $ 33,085 $ 42,546 Interest and other income (196) (143) (462) 363 -------- -------- -------- -------- 11,024 15,468 32,623 42,909 -------- -------- -------- -------- Expenses: Lease operating expenses 2,487 1,984 7,240 5,140 Production taxes 119 317 441 822 Depreciation, depletion and amortization 5,916 7,223 19,638 15,413 General and administrative 1,016 1,264 3,758 3,179 Interest expense 25 699 252 1,682 -------- -------- -------- -------- 9,563 11,487 31,329 26,236 -------- -------- -------- -------- Income from operations 1,461 3,981 1,294 16,673 Income tax expense 511 1,473 453 6,170 -------- -------- -------- -------- Net income $ 950 $ 2,508 $ 841 $ 10,503 ======== ======== ======== ======== Earnings per common share: Basic $ 0.03 $ 0.08 $ 0.02 $ 0.33 ======== ======== ======== ======== Diluted $ 0.02 $ 0.07 $ 0.02 $ 0.31 ======== ======== ======== ======== Weighted average number of common shares: Basic 37,852 32,471 36,815 31,579 ======== ======== ======== ======== Diluted 39,820 34,875 38,575 33,602 ======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements. 4 PETROQUEST ENERGY, INC. Consolidated Statements of Cash Flows (unaudited) (Amounts in Thousands)
Nine Months Ended September 30, ------------------------ 2002 2001 -------- -------- Cash flows from operating activities: Net income $ 841 $ 10,503 Adjustments to reconcile net income to net cash provided by operating activities: Deferred tax expense 453 6,170 Depreciation, depletion and amortization 19,638 15,413 Amortization of debt issuance costs 209 1,294 Compensation expense 259 266 Derivative mark to market 429 (13) Changes in working capital accounts: Accounts receivable 1,370 (1,179) Joint interest billing receivable (2,213) 4,201 Other assets (673) (958) Accounts payable and accrued liabilities 4,695 (627) Advances from co-owners 1,877 (2,356) Plugging and abandonment escrow 268 (263) Other (428) 273 -------- -------- Net cash provided by operating activities 26,725 32,724 -------- -------- Cash flows from investing activities: Investment in oil and gas properties (49,169) (52,893) Sale of oil and gas properties, net 17,321 -- -------- -------- Net cash used in investing activities (31,848) (52,893) -------- -------- Cash flows from investing activities: Exercise of options and warrants 178 663 Proceeds from borrowings 15,000 25,000 Repayment of debt (32,329) (8,963) Issuance of common stock, net of expenses 21,827 -- -------- -------- Net cash provided by (used in) financing activities 4,676 16,700 -------- -------- Net decrease in cash and cash equivalents (447) (3,469) Cash balance and cash equivalents, beginning of period $ 1,063 $ 7,549 ======== ======== Cash balance and cash equivalents, end of period $ 616 $ 4,080 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 554 $ 1,086 ======== ======== 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 nine-month periods ended September 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 September 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 dilutive computed using the treasury stock method. Options to purchase 572,751 and 273,667 shares of common stock were outstanding during the three- and nine-month periods ended September 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 $4.95-$7.65 and between $5.56-$7.65, respectively, and expire in 2011-2012. Options to purchase 80,000 and 180,000 shares of common stock were outstanding during the three- and nine-month periods ended September 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 a group of three banks 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 September 30, 2002, the borrowing base under the credit facility was adjusted to $25 million and is subject to quarterly reductions of $5 million commencing on January 31, 2003. 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% 6 per annum. At September 30, 2002, the Company had $16 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 September 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 September 30, 2002, the Company recognized a liability of $490,000 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 with the associated asset retirement costs being capitalized as a part of the carrying amount of the long-lived asset. SFAS No. 143 also includes disclosure requirements that provide a description of asset retirement obligations and reconciliation of changes in the components of those obligations. The Company currently records its plugging and abandonment costs, net of salvage value, with respect to its natural gas and oil properties as additional depreciation, depletion and amortization expense using the units-of-production method. This statement will require the Company to recognize a liability for the fair value of its plugging and abandonment liability, excluding salvage value, with the associated costs as part of its natural gas and oil property balance. The Company is still evaluating the future financial effects of adopting SFAS No. 143 and expects to adopt the standard effective January 1, 2003. NOTE 5 EQUITY Other Comprehensive Income The following table presents a recap of the Company's comprehensive income for the three- and nine-month periods ended September 30, 2002 and 2001 (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ------------------------ 2002 2001 2002 2001 ------- ------- ------- ------- Net income $ 950 $ 2,508 $ 841 $10,503 Cumulative effect of change in accounting principle, net of taxes -- (21) -- 14 Change in fair value of derivative instrument, accounted for as hedges, net of taxes (134) 276 (134) 714 ------- ------- ------- ------- Comprehensive income $ 816 $ 2,763 $ 707 $11,231
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 September 30, 2002, the Company had one fixed price swap contract with a third party, whereby a fixed price has been established for a certain period. This agreement in effect through December 2002 is for oil volume of 25,000 barrels per month at a price of $27.25. At September 30, 2002, the Company recognized a liability of $206,000 related to this derivative instrument, which has been designated as a cash flow hedge. 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 7 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, 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 $258,000 during the quarter and nine months ended September 30, 2002, respectively, which is included in general and administrative expense. The Company recorded non-cash compensation expense of $86,000 and $266,000, respectively during the quarter and nine months ended September 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. NOTE 7 SUBSEQUENT EVENT Public Offering During October and November 2002, the Company completed the offering of 5,000,000 shares of its common stock. The shares were sold to the public for $4.25 per share. After underwriting discounts, the Company realized proceeds of approximately $20.4 million. In addition, the Company has granted the underwriter an option to purchase up to an additional 750,000 shares of its common stock by November 29, 2002 to cover over-allotments, which may have been made in connection with the offering. 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 September 30, 2002, the Company operated approximately 95% of all of its proved reserves. For the nine months ended September 30, 2002, approximately 42% of the Company's equivalent production was oil and 58% was natural gas. CRITICAL ACCOUNTING POLICIES Full cost method The Company uses the full cost method of accounting, which involves capitalizing all acquisition, exploration and development costs. Once incurred, costs are recorded in the full cost pool or in unevaluated properties. Unevaluated property costs are not subject to depletion. The Company reviews its unevaluated costs on an ongoing basis, and the Company expects for such costs to be evaluated in one to three years and transferred to the full cost pool at that time. The Company calculates depletion using the units-of-production method. Under this method, the full cost pool and all estimated future development costs are divided by the total amount of proved reserves. This rate is applied to the Company's total production for the period, and the appropriate expense is recorded. The Company capitalizes a portion of the interest costs incurred on its debt. Capitalized interest is calculated using the amount of the Company's unevaluated property and its effective borrowing rate. The Company also capitalizes the portion of general and administrative costs that are attributable to its acquisition, exploration and development activities. To the extent that total capitalized oil and gas property costs (net of accumulated depreciation, depletion and amortization) exceed the present value (using a 10% discount rate) of estimated future net cash flow from proved oil and natural gas reserves, and the lower of cost and fair value of unproved properties, excess costs are charged to operations. Once incurred, a write-down of oil and natural gas properties is not reversible at a later date even if oil or natural gas prices increase. The Company could be required to write-down its oil and gas properties if there is a decline in oil and natural gas prices, or downward adjustments are made to its proved reserves. Reserves Oil and gas reserve estimates are prepared by the Company's independent petroleum and geological engineers. Proved reserves, and the cash flows related to these reserves, are estimated based on a combination of historical data and estimates of future activity. Reserve estimates are used in calculating depletion and in preparation of the full cost ceiling test. Derivative Instruments The Company follows SFAS 133 accounting for derivative instruments. The accounting standard requires that the Company record its derivatives at fair market value as of the balance sheet date. The calculations of fair value are estimates of the derivatives future values based on current factors. 9 For a more complete discussion of the Company's accounting policies see the Company's Annual Report on Form 10-K for the year ended December 31, 2001, including the financial statements and the notes thereto. 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 Nine Months Ended September 30, September 30, ------------------------------- ------------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Production: Oil (Bbls) 237,167 235,531 688,801 600,073 Gas (Mcf) 1,461,924 2,830,053 5,763,714 5,875,142 Total Production (Mcfe) 2,884,926 4,243,239 9,896,520 9,475,580 Sales: Total oil sales $ 6,339,813 $ 6,113,127 $16,732,483 $16,073,126 Total gas sales 4,879,750 9,497,928 16,352,614 26,472,954 Average sales prices: Oil (per Bbl) $ 26.73 $ 25.95 $ 24.29 $ 26.79 Gas (per Mcf) 3.34 3.36 2.84 4.51 Per Mcfe 3.89 3.68 3.36 4.49
Net income totaled $950,000 and $2,508,000 for the quarters ended September 30, 2002 and 2001, respectively. Net income totaled $841,000 and $10,503,000 for the nine-month periods ended September 30, 2002 and 2001, respectively. The results are attributable to the following components: PRODUCTION. Oil production in 2002 increased 1% and 15% over the third quarter and nine months ended September 30, 2001, respectively. Natural gas production in 2002 decreased 48% and 2% over the third quarter and nine months ended September 30, 2001, respectively. On an Mcfe basis, production for the third quarter and nine months decreased and increased 32% and 4% over the same periods in 2001, respectively. The decrease in production in the quarter ended September 30, 2002 as compared to 2001 was due to weather and certain well performance at the Ship Shoal 72 and Turtle Bayou fields. PRICES. Average oil prices per Bbl for the third quarter and nine months ended September 30, 2002 were $26.73 and $24.29, respectively, as compared to $25.95 and $26.79, respectively, for the same periods in 2001. Average gas prices per Mcf were $3.34 and $2.84, respectively, for the third quarter and nine months ended September 30, 2002, as compared to $3.36 and $4.51, respectively, for the same periods in 2001. Stated on a Mcfe basis, unit prices received during the third quarter and nine months of 2002 were 6% higher and 26% lower, respectively, than the prices received during the comparable 2001 periods. REVENUE. Oil and gas sales during the third quarter and nine months ended September 30, 2002 decreased to $11,220,000 and $33,085,000, respectively, as compared to sales of $15,611,000 and $42,546,000, respectively for the same periods in 2001. The decrease in commodity prices and production volumes, resulted in a decrease in revenue. EXPENSES. Lease operating expenses for the third quarter and nine months ended September 30, 2002 increased to $2,487,000 and $7,240,000, respectively, as compared to $1,984,000 and $5,140,000, respectively, for the third quarter and nine months ended September 30, 2001. On a Mcfe basis, lease operating expenses for the third quarter and nine months ended September 30, 2002 increased to $0.86 and $0.73, respectively, as compared to $.47 and $0.54, respectively, for the same periods in 2001. The increases during the third quarter and nine months ended September 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. 10 General and administrative expenses during the third quarter and nine months ended September 30, 2002 totaled $1,016,000 and $3,758,000, respectively, as compared to expenses of $1,264,000 and $3,179,000, respectively, during the 2001 periods. The Company capitalized $784,000 and $2,752,000, respectively, of general and administrative costs during the quarter and nine months ended September 30, 2002 as compared to $688,000 and $1,924,000, 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. We have recognized $86,000 and $258,000, respectively, of non-cash compensation expense during the quarter and nine months ended September 30, 2002. We recorded non-cash compensation expense of $86,000 and $266,000, respectively, during the quarter and nine months ended September 30, 2001. Depreciation, depletion and amortization ("DD&A") expense for the three- and nine-month periods ended September 30, 2002 decreased 18% and increased 27%, respectively, from the 2001 periods. On a Mcfe basis, which reflects the changes in production, the DD&A rate for the third quarter of 2002 was $2.05 per Mcfe as compared to $1.70 per Mcfe for the same period in 2001. The DD&A rate for the nine months ended September 30, 2002 was $1.98 per Mcfe compared to $1.63 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 $674,000 and $1,430,000 during the third quarter and nine months ended September 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 $150,000 and $215,000 of interest during the three months ended September 30, 2002 and 2001, respectively, and $457,000 and $823,000 during the nine months ended September 30, 2002 and 2001, respectively. Income tax of $511,000 and $453,000 was recognized during the third quarter and nine months ended September 30, 2002, respectively, as compared to $1,473,000 and $6,170,000 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, property sales, and private and public offerings of our common stock. Net cash flow from operations before working capital changes during the nine-month periods ended September 30, decreased from $33,633,000 in 2001 to $21,829,000 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 $(18.9) million at September 30, 2002. The increase in our working capital deficit is due to higher capital expenditures resulting from increased drilling costs at the Berry Lake and other prospects and completion costs for successful wells. 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. During October and November 2002, the Company completed the offering of 5,000,000 shares of its common stock. The shares were sold to the public for $4.25 per share. After underwriting discounts, the Company realized proceeds of approximately $20.4 million. In addition, the Company has granted the underwriter an option to purchase up to an additional 750,000 shares of its common stock by November 29, 2002 to cover over-allotments, which may have been made in connection with the offering. The Company has an effective universal shelf registration statement, relating to the potential public offer and sale by the Company of any combination of debt securities, common stock, preferred stock, depositary shares, and warrants from time to time or when financing needs arise. The registration statement does not provide assurance that the Company will or could sell any such securities. 11 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 a group of three banks 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 September 30, 2002, the borrowing base under the credit facility was adjusted to $25 million and is subject to quarterly reductions of $5 million commencing on January 31, 2003. 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 September 30, 2002, we had $16 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 September 30, 2002. The credit facility matures on June 30, 2004. Natural gas and oil prices have a significant impact on the Company's cash flows available for capital expenditures and its ability to borrow and raise additional capital. The amount the Company can borrow under its credit facility is subject to periodic re-determination based in part on changing expectations of future prices. Lower prices may also reduce the amount of natural gas and oil that the Company can economically produce. Additionally, the production declines of certain producing wells resulted in lower production in 2002. Lower prices and/or lower production may decrease revenues, cash flows and the borrowing base under the credit facility, thus reducing the amount of financial resources available to meet the Company's capital requirements. 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 $60 million of which approximately $49 million has been incurred as of September 30, 2002. Although we have not determined our budget for direct capital for new projects in 2003, we are currently planning for six wells to be drilled in the first half of 2003, which will expose us to approximately 162 Bcfe of net unrisked reserves along with anticipated development activity on these projects. Our management believes the cash flows from operations, proceeds from our recent offering and anticipated available borrowing capacity under our credit facility will be sufficient to fund remaining planned 2002 and identified 2003 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 or be forced to sell some of our assets on an untimely or unfavorable basis. 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 12 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. 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 three months of 2002, a 10% change in the prices the Company receives for its crude oil and natural gas production would have an approximate $1.5 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 one fixed price swap contract with a third party, whereby a fixed price has been established for a certain period. This agreement in effect through December 2002 is for oil volume of 25,000 barrels per month at a price of $27.25. At September 30, 2002, the Company recognized a liability of $206,000 related to this derivative instrument, which has been designated as a cash flow hedge. 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 September 30, 2002, the Company recognized a liability of $490,000 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 September 30, 2002. Based upon an analysis, utilizing the actual interest rate in effect and balances outstanding as of September 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 three months of 2002 is approximately $15,000. Item 4. CONTROLS AND PROCEDURES Within the 90-day period prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the "Exchange Act"). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's 13 disclosure controls and procedures are effective, in all material respects, with respect to the recording, processing, summarizing and reporting, within the time periods specified in the Securities and Exchange Commission's rules and forms, of information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out its evaluation. PART II Item 1. LEGAL PROCEEDINGS On October 9, 2002, the Company's wholly owned subsidiary, PetroQuest Energy, L.L.C. ("PetroQuest Energy"), entered into a settlement agreement with Schlumberger Well Services, a division of Schlumberger Technology Corporation, Dowell, a division of Schlumberger Technology Corporation, Schlumberger Technology Corporation, Petroleum Engineers International, Inc. and Jeff Dunman ("Schlumberger, et al.") relating to lawsuit filed by PetroQuest Energy against Schlumberger, et al. to recover cost overruns which were incurred in the completion of the OCSG-15243 #2 Well located at Eugene Island Block 147. Under the terms of the settlement agreement, the Company received a cash settlement and the parties dismissed their respective lawsuits with prejudice. 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 NONE. Item 5. OTHER INFORMATION NONE. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits:
Exhibit Number Description - ------- ----------- 10.1 Fourth Amendment to Amended and Restated Credit Agreement dated November 13, 2002 but effective as of September 30, 2002 among PetroQuest Energy, L.L.C., PetroQuest Energy, Inc., Royal Bank of Canada, Union Bank of California, N.A., and Hibernia National Bank, a national banking association, individually as a lender and as Administrative Agent. 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
(b) Reports on Form 8-K: The Company filed a report on Form 8-K on July 1, 2002, relating to changes in its certifying accountant. The Company filed a report on Form 8-K on July 31, 2002, relating to second quarter 2002 results. The Company filed a report on Form 8-K on August 15, 2002, relating to a discovery at one of its prospects. 14 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: November 14, 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) 15 CERTIFICATIONS I, Charles T. Goodson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of PetroQuest Energy, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures 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 quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 By: /s/ Charles T. Goodson --------------------------------------- Charles T. Goodson Chairman of the Board and Chief Executive Officer (Principal Executive Officer) 16 I, Michael O. Aldridge, certify that: 1. I have reviewed this quarterly report on Form 10-Q of PetroQuest Energy, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures 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 quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 By: /s/ Michael O. Aldridge ---------------------------------------- Michael O. Aldridge Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) 17 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.1 Fourth Amendment to Amended and Restated Credit Agreement dated November 13, 2002 but effective as of September 30, 2002 among PetroQuest Energy, L.L.C., PetroQuest Energy, Inc., Royal Bank of Canada, Union Bank of California, N.A., and Hibernia National Bank, a national banking association, individually as a lender and as Administrative Agent. 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-10.1 3 d01267exv10w1.txt 4TH AMENDMENT TO AMENDED/RESTATED CREDIT AGREEMENT EXHIBIT 10.1 FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is dated November 13, 2002 but effective as of September 30, 2002 (the "Fourth Amendment"), among PETROQUEST ENERGY, L.L.C., a Louisiana limited liability company (the "Borrower"), PETROQUEST ENERGY, INC., a Delaware corporation (the "Guarantor"), the LENDERS, and HIBERNIA NATIONAL BANK, a national banking association, individually as a Lender and as Administrative Agent. RECITALS: 1. The parties hereto are the parties to that certain Amended and Restated Credit Agreement dated as of May 11, 2001, as amended by First Amendment thereto dated as of July 20, 2001, as amended by Second Amendment thereto dated as of December 24, 2001, and as amended by Third Amendment thereto dated as of March 1, 2002 (as so amended, the "Agreement"), pursuant to which the Lenders established in favor of the Borrower a revolving line of credit. 2. The purpose of this Fourth Amendment is to evidence certain changes to the Agreement. 3. Capitalized terms used herein which are defined or used in the Agreement are used herein with such meanings, except as may be otherwise expressly provided in this Fourth Amendment. NOW, THEREFORE, THE PARTIES HERETO, IN CONSIDERATION OF THE MUTUAL COVENANTS HEREINAFTER SET FORTH AND INTENDING TO BE LEGALLY BOUND HEREBY, AGREE AS FOLLOWS: A. AMENDMENT TO DEFINITIONS. 1. The definition of the term "Consolidated Current Assets" in the Agreement is hereby deleted and restated as follows: "CONSOLIDATED CURRENT ASSETS" shall mean the total of Guarantor's consolidated current assets, including the amounts available for borrowing under the Borrowing Base Amount, determined in accordance with GAAP. Effective September 30, 2002, the Guarantor's current assets on that date will include the net proceeds from the sale of shares of the Guarantor's common stock that Guarantor receives during the period commencing October 1, 2002 and ending on November 30, 2002. Current assets will not include the effects, if any, of marking to market Hedging Agreements pursuant to SFAS No. 133. 2. The definition of the term "Indebtedness" in the Agreement is hereby deleted and restated as follows: "INDEBTEDNESS" shall mean, at any time, all obligations, indebtedness, and liabilities, whether now existing or arising in the future, of the Borrower to any Lender pursuant to a Hedging Agreement or other commodity hedge or price management transaction permitted by Section 13.10 of this Agreement (including all renewals, extensions, modifications, and substitutions thereof or therefor) and all cancellations, buy backs, reversals, terminations, or assignments of such permitted Hedging Agreements or permitted commodity hedge or price management transactions, the Reimbursement Obligations, obligations of the Borrower under Rate Management Transactions (including all renewals, extensions, modifications, and substitution thereof and therefor) and all cancellations, buy backs, reversals, terminations, or assignments of Rate Management Transactions, and the indebtedness of the Borrower evidenced by the Notes executed by the Borrower pursuant to this Agreement, in principal, interest, costs, expenses and reasonable attorneys' fees and all other fees and charges, together with all commitment fees and other indebtedness and costs and expenses for which the Borrower is responsible under this Agreement or under any of the Related Documents. In addition, the word "Indebtedness" also includes, any and all other loans, extensions of credit, obligations, debts and liabilities of the Borrower, plus interest thereon, that may now and in the future be owed to or incurred in favor of the Lenders and the Administrative Agent, as well as all claims by the Lenders and the Administrative Agent against the Borrower, whether existing now or later; whether they are voluntary or involuntary, due or to become due, direct or indirect or by way of assignment, determined or undetermined, absolute or contingent, liquidated or unliquidated; whether the Borrower may be liable individually or jointly with others, of every nature and kind whatsoever, in principal, interest, costs, expenses and reasonable attorneys' fees and all other fees and charges; whether the Borrower (or any one or more of them) may be obligated as principal obligor, guarantor, surety, accommodation party or otherwise. 3. The definition of the term "Quarterly Reduction" in the Agreement is hereby deleted and restated as follows: "QUARTERLY REDUCTION" shall mean each reduction to the Borrowing Base Amount established by the Required Lenders based on each scheduled and unscheduled redetermination of the Borrowing Base Amount. The Quarterly Reduction will be made Fourth Amendment to Amended and Restated Credit Agreement -- Page 2 of 6 on January 31, April 30, July 31, and October 31 of each year. The Quarterly Reduction will be $5,000,000.00 commencing on January 31, 2003, unless redetermined by the Required Lenders. The Administrative Agent will promptly notify the Borrower of any change in the Quarterly Reduction as determined from time to time by the Required Lenders. 4. The following new definition is hereby added to the Agreement: "FOURTH AMENDMENT" shall mean that certain Fourth Amendment to Amended and Restated Credit Agreement effective September 30, 2002, among the Borrower, the Guarantor, the Lenders, and the Administrative Agent. B. BORROWING BASE AMOUNT REDETERMINATION. The Agreement is hereby amended to reflect that as of September 30, 2002, the Borrowing Base Amount is $25,000,000.00. The parties also acknowledge that the next regularly scheduled semi-annual determination of the Borrowing Base Amount will take effect on March 31, 2003. C. REVISION TO NEGATIVE COVENANTS. Section 13.5 (Debts, Guaranties, and Other Obligations) is hereby deleted and restated as follows: SECTION 13.5. DEBTS, GUARANTIES AND OTHER OBLIGATIONS. The Borrower and the Guarantor, without the prior written consent of the Majority Banks, will not incur, create, assume or in any manner become or be liable in respect of any indebtedness, guaranties, and/or other obligations, direct or contingent, except for: (a) The Indebtedness to the Lenders under this Agreement; (b) Trade payables or operating and facility leases from time to time incurred in the ordinary course of business; (c) Non-Recourse Indebtedness not to exceed $25,000,000.00 at any time outstanding; (d) Taxes, assessments or other government charges which are not yet due or are being contested in good faith by appropriate action promptly initiated and diligently conducted, if such reserve as shall be required by generally accepted accounting principles shall have been made therefore; (e) The outstanding indebtedness (as of the date of this Agreement) under the HEIC Facility; (f) Existing debt (as of the date of this Agreement) of the Borrower to Linc Monex; or Fourth Amendment to Amended and Restated Credit Agreement -- Page 3 of 6 (g) The Guarantor's guaranty of the Borrower's indebtedness, obligations, and liabilities to any of the Lenders pursuant to Hedging Agreements and/or commodity hedge or price management transactions permitted by the Agreement, as amended by the Fourth Amendment. D. CONFIRMATION OF COLLATERAL DOCUMENTS. It is the intention of the parties that all of the liens, privileges, priorities, and equities existing and to exist under and in accordance with the terms of the Loan Documents are hereby renewed, extended, and carried forward as security for the Loans and the Indebtedness (as defined in paragraph A above). Further, the parties agree and acknowledge that the Guaranty shall continue to secure the payment of the Indebtedness (as defined in paragraph A above) of the Borrower to the Lenders, including the indebtedness of the Borrower under the Revolving Notes. E. NO DEFAULT REPRESENTATION. On and as of the date hereof, and after giving effect to this Fourth Amendment, the Borrower and the Guarantor reaffirm and restate the representations and warranties set forth in the Agreement and the Loan Documents. Further, the Borrower and the Guarantor also represent and warrant that as the date hereof and after giving effect to this Fourth Amendment, no uncured or unwaived Default has occurred and is continuing under the Agreement, as amended by this Fourth Amendment. F. CONDITIONS PRECEDENT. The obligation of the Lenders to make the Loans remains subject to the conditions precedent set forth in the Agreement and the following conditions precedent: The Administrative Agent's receipt of (i) this Fourth Amendment executed by the Borrower and the Guarantor; (ii) certified resolutions by the Guarantor (on behalf of itself and as the sole member of the Borrower), in form and substance satisfactory to the Administrative Agent; (iii) all amendments, supplements, and/or restatements pertaining to the Collateral Documents that may be required by the Administrative Agent or its counsel; and (iv) the sum of $22,500.00, representing a $7,500.00 work fee for each Lender. G. WAIVER OF DEFENSES. In consideration of the Lenders' execution of this Fourth Amendment, the Borrower and the Guarantor do hereby irrevocably waive any and all claims and/or defenses to payment on any Indebtedness owed by any of them to the Lenders and/or the Administrative Agent that may exist as of the date of execution of this Fourth Amendment. H. AMENDMENTS. THE AGREEMENT AND THIS FOURTH AMENDMENT ARE CREDIT OR LOAN AGREEMENTS AS DESCRIBED IN LA. R.S. 6:SECTION 1121, ET SEQ. THERE ARE NO ORAL AGREEMENTS BETWEEN PARTIES TO THIS FOURTH AMENDMENT. THE AGREEMENT, AS AMENDED BY THIS FOURTH AMENDMENT, SETS FORTH THE ENTIRE AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDES ALL PRIOR WRITTEN AND ORAL UNDERSTANDINGS BETWEEN THE ADMINISTRATIVE AGENT, THE LENDERS, THE BORROWER, AND THE GUARANTOR WITH RESPECT TO THE MATTERS HEREIN SET FORTH. THE AGREEMENT, AS AMENDED BY THIS FOURTH AMENDMENT, MAY NOT BE MODIFIED OR AMENDED EXCEPT BY A WRITING SIGNED AND DELIVERED BY THE Fourth Amendment to Amended and Restated Credit Agreement -- Page 4 of 6 BORROWER, THE GUARANTOR, THE LENDERS, AND THE ADMINISTRATIVE AGENT. I. GOVERNING LAW: COUNTERPARTS. This Fourth Amendment shall be governed by and construed in accordance with the laws of the State of Louisiana. This Fourth Amendment may be executed in any number of counterparts, all of which counterparts, when taken together, shall constitute one and the same document. J. CONTINUED EFFECT. Except as expressly modified herein, the Agreement as amended by this Fourth Amendment, shall continue in full force and effect. The Agreement, as amended by this Fourth Amendment, is hereby ratified and confirmed by the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be executed and delivered as of the date hereinabove provided by the authorized officers each hereunto duly authorized. BORROWER: PETROQUEST ENERGY, L.L.C. A LOUISIANA LIMITED LIABILITY COMPANY BY PETROQUEST ENERGY, INC., A DELAWARE CORPORATION, AS SOLE MEMBER BY: /s/ ALFRED J. THOMAS, II ---------------------------------------- NAME: ALFRED J. THOMAS, II -------------------------------------- TITLE: PRESIDENT AND CHIEF OPERATING OFFICER ------------------------------------- GUARANTOR: PETROQUEST ENERGY, INC. A DELAWARE CORPORATION BY: /s/ ALFRED J. THOMAS, II ---------------------------------------- NAME: ALFRED J. THOMAS, II -------------------------------------- TITLE: PRESIDENT AND CHIEF OPERATING OFFICER ------------------------------------- Fourth Amendment to Amended and Restated Credit Agreement -- Page 5 of 6 AGENT: HIBERNIA NATIONAL BANK, AS ADMINISTRATIVE AGENT BY: /s/ DAVID R. REID ---------------------------------------- NAME: DAVID R. REID TITLE: SENIOR VICE PRESIDENT LENDERS: ROYAL BANK OF CANADA BY: /s/ LORNE GARTNER ---------------------------------------- NAME: LORNE GARTNER -------------------------------------- TITLE: VICE PRESIDENT -------------------------------------- UNION BANK OF CALIFORNIA, N.A. BY: /s/ DAMIEN MEIBURGER ---------------------------------------- NAME: DAMIEN MEIBURGER -------------------------------------- TITLE: SENIOR VICE PRESIDENT -------------------------------------- HIBERNIA NATIONAL BANK BY: /s/ DAVID R. REID ---------------------------------------- NAME: DAVID R. REID TITLE: SENIOR VICE PRESIDENT Fourth Amendment to Amended and Restated Credit Agreement -- Page 6 of 6 EX-99.1 4 d01267exv99w1.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 September 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 November 14, 2002 EX-99.2 5 d01267exv99w2.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 September 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 November 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----