EX-99.3

EX-99.3 4 d596312dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

PETROQUEST ENERGY, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

On June 19, 2013, PetroQuest Energy, L.L.C., a wholly-owned subsidiary of PetroQuest Energy, Inc. (“PetroQuest” or the “Company”), entered into a purchase and sale agreement with each of Hall-Houston Exploration II, L.P., Hall-Houston Exploration III, L.P., Hall-Houston Exploration IV, L.P., and GOM-H Exploration, LLC (collectively, the “Sellers”) to acquire certain producing oil and gas assets (the “Acquired Properties”) located in the shallow waters of the Gulf of Mexico (collectively, the “Acquisition”) for an aggregate cash purchase price of approximately $191.6 million (based on an effective date for the Acquisition of January 1, 2013). The Company financed the Acquisition with the net proceeds from the issuance of $200 million in aggregate principal amount of 10% Senior Notes due 2017 (the “New Notes”). The New Notes have terms that, subject to certain exceptions, are substantially identical to the Company’s $150 million aggregate principal amount of existing 10% Senior Notes due 2017. The Company closed the Acquisition on July 3, 2013.

In connection with and in order to fund the Acquisition, on June 19, 2013, the Company entered into a commitment letter to provide for senior unsecured bridge loans in the amount of up to $185 million. The availability of the loans was subject to the closing of the Acquisition and other customary closing conditions.

Also in connection with the Acquisition, the Company entered into an amendment to the Company’s senior secured bank credit facility to, among other things, permit the Acquisition, permit up to $200 million of debt to finance the Acquisition, increase the borrowing base from $150 million to $200 million upon completion of the Acquisition and increase the aggregate commitment of the lenders from $100 million to $150 million upon completion of the Acquisition.

We derived the unaudited pro forma consolidated financial statements from the historical consolidated financial statements of the Company and the statements of revenues and direct operating expenses of the Acquired Properties for the respective periods. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2012 and six months ended June 30, 2013 give effect to the Acquisition, the issuance of the New Notes and the obtaining of that certain bridge commitment referred to above as if they had occurred on January 1, 2012. The unaudited pro forma consolidated balance sheet as of June 30, 2013 gives effect to the Acquisition, the issuance of the New Notes and the obtaining of that certain bridge commitment referred to above as if they had occurred on June 30, 2013.

The pro forma adjustments are based on available information and certain assumptions that we believe are reasonable as of the date of this Current Report on Form 8-K/A. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma consolidated financial statements. The Acquisition was accounted for under the purchase method of accounting, which involves determining the fair values of assets acquired and liabilities assumed. The purchase price allocation included in the unaudited pro forma financial statements is preliminary and based on management’s best estimates as of the date of this Current Report on Form 8-K/A. The preliminary purchase price allocation is subject to change based on numerous factors, including the final adjusted purchase price and the final estimated fair value of the assets acquired and liabilities assumed. Any such adjustments to the preliminary estimates of fair value reflected in the accompanying unaudited pro forma consolidated financial statements could be material.

The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and do not purport to indicate the financial condition or results of operations of future periods or the financial condition or results of operations that actually would have been realized had the transactions been consummated on the dates or for the periods presented. The unaudited pro forma consolidated financial statements should be read in conjunction with the audited December 31, 2012 consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed on March 11, 2013, the unaudited June 30, 2013 consolidated financial statements contained in the Company’s Quarterly Report on Form 10-Q filed on August 6, 2013, the audited statements of revenues and direct operating expenses of the Acquired Properties for the years ended December 31, 2012 and 2011 filed with this Current Report on Form 8-K/A, and the unaudited statements of revenue and direct operating expenses of the Acquired Properties for the six months ended June 30, 2013 and 2012 filed with this Current Report on Form 8-K/A.

PetroQuest Energy, Inc.

Unaudited Pro Forma Consolidated Balance Sheet

as of June 30, 2013

(Amounts in thousands)


	PetroQuest Historical			Acquired Properties			Pro Forma
ASSETS
Current assets:
Cash and cash equivalents	$	8,113		$	11,290	(e)	$	19,403
Revenue receivable		14,007						14,007
Joint interest billing receivable		32,281						32,281
Prepaid drilling costs		2,499						2,499
Derivative asset		1,999						1,999
Other current assets		6,182						6,182

Total current assets		65,081			11,290			76,371
Oil and gas properties:
Oil and gas properties, full cost method		1,791,459			188,643	(a)		1,980,102
Unevaluated oil and gas properties		68,910			19,036	(a)		87,946
Accumulated depreciation, depletion and amortization		(1,508,820	)					(1,508,820	)

Oil and gas properties, net		351,549			207,679			559,228
Other property and equipment		12,627						12,627
Accumulated depreciation of other property and equipment		(8,144	)					(8,144	)

Total property and equipment		356,032			207,679			563,711

Derivative asset		388						388
Other assets, net of accumulated depreciation and amortization		5,065			5,221	(b)		10,286
Deposit on acquisition	$	5,000			(5,000	) (a)		—

Total assets	$	431,566		$	219,190		$	650,756

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable to vendors	$	39,923					$	39,923
Advances from co-owners		11,911						11,911
Oil and gas revenue payable		26,042						26,042
Accrued interest and preferred stock dividend		6,209			6,777	(c)		12,986
Asset retirement obligation		3,823						3,823
Derivative liability		205						205
Other accrued liabilities		6,408						6,408

Total current liabilities		94,521			6,777			101,298
Bank debt		65,000						65,000
Long-Term Debt		150,000			200,000	(b)		350,000
Asset retirement obligation		25,487			16,049	(a)		41,536
Commitments and contingencies
Stockholders’ equity:
Preferred stock		1						1
Common stock		63						63
Paid-in capital		278,335						278,335
Accumulated other comprehensive income (loss)		1,418						1,418
Accumulated deficit		(183,259	)		(3,636	) (d)		(186,895	)

Total stockholders’ equity		96,558			(3,636	)		92,922

Total liabilities and stockholders’ equity	$	431,566		$	219,190		$	650,756

PETROQUEST ENERGY, INC.

Unaudited Pro Forma Consolidated Statement of Operations

For the year ended December 31, 2012

(Amounts in Thousands, Except Per Share Data)


	PetroQuest Historical			Acquired Properties			Pro Forma Adjustments			Pro Forma
Revenues:
Oil and gas sales	$	141,433		$	45,513	(f)				$	186,946
Gas gathering revenue		158									158

		141,591			45,513			—			187,104

Expenses:
Lease operating expenses		38,890			7,910	(f)					46,800
Production taxes		885									885
Depreciation, depletion and amortization		60,689						18,572	(g)		79,261
Ceiling test write-down		137,100									137,100
General and administrative		22,957						3,636	(i)		26,593
Accretion of asset retirement obligation		2,078						1,049	(g)		3,127
Interest expense		9,808						18,910	(h)		28,718

		272,407			7,910			42,167			322,484

Other income (expense):
Other income		606									606
Derivative expense		(233	)								(233	)

		373			—			—			373

Income (loss) from operations		(130,443	)		37,603			(42,167	)		(135,007	)
Income tax expense		1,636							(j)		1,636

Net income (loss)		(132,079	)		37,603			(42,167	)		(136,643	)
Preferred stock dividend		5,139									5,139

Net income (loss) available to common stockholders	$	(137,218	)	$	37,603		$	(42,167	)	$	(141,782	)

Earnings per common share:
Basic
Net loss per share	$	(2.20	)							$	(2.27	)

Diluted
Net loss per share	$	(2.20	)							$	(2.27	)

Weighted average number of common shares:
Basic		62,459									62,459

Diluted		62,459									62,459

PETROQUEST ENERGY, INC.

Unaudited Pro Forma Consolidated Statement of Operations

For the six months ended June 30, 2013

(Amounts in Thousands, Except Per Share Data)


	PetroQuest Historical			Acquired Properties			Pro Forma Adjustments			Pro Forma
Revenues:
Oil and gas sales	$	74,052		$	32,796	(k)				$	106,848
Gas gathering revenue		59									59

		74,111			32,796			—			106,907

Expenses:
Lease operating expenses		18,556			5,860	(k)					24,416
Production taxes		2,509									2,509
Depreciation, depletion and amortization		27,407						15,515	(l)		42,922
General and administrative		11,067									11,067
Accretion of asset retirement obligation		660						419	(l)		1,079
Interest expense		5,980						9,231	(m)		15,211

		66,179			5,860			25,165			97,204

Other income (expense):
Other income		256									256
Derivative income		157									157

		413			—			—			413

Income (loss) from operations		8,345			26,936			(25,165	)		10,116
Income tax benefit		(491	)						(n)		(491	)

Net income (loss)		8,836			26,936			(25,165	)		10,607
Preferred stock dividend		2,567									2,567

Net income (loss) available to common stockholders	$	6,269		$	26,936		$	(25,165	)	$	8,040

Earnings per common share:
Basic
Net income per share	$	0.10								$	0.12

Diluted
Net income per share	$	0.10								$	0.12

Weighted average number of common shares:
Basic		62,899									62,899

Diluted		63,084									63,084

1. Basis of Presentation

The accompanying unaudited consolidated pro forma financial statements present the consolidated financial statements of PetroQuest assuming the Acquisition, the issuance of the New Notes and the obtaining of the bridge commitment referred to above occurred as of June 30, 2013 for purposes of the pro forma consolidated balance sheet and assuming such transactions occurred as of January 1, 2012 for purposes of the pro forma consolidated statements of operations for the year ended December 31, 2012 and six months ended June 30, 2013.

The unaudited consolidated pro forma financial statements are presented for illustrative purposes only and do not purport to represent what the Company’s financial position or results of operations would have been if the Acquisition and the issuance of the New Notes had occurred as presented, or to project the Company’s financial position or results of operations for any future periods. The pro forma adjustments are based on available information and certain assumptions that management believes are reasonable. The pro forma adjustments are directly attributable to the Acquisition and the issuance of the New Notes and are expected to have a continuing impact on the Company’s results of operations. In the opinion of management, all adjustments necessary to present fairly the unaudited consolidated pro forma financial statements have been made.

2. Preliminary Purchase Accounting

The Company closed the Acquisition on July 3, 2013, for an estimated adjusted purchase price of approximately $191.6 million. The Acquisition was accounted for using the purchase method of accounting. Accordingly, the assets acquired and liabilities assumed are presented based on their acquisition date fair values. The purchase price allocation below is preliminary and based on management’s best estimates as of the date of this Current Report on Form 8-K/A. The preliminary purchase price allocation is subject to change based on numerous factors, including the final adjusted purchase price. Any such adjustments to the preliminary estimates of fair value could be material.

The following table summarizes the acquisition date fair values of the net assets acquired in the Acquisition (in thousands):


Oil and gas properties	$	188,643
Unevaluated oil and gas properties		19,036
Asset retirement obligations		(16,049	)

Net assets to be acquired	$	191,630

3. Pro Forma Adjustments

Pro Forma Consolidated Balance Sheet as of June 30, 2013

(a) To record the estimated fair value of the assets acquired and the liabilities assumed in the Acquisition.

(b) To record the issuance of the New Notes and the related deferred financing costs.

(c) To record the portion of the net proceeds from the issuance of the New Notes with respect to interest that would have accrued from March 1, 2013 through the issuance date of July 3, 2013 (“pre-issuance accrued interest”). Pre-issuance accrued interest was included in the accrued interest paid on the New Notes on September 1, 2013.

(d) To record the $2.6 million of financing fees associated with the senior unsecured bridge loans and $1.1 million of acquisition costs that were expensed as general and administrative expenses.

(e) To record the net cash impact of the above pro forma adjustments, including $6.8 million of pre-issuance accrued interest on the New Notes that was repaid to holders of New Notes on September 1, 2013.

Pro Forma Statement of Operations for the year ended December 31, 2012

(f) To record the historical revenues and direct operating expenses related to the Acquired Properties.

(g) To record depreciation, depletion, and amortization and accretion of asset retirement obligation related to the Acquired Properties.

(h) To record interest expense related to the New Notes including amortization of the related deferred financing costs. The interest expense is net of $2.0 million of estimated interest costs capitalized to unevaluated oil and gas properties.

(i) To record $2.6 million of financing fees associated with the senior unsecured bridge loans and $1.1 million of acquisition costs that were expensed as general and administrative expenses.

(j) The above pro forma adjustments have no impact on income tax expense (benefit) as a result of the Company’s full valuation allowance with respect to its net deferred tax asset.

Pro Forma Statement of Operations for the six months ended June 30, 2013

(k) To record the historical revenues and direct operating expenses related to the Acquired Properties.

(l) To record depreciation, depletion, and amortization and accretion of asset retirement obligation related to the Acquired Properties.

(m) To record interest expense related to the New Notes including amortization of the related deferred financing costs. The interest expense is net of $1.2 million of estimated interest costs capitalized to unevaluated oil and gas properties.

(n) The above pro forma adjustments have no impact on income tax expense (benefit) as a result of the Company’s full valuation allowance with respect to its net deferred tax asset.

The following table sets forth unaudited pro forma information with respect to the Company’s estimated proved reserves, including changes therein, and proved developed and proved undeveloped reserves for the year ended December 31, 2012, giving effect to the Acquisition as if it had occurred on January 1, 2012. The estimates of reserves attributable to the Acquisition may include development plans for those properties which are different from those that the Company will ultimately implement. Reserve estimates are inherently imprecise, require extensive judgments of reservoir engineering data and are generally less precise than estimates made in connection with financial disclosures.


	Oil in MBbls						NGL in MMcfe					Natural Gas in MMcf						MMcfe
	PetroQuest			Acquired Properties (1)			PetroQuest			Acquired Properties (1)		PetroQuest			Acquired Properties			Pro Forma
Proved reserves as of December 31, 2011		1,395			2,365			15,111					241,926			26,930			306,527
Revisions of previous estimates		215			(248	)		(958	)				(52,076	)		2,427			(50,802	)
Extensions, discoveries and other additions		647			358			14,572					46,390			418			67,410
Sale of reserves in place		(81	)		—			—					(15,806	)		—			(16,292	)
Production		(521	)		(237	)		(3,365	)				(27,466	)		(5,968	)		(41,347	)

Proved reserves as of December 31, 2012		1,655			2,238			25,360			—		192,968			23,807			265,496


Proved developed reserves		1,225			1,876			20,610			—		140,307			23,385			202,909


Proved undeveloped reserves		430			362			4,750			—		52,661			423			62,587

(1)	Proved reserves related to NGL volumes for the acquired properties are included in oil volumes

The following tables (amounts in thousands) present the unaudited pro forma standardized measure of future net cash flows related to proved oil and gas reserves together with changes therein, as defined by ASC Topic 932, for the year ended December 31, 2012, giving effect to the Acquisition as if it had occurred on January 1, 2012. Future production and development costs are based on current costs with no escalations. Estimated future cash flows have been discounted to their present values based on a 10% annual discount rate. We have assumed the federal tax rate of 35% on the Acquired Properties as all but one of the properties is in federal waters. The disclosures below do not purport to present the fair market value of the Company’s oil and gas reserves. An estimate of the fair market value would also take into account, among other things, the recovery of reserves in excess of proved reserves, anticipated future changes in prices and costs, a discount factor more representative of the time value of money, and risks inherent in reserve estimates.

Standardized Measure


	Year ended December 31, 2012
	PetroQuest			Acquired Properties			Pro Forma
Future cash flows	$	748,914		$	294,824		$	1,043,738
Future production costs		(220,750	)		(40,918	)		(261,668	)
Future development costs		(121,346	)		(22,771	)		(144,117	)
Future income taxes		(10,205	)		(80,897	)		(91,102	)

Future net cash flows		396,613			150,238			546,851
10% annual discount		(164,218	)		(23,639	)		(187,857	)

Standardized measure of discounted future net cash flows	$	232,395		$	126,599		$	358,994

The following table presents unaudited pro forma changes in the standardized measure of discounted future net cash flows for the year ended December 31, 2012 relating to proved oil and natural gas reserves of the Company and the Acquired Properties.

Changes in Standardized Measure


	Year Ended December 31, 2012
	PetroQuest			Acquired Properties			Pro Forma
Standardized measure at beginning of year	$	303,881		$	147,455		$	451,336

Sales and transfers of oil and gas produced, net of production costs		(92,562	)		(37,603	)		(130,165	)
Changes in price, net of future production costs		(138,842	)		(55,252	)		(194,094	)
Extensions and discoveries, net of future production and development costs		104,066			26,955			131,021
Changes in estimated future development costs, net of development costs incurred during this period		69,499			19,843			89,342
Revisions of quantity estimates		(56,352	)		4,657			(51,695	)
Accretion of discount		34,137			22,685			56,822
Net change in income taxes		30,617			11,230			41,847
Purchase of reserves in place		—			—			—
Sale of reserves in place		(8,186	)		—			(8,186	)
Changes in production rates (timing) and other		(13,863	)		(13,371	)		(27,234	)

Net increase (decrease) in standardized measure		(71,486	)		(20,856	)		(92,342	)

Standardized measure at end of year	$	232,395		$	126,599		$	358,994

The historical twelve-month average prices of oil, gas and natural gas liquids used in determining standardized measure were:


	PetroQuest		Acquired Properties

Oil, $/Bbl	$	102.81	$	106.88
Ngls, $/Mcfe		6.07		—
Natural Gas, $/Mcf		2.20		2.72