Item 2.02 Results of Operations and Financial Condition
On August 2, 2017, PetroQuest Energy, Inc. (the "Company") announced a loss for the quarter ended
June 30, 2017
of
$3,385,000
, or
$0.16
per share, compared to
second
quarter
2016
loss of
$24,143,000
, or
$1.38
per share. For the first six months of 2017, the Company reported a loss of
$8,303,000
, or
$0.39
per share, compared to a loss of
$63,280,000
, or
$3.67
per share, for the 2016 period. The losses during the quarter and six months ended June 30, 2016 included non-cash ceiling test write-downs of
$12,782,000
and
$31,639,000
, respectively.
Net cash flow provided by (used in) operating activities totaled
$281,000
and
$124,000
during the second quarters of 2017 and 2016, respectively. Discretionary cash flow for the
second
quarter of
2017
was
$11,384,000
, as compared to
$(991,000)
for the comparable
2016
period. Net cash flow provided by (used in) operating activities totaled
$13,694,000
and
$(26,066,000)
during the first six months of 2017 and 2016, respectively. For the first six months of 2017, discretionary cash flow was
$20,590,000
, as compared to
$(3,201,000)
for the first six months of 2016. See the attached schedule for a reconciliation of net cash flow provided by operating activities to discretionary cash flow.
Production for the
second
quarter of
2017
was
6.3
Bcfe, compared to
6.0
Bcfe for the comparable period of
2016
.
For the first six months of 2017, production was
11.5
Bcfe, compared to
13.6
Bcfe for the comparable period of 2016. The reduction in production volumes for the first six months of 2017 compared to the first six months of 2016 was primarily due to the Company's East Hoss field divestiture in Oklahoma in April 2016 as well as normal production declines at its Gulf Coast fields.
Stated on an Mcfe basis, unit prices including the effects of hedges for the
second
quarter of
2017
were
$3.83
per Mcfe, as compared to
$2.64
per Mcfe in the second quarter of
2016
. For the first six months of 2017, unit prices including the effects of hedges, were
$3.90
per Mcfe, as compared to
$2.43
per Mcfe for the first six months of 2016.
Oil and gas sales during the
second
quarter of
2017
were
$24,251,000
, as compared to
$15,824,000
in the
second
quarter of
2016
.
For the first six months of 2017, oil and gas sales were
$45,023,000
as compared to oil and gas sales of
$33,144,000
for the first six months of 2016.
Lease operating expenses (“LOE”) for the
second
quarter of
2017
increased to
$7,113,000
, as compared to
$6,864,000
in the
second
quarter of
2016
. LOE per Mcfe was
$1.12
for the
second
quarter of
2017
, as compared to
$1.14
in the
second
quarter of
2016
. Lease operating expenses for the first six months of 2017 decreased to
$14,189,000
, as compared to
$15,041,000
in the first six months of 2016. For the first six months of 2017, lease operating expenses were
$1.23
per Mcfe compared to
$1.10
per Mcfe in the first six months of 2016.
Depreciation, depletion and amortization (“DD&A”) on oil and gas properties for the
second
quarter of
2017
was
$1.07
per Mcfe, as compared to
$1.17
per Mcfe in the
second
quarter of
2016
. For the first six months of 2017, DD&A on oil and gas properties was
$1.10
per Mcfe compared to $1.24 per Mcfe for the comparable period of 2016. The decrease in the per unit DD&A rate during the 2017 periods is primarily the result of ceiling test write-downs during 2016 as well as the success of our East Texas drilling program.
Interest expense for the
second
quarter of
2017
increased to
$7,147,000
, as compared to
$6,503,000
in the
second
quarter of
2016
. During the
three
month period ended
June 30, 2017
, capitalized interest totaled
$403,000
, as compared to
$247,000
during the
2016
period. For the first six months of 2017, interest expense was
$14,405,000
, compared to
$14,760,000
for the comparable period of 2016. During the
six
month period ended
June 30, 2017
, capitalized interest totaled
$708,000
, as compared to
$555,000
during the
2016
period. Capitalized interest was higher during the 2017 periods as a result of an increase in unevaluated properties.
General and administrative expenses during the quarter and six months ended June 30, 2017 totaled
$4,314,000
and
$7,467,000
, respectively, as compared to
$3,871,000
and
$12,470,000
during the comparable 2016 periods. Capitalized general and administrative expenses during the quarter and six months ended June 30, 2017 totaled
$2,010,000
and
$3,344,000
, respectively, as compared to expenses of
$1,634,000
and
$3,188,000
, respectively, during the comparable 2016 periods. The decrease in general and administrative expenses during the first six months of 2017 as compared to the comparable period in 2016 is primarily due to $4,808,000 of costs related to the Company's debt exchange in February 2016.
The following table sets forth certain information with respect to the oil and gas operations of the Company for the three and six month periods ended
June 30, 2017
and
2016
:
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Three Months Ended June 30,
|
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Six Months Ended June 30,
|
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2017
|
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2016
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2017
|
|
2016
|
|
Production:
|
|
|
|
|
|
|
|
|
Oil (Bbls)
|
147,723
|
|
|
114,319
|
|
|
280,401
|
|
|
254,308
|
|
|
Gas (Mcf)
|
4,357,390
|
|
|
4,272,820
|
|
|
7,882,356
|
|
|
9,820,297
|
|
|
Ngl (Mcfe)
|
1,080,100
|
|
|
1,045,858
|
|
|
1,984,306
|
|
|
2,292,490
|
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Total Production (Mcfe)
|
6,323,828
|
|
|
6,004,592
|
|
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11,549,068
|
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|
13,638,635
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Avg. Daily Production (MMcfe/d)
|
69.5
|
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|
66.0
|
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63.8
|
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|
75.4
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Sales:
|
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Total oil sales
|
$
|
7,299,518
|
|
|
$
|
4,936,757
|
|
|
$
|
14,170,927
|
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$
|
9,295,501
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Total gas sales
|
13,750,945
|
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|
8,853,527
|
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24,413,287
|
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19,571,735
|
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Total ngl sales
|
3,200,165
|
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|
2,034,342
|
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|
6,438,711
|
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|
4,277,104
|
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Total oil and gas sales
|
$
|
24,250,628
|
|
|
$
|
15,824,626
|
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|
$
|
45,022,925
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|
$
|
33,144,340
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Average sales prices:
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Oil (per Bbl)
|
$
|
49.41
|
|
|
$
|
43.18
|
|
|
$
|
50.54
|
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|
$
|
36.55
|
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Gas (per Mcf)
|
3.16
|
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|
2.07
|
|
|
3.10
|
|
|
1.99
|
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Ngl (per Mcfe)
|
2.96
|
|
|
1.95
|
|
|
3.24
|
|
|
1.87
|
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Per Mcfe
|
3.83
|
|
|
2.64
|
|
|
3.90
|
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|
2.43
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The above sales and average sales prices include increases to revenues related to the settlement of gas hedges of
$108,000
and
$1,155,000
for the three months ended
June 30, 2017
and
2016
, respectively. The above sales and average sales prices include increases (decreases) to revenues related to the settlement of gas hedges of
($214,000)
and
$2,187,000
for the six months ended June 30, 2017 and 2016, respectively.
A portion of the Company's production remains impacted by shut-ins associated with ongoing third party pipeline repairs in the Gulf of Mexico. The Company estimates that approximately 6 MMcfe/d of net production is currently shut-in as well as untested production from a recently recompleted Ship Shoal 72 well. The exact timing of the production restoration is uncertain at this time. The following provides guidance for the third quarter of 2017 and assumes shut-in production will not be restored during the third quarter of 2017. The Company's previous production guidance of 85-90 MMcfe/d assumed production would be restored August 1, 2017:
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Guidance for
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Description
|
3rd Quarter 2017
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Production volumes (MMcfe/d)
|
80 - 84
|
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Percent Gas
|
71%
|
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Percent Oil
|
12%
|
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Percent NGL
|
17%
|
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Expenses:
|
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Lease operating expenses (per Mcfe)
|
$1.10 - $1.20
|
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Production taxes (per Mcfe)
|
$0.12 - $0.17
|
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Depreciation, depletion and amortization (per Mcfe)
|
$1.10 - $1.20
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General and administrative (in millions)*
|
$3.5 - $4.0
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Interest expense (in millions)**
|
$7.3 - $7.5
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* Includes non-cash stock compensation estimate of approximately $0.3 million
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** Includes non-cash interest expense of approximately $6.0 million
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Operations Update
The Company recently commenced completion operations on a two well pad (PQ #26 & #27 - average WI: 76%) in the northern area of its Cotton Valley joint venture acreage. These two wells have an average lateral length of approximately 6,600 feet and are being completed utilizing higher proppant concentrations (average ~1,150 lbs/lateral foot) similar to the Company's recent record PQ#25 well (IP-24 hour gross rate - 18.3 MMcfe/d). In addition, the Company is nearing total depth on its PQ #28 well (WI: 75%), a 5,000 foot lateral, and expects to commence completion operations in approximately 4-5 weeks.
NYSE Update
In connection with regaining compliance with the New York Stock Exchange’s (NYSE) continued listing standards, on July 27, 2017 the Company submitted a required business plan to the NYSE. Assuming the NYSE accepts the plan, the Company will be subject to quarterly monitoring for compliance with the business plan and the Company's common stock will continue to trade on the NYSE, subject to the Company's compliance with other NYSE continued listing requirements.
Management’s Comment
“Our second quarter results build upon the growth profile initiated with the restart of our Cotton Valley drilling program in late 2016. Since the fourth quarter of 2016, revenues are up 50%, discretionary cash flow is up over 200% and production is up 38%. Each of these metrics indicates the progress made through the first half of the year towards our goal of reducing our relative leverage through organic production and cash flow growth,” said Charles T. Goodson, Chairman, Chief Executive Officer and President. "This scale of financial and operational inflection in such a short time frame is only possible with high quality assets. Our most recent Cotton Valley pad, with a
cumulative IP-24 hour gross daily rate of over 38 MMcfe at an all in cost of approximately $14 million, reinforces the asset quality we are developing to achieve our goals."
About the Company
PetroQuest Energy, Inc. is an independent energy company engaged in the exploration, development, acquisition and production of oil and natural gas reserves in the Texas, Louisiana and the shallow waters of the Gulf of Mexico. PetroQuest’s common stock trades on the New York Stock Exchange under the ticker PQ.
Forward-Looking Statements
This news release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this news release are forward-looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, these statements are based upon assumptions and anticipated results that are subject to numerous uncertainties and risks. Actual results may vary significantly from those anticipated due to many factors, including the volatility of oil and natural gas prices and significantly depressed oil prices since the end of 2014; our indebtedness and the significant amount of cash required to service our indebtedness; our estimate of the sufficiency of our existing capital sources, including availability under our new multi-draw term loan facility; our ability to post additional collateral to satisfy our offshore decommissioning obligations; our ability to execute our 2017 drilling and recompletion program as planned and to increase our production; our ability to hedge future production to reduce our exposure to price volatility in the current commodity pricing market; our ability to find, develop and produce oil and natural gas reserves that are economically recoverable and to replace reserves and sustain and/or increase production; ceiling test write-downs resulting, and that could result in the future, from lower oil and natural gas prices; our ability to raise additional capital to fund cash requirements for future operations; limits on our growth and our ability to finance our operations, fund our capital needs and respond to changing conditions imposed by our multi-draw term loan facility and restrictive debt covenants; more than 50% of our production being exposed to the additional risk of severe weather, including hurricanes, tropical storms and flooding, and natural disasters; losses and liabilities from uninsured or underinsured drilling and operating activities; changes in laws and governmental regulations as they relate to our operations; the operating hazards attendant to the oil and gas business; the volatility of our stock price; and our ability to meet the continued listing standards of the New York Stock Exchange with respect to our common stock or to cure any deficiency with respect thereto. In particular, careful consideration should be given to cautionary statements made in the various reports the Company has filed with the SEC. The Company undertakes no duty to update or revise these forward-looking statements.