PetroQuest Energy, Inc. has announced the sale of its Gulf of Mexico properties on January 31, 2018, but effective as of December 1, 2017. As a result of the sale, the company has eliminated an approximate US$35.4 million undiscounted abandonment liability from its long-term obligations. The company received no proceeds from the sale of these properties and is required to contribute US$3.75 million towards future abandonment costs. In connection with the sale, the company expects to receive a cash refund of approximately US$10.3 million related to a depositary account that served to collateralise a portion of the company's offshore bonds. All of the company's production is now derived from assets located onshore Louisiana and Texas.
During the fourth quarter of 2017, the sold assets produced approximately 26.1 MMcfe/d (21% oil, 75% gas, 4% NGL). Production from the sold assets has declined over the last 60 days as a result of natural declines. The company estimates net daily production for January 2018 to be approximately 13.8 MMcfe/d (24% oil, 71% gas and 5% NGL), or 47% below the fourth quarter 2017 rate.
As of December 31, 2017, the company's estimated proved reserves attributable to the sold assets totaled approximately 11 Bcfe (100% proved developed) with estimated pre-tax discounted future net cash flows (PV-10) of approximately US$2.4 million, using SEC pricing (US$2.98/Mcf for natural gas and US$51.34/Bbl for oil).
Including the sold assets, the company estimates that its 2017 production was approximately 27.6 Bcfe, or 75.6 MMcfe per day. Estimated fourth quarter 2017 production, including the Sold Assets, totaled approximately 8.6 Bcfe, or 93.7 MMcfe per day, compared to guidance of 91-95 MMcfe/d. Estimated production for 2017 was 17% higher than 2016 and estimated fourth quarter 2017 production was 87% higher than the year-ago quarter.
Based upon estimated 2017 production, the company estimates that it achieved a 247% reserve replacement ratio during 2017 and expects that its all-in finding and development costs during 2017 to be approximately US$0.70/Mcfe.
The company expects to provide first quarter 2018 guidance metrics and 2018 capital expenditure guidance and plans in connection with its 2017 year-end earnings release in early March 2018.
"After completing the sale of our Gulf of Mexico properties, we have eliminated a considerable long-term abandonment liability and have substantially reduced our exposure to future regulatory, environmental, surety and weather risks inherent in offshore operations. In addition, the sale will increase our net liquidity by US$6.5 million and allow us to focus our attention on developing our onshore assets in East Texas and in the Louisiana Austin Chalk trend," said Charles T. Goodson, Chairman, CEO and President. "While our production and reserve profiles will experience near-term reductions after this divestiture, we believe that this transaction will ultimately drive value creation."
Non-GAAP Financial Measure
PV-10 is the estimated future net cash flows from estimated proved reserves discounted at an annual rate of 10% before giving effect to income taxes. Standardised measure is the after-tax estimated future net cash flows from estimated proved reserves discounted at an annual rate of 10%, determined in accordance with GAAP. Management believes PV-10 is useful to investors as it is based on prices, costs and discount factors which are consistent from company to company, while the standardised measure is dependent on the unique tax situation of each individual company. As a result, the company believes that investors can use PV-10 as a basis for comparison of the relative size and value of the Company's reserves to other companies. The Company also understands that securities analysts and rating agencies use PV-10 in similar ways. PV-10 cannot be currently reconciled to the standardised measure of discounted future net cash flows because final income tax information for 2017 is not yet available. The company will provide the reconciliation of SEC priced, proved PV-10 to standardised measure in its Form 10-K for the year ended December 31, 2017.
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