PetroQuest sells assets, updates borrowing base

PetroQuest Energy Inc. (NYSE: PQ) has closed the sale of the majority of its interests in the Woodford and Mississippian Lime for gross proceeds of $280 million, subject to estimated purchase price adjustments between the effective date of Jan. 1 and the closing date. 

During the first quarter of 2015, the sold assets produced 46 MMcfe/d and generated net operating cash flow of $7.5 million. As of Dec. 31, 2014, the company's estimated proved reserves attributable to the sold assets totaled 227 Bcfe (63% proved developed) with estimated discounted net cash flow (PV-10) of $249 million, using SEC pricing ($3.58 per Mcf of gas, $21.47 per barrel of natural gas liquids and $93.48 per barrel of oil).

PetroQuest will retain a small working interest in the sold assets, as well as maintain its working interest in the Woodford assets located on the east side of its acreage position (East Hoss). As a result, the company will continue to drill and operate all wells throughout its Woodford acreage position under a services agreement. PetroQuest is in the process of flowing back eight wells (average NRI 14%) in the East Hoss area with two rigs expected to continue working for the remainder of 2015.

In conjunction with the divestiture, the company's bank credit facility was amended to extend the maturity date from October 2016 to June 2020, subject to certain conditions. In addition, the borrowing base was revised from $190 million to $70 million, with the lender's commitments fixed at $70 million. The next redetermination is scheduled to occur on or around Sept. 1.

PetroQuest used a portion of the proceeds from the divestiture to repay all borrowings outstanding under its bank credit facility. In addition to having an undrawn revolver, the company has $130 million in cash with an additional $14 million in deferred sales proceeds to be received prior to Dec. 31.   

As a result of the asset sale, PetroQuest plans to unwind certain of its 2015 gas hedge contracts in order to comply with the covenants in its bank credit facility. PetroQuest is evaluating its gas hedge positions and expects to complete this process by June 30.

Global Hunter Securities commented, "In a significant de-leveraging transaction, PQ is exiting the majority of its Mid-Continent position to turn its focus to the promising Cotton Valley play. The $280MM divestiture appears accretive on a multiple basis (selling assets at ~7x TTM EBITDA vs. a corporate multiple < 5x) and significantly enhances current liquidity ($20MM of working capital at 3/31 goes to $172MM pro forma), while streamlining the portfolio to core assets with scale (Cotton Valley) and cash flow (Gulf Coast). This transformative transaction should address concerns regarding debt levels and liquidity that we believe have driven recent underperformance in the stock, and PQ should see another positive catalyst this week with the much-anticipated startup of the high rate Thunder Bayou well."

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