PetroQuest Energy Inc. (NYSE: PQ) has entered into East Texas joint venture agreements to develop the Cotton Valley formation with a group of investors (the partners), whereby the partners acquired an approximate 20% working interest in the company's 6,400 gross acre project area. The joint venture does not include existing vertical and horizontal producing wells within the defined project area.
The partners will pay approximately $12 million in participation fees over the first 12 months of the program (subject to a one-time partner election to continue participating in the program after the 7th well) to fund a portion of the company's development costs. In addition, the partners will pay approximately 24% of the drilling and completion costs relative to their 20% working interest. The company is evaluating interest from other potential partners that could increase the working interest sold by up to an additional 5% on the same terms as described above.
In addition to the partners described above, the company has an existing 5% working interest partner that will have the option to participate in up to the next eight wells drilled in the project area. This partner will pay 7% of the drilling and completion costs relative to its 5% working interest.
The first phase of the joint venture is focused on drilling up to 47 horizontal Cotton Valley wells with an expected average lateral length of approximately 5,600 feet. The company recently executed a rig contract and expects to spud its first joint venture horizontal Cotton Valley well in December of 2016. Based on the existing partner participation described above, the company expects to pay approximately 69% of the drilling and completion costs for a 75% working interest in the initial joint venture well. The company expects to drill and complete 8-10 gross wells during 2017 under this joint venture.