Achieved 247% reserve replacement ratio
PetroQuest (ticker: PQ) announced 2017 reserves today, showing a 36% increase in reserves; The company also announced the divestiture of its offshore Gulf of Mexico assets.
Reserves grow PetroQuest now holds 156 Bcfe in reserves, 80% of which is natural gas, while the remaining 20% is split between 7% oil and 13% NGL. This represents 36% reserve growth in 2017, as the company held 115 Bcfe at the end of 2016. Based on estimated 2017 production, the company achieved a 247% reserve replacement ratio with all-in F&D costs of about $0.70/Mcfe.
Divesting offshore GOM assets
PetroQuest also announced the sale of the company’s Gulf of Mexico properties, in something of an unusual transaction. The company will receive no proceeds from the sale, but will greatly reduce its abandonment liability. PetroQuest estimates it has eliminated an approximate $35.4 million undiscounted liability from its long-term obligations, and will only need to contribute $3.75 million towards future abandonment costs. As part of this sale, PetroQuest will receive a cash refund of $10.3 million from the depositary account the company was using to collateralize its offshore bonds.
In 2016 the BOEM announced sweeping new financial requirements to cover projected future costs of decommissioning and abandonment of wells on the OCS. The stringent requirements, while still in the early implementation stage, would seemingly levy significantly higher liability on all companies involved in any offshore leases on the U.S. Outer Continental Shelf. [Read OAG360 coverage here.]
PetroQuest reports the sold assets produced about 21.6 MMcfe/d in Q4 2017. However, production from the assets is dropping rapidly due to natural decline. PetroQuest estimates the assets will produce about 13.8 MMcfe/d in Q1 2018, a decline of 47%. The assets have about 11 Bcfe of reserves.
Sale values Q1 2018 production at $2,565/Mcfe/d
While PetroQuest did not receive any direct proceeds from the sale, the decrease in liability can be used to value production. Based on Q4 production, the drop in liability equates to $1,356 per flowing Mcfe/d, or $8,138 per flowing BOE. However, PetroQuest estimates that Q1 2018 production will be significantly lower, changing valuations. Based on estimated Q1 output, PetroQuest realized a drop in liabilities of $2,565 per flowing Mcfe/d, or $15,391 per flowing BOE.
Charles T. Goodson, PetroQuest Chairman, CEO and President commented “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 $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.”
