PetroQuest Energy Announces Third Quarter Results

LAFAYETTE, La., Nov. 6 /PRNewswire-FirstCall/ -- PetroQuest Energy, Inc. announced today net income available to common stockholders for the quarter ended September 30, 2007 of $7,964,000 or $0.16 per share, compared to third quarter 2006 net income available to common stockholders of $6,544,000 or $0.13 per share. Net cash flow provided by operating activities before working capital changes for the third quarter of 2007 was $47,460,000, as compared to $37,448,000 for the comparable 2006 period. For the first nine months of 2007, the Company reported net income available to common stockholders of $28,408,000 or $0.57 per share compared to net income available to common stockholders of $23,675,000 or $0.49 per share, for the first nine months of 2006. For the first nine months of 2007, net cash flow provided by operating activities before working capital changes was $144,491,000. Net cash flow provided by operating activities before working capital changes for the first nine months of 2006 was $106,210,000. See the attached schedule for a reconciliation of net cash flow provided by operating activities to net cash flow provided by operating activities before working capital changes.

Oil and gas sales during the third quarter of 2007 increased 20% to $63,988,000 as compared to $53,310,000 in the third quarter of 2006. Production for the third quarter of 2007 was 16% higher than production for the comparable period of 2006. Stated on an Mcfe basis, unit prices received during the third quarter of 2007 were 4% higher than the comparable 2006 period. For the first nine months of 2007, oil and gas sales increased 27% to $190,702,000 from $150,194,000 in the first nine months of 2006. Production for the first nine months of 2007 was 22% higher than production for the comparable period of 2006. Stated on an Mcfe basis, unit prices received during the first nine months of 2007 were 4% higher than the prices received during the comparable 2006 period.

Lease operating expenses for the third quarter of 2007 decreased to $1.11 per Mcfe as compared to $1.28 per Mcfe in the third quarter of 2006. For the first nine months of 2007, lease operating expenses decreased 20% to $1.03 per Mcfe from $1.28 per Mcfe in the comparable period of 2006. Decreased unit costs were primarily the result of higher production in the current periods and the absence of operating expenses related to certain higher cost Gulf of Mexico properties that were sold in November 2006.

Depreciation, depletion and amortization ("DD&A") on oil and gas properties for the third quarter of 2007 was $3.83 per Mcfe as compared to $3.32 per Mcfe in the third quarter of 2006. For the first nine months of 2007, DD&A increased 17% to $3.68 per Mcfe from $3.15 per Mcfe for the comparable period of 2006. The increase in DD&A is primarily due to increased costs to drill for, develop and acquire oil and gas reserves along with two commercially unproductive wells in the Gulf Coast Basin during 2007.

General and administrative expenses increased $989,000 and $5,994,000 for the third quarter and nine months ended September 30, 2007, as compared to the respective 2006 periods. The increase during the nine-month period is primarily due to non-cash share-based compensation expense related to SFAS 123(R), which increased approximately $4,487,000 during the nine months ended September 30, 2007 as compared to the 2006 period. Additional increases are due to the 16% increase in staffing during 2007 as our operational activity has increased in our longer-lived areas.

The following table sets forth certain information with respect to the oil and gas operations of the Company for the three- and nine-month periods ended September 30, 2007 and 2006:

Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Production: Oil (Bbls) 243,048 206,576 889,521 548,999 Gas (Mcf) 6,621,226 5,738,895 18,257,387 16,023,905 Total Production (Mcfe) 8,079,514 6,978,351 23,594,513 19,317,899 Sales: Total oil sales $18,793,535 $13,721,525 $59,892,329 $34,741,192 Total gas sales 45,194,457 39,587,994 130,809,880 115,452,309 Total oil and gas sales 63,987,992 53,309,519 190,702,209 150,193,501 Average sales prices: Oil (per Bbl) $77.32 $66.42 $67.33 $63.28 Gas (per Mcf) 6.83 6.90 7.16 7.21 Per Mcfe 7.92 7.64 8.08 7.77

The above sales and average sales prices include increases (reductions) related to gas hedges of $4,366,000 and $2,765,000 and oil hedges of ($77,200) and ($804,000) for the three months ended September 30, 2007 and 2006, respectively. The above sales and average sales prices include additions (reductions) related to gas hedges of $8,207,000 and $6,132,000 and oil hedges of $155,000 and ($2,289,000) for the nine months ended September 30, 2007 and 2006, respectively.

The following initiates guidance for the fourth quarter of 2007: Guidance for Description 4th Quarter 2007 Production volumes (MMcfe/d) 83 - 89 Percent gas 80% Expenses: Lease operating expenses (per Mcfe) $1.00 - $1.10 Production taxes (per Mcfe) $0.30 - $0.34 Depreciation, depletion and amortization (per Mcfe) $3.70 - $3.80 General and administrative (in millions) $5.5 - $6.0 Interest expense (in millions) $2.8 - $3.2 Effective tax rate (all deferred) 37% The following updates guidance for the full year of 2007: Guidance for Description Full Year 2007 Production volumes (MMcfe/d) 85 - 87 Percent gas 75% Expenses: Lease operating expenses (per Mcfe) $1.00 - $1.10 Production taxes (per Mcfe) $0.26 - $0.30 Depreciation, depletion and amortization (per Mcfe) $3.70 - $3.80 General and administrative (in millions) $22 - $23 Interest expense (in millions) $13.5 - $14.5 Effective tax rate (all deferred) 37% Operations Update

Drilling activity during the third quarter of 2007 included three successful horizontal Woodford Shale wells in the Arkoma Basin, four successful horizontal coalbed methane wells in the Arkoma Basin and five successful wells in East Texas. As previously announced, the Company increased its acreage position in the Fayetteville Shale trend where it continues to acquire additional acreage.

A total of seven successful wells were drilled in the Arkoma Basin during the third quarter of 2007 resulting in an 100% success rate. The Company has now completed six operated horizontal wells in the Woodford Shale, and is currently operating 8.5 MMcfe per day of Woodford gross production. The fifth operated well has produced at test rates as high as 4.8 MMcfe per day and the sixth operated well has tested at 2.3 MMcfe per day. Drilling continues in the Arkoma Basin with two operated rigs drilling horizontal wells targeting the Woodford Shale as well as other non-operated activity. Current plans are to add a third operated rig during early 2008, which will accelerate the development of this core area.

The Company's expanded acreage position in the Fayetteville Shale presently encompasses approximately 18,000 net acres. The Company has already participated in the drilling of four horizontal Fayetteville Shale wells, two of which are awaiting completion operations. The Company expects to be extremely active in this trend for the remainder of the year and throughout 2008.

PetroQuest participated in the drilling and completion of five wells in the East Texas Basin during the third quarter of 2007 which were in the Southeast Carthage Field. In addition, the first well at the Company's Weekley prospect targeting oil was completed last week and is currently producing over 1,000 barrels of oil and 1,000 Mcf of gas per day. A second well in the Weekley prospect is currently being planned and is expected to be drilled in the next four months.

In the Gulf Coast Basin, the Company's Fricasse prospect has been drilled and approximately 95 feet of net productive sands were logged in this well. The well began producing during the third quarter at a gross rate of approximately 8 MMcfe per day. The Company has a 31% net revenue interest in this well.

Additionally, drilling continues in the Gulf Coast Basin where the company is currently drilling its Ballyliffin, La Cantera and Pelican Point prospects. Drilling results on all three projects are expected during the fourth quarter.

Hedging Update

The Company initiated the following commodity hedging transaction during October 2007:

Instrument Production Period Type Daily Volumes Price Natural Gas: 2008 Costless Collar 10,000 Mmbtu $8.00 - 8.60

After executing the above transaction, the Company has approximately 8.2 Bcfe of hedges for 2008.

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 Arkoma Basin, East Texas, South 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 press 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. These forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Among those risks, trends and uncertainties are our ability to find oil and natural gas reserves that are economically recoverable, the volatility of oil and natural gas prices, declines in the values of our properties resulting in ceiling test write-downs, our ability to replace reserves and sustain production, our estimate of the sufficiency of our existing capital sources, our ability to raise additional capital to fund cash requirements for future operations, the uncertainties involved in estimating quantities of proved oil and natural gas reserves, in prospect development and property acquisitions or dispositions and in projecting future rates of production, the timing of development expenditures and drilling of wells, hurricanes and other natural disasters, and the operating hazards attendant to the oil and gas business. In particular, careful consideration should be given to cautionary statements made in the various reports PetroQuest has filed with the Securities and Exchange Commission. PetroQuest undertakes no duty to update or revise these forward-looking statements.

PETROQUEST ENERGY, INC. Consolidated Balance Sheets (unaudited) (Amounts in Thousands) September 30, December 31, 2007 2006 ASSETS Current assets: Cash and cash equivalents $7,714 $4,795 Revenue receivable 24,181 21,767 Joint interest billing receivable 19,707 20,072 Hedging asset 2,509 10,527 Prepaid drilling costs 2,088 4,886 Other current assets 4,639 2,143 Total current assets 60,838 64,190 Property and equipment: Oil and gas properties: Oil and gas properties, full cost method 850,807 695,116 Unevaluated oil and gas properties 72,313 51,567 Accumulated depreciation, depletion and amortization (401,977) (314,869) Oil and gas properties, net 521,143 431,814 Gas gathering assets 21,509 19,072 Accumulated depreciation and amortization of gas gathering assets (5,852) (3,562) Total property and equipment 536,800 447,324 Other assets, net of accumulated depreciation and amortization of $10,843 and $11,719, respectively 6,277 6,776 Total assets $603,915 $518,290 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable to vendors $50,476 $34,790 Advances from co-owners 18,056 13,391 Oil and gas revenue payable 6,935 6,935 Accrued interest 5,836 2,453 Asset retirement obligation 7,778 9,028 Other accrued liabilities 7,194 5,484 Total current liabilities 96,275 72,081 Bank debt - 47,000 10 3/8% senior notes 148,698 148,537 Asset retirement obligation 12,671 11,211 Deferred income taxes 63,865 49,646 Other liabilities 362 104 Commitments and contingencies Stockholders' equity: Preferred stock, $.001 par value; authorized 5,000 shares; issued and outstanding 1,300 and 0, respectively 1 - Common stock, $.001 par value; authorized 75,000 shares; issued and outstanding 48,350 and 47,788, respectively 48 48 Paid-in capital 193,690 124,552 Accumulated other comprehensive income 1,418 6,632 Retained earnings 86,887 58,479 Total stockholders' equity 282,044 189,711 Total liabilities and stockholders' equity $603,915 $518,290 PETROQUEST ENERGY, INC. Consolidated Statements of Income (unaudited) (Amounts in Thousands, Except Per Share Data) Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Revenues: Oil and gas sales $63,988 $53,310 $190,702 $150,194 Gas gathering revenue and other income 1,512 1,776 5,566 4,746 65,500 55,086 196,268 154,940 Expenses: Lease operating expenses 8,929 8,960 24,185 24,738 Production taxes 1,593 1,772 5,777 4,554 Depreciation, depletion and amortization 31,846 23,923 89,510 62,994 Gas gathering costs 894 998 3,188 2,642 General and administrative 5,550 4,561 16,054 10,060 Accretion of asset retirement obligation 238 387 679 1,140 Interest expense 3,542 3,756 11,112 10,755 52,592 44,357 150,505 116,883 Income from operations 12,908 10,729 45,763 38,057 Income tax expense 4,870 4,185 17,281 14,382 Net income 8,038 6,544 28,482 23,675 Preferred stock dividends 74 - 74 - Net income available to common stockholders $7,964 $6,544 $28,408 $23,675 Earnings per common share: Basic $0.16 $0.14 $0.59 $0.50 Diluted $0.16 $0.13 $0.57 $0.49 Weighted average number of common shares: Basic 48,284 47,643 48,018 47,454 Diluted 49,778 48,999 49,602 48,747 PETROQUEST ENERGY, INC. Consolidated Statements of Cash Flows (unaudited) (Amounts in Thousands) Nine Months Ended September 30, 2007 2006 Cash flows from operating activities: Net income $28,482 $23,675 Adjustments to reconcile net income to net cash provided by operating activities: Deferred tax expense 17,281 14,382 Depreciation, depletion and amortization 89,510 62,994 Accretion of asset retirement obligation 679 1,140 Amortization of debt issuance costs 722 705 Amortization of bond discount 161 145 Share based compensation expense 7,656 3,169 Changes in working capital accounts: Accounts receivable (2,414) (407) Joint interest billing receivable 365 2,593 Accounts payable and accrued liabilities 20,588 9,243 Advances from co-owners 4,665 (724) Other assets (207) (5,069) Net cash provided by operating activities 167,488 111,846 Cash flows from investing activities: Investment in oil and gas properties (176,791) (136,709) Sale of oil and gas properties and other 248 4,859 Investment in gas gathering assets (2,437) (5,861) Net cash used in investing activities (178,980) (137,711) Cash flows from financing activities: Net (payments for) proceeds from share based compensation (63) 1,380 Deferred financing costs (73) (106) Proceeds from preferred stock offering 65,000 - Costs of preferred stock offering (3,453) - Repayment of bank borrowings (70,000) (6,000) Proceeds from bank borrowings 23,000 30,000 Net cash provided by financing activities 14,411 25,274 Net increase (decrease) in cash and cash equivalents 2,919 (591) Cash and cash equivalents, beginning of period 4,795 6,703 Cash and cash equivalents, end of period $7,714 $6,112 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $11,283 $9,124 Income taxes $- $- PETROQUEST ENERGY, INC. Non-GAAP Disclosure Reconciliation (Amounts In Thousands) Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Net cash flow provided by operating activities $55,268 $36,698 $167,488 $111,846 Changes in working capital accounts (7,808) 750 (22,997) (5,636) Net cash flow provided by operating activities before working capital changes $47,460 $37,448 $144,491 $106,210 Note: Management believes that net cash flow provided by operating activities before working capital changes is relevant and useful information, which is commonly used by analysts, investors and other interested parties in the oil and gas industry as a financial indicator of an oil and gas company's ability to generate cash used to internally fund exploration and development activities and to service debt. Net cash flow provided by operating activities before working capital changes is not a measure of financial performance prepared in accordance with generally accepted accounting principles ("GAAP") and should not be considered in isolation or as an alternative to net cash flow provided by operating activities. In addition, since net cash flow provided by operating activities before working capital changes is not a term defined by GAAP, it might not be comparable to similarly titled measures used by other companies.