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PetroQuest Energy Inc.

Mon, 1 Dec 2008|



-- nexus Petroquest Energy out of Lafayette Louisiana. -- -- -- -- joining us afternoon and -- as an independent energy company engaged in the exploration development acquisition and production. Well enough gas reserves. Thank you good afternoon everybody. Historically Petroquest Energy has -- me exploration and production company focused in the Gulf Coast. South Louisiana and shallow waters of the gulf Mexico. Have had a very high success rate over our history we've been public for about ten years now. Pretty good returns from an F and beginning in 2003. A fundamental shift was made whereby we started diversification process. Where we began to use Gold Coast cash for and work our way and -- longer alive resource or unconventional place. -- that began with a entree into east Texas. And was quickly followed by our beginning a presence in Oklahoma and lastly Arkansas. -- we see here today we are firmly planted in four different basins -- in the gulf because the -- for shale Fayetteville shale. In the long live resource for instance Texas. I don't we have a extensive immature -- I'll show you -- greater detail. In the but the shale which way. More predictable and long live nature as well as the Gulf Coast which is where we grew the company from beginning. And haven't experienced management team who have had proven results and show you some of the growth. This slide unfortunately we cannot keep up fast enough with the falling equity markets and as fast as gone others come down faster however. You know we still have shown good returns as we went public via the reverse merger in 1998. And feel that this is they feed back and play like most people talked about today. The growth perspective over our nine years that we've posted as a public company. Some pretty impressive compound annual growth rates reserves and production and the life blood of an energy company and both of those from thirty to 40% range. We expect to grow reserves this year at -- rate of twenty to 30%. Those numbers would have been higher we guided those down slightly due to the lower commodity prices in India specifically in the mid continent region. We feel like the reserves of will be proven up at a higher price environment however. In the environment we're in right now we don't think -- will be put on the books. This year we're gonna grow production. The -- unified six to 10%. If we wouldn't -- about CBC. -- production and number would have been more online at 15%. Cash flow obviously this year has been very strong commodity prices that we've seen up through the first three quarters. You'll see -- on that later on. -- -- was founded as a -- for his company and we are expiration is by nature we have scientists internally that generate projects we screen deals on top of that. And have a very talented team of people. We do. Six war we drill exploration wells and all of our basins whether it's the shale plays -- -- stepping out are trying new techniques. Or grassroots. Amplitude drills -- Gulf Coast area. On top of that we've become very acquisitive over the last few years primarily in our unconventional plays we've been very aggressive successful -- acquiring leasehold positions. Specifically in Oklahoma this year we've grown from a position of about 2720000. Net acres in the -- effort to now 45000. Net acres. It's our acquisition team has been doing very good job of keeping the inventory growing. We do you have about playing these resource plays and we have been developing them I'll show you the number of wells in the way of production growing. That's all been done to development drilling and if we continued optimizing existing production you'll see for a small cap company. We do a very strong production base that is diversified throughout. All of -- areas. -- -- we can keep doing these things in doing them successfully a good cause we feel like our metrics will continue to improve and we like her chances. Was gonna get us to the next area of growth is really going to be the the resource trends we've been focusing a lot of our capital from an acquisition standpoint and built up a significant amount of them to -- About 80% of -- our. Future inventory is coming from these resource friends currently about 68% of the reserves on the books are from those areas. The thing about what we've done in these areas is we have not going Manning got one -- positions we bought major acreage positions typically we like -- operate most everything we do. And time right now it's it's beneficial because we control the timing of they have these we control the timing of when we're gonna spend money. We control how fast your house would do that that's one of the main. One of the main advantages of being an operator. Along with having -- get technical staff to get the wealth -- etiquette calls. -- we've always been very mindful of building facilities in maintaining control. And over time as these trends -- what we've learned is that they do get better through technological advances when usher with the next movie but. Every year we are finding more and more service companies providing -- -- New techniques. Geographically as mentioned we do have significant amount only sold in the Gulf Coast region. Most everything in this area is held by production. But. We have when he about a projects to drill in east Texas is beginning in 2003 with our -- acquisition. We began acquiring leases in production there -- everything we have they are leader is either drilled -- -- will be drove up in the next twelve months of one for a long. And then lastly -- home based -- which encompasses the -- for shale and Fayetteville shale. We entered the -- for jail by getting into the coal bed methane -- -- we do have a significant amount those leases held by production. And Fayetteville shale is a primarily a non operated play where were hooked up with three very successful operators. Who have been doing a tremendous job where we've where we are non operator. As mentioned we give -- 68% of our reserves above that white line our goal is -- you have the company about 75%. From the from the longer -- resourceful ways. Into at that point we would like to have about 50% of our production coming from those trends. Breaking out our inventory well locations reserves and production by base and you can see we are weighted to the longer live areas. That's really just been to just been as a result of the rapid. -- -- expansion that we made over the last few years. We will continue to drill of this inventory on a pretty rapid basis obviously with a capital. Constraints that are in place right now in the economic downturn. We are scaling back -- activity and we are for and we remain -- -- cash flow of however as the market allows us we will continue aggressively throw that out. You can see like most people these days we -- show. Much higher TPN three. We will grow reserves this year at the end of that -- twenty or 30% based on drilling. -- are coming base and is pretty large area where we're focusing. As mentioned on the what -- And the Fayetteville we've got about 45000 acres in the -- for jail. As mentioned that's up about 65% this year it's an area that we got into originally for coal bed methane play -- have been very successful drilling would for -- Wells and have -- our costs down -- recoveries are increasing. And so it's an area that we've been very aggressive in this year are very pleased with it. In the Fayetteville shale we have 181000 acres that we've been having for a couple years now as mentioned we are -- operator -- the trend the results have been very favorable. Our main operators petrohawk in the area and have been -- some very economical -- And -- the highest growth area this basin of -- are up to about 39 million a day -- net production between these two areas and when you -- in all production. And we do expect that number to continue to increase from one format just additional wells coming on. Two from a pipeline infrastructure project that it would be completed here within the next week or ten days. So what for shale we've got multiple locations left to drill we had been drilling was three rigs we had plans of going up to 45 but. With the capital in the cash flow coming down with commodity prices coming down. We have decided to pull back a little bit in just wafer cost to command as well as commodity prices to come back. We are currently one of running one rig. And feel like all of our leases would be don't be preserved from the standpoint. We've got a significant amount of them held by production through the cold that. And we will have at least one ring operating in their full time. We did take the opportunity to monetize a significant amount of our gathering systems earlier in the year. Just about all of them to mark -- she's gonna come in and enhance the fraud. The properties for us. And that project as mentioned will be done in about seven -- ten days. If you look at the success of -- -- for program this chart pretty much speaks for itself as we. Had one rig in two rigs working. First of all you just didn't have -- rigs -- and secondly. The techniques that we -- -- the learning curve that we are all on. We clearly gotten much better this and when you -- three rigs that it it's it's going quite well. We're up over 45 million -- -- gross operated production with a pretty significant -- -- tell exactly how much -- curtailed due to the pipes. What we should alleviate some back pressure when marquis completes the project and should see an additional increase in production. You know that these numbers are the growth of the company in the future and we're quite pleased or leasehold position. Looking at the economics because right now it's time where you've got to -- -- cost control and see at what prices you can make money we still think -- six dollar Henry hub price. We can drill these wells and make -- -- term that's acceptable it's clearly not we were generating six months ago. And the first year the production on these wells like most resource trends is very important that you recover probably about 20% it was are in that first year. But you can see there were raising -- you wars two now calling them three to four -- Cost currently are probably five and a -- nine dollars however as most people are seeing. Maybe the cost pressures no longer there and could see -- deflation. And the IP rates we're calling three to five and a half million summer -- or most are higher. We have announced a record well McCain more -- about twelve and happening today out. Thirty days ago now. And -- still swollen and about nine half million -- day after that first three or four weeks of productions. There are going to be some anomalies will be -- W but we've clearly gotten better at this technique. If you like it -- for -- and you like to investing public companies that have them I think petroquest is the waiting we are clearly the most levered to the what for jail. And have clearly gotten better at this over time. There's some other companies that larger acreage positions we do business with most we like it techniques -- -- and we just think that that would for we -- -- -- -- -- As -- the Fayetteville we've got about 181000 acres all non operator of majority non operated everything's been drilled so forth and non operated. The production out there is growing on a relative basis. At a tremendous rate also we were producing nothing coming into this year were over six million a day and that. I'm pretty small working interest in the -- wells to the tune of maybe 10% on average. It's when you drill under 10130 of these wells and a year you're gonna -- production growth pretty rapidly. Very pleased with the results out there. We're in probably was considered the lower cost portion of the base and it's a shallow -- area it's to the north. Shallow or cheaper lower recovery over time but -- are are just as competitive as anywhere in the -- Once again we show well economic -- can show that at this price environment we can't continue to general -- term. However you know it's it's easy to see that these resource friends do you take -- higher gas price over time. Not as levered to the Fayetteville shale as we are in the would -- but for a company that got in there. Not at the beginning of the trend may be in the middle to latter half we have built very meaningful position professor west. We got -- -- -- the resource -- to begin with was east Texas we have about 50000 net acres in the area it's anchored by our portage field which sits on the Louisiana Texas border. Historically we've been a cotton -- and Travis peak driller in that area. And on top of that we've generated several other plays. One which is an oil play in the -- stands one that we call our Palmer prospect which is another cotton valley play outside of -- A significant drilling inventory we've got the the -- shale rights under our Carthage field which is this jail just above the haynesville. Which is obviously -- pretty prolific area. And have some also haynesville exposure over -- north Louisiana. So we're gonna continued. -- capital there however. It probably comes behind our two existing shale plays at this point. This is just a map showing where -- various trends -- and you can see over. On the eastern side -- that -- is where -- southeast Carthage field -- which makes up about half our net acres position. Looking out of on a cash flow basis. From the multiple standpoint. There's a lot of companies on here that are cheap. And we just -- ourselves to be one of the cheapest trading about just over two times cash for. Valuations are very compelling obviously this market is little different and we have been for the last few years. But. The cash for more -- always been one that we've been a little bit lower than peer group on. I think that over time as we continue to shift our focus. To these resource trends you're gonna see multiple expansion. We just -- get the overall economy -- first. One thing that's holding those multiples now a little bit is our goal because we're about shy about it returns are -- over there. We've got an existing team in Lafayette Louisiana as well as Houston to generate projects -- good at them and we feel like with our inventory on leases. And our skill set that we're gonna continue to make money there. We drill a mix of projects some high risk some low risk and the goal of this base -- the team has is to keep reserves and production flat they've actually done a pretty good job. Growing over the last several years. And projects like the two top ones that have come on during the year -- the reasons why. These are big projects especially the first one pelican Pointe is making twenty million a day has been since may. Other than the hurricane down time is just bumped along pretty relatively flat. It's a big -- of war and -- of the Connors are that are going to be there for wall. In the strategy is to take that cash flow reinvest a portion of it back into the gulf -- However take a majority of it in fund these resource friends with -- so over time we're gonna continue to employ capital amongst the different nations for different reasons some of them are gonna have lower -- indeed some of -- -- have. Higher reserve bookings for dollars -- we'll have a hire internal rate of return. We like to balance we're gonna focus on cost especially in this environment program right now our focus on that and -- as -- -- lifting cost. We're gonna use the balance and were always going to be looking -- more acquisitions. As we have -- -- last few years. -- -- -- -- reserves have done over our corporate or overall public existence. You can see that once we got into the resource trends the Gulf Coast has relatively stayed flat so it's doing its job. Basically it's taking half the cash what is sometimes even more than half the cash -- and funding east Texas and -- home base and at the same time those reserves and production -- there for long haul. If you look at production the key here this year is -- and grow production six to 10% this year which in -- high as the historical metrics that we posed. Are posted. However -- composition is changing quite a bit we were about 30% of our production last year from long life properties still -- heavily weighted Gold Coast company. This year we're up now. 55%. Maybe from the Gulf Coast and actually in the third quarter because of our deferred production in the gulf because it was the first quarter as -- company. Where -- long live production was -- -- Gulf Coast production. We do -- the gulf terrorists surpasses once again in the fourth quarter it looks like it will. However we're getting the point where we're almost of that 5050 goal that we are looking forward -- the transformation. Cash flow like most company is growing rapidly this you can see. That after 2007 I think we made about 175 million. A look at the first nine months I believe we were -- surpassing that number with a quarter left. And you can see the result of the margins. That we outposts in the first nine months was really the driver of that. Those will -- fourth quarter with. Pullback in commodity prices however was about 50% of our production hedged we do we're still posted some pretty significant margins. The capital. Investment program you can see has changed quite a bit back in 2002 we -- exclusively -- Gulf Coast company. We're spending about 64 million drop dollar drawing ten wells that six point four million dollars every time you but the -- to work. This year the capex budget has been tightened up to about 250 to 260 million dollars drilling about a 150 wells. So you can see the risk exposure of her well has come down dramatically. -- also see that we're not only in the Gulf Coast now where the geographical risk and the camera geological risk is much less. -- looking for 2009. We don't have a budget out there yet because we don't exactly know where cash was gonna become -- man. But I would say the composition will probably stay about the same where they -- come -- probably gets about half of it. And the other half will be split up between the Gulf Coast and -- us. Just recently. By the beginning of October we were able to close on a new credit facility led by JPMorgan with four other banks we increased. The facility sought from 150 million to 300 million. And increased the -- 200 million to 300 million and we increased the borrowing base from 95000250. Million. Some key things is that we expanded the bank group we got the liquidity. And we extended the maturity of that facility to at least 2012. So we don't have any near term obligations from a short term debt standpoint. Which. It's somewhat comforting right now. We do maintain a pretty conservative financial philosophy. From a metric standpoint. We've always been trying to find drilling capex out of cash what we've always acquired out of debt or equity. And have never really said -- we're gonna drill out of or acquire out of equity -- out of cash well. We're gonna continue to stay with that point 2009 is going to be a year where we stay -- cash flows of capital markets -- him. Too much of -- disarray to get outside of that and that's gonna be -- strategy we continue to import. It's not changing our stripes so that's the good thing that's where the Gulf Coast comes in the way it funds the growth of these other areas. We've always targeted some pretty conservative debt levels and you can see that. We were very under a lever from me liquidity standpoint or from me -- standpoint. And have you know had pretty favorable ratings from the rating agencies recently. Also would help out as we -- -- the -- that in the portfolio anymore we're not afraid liquidated and over the last two and a half years we have done so by selling some -- war. Gulf of Mexico assets that were later in their life. And as mentioned earlier -- in the pipeline systems earlier this year which is not a core business of -- -- -- we do hedge book typically had about forty to 50% of our production and about 50% of our fourth quarter. -- production is hedged and we have layered and it pretty significant amount -- nine hedging already. You can see the prices. Majority is done with cost of scholars. 843. Is a good for price for us in -- hundred dollar -- is very acceptable which we at all -- That's just the way guys. So in summary you know we've got a -- inventory in various -- and we can specifically it capital. To put into these areas for whatever reason we want. We've got the resource plays and got the convention Google -- we've got a team in place that knows how to do it as proven that we can do it. We're gonna continue to generate and will continue to acquire as you know as we see fit but. It's clearly going to be an exploit is -- exploitation here more than any thing. We're gonna -- Gulf Coast projects we may not throw as many high risk projects in 2009 as moderate risk projects but it's going to be a significant growth area for us. We do have a strong liquidity position and we've got production in place is a small cap companies. Now around 30400 million dollars these days -- market cap making over a hundred million today keeping. Gas equivalent today is clearly impressive. And as a management team and -- -- we -- about 20% of the companies are we going to work every day feel like we're shareholder suits. We appreciate your attendance this afternoon and with the police take any questions in the break up.

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