PetroQuest Energy Inc. (NYSE: PQ) will exit its Gulf of Mexico (GoM) operations in a no-compensation deal for its assets and production as the company shifts focus to its onshore plays.
Northstar Offshore Ventures LLC, a venture owned by billionaire Tom Clarke’s Orinoco Natural Resources LLC, purchased the assets Jan. 31 with an effective date of Dec. 1, 2017.
In fourth-quarter 2017, PetroQuest said its GoM assets averaged 26.1 million cubic feet of gas equivalent per day (cfe/d) but that production had declined during the past 60 days. The properties averaged about 13.8 MMcfe/d (24% oil, 71% gas, 5% NGL) in January, down 47% from the fourth quarter.
The sale clears about $35.4 million of future, undiscounted abandonment liabilities from PetroQuest’s balance sheet, the company said Feb. 1. PetroQuest’s deal requires it to contribute $3.75 million to future abandonment costs. The company expects to receive a cash refund of about $10.3 million used to collateralize a portion of its offshore bonds.
For Orinoco, based in Roanoke, Va., the deal will further expand its Northstar subsidiary. Orinoco purchased bankrupt Northstar in August for $71 million. Clarke and his wife, Ana, control the Virginia Conservation Legacy Fund, which previously purchased bankrupt Patriot Coal Corp.’s assets in 2015 for $860 million. The organization seeks to conserve natural resources and address climate change in part by finding economic futures for people and communities that depend on mining.
PetroQuest will now focus on assets in the Cotton Valley, Gulf Coast and Austin Chalk, said Richard Tullis, an analyst at Capital One Securities. Excluding its plug and abandonment costs, Tullis said Capital One valued the GoM properties at about $20 million.
In December, PetroQuest purchased assets in central Louisiana targeting the Austin Chalk Formation, where production is about 70% oil. The company said its base estimate for the asset include 600,000 barrels of oil per well with internal rates of return of 60% at $50 oil. PetroQuest purchased the assets in a cash and stock transaction valued at about $18.55 million.
The company’s proved reserves will also rise despite the sale.
At year-end 2017 proved reserves after exiting the GoM properties grew by 26% year-over-year to 145 Bcfe, with PV-10 up 94% to $130 million, Tullis said.
Charles T. Goodson, PetroQuest’s chairman, president and CEO, said the sale eliminates a considerable long-term abandonment liability for the company and reduces its exposure to future regulatory, environmental, surety and weather risks inherent in offshore operations.
“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,” he said. “While our production and reserve profiles will experience near-term reductions after this divestiture, we believe that this transaction will ultimately drive value creation.”
PetroQuest has been working to secure joint ventures on its Cotton Valley acreage, including a potential DrillCo, Tullis said.
“We also expect the company will spud a well targeting the Austin Chalk in 2018 on the acreage acquired late last year,” he said.
Darren Barbee can be reached at firstname.lastname@example.org.