PetroQuest Energy Inc. (PQ) is stepping away from the Midcontinent for what it hopes will be greener pastures in East Texas.

PetroQuest said June 5 it closed the sale of the majority of its interests in the Arkoma Basin's Woodford and Mississippian Lime to its joint venture partner, WSGP Gas Producing LLC, for gross proceeds of $280 million, subject to price adjustments.

The sale is transformational to the Lafayette, La.-based company, impacting its leverage and liquidity, said Charles T. Goodson, chairman, CEO and president, in a news release.

"By consolidating down to two primary operating regions we will now be able to focus our efforts on the multi-year development of the Carthage Field in East Texas, where we believe based upon outstanding recent results that we have assembled a premier asset in the core of the Cotton Valley trend," Goodson said.

According to the company, the sold Arkoma assets produced about 46 million cubic feet equivalent per day (MMcfe/d) and generated net operating cash flow of about $7.5 million during the first quarter of 2015. At year-end 2014, the asset's estimated proved reserves totaled about 227 Bcfe (63% proved developed) with an estimated net PV-10 value of $249 million.

The company used some of the proceeds from the divestiture to repay borrowings outstanding under its bank credit facility. In addition to having an undrawn revolver, the company currently has about $130 million in cash with an additional $14 million in deferred sales proceeds to be received prior to year-end 2015.

Goodson said the company will now redirect cash flow to its Cotton Valley operations in East Texas from the Gulf Coast, where it is nearing completion of its Thunder Bayou facility.

In East Texas, the company has more than 200 identified locations that are expected to provide a long-term platform for substantial growth and strong returns, he said.

The company recently completed the PQ #18 horizontal Cotton Valley well, in which it holds net revenue interest of 38%. The well achieved a maximum 24-hour gross rate of 8,219 Mcf of gas, 547 barrels (bbl) of NGL and 37 bbl of oil.

While PQ #18 was the last scheduled Cotton Valley well in the original 2015 capital budget, the company said it’s evaluating the potential timing of restarting the Cotton Valley drilling program in 2015.

Prior to the sale of the majority of its interest in the Arkoma Basin, the company held about 120,000 gross (62,000 net) acres in the basin through a JV agreement with WSGP and NextEra Energy Gas Producing LLC. The company owned about 50% of the net JV acres.

The company will retain a small working interest in the assets in the basin and maintain its working interest in the Woodford assets located on the east side of its acreage position, known as East Hoss.

The company said it will continue to drill and operate all wells throughout its Woodford acreage position under a services agreement. It currently is in the process of flowing back eight wells (average net revenue interest of 14%) in the East Hoss area with two rigs expected to continue working for the remainder of 2015.

"Our Tulsa team has done an extraordinary job over the last 10 years developing our Woodford asset into one of the leading properties in the Arkoma Basin," Goodson said. "This group's experience in delivering value and driving returns is expected to play an integral role in the continued development of these assets."

In conjunction with the divestiture, the company's bank credit facility was amended to extend the maturity date to June 2020 from October 2016, subject to certain conditions. In addition, the borrowing base was revised to $70 million from $190 million, with the lender's commitments fixed at $70 million. The next redetermination is scheduled to occur on or around Sept. 1.

The company said it also plans to unwind some of its 2015 gas hedge contracts because of the divestiture in order to comply with the covenants in its bank credit facility. It’s currently evaluating its gas hedge positions and expects to complete this process by June 30.

The sale has an effective date of Jan. 1. The company's board of directors was advised by Evercore Partners Inc. regarding certain financial matters associated with the transaction.

Contact the author, Emily Moser, emoser@hartenergy.com.

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