PetroQuest Energy Emerges From Bankruptcy With New Board

PetroQuest Energy Inc. said Feb. 11 it completed its reorganization and emerged from bankruptcy with nearly $300 million of debt eliminated and a newly elected board.

The Lafayette, La.-based independent oil and gas company began to face financial woes in the second half of 2018 despite repositioning its portfolio to focus solely onshore Texas and Louisiana after divesting all of its Gulf of Mexico (GoM) operations early last year.

“We are excited to announce the successful completion of our financial restructuring and to embark on our new beginning,” Charles T. Goodson, CEO and president of PetroQuest, said in a statement. “Our company [emerges] from bankruptcy with a stronger recapitalized balance sheet and significantly reduced debt load, which we believe will allow us to fully realize our potential in developing our assets.”

PetroQuest focuses on exploration and production of Cotton Valley assets in East Texas and onshore assets in Central and South Louisiana. The company shifted its focus to onshore plays following the sale of its GoM operations in a no-compensation deal in January 2018 with Northstar Offshore Ventures LLC, a venture owned by billionaire Tom Clarke’s Orinoco Natural Resources LLC.

Despite the sale clearing about $35.4 million of future, undiscounted abandonment liabilities from PetroQuest’s balance sheet, by August 2018 the company elected not to make a semi-annual interest payment of about $14.2 million in an effort to preserve liquidity as it began to review alternative capital structure options.

After entering into a forbearance agreement with its creditors in September 2018, PetroQuest eventually filed an emergency motion in early November stating, “after months of negotiations, the debtors and the consenting creditors reached an agreement regarding the restructuring of the debtors’ capital structure” and calling the agreement a “true balance sheet restructuring,” according to a report by Ralph E. Davis Associates, an Opportune company.

Under PetroQuest’s Chapter 11 reorganization plan, holders of second lien notes were set to receive all the new equity in the reorganized PetroQuest, subject to dilution from the management incentive plan, the backstop fee association with the exit facility, and $80 million of new second lien payment in kind notes issued by the reorganized company. Also, general unsecured creditors would receive a pro rata share of a $400,000 cash pool and preferred and common equity would be canceled with no distribution to holders.

PetroQuest listed its assets in the range of $1 million to $10 million and liabilities in the $100 million to $500 million range.

Following completion of its reorganization, PetroQuest estimates roughly $295 million in debt and preferred equity obligations were eliminated from its balance sheet and that its current cash balance is about $23 million, according to its press release.

The company’s post-restructuring balance sheet includes $130 million of debt outstanding, consisting of $80 million in aggregate principal amount of its 10% senior secured payment-in-kind notes due 2024 and a $50 million first lien term loan agreement.

PetroQuest’s largest shareholders also appointed a new board of directors replacing the old board comprised of Goodson, as chairman, and William W. Rucks IV, E. Wayne Nordberg, W.J. Gordon III, Charles F. Mitchell and J. Gerad Jolly.

Effective as of emergence, PetroQuest’s new board of directors consists of Neal P. Goldman, John “Brad” Juneau, Harry Quarls and David I. Rainey. Goodson also remains on the PetroQuest board but has been replaced as chairman by Goldman, who is currently the managing member of SAGE Capital Investments LLC, a consulting firm specializing in independent board of director services, turnaround consulting, strategic planning, and special situation investments. Goldman also currently serves as chairman of Talos Energy Inc. (NYSE: TALO).

“I would like to extend my appreciation to our former board of directors, and our employees and advisors who worked diligently during this process,” Goodson said. “In addition, we are looking forward to collaborating with our new board of directors, who bring experience and expertise to PetroQuest, in developing strategies to position the company for long-term success and drive value for all our stakeholders.”

PetroQuest ended 2018 with about 130.3 billion cubic feet equivalent (Bcfe) of estimated proved oil and gas reserves comprised of 82% natural gas, 5% oil and 13% NGL. In addition, roughly 47% of the reserves were proved developed.

The company estimates that its 2018 production was about 21.4 Bcfe (75% natural gas, 9% oil and 16% NGL), or 58.7 million cubic feet equivalent per day (MMcfe/d). Fourth-quarter 2018 production was 4.6 Bcfe (75% natural gas, 8% oil and 17% NGL) or 50.4 MMcfe/d.

PetroQuest filed for Chapter 11 plan of reorganization in the U.S. Bankruptcy Court for the Southern District of Texas.

Following completion of the restructuring, the company will have about 9.2 million shares of its Class A common stock outstanding. The company expects that its shares of class A common stock will initially be quoted on the Over-The-Counter Pink Market.

Porter Hedges LLP was legal counsel and Seaport Global Securities and FTI Consulting Inc. acted as financial advisers to PetroQuest in connection with its restructuring efforts. Akin Gump Strauss Hauer & Feld LLP acted as legal counsel to the consenting creditors party to the restructuring support agreement, and Houlihan Lokey Capital Inc. is acting as the consenting creditors’ financial adviser.