PetroQuest Energy Announces Second Quarter Results Wednesday August 2, 7:30 am ET LAFAYETTE, La., Aug. 2 /PRNewswire-FirstCall/ -- PetroQuest Energy, Inc. (NYSE: PQ - News) announced today net income for the quarter ended June 30, 2006 of $7,982,000 or $0.16 per share, compared to second quarter 2005 net income of $3,865,000 or $0.08 per share. Net cash flow provided by operating activities before working capital changes for the second quarter of 2006 was $34,829,000, as compared to $20,847,000 for the comparable 2005 period. For the first six months of 2006, the Company reported net income of $17,131,000 or $0.35 per share. The Company reported net income of $8,052,000 or $0.17 per share for the first six months of 2005. For the first six months of 2006, net cash flow provided by operating activities before working capital changes was $68,762,000. Net cash flow provided by operating activities before working capital changes for the first six months of 2005 was $36,359,000. 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 second quarter of 2006 increased 66% to $49,868,000 as compared to $29,977,000 in the second quarter of 2005. Production for the second quarter of 2006 was 43% higher than production for the comparable period of 2005. Stated on an Mcfe basis, unit prices received during the second quarter of 2006 were 16% higher than the prices received during the comparable 2005 period. The increase in production in the second quarter of 2006 as compared to the second quarter of 2005 was the result of the restoration of production at our Main Pass 74 Field in January 2006, the impact of acquisitions of producing properties made during 2005 and production attributable to the 91% drilling success rate we achieved during 2005. For the first six months of 2006, oil and gas sales increased 88% to $96,884,000 from $51,649,000 in the first six months of 2005. Production for the first six months of 2006 was 56% higher than production for the comparable period of 2005. Stated on an Mcfe basis, unit prices received during the first six months of 2006 were 20% higher than the prices received during the comparable 2005 period. Higher oil and gas commodity prices have resulted in increased demand for oilfield services and materials, and our record net income and cash flow results were achieved despite higher costs which have negatively impacted industry wide operating and finding costs. Lease operating expenses for the second quarter of 2006 increased 24% to $1.35 per Mcfe as compared to $1.09 per Mcfe in the second quarter of 2005. For the first six months of 2006, lease operating expenses increased 14% to $1.28 per Mcfe from $1.12 per Mcfe in the comparable period of 2005. In addition, depreciation, depletion and amortization ("DD&A") on oil and gas properties for the second quarter of 2006 increased 17% to $3.01 per Mcfe as compared to $2.57 per Mcfe in the second quarter of 2005. For the first six months of 2006, depreciation, depletion and amortization increased 22% to $3.06 per Mcfe from $2.51 per Mcfe for the comparable period of 2005. General and administrative expenses increased $1,525,000 and $1,991,000 for the second quarter and six months ended June 30, 2006, as compared to the respective 2005 periods. These increases included approximately $1 million of non-cash stock compensation expense recognized in conjunction with the adoption of SFAS 123R on January 1, 2006. The following table sets forth certain information with respect to the oil and gas operations of the Company for the three- and six-month periods ended June 30, 2006 and 2005: Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Production: Oil (Bbls) 187,449 217,156 342,423 398,555 Gas (Mcf) 5,408,047 3,252,510 10,285,010 5,501,623 Total Production (Mcfe) 6,532,741 4,555,446 12,339,548 7,892,953 Sales: Total oil sales $12,254,099 $9,747,130 $21,019,667 $17,619,699 Total gas sales 37,613,962 20,229,581 75,864,315 34,028,518 Total oil and gas sales 49,868,061 29,976,711 96,883,982 51,648,217 Average sales prices: Oil (per Bbl) $65.37 $44.89 $61.39 $44.21 Gas (per Mcf) 6.96 6.22 7.38 6.19 Per Mcfe 7.63 6.58 7.85 6.54 The above sales and average sales prices include additions (reductions) related to gas hedges of $2,328,000 and ($813,000) and oil hedges of ($808,000) and ($1,262,000) for the three months ended June 30, 2006 and 2005, respectively. The above sales and average sales prices include additions (reductions) related to gas hedges of $3,367,000 and ($1,078,000) and oil hedges of ($1,485,000) and ($2,341,000) for the six months ended June 30, 2006 and 2005, respectively. Guidance The following initiates guidance for the third quarter of 2006: Guidance for Description 3rd Quarter 2006 Production volumes (MMcfe/d) 70 - 75 Percent gas 83% Expenses: Lease operating expenses (per Mcfe) $1.25 - $1.35 Production taxes (per Mcfe) $0.30 - $0.35 Depreciation, depletion and amortization (per Mcfe) $3.25 - $3.35 General and administrative (in millions) $4.3 - $4.7 Interest expense (in millions) $3.5 - $4.0 Effective tax rate (all deferred) 37% The following updates guidance for the full year of 2006: Guidance for Description Full Year 2006 Production volumes (MMcfe/d) 68 - 72 Percent gas 83% Expenses: Lease operating expenses (per Mcfe) $1.20 - $1.30 Production taxes (per Mcfe) $0.28 - $0.32 Depreciation, depletion and amortization (per Mcfe) $3.20 - $3.30 General and administrative (in millions) $14.0 - $14.5 Interest expense (in millions) $14.5 - $15.0 Effective tax rate (all deferred) 37% The Company's drilling capital budget for 2006 is approximately $165 to $175 million depending on commodity prices, drilling success and related completion and facility costs. Operations Update Drilling activity during the second quarter of 2006 included 17 successful horizontal coalbed methane wells and five successful vertical Woodford shale wells in the Arkoma Basin, six successful wells in East Texas, and successful discoveries at the Company's English Turn Prospect, the West Cameron and Ship Shoal drilling programs in the Gulf Coast region. The Company's Pacific Grove Prospect was determined to be not commercially productive. A total of 22 successful wells were drilled in the Arkoma Basin during the second quarter of 2006 resulting in a 100% success rate. The Company's net production in this basin averaged approximately 9,000 Mcf per day during the quarter. Drilling continues in the Arkoma Basin with two rigs working full time in the Hartshorne Coal. The Company has finished the drilling and completion operations of the first two Company operated wells that tested the Caney and Woodford Shales. Both wells encountered productive shale members in the Caney and Woodford formations, and each well has been fractured in the Woodford Shale. The wells had initial production rates of approximately 400 and 1,300 Mcf per day, and have been producing for five and two weeks, respectively. Current plans are to monitor the production in the Woodford shale for approximately 60 days before fracturing the Caney shale. Based on these results, the Company will move forward with its field development plan using 3-D seismic and a combination of vertical and horizontal wells. The next well is scheduled for drilling during the second half of 2006 and the Company expects to increase its activity during 2007. PetroQuest participated in the drilling and completion of six wells in the East Texas Basin during the second quarter of 2006. The Company's net production in this basin averaged approximately 12,900 Mcfe per day during the quarter. The Company drilled its Palmer and Hogan prospects during the quarter and both wells are awaiting pipeline connections. These discoveries lowered the risk on approximately ten and six offset drilling locations, respectively. The Company expects a second full time rig to be utilized in the East Texas area in approximately one month. As previously announced, the Company's Pelican Point prospect was drilled and is being completed in the Rob L objective. The well is expected to begin producing within two weeks and is expected to flow approximately 10,000 to 15,000 Mcfe per day. PetroQuest has an approximate 18% net revenue interest (NRI) in the well. Also as previously announced, the Company's Grayhawk Prospect in the Gulf of Mexico was drilled to a total depth of approximately 18,200 feet, logging 132 feet total vertical depth of net productive sands. The well is expected to begin producing during September, and the Company has an approximate 18% NRI. The Company is currently drilling The Farm Prospect (48% working interest) in the Gulf Coast Basin. The Company also expects to spud its Turducken, Gray Plantation and Pelican Point #2 Prospects during the third quarter. 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 trades on the New York Stock Exchange under the ticker symbol "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 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 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) June 30, December 31, 2006 2005 ASSETS Current assets: Cash and cash equivalents $8,488 $6,703 Revenue receivable 20,870 22,492 Joint interest billing receivable 21,759 17,567 Hedging asset 901 --- Other current assets 7,939 3,441 Total current assets 59,957 50,203 Property and equipment: Oil and gas properties: Oil and gas properties, full cost method 616,537 523,212 Unevaluated oil and gas properties 46,480 52,745 Accumulated depreciation, depletion and amortization (252,386) (210,774) Oil and gas properties, net 410,631 365,183 Gas gathering assets 17,926 10,861 Accumulated depreciation and amortization of gas gathering assets (2,186) (1,055) Total property and equipment 426,371 374,989 Other assets, net of accumulated depreciation and amortization of $10,998 and $10,353, respectively 6,560 6,278 Total assets $492,888 $431,470 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable to vendors $47,911 $41,462 Advances from co-owners 10,029 5,874 Oil and gas revenue payable 8,264 8,090 Hedging liability --- 15,987 Other accrued liabilities 11,446 10,542 Total current liabilities 77,650 81,955 Bank debt 33,000 10,000 10 3/8% senior notes 148,436 148,340 Asset retirement obligation 18,650 19,257 Deferred income taxes 42,456 27,139 Other liabilities 253 242 Commitments and contingencies Stockholders' equity: Common stock, $.001 par value; authorized 75,000 shares; issued and outstanding 47,451 and 47,325 shares, respectively 47 47 Paid-in capital 118,878 117,441 Accumulated other comprehensive income (loss) 1,894 (7,444) Retained earnings 51,624 34,493 Total stockholders' equity 172,443 144,537 Total liabilities and stockholders' equity $492,888 $431,470 PETROQUEST ENERGY, INC. Consolidated Statements of Income (unaudited) (Amounts in Thousands, Except Per Share Data) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Revenues: Oil and gas sales $49,868 $29,977 $96,884 $51,649 Gas gathering revenue and other income 1,628 302 2,970 373 51,496 30,279 99,854 52,022 Expenses: Lease operating expenses 8,827 4,965 15,778 8,847 Production taxes 1,212 762 2,782 1,136 Depreciation, depletion and amortization 20,352 11,859 39,071 20,054 Gas gathering costs 927 --- 1,644 --- General and administrative 3,344 1,819 5,499 3,508 Accretion of asset retirement obligation 383 205 753 405 Interest expense 3,627 4,723 6,999 5,685 38,672 24,333 72,526 39,635 Income from operations 12,824 5,946 27,328 12,387 Income tax expense 4,842 2,081 10,197 4,335 Net income $7,982 $3,865 $17,131 $8,052 Earnings per common share: Basic $0.17 $0.08 $0.36 $0.17 Diluted $0.16 $0.08 $0.35 $0.17 Weighted average number of common shares: Basic 47,394 46,969 47,360 46,158 Diluted 48,900 48,205 48,809 47,840 PETROQUEST ENERGY, INC. Consolidated Statements of Cash Flows (unaudited) (Amounts in Thousands) Six Months Ended June 30, 2006 2005 Cash flows from operating activities: Net income $17,131 $8,052 Adjustments to reconcile net income to net cash provided by operating activities: Deferred tax expense 10,197 4,335 Depreciation, depletion and amortization 39,071 20,054 Accretion of asset retirement obligation 753 405 Amortization of debt issuance costs 467 841 Write-off of debt issuance costs --- 2,439 Amortization of bond discount 96 20 Stock based compensation expense 1,047 --- Compensation expense --- 213 Changes in working capital accounts: Accounts receivable 1,622 (1,886) Joint interest billing receivable 418 (1,652) Accounts payable and accrued liabilities 5,515 (6,430) Advances from co-owners 4,155 11,855 Other assets (5,324) (1,162) Net cash provided by operating activities 75,148 37,084 Cash flows from investing activities: Investment in oil and gas properties (91,434) (65,167) Investment in gas gathering assets (5,218) (3,894) Net cash used in investing activities (96,652) (69,061) Cash flows from financing activities: Proceeds from exercise of options 390 546 Deferred financing costs (101) (5,274) Proceeds from issuance of 10 3/8% senior notes --- 148,229 Issuance of common stock, net of expenses --- 4,051 Repayment of bank borrowings --- (73,000) Proceeds from bank borrowings 23,000 34,500 Net cash provided by financing activities 23,289 109,052 Net increase in cash and cash equivalents 1,785 77,075 Cash and cash equivalents, beginning of period 6,703 1,529 Cash and cash equivalents, end of period $8,488 $78,604 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $8,407 $1,561 Income taxes $--- $--- PETROQUEST ENERGY, INC. Non-GAAP Disclosure Reconciliation (Amounts In Thousands) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Net cash flow provided by operating activities $45,174 $25,645 $75,148 $37,084 Changes in working capital accounts (10,345) (4,798) (6,386) (725) Net cash flow provided by operating activities before working capital changes $34,829 $20,847 $68,762 $36,359 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. Source: PetroQuest Energy, Inc.

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