Quest Resource Corporation (NASDAQ: QRCP), the largest operating
company in the Cherokee Basin, provided today an update on its
financial results for the quarter ended September 30, 2006. The
Company provided selected financial and operating data below in a
comparative format for the quarters ended September 30, 2006 and
2005. SELECT FINANCIAL AND OPERATING DATA For Quarters Ended
September 30, 2006 and 2005 (Dollars in thousands, except per share
data) � Quarters Ended September 30, 2006� 2005� (unaudited) Total
Revenue $ 16,705� $ 13,506� Net Income (Loss) (10,073) (4,253) Net
Income (Loss) Per Share Basic (0.46) (0.64) Net Income (Loss) Per
Share Diluted (0.46) (0.64) Operating Income (Loss) (2,785) 2,040�
Operating Income (Loss) Per Share Diluted (0.13) 0.31� EBITDA1
5,090� 6,106� EBITDA Per Share Diluted1 $ 0.23� $ 0.91� Weighted
Average Shares Outstanding - Basic 22,123,514� 6,679,089� Weighted
Average Shares Outstanding - Diluted 22,123,514� 6,679,089� � Net
Sales Volumes (MMcfe) 3,331� 2,532� Average Price Received per Mcfe
(including hedges) $ 4.56� $ 4.80� Wells Drilled2 149� 1� Wells
Recompleted 39� 40� Wells Connected 194� 6� Pipeline Miles
Constructed 106� 1� Well Completion % 99% 98% Total Capital
Expenditures3 $ 44,608� $ 5,173� 1 � A reconciliation of Net Income
to EBITDA follows this news release. 2 � Since September 30, 2006,
the Company has drilled an additional 51 wells, for a total of 572
gross wells drilled to date in 2006. The Company has connected 578
gross wells to its gas gathering system since January 1, 2006 and
currently has 89 gross wells waiting on completion and connection
to the gas gathering system. 3 � Capital expenditures represent
cash transactions. Management Comments �Net sales volumes increased
approximately 32% for the third quarter of 2006 to 3,331 MMcfe as
compared to 2,532 MMcfe for the 2005 quarter due to continuation of
our active, low-risk development program of drilling, re-completing
and connecting wells,� said David Grose, Quest chief financial
officer. �Daily sales volumes averaged 36.2 MMcfe for the third
quarter of 2006 as compared to 27.5 MMcfe per day for the third
quarter of 2005. Net sales volumes continue to increase and for the
first 40 days of the fourth quarter have averaged 38.9 MMcfe per
day. Third quarter 2006 financial results reflect the negative
impact of various derivative positions covering approximately 58%
of Quest sales volumes during the quarter. The impact of those less
favorable contracts are diminishing as they expire and our
production base grows. The Company has entered into a basis lock
for 2007 on 1.8 Bcf at $1.15 per mcf and a basis lock for 2008 on
1.5 Bcf at $1.03 per mcf. These basis locks cover the differential
between NYMEX and the Southern Star line where our gas is sold.�
Additionally, Quest has added a swap agreement covering
approximately 2.4 Bcf at $7.20 per mcf for 2007 based on the
Southern Star index. �We announced on November 6, 2006 that we are
pursuing the creation of a limited partnership that would own and
operate our gas gathering system in the Cherokee Basin,� stated
Jerry Cash, Quest chairman and chief executive officer. �We
anticipate raising between $65 million and $75 million, before
expenses, representing approximately 35% to 40% of the partnership
interests (excluding the general partner's incentive distribution
rights), from the sale to institutional investors. We anticipate
that some of the investors may receive a portion of the incentive
distribution rights as part of the transaction. It is expected that
a portion of the net proceeds from the offering would initially be
used to reduce outstanding borrowings under our revolving credit
facility and that the remainder would be used for new well
development. We anticipate closing the transaction before
year-end.� The proposed transaction is subject to the completion of
due diligence by the investors, negotiation and execution of
definitive documentation and obtaining the consent of existing
lenders. No assurance is given that the transaction will be
completed before year-end, if at all, or that it will be completed
on these terms. The Company expects capital expenditures for 2006
to total approximately $175 million. Of this amount, approximately
55% is anticipated to be allocated to drilling, completing and
connecting wells; 40% on gas gathering, hook-ups and other
infrastructure; and 5% on acreage. From these expenditures, the
Company now expects approximately 640 wells will be connected
during the year. The company�s leasehold inventory at the end of
the third quarter was approximately 560,000 net acres of which
approximately 57% is undeveloped and the Company estimates 25,000
acres could be added during the fourth quarter. The Company also
stated that it has undertaken a program to evaluate increased
density development due to better than anticipated performance from
certain wells. The majority of the Company�s approximately 1,500
wells have been drilled on 160-acre spacing and increasing the
density to 80-acre spacing may allow for a greater percentage
recovery of the reserves in-place. Conference Call Quest will host
a conference call to discuss 2006 third-quarter operating and
financial results on Wednesday, November 15, 2006 at 9:00 a.m.
Eastern time. There will be a question and answer period following
the presentation. Call: 866-322-9730 (US/Canada) and 706-679-6054
(International) Passcode 9291397 Internet: Live and rebroadcast
over the Internet: simply log on to www.qrcp.net Replay: Available
through November 17, 2006 at 800-642-1687 (US/Canada) and
706-645-9291 (International) using passcode 9291397 and at
www.qrcp.net About Quest Resource Corporation Quest Resource is the
largest producer of natural gas in the Cherokee Basin, which is
located in southeastern Kansas and northeastern Oklahoma. The
Company is a fully integrated E&P company, operating more than
1,500 producing wells which produce into its own 1,500+ mile
gathering and transportation pipeline system, and using its own
fleet of completion equipment to meet its rapidly expanding
development program. Quest currently has approximately 1,700
locations in its drilling inventory. For more information, visit
the Quest Resource website at www.qrcp.net. Forward-Looking
Statements Opinions, forecasts, projections or statements other
than statements of historical fact, are forward-looking statements
that involve risks and uncertainties. Forward-looking statements in
this announcement are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Although
Quest believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance
that such expectations will prove to be correct. Actual results may
differ materially due to a variety of factors, including without
limitation: the uncertainty involved in exploring for and
developing new natural gas reserves, the sale prices of natural gas
and oil, labor and raw material costs, the availability of
sufficient capital resources to carryout the Company's anticipated
level of new well development and construction of related
pipelines, environmental issues, weather conditions, competition,
general market conditions, and other risks detailed in Quest�s
filings with the Securities and Exchange Commission. You can find
Quest�s filings with the Securities and Exchange Commission at
www.qrcp.net or at www.sec.gov. By making these forward-looking
statements, Quest undertakes no obligation to update these
statements for revisions or changes after the date of this release.
Reconciliation of Net Income to EBITDA EBITDA, which is earnings
before interest, income taxes, change in derivative fair value, and
depreciation, depletion and amortization expense, is presented
because it is used by us for, among other things, determining
compliance with certain bank covenants, and we believe it is
frequently used by securities analysts, investors and other
interested parties, in addition to and not in lieu of GAAP results,
to compare the performance of companies. EBITDA is not a
measurement of financial performance under generally accepted
accounting principles and should not be considered as an
alternative to cash flow from operating activities or as a measure
of liquidity or an alternative to net income as indicators of our
operating performance or any other measures of performance derived
in accordance with generally accepted accounting principles. (in
thousands) (unaudited) � Quarters Ended September 30, 2006� 2005�
Net Income (Loss) $ (10,073) $ (4,253) Interest Expense, Net 6,956�
6,190� Income Tax Expense -� -� Depreciation, Depletion &
Amortization Expense 7,875� 4,066� Change in Derivative Fair Value
332� 103� EBITDA $ 5,090� $ 6,106� Quest Resource Corporation
(NASDAQ: QRCP), the largest operating company in the Cherokee
Basin, provided today an update on its financial results for the
quarter ended September 30, 2006. The Company provided selected
financial and operating data below in a comparative format for the
quarters ended September 30, 2006 and 2005. -0- *T SELECT FINANCIAL
AND OPERATING DATA For Quarters Ended September 30, 2006 and 2005
(Dollars in thousands, except per share data) Quarters Ended
September 30, ---------------------- 2006 2005 -----------
---------- (unaudited) ---------------------- Total Revenue $16,705
$13,506 Net Income (Loss) (10,073) (4,253) Net Income (Loss) Per
Share Basic (0.46) (0.64) Net Income (Loss) Per Share Diluted
(0.46) (0.64) Operating Income (Loss) (2,785) 2,040 Operating
Income (Loss) Per Share Diluted (0.13) 0.31 EBITDA(1) 5,090 6,106
EBITDA Per Share Diluted(1) $0.23 $0.91 Weighted Average Shares
Outstanding - Basic 22,123,514 6,679,089 Weighted Average Shares
Outstanding - Diluted 22,123,514 6,679,089 Net Sales Volumes
(MMcfe) 3,331 2,532 Average Price Received per Mcfe (including
hedges) $4.56 $4.80 Wells Drilled(2) 149 1 Wells Recompleted 39 40
Wells Connected 194 6 Pipeline Miles Constructed 106 1 Well
Completion % 99% 98% Total Capital Expenditures(3) $44,608 $5,173
*T 1 - A reconciliation of Net Income to EBITDA follows this news
release. 2 - Since September 30, 2006, the Company has drilled an
additional 51 wells, for a total of 572 gross wells drilled to date
in 2006. The Company has connected 578 gross wells to its gas
gathering system since January 1, 2006 and currently has 89 gross
wells waiting on completion and connection to the gas gathering
system. 3 - Capital expenditures represent cash transactions.
Management Comments "Net sales volumes increased approximately 32%
for the third quarter of 2006 to 3,331 MMcfe as compared to 2,532
MMcfe for the 2005 quarter due to continuation of our active,
low-risk development program of drilling, re-completing and
connecting wells," said David Grose, Quest chief financial officer.
"Daily sales volumes averaged 36.2 MMcfe for the third quarter of
2006 as compared to 27.5 MMcfe per day for the third quarter of
2005. Net sales volumes continue to increase and for the first 40
days of the fourth quarter have averaged 38.9 MMcfe per day. Third
quarter 2006 financial results reflect the negative impact of
various derivative positions covering approximately 58% of Quest
sales volumes during the quarter. The impact of those less
favorable contracts are diminishing as they expire and our
production base grows. The Company has entered into a basis lock
for 2007 on 1.8 Bcf at $1.15 per mcf and a basis lock for 2008 on
1.5 Bcf at $1.03 per mcf. These basis locks cover the differential
between NYMEX and the Southern Star line where our gas is sold."
Additionally, Quest has added a swap agreement covering
approximately 2.4 Bcf at $7.20 per mcf for 2007 based on the
Southern Star index. "We announced on November 6, 2006 that we are
pursuing the creation of a limited partnership that would own and
operate our gas gathering system in the Cherokee Basin," stated
Jerry Cash, Quest chairman and chief executive officer. "We
anticipate raising between $65 million and $75 million, before
expenses, representing approximately 35% to 40% of the partnership
interests (excluding the general partner's incentive distribution
rights), from the sale to institutional investors. We anticipate
that some of the investors may receive a portion of the incentive
distribution rights as part of the transaction. It is expected that
a portion of the net proceeds from the offering would initially be
used to reduce outstanding borrowings under our revolving credit
facility and that the remainder would be used for new well
development. We anticipate closing the transaction before
year-end." The proposed transaction is subject to the completion of
due diligence by the investors, negotiation and execution of
definitive documentation and obtaining the consent of existing
lenders. No assurance is given that the transaction will be
completed before year-end, if at all, or that it will be completed
on these terms. The Company expects capital expenditures for 2006
to total approximately $175 million. Of this amount, approximately
55% is anticipated to be allocated to drilling, completing and
connecting wells; 40% on gas gathering, hook-ups and other
infrastructure; and 5% on acreage. From these expenditures, the
Company now expects approximately 640 wells will be connected
during the year. The company's leasehold inventory at the end of
the third quarter was approximately 560,000 net acres of which
approximately 57% is undeveloped and the Company estimates 25,000
acres could be added during the fourth quarter. The Company also
stated that it has undertaken a program to evaluate increased
density development due to better than anticipated performance from
certain wells. The majority of the Company's approximately 1,500
wells have been drilled on 160-acre spacing and increasing the
density to 80-acre spacing may allow for a greater percentage
recovery of the reserves in-place. Conference Call Quest will host
a conference call to discuss 2006 third-quarter operating and
financial results on Wednesday, November 15, 2006 at 9:00 a.m.
Eastern time. There will be a question and answer period following
the presentation. Call: 866-322-9730 (US/Canada) and 706-679-6054
(International) Passcode 9291397 Internet: Live and rebroadcast
over the Internet: simply log on to www.qrcp.net Replay: Available
through November 17, 2006 at 800-642-1687 (US/Canada) and
706-645-9291 (International) using passcode 9291397 and at
www.qrcp.net About Quest Resource Corporation Quest Resource is the
largest producer of natural gas in the Cherokee Basin, which is
located in southeastern Kansas and northeastern Oklahoma. The
Company is a fully integrated E&P company, operating more than
1,500 producing wells which produce into its own 1,500+ mile
gathering and transportation pipeline system, and using its own
fleet of completion equipment to meet its rapidly expanding
development program. Quest currently has approximately 1,700
locations in its drilling inventory. For more information, visit
the Quest Resource website at www.qrcp.net. Forward-Looking
Statements Opinions, forecasts, projections or statements other
than statements of historical fact, are forward-looking statements
that involve risks and uncertainties. Forward-looking statements in
this announcement are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Although
Quest believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance
that such expectations will prove to be correct. Actual results may
differ materially due to a variety of factors, including without
limitation: the uncertainty involved in exploring for and
developing new natural gas reserves, the sale prices of natural gas
and oil, labor and raw material costs, the availability of
sufficient capital resources to carryout the Company's anticipated
level of new well development and construction of related
pipelines, environmental issues, weather conditions, competition,
general market conditions, and other risks detailed in Quest's
filings with the Securities and Exchange Commission. You can find
Quest's filings with the Securities and Exchange Commission at
www.qrcp.net or at www.sec.gov. By making these forward-looking
statements, Quest undertakes no obligation to update these
statements for revisions or changes after the date of this release.
Reconciliation of Net Income to EBITDA EBITDA, which is earnings
before interest, income taxes, change in derivative fair value, and
depreciation, depletion and amortization expense, is presented
because it is used by us for, among other things, determining
compliance with certain bank covenants, and we believe it is
frequently used by securities analysts, investors and other
interested parties, in addition to and not in lieu of GAAP results,
to compare the performance of companies. EBITDA is not a
measurement of financial performance under generally accepted
accounting principles and should not be considered as an
alternative to cash flow from operating activities or as a measure
of liquidity or an alternative to net income as indicators of our
operating performance or any other measures of performance derived
in accordance with generally accepted accounting principles. -0- *T
(in thousands) (unaudited) Quarters Ended September 30,
---------------------------- 2006 2005 -------------- -------------
Net Income (Loss) $(10,073) $(4,253) Interest Expense, Net 6,956
6,190 Income Tax Expense - - Depreciation, Depletion &
Amortization Expense 7,875 4,066 Change in Derivative Fair Value
332 103 -------------- ------------- EBITDA $5,090 $6,106
============== ============= *T
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