OKLAHOMA CITY, OK ("Quest Resource") today reported financial
results for the full year and fourth quarter of 2007. Adjusted
earnings before interest, income taxes, depreciation and
amortization (Adjusted EBITDA), a non-GAAP measure, rose by 117%
from the full year 2006 and by 312% from the fourth quarter of
2006. The increases in Adjusted EBITDA were driven primarily by
organic production growth, higher realized natural gas prices, and
contributions from the KPC Pipeline since the date of its
acquisition (November 1, 2007).
Selected financial information in a comparative format for the
quarters and years ended December 31, 2006 and 2007 is shown in the
table below. For additional detail, investors can access Quest
Resource's Form 10-K which was filed with the Securities and
Exchange Commission on March 10, 2008.
Select Financial and Operating Data (in thousands, except per share data)
Three Months Ended Year Ended
December 31, December 31,
------------------ ------------------
2007 2006 2007 2006
-------- -------- -------- --------
Total Revenue 35,884 17,712 122,879 70,485
Net Income (Loss) Before Minority
Interest (30,732) (41,098) (34,896) (48,234)
Minority Interest 6,142 (244) 4,482 (244)
Net Income (Loss) (24,590) (41,342) (30,414) (48,478)
Net Income (Loss) Per Share Basic (1.11) (1.87) (1.37) (2.19)
Net Income (Loss) Per Share Diluted (1.11) (1.87) (1.37) (2.19)
Operating Income (Loss) 1,259 (33,694) 14,428 (31,554)
Adjusted EBITDA(1) 19,747 4,791 62,640 28,826
Weighted Average Shares Outstanding
Basic 22,242 22,132 22,241 22,101
Weighted Average Shares Outstanding
Diluted 22,242 22,132 22,241 22,101
(1) A reconciliation of Adjusted EBITDA to Net Income and Net
Cash from Operations, its most directly comparable financial
measures calculated and presented in accordance with generally
accepted accounting principles, or GAAP, follows this news
release.
Cash Distributions from Affiliates
Quest Energy Partners, L.P. (NASDAQ: QELP) ("Quest Energy"), the
natural gas and oil master limited partnership formed with the
contribution of certain producing properties from Quest Resource,
declared a cash distribution of $0.2043 for the period commencing
November 15, 2007 -- the close date of its initial public offering
-- and ending on December 31, 2007 for all of its outstanding
units. On an annualized basis, the distribution was in-line with
Quest Energy's indicated initial rate of $1.60 per unit. The
distribution was paid on February 14, 2008 to unitholders of record
at the close of business on February 7, 2008. Quest Resource owns
approximately 57% of the outstanding common and subordinated units
and 100% of the general partner of Quest Energy. Quest Resource
received approximately $2.55 million in cash distributions from its
ownership interest in Quest Energy for the fourth quarter 2007.
Quest Midstream Partners, L.P. ("Quest Midstream") declared a
cash distribution for the fourth quarter of 2007 in the amount of
(i) $0.425 per common unit (and the proportionate distribution on
the general partner's units) with respect to those common units
outstanding on October 1, 2007 and (ii) $0.2818 per common unit
(and the proportionate distribution on the general partner's units)
with respect to those common units that were issued on November 1,
2007 in conjunction with the KPC Pipeline acquisition. The
distribution was paid on February 14, 2008 to unitholders of record
at the close of business on February 7, 2008. Quest Resource owns
approximately 36% of the outstanding common and subordinated units
and 85% of the general partner of Quest Midstream. Quest Resource
received approximately $0.065 million in cash distributions from
its ownership interest in Quest Midstream for the fourth quarter
2007.
Please see the earnings release of Quest Energy for more
information with regard to the partnership's fourth quarter 2007
financial results and 2008 guidance.
Gas and Oil Production Segment Results
Quest Resource conducts its gas and oil production operations
through Quest Energy.
On November 15, 2007, Quest Energy completed its initial public
offering of 9,100,000 common units at $18 per unit, or $16.83 per
unit after payment of the underwriting discount (excluding a
structuring fee). Total proceeds from the sale of the common units
in the initial public offering were $163.8 million, before
underwriting discounts, a structuring fee and offering costs, of
approximately $10.6 million, $0.4 million and $1.5 million,
respectively. On November 9, 2007, Quest Energy's common units
began trading on the NASDAQ Global Market under the symbol "QELP."
Quest Resource used the net proceeds of $151.2 million from the
initial public offering to repay a portion of outstanding
indebtedness and retained ownership of 3,201,521 common units,
8,857,981 subordinated units, and a 2% general partner
interest.
Total natural gas equivalent production averaged 52.3 million
cubic feet equivalents (Mmcfe) per day for the fourth quarter 2007,
a 33% increase from an average of 39.4 Mmcfe per day from the
fourth quarter 2006. The increase was driven by the successful
execution of Quest's development program in 2007.
Total production costs, excluding gross production and ad
valorem taxes, were $1.27 per Mcfe for 2007 down from $1.29 per
Mcfe in 2006. On a quarterly basis, production cost, excluding
gross production and ad valorem taxes, per Mcfe declined from $1.41
in the first quarter of 2007 to $1.19 in the fourth quarter. This
decrease was the result of rising production volumes and the
benefits from certain cost-cutting programs started during the
third quarter. Quest expects to continue to benefit from these
programs and rising volumes in 2008 and anticipates production
costs, excluding gross production and ad valorem taxes, of $1.05
per Mcfe to $1.15 per Mcfe for the full year.
The segment's year-end 2007 proved reserves were 211.1 billion
cubic feet of natural gas equivalents (bcfe), a 7% increase over
the year-end 2006 proved reserves. Approximately 99% of the
company's proved reserves were natural gas; 67% of which were
proved developed and 33% of which were proved undeveloped. The
segment's reserve replacement of approximately 175% was driven by
the 2007 drilling and development program.
Quest's reserves are long-lived, with an average proved
reserve-to-production ratio of 12.3 years (8.2 years for our proved
developed properties) as of December 31, 2007. Quest's typical
Cherokee Basin coalbed methane (CBM) well has a predictable
production profile and a standard economic life of approximately 15
years.
Quest completed 125 gross wells in the Cherokee Basin in the
fourth quarter 2007 and 575 for the full year 2007. Quest Energy
had interests in approximately 2,254 net wells on December 31,
2007, up approximately 34% from the 1,682 gross wells on December
31, 2006. Quest Energy plans to complete 325 gross wells in 2008,
or approximately 27 per month.
At December 31, 2007, Quest Energy had the right to develop
approximately 558,000 net acres in the Cherokee Basin, of which
approximately 48% were undeveloped. Quest Energy has identified
approximately 2,100 gross drilling locations on its acreage in the
Cherokee Basin, of which approximately 800 were classified as
proved undeveloped. These locations represent an approximate six
and a half year inventory of drilling activity at the planned 2008
level of 325 wells.
Natural Gas Pipelines Segment Results
Quest Resource conducts its natural gas pipelines operations
through Quest Midstream.
Quest Midstream increased the size of its low pressure gathering
system in the Cherokee Basin to approximately 1,994 miles after
constructing approximately 315 miles of low pressure gas gathering
pipelines in 2007. The gathering system is the largest in the
Cherokee Basin with current capacity of approximately 85 mmcf/d and
delivers virtually all its gathered gas into Southern Star Central
Gas Pipeline at multiple interconnects.
On November 1, 2007, Quest Midstream Partners completed the
purchase of the KPC Pipeline (a 1,120-mile interstate gas pipeline
running from Oklahoma to Missouri, and certain lateral pipelines
related to the KPC Pipeline) for a purchase price of approximately
$133 million in cash, subject to adjustment for working capital at
closing. In connection with this acquisition, Quest Midstream
issued 3,750,000 common units for $20 per common unit, or
approximately $75 million of gross proceeds. The net proceeds from
the offering were used to pay a portion of the purchase price.
Quest Midstream's total gas pipeline revenue increased by 75% to
$39 million for the full year 2007 compared with $22.3 million in
2006. This increase was principally driven by the 39% increase in
Quest production volumes during the year and the higher compression
and gathering fees payable by the Gas and Oil Production Segment
under the midstream services agreement that was entered into in
connection with the formation of Quest Midstream in December 2006
as well as a $3.2 million contribution from KPC Pipeline which was
acquired on November 1, 2007.
Pipeline operating costs, excluding ad valorem taxes, were $1.07
per Mcf for 2007, up 11% from $0.96 per Mcf for 2006. The increase
in operating costs was due to the delivery of additional
compressors in anticipation of increased pipeline volumes, the
number of wells completed and operated during the year, the
increased miles of pipeline in service and the increase in property
taxes. Quest anticipates operating costs to decrease on a per Mcf
basis in 2008 due to the increased volumes forecasted from new
wells completed in 2007 and the new wells to be completed this
year.
Management Guidance
Quest Resource provided the following guidance with respect to
the distributions it expects to receive from Quest Energy and Quest
Midstream and for certain expenses not associated with the
partnerships. The guidance does not take into account the impact of
Quest's planned merger with Pinnacle Gas Resources, Inc. or any
potential transfers of assets to either partnership following the
close of the merger.
(all amounts in $mm) 1Q08E FY 2008E
---------------- ----------------
Quest Energy Partners Distributions 5.0 - 5.2 20.0 - 21.0
Quest Midstream Partners Distributions 0.2 - 0.2 3.5 - 4.0
Total Distributions from Affiliates 5.2 - 5.4 23.5 - 25.0
General & Administrative ($mm) 0.5 - 0.6 2.0 - 2.5
Net Interest Expense ($mm) 0.8 - 0.9 3.0 - 3.5
Capital Expenditures ($mm) (1) 1.0 - 1.2 2.0 - 3.0
(1) Represents anticipated capital expenditures for new well
development in New Mexico and Pennsylvania.
Management Comment
Jerry Cash, Chairman, President, and Chief Executive Officer of
Quest Resource, said, "2007 was truly a transformational year for
Quest, we completed the initial public offering of Quest Energy
Partners, re-capitalized our balance sheet, diversified Quest
Midstream with the purchase of an interstate pipeline, and entered
into a merger agreement with Pinnacle Gas Resources. We also
successfully executed our development program in the Cherokee
Basin, drilling and connecting 575 wells which exceeded our goal of
558. The drilling program drove a 39% increase in net sales volumes
for the year to an average of 47.0 MMcfe per day from an average of
33.8 MMcfe per day in 2006. We currently intend to use the
distributions from our two master limited partnerships to create
value for Quest Resource shareholders through higher risk
exploration projects that have the potential to generate higher
rates of return than the natural gas and oil development projects
being conducted by Quest Energy and/or debt reduction."
Conference Call
Quest will host a conference call to discuss 2007 fourth quarter
and full year operating and financial results on Tuesday, March 11,
2008 at 11:00 a.m. Eastern time. There will be a question and
answer period following the presentation.
Call: 877-440-5786 (US/Canada) and 719-325-4915 (International)
Passcode: 9940524
Internet: Live and rebroadcast over the Internet: simply log on to
www.qrcp.net.
Replay: Available through March 22, 2008 at 888-203-1112 (US/Canada) and
719-457-0820 (International) using passcode 9940524 and at
www.qrcp.net.
About Quest Resource Corporation
Quest Resource Corporation is a fully integrated E&P company
that owns 100% of the general partner and a 57% limited partner
interest in Quest Energy Partners, L.P. and 85% of the general
partner and a 36% limited partner interest in Quest Midstream
Partners, L.P. Quest Resource operates and controls Quest Energy
Partners and Quest Midstream Partners through its ownership of
their general partners. For more information, visit the Quest
Resource website at www.qrcp.net.
Quest Energy Partners, L.P. (NASDAQ: QELP) was formed by Quest
Resource Corp. to acquire, exploit and develop natural gas and oil
properties and to acquire, own, and operate related assets. The
partnership owns more than 2,300 wells and is the largest producer
of natural gas in the Cherokee Basin, which is located in southeast
Kansas and northeast Oklahoma and holds a drilling inventory of
nearly 2,100 locations. For more information, visit the Quest
Energy Partners website at www.qelp.net.
Quest Midstream Partners, L.P. was formed by Quest Resource
Corp. to acquire and develop transmission and gathering assets in
the midstream natural gas and oil industry. The partnership owns
approximately 2,000 miles of natural gas gathering pipelines and
over 1,100 miles of interstate natural gas transmission pipelines
in Oklahoma, Kansas, and Missouri. For more information, visit the
Quest Midstream Partners website at www.qmlp.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. In particular, the forward
looking statements made in this release are based upon a number of
financial and operating assumptions that are subject to a number of
risks, including 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 carry out the anticipated level of
new well development and construction of related pipelines,
environmental issues, weather conditions, competition and general
market conditions. Actual results may differ materially due to a
variety of factors, some of which may not be foreseen by Quest. In
addition, there can be no assurance that the merger of Quest and
Pinnacle will be approved by their respective shareholders. These
risks, and other risks are detailed in Quest's filings with the
Securities and Exchange Commission, including risk factors listed
in Quest's latest annual report on Form 10-K and other 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 Non-GAAP Financial Measures
Adjusted EBITDA is defined as net income (loss) plus:
-- net interest expense;
-- depreciation, depletion and amortization expense;
-- gain (loss) on sale of assets;
-- provision for impairment of gas and oil properties;
-- cumulative effect of accounting change, net of tax;
-- change in derivative fair value; and
-- non-cash compensation expense.
Adjusted EBITDA is a significant performance metric used by
Quest management, and by external users of Quest's financial
statements, such as investors, commercial banks, research analysts
and others, to assess (prior to the establishment of any cash
reserves) the cash distributions Quest Energy and Quest Midstream
expect to pay their unitholders. Specifically, this financial
measure indicates whether or not the partnership's are generating
cash flow at a level that can sustain or support an increase in
their quarterly distribution rates without regard to the impact of
financing methods, capital structure or historical cost basis of
their assets.
Adjusted EBITDA also is used as a supplemental liquidity measure
by Quest's management, and by external users of Quest's financial
statements, such as investors, commercial banks, research analysts
and others, to assess the ability of Quest's assets to generate
cash sufficient to pay interest costs, support its indebtedness,
and the ability of Quest Energy and Quest Midstream to make
distributions to their unitholders. Adjusted EBITDA is also used in
calculating the financial covenants under the the credit agreements
for each of Quest Resource, Quest Midstream and Quest Energy.
Adjusted EBITDA should not be considered an alternative to, or
more meaningful than, net income, operating income, cash flows from
operating activities or any other measure of financial performance
presented in accordance with GAAP as measures of operating
performance, liquidity or ability to service debt obligations.
Adjusted EBITDA does not include interest expense, income taxes,
depreciation and amortization expense, change in derivative fair
value or non-cash compensation expense. Because Quest Resource,
Quest Energy and Quest Midstream have borrowed, and intend to
borrow, money to finance their operations, interest expense is a
necessary element of Quest's overall costs. Because Quest Resource,
Quest Energy and Quest Midstream use capital assets, depreciation
and amortization are also necessary elements of Quest's overall
costs. Because Quest Resource and Quest Energy have used, and
intend to use, derivative contracts to hedge their exposure to
commodity prices, changes in the fair value of those contracts is
also a necessary element of Quest's overall costs. Because Quest
Resource, Quest Energy and Quest Midstream have used, and intend to
use, non-cash equity awards as part of their overall compensation
package for executive officers and employees, non-cash compensation
expense is a necessary element of Quest's overall costs. Due to
fluctuations in commodity prices, Impairments of oil and gas
properties may at times be a material element of Quest's business.
In the future, income taxes may become a material element of
Quest's business. Therefore, any measures that excludes these
elements have material limitations. To compensate for these
limitations, Quest mangagement believes that it is important to
consider both net income and net cash provided by operating
activities determined under GAAP, as well as Adjusted EBITDA, to
evaluate Quest's financial performance and liquidity.
Management compensates for the limitations of Adjusted EBITDA as
an analytical tool by reviewing the comparable GAAP measures,
understanding the differences between the measures and
incorporating this knowledge into management's decision-making
processes.
Reconciliation of Net Income (Loss) to Adjusted EBITDA (in $thousands)
Three Months Ended Years Ended
December 31, December 31,
------------------ ------------------
2007 2006 2007 2006
-------- -------- -------- --------
Net income (loss) (24,590) (41,342) (30,414) (48,478)
Minority interest (6,142) 244 (4,482) 244
Net interest expense 19,954 7,531 42,500 23,093
Change in unrealized derivative
value 11,856 (110) 6,502 (6,410)
Depreciation, depletion, and
amortization 15,791 7,382 41,401 28,025
Sale of assets 181 (17) 322 (3)
Non-cash stock compensation 2,697 384 6,811 1,636
Impairment of oil and gas
properties 0 30,719 0 30,719
-------- -------- -------- --------
Adjusted EBITDA 19,747 4,791 62,640 28,826
Reconciliation of Net Cash from Operating Activities to Adjusted EBITDA
(in $thousands)
Three Months Ended Years Ended
December 31, December 31,
------------------ ------------------
2007 2006 2007 2006
-------- -------- -------- --------
Net cash from operating activities (4,994) (17,660) 38,712 7,000
Net interest expense 19,954 7,531 42,500 23,093
Other depreciation, depletion, and
amortization (3,575) (737) (7,526) (3,957)
Other change in derivative fair
value 0 2 0 10,234
Change in current assets and
liabilities 8,362 15,650 (11,045) (7,507)
Other net cash changes 0 5 (1) (37)
-------- -------- -------- --------
Adjusted EBITDA 19,747 4,791 62,640 28,826
Company Contact: Jack Collins Investor Relations Phone: (405)
702-7460 Website: www.qrcp.net
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