OKLAHOMA CITY, OK ("Quest") today announced that it had agreed
to purchase privately held PetroEdge Resources (WV), LLC
("PetroEdge") for approximately $140 million, subject to customary
closing adjustments, in a transaction expected to close by
mid-July. PetroEdge owns approximately 78,000 net acres of natural
gas and oil producing properties in West Virginia, Pennsylvania,
and New York with estimated proved reserves of 99.6 billion cubic
feet of natural gas equivalent (Bcfe) and current net production of
approximately 3.3 million cubic feet of natural gas equivalent
production per day (Mmcfed).
Approximately 67,000 of PetroEdge's acres are located within the
recognized fairway of the Marcellus Shale play including
approximately 41,000 net acres in Ritchie, Wetzel, and Lewis
Counties of West Virginia, approximately 22,000 net acres in
Lycoming County, Pennsylvania, and approximately 3,000 net acres in
Steuben County, New York. Together with its existing acreage and
development rights, after this acquisition Quest will own the right
to develop approximately 119,000 net acres within the recognized
fairway of this emerging shale play.
Since the beginning of 2005, PetroEdge has drilled and completed
112 wells on its properties, all of which have been productive. In
connection with the acquisition, PetroEdge will enter into a
twelve-month transition services agreement with Quest, during which
time PetroEdge will advise Quest on operations and development of
the properties.
Quest Energy Partners, L.P. (NASDAQ: QELP) ("Quest Energy") has
agreed to purchase from Quest all of PetroEdge's proved developed
reserves and current production simultaneously with the closing of
the acquisition. The purchase price for the assets to be
transferred to Quest Energy will be determined following
appropriate due diligence and is subject to approval by Quest
Energy's Conflicts Committee. The acquisition of low-risk,
producing properties with predictable production profiles is
consistent with Quest Energy's strategy of providing sustainable
distribution growth to its unitholders. Quest owns 100% of the
general partner and a 57% limited partner interest in Quest
Energy.
Quest plans to fund the acquisition from PetroEdge with the net
proceeds from a planned equity offering and the net proceeds from
the sale of the proved developed reserves and production to Quest
Energy. Quest Energy intends to fund its acquisition of the proved
developed reserves and production from Quest with a combination of
debt and the proceeds from the sale of equity. Quest plans to fund
the development of the acquired properties with cash received from
its two master limited partnerships and the cash generated from
operations, while Quest Energy plans to fund the development of the
acquired proved developed non-producing reserves from operating
cash flow and/or its credit facility.
PetroEdge Highlights:
-- Estimated proved reserves of 99.6 Bcfe and PV-10 value of $258 million
as of May 1, 2008 based off of May 1, 2008 pricing of $10.14 per MMBtu for
natural gas and $105.89 per barrel (bbl) for oil
-- Estimated proved, probable and possible (3P) reserves of 650 to 675
Bcfe
-- 100% operated with an average net revenue interest of 81%
-- Current net production of approximately 3.3 Mmcfed, including 46 bbls
per day of crude oil
-- Approximately 95% of total reserves are natural gas
-- Natural gas BTU content ranging from 1,160 to 1,406
-- Average basis premium in Appalachia of approximately $0.30 per Mcfe
over the past three years.
Proved Developed Reserve and Production Highlights (Quest Energy
Partners)
-- Estimated proved developed reserves of 32.9 Bcfe, 96% natural gas
-- 48% proved developed producing
-- Proved developed non-producing reserves mostly associated with
approximately 111 behind pipe completion opportunities in the Marcellus
Shale and Devonian Silt mostly in Ritchie County, West Virginia
-- Estimated first year production of approximately 4.5 Mmcfed
-- First year capital expenditures of approximately $8 million
-- Proved reserves to estimated first year production ratio of
approximately 20 years
-- Physical sales contracts covering approximately 65% of estimated first
year and 27% of estimated second year production at prices between $10/Mcf
and $11/Mcf
Proved Undeveloped/Probable/Possible Reserves Highlights (Quest
Resource Corp.)
-- Estimated proved undeveloped reserves of 66.7 Bcfe
-- Estimated unrisked probable reserves of approximately 50 Bcfe and
possible reserves of approximately 500 Bcfe to 525 Bcfe
-- 700 potential drilling locations assuming development with vertical
wells on 80 acre spacing
-- First two horizontal Marcellus wells currently being drilled in Wetzel
County, West Virginia with completion expected by late third quarter or
early fourth quarter 2008
-- Permitting initial drilling locations in Lycoming County, Pennsylvania
with drilling expected to commence before year end 2008
Pennsylvania Farm-Out Agreement
Quest also announced that it has consummated the previously
announced farm-out agreement with a private company that gives it
the right to develop approximately 30,000 net acres in Potter
County, Pennsylvania for a one-year period. All of the acreage is
within the recognized fairway of the Marcellus Shale play.
Quest funded the $4 million initial cost of the agreement with
existing cash balances and is formulating plans to commence
drilling in the second half of the year. At the end of the farm-out
period, Quest has the option to acquire all of the deep rights on
the acreage for an additional payment of $6.5 million. If Quest
does not exercise the purchase option, it is entitled to keep any
acreage that was developed during the farm-out period.
Management Comment
Jerry Cash, Chairman, President, and Chief Executive Officer of
Quest Resource Corp., said, "We are pleased to announce this
acquisition with attractive terms that we expect to create value
for the shareholders of each of the Quest entities. Quest Resource
plans to drive rapid reserve and production growth through the
development of a large acreage position in the emerging Marcellus
Shale play.
"Quest Energy is acquiring long-lived natural gas producing
properties that are expected to be immediately accretive to
distributable cash flow per unit, will add geographic and geologic
diversity, and will offer numerous low-risk development
opportunities. Subject to final approval from Quest Energy's Board
of Directors, we anticipate that the acquisition will allow Quest
Energy to increase its distribution rate beginning with the third
quarter 2008 distribution that will be paid to unitholders in the
fourth quarter.
"Privately held Quest Midstream Partners L.P. (Quest Midstream),
has the right of first offer on gathering and processing Quest and
Quest Energy's production, and this acquisition provides the
opportunity to build a significant presence in Appalachia. Quest
owns 85% of the general partner and a 36% limited partner interest
in Quest Midstream.
"We believe the future for Quest is bright as we build a new
core area of operations in the Appalachian Basin. We look forward
to developing our sizeable acreage position in the basin and
further illustrating the benefits of our unique structure."
About Quest Resource Corporation and Quest Energy Partners
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. 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.
A shelf registration statement relating to the securities Quest
intends to sell has previously been declared effective by the
Securities and Exchange Commission ("SEC"). A prospectus supplement
related to the offering will be filed with SEC. This announcement
is neither an offer to sell nor a solicitation of an offer to buy
any of our common stock. No offer, solicitation, or sale will be
made in any jurisdiction in which such offer, solicitation, or sale
is unlawful. Copies of the base prospectus and the prospectus
supplement for this offering may be obtained, when available, at
the SEC's website at http://www.sec.gov or from Jack Collins at
Quest Resource Corp. by calling 405-702-7460 or by emailing
jcollins@qrcp.net.
This press release shall not constitute an offer to sell, or the
solicitation of an offer to buy, any securities of Quest Energy.
The securities of Quest Energy have not been registered under the
Securities Act of 1933 and may not be offered or sold in the United
States absent registration or an applicable exemption from
registration requirements.
Forward-Looking Statements and Disclaimer
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 satisfaction of the conditions to closing
contained in the PetroEdge purchase agreement, the ability of Quest
and Quest Energy to finance the purchase of the PetroEdge assets,
the condition of the capital markets in the U.S., the negotiation
of a definitive purchase agreement between Quest and Quest Energy
relating to the proved developed reserves and production to be
acquired from PetroEdge, 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.
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.
The United States Securities and Exchange Commissioner permits
oil and gas companies, in their filings with the SEC, to disclose
only Proved Reserves that a company has demonstrated by actual
production or conclusive formation tests to be economically and
legally producible under existing economic and operation
conditions. Quest Resource Corporation may use certain terms in
this news release and other communications relating to Reserves and
production that the SEC's guidelines strictly prohibit the Company
from including in filings with the SEC. It is recommended that U.S.
investors closely consider the Company's disclosures in Quest
Resource Corporation's public filings available from Company
headquarters at 210 Park Avenue, Suite 2750, Oklahoma City,
Oklahoma, 73120. You can find Quest's filings with the Securities
and Exchange Commission at www.qrcp.net or at www.sec.gov.
Company Contact: Jack Collins Investor Relations Phone: (405)
702-7460 Websites: www.qrcp.net & www.qelp.net
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