PQ Provides Guidance, Updates Operations … Staying Alive


PQ Provides Guidance, Updates Operations - In a nutshell...outlook not as shabby as I'd expect.

  • 4Q Production: 4Q inches up from a ranged of 97  to 102 MMcfepd to 102 to 103. They note December production was 40% higher than January 2008 production.
  • 2009 Production Guidance: 90 to 100 Mcfepd. The mid point of this range would yield growth of 2.5% over 2008's 92.5 MMcfepd. With reduced spending this is not surprising. The resource plays are not economic in the Woodford and probably not in the Fayetteville as of today but they are high decline rate with long production tales. So drill less and you notice the production fall off quite rapidly.  
  • Reserves:
    • 185 Bcfe, up 18% (would have been 34% were it not for price; 93% gas. Reserve replacement of ~ 83% (or 156% were it not for the write down).  This is a little light to reserve growth guidance but I think it will be foregiven as the holdup was only due to low year end commodities.
    • see ceiling test writedown of $94 to $100 mm (not out of the ordinary or bad this year)
  • Operations Highlights:
    • Woodford Shale:
      • Current net production: 40 MMcfepd
      • 3 PQ operated rigs running
      • 3 latest wells showing rates of about 4 MMcfepd, ok, not a big rate there nowadays and lower than the last couple of wells they completed here.
      • completing an 18 frac stage, extended (7,000) foot lateral horizontal well, first two stages flowed at 3.7 MMcfepd which might grab some analyst's attention as they have 16 more stages to go. A little hinky to report the well in pieces and those flow rates are max producition (no choke size given, no period for the text so they are likely 1 day flow rates for all the press release tells you). Still, interesting. 
    • Fayetteville Shale:
      • Current net production: > 9 MMcfepd
      • 5 non-operated rigs running (bet they'd like to see that number fall a bit now given prices)
    • East Texas:
      • Current net production: 15 MMcfepd
      • Palmer Prospect (Cotton Valley lime): 6th well producing 3 MMcfepd, very low operating costs here.
    • Gulf Coast: (exploration)
      • Bluff's Prospect began production in November, currently flowing 16 MMcfepd gross, or 6 MMcfepd net to their interest.
      • No other prospects mentioned in the PR as their first big prospect (the 93 Bcfe Whistling Straits (24% working interest) doesn't spud until May 2009.
  • Hedge Update: 55% hedged at $7.87 per Mcf
  • Capex: $80 to $100 mm. That's a drastic reduction (good idea guys) from the $250 to $260 mm spent in 2008. For them to be able to keep production essentially flat on that budget may be a bit of a stretch and will be highly dependent on their ability to get better rates out of wells in the Woodford.
  • Valuation: Very cheap, probably going to stay that way for awhile with net debt to total cap around 40%. Not sure the flat 2009 vs 4Q rate won't cause some further estimate reductions. I like these guys and the story bears watch but they need higher gas prices to get out of the cellar. Right now, they are in survival mode and I think they will make it but it depends on how long commodities prices stay low.

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