dragon man
16 years ago
- Amended Current report filing (8-K/A)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: August 1, 2008
(Date of earliest event reported)
QUEST RESOURCE CORPORATION
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction
of incorporation or organization)
0-17371
(Commission
File Number)
90-0196936
(I.R.S. Employer Identification
Number)
210 Park Avenue, Suite 2750
Oklahoma City, Oklahoma 73102
(Address of principal executive offices, including zip code)
(405) 600-7704
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
--------------------------------------------------------------------------------
Explanatory Note
This Amendment No. 1 to a Current Report on Form 8-K/A is being filed by Quest Resource Corporation (the “Company”) pursuant to a request by Eide Bailly, LLP and Murrell, Hall, McIntosh & Co. PLLP (“MHM”), the Company’s former independent registered public accounting firms, to clarify the description of Eide Bailly’s acquisition of MHM.
Item 4.01 Changes in Registrant’s Certifying Accountant.
On August 1, 2008, Murrell, Hall, McIntosh & Co. PLLP (“MHM”) resigned as Quest Resource Corporation’s (the “Company”) independent registered public accounting firm. MHM recently entered into an agreement with Eide Bailly, LLP (“Eide Bailly”), pursuant to which Eide Bailly acquired the operations of MHM and certain of the professional staff and shareholders of MHM joined Eide Bailly either as employees or partners of Eide Bailly and will continue to practice as members of Eide Bailly. On August 1, 2008, and concurrently with the resignation of MHM, the Company, through and with the approval of the Audit Committee of the Company’s Board of Directors, engaged Eide Bailly as its independent registered public accounting firm.
Prior to engaging Eide Bailly, the Company did not consult with Eide Bailly regarding the application of accounting principles to a specific or contemplated transaction or regarding the type of audit opinions that might be rendered by Eide Bailly on the Company’s financial statements, and Eide Bailly did not provide any written or oral advice that was an important factor considered by the Company in reaching a decision as to any such accounting, auditing or financial reporting issue.
The reports of MHM regarding the Company’s financial statements for the fiscal years ended December 31, 2007 and 2006 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
There have been no disagreements with MHM on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which disagreements, if not resolved to the satisfaction of MHM, would have caused it to make reference to the subject matter of the disagreements in connection with its reports.
Prior to MHM’s resignation, there were no reportable events with respect to the Company as described in Item 304(a)(1)(v) of Regulation S-K.
The Company provided MHM a copy of this Current Report on Form 8-K/A prior to its filing with the Securities and Exchange Commission (the “SEC”) and requested that MHM furnish the Company with a letter addressed to the SEC stating whether MHM agrees with the above statements. A copy of the letter, dated January 26, 2009, is filed as Exhibit 16.1 (which is incorporated herein by reference) to this Current Report on Form 8-K/A.
Item 9.01 Financial Statements and Exhibits.
(d)
Exhibits
Exhibit Number
Description
16.1
Letter dated January 26, 2009 from Murrell, Hall, McIntosh & Co. PLLP.
--------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
QUEST RESOURCE CORPORATION
/s/ Eddie LeBlanc
By:
Eddie LeBlanc
Chief Financial Officer
Date: January 27, 2009
dragon man
16 years ago
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Quest Resources Seems Excessively Undervalued
by: Prudent Speculations May 28, 2008 | about stocks: QELP / QRCP
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Become a Contributor Submit an Article Font Size: PrintEmail TweetThis Quest Resource Corp (QRCP) is a fast growing natural gas driller. Quest Resources recently revamped its corporate structure with the packaging of its upstream and midstream operations into two MLPs, Quest Midstream Partners (which is not publicly traded) and Quest Energy Partners (QELP).
Quest Resources owns the general partners of its MLPs as well as significant limited partner interests. Quest Resource’s interests in these two MLPs provide the company with significant cash flow that has allowed Quest Resources to begin drilling on land that it owns in the fast growing Marcellus Shale area centered in western Pennsylvania.
I believe that the marketplace, due in part to the company’s complicated corporate structure and the recent concerns regarding its proposed merger with Pinnacle Gas Resources (PINN), has significantly undervalued the company. The merger, which was poorly thought out by Quest Resource’s management, has been called off. Significant value nonetheless remains in the stock, even after its recent move following the breakup of the merger.
Quest Resources owns 12.1 million units of Quest Energy Partners and 4.9 million units of Quest Midstream Partners. Based on the market value of the company’s stakes in Quest Energy Partners and the sale price of the Quest Midstream Partners units, Quest Resources appears to be undervalued. The company’s stake in Quest Energy Partners is worth about $194 million and the company’s stake in Quest Midstream Partners is worth somewhere around $91 million dollars. This gives a total value of $285 million to Quest Resource's holdings in its subsidiary companies.
Quest Resources also owns the general partners of Quest Energy Partners and Quest Midstream Partners. The general partnership of Quest Energy Partners has 25% of the incentive distribution rights (IDRs) for Quest Energy Partners. The company also owns the general partnership interest for Quest Midstream Partners; this general partnership has 50% of the incentive distribution rights for Quest Midstream Partners. A common rule of thumb that I used to value these general partnerships is to give them the theoretical value of their stake in the limited partnership if they were units instead of incentive distribution rights. For example, the general partnership of Quest Energy Partners should be valued at 25% of Quest Energy Partners' market capitalization. This is a common valuation in the industry as seen in the market caps given to other companies in the sector.
This puts the value of Quest Resource’s stake in Quest Energy’s general partnership at about $85 million and the company’s stake in Quest Midstream's general partnership at about $124 million. The company only owns 85% of Quest Midstream Partners' general partnership so that stake needs to be reduced by the appropriate amount, giving you a total value for the general partnership of about $105 million. Both general partnerships are still in their early IDR splits, so to be conservative, let's assume the general partnership interests to be worth 50% less than our estimate (although this will likely expand with time as the company grows to its potential). This would put the total value of Quest Resource’s general partnership interests at about $95 million.
If you combine the value of the general partnerships ($95 million) and the limited partnership units held by the company ($285 million), the company, on these attributes alone, should be worth $336 million (this takes into account the company’s $44 million in debt). Even though this figure ignores Quest Resource’s Marcellus Shale acreage, it still leaves the company significantly undervalued, given its current market capitalization of only $240 million. Quest Resources will receive $25 million in cash flow from its MLPs this year, giving the company the resources it needs to expand and develop its holdings in the Marcellus Shale.
Another point worth noting is that the value of Quest Resource’s general partnership interests are likely to grow at an incredible rate, as the value of the underlying limited partnership units increase in value. In most cases, the market capitalization of upstream limited partnerships has been known to rise significantly as a result of the limited partnerships frequently using their stock to finance acquisitions. While this may dilute Quest Resource’s holdings in their subsidiary companies, it should cause the general partnership interest, which holds the IDRs, to soar in value.
Take Linn Energy (LINE) as an example; Linn Energy’s market capitalization has risen from $583 million at its IPO in January of 2006 to roughly $2.6 billion today. If Quest Energy Partners is able to sustain a similar growth rate to Linn Energy, Quest Energy Partners' market cap could be at $1.5 billion by 2011, making Quest Energy Partners' general partnership (held by Quest Resources) worth somewhere around $400 million by 2011. If the success of other publicly traded companies that hold general partnerships and MLPs can be used as an example, there is clearly significant growth potential in Quest Resource’s general partnerships.
As I briefly mention above, Quest Resources is using its significant cash flow from its MLPs to drill in the Marcellus Shale play, which is rapidly gaining fame for its productivity. There are many companies with significant acreage in the play. Atlas Energy Resources (ATN), (I have talked about its parent company here, which is at worst a larger Quest), probably has the most exposure to the Marcellus of any large companies. Atlas Energy Resources' market cap is $2.6 billion and Atlas Energy Resources has 551,000 Marcellus acres with about half of them in SW Pennsylvania. Quest Resources has a market cap of $238 million and Quest Resources has 52,100 acres with all of the acres in SW Pennsylvania. It would appear that Quest Resource’s acres are just as valuable as Atlas Energy Resources', but they maybe even more valuable as all of Quest Resources' acres lie in SW Pennsylvania.
Figuring out how much the acres are worth is difficult, yet in doing so the true value of Quest Resources becomes apparent. Wachovia has estimated the NPV of Atlas Energy Resources' Marcellus acres to be at least $6000 per acre; if one were to value Quest Resources' acreage at $6000 an acre, one would arrive at a value of $313 million. There is likely to be upside to the $6000 per acre number, as the Marcellus play is further proved through drilling.
Acreage in the well proven Barnett Shale is typically valued at between $20,000 to $30,000 per acre, so that should give you an idea of the upside potential of the Marcellus area, should the deposits pan out in a manner similar to the Barnett Shale. Atlas Energy Resources' drilling results appear to be fairly comparable to the types of results achieved in the core area of the Barnett, so it seems likely that acreage values will rise from current levels. Nevertheless, it is important to remember that the value of any company’s land will depend on exactly where it is located in the area. To be conservative, let's assume Quest Resource’s acreage is only worth $3000 per acre, half of Atlas Energy Resources' valuation according to Wachovia; if the $3000 dollars per acre figure is used, Quest Resources is sitting on $156 million of land.
In recent months, an impending merger with Pinnacle Gas Resources has negatively impacted Quest Resource’s stock price. Since management announced the deal, the company’s stock dropped from $11 to below $7 a share. The Pinnacle Gas Resources transaction would have diluted Quest Resource’s valuable assets and cash flow by issuing the company’s shares to purchase a large amount of undeveloped land in the Powder River Basin. Fortunately, management recently saw the error of the deal, or perhaps feared that it would not get shareholder approval, and scuttled the merger.
Even after Quest Resource’s recent run up, the company has still lagged the natural gas index substantially over the period since the merger was announced. Quest Resources seems to be very undervalued but the Pinnacle Gas Resources transaction has to make a person question the wisdom of the company’s management and probably justifies the current discount to its fair value seen in the stock price.
Today, Quest Resources appears to own assets that should make its equity worth $491 million or $21 per share. These assets, as mentioned above, include the company’s holdings of its limited partnership units, it stake in the limited partnerships general partner and $156 million in Marcellus Shale acreage, with debt of course being subtracted out. A slight discount to this estimate is probably reasonable, considering management nearly made a terrible blunder in regards to the Pinnacle Gas Resources acquisition. The current stock price of $10 seems excessively low to me and reflects far too great a disconnect from the stock's true value. I think a price in the high teens for QRCP would be justified based on the current holdings and numbers being put out by the company.
Going forward, there appears to be significant growth potential from both the company’s Marcellus acreage and its general partnership interests. In the hands of competent management, Quest Resources could easily be worth two to three times the $21 it appears to be worth now, once the value of the company’s Marcellus Shale acreage and future growth in the area and general partnership interests has been fully realized.
For Further Review:
Termination of Merger Agreement
10-Q
10-K
Disclosure: Long QRCP
dragon man
16 years ago
Quest Resource Corp. Announces Joint Venture Agreement, Debt Repayment, and Affiliate Loan Amendments
OKLAHOMA CITY, OK, Nov 07, 2008 (MARKET WIRE via COMTEX) -- Quest Resource Corporation (NASDAQ: QRCP) ("QRCP") today announced the sale of a 50% interest in its operations in Wetzel County, West Virginia to a private entity for $6.1 million. Included in the sale were approximately 4,500 net undeveloped acres, three wells in various stages of completion (two horizontal wells and one vertical well) and existing pipelines and facilities. QRCP will act as operator and all future development costs will be equally split between the private party and QRCP. Tudor, Pickering, Holt & Co. Securities, Inc. acted as QRCP's advisor for the joint venture sale.
Net proceeds from the sale were used to repay approximately $2.2 million on the company's term loan with the remainder available to fund capital expenditures and overhead costs. With the repayment, the term loan has a balance of $29 million with the next quarterly principal payment of $1.5 million due on September 30, 2009. QRCP has now completed $12.9 million of asset sales and repaid $6.5 million of debt. Under the terms of its amended loan agreement, after repaying the $6.5 million of debt, QRCP is permitted to retain up to the next $20 million of net cash proceeds from asset sales completed before January 31, 2009 to fund capital expenditures and working capital. Net cash proceeds above this amount or received after this date are required to be used to repay the term loan.
On November 5, 2008, Quest Energy Partners, L.P. (NASDAQ: QELP) and Quest Midstream Partners, L.P. entered into agreements with their lenders to amend their credit agreements. Among other terms of the amendments, the lenders agreed to waive any potential non-compliance in prior periods that was a direct or indirect consequence of the questionable transfer of approximately $10 million of funds from the Quest entities to an entity controlled by QRCP's former chief executive officer. The entities paid a 25 basis point amendment fee on committed amounts of the facilities. Also under the terms of the amendments, the interest rate for the primary credit agreement of each entity was increased to a variable level that is currently 6.875% per annum while the variable rate for Quest Energy Partners' second lien term loan was increased to 12.5% per annum. The maturity date for Quest Energy Partner's second lien term loan was extended to September 30, 2009.
Also on November 5, 2008, the lenders under Quest Energy Partners' revolving credit agreement reconfirmed the borrowing base of $190 million. After giving effect to the amendments and the reconfirmation of the borrowing base, Quest Midstream Partners and Quest Energy Partners each have $7 million of availability under their respective revolving credit facilities. Neither Quest Energy nor Quest Midstream have made any borrowing under their revolving credit facilities since the Quest entities announced the questionable transfer of funds on August 25, 2008. The full amendments to the loan agreements were filed with the Securities and Exchange Commission on November 7, 2008.
Management Comment
David Lawler, president of QRCP, said, "We believe this joint venture agreement improves our liquidity while keeping us positioned to capture the potential associated with the Marcellus Shale formation in Wetzel County, West Virginia. We recently completed drilling the horizontal section of one well in Wetzel County and commenced drilling on the horizontal section of the second well. We continue to pursue other transactions to further improve our liquidity and generate additional funding for our development plans in the Marcellus Shale play."
About Quest Resource Corporation
Quest Resource Corporation is a fully integrated E&P company that owns: the right to develop approximately 105,000 net acres in the Appalachian Basin of the northeastern United States, including approximately 97,000 acres prospective for the Marcellus Shale; 100% of the general partner and a 57% limited partner interest in Quest Energy Partners, L.P. (NASDAQ: QELP); 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, the Quest Energy Partners website at www.qelp.net, and the Quest Midstream Partners website at www.qmlp.net.
Forward-Looking Statements
dragon man
16 years ago
Quest rebounds from trying time: No. 8leadership change may bring new opportunities
Oct 18, 2008 (The Oklahoman - McClatchy-Tribune Information Services via COMTEX) -- The period since June 30 has been a tough one for many public companies, but few have had quite as messy a time as Quest Resource Corp.
Quest Resource finished 9th in the Oklahoma Inc. rankings, largely on the strength of its 67 percent revenue growth. The Oklahoma City energy company is the largest producer of natural gas in the Cherokee Basin, which is in eastern Kansas and northeastern Oklahoma.
But the company's chief executive officer, Jerry Cash, resigned in August as details emerged about his apparent misuse of $10 million in Quest Resource cash for personal purposes. The Oklahoma Securities Department has sued Cash.
Quest later fired Chief Financial Officer David Grose in connection with the misappropriated money. The company continues to work with state and federal authorities.
Cash's last big deal before his departure was acquiring property in Appalachia to expand the company's operations.
Focus on growth
The Oklahoma City energy company later disclosed that it was short of cash and credit, leaving it facing "liquidity issues that would adversely impact its future plans and results of operations."
David Lawler, who inherited the Quest Resource mantle on Cash's departure, has been left to deal with the situation. Lawler, 40, is focused on maintaining the company's record of growth.
"The past month or so has been tumultuous, but we are working hard to finish our internal investigation and return to a normal operating environment," Lawler said in a statement issued by the company. "I think everyone in our sector is feeling some impact from tighter credit markets, lower price of natural gas, and the uncertain economic outlook."
"The past month or so has been tumultuous, but we are working hard to finish our internal investigation and return to a normal operating environment."
David Lawler
To see more of The Oklahoman, or to subscribe to the newspaper, go to
http://www.newsok.com. Copyright (c) 2008, The Oklahoman, Oklahoma City
Distributed by McClatchy-Tribune Information Services. For reprints, email
tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax
to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave.,
Suite 303, Glenview, IL 60025, USA.
dragon man
16 years ago
Quest Provides Operational Update
OKLAHOMA CITY, OK, Oct 10, 2008 (MARKET WIRE via COMTEX) -- Quest Resource Corporation (NASDAQ: QRCP) ("QRCP") and Quest Energy Partners, L.P. (NASDAQ: QELP) ("QELP") today provided the following update on operations, liquidity, and planned distributions:
Quest Resource Corporation -- Appalachian Basin
QRCP owns the right to develop more than 122,000 net acres within the recognized fairway of the emerging Marcellus Shale play in the Appalachian Basin and more than 7,000 net acres outside the fairway. QRCP plans to drive reserve and production growth through the development of this large acreage position. The development of this acreage will require significant amounts of additional capital resources.
In the fourth quarter of 2008, QRCP plans to spend approximately $11 million on Appalachian Basin capital projects including the drilling of one vertical test well in Lycoming County, Pennsylvania, two horizontal wells in Wetzel County, West Virginia, one horizontal well in Lewis County, West Virginia, and two vertical wells in Ritchie County, West Virginia.
QRCP currently has one rig drilling the two horizontal wells in Wetzel County that will be moved to Lewis County upon completion of these wells. A contractor has begun preparing the drilling location in Lycoming County for a rig that is expected to be on location by the middle of October. A rig is expected to arrive on location in Ritchie County to drill the two vertical wells within the next 10 days.
QRCP must drill these wells to satisfy obligations under various leases with deadlines prior to the end of the year. If QRCP did not drill some or all of these wells, it could potentially lose leases covering up to approximately 15,000 net acres in the Appalachian Basin.
On an unconsolidated basis, QRCP currently has an outstanding term loan of $33.5 million and total available cash of approximately $1.0 million.
In addition to the capital expenditures discussed above, QRCP and its affiliates are currently experiencing significant unexpected costs associated with the investigation of the questionable transfers of funds from the Quest entities by Mr. Jerry Cash, QRCP's former chief executive officer. Management believes that QRCP will need to raise significant additional capital in the near term in order to fund these capital expenditures and to pay these expenses. QRCP is currently negotiating with its lender for, among other things, an additional revolving credit facility and a waiver of any potential defaults that may have occurred as a result of Mr. Cash's questionable transfers.
QRCP has engaged Tudor, Pickering, Holt & Co. Securities, Inc. to assist QRCP in exploring strategic alternatives, including a number of options to, among other things, secure adequate funding for its planned drilling and development activities in the Marcellus Shale region, including the sale of equity securities, the incurrence of additional debt, joint ventures, farm-outs and selected asset sales. David Lawler, President of each of the Quest entities, said, "We remain optimistic about the potential associated with our large acreage position prospective for the Marcellus Shale. We are also reassigning some of our people to this area from the Cherokee Basin, which will enhance our operations in the area."
There is no assurance that QRCP will be successful in raising additional capital, obtaining additional debt financing or obtaining any required waivers. If QRCP is unsuccessful in its negotiations with its lenders or raising additional capital, QRCP would experience liquidity issues that would adversely impact its future plans and results of operations.
Internal Investigation Update
The independent internal investigation initiated by the boards of QRCP and the general partners of QELP and Quest Midstream Partners, L.P. into the questionable transfer of funds to Mr. Cash remains ongoing. Based on the information obtained in the investigation to date, the special committee of the boards conducting the investigation continues to believe that the questionable transfers involved a total of approximately $10 million (as originally announced). QRCP and QELP are aggressively seeking restitution from Mr. Cash for this amount. The companies cannot accurately predict when the investigation will be complete, what the final results of that investigation will be, or whether any recovery of the missing assets can be made.
In addition, both QRCP and QELP and certain of their officers and directors have been named as defendants in several class action securities lawsuits and QRCP and certain of its officers and directors have been named in lawsuits asserting derivative claims for breach of fiduciary duty related to the questionable transfers of funds to Mr. Cash. QRCP and QELP have retained counsel to represent them in such litigation and intend to defend themselves vigorously against such claims.
Quest Energy Partners, L.P. -- Cherokee Basin
QELP is the largest producer of natural gas in the Cherokee Basin of southeast Kansas and northeast Oklahoma. QELP's total net natural gas production averaged an estimated 58.5 million cubic feet per day (Mmcf/d) in the third quarter of 2008, up from an average of approximately 56.2 Mmcf/d in the second quarter of 2008, a sequential increase of 4%.
QELP has hedging contracts covering approximately 4.5 Bcf of production for the fourth quarter of 2008. Approximately 35% of the hedge contracts are tied to NYMEX prices with no basis locks and thus expose the partnership to the recent widening of the basis differential in the region, which were $3.38/Mmbtu for the October 2008 bid week and $1.99/Mmbtu for the September 2008 bid week versus an average of $1.37/Mmbtu for the first eight months of 2008. The partnership currently expects to realize an approximate weighted average price of between $6.25/Mmbtu and $6.50/Mmbtu on hedged volumes in the fourth quarter of 2008.
QELP has entered into hedging contracts for approximately 16 Bcf of production for 2009. Only 5% of the 2009 contracts are tied to NYMEX prices without basis locks. As a result, the partnership currently expects to realize a weighted average price of between approximately $7.80/Mmbtu and $7.90/Mmbtu on hedged volumes in 2009.
As of October 3, 2008, QELP has drilled 336 gross wells in the Cherokee Basin, which exceeds the 325 wells planned for the year. As of the same date, the partnership had completed and connected 302 gross wells in the Cherokee Basin out of the 325 wells planned for the year and had an inventory of approximately 100 wells that had been drilled but are awaiting completion and connection. The partnership has decided to defer the completion and connection of the majority of these wells due to the currently wide natural gas price differential in the basin and a desire to operate within cash flow from operations.
Mr. Lawler said, "We exceeded our annual drilling plan in the Cherokee Basin ahead of schedule due to the efficient work of our drilling crew. At this time, due to our inability to access the public equity and debt capital markets at attractive prices as a result of the current crisis in our country's financial markets and the costs associated with our ongoing internal investigation, we determined that it would be prudent to proactively slow down our development in the Cherokee Basin in the short term. The low natural gas prices in the Cherokee Basin have reinforced this decision. Absent these factors, our internal oilfield service division would now be working to complete and connect the wells. However, we expect to resume our Cherokee Basin development program upon the conclusion of the independent internal investigation and after market conditions improve. As a result of this slow down, 28 internal development related operations personnel were unfortunately impacted."
Quest Energy Partners, L.P. -- Appalachian Basin
QELP expanded into the Appalachian Basin in July 2008 through the acquisition from QRCP of natural gas and oil producing wells and has opened an office in the Pittsburgh area. Estimated total net natural gas equivalent production is currently approximately 3.4 million cubic feet of equivalents per day (Mmcfe/d) and has averaged this rate since the properties were acquired in July.
In Ritchie County, West Virginia, production was curtailed for approximately nine days during the quarter due to a gathering system upgrade that was completed last week. Infrastructure enhancement projects are underway in Wetzel County, West Virginia and are scheduled for completion by the end of this month. The enhancements in Wetzel County should allow for unconstrained sales on three producing vertical Marcellus wells owned by QELP and for the horizontal wells currently being drilled by QRCP. Removing the production constraint is expected to immediately increase production from the existing wells by a combined 0.3 to 0.5 Mmcf/d.
Mr. Lawler said, "Our expansion into Appalachia has given the partnership long-lived natural gas producing properties that add geographic and geologic diversity, receive premium natural gas pricing, and offer numerous opportunities to complete the existing wells in additional formations with proved developed non-producing reserves. Our operating team in Appalachia believes the opportunity exists to enhance production from existing wells and we have reassigned several of our Cherokee Basin employees to capture this potential upside."
Quest Energy Partners, L.P. -- Liquidity and Distributions
QELP will require significant additional capital resources in order to fully develop its undeveloped natural gas reserves in the Cherokee Basin and to further develop its Appalachian Basin reserves. There is no assurance that such resources will be available to QELP.
At September 30, 2008, QELP's total funded debt balance was $228 million and total cash was approximately $9 million. As of September 30, 2008, total funded debt consisted of $183 million drawn on its revolving credit facility (out of a total current availability of $190 million) and a $45 million, second lien term loan facility that matures in January 2009. However, the partnership is currently undergoing its mid-year borrowing base redetermination and is negotiating with its lenders for, among other things, an extension of its term loan facility and a waiver of any potential defaults that may have occurred as a result of Mr. Cash's questionable transfers. In the event that QELP's lenders were to reduce the borrowing base and therefore the amount available under QELP's revolving credit facility, not extend the maturity date of the term loan and/or grant any required waivers, QELP intends to seek additional funding through the incurrence of additional indebtedness, the sale of equity securities or the sale of assets and the reduction of costs. If QELP is unsuccessful in its negotiations with its lenders or raising additional capital, QELP would experience liquidity issues that would adversely impact its future plans, results of operations and ability to make distributions on its units.
Due to lower than expected natural gas prices in the Cherokee Basin and significant unexpected costs associated with the ongoing internal investigation, management currently plans to recommend to QELP's Board of Directors a cash distribution for the third quarter of 2008 of $0.43 per unit for all common units outstanding (unchanged from the prior quarter). The potential distribution is subject to QELP's negotiations with its lenders or ability to raise additional capital and to approval by the Board of Directors of QELP's general partner.
Gary Pittman was recently appointed Chairman of the Board of Directors of QELP's general partner.
Quest Midstream (Natural Gas Pipelines Segment)
QRCP's natural gas pipelines segment conducts its operations through privately held Quest Midstream Partners, L.P. ("QMLP"). QMLP increased the size of its low pressure gathering system in the Cherokee Basin during the third quarter to approximately 2,133 miles after constructing approximately 50 miles of low pressure gas gathering pipelines. In the third quarter of 2008, QMLP's total natural gas throughput volumes in the Cherokee Basin rose by approximately 4% from the prior quarter and by approximately 19% from the year ago quarter. QMLP's interstate natural gas transmission pipelines in Oklahoma, Kansas, and Missouri did not experience any significant interruption during the third quarter of 2008.
As of September 30, 2008 QMLP's total funded debt balance was $128 million, consisting solely of amounts drawn on its $135 million revolving credit facility, and total cash was approximately $4 million. The partnership is negotiating with its lenders to, among other things, delay the step down provision of its total leverage ratio and obtain a waiver of any potential defaults that may have occurred as a result of Mr. Cash's questionable transfers. If QMLP is unable to negotiate a step down in its leverage ratio or obtain any required waivers, QMLP would need to either sell additional common units, reduce costs and/or sell assets in order to reduce its outstanding indebtedness and to replace the remaining undrawn amount under its revolving credit facility if it wishes to fund an ongoing capital program. At such time as QELP resumes its development program in the Cherokee Basin, QMLP will require additional capital resources in order to connect the additional wells developed by QELP. There is no assurance that QMLP will be successful in raising additional capital. If QMLP is unsuccessful in its negotiations with its lenders or raising additional capital and is therefore not able to fund an ongoing capital program, QMLP would experience liquidity issues that would adversely impact QRCP's and QELP's future plans and operations.
The partnership's initial public offering plans have been suspended due to soft market conditions and the investigation into Mr. Cash's questionable transfers of funds. As a result, QMLP will not satisfy its contractual obligation with its investors to have completed an initial public offering by December 22, 2008. Under the terms of an investors' rights agreement among QRCP and QMLP's investors, after December 22, 2008 and until such time, if any, as an initial public offering is completed by QMLP, the investors may require QMLP's general partner to effect a sale of either all of QMLP's assets or partner interests. Additional information about the investors' rights agreement is contained in QRCP's most recent annual report on Form 10-K filed with the Securities and Exchange Commission.
QRCP is currently evaluating a number of options in response to these developments.
About Quest Resource Corporation and Quest Energy Partners, L.P.
Quest Resource Corporation is a fully integrated E&P company that owns: the right to develop approximately 130,000 net acres in the Appalachian Basin of the northeastern United States, including 122,600 acres prospective for the Marcellus Shale; 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 Corporation 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 in the Basin. The partnership also owns natural gas and oil producing wells in the Appalachian Basin of the northeastern United States and in Seminole County, Oklahoma. For more information, visit the Quest Energy Partners website at www.qelp.net.
Quest Midstream Partners, L.P. was formed by Quest Resource Corporation to acquire and develop transmission and gathering assets in the midstream natural gas and oil industry. The partnership owns more than 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 results of the internal investigation described in this press release, the ongoing worldwide crisis in the capital markets, 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 Resource Corporation's and Quest Energy Partners, L.P.'s filings with the Securities and Exchange Commission, including risk factors listed in their latest annual reports on Form 10-K and other filings with the Securities and Exchange Commission. You can find Quest Resource Corporation's filings with the Securities and Exchange Commission at www.qrcp.net or at www.sec.gov and Quest Energy Partners, L.P.'s filings with the Securities and Exchange Commission at www.qelp.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.
Company Contact:
Jack Collins
CFO
Phone: (405) 702-7460
Websites: www.qrcp.net & www.qelp.net
SOURCE: Quest Resource Corp.
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