Quest Resource Corporation (NASDAQ:QRCP)
Industry: Basic Materials
Quest Resource Corporation (Quest), incorporated in 1982, is an independent energy business engaged in the exploration, development and production of natural gas. The Company's operation focuses on the development of coal bed methane (CBM) in southeastern Kansas and northeastern Oklahoma known as the Cherokee Basin. As of December 31, 2005, it had 134.5 billion cubic feet equivalent (Bcfe) of net proved reserves. The reserves are approximately 99% CBM and 54% proved developed. In addition to its CBM reserves and acreage, Quest owns and operates a gas gathering pipeline network of approximately 1,100 miles that serves its acreage position. The Company transports 100% of its production through its gas gathering pipeline network to interstate pipeline delivery points. Approximately 10% of the current volumes transported on its pipeline system are for third parties. As of December 31, 2005, Quest had an inventory of 228-drilled CBM wells awaiting connection to its gas gathering system. During the year ended December 31, 2005, Quest Cherokee, LLC, its principal operating subsidiary, acquired certain assets from Faith Well Service. The assets consisted of service rigs and related equipment. Quest also acquired approximately 10 miles of pipeline and 2,340 acres of leasehold from Venture Independent Petroleum during 2005. Cherokee Basin The Cherokee Basin is located in southeastern Kansas and northeastern Oklahoma. It is part of the Western Interior Coal Region of the central United States. The coal seams Quest targets for development are Pennsylvanian (Desmoinesian-Cherokee Group) in age and are found at depths of 300 to 1,400 feet. The principal formations the Company targets include the Mulky, Weir-Pittsburgh and the Riverton. The coal seams found in the Cherokee Basin are primarily high-volatile A and B bituminous grade with permeability and gas saturations ranging from 150 to 380 standard cubic feet (scf) of natural gas per ton. Quest develops its CBM reserves in the Cherokee Basin on 160 acre spacing. The Company perforates and fracs the multiple coal seams present in each well. Its typical Cherokee Basin multi-seam CBM well has gross reserves of 160 million cubic feet of natural gas (mmcf). Its general production profile for CBM well averages an initial 15-20 thousand cubic feet of natural gas per day (mcf/d) (net), steadily rising for the first eight months, while water is pumped off and the formation pressure is lowered. A period of relatively flat production of 55-60 mcf/d (net) follows the initial de-watering period for a period of 8-10 months. After 16 to 18 months, production begins to decline at an annual rate of 12-14%. The standard economic life is about 14 years. The Company's development activities in the Cherokee Basin also include an active program to recomplete CBM wells that produce from a single coal seam to wells that produce from multiple coal seams. Quest began its well recompletions in November 2004. As of December 31, 2005, the Company had recompleted approximately 169 wellbores in Kansas and an additional 36 in Oklahoma, and Quest had an additional 112 wells awaiting recompletion to multi-seam producers. The recompletion strategy is to add four to five additional pay zones to each wellbore, in a two-stage process. As of December 31, 2005, the Company controlled approximately 533,000 gross acres. The petroleum engineering firm of Cawley, Gillespie & Associates, Inc., of Ft. Worth, Texas, estimated its proved oil and natural gas reserves as of December 31, 2005: estimated gross natural gas proved reserves of 217.1 billion cubic feet (Bcf), of which 134.3 Bcf is net to the Company, and estimated net proved oil reserves of 32,269 barrels. Quest has a significant amount of acreage available for development. As of December 31, 2005, the Company had leases with respect to approximately 283,803 net undeveloped acres. During 2005, Quest drilled approximately 99 wells and connected 233 wells to its pipeline systems. The Company intends to drill approximately 600 wells during 2006 and
As Of: 10/07 00:00 ET
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