OKLAHOMA CITY, OK today provided additional detail on certain of
the assumptions provided by Pinnacle Gas Resources, Inc. (NASDAQ:
PINN) to Quest and Quest's financial advisor, Friedman, Billings,
Ramsey & Co., Inc. in connection with Quest's proposed merger
with Pinnacle. In addition, Quest has prepared a comprehensive
presentation describing the strategic rationale and financial
benefits of the Pinnacle merger that can be accessed on its website
(www.qrcp.net) and that was filed with the SEC on February 12, 2008
on Form 8-K. Quest management plans to meet with institutional
investors after its preliminary joint proxy statement/prospectus
receives clearance from the Securities and Exchange Commission and
the date of the special meeting of Quest shareholders vote is
set.
Pinnacle Gas Resources, Inc. Assumptions
A factor in the evaluation of the proposed merger was based upon
the midpoint of the assumption ranges set forth below, except for
the NYMEX Gas Price (as set at the Henry Hub delivery point) and
NYMEX Differentials, which are not stated as ranges. Quest
management believes that there is a reasonable basis to project
that these assumptions will be realized in the ranges provided,
assuming the NYMEX Gas Prices and NYMEX Differentials are realized.
NYMEX Gas Prices and NYMEX Differentials (which is the assumed
differential between NYMEX Gas Price and the CIG, Rocky Mountain
price) are assumptions that were used and agreed to by Quest and
Pinnacle for purposes of analyzing the relative values of the
companies and used by Quest in its determination of fairness of the
transaction from a financial point of view. Quest management
believes that there is a reasonable basis for the use of these
ranges of prices and differentials, but, due to market conditions
and other factors outside its control, the actual prices and
differentials will be different and those differences may be
material. On March 3, 2008, the closing spot price at Henry Hub was
$9.07/MMBtu and the differential from the CIG, Rocky Mountain price
was $1.12/MMBtu.
Year Ended December 31,
----------------------- % Change
2008E 2009E (Midpoint)
------------- ------------- ----------
Net Gas Production (MMcf/d) 14.4 - 15.1 25.8 - 27.1 79%
Other Revenues ($mm) 1.9 - 2.0 2.0 - 2.1 8%
Total Operating Expenses ($mm) 20.8 - 21.9 31.3 - 32.9 50%
Adjusted EBITDA ($mm) 17.0 - 17.9 35.3 - 37.1 107%
Capital Expenditures ($mm) 45.1 - 47.5 60.8 - 63.9 35%
Net Interest Expense ($mm) 0.6 - 0.7 2.9 - 3.0 348%
NYMEX Gas Price ($/MMBtu) 8.00 8.00 0%
NYMEX Differential ($/MMBtu) 1.15 1.15 0%
Management Comment
"We believe the combination with Pinnacle provides compelling
immediate and long-term financial benefits to Quest shareholders at
natural gas prices well below the current NYMEX futures strip. The
merger will create a geographically diversified coalbed methane
(CBM) focused company with significant reserve potential. In
addition, Pinnacle will provide the combined company with
significant additional unconventional resource opportunities that
can be developed to grow Quest Energy Partners, L.P. without undue
reliance on third-party acquisitions. Our experience drilling
approximately 1,200 shallow, multi-seam CBM wells in the Cherokee
Basin over the past two years makes us uniquely suited to join with
Pinnacle and develop its large undeveloped acreage position and
deliver rapid production, EBITDA, and reserve growth," said Jerry
D. Cash, Quest's Chairman, President and Chief Executive
Officer.
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 1,900 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 corporation's
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 periodic filings, and its registration
statement on Form S-4 filed with the Securities and Exchange
Commission on February 7, 2008 (File No. 333-149094). 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.
Important Additional Information will be Filed with the SEC
QUEST AND PINNACLE WILL FILE A JOINT PROXY STATEMENT/PROSPECTUS
AND OTHER DOCUMENTS WITH THE SECURITIES AND EXCHANGE COMMISSION,
AND QUEST HAS FILED A REGISTRATION STATEMENT ON FORM S-4 WITH THE
SEC ON FEBRUARY 7, 2008 (File No. 333-149094). INVESTORS AND
SECURITY HOLDERS ARE URGED TO READ CAREFULLY THE DEFINITIVE JOINT
PROXY STATEMENT/PROSPECTUS WHEN IT BECOMES AVAILABLE BECAUSE IT
WILL CONTAIN IMPORTANT INFORMATION REGARDING QUEST, PINNACLE AND
THE MERGER OF QUEST AND PINNACLE. A DEFINITIVE JOINT PROXY
STATEMENT/PROSPECTUS WILL BE SENT TO SECURITY HOLDERS OF QUEST
SEEKING THEIR APPROVAL OF THE ISSUANCE OF QUEST COMMON STOCK IN THE
MERGER AND TO THE SECURITY HOLDERS OF PINNACLE SEEKING THEIR
APPROVAL OF THE MERGER. INVESTORS AND SECURITY HOLDERS MAY OBTAIN A
FREE COPY OF THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS WHEN
IT BECOMES AVAILABLE AND OTHER DOCUMENTS FILED BY QUEST AND
PINNACLE WITH THE SEC AT THE SEC'S WEBSITE AT WWW.SEC.GOV.
THIS PRESS RELEASE IS NOT A SOLICITATION OF A PROXY FROM ANY
SECURITY HOLDER OF QUEST OR PINNACLE AND SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES,
NOR SHALL THERE BE ANY SALE OF SECURITIES IN ANY JURISDICTION IN
WHICH SUCH SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH
JURISDICTION.
THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND SUCH OTHER
DOCUMENTS (RELATING TO QUEST) MAY ALSO BE OBTAINED FOR FREE FROM
QUEST BY DIRECTING A REQUEST TO QUEST, 210 PARK AVENUE, SUITE 2750,
OKLAHOMA CITY, OKLAHOMA, ATTENTION JACK COLLINS; TELEPHONE: (405)
702-7460; E-MAIL: JCOLLINS@QRCP.NET.
THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND SUCH OTHER
DOCUMENTS (RELATING TO PINNACLE) MAY ALSO BE OBTAINED FOR FREE FROM
PINNACLE BY DIRECTING A REQUEST TO PINNACLE GAS RESOURCES, INC., I
E. ALGER, SHERIDAN, WYOMING 82801, ATTENTION: RONALD BARNES;
TELEPHONE: (307) 673-9710; E-MAIL: RBARNES@PINNACLEGAS.COM.
Quest, its directors and executive officers, certain members of
its management and certain of its employees may be considered
"participants in the solicitation" of proxies from Quest's
stockholders in connection with the merger. Information regarding
such persons and a description of their interest in the merger is
contained in the preliminary joint proxy statement/prospectus filed
by Quest with the SEC on February 7, 2008 (the "Preliminary Joint
Proxy Statement/Prospectus"). You may obtain a free copy of the
Preliminary Joint Proxy Statement/Prospectus at the SEC's website
at www.sec.gov. Information concerning beneficial ownership of
Quest stock by its directors and certain of its executive officers
is also included in the Preliminary Joint Proxy
Statement/Prospectus.
Pinnacle, its directors and executive officers, certain members
of its management and certain of its employees may be considered
"participants in the solicitation" of proxies from Pinnacle's
stockholders in connection with the merger. Information regarding
such persons and a description of their interest in the merger is
contained in the Preliminary Joint Proxy Statement/Prospectus.
Information concerning beneficial ownership of Pinnacle stock by
its directors and certain of its executive officers is also
included in the Preliminary Joint Proxy Statement/Prospectus.
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; and
-- change in derivative fair value.
Although Adjusted EBITDA is not a measure of performance
calculated in accordance with generally accepted accounting
principles, or GAAP, Quest considered it an important measure of
Pinnacle's performance. Adjusted EBITDA is not a substitute for the
GAAP measures of earnings or cash flow and is not necessarily a
measure of our ability to fund our cash needs. In addition, it
should be noted that companies calculate Adjusted EBITDA
differently, and therefore Adjusted EBITDA as presented herein may
not be comparable to Adjusted EBITDA reported by other companies.
Adjusted EBITDA has material limitations as a performance measure
because it excludes, among other things, (a) interest expense,
which is a necessary element of our business to the extent that we
incur debt, (b) depreciation, depletion, amortization and
accretion, which are necessary elements of our business because we
use capital assets, (c) impairments of oil and gas properties,
which may at times be a material element of our business, and (d)
income taxes, which may become a material element of our operations
in the future. Because of its limitations, Adjusted EBITDA should
not be considered a measure of discretionary cash available to us
to invest in the growth of our business.
A reconciliation of the midpoint of the assumed Pinnacle
Adjusted EBITDA in 2008 and 2009 to net income in those periods is
as follows:
Year Ended December 31, ($mm)
-----------------------------
2008E 2009E
----- -----
Net Income 8.0 17.5
Add: Net Interest Expense 0.7 3.0
Add/Less: Change in unrealized derivative value 0.0 0.0
Add: Asset retirement obligation 0.0 0.0
Add: Depreciation, depletion, and amortization 8.8 15.7
Add: Impairment of oil and gas properties 0.0 0.0
----- -----
Adjusted EBITDA 17.5 36.2
Company Contact: Jack Collins Investor Relations Phone: (405)
702-7460 Website: www.qrcp.net
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