Each one in plain English, with the numbers worked through for a shareholder.
2 July 2008material agreement● NeutralMajor
On July 1, 2008 Quest agreed with RBC Capital Markets and other underwriters to sell 8,800,000 new shares at $10.25 each, with a 30-day option for up to 1,320,000 more. The filing ties this to the equity offering planned to fund the PetroEdge purchase only indirectly, via the earlier press release; it doesn't state the use of proceeds itself. It adds new shares for existing holders, and the filing notes an RBC affiliate also lends to Quest ($50m revolver, to become a $35m term loan) and to Quest Energy Partners and Quest Midstream Partners, and will be lender on a $45m bridge loan to Quest Energy.
This amendment to the June 10, 2008 filing only replaces the wrong Exhibit 2.1 with the correct PetroEdge purchase agreement; it repeats the original text of the roughly $140m PetroEdge acquisition and adds no new terms.
On June 5, 2008 Quest agreed to buy PetroEdge Resources (WV) LLC from PetroEdge Resources Partners for about $140m cash (subject to adjustment; $5m deposited), adding roughly 78,000 net acres in West Virginia, Pennsylvania and New York, about 100 Bcfe of proved reserves, with closing expected by July 11, 2008. On June 4 Quest Oil & Gas also paid $4m for a farmout with Bradley Energy on about 32,000 acres in Potter County, Pennsylvania, with a one-year option to buy the deep rights for a further $6.5m. The attached press release says Quest plans to fund the purchase from a planned equity offering and from selling the proved developed reserves to Quest Energy Partners. This replaces the Pinnacle deal with a different push into Appalachia (Marcellus Shale).
19 May 2008material agreement termination● NeutralMajor
The Pinnacle Gas Resources merger agreement was terminated on May 16, 2008 because the deal was not completed by that date; either side could terminate then, and Quest owes no termination fee. This ends the merger thread that began in October 2007, so the planned issuance of shares to Pinnacle holders will not happen. The filing doesn't say why the deal wasn't completed. It also furnishes first-quarter 2008 results (no figures in the text) and announces a letter of intent with a private company for a farm-out giving Quest rights to develop about 30,000 net acres in Pennsylvania for one year.
Effective April 15, 2008, the lenders to the Quest Cherokee credit agreement (not Quest itself) amended it: maturity moves from November 15, 2012 to November 15, 2010 and interest rises by 1%, to LIBOR plus 2.25%-2.875%. Royal Bank of Canada used its 'market flex' rights because it could not sell down its commitment to its desired hold amount; the option to expand the $250m facility to $350m was eliminated. The filing says that, given lower LIBOR, the increase does not currently change the partnership's 2008 interest expense guidance. This makes the November 2007 refinancing shorter and costlier.
On February 6, 2008 Quest filed the registration statement (Form S-4) and preliminary joint proxy for the Pinnacle Gas Resources merger on the amended terms: 0.5278 Quest shares per Pinnacle share, leaving former Pinnacle holders with about 39.5%. It registers 15,781,617 new Quest shares and asks both companies' holders to vote at special meetings (dates blank); Quest holders also vote on raising the 2005 Omnibus Stock Award Plan share pool from 2,200,000 to 5,000,000. This continues the merger thread and starts the formal approval process.
On February 6, 2008 Quest and Pinnacle restated their merger agreement, cutting the exchange ratio from 0.6584 to 0.5278 Quest shares per Pinnacle share. Current Quest holders would now own about 60.5% (up from 55%) and Pinnacle holders about 39.5%, and the surviving company becomes Quest Western Resource Corporation. The board would have six directors (four Quest, two Pinnacle). The termination fee stays $3.0m, with a $5.0m fee in certain limited circumstances if Pinnacle terminates. Quest directors agreed to vote for the deal, and the stock plan was amended to bar option repricing. This revises the October 2007 terms in Quest holders' favour on dilution.
This amendment adds the financial statements required for the November 1, 2007 purchase of the 1,120-mile KPC Pipeline by Quest Midstream Partners: audited 2006 and unaudited nine-month 2007 statements of the KPC Partners, plus pro forma figures. It contains no new deal terms and no figures appear in the text itself.
On November 15, 2007, with the initial public offering of Quest Energy Partners, Quest contributed Quest Cherokee (the Cherokee Basin gas producer) to that partnership and received 3,201,521 common units and 8,857,981 subordinated units. Quest's general partner entity received 431,827 general partner units and incentive distribution rights. The Guggenheim loans were replaced by a new five-year $250m RBC revolver with a $160m borrowing base and $75m drawn, and Quest itself was released as a borrower. This resolves the high-cost Guggenheim debt thread (the second and third lien loans) at the Quest Cherokee level, with LIBOR+1.25% to 1.875% pricing. Quest's maximum environmental indemnity under the Omnibus Agreement is $5m.
2 Nov 2007asset acquisition disposition● NeutralMajor
On November 1, 2007 Quest Midstream Partners sold 3,750,000 common units at $20.00 ($75m) in a private placement and used the proceeds toward buying the KPC Pipeline, an interstate gas pipeline from Oklahoma to Missouri, from Enbridge Midcoast Energy and Midcoast Holdings No. One. The partnership's RBC revolver (set up in January 2007) was amended and increased from $75m to $135m, with $95m borrowed, maturing November 1, 2012, and the partnership became a co-borrower. This extends the midstream business beyond the Cherokee Basin gathering system, funded partly by outside investors and partly by more debt.
On October 15, 2007 Quest agreed to merge with Pinnacle Gas Resources, which would become a wholly-owned subsidiary. Pinnacle holders get 0.6584 Quest shares per share, leaving current Quest holders with about 55% and Pinnacle holders about 45%. Jerry Cash stays Chairman, President and CEO, the board would have seven seats (four Quest, three Pinnacle), and closing is expected in the first or second quarter of 2008 subject to both companies' shareholder votes. A $3.0m termination fee can apply in specified circumstances. For existing shareholders this means substantial dilution.
On April 25, 2007 Quest's Guggenheim lenders waived a default: Quest and Quest Cherokee had failed the maximum total net debt-to-EBITDA test for the quarter ended March 31, 2007. The ratio limits were reset (4.50x for March 2007, 5.50x for June 2007, easing to 3.0x from September 30, 2008), and Quest paid the lenders $1,687,500. This is the covenant pressure flagged in earlier filings, on the $100m senior, $100m second lien and $75m third lien loans, now breached and waived.
On Jan 31, 2007 Quest Midstream Partners, L.P. (described as Quest's majority-owned subsidiary) and its subsidiary Bluestem Pipeline, LLC entered a five-year $75 million revolving credit facility with Royal Bank of Canada as agent. It carries LIBOR+1.25% to 2.00% interest, can be increased by up to $50m at the lenders' option, and is secured by the pipeline entities' assets. It follows the planned pipeline partnership: Quest Midstream now exists and has its own debt, separate from the parent's Guggenheim loans. Financial covenants include interest coverage of at least 3.01x and leverage of no more than 4.0x.
29 Dec 2006capital raising announcement▲ GoodMajor
Quest sold a stake in its own pipelines: it formed Quest Midstream Partners, dropped the Cherokee Basin gathering system into it through Bluestem Pipeline, and six energy-income funds led by Alerian and Cushing paid $90 million for 4.86 million units at $18.50. Quest kept control through the general partner and locked in the gas volumes with a long-term dedication agreement - cash today in exchange for handing the midstream margin to outside investors, with a buy-back mechanism if the partnership is ever sold.
What it means for a shareholder
4.9m new shares at US$18.50 to raise about US$90.0m. Shares on issue before the raise aren't in the record, so the dilution can't be worked out.
On June 9, 2006 Quest and Quest Cherokee took a $75 million six-year third lien term loan from Guggenheim at LIBOR+8.5%, fully funded at closing and not repayable before June 9, 2007. The second lien loan was amended to cut its rate from LIBOR+6% to LIBOR+5.5%. Quest says $275m is available under its facilities, of which $225m is drawn, at an average rate of 12.0%. Quest also said it is considering contributing Bluestem Pipeline LLC (its pipeline subsidiary) to a to-be-formed partnership for a public offering expected to raise about $100m gross, with no assurance it will happen. This adds more debt behind the 2005 facilities; the pipeline offering is an early step toward the Quest Midstream Partners structure.
Quest reported daily net production of 30.6 MMcf/d exiting March 2006, up about 17% from 26.2 MMcf/d at Dec 31, 2005, and a board-approved 2006 capital budget of $105.7m (versus $47.5m spent in 2005). Proved reserves at Dec 31, 2005 were 134 Bcf, down 6 Bcf from July 2005, with 3P reserves at 299 Bcfe. The company says drilling was restricted by its credit facilities until the Nov 14, 2005 offering and new credit facility, which removed those limits; it also says 71 wells drilled in the last 45 days of 2005 were all classed as undeveloped, so no proved reserves were added. This answers part of the open question about earlier restrictions. Pipeline is stated as about 1,100 miles.
Quest said it will publish monthly operating updates on its website starting with November 2005. November 2005 figures: 23 wells drilled, 2 connected, 21 recompleted, 7.75 miles of pipeline buried and 802.55 net acres acquired. This is a new reporting practice following the November financing; the filing gives no comparison figures or production volumes.
18 Nov 2005asset acquisition disposition● NeutralMajor
With the placement closing on Nov 14, 2005, Quest and Quest Cherokee entered into two new credit agreements totaling $100 million each: a Senior Credit Agreement ($50m revolver plus $50m first lien term loan, both 5 years) and a $100m six-year second lien term loan (LIBOR+6%) that was fully funded at closing. Quest Cherokee repaid everything owed under its UBS credit agreement and ended its UBS interest rate swap, receiving $378,500. This replaces the UBS facility, resolving the earlier open question about it. The loans carry minimum production and debt-to-EBITDA covenants and are secured by substantially all assets. A registration rights agreement was also signed for the new shares; if the resale registration is not filed within 210 days, CEO Jerry Cash forfeits part of his 2006 bonus, up to $200,000. The excerpt does not show the ArcLight buyout closing (the text is truncated).
14 Nov 2005capital raising announcement● NeutralMajor
The private placement announced Nov 7 closed on Nov 14, 2005, selling 15,258,144 shares (the 14,650,000 base plus 608,144 from the placement agent's option). Gross proceeds were $198,355,872 and estimated net proceeds $183,470,961, leaving about 22,056,363 shares outstanding (up to about 22,913,219 if the rest of the option is sold). The filing says closing was subject to the new credit facility and the ArcLight purchase agreement; the sale itself is stated as closed. It resolves the pending placement, and existing holders are heavily diluted. Quest also agreed to register the shares for resale.
8 Nov 2005capital raising announcement● NeutralMajor
On Nov 7, 2005 Quest agreed to sell 14,650,000 new shares in a private placement (plus a 30-day option for 1,465,000 more), for expected gross proceeds of about $190.45 million (about $13 a share, an inference from the figures). About 21.4 million shares would be outstanding afterwards. The money is meant mainly to buy out ArcLight's investment in Quest Cherokee, repaying ArcLight's notes (about $83.9 million) and buying its equity (about $26.1 million), leaving Quest Cherokee wholly owned. Closing was expected Nov 14, 2005, subject to a new credit facility and the ArcLight deal. This would end the ArcLight partnership begun with the 2003 Devon purchase, but it greatly increases the share count.
On Aug 10, 2005 Quest sold the final 400,000 restricted shares for $800,000, completing its 1,000,000-share goal, and lent the money to Quest Cherokee at 15% (due Oct 22, 2010), bringing its loans to the subsidiary to $2.0 million. Quest Cherokee also got a $3.0 million 15% loan from Cherokee Energy Partners, and a new intercreditor agreement splits repayments 40% to Quest and 60% to Cherokee Energy Partners, replacing the July 29 agreement.
On July 27, 2005 Quest sold another 250,000 restricted shares to an individual investor for $500,000 and again lent the proceeds to Quest Cherokee at 15%. With the earlier 350,000, this leaves 400,000 shares still to sell to reach a stated goal of 1,000,000 shares.
On July 20, 2005 Quest sold 350,000 restricted shares to one individual investor for $700,000 (a price of $2.00 a share, by arithmetic). It lent the money to Quest Cherokee on a 15% note, to be repaid pro rata alongside Quest Cherokee's debt to Cherokee Energy Partners. The filing says Quest Cherokee had borrowed $63 million from Cherokee Energy Partners, with about $76.5 million including interest outstanding at June 30, 2005. Quest is putting new equity cash into the operating subsidiary, after the February 2005 default waiver.
On April 6, 2005 Wells Fargo Energy Capital exercised in full the warrant it received with its November 2002 loan to Quest. Quest will issue 1,599,600 shares, with the exercise price paid by netting shares at a $4.00 market price. This adds shares and so dilutes existing holders, but brings in no cash.
On Feb 22, 2005 the lenders under Quest Cherokee's UBS credit agreement waived all existing defaults. In return Quest Cherokee agreed to a 1% higher interest margin until its leverage ratio falls below 4.0 to 1.0, and to $7 million of extra subordinated notes to Cherokee Energy Partners. It also received $5 million of additional Term B loans (on top of the original $120 million). The need for a waiver of existing defaults is a warning sign for the main operating subsidiary, though the filing does not say what the defaults were. It does not explain how this UBS facility relates to the 2003 Banc One financing.
On Aug 24, 2004 Quest dismissed its auditor Clyde Bailey, P.C. and hired Murrell, Hall, McIntosh & Co., PLLP. The filing says the old firm's reports had no adverse opinion and there were no disagreements. It gives as reasons that Quest's operations had outgrown a sole practitioner and that audit-partner rotation rules required a new firm for the year ended May 31, 2004.
6 Jan 2004asset acquisition disposition● NeutralMajor
On Dec 22, 2003 Quest, through a new subsidiary Quest Cherokee, LLC, bought Devon Energy's Cherokee Basin oil and gas assets for about $126 million (about 95.9 Bcfe of proved reserves, 418 gross wells). The filing says this raised wells operated by about 90% and daily production by 138%. It was financed with a $70 million senior revolver and $35 million term loan arranged by Banc One and about $51 million from ArcLight's Cherokee Energy Partners. About $12.3 million of leases awaiting consents were held back, and Quest's Cherokee Basin assets were consolidated into Quest Cherokee. This is a much larger expansion of the Cherokee Basin business built in 2002-2003, and it brings in debt and an outside equity partner in the operating subsidiary. The text of the filing is truncated, so later terms are not covered.
24 Dec 2003asset acquisition disposition▲ GoodMajor
Quest closed the deal that made it: $126 million cash for Devon Energy's Cherokee Basin leases, pipelines and related assets, adding 95.9 billion cubic feet equivalent of proved reserves at about 89 cents per thousand cubic feet. It rolled everything into a new subsidiary, Quest Cherokee, and financed it entirely with other people's money - $105 million of senior and mezzanine debt from Banc One and $51 million from an ArcLight Capital affiliate. A transformative purchase that also loaded the balance sheet.
23 June 2003asset acquisition disposition▲ GoodMajor
Quest closed two Kansas purchases on June 6, 2003. Its subsidiary paid about $2.0 million, funded by cash flow and Wells Fargo borrowings, for roughly 80 oil and gas leases. Quest also issued 500,000 shares (about 3.75% of the company) for a pipeline operator, Producers Service Inc., and its subsidiary J-W Gas Gathering. The press release puts Quest's pipeline network at about 600 miles after the deal and the acquired leases at about 3.8 Bcf of net gas reserves. This builds on the Cherokee Basin business gained through the 2002 STP deal.
19 Nov 2002asset acquisition disposition● NeutralMajor
On Nov 8, 2002 Quest issued 5,380,785 shares (about 42.0% of the company afterwards) to Jerry D. Cash for all of his company STP Cherokee, which holds rights to about 48,000 acres and operates about 130 wells in southeast Kansas and northeast Oklahoma. A voting agreement between Cash and president Douglas Lamb lets the two of them elect all directors. Cash becomes Chairman, Co-CEO and CFO and Lamb Co-CEO. The filing also says Quest issued 330,000 shares to Lamb-family entities for a pipeline and a marketing business, with no appraisals or fairness opinions. This is the control change behind the 25.1% holder notice filed the day before.
