QUEST RESOURCE CORPORATION

QUEST RESOURCE CORPORATION

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Company Overview
Quest Resource Corporation, with registered office address in Oklahoma City, is a US-based private company engaged in the distribution of natural gas. It has established itself as the largest natural gas producer in the Cherokee Basin.
The company is specialized in the acquisition, exploration, development, production and transportation of natural gas. It controls more than 500,000 net acres in the Cherokee Basin in southeast Kansas and northeast Oklahoma. The coal-bed natural gas produced in Cherokee Basin are found at depths of 400 feet to 1,300 feet. In addition to numerous minor coal seams, the Mulky-Summit trend, the Weir-Pittsburgh trend and the Riverton trend are also productive zones of natural gas. All of its natural gas is connected into its own 1,600-mile gathering and transportation pipeline system.
Quest is managing more than 1,600 wells producing more than 58 MMcf gross per day. As of January 2007, the firm had proved reserves of 198 Bcf, a 63.5 Bcf, or 53% increase from year-end 2005.
Business Summary
Quest Resource Corporation (QRCP) is an integrated energy company engaged in the acquisition, exploration, development, production and transportation of oil and natural gas. The Company operates in two segments: oil and gas production, and natural gas pipelines, including transporting, gathering, treating and processing natural gas. The Company’s subsidiaries include Quest Energy Partners, L.P. (QELP) and Quest Midstream GP, LLC (Quest Midstream GP). As of May 15, 2009, the Company had Approximately 45,732 net acres, five gross wells in various stages of completion and approximately 183 miles of gas gathering pipeline in the Appalachian Basin, owned by QRCP’s wholly owned subsidiary, Quest Eastern Resource LLC. On July 11, 2008, QRCP acquired PetroEdge and simultaneously transferred PetroEdge Resources (WV) LLC’s oil and natural gas producing wells to Quest Energy.
Description and history
Quest Resource Corporation (QRCP), incorporated on July 12, 1982, is an integrated energy company engaged in the acquisition, exploration, development, production and transportation of oil and natural gas. The Company operates in two segments: oil and gas production, and natural gas pipelines, including transporting, gathering, treating and processing natural gas. The Company’s subsidiaries include Quest Energy Partners, L.P. (QELP) and Quest Midstream GP, LLC (Quest Midstream GP). On October 30, 2008, the Company divested of approximately 22,600 net undeveloped acres and one well in Somerset County, Pennsylvania to a private party. On February 13, 2009, the Company divested of approximately 23,000 net undeveloped acres and one well in Lycoming County, Pennsylvania to a private party. As of May 15, 2009, the Company had Approximately 45,732 net acres, five gross wells in various stages of completion and approximately 183 miles of gas gathering pipeline in the Appalachian Basin, owned by QRCP’s wholly owned subsidiary, Quest Eastern Resource LLC. As of December 31, 2008, the Company had over 4,500 leases covering approximately 627,244 net acres. On July 11, 2008, QRCP acquired PetroEdge and simultaneously transferred PetroEdge Resources (WV) LLC’s oil and natural gas producing wells to Quest Energy.

Gas and Oil Production

The Company conducts its oil and gas production operations in the Cherokee Basin through QELP. QELP’s oil and gas production operations are primarily focused on the development of coal bed methane (CBM) in a 15-county region in southeastern Kansas and northeastern Oklahoma known as the Cherokee Basin. As of December 31, 2008, QELP had 152.7 billion cubic feet equivalent (Bcfe) of estimated net proved reserves in the Cherokee Basin, of which approximately 97.7% were CBM and 81.6% were proved developed. QELP operates approximately 99% of its existing Cherokee Basin wells, with an average net working interest of approximately 99% and an average net revenue interest of approximately 82%. QELP is the producer of natural gas in the Cherokee Basin with an average net daily production of 57.3 million cubic feet equivalent (Mmcfe) during the year ended December 31, 2008.

As of December 31, 2008, QELP was operating approximately 2,438 gross gas wells in the Cherokee Basin, of which over 95% were multi-seam wells, and 27 gross oil wells. As of December 31, 2008, QELP owned the development rights to approximately 557,603 net acres throughout the Cherokee Basin and had only developed approximately 59.6% of its acreage. The Company conducts its oil production operations in Seminole County, Oklahoma through Quest Energy. QELP owns 55 gross productive oil wells and the development rights to approximately 1,481 net acres in Seminole County, Oklahoma. As of December 31, 2008, the oil producing properties had estimated net proved reserves of 588,800 barrels (Bbls). During 2008, net production for QELP’s Seminole County properties was 148 barrels per day (Bbls/d). QELP’s oil production operations in Seminole County are primarily focused on the development of the Hunton Formation. Both QELP and QRCP own producing properties in Appalachia that are operated by Quest Eastern. All production for 2008 was owned by QELP.

The Company’s oil and gas production operations in the Appalachian Basin are primarily focused on the development of the Marcellus Shale. There are approximately 334 potential gross vertical well locations and approximately 123 potential gross horizontal well locations for the Marcellus Shale, including development opportunities for Devonian Sands and Brown Shales. As of December 31, 2008, QELP owned approximately 500 gross gas wells in the Appalachian Basin. Quest Eastern operates approximately 99% of these existing wells on behalf of QELP, with QELP having an average net working interest of approximately 93% and an average net revenue interest of approximately 75%. QELP’s average net daily production in the Appalachian Basin was approximately 2.9 million cubic feet equivalent during 2008. As of December 31, 2008, QRCP owned the development rights to approximately 68,161 net acres throughout the Appalachian Basin and had only developed approximately 12% of its acreage.

Natural Gas Pipelines Operations

The Company conducts its natural gas pipelines operations through Quest Midstream and Quest Eastern. Bluestem Pipeline, LLC, a wholly owned subsidiary of Quest Midstream (Bluestem), owns and operates a natural gas gathering pipeline network of approximately 2,173 miles that serves the QRCP’s acreage position in the Cherokee Basin. As of December 31, 2008, this system has a maximum daily throughput of approximately 85 million cubic feet per day and is operating at about 90% capacity. Quest Energy transports 99% of its Cherokee Basin gas production through Bluestem’s gas gathering pipeline network to interstate pipeline delivery points. Approximately 6% of the throughput on Bluestem’s natural gas gathering pipeline system is for third parties. As of December 31, 2008, QELP had an inventory of approximately 185 gross drilled CBM wells awaiting connection to QMLP’s gas gathering system.

Quest Pipelines (KPC), owns and operates a 1,120 mile interstate natural gas pipeline (the KPC Pipeline), which transports natural gas from northern Oklahoma and western Kansas to the metropolitan Wichita and Kansas City markets. The KPC system includes three compressor stations with a total of 14,680 horsepower and has a throughput capacity of approximately 160 Mmcf/d. KPC has supply interconnections with pipelines owned and/or operated by Enogex Inc., Panhandle Eastern PipeLine Company and ANR Pipeline Company, allowing QMLP to transport natural gas volumes sourced from the Anadarko and Arkoma basins, as well as the western Kansas and Oklahoma panhandle producing regions. KPC’s two primary customers are Kansas Gas Service (KGS) and Missouri Gas Energy (MGE), both of which are served under firm natural gas transportation contracts. KGS, a division of ONEOK, Inc., is the local distribution company in Kansas for Kansas City and Wichita as well as a number of other municipalities. MGE, a division of Southern Union Company, is a natural gas distribution company that serves over a half-million customers in 155 western Missouri communities.

Quest Eastern owns and operates a gas gathering pipeline network of approximately 183 miles that serves the Company’s acreage position in the Appalachian Basin. The pipeline delivers both to intrastate gathering and interstate pipeline delivery points. As of December 31, 2008, this system has a maximum daily throughput of approximately 15 million cubic feet per day and is operating at about 20% capacity. All of QELP’s Appalachian Basin gas production is transported by Quest Eastern’s gas gathering pipeline network. Less than 1% of the volumes transported on Quest Eastern’s natural gas gathering pipeline system are for third parties.

Cherokee Basin

The Company produces CBM gas out of Quest Energy’s properties located in the Cherokee Basin. The Cherokee Basin is located in southeastern Kansas and northeastern Oklahoma. It is situated between the Forest City Basin to the north, the Arkoma Basin to the south, the Ozark Dome to the east and the Nemaha Ridge to the west. The Cherokee Basin is part of the Western Interior Coal Region of the central United States. The principal formations it targets include the Mulky, Weir-Pittsburgh and the Riverton. These coal seams are blanket type deposits, which extend across areas of the basin. Each of these seams generally range from two to five feet thick. Additional minor coal seams, such as the Summit, Bevier, Fleming and Rowe are found at varying locations throughout the basin.

Cherokee Basin Projects

The Company has developed its CBM reserves in the Cherokee Basin on 160-acre spacing. The Company’s development activities in the Cherokee Basin also include a program to recomplete CBM wells that produce from a single coal seam to wells that produce from multiple coal seams. During 2008, the Company recompleted approximately 10 wellbores in Kansas and an additional four wellbores in Oklahoma. At December 31, 2008, the Company had approximately 2,346 gross wells in the Cherokee Basin that were producing from multiple seams.

Appalachian Basin

This basin is bounded on the east by a line of metamorphic rocks known as the Blue Ridge province which is thrusted to the west over the basin margin. The Company’s area of interest is within West Virginia, where there are producing formations at depths of 1,500 feet to approximately 8,000 feet. Its production targets are the lower Devonian Marcellus Shale, the shallow Mississippian (Big Injun, Maxton, Berea, Pocono, Big Lime) and the Upper Devonian (Riley, Benson, Java, Alexander, Elk, Cashaqua, Middlesex, West River and Genesee, including the Huron Shale members, Rhinestreet Shales). The Company’s leases cover approximately eighteen counties within the Appalachian Basin.

Seminole County, Oklahoma

The Company’s Seminole County, Oklahoma oil producing property is located in south central Oklahoma. Two producing horizons include the Hunton Limestone at approximately 4,100 feet and the First Wilcox Sand at approximately 4,300 feet. The Hunton Limestone is the main producing horizon in the field.

The Company’s competitors include Southern Star Central Gas Pipeline, Kinder Morgan Interstate Gas Transmission’s Pony Express Pipeline and Panhandle Eastern Pipeline Company.

Business Line
Acquisition, exploration, development, production and transportation of natural gas
Subsidiary
QUEST CHEROKEE LLC
Advisor
UHY LLP
IPO date
1/1/1900
US SIC Code
1311
Company Address
Oklahoma Tower, Suite 2750
210, Park Avenue
City province or state postal code
73102, OKLAHOMA CITY, OK
Phone: +1 405 600 7704
Fax: +1 405 600 7722
Country address: UNITED STATES OF AMERICA
Website url: www.questresourcecorp.com