##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2006
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from                                        to
 Commission File Number: 001-32681
 PETROQUEST ENERGY, INC.
  State of incorporation: Delaware
    
    I.R.S. Employer Identification No. 72-1440714400 E. Kaliste Saloom Road, Suite
6000Lafayette, Louisiana
    
    70508(Address of principal executive offices)
    
    (Zip Code)
   Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $.001 per share 
Preferred Stock Purchase Rights
    
    New York Stock Exchange
New York Stock Exchange
  o þ
 o þ
 þ o
 þ
  o þ o
 o þ




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TABLE OF CONTENTS
 Page No.PART IItem 1.
    
    Business
    
    
    2Item 1A.
    
    Risk Factors
    
    
    10Item 1B.
    
    Unresolved Staff Comments
    
    
    19Item 2.
    
    Properties
    
    
    19Item 3.
    
    Legal Proceedings
    
    
    22Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    22PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    23Item 6.
    
    Selected Financial Data
    
    
    24Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 7A.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    33Item 8.
    
    Financial Statements and Supplementary Data
    
    
    34Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    34Item 9A.
    
    Controls and Procedures
    
    
    34Item 9B.
    
    Other Information
    
    
    36PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    37Item 11.
    
    Executive Compensation.
    
    
    37Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    37Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    37Item 14.
    
    Principal Accountant Fees and Services
    
    
    37PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    37Index to Financial Statements
    
    
    F-1
  1




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PART I
 
 ITEM 1. BUSINESS
 Overview
   2




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Business Strategy
 Concentrate in Core Operating Areas and Build Scale.
 Pursue Balanced Growth and Portfolio Mix.
 Manage Our Risk Exposure.
 Target Underexploited Properties with Substantial Opportunity for Upside.
 3




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Maintain Our Financial Flexibility.
 2006 Financial and Operational Summary
   Gulf Coast Basin
 Turtle Bayou Field.
 Main Pass Block 74.
 Oklahoma
  Texas
 SE Carthage Field.
 Markets and Customers
  4




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
    
    the extent of domestic production and imports of oil and natural gas;
    
    the proximity of the natural gas production to pipelines;
    
    the availability of capacity in such pipelines;
    
    the demand for oil and natural gas by utilities and other end users;
    
    the availability of alternative fuel sources;
    
    the effects of inclement weather;
    
    state and federal regulation of oil and natural gas production, and
    
    federal regulation of gas sold or transported in interstate commerce.
   Federal Regulations
 Sales and Transportation of Natural Gas
   5




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Sales and Transportation of Crude Oil.
  Federal Leases.
   6




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Federal, State or American Indian Leases.
  State Regulations
  
    
    requirements for obtaining drilling permits;
    
    the method of developing new fields;
    
    the spacing and operation of wells;
    
    the prevention of waste of oil and gas resources; and
    
    the plugging and abandonment of wells.
   Legislative Proposals
  7




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Environmental Regulations
 General.
  Solid and Hazardous Waste.
  Superfund.
 Oil Pollution Act.
  8




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Clean Water Act.
 Air Emissions.
 Coastal Coordination.
   OSHA.
  Corporate Offices
  9




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Employees
  Available Information
  
 ITEM 1A. RISK FACTORS
 Risks Related to Our Business, Industry and Strategy
 Our future success depends upon our ability to find, develop, produce and acquire additional oil
and natural gas reserves that are economically recoverable.
  Oil and natural gas prices are volatile, and a substantial and extended decline in the prices of
oil and natural gas would likely have a material adverse effect on our financial condition.
   
    
    relatively minor changes in the supply of or the demand for oil and natural gas;
    
    market uncertainty;
    
    the level of consumer product demand;
    
    weather conditions in the United States, such as hurricanes;
    
    the condition of the United States and worldwide economies;
    
    the actions of the Organization of Petroleum Exporting Countries;
 10




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
    
    domestic and foreign governmental regulation, including price controls adopted by
the Federal Energy Regulatory Commission;
    
    political instability in the Middle East and elsewhere;
    
    the price of foreign imports of oil and natural gas; and
    
    the price and availability of alternate fuel sources.
   A substantial portion of our operations is exposed to the additional risk of tropical weather
disturbances.
   Losses and liabilities from uninsured or underinsured drilling and operating activities could have
a material adverse effect on our financial condition and operations.
   11




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We have a substantial amount of indebtedness, which may adversely affect our cash flow and our
ability to operate our business, remain in compliance with debt covenants and make payments on our
debt.
  
    
    it may be more difficult for us to satisfy our obligations with respect to
our 10 3/8% senior notes due 2012, which we refer to as our 10 3/8% notes, and any
failure to comply with the obligations of any of our debt agreements, including
financial and other restrictive covenants, could result in an event of default under
the indenture governing our 10 3/8% notes and the agreements governing such other
indebtedness;
    
    the covenants contained in our debt agreements limit our ability to borrow
money in the future for acquisitions, capital expenditures or to meet our operating
expenses or other general corporate obligations;
    
    we will need to use a substantial portion of our cash flows to pay
principal and interest on our debt, approximately $15.6 million per year for interest
on our 10 3/8% notes alone, which will reduce the amount of money we have for
operations, capital expenditures, expansion, acquisitions or general corporate or other
business activities;
    
    the amount of our interest expense may increase because certain of our
borrowings are at variable rates of interest, which, if interest rates increase, could
result in higher interest expense;
    
    we may have a higher level of debt than some of our competitors, which may
put us at a competitive disadvantage;
    
    we may be more vulnerable to economic downturns and adverse developments in
our industry or the economy in general, especially declines in oil and natural gas
prices; and
    
    our debt level could limit our flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate.
   We may incur substantially more debt, which may intensify the risks described above, including our
ability to service our indebtedness.
  12




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To service our indebtedness, we will require a significant amount of cash. Our ability to generate
cash depends on many factors beyond our control, and any failure to meet our debt obligations could
harm our business, financial condition and results of operations.
   We may not be able to fund our planned capital expenditures.
  Shortage of rigs, equipment, supplies or personnel may restrict our operations.
  Factors beyond our control affect our ability to market oil and natural gas.
  
    
    the level of domestic production and imports of oil and natural gas;
    
    the proximity of natural gas production to natural gas pipelines;
    
    the availability of pipeline capacity;
    
    the demand for oil and natural gas by utilities and other end users;
    
    the availability of alternate fuel sources;
 13




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
    
    the effect of inclement weather, such as hurricanes;
    
    state and federal regulation of oil and natural gas marketing; and
    
    federal regulation of natural gas sold or transported in interstate commerce.
  We face strong competition from larger oil and natural gas companies that may negatively affect our
ability to carry on operations.
  
    
    the availability of funds and information relating to a property;
    
    the standards established by us for the minimum projected return on investment; and
    
    the transportation of natural gas.
  We may be unable to overcome risks associated with our drilling activity.
  You should not place undue reliance on reserve information because reserve information represents
estimates.
   
    
    the available data;
    
    assumptions regarding future oil and natural gas prices;
    
    estimated expenditures for future development and exploitation activities; and
    
    engineering and geological interpretation and judgment.
 14




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Restrictive debt covenants could limit our growth and our ability to finance our operations, fund
our capital needs, respond to changing conditions and engage in other business activities that may
be in our best interests.
  
    
    dispose of assets;
    
    incur or guarantee additional indebtedness and issue certain types of preferred stock;
    
    pay dividends on our capital stock;
    
    create liens on our assets;
    
    enter into sale and leaseback transactions;
    
    enter into specified investments or acquisitions;
    
    repurchase, redeem or retire our capital stock or subordinated debt;
    
    merge or consolidate, or transfer all or substantially all of our assets and the assets of our subsidiaries;
    
    engage in specified transactions with subsidiaries and affiliates; or
    
    other corporate activities.
  15




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We may be unable to successfully identify, execute or effectively integrate future acquisitions,
which may negatively affect our results of operations.
    We may not be able to obtain adequate financing to execute our operating strategy.
  
    
    borrowings from banks or other lenders;
    
    the issuance of debt securities;
    
    the sale of common stock, preferred stock or other equity securities;
    
    joint venture financing; and
 16




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
    
    production payments.
  Lower oil and natural gas prices may cause us to record ceiling test write-downs.
  Hedging production may limit potential gains from increases in commodity prices or result in
losses.
  The loss of key management or technical personnel could adversely affect our ability to operate.
   Operating hazards may adversely affect our ability to conduct business.
  
    
    unexpected drilling conditions including blowouts, cratering and explosions;
    
    uncontrollable flows of oil, natural gas or well fluids;
    
    equipment failures, fires or accidents;
    
    pollution and other environmental risks; and
 17




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
    
    shortages in experienced labor or shortages or delays in the delivery of equipment.
  Environmental compliance costs and environmental liabilities could have a material adverse effect
on our financial condition and operations.
  
    
    require the acquisition of permits before drilling commences;
    
    restrict the types, quantities and concentration of various substances that
can be released into the environment from drilling and production activities;
    
    limit or prohibit drilling activities on certain lands lying within
wilderness, wetlands and other protected areas;
    
    require remedial measures to mitigate pollution from former operations,
such as plugging abandoned wells; and
    
    impose substantial liabilities for pollution resulting from our operations.
    Ownership of working interests and overriding royalty interests in certain of our properties by
certain of our officers and directors potentially creates conflicts of interest.
  18




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Risks Relating to Our Outstanding Common Stock
 Our stock price could be volatile, which could cause you to lose part or all of your investment.
   Provisions in certificate of incorporation, bylaws and shareholder rights plan could delay or
prevent a change in control of our company, even if that change would be beneficial to our
stockholders.
  
    
    the charter authorization of blank check preferred stock;
    
    provisions that directors may be removed only for cause, and then only on
approval of holders of a majority of the outstanding voting stock;
    
    a restriction on the ability of stockholders to call a special meeting and
take actions by written consent; and
    
    provisions regulating the ability of our stockholders to nominate directors
for election or to bring matters for action at annual meetings of our stockholders.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  19




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Oil and Gas Reserves
  Proved
    
    Proved
    
    TotalDeveloped
    
    Undeveloped
    
    ProvedOil (MBbls)
    
    
    2,528
    
    
    
    203
    
    
    
    2,731Natural Gas and NGL (MMcfe)
    
    
    81,487
    
    
    
    36,666
    
    
    
    118,153Estimated pre-tax future net cash flows
    
    $
    418,297,716
    
    
    $
    97,715,074
    
    
    $
    516,012,790Discounted pre-tax future net cash flows
    
    $
    331,053,187
    
    
    $
    53,259,449
    
    
    $
    384,312,636
   Production, Pricing and Production Cost Data
  Year Ended December 31,2006
    
    2005
    
    2004Production:Oil (Bbls)
    
    
    694,724
    
    
    
    665,400
    
    
    
    818,405Gas (Mcfe)
    
    
    21,528,323
    
    
    
    12,058,377
    
    
    
    9,305,075Total Production (Mcfe)
    
    
    25,696,667
    
    
    
    16,050,777
    
    
    
    14,215,505Average sales prices (1):Oil (per Bbl)
    
    $
    60.91
    
    
    $
    45.76
    
    
    $
    35.31Gas (per Mcfe)
    
    
    7.04
    
    
    
    7.47
    
    
    
    5.99Per Mcfe
    
    
    7.54
    
    
    
    7.51
    
    
    
    5.95Average Production Cost per Mcfe (2)
    
    $
    1.61
    
    
    $
    1.54
    
    
    $
    1.04
 
 (1)
    
    Includes the effects of hedges.(2)
    
    Production costs include lease operating costs and production taxes. 20




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Oil and Gas Drilling Activity
  2006
    
    2005
    
    2004Gross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetExploration:Productive
    
    
    37
    
    
    
    15.82
    
    
    
    32
    
    
    
    14.82
    
    
    
    17
    
    
    
    8.87Non-productive
    
    
    4
    
    
    
    0.95
    
    
    
    3
    
    
    
    1.53
    
    
    
    1
    
    
    
    0.18Total
    
    
    41
    
    
    
    16.77
    
    
    
    35
    
    
    
    16.35
    
    
    
    18
    
    
    
    9.05Development:Productive
    
    
    66
    
    
    
    26.40
    
    
    
    46
    
    
    
    30.90
    
    
    
    15
    
    
    
    9.90Non-productive
    
    
    6
    
    
    
    2.89
    
    
    
    5
    
    
    
    4.29
    
    
    
    
    
    
    
    Total
    
    
    72
    
    
    
    29.29
    
    
    
    51
    
    
    
    35.19
    
    
    
    15
    
    
    
    9.90
  Leasehold Acreage
  Leasehold AcreageDeveloped
    
    UndevelopedGross
    
    Net
    
    Gross
    
    NetMississippi (onshore)
    
    
    801
    
    
    
    508
    
    
    
    690
    
    
    
    438Alabama (onshore)
    
    
    
    
    
    
    
    
    
    
    6,957
    
    
    
    5,218Arkansas
    
    
    
    
    
    
    
    
    
    
    1,021
    
    
    
    1,021Louisiana (onshore)
    
    
    7,359
    
    
    
    2,592
    
    
    
    13,996
    
    
    
    4,796Louisiana (offshore)
    
    
    2,611
    
    
    
    938
    
    
    
    7,344
    
    
    
    1,061Oklahoma
    
    
    56,603
    
    
    
    20,110
    
    
    
    29,039
    
    
    
    26,083Texas (onshore)
    
    
    19,883
    
    
    
    10,935
    
    
    
    46,873
    
    
    
    31,607Federal Waters
    
    
    29,277
    
    
    
    11,984
    
    
    
    71,039
    
    
    
    46,411Total
    
    
    116,534
    
    
    
    47,067
    
    
    
    176,959
    
    
    
    116,635
  Title to Properties
  
    
    royalties and other burdens and obligations, express or implied, under oil and gas leases;
    
    overriding royalties and other burdens created by us or our predecessors in title;
    
    a variety of contractual obligations (including, in some cases, development obligations)
arising under operating agreements, farmout agreements, production sales contracts and
other agreements that may affect the properties or their titles;
    
    back-ins and reversionary interests existing under purchase agreements and leasehold
assignments;
 21




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
    
    liens that arise in the normal course of operations, such as those for unpaid taxes,
statutory liens securing obligations to unpaid suppliers and contractors and contractual
liens under operating agreements; pooling, unitization and communitization agreements,
declarations and orders; and
    
    easements, restrictions, rights-of-way and other matters that commonly affect property.
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  22




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
  
 23




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Market Price of and Dividends on Common Stock
  NYSE/Nasdaq Stock MarketHigh
    
    Low20051st Quarter
    
    $
    7.75
    
    
    $
    4.532nd Quarter
    
    
    7.08
    
    
    
    5.123rd Quarter
    
    
    11.17
    
    
    
    6.504th Quarter
    
    
    11.17
    
    
    
    7.9620061st Quarter
    
    $
    12.11
    
    
    $
    8.252nd Quarter
    
    
    13.00
    
    
    
    9.353rd Quarter
    
    
    12.58
    
    
    
    9.554th Quarter
    
    
    14.40
    
    
    
    9.87
   
 ITEM 6. SELECTED FINANCIAL DATA
  Year Ended December 31,2006 (a)
    
    2005
    
    2004
    
    2003 (b)
    
    2002(in thousands except per share data)Revenues
    
    $
    200,544
    
    
    $
    124,594
    
    
    $
    84,868
    
    
    $
    48,688
    
    
    $
    48,238Net Income
    
    
    23,986
    
    
    
    21,417
    
    
    
    16,348
    
    
    
    3,640
    
    
    
    2,307Net Income per share:Basic
    
    
    0.50
    
    
    
    0.46
    
    
    
    0.37
    
    
    
    0.08
    
    
    
    0.06Diluted
    
    
    0.49
    
    
    
    0.44
    
    
    
    0.35
    
    
    
    0.08
    
    
    
    0.06Oil and Gas Properties, net
    
    
    431,814
    
    
    
    365,183
    
    
    
    211,683
    
    
    
    160,229
    
    
    
    120,746Total Assets
    
    
    518,290
    
    
    
    431,470
    
    
    
    231,617
    
    
    
    176,384
    
    
    
    132,063Long-term Debt
    
    
    195,537
    
    
    
    158,340
    
    
    
    38,500
    
    
    
    22,200
    
    
    
    2,400Stockholders Equity
    
    
    189,711
    
    
    
    144,537
    
    
    
    121,277
    
    
    
    107,727
    
    
    
    97,770
 
 (a)
    
    During 2006, the Company adopted SFAS No. 123(R). Amounts recognized during 2006 relative to
SFAS 123(R) reduced net income by $3.7 million, or $0.08 per share.(b)
    
    During 2003, the Company adopted SFAS No. 143. The cumulative effect of adoption resulted in a
gain of $849,000, or $0.02 per share. 24




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Overview
    Critical Accounting Policies and Estimates
 Full Cost Method of Accounting
   25




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Future Abandonment Costs
  Reserve Estimates
  26




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Derivative Instruments
    New Accounting Standards
       27




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Results of Operations
  Year Ended December 31,2006
    
    
    2005
    
    
    2004Production:Oil (Bbls)
    
    
    694,724
    
    
    
    665,400
    
    
    
    818,405Gas (Mcfe)
    
    
    21,528,323
    
    
    
    12,058,377
    
    
    
    9,305,075Total Production (Mcfe)
    
    
    25,696,667
    
    
    
    16,050,777
    
    
    
    14,215,505Sales:Total oil sales
    
    $
    42,317,332
    
    
    $
    30,446,897
    
    
    $
    28,896,550Total gas sales
    
    
    151,544,026
    
    
    
    90,105,054
    
    
    
    55,698,797Total oil and gas sales
    
    $
    193,861,358
    
    
    $
    120,551,951
    
    
    $
    84,595,347Average sales prices:Oil (per Bbl)
    
    $
    60.91
    
    
    $
    45.76
    
    
    $
    35.31Gas (per Mcfe)
    
    
    7.04
    
    
    
    7.47
    
    
    
    5.99Per Mcfe
    
    
    7.54
    
    
    
    7.51
    
    
    
    5.95
  Comparison of Results of Operations for the Years Ended December 31, 2006 and 2005
  Production
     28




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Prices
  Revenue
   Expenses
        29




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##### 



Comparison of Results of Operations for the Years Ended December 31, 2005 and 2004
  Production
   Prices
  Revenue
   Expenses
     30




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##### 



Liquidity and Capital Resources
  Source of Capital: Operations
   Source of Capital: Debt
      31




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##### 



Source of Capital: Issuance of Securities
  Source of Capital: Divestitures
    Years EndedDecember 31,2006
    
    
    2005Production (Mcfe)
    
    
    1,742,000
    
    
    
    2,487,300Percentage of total Company production
    
    
    7
    %
    
    
    15
    %Oil and gas revenues
    
    $
    13,228,000
    
    
    $
    20,377,000Production taxes
    
    
    87,000
    
    
    
    52,000Lease operating expenses
    
    
    5,979,000
    
    
    
    5,227,000Revenues net of direct operating expenses
    
    $
    7,162,000
    
    
    $
    15,098,000
 Use of Capital: Exploration and Development
  32




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##### 



Contractual Obligations
  AfterTotal
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2011Bank debt (1)
    
    $
    57,576
    
    
    $
    3,408
    
    
    $
    3,525
    
    
    $
    50,643
    
    
    $
    
    
    
    $
    
    
    
    $
    10 3/8% senior notes (1)
    
    
    233,651
    
    
    
    15,563
    
    
    
    15,563
    
    
    
    15,563
    
    
    
    15,563
    
    
    
    15,563
    
    
    
    155,836Purchase obligations (2)
    
    
    38,850
    
    
    
    20,975
    
    
    
    9,125
    
    
    
    8,750
    
    
    
    
    
    
    
    
    
    
    
    Operating leases (3)
    
    
    2,930
    
    
    
    891
    
    
    
    880
    
    
    
    888
    
    
    
    189
    
    
    
    71
    
    
    
    11Capital projects (4)
    
    
    20,239
    
    
    
    9,028
    
    
    
    435
    
    
    
    145
    
    
    
    225
    
    
    
    399
    
    
    
    10,007Total
    
    $
    353,246
    
    
    $
    49,865
    
    
    $
    29,528
    
    
    $
    75,989
    
    
    $
    15,977
    
    
    $
    16,033
    
    
    $
    165,854
 
 (1)
    
    Includes principal and estimated interest.(2)
    
    Consists of commitments for the rental of drilling rigs and seismic data acquisition
obligations.(3)
    
    Consists primarily of leases for office space and leases for equipment rentals.(4)
    
    Consists of estimated future obligations to abandon our leased properties. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
     33




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Instrument
    
    
    
    WeightedProduction Period
    
    Type
    
    Daily Volumes
    
    Average PriceNatural Gas:2007
    
    Costless Collar
    
    17,500 Mmbtu
    
    $8.36 - 10.01Crude Oil:January-June 2007
    
    Costless Collar
    
    300 Bbls
    
    $65.00 - 79.10July-December 2007
    
    Costless Collar
    
    200 Bbls
    
    $65.00 - 77.70
   Instrument
    
    
    
    WeightedProduction Period
    
    Type
    
    Daily Volumes
    
    Average PriceNatural Gas:February-December 2007
    
    Costless Collar
    
    5,000 Mmbtu
    
    $6.50  8.65March-December 2007
    
    Costless Collar
    
    5,000 Mmbtu
    
    $7.50  8.65
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  i.
    
    that the Companys disclosure controls and procedures are designed to ensure (a) that
information required to be disclosed by the Company in the reports it files or submits
under the Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SECs rules and forms, and (b) that such information is
accumulated and communicated to the Companys management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure; andii.
    
    that the Companys disclosure controls and procedures are effective.
 34




---



##### 



Changes in Internal Control Over Financial Reporting
  Managements Report on Internal Control Over Financial Reporting
      /s/ Charles T. Goodson
 /s/ Michael O. Aldridge
 35




---



##### 



Report of Independent Registered Public Accounting Firm
 
 Internal ControlIntegrated Framework
       
 
 ITEM 9B. OTHER INFORMATION
  36




---



##### 



PART III
 
 ITEMS 10, 11, 12, 13 & 14
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
   Report of Independent Registered Public Accounting FirmConsolidated Balance Sheets as of December 31, 2006 and 2005Consolidated Statements of Income for the three years ended December 31, 2006Consolidated Statements of Stockholders Equity for the three years ended December 31, 2006Consolidated Statements of Cash Flows for the three years ended December 31, 2006Notes to Consolidated Financial Statements
    2.1
    
    Plan and Agreement of Merger by and among Optima Petroleum
Corporation, Optima Energy (U.S.) Corporation, its wholly-owned subsidiary, and
Goodson Exploration Company, NAB Financial L.L.C., Dexco Energy, Inc., American
Explorer, L.L.C. (incorporated herein by reference to Appendix G of the Proxy
Statement on Schedule 14A filed July 22, 1998).2.2
    
    Agreement and Plan of Merger dated April 12, 2005, among PetroQuest
Energy, Inc., TDC Acquisition Sub LLC and TDC Energy LLC (incorporated herein by
reference to Exhibit 2.1 to Form 8-K filed April 13, 2005).2.3
    
    Purchase and Sale Agreement, dated as of April 13, 2005 between Staab
Holdings, L.L.C. and PetroQuest Energy, LLC (incorporated herein by reference to
Exhibit 2.1 to Form 8-K filed April 22, 2005).2.4
    
    Purchase and Sale Agreement, dated as of April 7, 2005, among MAKO
Resources, LLC, Golden Gas Service Company and PetroQuest Energy, LLC
(incorporated herein by reference to Exhibit 2.2 to Form 8-K filed April 22,
2005).2.5
    
    Purchase and Sale Agreement, dated as of April 7, 2005, between
Golden Gas Service Company and PetroQuest Energy, LLC (incorporated herein by
reference to Exhibit 2.3 to Form 8-K filed April 22, 2005).2.6
    
    Purchase and Sale Agreement, dated as of April 7, 2005, between
Golden Gas Service Company and PetroQuest Energy, LLC (incorporated herein by
reference to Exhibit 2.4 to Form 8-K filed April 22, 2005).
 37




---



##### 



3.1
    
    Certificate of Incorporation of the Company (incorporated herein by
reference to Exhibit 4.1 to Form 8-K filed September 16, 1998).3.2
    
    Bylaws of the Company (incorporated herein by reference to Exhibit
4.2 to Form 8-K filed September 16, 1998).3.3
    
    Certificate of Domestication of Optima Petroleum Corporation
(incorporated herein by reference to Exhibit 4.4 to Form 8-K filed September 16,
1998).3.4
    
    Certificate of Designations, Preferences, Limitations And Relative
Rights of The Series a Junior Participating Preferred Stock of PetroQuest Energy,
Inc. (incorporated herein by reference to Exhibit A of the Rights Agreement
attached as Exhibit 1 to Form 8-A filed November 9, 2001).4.1
    
    Warrant to Purchase Common Shares of PetroQuest Energy, Inc.
(incorporated herein by reference to Exhibit 4.1 to Form 8-K filed December 29,
2003).4.2
    
    Rights Agreement dated as of November 7, 2001 between PetroQuest
Energy, Inc. and American Stock Transfer & Trust Company, as Rights Agent,
including exhibits thereto (incorporated herein by reference to Exhibit 1 to Form
8-A filed November 9, 2001).4.3
    
    Form of Rights Certificate (incorporated herein by reference to
Exhibit C of the Rights Agreement attached as Exhibit 1 to Form 8-A filed November
9, 2001).4.4
    
    Indenture, dated May 11, 2005, among PetroQuest Energy, Inc.,
PetroQuest Energy, LLC, the Subsidiary Guarantors identified therein, and the Bank
of New York Trust Company, N.A. (incorporated herein by reference to Exhibit 4.1
to Form 8-K filed May 11, 2005).4.5
    
    Registration Rights Agreement dated April 12, 2005, between
PetroQuest Energy, Inc. and Macquarie Bank Limited (incorporated herein by
reference to Exhibit 4.1 to Form 8-K filed April 13, 2005). 10.1
    
    PetroQuest Energy, Inc. 1998 Incentive Plan, as amended and restated
effective March 16, 2006 (the Incentive Plan) (incorporated herein by reference to
Exhibit 10.1 to Form 8-K filed May 19, 2006). 10.2
    
    Form of Incentive Stock Option Agreement for executive officers
(including Charles T. Goodson, Arthur M. Mixon, III, Michael O. Aldridge, Daniel G.
Fournerat and Stephen H. Green) under the Incentive Plan (incorporated herein by
reference to Exhibit 10.2 to Form 8-K filed May 19, 2006). 10.3
    
    Form of Restricted Stock Agreement for executive officers (including
Charles T. Goodson, Arthur M. Mixon, III, Michael O. Aldridge, Daniel G. Fournerat
and Stephen H. Green) under the Incentive Plan (incorporated herein by reference to
Exhibit 10.2 to Form 8-K filed May 19, 2006). 10.4
    
    PetroQuest Energy, Inc. Annual Cash Bonus Plan (incorporated herein
by reference to Exhibit 10.1 to Form 8-K filed August 18, 2006).10.5
    
    Amended and Restated Credit Agreement, dated as of May 14, 2003, by and
between PetroQuest Energy, LLC, PetroQuest Energy, Inc., Bank One, NA, Banc One
Capital Markets, Inc., and certain other Lenders (incorporated herein by reference
to Exhibit 10.1 to Form 10-Q filed August 13, 2003).10.6
    
    Guaranty dated May 14, 2003, between PetroQuest Energy, Inc. and Bank
One, NA, as Agent for the Lenders (incorporated herein by reference to Exhibit 10.2
to Form 10-Q filed August 13, 2003).10.7
    
    First Amendment to Amended and Restated Credit Agreement dated as of
November 6, 2003, by and among PetroQuest Energy, L.L.C., PetroQuest Energy, Inc.;
Bank One, N.A., and Union Bank of California, N.A. (incorporated herein by
reference to Exhibit 10.4 to Form 10-Q filed November 13, 2003).
 38




---



##### 



10.8
    
    Second Amendment to Amended and Restated Credit Agreement dated as of
December 23, 2003, by and among PetroQuest Energy, L.L.C., PetroQuest Energy,
Inc., and Bank One, N.A. (incorporated herein by reference to Exhibit 10.2 to Form
8-K filed December 29, 2003).10.9
    
    Third Amendment to Amended and Restated Credit Agreement dated as of
July 27, 2004, by and among PetroQuest Energy, L.L.C., PetroQuest Energy, Inc.,
and Bank One, N.A. (incorporated herein by reference to Exhibit 10.1 to Form 10-Q
filed July 30, 2004).10.10
    
    Fourth Amendment to Amended and Restated Credit Agreement dated as
of October 14, 2004 by and between PetroQuest Energy, LLC, PetroQuest Energy, Inc.
and Bank One, N.A. (incorporated herein by reference to Exhibit 10.1 on Form 8-K
filed October 19, 2004).10.11
    
    Fifth Amendment to Amended and Restated Credit Agreement entered
into as of November 3, 2004 by and between PetroQuest Energy, LLC, PetroQuest
Energy, Inc., Pittrans Inc. (a wholly owned subsidiary of PetroQuest Energy, LLC)
and Bank One, N.A. (incorporated herein by reference to Exhibit 10.1 on Form 8-K
filed November 15, 2004).10.12
    
    Sixth Amendment to Amended and Restated Credit Agreement dated April
12, 2005, by and among PetroQuest Energy, LLC, PetroQuest Energy, Inc., Pittrans
Inc., TDC Acquisition Sub LLC, and JP Morgan Chase Bank, N.A. (incorporated herein
by reference to Exhibit 10.1 to Form 8-K filed April 13, 2005).10.13
    
    Seventh Amendment to Amended and Restated Credit Agreement dated May
9, 2005, by and among PetroQuest Energy, LLC, PetroQuest Energy, Inc., Pittrans
Inc., TDC Energy LLC, and JP Morgan Chase Bank, N.A. (incorporated herein by
reference to Exhibit 10.1 to Form 8-K filed May 11, 2005).10.14
    
    Eighth Amendment to Amended and Restated Credit Agreement dated June
17, 2005, by and among PetroQuest Energy, LLC, PetroQuest Energy, Inc., Pittrans
Inc., TDC Energy LLC, and JP Morgan Chase Bank, N.A., Guaranty Bank, FSB and
Calyon New York Branch (incorporated herein by reference to Exhibit 10.1 to Form
8-K filed June 17, 2005).10.15
    
    Second Amended and Restated Credit Agreement dated as of November
18, 2005, among PetroQuest Energy, LLC, PetroQuest Energy, Inc., JP Morgan Chase
Bank, N.A. as lender, agent and issuer of letters of credit, Macquarie Bank
Limited as lender, and Calyon New York Branch as lender and syndication agent
(incorporated herein by reference to Exhibit 10.1 to Form 8-K filed November 23,
2005).10.16
    
    Amendment No. 1 to Second Amended and Restated Credit Agreement
dated as of December 22, 2005, among PetroQuest Energy, LLC, PetroQuest Energy,
Inc., Pittrans, Inc., TDC Energy LLC, JP Morgan Chase Bank, N.A. as lender, agent
and issuer of letters of credit, Macquarie Bank Limited as lender, and Calyon New
York Branch as lender and syndication agent (incorporated herein by reference to
Exhibit 10.1 to Form 8-K filed December 22, 2005).10.17
    
    Amendment No. 2 to Second Amended and Restated Credit Agreement
dated as of November 16, 2006 among PetroQuest Energy, LLC, PetroQuest Energy,
Inc., Pittrans, Inc., TDC Energy LLC, JP Morgan Chase Bank, N.A. as lender, agent
and issuer of letters of credit, Macquarie Bank Limited as lender, and Calyon New
York Branch as lender and syndication agent (incorporated herein by reference to
Exhibit 10.1 to Form 8-K filed November 21, 2006).10.18
    
    Senior Second Lien Secured Credit Agreement dated November 6, 2003,
between PetroQuest Energy, L.L.C., PetroQuest Energy, Inc., each of the Lenders
from time to time party thereto; and Macquarie Americas Corp., as administrative
agent for the Lenders (incorporated herein by reference to Exhibit 10.1 to Form
10-Q filed November 13, 2003).10.19
    
    Unconditional Guaranty Agreement dated November 6, 2003, by
PetroQuest Energy, Inc. to Macquarie Americas Corp., as administrative agent for
the benefit of the Lenders under the Credit Agreement (incorporated herein by
reference to Exhibit 10.2 to Form 10-Q filed November 13, 2003).
 39




---



##### 



10.20
    
    First Amendment to Second Lien Secured Credit Agreement dated
December 23, 2003, among PetroQuest Energy, L.L.C., PetroQuest Energy, Inc., each
of the Lenders from time to time party thereto, and Macquarie Americas Corp., as
administrative agent for the Lenders (incorporated herein by reference to Exhibit
10.1 to Form 8-K filed December 29, 2003).10.21
    
    Second Amendment to Second Lien Secured Credit Agreement dated July
27, 2004, among PetroQuest Energy, L.L.C., PetroQuest Energy, Inc., each of the
Lenders from time to time party thereto, and Macquarie Americas Corp., as
administrative agent for the Lenders (incorporated herein by reference to Exhibit
10.2 to Form 10-Q filed July 30, 2004).10.22
    
    Third Amendment to Second Lien Secured Credit Agreement dated as of
October 14, 2004 by and between PetroQuest Energy, LLC, PetroQuest Energy, Inc.
and Macquarie Bank Limited (incorporated herein by reference to Exhibit 10.2 on
Form 8-K filed October 19, 2004).10.23
    
    Fourth Amendment to Second Lien Secured Credit Agreement dated as of
December 29, 2004 by and between PetroQuest Energy, LLC and Macquarie Bank Limited
(incorporated herein by reference to Exhibit 10.1 on Form 8-K filed December 30,
2004).10.24
    
    Fifth Amendment to Second Lien Secured Credit Agreement dated April
12, 2005, among PetroQuest Energy, LLC, TDC Energy LLC f/k/a TDC Acquisition Sub
LLC, PetroQuest Energy, Inc. and Macquarie Bank Limited (incorporated herein by
reference to Exhibit 10.2 to Form 8-K filed April 13, 2005). 10.25
    
    Employment Agreement dated September 1, 1998, between PetroQuest
Energy, Inc. and Charles T. Goodson (incorporated herein by reference to Exhibit
10.2 to Form 8-K dated September 16, 1998). 10.26
    
    First Amendment to Employment agreement dated September 1, 1998
between PetroQuest Energy, Inc. and Charles T. Goodson dated July 30, 1999
(incorporated herein by reference to Exhibit 10.1 to For 8-K dated August 9, 1999). 10.27
    
    Severance Agreement and Release, effective April 8, 2005, between
PetroQuest Energy, Inc. and Ralph J. Daigle (incorporated herein by reference to
Exhibit 10.1 to Form 8-K filed April 22, 2005). 10.28
    
    Employment Agreement dated May 8, 2000 between PetroQuest Energy,
Inc. and Michael O. Aldridge (incorporated herein by reference to Exhibit 10.1 to
the Form 10-Q filed August 14, 2000). 10.29
    
    Employment Agreement dated December 15, 2000 between PetroQuest
Energy, Inc. and Arthur M. Mixon, III. (incorporated herein by reference to Exhibit
10.12 to Form 10-K filed March 30, 2001). 10.30
    
    Employment Agreement dated April 20, 2001 between PetroQuest Energy,
Inc. and Daniel G. Fournerat (incorporated herein by reference to Exhibit 10.1 to
Form 10-Q filed May 15, 2001). 10.31
    
    Employment Agreement dated April 20, 2001 between PetroQuest
Energy, Inc. and Dalton F. Smith III (incorporated herein by reference to Exhibit
10.21 to Form 10-K filed March 13, 2002). 10.32
    
    Employment agreement dated July 28, 2003, between PetroQuest
Energy, Inc. and Stephen H. Green (incorporated herein by reference to Exhibit 10.3
to Form 10-Q filed November 13, 2003). 10.33
    
    Form of Termination Agreement Between PetroQuest Energy, Inc. and
each of its executive officers, including Charles T. Goodson, Michael O. Aldridge,
Arthur M. Mixon, III, Daniel G. Fournerat, Dalton F. Smith III and Stephen H. Green
(incorporated herein by reference to Exhibit 10.20 to Form 10-K filed March 13,
2002). 10.34
    
    Form of Amendment to Termination Agreement entered into between
the Company and each of its executive officers (including Charles T. Goodson,
Michael O. Aldridge, Arthur M. Mixon, III, Daniel G. Fournerat and Stephen H.
Green), effective as of May 16, 2006 (incorporated herein by reference to Exhibit
10.4 to Form 8-K filed May 19, 2006).
 40




---



##### 



 10.35
    
    Form of Indemnification Agreement between PetroQuest Energy, Inc.
and each of its directors and executive officers, including Charles T. Goodson,
Daniel G. Fournerat, E. Wayne Nordberg, William W. Rucks, IV, Michael O. Aldridge,
Arthur M. Mixon, III, Dalton F. Smith III, Michael L. Finch, W.J. Gordon, III,
Stephen H. Green and Charles F. Mitchell, II (incorporated herein by reference to
Exhibit 10.21 to Form 10-K filed March 13, 2002).14.1
    
    Code of Business Conduct and Ethics (incorporated herein by
reference to Exhibit 14.1 to Form 10-K filed March 8, 2006).*21.1
    
    Subsidiaries of the Company.*23.1
    
    Consent of Independent Registered Public Accounting Firm.*23.2
    
    Consent of Ryder Scott Company, L.P.*31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13-a-14(a)
/ Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as
amended.*31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13-a-14(a)
/ Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as
amended.*32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Executive
Officer.*32.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Financial
Officer.
 
 *
    
    Filed herewith.
    
    Management contract or compensatory plan or arrangement   41




---



##### 



GLOSSARY OF CERTAIN OIL AND NATURAL GAS TERMS
  Bbl
 Bcf
 Bcfe
 Block
 Btu or British Thermal Unit
 Completion
 Condensate
 Developed acreage
 Developmental well
 Dry hole
 Exploratory well
 Farm-in or farm-out
 Field
 Gross acres or gross wells
 Lead
 MBbls
 Mcf
 Mcfe
 MMBls
 42




---



##### 



MMBtu
 MMcf
 MMcfe
 Net acres or net wells
 Productive well
 Prospect
 Proved developed non-producing reserves
 Proved developed producing reserves (PDP)
 Proved developed reserves
 Proved reserves
 Proved undeveloped reserves
 Reservoir
 Undeveloped acreage
 Working interest
 43




---



##### 



PETROQUEST ENERGY, INC.By:
    /s/Charles T. GoodsonCHARLES T. GOODSONChairman of the Board and Chief
Executive Officer  By:
    
    /s/ Charles T. Goodson
    
    Chairman of the Board, Chief Executive Officer andCHARLES T. GOODSON
    
    Director (Principal Executive Officer)By:
    
    /s/ Michael O. Aldridge
    
    Executive Vice President, Chief Financial Officer, TreasurerMICHAEL O. ALDRIDGE
    
    and Director (Principal Financial and Accounting Officer)By:
    
    /s/ W.J. Gordon, III

W.J. GORDON, III
    
    DirectorBy:
    
    /s/ Michael L. Finch
    
    DirectorMICHAEL L. FINCHBy:
    
    /s/ Charles F. Mitchell, II, M.D.
    
    DirectorCHARLES F. MITCHELL, II, M.D.By:
    
    /s/ E. Wayne Nordberg
    
    DirectorE. WAYNE NORDBERGBy:
    
    /s/ William W. Rucks, IV
    
    DirectorWILLIAM W. RUCKS, IV
 44




---



##### 



INDEX TO FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets of PetroQuest Energy, Inc. as of
December 31, 2006 and 2005
    
    
    F-3Consolidated Statements of Income of PetroQuest Energy, Inc.
for the years ended December 31, 2006, 2005 and 2004
    
    
    F-4Consolidated Statements of Stockholders Equity of PetroQuest Energy, Inc.
for the years ended December 31, 2006, 2005 and 2004
    
    
    F-4Consolidated Statements of Cash Flows of PetroQuest Energy, Inc.
for the years ended December 31, 2006, 2005 and 2004
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
 F- 1




---



##### 



Report of Independent Registered Public Accounting Firm
 
     Internal
ControlIntegrated Framework
 /s/ Ernst & Young LLP
 
 F- 2




---



##### 



PETROQUEST ENERGY, INC.
 
  Amounts in Thousands)
 December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,795
    
    
    $
    6,703Revenue receivable
    
    
    21,767
    
    
    
    22,492Joint interest billing receivable
    
    
    20,072
    
    
    
    17,567Hedging asset
    
    
    10,527
    
    
    
    Prepaid drilling costs
    
    
    4,886
    
    
    
    1,256Other current assets
    
    
    2,143
    
    
    
    2,185Total current assets
    
    
    64,190
    
    
    
    50,203Property and equipment:Oil and gas properties:Oil and gas properties, full cost method
    
    
    695,116
    
    
    
    523,212Unevaluated oil and gas properties
    
    
    51,567
    
    
    
    52,745Accumulated depreciation, depletion and amortization
    
    
    (314,869
    )
    
    
    (210,774
    )Oil and gas properties, net
    
    
    431,814
    
    
    
    365,183Gas gathering assets
    
    
    19,072
    
    
    
    10,861Accumulated depreciation and amortization of gas gathering assets
    
    
    (3,562
    )
    
    
    (1,055
    )Total property and equipment
    
    
    447,324
    
    
    
    374,989Other assets, net of accumulated depreciation and amortization
of $11,719 and $10,353, respectively
    
    
    6,776
    
    
    
    6,278Total assets
    
    $
    518,290
    
    
    $
    431,470LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable to vendors
    
    $
    32,049
    
    
    $
    41,462Advances from co-owners
    
    
    13,391
    
    
    
    5,874Oil and gas revenue payable
    
    
    6,935
    
    
    
    8,090Hedging liability
    
    
    
    
    
    
    15,987Asset retirement obligation
    
    
    9,028
    
    
    
    2,350Other accrued liabilities
    
    
    10,678
    
    
    
    8,192Total current liabilities
    
    
    72,081
    
    
    
    81,955Bank debt
    
    
    47,000
    
    
    
    10,00010 3/8% Senior Notes
    
    
    148,537
    
    
    
    148,340Asset retirement obligation
    
    
    11,211
    
    
    
    19,257Deferred income taxes
    
    
    49,646
    
    
    
    27,139Other liabilities
    
    
    104
    
    
    
    242Commitments and contingenciesStockholders equity:Common stock, $.001 par value; authorized 75,000
shares; issued and outstanding 47,788 and 47,325
shares, respectively
    
    
    48
    
    
    
    47Paid-in capital
    
    
    124,552
    
    
    
    117,441Accumulated other comprehensive income (loss)
    
    
    6,632
    
    
    
    (7,444
    )Retained earnings
    
    
    58,479
    
    
    
    34,493Total stockholders equity
    
    
    189,711
    
    
    
    144,537Total liabilities and stockholders equity
    
    $
    518,290
    
    
    $
    431,470
  F- 3




---



##### 



PETROQUEST ENERGY, INC.
 
  Amounts in Thousands, Except Per Share Data
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Revenues:Oil and gas sales
    
    $
    193,861
    
    
    $
    120,552
    
    
    $
    84,595Gas gathering revenue and other income
    
    
    6,683
    
    
    
    4,042
    
    
    
    273200,544
    
    
    
    124,594
    
    
    
    84,868Expenses:Lease operating expenses
    
    
    34,735
    
    
    
    20,972
    
    
    
    13,161Production taxes
    
    
    6,576
    
    
    
    3,764
    
    
    
    1,549Depreciation, depletion and amortization
    
    
    85,858
    
    
    
    43,747
    
    
    
    35,435Gas gathering costs
    
    
    3,637
    
    
    
    1,246
    
    
    
    General and administrative
    
    
    15,122
    
    
    
    7,347
    
    
    
    6,212Accretion of asset retirement obligation
    
    
    1,513
    
    
    
    1,253
    
    
    
    833Interest expense
    
    
    14,513
    
    
    
    12,371
    
    
    
    2,817Derivative expense
    
    
    
    
    
    
    
    
    
    
    2161,954
    
    
    
    90,700
    
    
    
    60,009Income from operations
    
    
    38,590
    
    
    
    33,894
    
    
    
    24,859Income tax expense
    
    
    14,604
    
    
    
    12,477
    
    
    
    8,511Net Income
    
    $
    23,986
    
    
    $
    21,417
    
    
    $
    16,348Earnings per common share:BasicNet income per share
    
    $
    0.50
    
    
    $
    0.46
    
    
    $
    0.37DilutedNet income per share
    
    $
    0.49
    
    
    $
    0.44
    
    
    $
    0.35Weighted average number of common shares:Basic
    
    
    47,537
    
    
    
    46,714
    
    
    
    44,616Diluted
    
    
    48,936
    
    
    
    48,242
    
    
    
    46,438
  F- 4




---



##### 



PETROQUEST ENERGY, INC
 
 Amounts in Thousands
 Unearned
    
    
    Other
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Deferred
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersStock
    
    
    Capital
    
    
    Compensation
    
    
    Income (Loss)
    
    
    Earnings (Deficit)
    
    
    EquityDecember 31, 2003
    
    $
    45
    
    
    $
    112,038
    
    
    $
    (69
    )
    
    $
    (1,015
    )
    
    $
    (3,272
    )
    
    $
    107,727Options and warrants exercised
    
    
    
    
    
    
    170
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170Sale of common stock
    
    
    
    
    
    
    203
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    203Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    
    
    
    
    
    
    
    
    69Tax effect of deferred compensation
    
    
    
    
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24
    )Derivative fair value adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,216
    )
    
    
    
    
    
    
    (3,216
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,348
    
    
    
    16,348December 31, 2004
    
    $
    45
    
    
    $
    112,387
    
    
    $
    
    
    
    $
    (4,231
    )
    
    $
    13,076
    
    
    $
    121,277Options and warrants exercised
    
    
    2
    
    
    
    1,003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,005Issuance of common stock
    
    
    
    
    
    
    4,051
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,051Derivative fair value adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,213
    )
    
    
    
    
    
    
    (3,213
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,417
    
    
    
    21,417December 31, 2005
    
    $
    47
    
    
    $
    117,441
    
    
    $
    
    
    
    $
    (7,444
    )
    
    $
    34,493
    
    
    $
    144,537Options and warrants exercised
    
    
    1
    
    
    
    1,460
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,461Share-based compensation expense
    
    
    
    
    
    
    5,651
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,651Derivative fair value adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,076
    
    
    
    
    
    
    
    14,076Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,986
    
    
    
    23,986December 31, 2006
    
    $
    48
    
    
    $
    124,552
    
    
    $
    
    
    
    $
    6,632
    
    
    $
    58,479
    
    
    $
    189,711
  F- 5




---



##### 



PETROQUEST ENERGY, INC.
 
 Amounts in Thousands
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    23,986
    
    
    $
    21,417
    
    
    $
    16,348Adjustments to reconcile net income to net cash
provided by operating activities:Deferred tax expense
    
    
    14,604
    
    
    
    12,477
    
    
    
    8,511Amortization of debt issuance costs
    
    
    943
    
    
    
    1,390
    
    
    
    1,678Compensation expense
    
    
    
    
    
    
    213
    
    
    
    272Depreciation, depletion and amortization
    
    
    85,858
    
    
    
    43,747
    
    
    
    35,435Derivative mark to market
    
    
    
    
    
    
    
    
    
    
    (218
    )Write-off of debt issuance costs
    
    
    
    
    
    
    2,575
    
    
    
    Amortization of bond discount
    
    
    197
    
    
    
    111
    
    
    
    Share-based compensation expense
    
    
    5,651
    
    
    
    
    
    
    
    Accretion of asset retirement obligation
    
    
    1,513
    
    
    
    1,253
    
    
    
    833Changes in working capital accounts:Revenue receivable
    
    
    725
    
    
    
    (13,100
    )
    
    
    (2,871
    )Joint interest billing receivable
    
    
    (2,505
    )
    
    
    (13,912
    )
    
    
    (1,080
    )Accounts payable and accrued liabilities
    
    
    (13,552
    )
    
    
    14,255
    
    
    
    12,521Other assets
    
    
    (1,743
    )
    
    
    (448
    )
    
    
    (619
    )Advances from co-owners
    
    
    7,517
    
    
    
    3,609
    
    
    
    (487
    )Other
    
    
    (3,572
    )
    
    
    (397
    )
    
    
    (13
    )Net cash provided by operating activities
    
    
    119,622
    
    
    
    73,190
    
    
    
    70,310Cash flows from investing activities:Investment in oil and gas properties
    
    
    (175,529
    )
    
    
    (171,980
    )
    
    
    (80,142
    )Sale of oil and gas properties
    
    
    22,023
    
    
    
    
    
    
    
    Investment in gas gathering assets
    
    
    (6,363
    )
    
    
    (10,861
    )
    
    
    Net cash used in investing activities
    
    
    (159,869
    )
    
    
    (182,841
    )
    
    
    (80,142
    )Cash flows from financing activities:Proceeds from exercise of options and warrants
    
    
    1,461
    
    
    
    972
    
    
    
    170Proceeds from bank borrowings
    
    
    48,000
    
    
    
    44,500
    
    
    
    39,000Repayment of bank borrowings
    
    
    (11,000
    )
    
    
    (73,000
    )
    
    
    (28,000
    )Proceeds from issuance of 10 3/8% Senior Notes
    
    
    
    
    
    
    148,229
    
    
    
    Deferred financing costs
    
    
    (122
    )
    
    
    (5,876
    )
    
    
    (588
    )Net cash provided by financing activities
    
    
    38,339
    
    
    
    114,825
    
    
    
    10,582Net increase (decrease) in cash and cash equivalents
    
    
    (1,908
    )
    
    
    5,174
    
    
    
    750Cash and cash equivalents at beginning of period
    
    
    6,703
    
    
    
    1,529
    
    
    
    779Cash and cash equivalents at end of period
    
    $
    4,795
    
    
    $
    6,703
    
    
    $
    1,529Supplemental disclosure of cash flow informationCash paid during the period for:Interest
    
    $
    17,572
    
    
    $
    9,628
    
    
    $
    1,752Income taxes
    
    $
    
    
    
    $
    75
    
    
    $
    
  F- 6




---



##### 



PETROQUEST ENERGY, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Organization and Summary of Significant Accounting Policies
  Principles of Consolidation
  Use of Estimates
  Oil and Gas Properties
    Gas Gathering Assets
  F- 7




---



##### 



Other Assets
  Cash and Cash Equivalents
  Income Taxes
  Earnings per Common Share Amounts
  Year Ended December 31,2006
    
    
    2005
    
    
    2004Basic shares outstanding
    
    
    47,537
    
    
    
    46,714
    
    
    
    44,616Effect of stock options
    
    
    1,278
    
    
    
    1,327
    
    
    
    858Effect of restricted stock
    
    
    121
    
    
    
    
    
    
    
    Effect of warrants
    
    
    
    
    
    
    201
    
    
    
    964Diluted shares outstanding
    
    
    48,936
    
    
    
    48,242
    
    
    
    46,438
  Revenue Recognition
  Certain Concentrations
  F- 8




---



##### 



Year Ended December 31,2006
    
    
    2005
    
    
    2004Cokinos
    
    
    11
    %
    
    
    12
    %
    
    
    (a
    )Louis Dreyfus Corporation
    
    
    12
    %
    
    
    20
    %
    
    
    26
    %Texon LP
    
    
    22
    %
    
    
    16
    %
    
    
    24
    %Crosstex
    
    
    14
    %
    
    
    (a
    )
    
    
    (a
    )
 
 (a)
    
    Less than 10 percent Fair Value of Financial Instruments
  Derivative Instruments
      Instrument
    
    
    
    
    
    
    WeightedProduction Period
    
    Type
    
    
    Daily Volumes
    
    
    Average PriceNatural Gas:2007
    
    Costless Collar
    
    17,500 Mmbtu
    
    $
    8.36-10.01Crude Oil:January-June 2007
    
    Costless Collar
    
    300 Bbls
    
    $
    65.00-79.10July-December 2007
    
    Costless Collar
    
    200 Bbls
    
    $
    65.00-77.70
 F- 9




---



##### 



New Accounting Standards
     
    
    incentive stock options as defined in Section 422 of the Code;
    
    nonstatutory stock options;
    
    stock appreciation rights;
    
    shares of restricted stock;
    
    performance units and performance shares;
    
    other stock-based awards; and
    
    supplemental payments dedicated to the payment of income taxes
    F- 10




---



##### 



2006Stock options:Incentive Stock Options
    
    $
    526Non-Qualified Stock Options
    
    
    1,344Restricted stock
    
    
    3,781Share based compensation
    
    $
    5,651
 Stock Options
    Years Ended December 31,2006
    
    
    2005
    
    
    2004Dividend yield
    
    
    0%
    
    
    
    0%
    
    
    
    0%Expected volatility
    
    
    59.0% - 62.8%
    
    
    
    60.9% - 64.5%
    
    
    
    64.3% - 67.4%Risk-free rate
    
    
    4.4% - 5.1%
    
    
    
    3.8% - 4.6%
    
    
    
    3.2% - 4.0%Expected term
    
    6 years
    
    5 years
    
    5 yearsForfeiture rate
    
    
    8.4%
    
    
    
    0%
    
    
    
    0%Stock options granted (1)
    
    
    679,189
    
    
    
    155,000
    
    
    
    1,239,500Wgtd. avg. grant date fair value per share
    
    $
    6.69
    
    
    $
    3.59
    
    
    $
    1.93Fair value of grants (1)
    
    $
    4,543,000
    
    
    $
    556,350
    
    
    $
    2,393,375
 
 (1)
    Prior to applying estimated forfeiture rate  AggregateNumber of
    
    
    Wgtd. Avg.
    
    
    Wgtd. Avg.
    
    
    Intrinsic ValueOptions
    
    
    Exercise Price
    
    
    Remaining Life
    
    

(000
s)Outstanding at beginning of year
    
    
    2,311,564
    
    
    $
    3.08Granted
    
    
    679,189
    
    
    
    10.94Expired/cancelled/forfeited
    
    
    (7,508
    )
    
    
    4.56Exercised
    
    
    (462,434
    )
    
    
    3.16Outstanding at end of year
    
    
    2,520,811
    
    
    
    5.18
    
    
    6.9 years
    
    $
    19,058Options exercisable at end of year
    
    
    1,521,801
    
    
    $
    2.79
    
    
    5.6 years
    
    $
    15,147Options expected to vest
    
    
    915,093
    
    
    $
    8.82
    
    
    8.9 years
    
    $
    3,583
 F-11




---



##### 



Range of
    
    Options
    
    
    Wgtd. Avg.
    
    Wgtd. Avg.
    
    Options
    
    
    Wgtd. Avg.Exercise
    
    Outstanding
    
    
    Remaining
    
    Exercise
    
    Exercisable
    
    
    ExercisePrice
    
    12/31/06
    
    
    Contractual Life
    
    Price
    
    12/31/06
    
    
    Price$0.85 -   $3.13
    
    
    688,967
    
    
    3.7 years
    
    $1.99
    
    
    688,967
    
    
    $
    1.99$3.17 -   $4.24
    
    
    983,999
    
    
    7.2 years
    
    $3.29
    
    
    774,499
    
    
    $
    3.26$4.93 -   $9.99
    
    
    179,999
    
    
    8.4 years
    
    $6.32
    
    
    58,335
    
    
    $
    5.87$10.75 - $12.54
    
    
    667,846
    
    
    9.4 years
    
    $10.95
    
    
    
    
    
    
    2,520,811
    
    
    6.9 years
    
    $5.18
    
    
    1,521,801
    
    
    $
    2.79
 Restricted Stock
     F-12




---



##### 



Year Ended December 31,2005
    
    
    2004Net income
    
    $
    21,417
    
    
    $
    16,348Stock-based compensation:Add: expense included in reported results, net of tax
    
    
    22
    
    
    
    177Deduct: fair value based method, net of tax
    
    
    (688
    )
    
    
    (1,191
    )Pro forma net income
    
    $
    20,751
    
    
    $
    15,334Earnings per common shareBasic - as reported
    
    $
    0.46
    
    
    $
    0.37Basic - pro forma
    
    $
    0.44
    
    
    $
    0.34Diluted - as reported
    
    $
    0.44
    
    
    $
    0.35Diluted - pro forma
    
    $
    0.43
    
    
    $
    0.33
 Note 2  Asset Retirement Obligations
    Year EndedDecember 31, 2006Asset retirement obligation at beginning of year
    
    $
    21,607Liabilities incurred
    
    
    810Liabilities settled (1)
    
    
    (6,218
    )Accretion expense
    
    
    1,513Revisions in estimated cash flows
    
    
    2,527Asset retirement obligation at end of year
    
    
    20,239Less: current portion of obligation
    
    
    (9,028
    )Long-term asset retirement obligation
    
    $
    11,211
 
 (1)
    Includes approximately $6 million settled in connection with the sale of
certain Gulf of Mexico properties (See Note 6). F-13




---



##### 



Note 3  Equity
 Other Comprehensive Income
  Year Ended December 31,2006
    
    
    2005
    
    
    2004Net income
    
    $
    23,986
    
    
    $
    21,417
    
    
    $
    16,348Change in fair value of derivative instrument,
accounted for as hedges, net of taxes
    
    
    14,076
    
    
    
    (3,213
    )
    
    
    (3,216
    )Comprehensive income
    
    $
    38,062
    
    
    $
    18,204
    
    
    $
    13,132
    Note 4  Debt
      F-14




---



##### 



Note 5
 Related Party Transactions
    F-15




---



##### 



Note 6  Sale of Gulf of Mexico Properties
   Years EndedDecember 31,2006
    
    
    2005Production (Mcfe)
    
    
    1,742,000
    
    
    
    2,487,300Percentage of total Company production
    
    
    7
    %
    
    
    15
    %Oil and gas revenues
    
    $
    13,228,000
    
    
    $
    20,377,000Production taxes
    
    
    87,000
    
    
    
    52,000Lease operating expenses
    
    
    5,979,000
    
    
    
    5,227,000Revenues net of direct operating expenses
    
    $
    7,162,000
    
    
    $
    15,098,000
 F-16




---



##### 



Note 7
 Investment in Oil and Gas Properties
  amounts in thousands
 For the Year-Ended December 31,2006
    
    
    2005
    
    
    2004Acquisition costs:Proved
    
    $
    7,515
    
    
    $
    58,121
    
    
    $
    23,041Unproved
    
    
    12,744
    
    
    
    24,152
    
    
    
    5,963Exploration costs:Proved
    
    
    70,526
    
    
    
    39,311
    
    
    
    28,298Unproved
    
    
    7,457
    
    
    
    15,098
    
    
    
    Development costs
    
    
    61,643
    
    
    
    51,420
    
    
    
    24,204Capitalized general and administrative and interest costs
    
    
    10,841
    
    
    
    7,719
    
    
    
    4,919Total costs incurred
    
    $
    170,726
    
    
    $
    195,821
    
    
    $
    86,425
 For the Year-Ended December 31,2006
    
    
    2005
    
    
    2004Accumulated depreciation, depletion
and amortization (DD&A)Balance, beginning of year
    
    $
    (210,774
    )
    
    $
    (168,453
    )
    
    $
    (133,482
    )Provision for DD&A
    
    
    (82,928
    )
    
    
    (42,513
    )
    
    
    (34,971
    )Sale of proved properties and other
    
    
    (21,167
    )
    
    
    192
    
    
    
    Balance, end of year
    
    $
    (314,869
    )
    
    $
    (210,774
    )
    
    $
    (168,453
    )DD&A per Mcfe
    
    $
    3.23
    
    
    $
    2.65
    
    
    $
    2.46
  Note 8
 Income Taxes
  F-17




---



##### 



December 31,2006
    
    
    2005Net operating loss carryforwards
    
    $
    28,331
    
    
    $
    22,710Percentage depletion carryforward
    
    
    2,068
    
    
    
    1,994Alternative minimum tax credit
    
    
    105
    
    
    
    105Temporary differences:Oil and gas
properties - full cost
    
    
    (80,303
    )
    
    
    (52,101
    )Compensation expense
    
    
    153
    
    
    
    153$
    (49,646
    )
    
    $
    (27,139
    )
   For the Year-Ended December 31,2006
    
    
    2005
    
    
    2004Amount computed using the statutory rate
    
    $
    13,507
    
    
    $
    11,863
    
    
    $
    8,701Increase (reduction) in taxes resulting from:State & local taxes
    
    
    849
    
    
    
    746
    
    
    
    547Percentage depletion carryforward
    
    
    (74
    )
    
    
    (155
    )
    
    
    (498
    )Non-deductible stock option expense (1)
    
    
    195
    
    
    
    
    
    
    
    Other
    
    
    127
    
    
    
    23
    
    
    
    (239
    )Income tax expense
    
    $
    14,604
    
    
    $
    12,477
    
    
    $
    8,511
 
 (1)
    
    Relates to compensation expense recognized on the vesting of Incentive
Stock Options in connection with the adoption
of SFAS 123(R) on January 1, 2006. Note 9
 Commitments and Contingencies
   F-18




---



##### 



Lease Commitments
   2007
    
    $
    8912008
    
    
    8802009
    
    
    8882010
    
    
    1892011
    
    
    71Thereafter
    
    
    11$
    2,930
  Note
11  Oil and Gas Reserve Information  Unaudited
    F-19




---



##### 



Oil
    
    
    Natural Gasin
    
    
    and NGL inMBbls
    
    
    MMcfeProved reserves as of December 31, 2003
    
    
    4,245
    
    
    
    57,793Revisions of previous estimates
    
    
    (396
    )
    
    
    3,461Extensions, discoveries and other additions
    
    
    559
    
    
    
    14,575Purchase of producing properties
    
    
    124
    
    
    
    12,545Production
    
    
    (818
    )
    
    
    (9,305
    )Proved reserves as of December 31, 2004
    
    
    3,714
    
    
    
    79,069Revisions of previous estimates
    
    
    (29
    )
    
    
    (8,315
    )Extensions, discoveries and other additions
    
    
    362
    
    
    
    29,966Purchase of producing properties
    
    
    294
    
    
    
    21,211Sale of producing properties
    
    
    (34
    )
    
    
    (758
    )Production
    
    
    (665
    )
    
    
    (12,058
    )Proved reserves as of December 31, 2005
    
    
    3,642
    
    
    
    109,115Revisions of previous estimates
    
    
    (197
    )
    
    
    2,744Extensions, discoveries and other additions
    
    
    773
    
    
    
    34,498Purchase of producing properties
    
    
    
    
    
    
    Sale of producing properties
    
    
    (792
    )
    
    
    (6,676
    )Production
    
    
    (695
    )
    
    
    (21,528
    )Proved reserves as of December 31, 2006
    
    
    2,731
    
    
    
    118,153Proved developed reservesAs of December 31, 2004
    
    
    2,984
    
    
    
    50,809As of December 31, 2005
    
    
    2,891
    
    
    
    73,250As of December 31, 2006
    
    
    2,528
    
    
    
    81,487
 F-20




---



##### 



Standardized Measure
 December 31,2006
    
    
    2005
    
    
    2004Future cash flows
    
    $
    786,829
    
    
    $
    1,157,283
    
    
    $
    622,941Future production costs
    
    
    (168,037
    )
    
    
    (195,648
    )
    
    
    (111,165
    )Future development costs
    
    
    (102,778
    )
    
    
    (99,946
    )
    
    
    (68,289
    )Future income taxes
    
    
    (70,615
    )
    
    
    (213,222
    )
    
    
    (94,454
    )Future net cash flows
    
    
    445,399
    
    
    
    648,467
    
    
    
    349,03310% annual discount
    
    
    (112,566
    )
    
    
    (165,055
    )
    
    
    (91,279
    )Standardized measure of discounted future net cash flow
    
    $
    332,833
    
    
    $
    483,412
    
    
    $
    257,754
 Changes in Standardized Measure
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Standarized measure at beginning of year
    
    $
    483,412
    
    
    $
    257,754
    
    
    $
    175,226Sales and transfers of oil and gas produced,
net of production costs
    
    
    (152,550
    )
    
    
    (95,816
    )
    
    
    (69,885
    )Changes in price, net of future production costs
    
    
    (221,118
    )
    
    
    164,071
    
    
    
    46,382Extensions and discoveries, net of future
production and development costs
    
    
    124,138
    
    
    
    168,802
    
    
    
    73,535Changes in estimated future development costs,
net of development costs incurred during this period
    
    
    18,016
    
    
    
    6,398
    
    
    
    10,122Revisions of quantity estimates
    
    
    5,199
    
    
    
    (47,025
    )
    
    
    4,076Accretion of discount
    
    
    63,973
    
    
    
    32,627
    
    
    
    21,435Net change in income taxes
    
    
    104,841
    
    
    
    (87,808
    )
    
    
    (29,375
    )Purchase of reserves in place
    
    
    
    
    
    
    94,834
    
    
    
    27,623Sale of reserves in place
    
    
    (70,765
    )
    
    
    (1,352
    )
    
    
    Changes in production rates (timing) and other
    
    
    (22,313
    )
    
    
    (9,073
    )
    
    
    (1,385
    )Standardized measure at end of year
    
    $
    332,833
    
    
    $
    483,412
    
    
    $
    257,754
  F-21




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##### 



Note 12  Summarized Quarterly Financial Information  Unaudited
  Quarter EndedMarch-31
    
    
    June-30
    
    
    September-30
    
    
    December-312006:Revenues
    
    $
    48,358
    
    
    $
    51,496
    
    
    $
    55,086
    
    
    $
    45,604Expenses
    
    
    39,209
    
    
    
    43,514
    
    
    
    48,542
    
    
    
    45,293Net income
    
    $
    9,149
    
    
    $
    7,982
    
    
    $
    6,544
    
    
    $
    311Earnings per share:Basic
    
    $
    0.19
    
    
    $
    0.17
    
    
    $
    0.14
    
    
    $
    0.01Diluted
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.13
    
    
    $
    0.012005:Revenues
    
    $
    21,743
    
    
    $
    30,279
    
    
    $
    31,876
    
    
    $
    40,696Expenses
    
    
    17,556
    
    
    
    26,414
    
    
    
    26,831
    
    
    
    32,376Net income
    
    $
    4,187
    
    
    $
    3,865
    
    
    $
    5,045
    
    
    $
    8,320Earnings per share:Basic
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.11
    
    
    $
    0.18Diluted
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.17
 
 (1)
    
    The above quarterly earnings per share may not total to the full year per share amount,
as the weighted average number of shares outstanding for each quarter fluctuated as a
result of the assumed exercise of stock options. F-22




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##### 



2.1
    
    Plan and Agreement of Merger by and among Optima Petroleum
Corporation, Optima Energy (U.S.) Corporation, its wholly-owned subsidiary, and
Goodson Exploration Company, NAB Financial L.L.C., Dexco Energy, Inc., American
Explorer, L.L.C. (incorporated herein by reference to Appendix G of the Proxy
Statement on Schedule 14A filed July 22, 1998).2.2
    
    Agreement and Plan of Merger dated April 12, 2005, among PetroQuest
Energy, Inc., TDC Acquisition Sub LLC and TDC Energy LLC (incorporated herein by
reference to Exhibit 2.1 to Form 8-K filed April 13, 2005).2.3
    
    Purchase and Sale Agreement, dated as of April 13, 2005 between Staab
Holdings, L.L.C. and PetroQuest Energy, LLC (incorporated herein by reference to
Exhibit 2.1 to Form 8-K filed April 22, 2005).2.4
    
    Purchase and Sale Agreement, dated as of April 7, 2005, among MAKO
Resources, LLC, Golden Gas Service Company and PetroQuest Energy, LLC
(incorporated herein by reference to Exhibit 2.2 to Form 8-K filed April 22,
2005).2.5
    
    Purchase and Sale Agreement, dated as of April 7, 2005, between
Golden Gas Service Company and PetroQuest Energy, LLC (incorporated herein by
reference to Exhibit 2.3 to Form 8-K filed April 22, 2005).2.6
    
    Purchase and Sale Agreement, dated as of April 7, 2005, between
Golden Gas Service Company and PetroQuest Energy, LLC (incorporated herein by
reference to Exhibit 2.4 to Form 8-K filed April 22, 2005).3.1
    
    Certificate of Incorporation of the Company (incorporated herein by
reference to Exhibit 4.1 to Form 8-K filed September 16, 1998).3.2
    
    Bylaws of the Company (incorporated herein by reference to Exhibit
4.2 to Form 8-K filed September 16, 1998).3.3
    
    Certificate of Domestication of Optima Petroleum Corporation
(incorporated herein by reference to Exhibit 4.4 to Form 8-K filed September 16,
1998).3.4
    
    Certificate of Designations, Preferences, Limitations And Relative
Rights of The Series a Junior Participating Preferred Stock of PetroQuest Energy,
Inc. (incorporated herein by reference to Exhibit A of the Rights Agreement
attached as Exhibit 1 to Form 8-A filed November 9, 2001).4.1
    
    Warrant to Purchase Common Shares of PetroQuest Energy, Inc.
(incorporated herein by reference to Exhibit 4.1 to Form 8-K filed December 29,
2003).4.2
    
    Rights Agreement dated as of November 7, 2001 between PetroQuest
Energy, Inc. and American Stock Transfer & Trust Company, as Rights Agent,
including exhibits thereto (incorporated herein by reference to Exhibit 1 to Form
8-A filed November 9, 2001).4.3
    
    Form of Rights Certificate (incorporated herein by reference to
Exhibit C of the Rights Agreement attached as Exhibit 1 to Form 8-A filed November
9, 2001).




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##### 



4.4
    
    Indenture, dated May 11, 2005, among PetroQuest Energy, Inc.,
PetroQuest Energy, LLC, the Subsidiary Guarantors identified therein, and the Bank
of New York Trust Company, N.A. (incorporated herein by reference to Exhibit 4.1
to Form 8-K filed May 11, 2005).4.5
    
    Registration Rights Agreement dated April 12, 2005, between
PetroQuest Energy, Inc. and Macquarie Bank Limited (incorporated herein by
reference to Exhibit 4.1 to Form 8-K filed April 13, 2005).10.1
    
    PetroQuest Energy, Inc. 1998 Incentive Plan, as amended and restated
effective March 16, 2006 (the Incentive Plan) (incorporated herein by reference to
Exhibit 10.1 to Form 8-K filed May 19, 2006).10.2
    
    Form of Incentive Stock Option Agreement for executive officers
(including Charles T. Goodson, Arthur M. Mixon, III, Michael O. Aldridge, Daniel G.
Fournerat and Stephen H. Green) under the Incentive Plan (incorporated herein by
reference to Exhibit 10.2 to Form 8-K filed May 19, 2006).10.3
    
    Form of Restricted Stock Agreement for executive officers (including
Charles T. Goodson, Arthur M. Mixon, III, Michael O. Aldridge, Daniel G. Fournerat
and Stephen H. Green) under the Incentive Plan (incorporated herein by reference to
Exhibit 10.2 to Form 8-K filed May 19, 2006).10.4
    
    PetroQuest Energy, Inc. Annual Cash Bonus Plan (incorporated herein
by reference to Exhibit 10.1 to Form 8-K filed August 18, 2006).10.5
    
    Amended and Restated Credit Agreement, dated as of May 14, 2003, by and
between PetroQuest Energy, LLC, PetroQuest Energy, Inc., Bank One, NA, Banc One
Capital Markets, Inc., and certain other Lenders (incorporated herein by reference
to Exhibit 10.1 to Form 10-Q filed August 13, 2003).10.6
    
    Guaranty dated May 14, 2003, between PetroQuest Energy, Inc. and Bank
One, NA, as Agent for the Lenders (incorporated herein by reference to Exhibit 10.2
to Form 10-Q filed August 13, 2003).10.7
    
    First Amendment to Amended and Restated Credit Agreement dated as of
November 6, 2003, by and among PetroQuest Energy, L.L.C., PetroQuest Energy, Inc.;
Bank One, N.A., and Union Bank of California, N.A. (incorporated herein by
reference to Exhibit 10.4 to Form 10-Q filed November 13, 2003).10.8
    
    Second Amendment to Amended and Restated Credit Agreement dated as of
December 23, 2003, by and among PetroQuest Energy, L.L.C., PetroQuest Energy,
Inc., and Bank One, N.A. (incorporated herein by reference to Exhibit 10.2 to Form
8-K filed December 29, 2003).10.9
    
    Third Amendment to Amended and Restated Credit Agreement dated as of
July 27, 2004, by and among PetroQuest Energy, L.L.C., PetroQuest Energy, Inc.,
and Bank One, N.A. (incorporated herein by reference to Exhibit 10.1 to Form 10-Q
filed July 30, 2004).10.10
    
    Fourth Amendment to Amended and Restated Credit Agreement dated as
of October 14, 2004 by and between PetroQuest Energy, LLC, PetroQuest Energy, Inc.
and Bank One, N.A. (incorporated herein by reference to Exhibit 10.1 on Form 8-K
filed October 19, 2004).




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##### 



10.11
    
    Fifth Amendment to Amended and Restated Credit Agreement entered
into as of November 3, 2004 by and between PetroQuest Energy, LLC, PetroQuest
Energy, Inc., Pittrans Inc. (a wholly owned subsidiary of PetroQuest Energy, LLC)
and Bank One, N.A. (incorporated herein by reference to Exhibit 10.1 on Form 8-K
filed November 15, 2004).10.12
    
    Sixth Amendment to Amended and Restated Credit Agreement dated April
12, 2005, by and among PetroQuest Energy, LLC, PetroQuest Energy, Inc., Pittrans
Inc., TDC Acquisition Sub LLC, and JP Morgan Chase Bank, N.A. (incorporated herein
by reference to Exhibit 10.1 to Form 8-K filed April 13, 2005).10.13
    
    Seventh Amendment to Amended and Restated Credit Agreement dated May
9, 2005, by and among PetroQuest Energy, LLC, PetroQuest Energy, Inc., Pittrans
Inc., TDC Energy LLC, and JP Morgan Chase Bank, N.A. (incorporated herein by
reference to Exhibit 10.1 to Form 8-K filed May 11, 2005).10.14
    
    Eighth Amendment to Amended and Restated Credit Agreement dated June
17, 2005, by and among PetroQuest Energy, LLC, PetroQuest Energy, Inc., Pittrans
Inc., TDC Energy LLC, and JP Morgan Chase Bank, N.A., Guaranty Bank, FSB and
Calyon New York Branch (incorporated herein by reference to Exhibit 10.1 to Form
8-K filed June 17, 2005).10.15
    
    Second Amended and Restated Credit Agreement dated as of November
18, 2005, among PetroQuest Energy, LLC, PetroQuest Energy, Inc., JP Morgan Chase
Bank, N.A. as lender, agent and issuer of letters of credit, Macquarie Bank
Limited as lender, and Calyon New York Branch as lender and syndication agent
(incorporated herein by reference to Exhibit 10.1 to Form 8-K filed November 23,
2005).10.16
    
    Amendment No. 1 to Second Amended and Restated Credit Agreement
dated as of December 22, 2005, among PetroQuest Energy, LLC, PetroQuest Energy,
Inc., Pittrans, Inc., TDC Energy LLC, JP Morgan Chase Bank, N.A. as lender, agent
and issuer of letters of credit, Macquarie Bank Limited as lender, and Calyon New
York Branch as lender and syndication agent (incorporated herein by reference to
Exhibit 10.1 to Form 8-K filed December 22, 2005).10.17
    
    Amendment No. 2 to Second Amended and Restated Credit Agreement
dated as of November 16, 2006 among PetroQuest Energy, LLC, PetroQuest Energy,
Inc., Pittrans, Inc., TDC Energy LLC, JP Morgan Chase Bank, N.A. as lender, agent
and issuer of letters of credit, Macquarie Bank Limited as lender, and Calyon New
York Branch as lender and syndication agent (incorporated herein by reference to
Exhibit 10.1 to Form 8-K filed November 21, 2006).10.18
    
    Senior Second Lien Secured Credit Agreement dated November 6, 2003,
between PetroQuest Energy, L.L.C., PetroQuest Energy, Inc., each of the Lenders
from time to time party thereto; and Macquarie Americas Corp., as administrative
agent for the Lenders (incorporated herein by reference to Exhibit 10.1 to Form
10-Q filed November 13, 2003).10.19
    
    Unconditional Guaranty Agreement dated November 6, 2003, by
PetroQuest Energy, Inc. to Macquarie Americas Corp., as administrative agent for
the benefit of the Lenders under the Credit Agreement (incorporated herein by
reference to Exhibit 10.2 to Form 10-Q filed November 13, 2003).10.20
    
    First Amendment to Second Lien Secured Credit Agreement dated
December 23, 2003, among PetroQuest Energy, L.L.C., PetroQuest Energy, Inc., each
of the




---



##### 



Lenders from time to time party thereto, and Macquarie Americas Corp., as
administrative agent for the Lenders (incorporated herein by reference to Exhibit
10.1 to Form 8-K filed December 29, 2003).10.21
    
    Second Amendment to Second Lien Secured Credit Agreement dated July
27, 2004, among PetroQuest Energy, L.L.C., PetroQuest Energy, Inc., each of the
Lenders from time to time party thereto, and Macquarie Americas Corp., as
administrative agent for the Lenders (incorporated herein by reference to Exhibit
10.2 to Form 10-Q filed July 30, 2004).10.22
    
    Third Amendment to Second Lien Secured Credit Agreement dated as of
October 14, 2004 by and between PetroQuest Energy, LLC, PetroQuest Energy, Inc.
and Macquarie Bank Limited (incorporated herein by reference to Exhibit 10.2 on
Form 8-K filed October 19, 2004).10.23
    
    Fourth Amendment to Second Lien Secured Credit Agreement dated as of
December 29, 2004 by and between PetroQuest Energy, LLC and Macquarie Bank Limited
(incorporated herein by reference to Exhibit 10.1 on Form 8-K filed December 30,
2004).10.24
    
    Fifth Amendment to Second Lien Secured Credit Agreement dated April
12, 2005, among PetroQuest Energy, LLC, TDC Energy LLC f/k/a TDC Acquisition Sub
LLC, PetroQuest Energy, Inc. and Macquarie Bank Limited (incorporated herein by
reference to Exhibit 10.2 to Form 8-K filed April 13, 2005).10.25
    
    Employment Agreement dated September 1, 1998, between PetroQuest
Energy, Inc. and Charles T. Goodson (incorporated herein by reference to Exhibit
10.2 to Form 8-K dated September 16, 1998).10.26
    
    First Amendment to Employment agreement dated September 1, 1998
between PetroQuest Energy, Inc. and Charles T. Goodson dated July 30, 1999
(incorporated herein by reference to Exhibit 10.1 to For 8-K dated August 9, 1999).10.27
    
    Severance Agreement and Release, effective April 8, 2005, between
PetroQuest Energy, Inc. and Ralph J. Daigle (incorporated herein by reference to
Exhibit 10.1 to Form 8-K filed April 22, 2005).10.28
    
    Employment Agreement dated May 8, 2000 between PetroQuest Energy,
Inc. and Michael O. Aldridge (incorporated herein by reference to Exhibit 10.1 to
the Form 10-Q filed August 14, 2000).10.29
    
    Employment Agreement dated December 15, 2000 between PetroQuest
Energy, Inc. and Arthur M. Mixon, III. (incorporated herein by reference to Exhibit
10.12 to Form 10-K filed March 30, 2001).10.30
    
    Employment Agreement dated April 20, 2001 between PetroQuest Energy,
Inc. and Daniel G. Fournerat (incorporated herein by reference to Exhibit 10.1 to
Form 10-Q filed May 15, 2001).10.31
    
    Employment Agreement dated April 20, 2001 between PetroQuest
Energy, Inc. and Dalton F. Smith III (incorporated herein by reference to Exhibit
10.21 to Form 10-K filed March 13, 2002).




---



##### 



10.32
    
    Employment agreement dated July 28, 2003, between PetroQuest
Energy, Inc. and Stephen H. Green (incorporated herein by reference to Exhibit 10.3
to Form 10-Q filed November 13, 2003).10.33
    
    Form of Termination Agreement Between PetroQuest Energy, Inc. and
each of its executive officers, including Charles T. Goodson, Michael O. Aldridge,
Arthur M. Mixon, III, Daniel G. Fournerat, Dalton F. Smith III and Stephen H. Green
(incorporated herein by reference to Exhibit 10.20 to Form 10-K filed March 13,
2002).10.34
    
    Form of Amendment to Termination Agreement entered into between
the Company and each of its executive officers (including Charles T. Goodson,
Michael O. Aldridge, Arthur M. Mixon, III, Daniel G. Fournerat and Stephen H.
Green), effective as of May 16, 2006 (incorporated herein by reference to Exhibit
10.4 to Form 8-K filed May 19, 2006).10.35
    
    Form of Indemnification Agreement between PetroQuest Energy, Inc.
and each of its directors and executive officers, including Charles T. Goodson,
Daniel G. Fournerat, E. Wayne Nordberg, William W. Rucks, IV, Michael O. Aldridge,
Arthur M. Mixon, III, Dalton F. Smith III, Michael L. Finch, W.J. Gordon, III,
Stephen H. Green and Charles F. Mitchell, II (incorporated herein by reference to
Exhibit 10.21 to Form 10-K filed March 13, 2002).14.1
    
    Code of Business Conduct and Ethics (incorporated herein by
reference to Exhibit 14.1 to Form 10-K filed March 8, 2006).*21.1
    
    Subsidiaries of the Company.*23.1
    
    Consent of Independent Registered Public Accounting Firm.*23.2
    
    Consent of Ryder Scott Company, L.P.*31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13-a-14(a)
/ Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as
amended.*31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13-a-14(a)
/ Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as
amended.*32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Executive
Officer.*32.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Financial
Officer.
 
 *
    
    Filed herewith.
    
    Management contract or compensatory plan or arrangement