FORT WORTH, TX — (Marketwire) — 08/08/11 — Quicksilver Resources Inc. (NYSE: KWK) today announced results for the quarter ended June 30, 2011.
Second Quarter Highlights:
Produced a record level 417 million cubic feet per day of natural gas equivalents, a 19% increase from the prior-year quarter
Increased sequential production from oil and natural gas liquids to 20% of Quicksilver–s overall production stream
Reduced unit operating costs from the prior-year quarter
Drilled 13 new wells and connected 17 in the Fort Worth Barnett Shale Asset
Increased total revenue for the quarter ended June 30, 2011 to $248 million from $229 million in the prior-year quarter
Initiated midstream operations associated with its Horn River Asset
Reduced debt by $605 million from June 30, 2010, a year-over-year decrease of 23%
Increased our acreage position in the Sandwash Basin of Colorado to over 200,000 net acres
Increased our acreage position in the Delaware Basin of West Texas to over 100,000 net acres
“Continued strength from Quicksilver–s Barnett Shale properties, combined with our Horn River Basin natural gas project, fueled record second quarter production results,” said Glenn Darden, Quicksilver president and chief executive officer. “The company–s liquids production is one-fifth of our total production stream, which is having a disproportionately positive impact on returns and cash flow. At the same time, we continue to drive down costs. On a per-unit basis, lease operating expense decreased 6%, production and ad valorem tax expense declined 21%, depletion, depreciation and accretion expense declined 9%, general and administrative expense declined 22% and interest expense declined 14% versus the prior-year quarter, resulting in a total cost reduction of $0.57 per Mcfe. Additionally, we have established significant acreage positions in two new oil plays and will be testing these projects throughout the second half of the year.”
Production for the second quarter averaged a record 417 million cubic feet of natural gas equivalent (MMcfe) per day, up 19% from the prior-year quarter. The increase in production was primarily driven by higher volumes from the company–s Fort Worth Basin Barnett Shale Asset, coupled with increased volumes from its Horn River Basin natural gas project in Northeast British Columbia. The 2011 production volumes were comprised 80% from natural gas, 19% from natural gas liquids (NGLs) and 1% from crude oil and condensate.
Quicksilver reported net income of $109 million ($0.61 per diluted share) for the second quarter of 2011, as compared to net income of $87 million ($0.49 per diluted share) in the prior-year period. Adjusted net income for the second quarter of 2011, a non-GAAP financial measure, was $11 million ($0.07 per diluted share), as compared to adjusted net income of $30 million ($0.18 per diluted share) in the prior-year period. Details of adjusted net income are included in the tables at the end of this news release. Financial results for the second quarter of 2011 were impacted by a non-cash gain of $19 million related to the mark-to-market impact of long-term derivatives, a non-cash loss of $31 million associated with the company–s equity interest in BreitBurn Energy Partner–s (NASDAQ: BBEP) first-quarter of 2011 derivative fair value adjustments and a $122 million gain on the sale of BBEP units.
Total revenue for the second quarter of 2011 increased to $248 million from $229 million from the prior-year quarter. Sales of natural gas, NGLs and crude oil for the second quarter of 2011 were $208 million, down 2% from the prior-year quarter. The decrease in production revenues was primarily due to lower realized prices for natural gas including the effects of hedging, offset in part by higher sales volumes of natural gas and higher realized prices for NGLs and crude oil.
Quicksilver continued its focus on reducing unit costs, which declined year-over-year in all categories, excluding gathering, processing and transportation expense. Unit lease operating expense declined $0.04 per thousand cubic feet of natural gas equivalents (Mcfe) to $0.64 per Mcfe in the second quarter of 2011, down 6% from the prior-year quarter. In the second quarter of 2011, on a unit of production basis, production and ad valorem tax expense declined 21%; depletion, depreciation and accretion expense declined 9%; general and administrative expense declined 22% and interest expense declined 14% versus the prior-year quarter, resulting in a total cost reduction of $0.57 per Mcfe across these categories. Unit gathering, processing and transportation expense was $1.23 per Mcfe for the second quarter of 2011.
For the second quarter of 2011, Quicksilver reported a loss of $26 million attributable to the company–s interest in BBEP–s first quarter of 2011 results, including our share of BBEP net losses of approximately $31 million from derivatives. During the second quarter of 2011, Quicksilver received approximately $7 million in cash distributions associated with its ownership of BBEP units. In addition, Quicksilver sold approximately 7 million units of BBEP during the second quarter of 2011 and recognized a gain of $122 million and received $133 million of cash. This does not include proceeds from the sale of 600,000 BBEP units in July from the partial exercise of the over-allotment option granted to the underwriters. Quicksilver still owns approximately 8 million units of BBEP.
At June 30, 2011, the company–s total debt was approximately $2.0 billion, a reduction of approximately $605 million from the June 30, 2010 balance. Currently, Quicksilver has approximately $715 million available under its $1 billion senior secured revolving credit facility.
United States – Fort Worth Basin
During the second quarter of 2011, Quicksilver–s development activity was concentrated in its Fort Worth Basin Barnett Shale Asset. As planned, the company utilized two rigs in the basin, which drilled 13 (11.0 net) operated wells and also connected 17 (15.1 net) operated wells to sales. At June 30, 2011, Quicksilver had a remaining inventory of approximately 85 gross operated wells that have been drilled in the Barnett Shale but await completion or connection to sales lines. The company expects to exit the year with approximately 45 wells in its uncompleted well inventory.
United States – Sandwash Basin
During the second quarter, the company initiated drilling on our oil-prone exploratory acreage position in the Sandwash Basin in Northwest Colorado. The company has drilled 3 wells and will commence completion activities later in August. The company plans to drill between 8 and 14 wells this year. We continue to add to our acreage position in this area. We now have approximately 210,000 net acres.
United States – Delaware Basin
The company has expanded its acreage position in the Delaware Basin in West Texas to approximately 105,000 net acres, and the company plans on recompleting two wells later this year.
Canada – Horseshoe Canyon
In Canada, drilling, completion and pipeline activities were suspended for most of the second quarter due to the seasonal break-up period. In the Horseshoe Canyon area of Alberta, Canada, the company expects to drill 8 (6.6 net) wells during the second half of the year, resulting in a total of 16 (11.6 net) wells in this area for the full year.
Canada – Horn River Basin
Quicksilver completed its 2010-2011 winter drilling program in the Horn River Basin of Northeast British Columbia and has now drilled a total of eight horizontal wells into the Muskwa and Klua formations, of which four wells have commenced production. Only two additional wells are required to validate virtually all of Quicksilver–s exploratory licenses and convert these licenses, covering approximately 130,000 net acres, into 10-year development leases. In addition, the company has drilled its first horizontal well into the shallower Exshaw oil formation and expects to have it completed this summer.
As previously announced, the company initiated midstream operations associated with its Horn River Asset in May. The company completed the construction and compression related to Quicksilver–s 20-mile, 20-inch gathering line, which will serve as the spine of Quicksilver–s transportation from its Horn River acreage. Completion of this line allows the company to flow gas from its four completed gas wells at unrestricted rates of more than 30 MMcf per day and minimize transportation costs.
During the second quarter of 2011, the company invested approximately $163 million of capital, of which approximately 49% was associated with drilling and completion activities, approximately 12% for midstream activities, approximately 37% for acreage purchases and approximately 3% for other assets. The company–s board of directors has approved an increase in the company–s 2011 capital program to approximately $696 million.
The increase in capital spending is primarily associated with additional lease acquisitions and drilling that the company anticipates within two new exploratory plays in the Sandwash Basin in Northwest Colorado and the Delaware Basin in West Texas as well as additional spending in the Horn River Basin. In the Sandwash Basin, Quicksilver now holds leases covering approximately 210,000 net acres prospective for the Niobrara oil shale and expects to drill between 8 and 14 wells this year. Through July, the company has completed drilling operations on three wells and expects to initiate completion activity later in August. In the Delaware Basin, the company holds approximately 105,000 net acres prospective for the oil-prone Bone Springs play and expects to recomplete two wells later this year. In the Horn River Basin, the company plans on spending an incremental $75 million to complete midstream infrastructure, build roads and drill eight wells this winter season.
Quarterly average daily production volume is expected to increase approximately 3% sequentially in the third quarter of 2011, averaging in the range of 425 MMcfe to 435 MMcfe per day. Average unit expenses, on a Mcfe basis, are expected as follows:
The company has hedges in place to cover approximately 60% of expected production for the third quarter of 2011. A total of 190 MMcf per day of natural gas is covered by collars or fixed-price swaps with a weighted-average floor price of $5.95 per thousand cubic feet (Mcf) and 10,500 barrels per day of NGLs are covered by fixed-price swaps with a weighted-average price of $38.84 per barrel for the third quarter and remainder of 2011.
The company will host a conference call to discuss second-quarter 2011 operating and financial results and its outlook for the future at 11:00 a.m. eastern time today.
Quicksilver invites interested parties to listen to the call via the company–s website at or by calling 1-877-313-7932, using the conference ID number 33142656, approximately 10 minutes before the call. A digital replay of the conference call will be available at 3:00 p.m. Eastern time the same day, and will remain available for 30 days. The replay can be dialed at 1-800-642-1687 and reference should be made to the conference ID number 33142656. The replay will also be archived for 30 days on the company–s website.
This news release and the accompanying schedule include the non-generally accepted accounting principles (“non-GAAP”) financial measure of adjusted net income. The accompanying schedule provides reconciliations of this non-GAAP financial measure to its most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our non-GAAP financial measure should not be considered as an alternative to GAAP measures, such as net income or operating income or any other GAAP measure of liquidity or financial performance.
Fort Worth, Texas-based Quicksilver Resources is an independent oil and gas company engaged in the exploration, development and acquisition of oil and gas, primarily from unconventional reservoirs including gas from shales, coal beds and tight sands in North America. The company has U.S. offices in Fort Worth, Texas; Glen Rose, Texas; Steamboat Springs, Colorado and Cut Bank, Montana. Quicksilver–s Canadian subsidiary, Quicksilver Resources Canada Inc., is headquartered in Calgary, Alberta. For more information about Quicksilver Resources, visit .
The statements in this news release regarding future events, occurrences, circumstances, activities, performance, outcomes and results are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although these statements reflect the current views, assumptions and expectations of Quicksilver Resources– management, the matters addressed herein are subject to numerous risks and uncertainties, which could cause actual activities, performance, outcomes and results to differ materially from those indicated. Factors that could result in such differences or otherwise materially affect Quicksilver Resources– financial condition, results of operations and cash flows include: changes in general economic conditions; fluctuations in natural gas, NGLs and oil prices; failure or delays in achieving expected production from exploration and development projects; uncertainties inherent in estimates of natural gas, NGLs and oil reserves and predicting natural gas, NGLs and oil reservoir performance; effects of hedging natural gas, NGLs and oil prices; fluctuations in the value of certain of our assets and liabilities; competitive conditions in our industry; actions taken or non-performance by third parties, including suppliers, contractors, operators, processors, transporters, customers and counterparties; changes in the availability and cost of capital; delays in obtaining oilfield equipment and increases in drilling and other service costs; delays in construction of transportation pipelines and gathering and treating facilities; operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control; failure or inability to covert drilling licenses to leases and the exploration of our lease; the effects of existing and future laws and governmental regulations, including environmental and climate change requirements; the effects of existing or future litigation; as well as, other factors disclosed in Quicksilver Resources– filings with the Securities and Exchange Commission. The forward-looking statements included in this news release are made only as of the date of this news release, and we undertake no obligation to update any of these forward-looking statements to reflect subsequent events or circumstances except to the extent required by applicable law.
KWK 11-11
John Hinton
(817) 665-4990