Including the items noted above, Quicksilver reported a net loss of $21.8 million (a loss of $.13 per diluted share) in the 2009 second quarter as compared to net income of $51.3 million ($.31 per diluted share) in the prior-year period.
Production
For the second quarter of 2009, average daily production was approximately 331 million cubic feet of natural gas equivalent (MMcfe) per day compared to approximately 236 MMcfe per day for the same period in 2008, an increase of approximately 40%. Total production for the second quarter of 2009 was approximately 30.1 billion cubic feet of natural gas equivalent (Bcfe) compared to approximately 21.5 Bcfe for the second quarter of 2008. The 2009 production volumes were comprised of approximately 71% natural gas, approximately 27% natural gas liquids (NGLs) and approximately 2% crude oil and condensate. Increased activities at the company’s Lake Arlington and Alliance projects in the northern portion of its Fort Worth Basin acreage resulted in increased production of dry gas as a percent of total production in the 2009 quarter as compared to the 2008 quarter.
Revenues and Costs
Sales of natural gas, NGLs and crude oil totaled $199.3 million in the second quarter of 2009 and were essentially unchanged from the prior-year quarter. Sales from increased production volumes from the company’s Fort Worth Basin in Texas and Horseshoe Canyon area in Alberta, Canada were nearly completely offset by lower average realized prices for all commodities, which resulted in an approximate 28% decrease in the average realized price per thousand cubic feet of natural gas equivalent (Mcfe).
Total production expense was $31.7 million for the 2009 second quarter, down $1.3 million from the prior-year quarter even though total production increased more than 40%. Unit production expense, including production, gathering and processing and transportation expense, decreased to $1.05 per Mcfe during the second quarter of 2009, a 32% reduction from $1.54 per Mcfe reported in the prior-year period. Quicksilver’s ongoing efforts to reduce and control costs enabled the company to remain as one of the lowest-cost operators in North America.
Income from Earnings of Unconsolidated Affiliate
Quicksilver reported $19.0 million of pre-tax earnings attributable to the company’s approximate 41% interest in BreitBurn Energy Partners L.P.’s (BBEP) first-quarter 2009 results, including $18.5 million of income from the early settlement of derivative positions, a $1.7 million loss on the unrealized mark-to-market of commodity derivative positions and a $.9 million loss on interest rate derivatives. On April 17, 2009, BBEP announced that it was suspending its distributions and, therefore, Quicksilver did not receive any cash distributions from this partnership during the quarter.
Interest Expense and Debt
Interest expense in the 2009 second quarter increased to $68.1 million, due to higher outstanding debt balances, primarily associated with the acquisition of the Alliance properties in August 2008, and the early retirement of the company’s senior secured second-lien facility. In June 2009, the company issued $600 million face amount of senior notes due 2016 and fully repaid its senior secured second-lien facility. We recognized $27.1 million of additional interest expense for the remaining unamortized
original issue discount and deferred financing costs upon early retirement of the senior secured second-lien facility.
Operational Update
Quicksilver continued to focus on the exploitation and development of the 175,000 net acres in its core fairway within the Barnett Shale formation of the Fort Worth Basin. During the second quarter of 2009, the company drilled 29 (22.9 net) wells and connected 27 (25.2 net) wells to sales. The company currently has five rigs working in the basin, including four rigs dedicated to the Lake Arlington and Alliance areas in Tarrant and Denton counties.
In Canada, drilling, completion and pipeline activities were suspended for most of the quarter due to the seasonal break-up period. The company drilled just one well during the second quarter of 2009 in the Horseshoe Canyon area and expects to drill nine (seven net) wells for the remainder of this year. The company now anticipates participating in a total of 145 (42.2 net) wells in this area for the full year of 2009.
During the second quarter of 2009, the company incurred costs of approximately $136 million, including approximately $103 million for drilling and completion activities and $31 million for midstream activities and approximately $2 million for other corporate items. The company expects to incur an additional $216 million of capitalized costs during the second half of 2009.
Third-Quarter 2009 Outlook
Third-quarter 2009 production volumes are expected to average in the range of 310 MMcfe to 320 MMcfe per day. Average unit expenses, on a Mcfe basis, are expected as follows:
| | · | | Production | $ | .55 | | - | | $ | .60 | |
| | · | | Gathering and processing | | .15 | | - | | | .18 | |
| | · | | Transportation | | .35 | | - | | | .40 | |
| | · | | Production taxes | | .15 | | - | | | .20 | |
| | · | | General and administrative | | .62 | | - | | | .67 | |
| | · | | Depletion, depreciation & accretion | | 1.65 | | - | | | 1.70 | |
Conference Call
The company will host a conference call to discuss second-quarter 2009 operating and financial results and its outlook for the future at 11:00 a.m. eastern time today.
Quicksilver invites interested parties to participate in the call via the company’s website at http://www.qrinc.com or by calling 1-877-313-7932, using the conference ID number 80367823, prior to 10:55 a.m. eastern time. A digital replay of the conference call will be available at 3:00 p.m. eastern time today, and will remain available for 30 days. The replay can be accessed at 1-800-642-1687 and enter the conference ID number 80367823. The replay will also be archived for 30 days on the company’s website.
Use of Non-GAAP Financial Measure
This press 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.
About Quicksilver Resources
Fort Worth, Texas-based Quicksilver Resources is a natural gas and crude oil exploration and production company engaged in the development and acquisition of long-lived, unconventional natural gas reserves, including coalbed methane, shale gas, and tight sands gas in North America. The company has U.S. offices in Fort Worth, Texas; Glen Rose, Texas and Cut Bank, Montana. Quicksilver’s Canadian subsidiary, Quicksilver Resources Canada Inc., is headquartered in Calgary, Alberta. For more information about Quicksilver Resources, visit www.qrinc.com.
Forward-Looking Statements
The statements in this press 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, natural gas liquids and crude oil prices; failure or delays in achieving expected production from exploration and development projects; uncertainties inherent in estimates of natural gas, natural gas liquids and crude oil reserves and predicting natural gas, natural gas liquids and crude oil reservoir performance; effects of hedging natural gas, natural gas liquids and crude 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; operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control; the effects of existing and future laws and governmental regulations; and the effects of existing or future litigation; as well as, other factors disclosed in Quicksilver Resources’ filings with the Securities and Exchange Commission. Except as required by law, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Investor & Media Contact:
Rick Buterbaugh
(817) 665-4835
KWK 09-12
QUICKSILVER RESOURCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
In thousands, except for per share data - Unaudited
| | | For the Three Months Ended | | | For the Six Months Ended | |
| | | June 30, | | | June 30, | |
| | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| Revenue | | | | | | | | | | | | |
| Natural gas, NGL and crude oil | | $ | 199,315 | | | $ | 198,147 | | | $ | 382,869 | | | $ | 356,503 | |
| Sales of purchased natural gas | | | 5,217 | | | | - | | | | 5,217 | | | | - | |
| Other | | | 1,509 | | | | (246 | ) | | | 3,887 | | | | (985 | ) |
| Total revenue | | | 206,041 | | | | 197,901 | | | | 391,973 | | | | 355,518 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | | | | | |
| Oil and gas production expense | | | 31,703 | | | | 33,019 | | | | 63,874 | | | | 65,375 | |
| Production and ad valorem taxes | | | 7,441 | | | | 3,081 | | | | 11,807 | | | | 5,740 | |
| Costs of purchased natural gas | | | 8,582 | | | | - | | | | 8,582 | | | | - | |
| Other operating costs | | | 1,744 | | | | 396 | | | | 3,271 | | | | 1,801 | |
| Depletion, depreciation and accretion | | | 50,966 | | | | 38,920 | | | | 110,662 | | | | 73,979 | |
| General and administrative | | | 24,389 | | | | 15,382 | | | | 41,770 | | | | 30,797 | |
| Total expenses | | | 124,825 | | | | 90,798 | | | | 239,966 | | | | 177,692 | |
| Impairment related to oil and gas properties | | | (70,643 | ) | | | - | | | | (967,126 | ) | | | - | |
| Operating income (loss) | | | 10,573 | | | | 107,103 | | | | (815,119 | ) | | | 177,826 | |
| Income (loss) from earnings of BBEP, net | | | 19,016 | | | | (10,269 | ) | | | 19,016 | | | | (4,050 | ) |
| Other income (expense), net | | | (855 | ) | | | (428 | ) | | | (94 | ) | | | 1,058 | |
| Interest expense | | | (68,081 | ) | | | (16,098 | ) | | | (108,282 | ) | | | (29,533 | ) |
| Income (loss) before income taxes | | | (39,347 | ) | | | 80,308 | | | | (904,479 | ) | | | 145,301 | |
| Income tax (expense) benefit | | | 18,897 | | | | (27,985 | ) | | | 316,720 | | | | (51,336 | ) |
| Net income (loss) | | | (20,450 | ) | | | 52,323 | | | | (587,759 | ) | | | 93,965 | |
| Net income attributable to noncontrolling interests | | | (1,312 | ) | | | (988 | ) | | | (2,982 | ) | | | (1,496 | ) |
| Net income (loss) attributable to Quicksilver | | $ | (21,762 | ) | | $ | 51,335 | | | $ | (590,741 | ) | | $ | 92,469 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Earnings (loss) per common share - basic | | $ | (0.13 | ) | | $ | 0.32 | | | $ | (3.50 | ) | | $ | 0.58 | |
| | | | | | | | | | | | | | | | | |
| Earnings (loss) per common share - diluted | | $ | (0.13 | ) | | $ | 0.31 | | | $ | (3.50 | ) | | $ | 0.57 | |
| | | | | | | | | | | | | | | | | |
| Basic weighted average shares outstanding | | | 169,009 | | | | 158,290 | | | | 168,894 | | | | 158,209 | |
| | | | | | | | | | | | | | | | | |
| Diluted weighted average shares outstanding | | | 169,009 | | | | 169,185 | | | | 168,894 | | | | 169,094 | |
QUICKSILVER RESOURCES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except share data - Unaudited
| | | June 30, | | | December 31, | |
| | | 2009 | | | 2008 | |
| ASSETS | | | | | | |
| Current assets | | | | | | |
| Cash and cash equivalents | | $ | 657 | | | $ | 2,848 | |
| Accounts receivable, net of allowance for doubtful accounts | | | 53,450 | | | | 143,315 | |
| Derivative assets at fair value | | | 202,332 | | | | 171,740 | |
| Other current assets | | | 70,516 | | | | 75,433 | |
| Total current assets | | | 326,955 | | | | 393,336 | |
| Investment in BreitBurn Energy Partners | | | 158,418 | | | | 150,503 | |
| Property, plant and equipment | | | | | | | | |
| Oil and gas properties, full cost method (including unevaluated costs of $512,568 and $543,533, respectively) | | | 2,150,528 | | | | 3,142,608 | |
| Other property and equipment | | | 697,264 | | | | 655,107 | |
| Property, plant and equipment, net | | | 2,847,792 | | | | 3,797,715 | |
| Derivative assets at fair value | | | 55,729 | | | | 116,006 | |
| Deferred income taxes | | | 138,759 | | | | - | |
| Other assets | | | 41,525 | | | | 40,648 | |
| | | $ | 3,569,178 | | | $ | 4,498,208 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| Current liabilities | | | | | | | | |
| Current portion of long-term debt | | $ | - | | | $ | 6,579 | |
| Accounts payable | | | 138,016 | | | | 282,636 | |
| Income taxes payable | | | 7,767 | | | | 40 | |
| Accrued liabilities | | | 96,043 | | | | 66,923 | |
| Derivative liabilities at fair value | | | 276 | | | | 9,928 | |
| Deferred inocme taxes | | | 76,639 | | | | 52,393 | |
| Total current liabilities | | | 318,741 | | | | 418,499 | |
| Long-term debt | | | 2,497,693 | | | | 2,586,046 | |
| Asset retirement obligations | | | 41,476 | | | | 34,753 | |
| Derivative liabilities at fair value | | | 503 | | | | - | |
| Other liabilities | | | 31,768 | | | | 12,962 | |
| Deferred income taxes | | | 27,314 | | | | 234,385 | |
| Stockholders' equity | | | | | | | | |
| Preferred stock, par value $0.01, 10,000,000 shares authorized, none outstanding | | | - | | | | - | |
| Common stock, $0.01 par value, 400,000,000 shares authorized; 173,895,897 and 171,742,699 shares issued, respectively | | | 1,739 | | | | 1,717 | |
| Paid in capital in excess of par value | | | 667,427 | | | | 656,958 | |
| Treasury stock of 4,674,212 and 4,572,795 shares, respectively | | | (36,068 | ) | | | (35,441 | ) |
| Accumulated other comprehensive income | | | 207,203 | | | | 185,104 | |
| Retained earnings (deficit) | | | (214,253 | ) | | | 376,488 | |
| Quicksilver stockholders' equity | | | 626,048 | | | | 1,184,826 | |
| Noncontrolling interests | | | 25,635 | | | | 26,737 | |
| Total equity | | | 651,683 | | | | 1,211,563 | |
| | | $ | 3,569,178 | | | $ | 4,498,208 | |
