Total production expense for the 2010 third quarter was $39.4 million compared to $29.1 million in the prior-year quarter. The increase is primarily associated with higher production volumes and increases for saltwater disposal costs and the costs of operating the Alliance midstream system, which was placed into service during the fourth quarter of 2009.
Earnings from BreitBurn Ownership
Quicksilver reported income of $17.0 million attributable to the company’s approximate 31% interest in BreitBurn Energy Partners L.P.’s (Nasdaq: BBEP) second-quarter 2010 results, including approximately $9.5 million of income from derivatives. During the third quarter of 2010, Quicksilver received approximately $6.9 million in cash distributions associated with its ownership of BreitBurn units.
Development Highlights
In the Fort Worth Basin, the company drilled 22 gross (19.0 net) wells and connected 28 gross (23.9 net) wells to sales during the third quarter of 2010. The company currently has three rigs working in the basin and expects to remain at this level through the remainder of the year. The company also currently has four hydraulic fracturing crews working in the basin and expects to reduce its inventory of drilled-but-uncompleted wells in the Fort Worth Basin to approximately 90 by year end.
In the Horseshoe Canyon area of Alberta, Canada, drilling, completion and pipeline activities resumed in the third quarter as ground conditions allowed. The company drilled six gross (5.1 net) operated wells during the third quarter and at this time does not plan to drill any more wells for the remainder of the year. This will result in a total of 11 gross (9.3 net) wells drilled in the area during 2010. The company expects to complete or recomplete 13 gross (8.5 net) wells and tie-in 11 gross (8.5 net) wells during the fourth quarter of the year in the Horseshoe Canyon area.
In October, Quicksilver acquired interests in an additional 47,000 gross (21,700 net) acres in the Joffre area of the Horseshoe Canyon, where the company already operates. The $22 million acquisition included approximately 23 billion cubic feet of proved developed natural gas reserves and net production of approximately 5 million cubic feet (MMcf) per day of natural gas.
Horn River Basin
In the Horn River Basin of northeast British Columbia, Quicksilver’s C-29-D well produced at initial rates of approximately 14.4 MMcf per day of natural gas through a 50/64-inch choke and has averaged more than 12 MMcf per day during the first 22 days of production. The well tested a 4,600-foot lateral section of the Muskwa formation and included 14 stages of fracture stimulation. This is the company’s third completion in the basin and the most productive to date. The company’s three producible wells in the Horn River are currently capable of producing more than 15 MMcf per day. The company sells this production through a permanent sales line that connects to the Spectra pipeline to Fort Nelson. The company expects to begin completion activities on a fourth well in t he basin by year end. The company has also recently spudded a horizontal well to test the Exshaw formation, encountered at a vertical depth of approximately 4,350 feet, for commercial oil.
Quicksilver holds 100% working interests in 20 exploratory licenses covering a total of approximately 130,000 gross contiguous acres in the Horn River Basin. Drilling activities to date have already validated eight licenses totaling nearly 50,000 acres. The company expects to validate the remaining exploratory licenses during the next two winter drilling seasons.
Expanding Acreage Opportunities
Quicksilver has added approximately 145,000 gross (77,000 net) acres to its existing acreage holdings in the Greater Green River Basin of northern Colorado and southern Wyoming. The company now has approximately 140,000 net acres in the basin, which it believes to be prospective for both oil and natural gas in the Niobrara formation. The company anticipates drilling two exploratory wells on this acreage in 2011.
In the Southern Alberta Bakken Basin of northern Montana, the company also has rights to approximately 160,000 gross (119,000 net) acres in Glacier and Toole counties that are primarily held by production from the Cutbank field. The company believes that this acreage is also prospective for oil from the Bakken formation.
Capital and Fourth-Quarter 2010 Outlook
During the third quarter of 2010, the company incurred capital costs of approximately $134 million, of which approximately 85 percent was associated with drilling and completion activities, approximately nine percent for midstream activities, approximately five percent for acreage purchases and approximately one percent for corporate.
Fourth-quarter 2010 production volumes are expected to average in the range of 385 MMcfe to 395 MMcfe per day. Average unit expenses, on a Mcfe basis, are expected as follows:
| | · | | Production | $ | .53 | | - | | $ | .58 | |
| | · | | Gathering and processing | | .75 | | | | | .80 | |
| | · | | Transportation | | .40 | | | | | .45 | |
| | · | | Production taxes | | .23 | | - | | | .25 | |
| | · | | General and administrative | | .55 | | - | | | .58 | |
| | · | | Depletion, depreciation & accretion | | 1.35 | | - | | | 1.40 | |
The company has derivatives in place to cover approximately 66% of expected production for the fourth quarter of 2010. A total of 200 MMcf per day of natural gas is covered by collars with a weighted-average floor price of $7.40 per thousand cubic feet (Mcf) and 10,000 barrels per day of NGLs are covered by fixed-price swaps with a weighted-average price of $33.47 per barrel for the fourth quarter of 2010. In 2011, the company has a total of 150 MMcf per day of natural gas production covered by collars and fixed-price swaps with a weighted-average floor price of $6.20 per Mcf and 8,000 barrels per day of NGLs are covered by fixed-price swaps with a weighted-average price of $38.33 per barrel for the year.
Conference Call
The company will host a conference call to discuss third-quarter 2010 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 44054167, 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 44054167. The replay will also be archived for 30 days on the company’s website.
Use of Non-GAAP Financial Measure
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.
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 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, 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, including environmental and climate change requirements; and the effects of existing or future
litigation; failure to receive a proposal for a transaction to pursue strategic alternatives for us or that any transaction will be approved or consummated; costs and expenses associated with our consideration of potential strategic alternatives, including without limitation, any related litigation expense; 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.
Media Contact:
Tom Johnson
Chuck Dohrenwend
The Abernathy MacGregor Group
(212) 371-5999
Investor Contact:
Rick Buterbaugh
(817) 665-4835
KWK 10-18
QUICKSILVER RESOURCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
In thousands, except for per share data - Unaudited
| | | For the Three Months Ended | | | For the Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| Revenue | | | | | | | | | | | | |
| Natural gas, NGL and oil | | $ | 218,249 | | | $ | 198,287 | | | $ | 631,499 | | | $ | 581,156 | |
| Sales of purchased natural gas | | | 16,982 | | | | 5,964 | | | | 50,027 | | | | 11,181 | |
| Other | | | 2,469 | | | | 2,406 | | | | 6,902 | | | | 6,293 | |
| Total revenue | | | 237,700 | | | | 206,657 | | | | 688,428 | | | | 598,630 | |
| | | | | | | | | | | | | | | | | |
| Operating expense | | | | | | | | | | | | | | | | |
| Oil and gas production expense | | | 39,402 | | | | 29,064 | | | | 113,593 | | | | 92,938 | |
| Production and ad valorem taxes | | | 9,170 | | | | 6,630 | | | | 26,542 | | | | 18,437 | |
| Costs of purchased natural gas | | | 14,638 | | | | 2,964 | | | | 51,701 | | | | 11,546 | |
| Other operating costs | | | 1,320 | | | | 2,066 | | | | 3,544 | | | | 5,337 | |
| Depletion, depreciation and accretion | | | 52,542 | | | | 44,548 | | | | 149,968 | | | | 155,210 | |
| General and administrative | | | 24,005 | | | | 17,682 | | | | 61,745 | | | | 59,452 | |
| Total expense | | | 141,077 | | | | 102,954 | | | | 407,093 | | | | 342,920 | |
| Impairment expense | | | (31,531 | ) | | | - | | | | (31,531 | ) | | | (967,126 | ) |
| Operating income (loss) | | | 65,092 | | | | 103,703 | | | | 249,804 | | | | (711,416 | ) |
| Income (loss) from earnings of BBEP - net | | | 17,024 | | | | (43,685 | ) | | | 24,203 | | | | (24,669 | ) |
| Other income (expense) - net | | | 14,253 | | | | (645 | ) | | | 67,646 | | | | (739 | ) |
| Interest expense | | | (51,532 | ) | | | (41,619 | ) | | | (142,171 | ) | | | (149,901 | ) |
| Income (loss) before income taxes | | | 44,837 | | | | 17,754 | | | | 199,482 | | | | (886,725 | ) |
| Income tax (expense) benefit | | | (18,268 | ) | | | (15,595 | ) | | | (71,569 | ) | | | 301,125 | |
| Net income (loss) | | | 26,569 | | | | 2,159 | | | | 127,913 | | | | (585,600 | ) |
| Net income attributable to noncontrolling interests | | | (4,766 | ) | | | (1,429 | ) | | | (11,119 | ) | | | (4,411 | ) |
| Net income (loss) attributable to Quicksilver | | $ | 21,803 | | | $ | 730 | | | $ | 116,794 | | | $ | (590,011 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Income (loss) per common share - basic | | $ | 0.13 | | | $ | - | | | $ | 0.69 | | | $ | (3.49 | ) |
| | | | | | | | | | | | | | | | | |
| Income (loss) per common share - diluted | | $ | 0.13 | | | $ | - | | | $ | 0.68 | | | $ | (3.49 | ) |
| | | | | | | | | | | | | | | | | |
| Basic weighted average shares outstanding | | | 170,307 | | | | 169,021 | | | | 170,242 | | | | 168,917 | |
| | | | | | | | - | | | | | | | | | |
| Diluted weighted average shares outstanding | | | 171,037 | | | | 170,657 | | | | 180,847 | | | | 168,917 | |
QUICKSILVER RESOURCES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except share data - Unaudited
| | | September 30, 2010 | | | December 31, 2009 | |
| ASSETS | | | | | | |
| Current assets | | | | | | |
| Cash and cash equivalents | | $ | 15,078 | | | $ | 1,037 | |
| Accounts receivable - net of allowance for doubtful accounts | | | 35,757 | | | | 63,738 | |
| Derivative assets at fair value | | | 142,389 | | | | 97,957 | |
| Other current assets | | | 32,663 | | | | 54,652 | |
| Total current assets | | | 225,887 | | | | 217,384 | |
| Investment in BBEP | | | 95,124 | | | | 112,763 | |
| Property, plant and equipment | | | | | | | | |
Oil and gas properties, full cost method (including unevaluated costs of $404,783 and $458,037, respectively) | | | 2,707,785 | | | | 2,338,244 | |
| Other property and equipment | | | 205,903 | | | | 204,601 | |
| Property, plant and equipment - net | | | 2,913,688 | | | | 2,542,845 | |
| Assets of midstream operations held for sale | | | 561,924 | | | | 548,508 | |
| Derivative assets at fair value | | | 84,870 | | | | 14,427 | |
| Deferred income taxes | | | 45,179 | | | | 133,051 | |
| Other assets | | | 37,447 | | | | 43,904 | |
| | | $ | 3,964,119 | | | $ | 3,612,882 | |
| LIABILITIES AND EQUITY | | | | | | | | |
| Current liabilities | | | | | | | | |
| Accounts payable | | $ | 113,509 | | | $ | 149,766 | |
| Accrued liabilities | | | 109,897 | | | | 153,598 | |
| Derivative liabilities at fair value | | | - | | | | 395 | |
| Deferred income taxes | | | 51,598 | | | | 51,675 | |
| Total current liabilities | | | 275,004 | | | | 355,434 | |
| Long-term debt | | | 2,396,705 | | | | 2,302,123 | |
| Liabilities of midstream operations held for sale | | | 267,117 | | | | 148,191 | |
| Asset retirement obligations | | | 52,435 | | | | 48,472 | |
| Other liabilities | | | 28,461 | | | | 20,691 | |
| Deferred income taxes | | | 50,988 | | | | 41,149 | |
| Commitments and contingencies | | | - | | | | - | |
| 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; 175,543,699 and 174,469,836 shares issued, respectively | | | 1,755 | | | | 1,745 | |
| Paid in capital in excess of par value | | | 753,944 | | | | 730,265 | |
| Treasury stock of 5,046,039 and 4,704,448 shares, respectively | | | (41,428 | ) | | | (36,363 | ) |
| Accumulated other comprehensive income | | | 179,770 | | | | 121,336 | |
| Retained deficit | | | (64,191 | ) | | | (180,985 | ) |
| Quicksilver stockholders' equity | | | 829,850 | | | | 635,998 | |
| Noncontrolling interests | | | 63,559 | | | | 60,824 | |
| Total equity | | | 893,409 | | | | 696,822 | |
| | | $ | 3,964,119 | | | $ | 3,612,882 | |
