Quicksilver Gas Services’ Third-Quarter Net Income Triples in 2008
Unit Operating Costs Decline 24%
FORT WORTH, TEXAS (November 5, 2008) – Quicksilver Gas Services LP (NYSE Arca: KGS) today reported net income for the third quarter of 2008 of $6.4 million ($.26 per limited partner unit – diluted), more than triple the $2.1 million reported in the prior-year period. For the nine months ended September 30, 2008, net income totaled $14.9 million ($.61 per limited partner unit – diluted), up more than 190% from the $5.1 million reported in the 2007 period.
Distributable cash flow for the 2008 third quarter increased 113% to $11.5 million ($.48 per limited partner unit) from $5.4 million in the 2007 quarter. For the nine months ended September 30, 2008, distributable cash flow totaled $29.7 million ($1.23 per limited partner unit) compared to $11.8 million in the 2007 period.
Third-Quarter 2008 Highlights
| · | Increased average gathered volumes to 213 MMcf per day; up 105% versus the prior-year quarter |
| · | Increased average processed volumes to 153 MMcf per day; up 56% versus the prior-year quarter |
| · | Reduced unit operating costs 24% versus the prior-year quarter |
| · | Connected 66 new wells to the gathering system from Quicksilver Resources Inc. |
| · | Connected approximately 25 miles of gathering infrastructure |
“As a fee-based provider of gathering and processing services, Quicksilver Gas Services bears no direct commodity price risk, allowing us to fully capitalize on our rapidly expanding throughput volumes,” said Toby Darden, Quicksilver Gas Services president and chief executive officer. “Higher volumes resulted in increased utilization and efficiency of our plant and pipeline system, which reduced unit costs by 24% and fueled a doubling of our distributable cash flow.”
Gathered volumes increased to 19,591 million cubic feet (MMcf) in the third quarter of 2008, up 105% from 9,554 MMcf in the prior-year quarter. Processed volumes increased 56% to 14,122 MMcf in the third quarter of 2008 from 9,032 MMcf in the 2007 quarter. Gathered and processed volumes in the 2008 quarter were negatively impacted by approximately 10 MMcf per day due to pipeline shut-ins or curtailments related to Hurricane Ike. Volumes from third parties made up 18% and 20% of the total gathered and processed volumes for the third quarter of 2008, respectively. For the third quarter of 2008 the company realized an average of $.522 per thousand cubic feet (Mcf) gathered and $.627 per Mcf processed.
Total operating and maintenance expense increased 55%, due to higher volumes, however unit expenses declined 24% on a gathered unit basis.
Capital expenditures for the third quarter of 2008 totaled $51 million, including $.5 million for maintenance capital and the remainder for organic growth projects. In addition, the company accrued $18 million of capital associated with the repurchase obligation to Quicksilver Resources Inc. Expenditures during the quarter included the connection of approximately 25 miles of gathering lines and 66 new wells to the gathering system from Quicksilver Resources, as well as the ongoing construction of a new processing facility that is expected to become operational during the first quarter of 2009, increasing processing capacity 62.5% to a total of 325 MMcf per day.
In October, the company’s bank group increased the commitments on the company’s senior secured revolving credit facility to $235 million, an increase of $85 million. Based upon third-quarter 2008 results, actual borrowing capacity is anticipated to increase to approximately $200 million. During the fourth quarter, the company expects to complete the acquisition of the Lake Arlington Dry System from Quicksilver Resources for approximately $42 million, with an October 1, 2008 effective date.
For the third quarter of 2008, the unit distribution rate for limited partners was $.35 and will be paid November 14, 2008 on all common and subordinated units to holders of record as of the close of business October 31, 2008.
Conference Call
Quicksilver Gas Services will host a conference call for investors and analysts at 10:00 a.m. eastern time today to discuss the third-quarter 2008 operating and financial results and its outlook for the future. The company invites interested parties to listen to the call via the company’s website at www.kgslp.com or by calling 1-877-313-7932, using the conference ID number 39787907, approximately 10 minutes prior to the call. 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 by entering the conference ID number 39787907. The replay will also be archived for 30 days on the company’s website.
Use of Non-GAAP Financial Measures
This press release and the accompanying schedules include the non-generally accepted accounting principles ("non-GAAP") financial measure of distributable cash flow. The accompanying schedules provide a reconciliation of this non-GAAP financial measure to the 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 measures should not be considered as an alternative to GAAP measures such as net income, operating income or any other GAAP measure of liquidity or financial performance.
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About Quicksilver Gas Services
Fort Worth, Texas-based Quicksilver Gas Services is a growth-oriented limited partnership in the business of gathering and processing natural gas produced from the Barnett Shale geologic formation in the Fort Worth Basin of north Texas. The company began operation in 2004 to provide these services to Quicksilver Resources Inc., which owns our general partner. For more information about Quicksilver Gas Services, visit www.kgslp.com.
Forward-Looking Statement
The statements in this news release regarding future events, occurrences, circumstances, activities, performance, outcomes and results are forward-looking statements. Although these statements reflect the current views, assumptions and expectations of Quicksilver Gas Services LP’s 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 Gas Services LP’s financial condition, results of operations and cash flows include: changes in general economic conditions; fluctuations in natural gas prices; failure or delays in Quicksilver Resources Inc. and third parties achieving expected production from natural gas projects; competitive conditions in our industry; actions taken or non-performance by third-party suppliers, contractors, operators, processors, transporters and customers; changes in the availability and cost of capital; operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control; construction costs or capital expenditures exceeding estimated or budgeted costs or expenditures; the effects of existing and future laws and governmental regulations; the effects of future litigation; and other factors disclosed in Quicksilver Gas Services LP’s 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 and Media Contact
Rick Buterbaugh
817-665-4835
KGS 08-10
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QUICKSILVER GAS SERVICES LP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
In thousands, except for per unit data - Unaudited
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| Revenues | | | | | | | | | | | | |
| Gathering and transportation revenue - parent | | $ | 8,674 | | | $ | 4,102 | | | $ | 22,350 | | | $ | 9,612 | |
| Gathering and transportation revenue | | | 1,553 | | | | 500 | | | | 4,006 | | | | 838 | |
| Gas processing revenue - parent | | | 7,345 | | | | 4,892 | | | | 21,866 | | | | 11,109 | |
| Gas processing revenue | | | 1,507 | | | | 521 | | | | 3,797 | | | | 912 | |
| Other revenue - parent | | | 225 | | | | 267 | | | | 675 | | | | 300 | |
| Total revenues | | | 19,304 | | | | 10,282 | | | | 52,694 | | | | 22,771 | |
| | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | |
| Operations and maintenance - parent | | | 4,772 | | | | 3,072 | | | | 15,034 | | | | 8,063 | |
| General and administrative - parent | | | 1,473 | | | | 1,217 | | | | 4,712 | | | | 2,353 | |
| Depreciation and accretion | | | 3,866 | | | | 2,188 | | | | 10,429 | | | | 5,307 | |
| Total expenses | | | 10,111 | | | | 6,477 | | | | 30,175 | | | | 15,723 | |
| | | | | | | | | | | | | | | | |
| Operating income | | | 9,193 | | | | 3,805 | | | | 22,519 | | | | 7,048 | |
| | | | | | | | | | | | | | | | | |
| Other income | | | 4 | | | | 114 | | | | 10 | | | | 149 | |
| Interest expense | | | 2,703 | | | | 1,728 | | | | 7,542 | | | | 1,939 | |
| | | | | | | | | | | | | | | | | |
| Income before income taxes | | | 6,494 | | | | 2,191 | | | | 14,987 | | | | 5,258 | |
| | | | | | | | | | | | | | | | | |
| Income tax provision | | | 106 | | | | 92 | | | | 109 | | | | 189 | |
| | | | | | | | | | | | | | | | | |
| Net income | | $ | 6,388 | | | $ | 2,099 | | | $ | 14,878 | | | $ | 5,069 | |
| | | | | | | | | | | | | | | | | |
Net income attributable to the period from beginning of period to August 9, 2007 | | | | | | $ | 474 | | | | | | | $ | 3,444 | |
Net income attributable to the period from August 10, 2007 to September 30, 2007 | | | | | | | 1,625 | | | | | | | | 1,625 | |
| Net income | | | | | | $ | 2,099 | | | | | | | $ | 5,069 | |
| | | | | | | | | | | | | | | | | |
General partner interest in net income (1) | | $ | 137 | | | $ | 32 | | | $ | 314 | | | $ | 32 | |
Common and subordinated unitholders’ interest in net income (1) | | $ | 6,251 | | | $ | 1,593 | | | $ | 14,564 | | | $ | 1,593 | |
Earnings per common and subordinated unit: (1) | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.26 | | | $ | 0.07 | | | $ | 0.61 | | | $ | 0.07 | |
| Diluted | | $ | 0.26 | | | $ | 0.07 | | | $ | 0.61 | | | $ | 0.07 | |
| | | | | | | | | | | | | | | | | |
Weighted average number of common and subordinated units outstanding: (1) | | | | | | | | | | | | | | | | |
| Basic | | | 23,783 | | | | 23,777 | | | | 23,783 | | | | 23,777 | |
| Diluted | | | 26,829 | | | | 23,787 | | | | 23,924 | | | | 23,787 | |
(1) Amounts for 2007 represent the period from August 10, 2007 to September 30, 2007
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QUICKSILVER GAS SERVICES LP
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except for unit data - Unaudited
| | | September 30, | | | December 31, | |
| | | 2008 | | | 2007 | |
| ASSETS | | | | | | |
| Current assets | | | | | | |
| Cash and cash equivalents | | $ | 342 | | | $ | 1,125 | |
| Trade accounts receivable | | | 1,883 | | | | 882 | |
| Accounts receivable from parent | | | - | | | | 800 | |
| Prepaid expenses and other current assets | | | 584 | | | | 690 | |
| Total current assets | | | 2,809 | | | | 3,497 | |
| | | | | | | | | |
| Property, plant and equipment, net | | | 437,882 | | | | 273,948 | |
| | | | | | | | | |
| Other assets | | | 1,084 | | | | 965 | |
| | | $ | 441,775 | | | $ | 278,410 | |
| | | | | | | | | |
| LIABILITIES AND PARTNERS' CAPITAL | | | | | | | | |
| Current liabilities | | | | | | | | |
| Current maturities of debt | | $ | 1,100 | | | $ | 1,100 | |
| Accounts payable to parent | | | 291 | | | | - | |
| Accrued additions to property, plant and equipment | | | 22,472 | | | | 23,624 | |
| Accounts payable and other | | | 3,704 | | | | 2,700 | |
| Total current liabilities | | | 27,567 | | | | 27,424 | |
| | | | | | | | | |
| Long-term debt | | | 104,300 | | | | 5,000 | |
| Note payable to parent | | | 51,904 | | | | 50,569 | |
| Repurchase obligations to parent | | | 151,864 | | | | 82,251 | |
| Asset retirement obligations | | | 3,502 | | | | 2,793 | |
| Deferred income tax liability | | | 225 | | | | 173 | |
| | | | | | | | | |
| Partners' Capital | | | | | | | | |
Common unitholders (12,269,714 and 12,263,625 units issued and outstanding at September 30, 2008 and December 31, 2007, respectively) | | | 106,262 | | | | 109,830 | |
Subordinated unitholders (11,513,625 units issued and outstanding at September 30, 2008 and December 31, 2007) | | | (3,705 | ) | | | 356 | |
| General Partner | | | (144 | ) | | | 14 | |
| Total partners' capital | | | 102,413 | | | | 110,200 | |
| | | $ | 441,775 | | | $ | 278,410 | |
| | | | | | | | | |
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QUICKSILVER GAS SERVICES LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands - Unaudited
| | | Nine Months Ended September 30, | |
| | | 2008 | | | 2007 | |
| Operating activities: | | | | | | |
| Net income | | $ | 14,878 | | | $ | 5,069 | |
| Items included in net income not affecting cash: | | | | | | | | |
| Depreciation | | | 10,297 | | | | 5,253 | |
| Accretion of asset retirement obligation | | | 132 | | | | 54 | |
| Deferred income taxes | | | 52 | | | | 16 | |
| Equity-based compensation | | | 758 | | | | 45 | |
| Amortization of debt issuance costs | | | 158 | | | | 33 | |
| Non-cash interest expense on repurchase obligations to parent | | | 4,663 | | | | 1,228 | |
| Non-cash interest expense on note payable to parent | | | 2,160 | | | | 625 | |
| Changes in assets and liabilities: | | | | | | | | |
| Accounts receivable | | | (1,001 | ) | | | (858 | ) |
| Prepaid expenses and other assets | | | (171 | ) | | | (229 | ) |
| Accounts receivable from parent | | | 3,435 | | | | - | |
| Accounts payable and other | | | 1,004 | | | | (57 | ) |
| Net cash provided by operating activities | | | 36,365 | | | | 11,179 | |
| | | | | | | | | |
| Investing activities: | | | | | | | | |
| Capital expenditures | | | (112,200 | ) | | | (55,184 | ) |
| Net cash used in investing activities | | | (112,200 | ) | | | (55,184 | ) |
| | | | | | | | | |
| Financing activities: | | | | | | | | |
| Proceeds from revolving credit facility borrowings | | | 99,300 | | | | - | |
| Repayment of subordinated note to parent | | | (825 | ) | | | - | |
| Contributions by parent | | | - | | | | 38,045 | |
| Contributions by other partners | | | - | | | | 167 | |
| Distributions to unitholders | | | (23,423 | ) | | | - | |
| Proceeds from sale of assets to parent | | | - | | | | 29,508 | |
| Debt issuance costs paid | | | - | | | | (715 | ) |
| Net proceeds from issuance of equity units | | | - | | | | 112,108 | |
| Distribution of offering proceeds to partners | | | - | | | | (119,806 | ) |
| Net cash provided by financing activities | | | 75,052 | | | | 59,307 | |
| | | | | | | | | |
| Net (decrease) increase in cash | | | (783 | ) | | | 15,302 | |
| | | | | | | | | |
| Cash at beginning of period | | | 1,125 | | | | 2,797 | |
| | | | | | | | | |
| Cash at end of period | | $ | 342 | | | $ | 18,099 | |
| | | | | | | | | |
| | NEWS RELEASE |
QUICKSILVER GAS SERVICES LP
OPERATING STATISTICS
Unaudited
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| | | | | | | | | | | | | |
| Volume Data: | | | | | | | | | | | | |
| Volumes gathered (MMcf) | | | 19,591 | | | | 9,554 | | | | 51,269 | | | | 21,685 | |
| Volumes processed (MMcf) | | | 14,122 | | | | 9,032 | | | | 40,870 | | | | 20,015 | |
| | | | | | | | | | | | | | | | | |
QUICKSILVER GAS SERVICES LP
RECONCILIATION OF NET INCOME TO DISTRIBUTABLE CASH FLOW
In thousands - Unaudited
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| | | | | | | | | | | | | |
| Net income | | $ | 6,388 | | | $ | 2,099 | | | $ | 14,878 | | | $ | 5,069 | |
| Depreciation and accretion expense | | | 3,866 | | | | 2,188 | | | | 10,429 | | | | 5,307 | |
| Income tax provision/(payments) | | | (226 | ) | | | 92 | | | | (223 | ) | | | 189 | |
| Non-cash interest expense | | | 1,977 | | | | 1,642 | | | | 6,077 | | | | 1,853 | |
| Maintenance capital expenditures | | | (473 | ) | | | (625 | ) | | | (1,418 | ) | | | (625 | ) |
| Distributable cash flow | | $ | 11,532 | | | $ | 5,396 | | | $ | 29,743 | | | $ | 11,793 | |
