SOURCE: Quicksilver Resources Inc.

August 06, 2008 06:30 ET

Quicksilver Resources' 2008 Second-Quarter Net Income Increases 65%

Fort Worth Basin Production Grows 121%

FORT WORTH, TX--(Marketwire - August 6, 2008) - Quicksilver Resources Inc. (NYSE: KWK) today reported net income for the second quarter of 2008 of $52.4 million ($.31 per diluted share), up 65% from the 2007 second-quarter net income of $31.7 million ($.19 per diluted share). Second-quarter 2008 net income includes a non-cash pre-tax loss of $10.3 million ($.04 per diluted share) on the company's investment in BreitBurn Energy Partners L.P. Per share data reflects the two-for-one stock split effected in the form of a stock dividend on January 31, 2008.

Net cash from operating activities before changes in working capital, a non-GAAP measure, was $134.8 million for the second quarter of 2008, up 77% from the comparable 2007 period of $76.2 million, as presented in the attached reconciliation of Net Cash Provided by Operating Activities.

Second-Quarter 2008 Highlights

--  Increased Fort Worth Basin daily production volumes 121% year-over-
    year
--  Increased Canadian daily production volumes 16% year-over-year
--  Reduced unit production costs nearly 8%
--  Drilled 63 horizontal wells in the Fort Worth Basin; connected 57
    wells to sales
    

"Efficient execution of all aspects of our development program resulted in a 75% increase in our comparable production volumes versus last year," said Glenn Darden, Quicksilver president and chief executive officer. "We are increasing the value of this production through ongoing cost control which has reduced our unit production costs. We believe the combination of these efforts puts Quicksilver in the great position of being among the highest growth and lowest cost E&P companies, and that the announced acquisition of the additional Fort Worth Basin properties will further enhance this position and ultimate value for our shareholders."

Production

For the second quarter of 2008, average daily production was approximately 236 million cubic feet of natural gas equivalent (MMcfe) per day compared to approximately 208 MMcfe per day for the same period in 2007, an increase of approximately 13%. The 2007 quarter included production of approximately 74 MMcfe per day associated with the company's previously owned Northeast Operations, which were divested as of November 1, 2007. Excluding the divested volumes from the Northeast Operations, production grew more than 75% year-over-year. Total production for the second quarter of 2008 was approximately 21.5 billion cubic feet of natural gas equivalent (Bcfe) compared to approximately 18.9 Bcfe for the second quarter of 2007. The 2008 production volumes were comprised of approximately 67% natural gas, approximately 29% natural gas liquids (NGL) and approximately 4% crude oil and condensate.

Production, on a MMcfe per day basis, by operating area, for the three months ended June 30, was as follows:

                      Quarter Ended June 30,
                      ---------------------
                       2008    2007  Change
                      ------- ------- -----

Texas                   170.2    76.9   121 %
Other U.S.                3.1     3.4    (9)%
                      ------- -------
                        173.3    80.3   116 %
Canada                   62.5    53.8    16 %
                      ------- -------
                        235.8   134.1    76 %
Northeast Operations*       -    74.1
                      ------- -------
  Total                 235.8   208.2    13 %
                      ======= =======

*The company's Northeast Operations were divested as of November 1, 2007.

Revenues and Costs

Sales of natural gas, NGLs and crude oil increased approximately 48% to $198.1 million in the second quarter of 2008 as compared to $134.0 million in the 2007 quarter. The increase reflects a 13% increase in equivalent daily production volumes and an approximate 30% increase in the average realized price per thousand cubic feet of equivalent (Mcfe).

Production expense of $33.6 million for the 2008 second quarter represents a $1.6 million increase from the prior-year quarter. This increase was primarily due to increased production volumes from the Fort Worth Basin in Texas, which more than offset the costs associated with the divested production from our Northeast Operations. Unit production expense, including production, gathering and processing, and transportation expense, was $1.56 per Mcfe during the second quarter of 2008 down $.13 per Mcfe as compared to $1.69 per Mcfe expense in the prior-year quarter.

Capital Structure

At June 30, 2008, the company's total debt outstanding was approximately $1.3 billion and total debt as a percent of total capitalization was approximately 58%.

Income from Earnings of BreitBurn Energy

Quicksilver reported $10.3 million of pre-tax loss attributable to the company's approximate 32% interest in BreitBurn Energy Partners L.P.'s first-quarter 2008 results. The BreitBurn loss was primarily attributable to a $71 million non-realized loss on derivatives taken by BreitBurn in the first quarter of 2008. Quicksilver received approximately $10.7 million of cash distributions during the second quarter of 2008 associated with the ownership of these units.

Operational Update

During the second quarter of 2008 in the Barnett Shale formation of the Fort Worth Basin, the company drilled 63 (60.3 net) wells. The company connected 57 (52.2 net) wells to sales during the quarter, including four wells at the company's Lake Arlington project in Tarrant County which began production very late in the quarter at a combined rate of approximately 26 MMcf per day. At June 30, 2008, the company had 13 rigs working in the basin, including three rigs dedicated to the company's Lake Arlington project.

In Canada, drilling, completion and pipeline operations were suspended for much of the quarter due to the seasonal breakup period. The company drilled one (0.8 net) well in the Horseshoe Canyon area during the second quarter of 2008. Drilling activities have now resumed and the company still anticipates drilling a total of approximately 265 (165 net) wells in this area during 2008. As a result, the company remains on track to achieve annual production growth in the range of 7% to 9% from its Canadian operations in 2008.

Total company capital expenditures for the second quarter of 2008 were approximately $306 million, with approximately 70% for drilling and completion activities, approximately 23% for midstream activities and approximately 7% for acreage purchases.

Third-Quarter 2008 Outlook

Third-quarter 2008 production volumes are expected to average in the range of 280 MMcfe to 290 MMcfe per day. Average unit expenses, on a Mcfe basis, are expected as follows:

-- Lease operating                      $1.00 - $1.05
-- Gathering and processing               .21 -   .24
-- Transportation                         .29 -   .31
                                        -------------
                                         1.50 -  1.60
-- Production taxes                       .13 -   .15
-- General and administrative             .65 -   .70
-- Depletion, depreciation & accretion   2.15 -  2.20

Projected volumes and expenses include the impact associated with the announced acquisition of properties in the Fort Worth Basin which is expected to close on August 8, 2008.

Financing Complete for Fort Worth Basin Acquisition

Quicksilver also announced that it has priced and has commitments for its $700 million second-lien term loan facility due 2013. Net proceeds from the second-lien term loan facility will be used to partially fund the cash portion of the company's previously announced $1.307 billion acquisition of producing and non-producing leasehold, royalty and midstream assets in the Fort Worth Basin. The new facility will bear interest at the initial rate of LIBOR, using a minimum of 3.25%, plus 450 basis points per annum and will be issued at 98% of the principal amount.

Conference Call

The company will host a conference call to discuss second-quarter 2008 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 27095353, 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 by entering the conference ID number 27095353. 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 net cash from operating activities before changes in working capital. The accompanying schedule provides a reconciliation 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 the GAAP measures of net cash provided by operating activities or any other GAAP measure of liquidity or financial performance. The items excluded from our calculation of net cash flow from operating activities before working capital changes include cash items that may significantly affect our cash flows.

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: the conditions to the completion of the Fort Worth Basin acquisition, as set forth in the purchase and sale agreements providing for the acquisition; the availability and terms of the financing we intend to procure in order to fund a portion of the purchase price of the Fort Worth Basin acquisition; changes in general economic conditions; fluctuations in natural gas, natural gas liquids and crude oil prices; failure or delays in achieving expected production from natural gas, natural gas liquids and crude oil exploration and development projects; effects of hedging natural gas, natural gas liquids and crude oil prices; 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; competitive conditions in our industry; actions taken by third parties, including operators, processors and transporters; 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.

KWK 08-17

                        QUICKSILVER RESOURCES INC.
                CONDENSED CONSOLIDATED STATEMENTS OF INCOME
              In thousands, except per share data - Unaudited


                                    For the Three         For the Six
                                    Months Ended          Months Ended
                                      June 30,              June 30,
                                --------------------- ---------------------
                                  2008       2007 (1)   2008       2007 (1)
                                ---------  ---------- ---------  ----------
Revenues
   Natural gas, NGL and crude
    oil sales                   $ 198,147  $  133,959 $ 356,503  $  247,251
   Other                             (132)      2,542      (985)      5,830
                                ---------  ---------- ---------  ----------
      Total revenues              198,015     136,501   355,518     253,081
                                ---------  ---------- ---------  ----------

Operating expenses
   Oil and gas production
    expense                        33,560      31,989    66,090      60,558
   Production and ad valorem
    taxes                           2,208       4,212     4,867       8,702
   Other operating costs              728         301     1,959       1,085
   Depletion, depreciation and
    accretion                      38,920      27,905    73,979      52,499
   General and administrative      15,382      10,298    30,797      19,996
                                ---------  ---------- ---------  ----------
      Total expenses               90,798      74,705   177,692     142,840
Income from equity affiliates           -         282         -         397
                                ---------  ---------- ---------  ----------
Operating income                  107,217      62,078   177,826     110,638
Loss from earnings of BreitBurn
 Energy Partners                  (10,269)          -    (4,050)          -
Other (expense) income - net         (542)        767     1,058       1,368
Interest expense                   14,466      18,216    26,298      33,168
                                ---------  ---------- ---------  ----------
Income before income taxes and
 minority interest                 81,940      44,629   148,536      78,838
Income tax expense                 28,556      12,770    52,468      24,065
Minority interest expense, net
 of income tax                        988         128     1,496         191
                                ---------  ---------- ---------  ----------
Net income                      $  52,396  $   31,731 $  94,572  $   54,582
                                =========  ========== =========  ==========

Earnings per common share -
 basic                          $    0.33  $     0.20 $    0.60  $     0.35
Earnings per common share -
 diluted                        $    0.31  $     0.19 $    0.56  $     0.33
Basic weighted average shares
 outstanding                      157,889     155,188   157,807     154,791
Diluted weighted average shares
 outstanding                      169,855     168,254   169,764     168,058


(1) Share amounts have been adjusted to reflect a two-for-one stock split
    effected in the form of a stock dividend in January 2008. The split did
    not affect treasury shares.



                        QUICKSILVER RESOURCES INC.
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                In thousands, except share data - Unaudited


                                                  June 30,    December 31,
                                                    2008          2007
                                                ------------  ------------
                                  ASSETS
Current assets
   Cash and cash equivalents                    $      2,329  $     28,226
   Accounts receivable - net of allowance for
    doubtful accounts                                116,301        90,244
   Derivative assets at fair value                         -        10,797
   Current deferred income tax asset                  97,980        18,946
   Other current assets                               58,012        42,188
                                                ------------  ------------
      Total current assets                           274,622       190,401
Investment in BreitBurn Energy Partners              395,787       420,171
Property, plant and equipment
   Oil and gas properties, full cost method
    (including unevaluated costs of $293,312
    and $215,228, respectively)                    2,213,819     1,764,400
   Other property and equipment                      488,827       377,946
                                                ------------  ------------
Property, plant and equipment - net                2,702,646     2,142,346
Derivative assets at fair value                            -           354
Other assets                                          40,232        22,574
                                                ------------  ------------
                                                $  3,413,287  $  2,775,846
                                                ============  ============

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
   Current portion of long-term debt            $          -  $         34
   Accounts payable                                  209,815       192,855
   Income taxes payable                                  104        46,601
   Accrued liabilities                                42,289        54,981
   Derivative liabilities at fair value              297,087        64,104
                                                ------------  ------------
      Total current liabilities                      549,295       358,575
Long-term debt                                     1,288,824       813,817
Asset retirement obligations                          26,326        23,864
Derivative liabilities at fair value                 121,893        16,327
Other liabilities                                     10,609        10,609
Deferred income taxes                                384,298       374,645
Deferred gain on sale of partnership interests        79,316        79,316
Minority interests in consolidated subsidiaries       29,098        30,338
Stockholders' equity
   Preferred stock, par value $0.01, 10,000,000
    shares authorized, none outstanding                    -             -
   Common stock, $0.01 par value, 400,000,000
    and 200,000,000 shares authorized respectively;
    161,260,383 and 160,633,270 shares issued,
    respectively                                       1,613         1,606
   Paid in capital in excess of par value            280,730       272,515
   Treasury stock of  2,661,967 and 2,616,726
    shares, respectively                             (14,658)      (12,304)
   Accumulated other comprehensive (loss) income    (205,101)       40,066
   Retained earnings                                 861,044       766,472
                                                ------------  ------------
      Total stockholders' equity                     923,628     1,068,355
                                                ------------  ------------
                                                $  3,413,287  $  2,775,846
                                                ============  ============



                        QUICKSILVER RESOURCES INC.
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                         In thousands - Unaudited


                                                  For the Six Months Ended
                                                          June 30,
                                                  ------------------------
                                                      2008         2007
                                                  -----------  -----------
Operating activities:
   Net income                                     $    94,572  $    54,582
   Adjustments to reconcile net income to net
    cash provided by operating activities:
      Depletion, depreciation and accretion            73,979       52,499
      Deferred income taxes                            51,375       23,907
      Stock-based compensation                          7,641        6,288
      Loss from sale of properties                        272            -
      Amortization of deferred charges                    849        1,071
      Amortization of deferred loan costs               1,243          929
      Minority interest expense                         1,496          191
      Non-cash loss (gain) from hedging and
       derivative activities                           11,069         (981)
      Non-cash loss (income) from equity
       affiliates                                       4,050         (397)
      Other                                                 -          484
   Changes in assets and liabilities:
      Accounts receivable                             (26,057)       9,709
      Other assets                                     (9,213)        (476)
      Accounts payable                                 (8,566)       8,992
      Income taxes payable                            (46,497)        (401)
      Accrued and other liabilities                   (19,602)      (1,849)
                                                  -----------  -----------
Net cash provided by operating activities             136,611      154,548
                                                  -----------  -----------

Investing activities:
   Purchases of property, plant and equipment        (650,458)    (442,667)
   Return of investment from BreitBurn Energy
    Partners and equity affiliates                     20,334          167
   Proceeds from sales of properties and
    equipment                                             598          162
                                                  -----------  -----------
Net cash used for investing activities               (629,526)    (442,338)
                                                  -----------  -----------

Financing activities:
   Issuance of senior notes                           468,611            -
   Credit facility borrowings - net                    14,111      274,896
   Debt issuance costs                                (10,837)      (2,546)
   Minority interest contributions                          -          167
   Minority interest distributions                     (4,042)           -
   Proceeds from exercise of stock options              1,082       12,187
   Purchase of treasury stock                          (2,354)        (821)
                                                  -----------  -----------
Net cash provided by financing activities             466,571      283,883
                                                  -----------  -----------

Effect of exchange rate changes in cash                   447        1,884
                                                  -----------  -----------

Net decrease in cash                                  (25,897)      (2,023)

Cash and cash equivalents at beginning of period       28,226        5,281
                                                  -----------  -----------

Cash and cash equivalents at end of period        $     2,329  $     3,258
                                                  ===========  ===========



                        QUICKSILVER RESOURCES INC.
                   Unaudited Selected Operating Results


                                       Three Months Ended  Six Months Ended
                                            June 30,          June 30,
                                        ----------------- -----------------
                                          2008     2007     2008     2007
                                        -------- -------- -------- --------
Average Daily Production:
Natural Gas (Mcfd)                       158,540  161,485  151,002  159,448
NGL (Bbld)                                11,484    6,042   10,757    4,687
Oil (Bbld)                                 1,393    1,737    1,322    1,701
    Total (Mcfed)                        235,803  208,161  223,476  197,775

Average Realized Prices:
Natural Gas (per Mcf)                   $   9.02 $   6.96 $   8.53 $   6.86
NGL (per Bbl)                           $  54.45 $  40.52 $  52.07 $  38.16
Oil (per Bbl)                           $  88.25 $  59.30 $  83.15 $  55.25
    Total (Mcfe)                        $   9.23 $   7.07 $   8.77 $   6.91

Expense per Mcfe:
Oil and gas production cost             $   1.56 $   1.69 $   1.62 $   1.69
Production and ad valorem taxes         $   0.10 $   0.22 $   0.12 $   0.24
Depletion, depreciation and accretion   $   1.81 $   1.47 $   1.82 $   1.47
General and administrative expense:
    Cash expense                        $   0.57 $   0.42 $   0.60 $   0.44
    Stock-based compensation                0.15     0.12     0.16     0.12
                                        -------- -------- -------- --------
Total general and administrative
 expense                                $   0.72 $   0.54 $   0.76 $   0.56



                        QUICKSILVER RESOURCES INC.
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES BEFORE WORKING
       CAPITAL CHANGES TO NET CASH PROVIDED BY OPERATING ACTIVITIES
                         In thousands - Unaudited


                                                       Three Months Ended
                                                            June 30,
                                                      --------------------
                                                        2008       2007
                                                      ---------  ---------
Net cash provided by operating activities before
 working capital changes                              $ 134,799  $  76,232

Working capital changes:
   Accounts receivable                                  (20,831)     9,104
   Other assets                                          (8,104)     3,301
   Accounts payable                                     (13,593)     2,485
   Income taxes payable                                  (1,353)        (7)
   Accrued and other liabilities                          2,409     (9,573)
                                                      ---------  ---------
Total working capital changes                           (41,472)     5,310
                                                      ---------  ---------
Net cash provided by operating activities             $  93,327  $  81,542
                                                      =========  =========

Contact Information

  • Investor & Media Contact:
    Rick Buterbaugh
    (817) 665-4835