SOURCE: Quicksilver Resources Inc.

Quicksilver Resources Inc.

February 18, 2010 16:10 ET

Quicksilver Resources Announces Record Reserves and Production in 2009

Reserves Increase 9% to 2.4 Tcfe; Production Increases 23% to 118 Bcfe; Proved Developed F&D of $1.27 per Mcfe

FORT WORTH, TX--(Marketwire - February 18, 2010) -  Quicksilver Resources Inc. (NYSE: KWK) announced today preliminary operating results for year-end 2009, in which the company:

  • Increased reserves 9% to a record 2.4 Tcfe; five-year compound annual growth rate of 20%;
  • Increased average production 23% to a record 325 MMcfe per day; five-year compound annual growth rate of 22%;
  • Increased proved developed reserves to 68% of total reserves;
  • Replaced 377% of production with the drill bit; 590% excluding price revisions; and
  • Reduced Finding & Development costs of $1.27 per Mcfe on proved developed reserves; total F&D of $1.25 per Mcfe and $0.80 per Mcfe excluding price revisions.

Estimates of year-end 2009 proved reserves total approximately 2.4 trillion cubic feet of natural gas equivalents (Tcfe), an increase of 9% from year-end 2008. This growth was driven by a 15% increase in the company's Fort Worth Basin Barnett Shale reserves that totaled 2.1 Tcfe at year-end 2009.

Proved developed reserves increased to 68% of the total year-end 2009 reserves, up from 63% in the prior year. By product, reserves were comprised 75% from natural gas, 24% from natural gas liquids and 1% from crude oil. 

A summary of 2009 reserves changes, in billion cubic feet of natural gas equivalents (Bcfe), is as follows:

  Balance at December 31, 2008 2,208  
       
  Extensions, discoveries and performance revisions 699  
  Price revisions (252 )
  Purchase of reserves 0  
  Sale of reserves (121 )
  Production (118 )
       
  Balance at December 31, 2009 2,416  

Preliminary 2009 average production increased 23% from the prior year to 325 million cubic feet of natural gas equivalents (MMcfe) per day, resulting in record total production of approximately 118 Bcfe for the year. Organic reserve additions of approximately 699 Bcfe represent nearly a six-fold replacement of production, before the impact of pricing revisions. Net of price revisions, the company replaced 377% of the year's record production.

"Once again, our entire team did an outstanding job this year -- remaining focused on capital and operating costs, while growing our reserves and production, which created significant value for our shareholders," said Glenn Darden, Quicksilver president and chief executive officer. "We increased reserves 9%, even after taking into account the sale of a 27.5% interest in our Alliance property and the reduction to reserves associated with lower average natural gas pricing. We also increased the quality of our reserves and now 68% of the total is classified as proved developed. Most important, we self-funded this growth at a proved developed finding and development cost of just $1.27 per Mcfe, a metric likely to be among the lowest in the industry.

"Quicksilver is well prepared to build on these accomplishments in 2010 and beyond. We believe our undeveloped acreage in just the Fort Worth Basin still holds an additional 3 Tcfe of unbooked potential resources from more than 1,000 identified locations, which would more than double our existing reserves. In addition, we have not booked any undeveloped reserves associated with our 130,000-acre position in the Horn River Basin of British Columbia -- an area that could contain more than 5 Tcfe of additional potential resources for the company."

Total all-in preliminary finding and development cost (F&D) for 2009 is estimated at $1.25 per thousand cubic feet of natural gas equivalent (Mcfe) and F&D on just proved developed reserves is $1.27 per Mcfe. Absent the reserve revisions due to pricing, the 2009 estimated all-in F&D cost would be $0.80 per Mcfe. The all-in F&D cost will be finalized upon filing of the company's annual report on Form 10-K. Reconciliations of the "Preliminary 2009 F&D Cost" are available on the company's website -- www.qrinc.com. For a description of the calculation of, and certain other information regarding, F&D cost, please see the discussion below under the heading "F&D Cost."

The new Securities and Exchange Commission (SEC) reporting rules applicable for year-end 2009 reporting allow proved undeveloped (PUD) reserves to be booked beyond one offset location where reliable technology exists that establishes reasonable certainty of economic producibility at greater distances. In accordance with the new rules, the company recorded incremental PUD locations in the Fort Worth Basin. In the Fort Worth Basin Barnett, the company had 919 proved developed and 281 proved undeveloped gas well locations at year-end 2009. The new rules also suggest that five years is a reasonable timeframe to develop existing PUDs. The company did not lose any previously recorded PUD reserves in the Fort Worth Basin due to this requirement. Quicksilver's PUD reserves, which total approximately 768 Bcfe, are all scheduled to be drilled before the end of 2014. Based on current NYMEX strip prices and Quicksilver's commodity derivatives position, the company's currently forecasted cash flow during this period is expected to be more than sufficient to fund this drilling.

In addition to the above rule changes, the new SEC reporting rules require that year-end proved reserve volumes be calculated using an average of the NYMEX spot prices for sales of gas and oil on the first calendar day of each month during 2009. On this basis, the prices for gas and oil for 2009 reserves reporting purposes were $3.87 per million British thermal units (MMBtu) and $61.18 per barrel, respectively. The prices used to calculate proved reserves for year-end 2008, when Quicksilver's proved reserves were last reported, were $5.71 per MMBtu of gas and $44.60 per barrel of oil, representing the NYMEX spot prices on December 31, 2008 as required by the previous SEC reporting rules. These pricing changes resulted in net negative pricing revisions of approximately 252 Bcfe. The negative pricing revisions were primarily attributable to gas assets, offset in part by higher prices on their related natural gas liquids. 

Quicksilver also owns an approximate 61% interest in Quicksilver Gas Services, which performs gathering and processing services in the Fort Worth Basin. As a result of this ownership, Quicksilver's actual effective cost structure is reduced, which is not reflected in SEC reserve reporting. If Quicksilver's actual effective cost structure were used, the company's reserves would increase to approximately 2.6 Tcfe.

Hedging Summary

For 2010, 2011 and 2012, the company has hedged approximately 200 million cubic feet (Mmcf), 120 Mmcf and 60 Mmcf per day, respectively, of its anticipated future natural gas production at weighted-average floor prices of approximately $7.40 per thousand cubic feet (Mcf), $6.25 per Mcf and $6.50 per Mcf, respectively. For 2010, the company has basis hedges covering approximately 60% of its expected Canadian natural gas production at $0.45 per Mcf under NYMEX. 

The company also has liquids swaps in place on 10,000 and 8,000 barrels per day for 2010 and 2011, respectively. The average swap price for 2010 is $33.47 per barrel and for 2011 is $38.33 per barrel. The company uses its hedging program to underpin its expected $540 million capital program for 2010.

In addition, Quicksilver holds firm transportation from the Fort Worth Basin, which we believe provides sufficient takeaway capacity for all expected production for the next several years. The company's firm transportation includes 100 Mmcf per day to Henry Hub and 50 Mmcf per day of firm transportation on the Mid Continent Express pipeline. This pipeline will enable gas from the Fort Worth Basin to go to Perryville in Mississippi and Transco Station 85 in Alabama. The remaining volumes can be delivered to hubs at Katy and Carthage, Texas and would receive Houston Ship Channel pricing.

A summary of these hedging contracts is available on the company's website at http://www.qrinc.com/investor_relations/sec_financial_info/financials/Outstanding-web%20as%20of%20021810.pdf. The value of these hedge positions are not included in the company's SEC reserve report. 

Fourth-Quarter and Full-Year 2009 Earnings Release

Quicksilver expects to release fourth-quarter and full-year 2009 earnings on Monday, March 1, 2010, before the market opens. The company will host a conference call the same day at 11:00 a.m. Eastern time to discuss fourth-quarter 2009 and full-year financial and operating results, and expectations for the future.

Quicksilver invites interested parties to listen to the call via the company's website at www.qrinc.com or by calling 1-877-313-7932, using the conference ID number 44053532, 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 44053532. The replay will also be archived for 30 days on the company's website.

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 gas from shales, coalbed methane, 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, NGL and crude oil prices; failure or delays in achieving expected production from exploration and development projects; uncertainties inherent in estimates of natural gas, NGL and crude oil reserves and predicting natural gas, NGL and crude oil reservoir performance; effects of hedging natural gas, NGL 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; the effects of existing or future litigation; and 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.

F&D Cost

Finding and development cost, or F&D cost, is calculated by dividing (x) development, exploitation, and exploration capital expenditures for the period, plus unevaluated capital expenditures as of the beginning of the period, less unevaluated capital expenditures as of the end of the period, by (y) reserve additions for the period, excluding acquired reserves. The methods we use to calculate our F&D cost may differ significantly from methods used by other companies to compute similar measures. As a result, our F&D cost may not be comparable to similar measures provided by other companies. We believe that providing a measure of F&D cost is useful in evaluating the costs, on a per thousand cubic feet of natural gas equivalent basis, to add proved reserves.

However, these measures are provided in addition to, and not as an alternative for, and should be read in conjunction with, the information contained in our financial statements prepared in accordance with generally accepted accounting principles. Due to various factors, including timing differences in the addition of proved reserves and the related costs to develop those reserves, F&D cost does not necessarily reflect precisely the cost associated with particular reserves. As a result of various factors that could materially affect the timing and amounts of future increases in reserves and the timing and amounts of future costs, we cannot assure you that our future F&D cost will not differ materially from those presented.

KWK 10-02

Contact Information

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