SOURCE: Quicksilver Resources Inc.

Quicksilver Resources Inc.

February 28, 2011 06:45 ET

Quicksilver Resources Reports 2010 Fourth-Quarter and Full-Year Results

FORT WORTH, TX--(Marketwire - February 28, 2011) - Quicksilver Resources Inc. (NYSE: KWK) today reported net income of $318.3 million ($1.77 per diluted share) in the 2010 fourth quarter as compared to net income of $32.5 million ($0.19 per diluted share) in the prior-year period. For all of 2010, the company reported net income of $435.1 million ($2.45 per diluted share) as compared to a net loss of $557.5 million (a loss of $3.30 per diluted share) for 2009. 

Fourth-quarter 2010 adjusted net income, a non-GAAP financial measure, was $30.0 million ($0.18 per diluted share), as compared to adjusted net income of $47.3 million ($0.27 per diluted share) in the 2009 period. Adjusted net income for full-year 2010 was $119.9 million ($0.70 per diluted share) as compared to $148.4 million ($0.86 per diluted share) for the prior year. Details of adjusted net income are included in the tables at the end of this news release.

2010 Highlights

  • Produced record volumes of 355 MMcfe per day -- up 9% year-over-year
  • Increased reserves 20% to 2.9 Tcfe -- 68% are proved developed
  • Replaced 475% of production
  • Reduced lease operating expense to $0.65 per Mcfe -- down 3% year-over-year
  • Acquired additional interests in core properties at Lake Arlington and Horseshoe Canyon
  • Proved additional Horn River acreage potential
  • Completed divestment of all interests in Quicksilver Gas Services
  • Increased exposure to high-potential oil plays
  • Self-funded all capital investments
  • Reduced total debt by $537 million -- total debt of $0.65 per Mcfe of proved reserve

Production

Production averaged a record 389.2 million cubic feet of natural gas equivalent (MMcfe) per day during the fourth quarter, up 20% from the prior-year quarter. For full-year 2010, production averaged 355.2 MMcfe per day, up 9% from the 2009 total. The increase in production was primarily driven by higher volumes from the Barnett Shale. The 2010 production volumes were comprised 79% from natural gas, 20% from natural gas liquids (NGLs) and 1% from crude oil and condensate.

Revenue and Expenses

Sales of natural gas, NGLs and crude oil for the fourth quarter of 2010 were $224.9 million, up 4% from $215.5 million in the prior-year quarter. Sales of natural gas, NGLs and crude oil totaled $856.3 million for full-year 2010, up approximately 7% from 2009. The increase in product sales was primarily derived from the 9% increase in production volumes coupled with increased realized prices for NGLs and crude oil, which were offset in part by lower realized prices on natural gas. 

Unit lease operating expense declined $0.05 per thousand cubic feet of natural gas equivalents (Mcfe) to $0.62 per Mcfe in the fourth quarter of 2010 and averaged $0.65 per Mcfe for full-year 2010, down 3% from the 2009 rate. Unit gathering, processing and transportation expense was $1.20 per Mcfe and $0.73 per Mcfe for the fourth quarter and full year of 2010, respectively. Both periods reflect the higher reported costs of these activities following the sale of the company's interests in Quicksilver Gas Services on October 1, 2010.

Impact from BreitBurn Ownership

For the 2010 fourth quarter, Quicksilver reported a loss of $1.9 million attributable to the company's approximate 29% interest in BreitBurn Energy Partners L.P.'s (Nasdaq: BBEP) third-quarter 2010 results, including losses of approximately $9.5 million from derivatives. During the fourth quarter of 2010, Quicksilver received approximately $6.1 million in cash distributions associated with its ownership of BreitBurn units. For full-year 2010, Quicksilver received $20.9 million in distributions and an additional $18 million related to the settlement of the BreitBurn litigation.

Total Debt

At December 31, 2010, the company's total debt was approximately $1.9 billion, a reduction of approximately $537 million from year-end 2009. Total debt per proved reserve equivalent has been reduced to $0.65 per Mcfe. Currently, Quicksilver Resources has approximately $836 million available under its $1 billion senior secured revolving credit facility. 

Operational Update

In the Barnett Shale, the company drilled 20 (17.8 net) operated wells and connected 38 (27.3 net) operated wells to sales during the fourth quarter. For full-year 2010, the company drilled 96 (81.6 net) operated wells and connected 116 (93.2 net) operated wells to sales. At year end 2010, Quicksilver had an inventory of 121 operated wells that were drilled but uncompleted in the Barnett Shale. 

During 2010 in the Horseshoe Canyon area of Alberta, Canada, the company drilled 14 (9.9 net) wells and connected 54 (36.6 net) wells to sales lines. As previously announced, in October 2010, 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.

In the Horn River Basin of northeast British Columbia, Quicksilver has now drilled six horizontal wells into the Muskwa and Klua formations and four wells have commenced production. The company expects to finish drilling activities on two additional Muskwa wells before spring break-up begins in late March. In addition the company has drilled its first horizontal well into the Exshaw formation. Completion activities on the most recent four Muskwa wells and Exshaw well are anticipated to begin this summer. 

Capital

During the fourth quarter of 2010, the company incurred capital costs of approximately $180 million. This resulted in total capital costs for the year of approximately $588 million, of which approximately 77% was associated with drilling and completion activities, approximately 13% for midstream activities, approximately 8% for acreage purchases and approximately 2% for other assets. In addition, the company completed acquisitions totaling $147 million for additional interests in the Lake Arlington project in the Barnet Shale and the Joffre property in Horseshoe Canyon. 

First-Quarter 2011 Outlook

First-quarter 2011 production volume is expected to average in the range of 390 MMcfe to 400 MMcfe per day. Average unit expenses, on a Mcfe basis, are expected as follows:

  Lease operating expense   $ .59  - $ .64
  Gathering, processing & transportation   1.22  - 1.27
  Production taxes   .24  - .26
  General and administrative   .57  - .60
  Depletion, depreciation & accretion   1.45  - 1.50

The company has hedges in place to cover approximately 64% of expected production for the first quarter of 2011. A total of 190 MMcf per day of natural gas is covered by collars with a weighted-average floor price of $5.95 per thousand cubic feet (Mcf) and 10,500 barrels per day of NGLs are covered by fixed-price swaps with a weighted-average price of $38.84 per barrel for the first quarter and full year of 2011. 

Conference Call

The company will host a conference call to discuss fourth-quarter and full-year 2010 operating and financial results and its outlook for the future at 11:00 a.m. eastern time today.

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 33138903, 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 33138903. 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 an independent oil and gas company engaged in the exploration, exploitation, development and acquisition of oil and gas, primarily from unconventional reservoirs including gas from shales, coal beds and tight sands 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; 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.

KWK 11-03

QUICKSILVER RESOURCES INC.  
CONSOLIDATED STATEMENTS OF INCOME (LOSS)  
In thousands, except for per share data - Unaudited  
               
     For the Three        
    Months Ended     For the Year Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
Revenue                                
  Natural gas, NGL and oil   $ 224,850     $ 215,542     $ 856,349     $ 796,698  
  Sales of purchased natural gas     14,062       12,473       64,089       23,654  
  Other     991       6,090       7,893       12,383  
    Total revenue     239,903       234,105       928,331       832,735  
                                 
Operating expenses                                
  Lease operating expenses     22,323       19,931       84,836       79,027  
  Gathering, processing and transportation expense     42,928       14,846       94,008       48,688  
  Production and ad valorem taxes     7,614       5,444       34,156       23,881  
  Costs of purchased natural gas     13,620       18,612       65,321       30,158  
  Other operating expenses     978       1,347       4,522       6,684  
  Depletion, depreciation and accretion     52,635       46,177       202,603       201,387  
  Impairment expense     16,466       12,414       47,997       979,540  
  General and administrative expense     18,362       17,791       80,107       77,243  
    Total expense     174,926       136,562       613,550       1,446,608  
Gain on sale of KGS     473,204       -       473,204       -  
Operating income (loss)     538,181       97,543       787,985       (613,873 )
Income from earnings of BBEP     (1,880 )     (1,971 )     22,323       75,444  
Impairment of investment in BBEP     -       -       -       (102,084 )
Other income (expense) - net     8,078       (503 )     75,724       (1,242 )
Interest expense     (46,182 )     (45,200 )     (188,353 )     (195,101 )
Income (loss) before income taxes     498,197       49,869       697,679       (836,856 )
Income tax (expense) benefit     (181,317 )     (9,508 )     (252,886 )     291,617  
Net income (loss)     316,880       40,361       444,793       (545,239 )
Net income attributable to noncontrolling interests     1,395       (7,823 )     (9,724 )     (12,234 )
Net income (loss) attributable to Quicksilver   $ 318,275     $ 32,538     $ 435,069     $ (557,473 )
                                 
Earnings (loss) per common share - basic   $ 1.87     $ 0.19     $ 2.56     $ (3.30 )
                                 
Earnings (loss) per common share - diluted   $ 1.77     $ 0.19     $ 2.45     $ (3.30 )
                                 
Basic weighted average shares outstanding     170,283       169,275       170,186       169,004  
              -                  
Diluted weighted average shares outstanding     180,978       180,894       180,804       169,004  
QUICKSILVER RESOURCES INC.  
CONSOLIDATED BALANCE SHEETS  
In thousands, except share data - Unaudited  
             
    December 31, 2010     December 31, 2009  
ASSETS  
Current assets                
  Cash and cash equivalents   $ 54,937     $ 1,037  
  Accounts receivable - net of allowance for doubtful accounts     63,380       63,738  
  Derivative assets at fair value     89,205       97,957  
  Other current assets     30,650       54,652  
    Total current assets     238,172       217,384  
                 
Investments in equity affiliates     83,341       112,763  
                 
Property, plant and equipment - net                
  Oil and gas properties, full cost method (including unevaluated costs of $314,543 and $458,037, respectively)     2,844,919       2,338,244  
  Other property and equipment     222,926       204,601  
Property, plant and equipment - net     3,067,845       2,542,845  
                 
Assets of midstream operations held for sale     27,178       548,508  
Derivative assets at fair value     57,557       14,427  
Deferred income taxes     -       133,051  
Other assets     38,241       43,904  
    $ 3,512,334     $ 3,612,882  
LIABILITIES AND EQUITY  
Current liabilities                
  Current portion of long-term debt   $ 143,478     $ -  
  Accounts payable     167,857       149,766  
  Accrued liabilities     122,904       153,598  
  Derivative liabilities at fair value     -       395  
  Current deferred tax liability     28,861       51,675  
    Total current liabilities     463,100       355,434  
                 
Long-term debt     1,746,716       2,302,123  
                 
Liabilities of midstream operations held for sale     1,431       148,191  
Asset retirement obligations     56,235       48,472  
Other liabilities     28,461       20,691  
Deferred income taxes     156,983       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, and 175,524,816 and 174,469,836 shares issued, respectively     1,755       1,745  
  Paid in capital in excess of par value     714,869       730,265  
  Treasury stock of 5,050,450 and 4,704,448 shares, respectively     (41,487 )     (36,363 )
  Accumulated other comprehensive income     130,187       121,336  
  Retained earnings (deficit)     254,084       (180,985 )
    Quicksilver stockholders' equity     1,059,408       635,998  
  Noncontrolling interests     -       60,824  
Total equity     1,059,408       696,822  
    $ 3,512,334     $ 3,612,882  
QUICKSILVER RESOURCES INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
In thousands - Unaudited  
             
     For the Year Ended  
    December 31,  
    2010     2009  
Operating activities:                
  Net income (loss)   $ 444,793     $ (545,239 )
  Adjustments to reconcile net income (loss) to net cash provided by operating activities:                
    Depletion, depreciation and accretion     202,603       201,387  
    Impairment expense     47,997       979,540  
    Deferred income tax expense (benefit)     179,715       (291,414 )
    Non-cash (gain) loss from hedging and derivative activities     (58,892 )     6,756  
    Gain on sale of KGS     (473,204 )     -  
    Divestiture expenses     2,555       -  
    Stock-based compensation     25,990       20,815  
    Non-cash interest expense     17,226       45,532  
    Gain on disposition of BBEP units     (57,584 )     -  
    Income from BBEP in excess of cash distributions     (1,417 )     (64,344 )
    Impairment of investment in BBEP     -       102,084  
    Other     (168 )     747  
  Changes in assets and liabilities                
    Accounts receivable     (9,501 )     77,527  
    Derivative assets at fair value     30,816       54,896  
    Prepaid expenses and other assets     6,364       3,061  
    Accounts payable     33,957       (12,320 )
    Income taxes payable     4,611       60  
    Accrued and other liabilities     1,859       33,215  
Net cash provided by operating activities     397,720       612,303  
                 
Investing activities:                
  Purchases of property, plant and equipment     (695,114 )     (693,838 )
  Alliance Acquisition     -           -  
  Proceeds from sale of KGS     699,973       -  
  Proceeds from sale of BBEP units     34,016       -  
  Proceeds from sale of properties and equipment     9,953       220,974  
Net cash provided (used) by investing activities     48,828       (472,864 )
                 
Financing activities:                
  Issuance of debt     690,058       1,420,727  
  Repayments of debt     (1,031,736 )     (1,649,630 )
  Debt issuance costs paid     (3,111 )     (32,472 )
  Gas Purchase Commitment assumed     -       58,294  
  Gas Purchase Commitment repayments     (44,119 )     (14,175 )
  Issuance of KGS common units - net of offering costs     11,054       80,729  
  Distributions paid on KGS common units     (13,550 )     (9,925 )
  Proceeds from exercise of stock options     1,801       4,046  
  Excess tax benefits on exercise of stock options     3,513       -  
  Taxes paid on vesting of KGS equity compensation     (1,144 )     (63 )
  Purchase of treasury stock     (4,910 )     (922 )
Net cash provided (used) by financing activities     (392,144 )     (143,391 )
                 
Effect of exchange rate changes in cash     (1,252 )     2,889  
                 
Net increase (decrease) in cash     53,152       (1,063 )
                 
Cash and cash equivalents at beginning of period     1,785       2,848  
                 
Cash and cash equivalents at end of period   $ 54,937     $ 1,785  
                 
                 
                 

 

QUICKSILVER RESOURCES INC.
Unaudited Selected Operating Results
                 
     Three Months Ended    Year Ended
     December 31,   December 31,
    2010   2009   2010   2009
Average Daily Production:        
Natural Gas (Mcfd)     312,050     244,621     278,532     235,725
NGL (Bbld)     12,095     12,331     11,946     13,635
Oil (Bbld)     766     955     830     1,165
  Total (Mcfed)     389,214     324,337     355,185     324,526
                         
Average Realized Price:                        
Natural Gas (per Mcf)   $ 6.38   $ 7.46   $ 6.86   $ 7.42
NGL (per Bbl)   $ 32.46   $ 36.60   $ 31.46   $ 27.32
Oil (per Bbl)   $ 77.16   $ 68.79   $ 71.90   $ 51.85
  Total (Mcfe)   $ 6.28   $ 7.22   $ 6.61   $ 6.73
                         
Expense per Mcfe:                        
Lease operating expense:                        
  Cash expense     0.60     0.65     0.63     0.64
  Equity compensation     0.02     0.02     0.02     0.03
Total lease operating expense   $ 0.62   $ 0.67   $ 0.65   $ 0.67
                         
GPT expense   $ 1.20   $ 0.50   $ 0.73   $ 0.41
                         
Production and ad valorem taxes   $ 0.21   $ 0.18   $ 0.26   $ 0.20
Depletion, depreciation and accretion   $ 1.47   $ 1.55   $ 1.56   $ 1.70
General and administrative expense:                        
  Cash expense   $ 0.31   $ 0.46   $ 0.43   $ 0.47
  Litigation settlement     -     -     0.02     0.04
  Equity compensation     0.20     0.14     0.17     0.14
Total general and administrative expense   $ 0.51   $ 0.60   $ 0.62   $ 0.65
QUICKSILVER RESOURCES INC.  
Production, on a million cubic feet of natural gas equivalent (MMcfe) per day basis, by operating area  
                           
  Three Months Ended December 31,     Year Ended December 31,  
  2010   2009   Change     2010   2009   Change  
                           
Barnett Shale 309.3   251.0   23 %   281.9   254.2   11 %
Other U.S. 3.4   3.9   -13 %   4.1   3.4   21 %
Total U.S. 312.7   254.9   23 %   286.0   257.6   11 %
                           
Horseshoe Canyon 62.8   63.8   -2 %   61.2   64.9   -6 %
Horn River 13.7   5.6   145 %   8.0   2.0   300 %
Total Canada 76.5   69.4   10 %   69.2   66.9   3 %
                           
  Total Company 389.2   324.3   20 %   355.2   324.5   9 %
QUICKSILVER RESOURCES INC.  
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED NET INCOME  
In thousands, except per share data - Unaudited  
               
     Three Months Ended      Year Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
                                 
Net income (loss)   $ 318,275     $ 32,538     $ 435,069     $ (557,473 )
                                 
Adjustments                                
  Gain on sale of KGS     (473,204 )     -       (473,204 )     -  
  Impairment of assets     16,466       12,414       47,997       979,540  
  Impairment of investment in BBEP     -       -       -       102,084  
  Crestwood Transaction expenses     2,186       -       4,746       -  
  Equity portion of BBEP impairment of E&P properties     -       -       -       35,044  
  Equity portion of early settlement of hedges from BBEP     -       -       -       (28,602 )
  Equity portion of interest rate derivatives from BBEP     (429 )     1,534       (1,964 )     8,375  
  Equity portion of commodity derivatives from BBEP     9,978       4,707       7,099       (73,956 )
  Equity portion of (gain) loss from sale of properties from BBEP     (117 )     2,213       262       2,213  
  BBEP settlement     -       -       (18,000 )     -  
  Gain on BBEP units sold and conveyed     (7,734 )     -       (57,584 )     -  
  Unrealized valuation gain on Gas Purchase Commitment     (666 )     -       (6,625 )     -  
  Debt termination-related expenses     -       -       -       27,122  
  Legal settlement     250       -       2,650       5,000  
  Total adjustments before income tax expense     (453,270 )     20,868       (494,623 )     1,056,820  
  Income tax expense for above adjustments     165,022       (6,062 )     179,496       (350,958 )
Total adjustments after tax     (288,248 )     14,806       (315,127 )     705,862  
                                 
Adjusted net income   $ 30,027     $ 47,344     $ 119,942     $ 148,389  
                                 
Adjusted net income per common share - Diluted   $ 0.18     $ 0.27     $ 0.70     $ 0.86  
                                 
Diluted weighed average common shares outstanding     180,978       180,894       180,804       179,617  

Contact Information

  • Media Contact:
    Tom Johnson
    Chuck Dohrenwend
    The Abernathy MacGregor Group
    (212) 371-5999

    Investor Contact:
    Rick Buterbaugh
    (817) 665-4835