SOURCE: Quicksilver Resources Inc.

Quicksilver Resources Inc.

August 10, 2009 07:00 ET

Quicksilver Resources Reports Second-Quarter 2009 Results

FORT WORTH, TX--(Marketwire - August 10, 2009) -  Quicksilver Resources Inc. (NYSE: KWK) today reported operating and financial results for the 2009 second quarter.

Second-Quarter 2009 Highlights

  • Produced volumes of approximately 331 MMcfe per day; up 40% year-over-year
  • Reduced oil and gas production expense to $1.05 per Mcfe; down 32% year-over-year
  • Increased Fort Worth Basin daily production volumes 54% year-over-year
  • Increased Canadian daily production volumes 5% year-over-year
  • Drilled 29 horizontal wells in the Fort Worth Basin
  • Closed joint venture transaction with Eni on Alliance properties
  • Reduced total debt by $196 million during the quarter

"Quicksilver's second-quarter operating results were as expected and met our stated goals to maintain production volumes, reduce unit costs, and reduce total debt," said Glenn Darden, Quicksilver president and chief executive officer. "We have increased Quicksilver's financial flexibility and continue to benefit from our natural gas hedging position which will underpin the company's cash flow through 2010."

Financial Results

Second-quarter 2009 adjusted net income, a non-GAAP measure, was $41.2 million ($.24 per diluted share) compared to adjusted net income of $65.9 million ($.40 per diluted share) in the 2008 period. Adjusted net income excludes the following items:

  • a noncash impairment charge of $70.6 million ($53.1 million after tax) in the 2009 quarter related to the company's Canadian oil and gas properties;
  • a noncash charge of $27.1 million ($17.6 million after tax) in the 2009 quarter for debt expense related to the company's early repayment of its senior secured second-lien notes;
  • net income of $16.0 million ($10.4 million after tax) in the 2009 quarter associated with the company's ownership in BreitBurn Energy Partners that included a gain related to the early settlement of hedges, a charge for the unrealized mark-to-market loss on oil and gas derivative positions and a charge on interest rate swaps;
  • a charge of $5.0 million ($3.3 million after tax) in the 2009 quarter related to the company's settlement of litigation; and
  • a charge of $22.1 million ($14.4 million after tax) in the 2008 quarter related to the unrealized mark-to-market loss of derivative positions held by BreitBurn Energy Partners, associated with the company's ownership in BreitBurn Energy Partners.

Including the items noted above, Quicksilver reported a net loss of $21.8 million (a loss of $.13 per diluted share) in the 2009 second quarter as compared to net income of $51.3 million ($.31 per diluted share) in the prior-year period.

Production

For the second quarter of 2009, average daily production was approximately 331 million cubic feet of natural gas equivalent (MMcfe) per day compared to approximately 236 MMcfe per day for the same period in 2008, an increase of approximately 40%. Total production for the second quarter of 2009 was approximately 30.1 billion cubic feet of natural gas equivalent (Bcfe) compared to approximately 21.5 Bcfe for the second quarter of 2008. The 2009 production volumes were comprised of approximately 71% natural gas, approximately 27% natural gas liquids (NGLs) and approximately 2% crude oil and condensate. Increased activities at the company's Lake Arlington and Alliance projects in the northern portion of its Fort Worth Basin acreage resulted in increased production of dry gas as a percent of total production in the 2009 quarter as compared to the 2008 quarter.

Revenues and Costs

Sales of natural gas, NGLs and crude oil totaled $199.3 million in the second quarter of 2009 and were essentially unchanged from the prior-year quarter. Sales from increased production volumes from the company's Fort Worth Basin in Texas and Horseshoe Canyon area in Alberta, Canada were nearly completely offset by lower average realized prices for all commodities, which resulted in an approximate 28% decrease in the average realized price per thousand cubic feet of natural gas equivalent (Mcfe).

Total production expense was $31.7 million for the 2009 second quarter, down $1.3 million from the prior-year quarter even though total production increased more than 40%. Unit production expense, including production, gathering and processing and transportation expense, decreased to $1.05 per Mcfe during the second quarter of 2009, a 32% reduction from $1.54 per Mcfe reported in the prior-year period. Quicksilver's ongoing efforts to reduce and control costs enabled the company to remain as one of the lowest-cost operators in North America.

Income from Earnings of Unconsolidated Affiliate

Quicksilver reported $19.0 million of pre-tax earnings attributable to the company's approximate 41% interest in BreitBurn Energy Partners L.P.'s (BBEP) first-quarter 2009 results, including $18.5 million of income from the early settlement of derivative positions, a $1.7 million loss on the unrealized mark-to-market of commodity derivative positions and a $.9 million loss on interest rate derivatives. On April 17, 2009, BBEP announced that it was suspending its distributions and, therefore, Quicksilver did not receive any cash distributions from this partnership during the quarter.

Interest Expense and Debt

Interest expense in the 2009 second quarter increased to $68.1 million, due to higher outstanding debt balances, primarily associated with the acquisition of the Alliance properties in August 2008, and the early retirement of the company's senior secured second-lien facility. In June 2009, the company issued $600 million face amount of senior notes due 2016 and fully repaid its senior secured second-lien facility. We recognized $27.1 million of additional interest expense for the remaining unamortized original issue discount and deferred financing costs upon early retirement of the senior secured second-lien facility.

Operational Update

Quicksilver continued to focus on the exploitation and development of the 175,000 net acres in its core fairway within the Barnett Shale formation of the Fort Worth Basin. During the second quarter of 2009, the company drilled 29 (22.9 net) wells and connected 27 (25.2 net) wells to sales. The company currently has five rigs working in the basin, including four rigs dedicated to the Lake Arlington and Alliance areas in Tarrant and Denton counties.

In Canada, drilling, completion and pipeline activities were suspended for most of the quarter due to the seasonal break-up period. The company drilled just one well during the second quarter of 2009 in the Horseshoe Canyon area and expects to drill nine (seven net) wells for the remainder of this year. The company now anticipates participating in a total of 145 (42.2 net) wells in this area for the full year of 2009.

During the second quarter of 2009, the company incurred costs of approximately $136 million, including approximately $103 million for drilling and completion activities and $31 million for midstream activities and approximately $2 million for other corporate items. The company expects to incur an additional $216 million of capitalized costs during the second half of 2009.

Third-Quarter 2009 Outlook

Third-quarter 2009 production volumes are expected to average in the range of 310 MMcfe to 320 MMcfe per day. Average unit expenses, on a Mcfe basis, are expected as follows:

 • Production
$.55 - $.60
 • Gathering and processing
.15 - .18
 • Transportation
.35 - .40
 • Production taxes
.15 - .20
 • General and administrative
.62 - .67
 • Depletion, depreciation & accretion
1.65 - 1.70

Conference Call

The company will host a conference call to discuss second-quarter 2009 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 80367823, 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 80367823. 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 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 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, 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; 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 09-12

   
QUICKSILVER RESOURCES INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

In thousands, except for per share data - Unaudited
 
   
    For the Three Months Ended
      For the Six Months Ended
 
    June 30,
      June 30,
 
    2009
    2008
      2009
    2008
 
Revenue
                         
  Natural gas, NGL and crude oil
  $
199,315
    $
198,147
      $
382,869
    $
356,503
 
  Sales of purchased natural gas
  5,217
    -
      5,217
    -
 
 Other
  1,509
    (246
)
    3,887
    (985
)
    Total revenue
  206,041
    197,901
      391,973
    355,518
 
                           
Operating expenses
                         
  Oil and gas production expense
  31,703
    33,019
      63,874
    65,375
 
  Production and ad valorem taxes
  7,441
    3,081
      11,807
    5,740
 
  Costs of purchased natural gas
  8,582
    -
      8,582
    -
 
  Other operating costs
  1,744
    396
      3,271
    1,801
 
  Depletion, depreciation and accretion
  50,966
    38,920
      110,662
    73,979
 
  General and administrative
  24,389
    15,382
      41,770
    30,797
 
    Total expenses
  124,825
    90,798
      239,966
    177,692
 
Impairment related to oil and gas properties
  (70,643
)
  -
      (967,126
)
  -
 
Operating income (loss)

10,573
    107,103
      (815,119
)
  177,826
 
Income (loss from earnings of BBEP, net)

19,016
    (10,269
)
    19,016
    (4,050
)
Other income (expense, net)

(855
)
  (428
)
    (94
)
  1,058
 
Interest expense
  (68,081
)
  (16,098
)
    (108,282
)
  (29,533
)
Income (loss before income taxes)

(39,347
)
  80,308
      (904,479
)
  145,301
 
Income tax (expense benefit)

18,897
    (27,985
)
    316,720
    (51,336
)
Net income (loss)

(20,450
)
  52,323
      (587,759
)
  93,965
 
Net income attributable to noncontrolling interests
  (1,312
)
  (988
)
    (2,982
)
  (1,496
)
Net income (loss attributable to Quicksilver)

$
(21,762
)
  $
51,335
      $
(590,741
)
  $
92,469
 
                           
                          
Earnings (loss per common share - basic)

$
(0.13
)
  $
0.32
      $
(3.50
)
  $
0.58
 
                           
Earnings (loss per common share - diluted)

$
(0.13
)
  $
0.31
      $
(3.50
)
  $
0.57
 
                           
Basic weighted average shares outstanding
  169,009
    158,290
      168,894
    158,209
 
                           
Diluted weighted average shares outstanding
  169,009
    169,185
      168,894
    169,094
 
  
   
QUICKSILVER RESOURCES INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
In thousands, except share data - Unaudited
 
               
      June 30,
    December 31,
 
      2009
    2008
 
ASSETS          
Current assets
         
  Cash and cash equivalents
$
657
    $
2,848
 
  Accounts receivable, net of allowance for doubtful accounts
53,450
    143,315
 
  Derivative assets at fair value
202,332
    171,740
 
  Other current assets
70,516
    75,433
 
    Total current assets 326,955
    393,336
 
Investment in BreitBurn Energy Partners
158,418
    150,503
 
Property, plant and equipment
         
  Oil and gas properties, full cost method (including unevaluated costs of
 $512,568 and $543,533, respectively)
2,150,528
    3,142,608
 
  Other property and equipment
697,264
    655,107
 
Property, plant and equipment, net
2,847,792
    3,797,715
 
Derivative assets at fair value
55,729
    116,006
 
Deferred income taxes
138,759
    -
 
Other assets
41,525
    40,648
 
      $
3,569,178
    $
4,498,208
 
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities
         
  Current portion of long-term debt
$
-
    $
6,579
 
  Accounts payable
138,016
    282,636
 
  Income taxes payable
7,767
    40
 
  Accrued liabilities
96,043
    66,923
 
  Derivative liabilities at fair value
276
    9,928
 
  Deferred income taxes
76,639
    52,393
 
    Total current liabilities 318,741
    418,499
 
               
Long-term debt2,497,693
    2,586,046
 
Asset retirement obligations
41,476
    34,753
 
Derivative liabilities at fair value
503
    -
 
Other liabilities
31,768
    12,962
 
Deferred income taxes
27,314
    234,385
 
Stockholders' 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;  173,895,897 and 171,742,699 shares issued, respectively 1,739     1,717  
 
   
 
  Paid in capital in excess of par value
667,427
    656,958
 
  Treasury stock of  4,674,212 and 4,572,795 shares, respectively
(36,068
)
  (35,441
)
  Accumulated other comprehensive income
207,203
    185,104
 
  Retained earnings (deficit)
(214,253
)
  376,488
 
    Quicksilver stockholders' equity 626,048
    1,184,826
 
Noncontrolling interests
25,635
    26,737
 
  Total equity
651,683
    1,211,563
 
     $
3,569,178
    $
4,498,208
 
   
   
QUICKSILVER RESOURCES INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
In thousands - Unaudited
 
                 
        For the Six Months Ended
 
        June 30,
 
        2009
    2008
 
Operating activities:
         
  Net income (loss)
$
(587,759
)
  $
93,965
 
  Adjustments to reconcile net income (loss) to net cash provided
 by operating activities:
         
    Depletion, depreciation and accretion
110,662
    73,979
 
    Impairment related to oil and gas properties
967,126
    -
 
    Deferred income tax expense (benefit)
(331,321
)
  50,243
 
    Stock-based compensation
11,223
    7,641
 
    Non-cash loss from hedging and derivative activities
5,544
    11,069
 
   Non-cash interest expense
35,848
    4,532
 
    (Income) loss from BBEP in excess of cash distributions, net of impairment
(7,915
)
  4,050
 
    Other
420
    1,067
 
  Changes in assets and liabilities:
         
    Accounts receivable
89,580
    (26,057
)
    Derivative assets at fair value
54,896
    -
 
    Other assets
(4,266
)
  (9,213
)
    Accounts payable
(25,864
)
  (8,566
)
    Income taxes payable
7,726
    (46,497
)
    Accrued and other liabilities
(15,622
)
  (19,602
)
Net cash provided by operating activities
310,278
    136,611
 
                 
Investing activities:
         
  Purchases of property, plant and equipment
(441,184
)
  (650,458
)
  Proceeds from sales of property, plant and equipment
233,488
    598
 
 Return of investment from BBEP
-
    20,334
 
Net cash used for investing activities
(207,696
)
  (629,526
)
                 
Financing activities:
         
  Issuance of debt
1,020,750
    1,030,288
 
  Repayment of debt
(1,144,031
)
  (547,566
)
  Debt issuance costs
(22,802
)
  (10,837
)
  Eni Gas Purchase Commitment assumed
46,628
    -
 
  Noncontrolling interest distributions
(4,896
)
  (4,042
)
  Proceeds from exercise of stock options
80
    1,082
 
  Purchase of treasury stock
(627
)
  (2,354
)
Net cash provided by (used for) financing activities
(104,898
)
  466,571
 
                 
Effect of exchange rate changes in cash
125
    447
 
                 
Net decrease in cash
(2,191
)
  (25,897
)
                 
Cash and cash equivalents at beginning of period
2,848
    28,226
 
                 
Cash and cash equivalents at end of period
$
657
    $
2,329
 
 
 
QUICKSILVER RESOURCES INC.
Production, on a thousand cubic feet of natural gas equivalent (Mcfe) per day basis, by operating area
                         
    Three Months Ended June 30,
  Six Months Ended June 30,
    2009
  2008
  Change
  2009
  2008
  Change
                         
Texas
  262,695
  170,187
  54%
  263,005
  157,605
  67%
Other U.S.
  2,960
  3,118
  -5%
  3,131
  3,358
  -7%
   265,655
  173,305
  53%
  266,136
  160,963
  65%
                         
Canada
  65,593
  62,498
  5%
  65,262
  62,513
  4%
                         
Total
  331,248
  235,803
  40%
  331,398
  223,476
  48%
 
 
QUICKSILVER RESOURCES INC.
Unaudited Selected Operating Results
                 
                 
    Three Months Ended
  Six Months Ended
    June 30,
  June 30,
    2009
  2008
  2009
  2008
Average Daily Production:
       
Natural Gas (Mcfd)
  234,795
  158,540
  238,603
  151,002
NGL (Bbld)
  14,837
  11,484
  14,100
  10,757
Oil (Bbld)
  1,238
  1,393
  1,366
  1,322
  Total (Mcfed)
  331,248
  235,803
  331,398
  223,476
                 
Average Realized Prices:
               
Natural Gas (per Mcf)
  $
7.52
  $
9.02
  $
7.28
  $
8.53
NGL (per Bbl)
  $
24.22
  $
54.45
  $
22.77
  $
52.07
Oil (per Bbl)
  $
52.48
  $
88.25
  $
42.65
  $
83.15
  Total (Mcfe)
  $
6.61
  $
9.23
  $
6.38
  $
8.77
                 
Expense per Mcfe:
              
Oil and gas production expense:
               
  Cash expense
  $
1.02
  $
1.51
  $
1.03
  $
1.57
  Stock-based compensation
  0.03
  0.03
  0.03
  0.04
Total oil and gas production expense:
  $
1.05
  $
1.54
  $
1.06
  $
1.61
                 
Production and ad valorem taxes
  $
0.25
  $
0.14
  $
0.20
  $
0.14
Depletion, depreciation and accretion
  $
1.69
  $
1.81
  $
1.84
  $
1.82
General and administrative expense:
               
  Other cash expense
  $
0.49
  $
0.57
  $
0.47
  $
0.60
  Litigation settlement
  0.17
  -
  0.08
 -
  Stock-based compensation
  0.15
  0.15
  0.15
  0.16
Total general and administrative expense
  $
0.81
  $
0.72
  $
0.70
  $
0.76
   
   
QUICKSILVER RESOURCES INC.
 
RECONCILIATION OF NET INCOME (LOSS TO ADJUSTED NET INCOME)

In thousands, except per share data - Unaudited
 
           
  For the Three Months Ended June 30,
    For the Six Months Ended June 30,
 
  2009
    2008
    2009
    2008
 
                       
Net income (loss)
$
(21,762
)
  $
51,535
    $
(590,741
)
  $
92,469
 
                       
Adjustments
                     
  Impairment of E&P Properties
70,643
    -
    967,126
    -
 
  Impairment of investment in BBEP
-
    -
    102,084
    -
 
  Equity portion of BBEP impairment of E&P properties
-
    -
    35,044
    -
 
  Equity portion of early settlement of hedges from BBEP
(18,508
)
  -
    (18,508
)
  -
 
  Equity portion of interest rate derivative loss from BBEP
852
    -
    6,977
    -
 
  Equity portion of commodity derivative loss (income) from BBEP
1,650
    22,133
    (138,823
)
  22,840
 
  Debt termination-related expenses (interest expense)
27,122
    -
    27,122
    -
 
  Legal settlement (G&A)
5,000
    -
    5,000
    -
 
  Total adjustments before income tax expense
86,759
    22,133
    986,022
    22,840
 
  Income tax expense
(23,750
)
  (7,747
)
  (327,421
)
  (7,994
)
Adjustments for items after taxes
63,009
    14,386
    658,601
    14,846
 
                       
Adjusted net income
$
41,247
    $
65,921
    $
67,860
    $
107,315
 
                       
Adjusted net income per common share - Diluted
$
0.24
    $
0.40
    $
0.40
    $
0.65
 
                       
Diluted weighed average common shares outstanding
180,136
    169,185
    179,648
    169,094
 

Contact Information

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