Quicksilver Resources Reports Second-Quarter 2010 Results; Production Sets New Company Record

Mon Aug 9, 2010 7:30am EDT

* Reuters is not responsible for the content in this press release.

  FORT WORTH, TX, Aug 09 (MARKET WIRE) -- 
Quicksilver Resources Inc. (NYSE: KWK) today reported net income of $86.8
million ($.49 per diluted share) in the 2010 second quarter as compared
to a net loss of $21.8 million (a loss of $.13 per diluted share) in the
prior-year period. Second-quarter 2010 adjusted net income, a non-GAAP
measure, was $30.4 million ($.18 per diluted share) as compared to the
2009 period adjusted net income of $41.2 million ($.24 per diluted
share). Details of adjusted net income are included in the attached
tables of this news release.

    "Quicksilver has made tremendous progress in strengthening the company and
adding growth opportunities for the future," said Glenn Darden,
Quicksilver president and chief executive officer. "With the recently
announced agreement to sell our interests in Quicksilver Gas Services, we
will materially reduce debt and increase liquidity to $1 billion, while
retaining 100% of our reserve base and meaningful upside in the Horn River
Basin."

    Production, Revenue and Costs

    For the second quarter of 2010, we achieved record average daily
production of approximately 350 million cubic feet of natural gas
equivalents (MMcfe) per day, up 5.6% compared to approximately 331 MMcfe
per day for the same period in 2009. The 2009 period included
approximately 12 MMcfe per day of production from the Alliance area that
was divested to Eni (NYSE: E) in June 2009. Total production for the
second quarter of 2010 was approximately 31.8 billion cubic feet of
natural gas equivalents (Bcfe) compared to approximately 30.1 Bcfe for
the second quarter of 2009. The 2010 production volumes were comprised of
approximately 78% natural gas, approximately 20% 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 primarily drove the
increased production of dry gas.

    Sales of natural gas, NGLs and crude oil increased 6.2% to $211.7 million
in the second quarter of 2010 as compared to $199.3 million in the 2009
quarter. The increase was primarily due to greater production volumes for
natural gas. Higher market prices for natural gas, NGLs and crude oil more
than offset the impact of lower hedging benefits, which resulted in the
company's weighted-average price per thousand cubic feet of natural gas
equivalents (Mcfe) in the 2010 second quarter of $6.65, up slightly from
the prior year.

    Total production expense for the 2010 second quarter of $38.2 million
reflects higher compression costs associated with increased production
volumes from the Alliance project in the Fort Worth Basin of north Texas
and increased costs associated with new production from our Horn River
project in northeast British Columbia.

    Earnings from BreitBurn Ownership

    Quicksilver reported income of $23.2 million attributable to the company's
approximate 40% interest in BreitBurn Energy Partners L.P.'s (NASDAQ:
BBEP) first-quarter 2010 results, including $16.3 million of derivatives
income. During the second quarter of 2010, Quicksilver received $8
million in cash distributions associated with its ownership of BreitBurn
units and $18 million related to the settlement of litigation with
BreitBurn and another third party. As we previously disclosed, in May
2010 we utilized approximately 3.6 million units of BBEP to partially
fund the acquisition of additional working interests in our Lake
Arlington project, which reduced our ownership position in BBEP to
approximately 33%. Our non-operating income reflects a gain of
approximately $35 million attributable to this transaction.

    Operational Update

    In the Fort Worth Basin, the company drilled 26 (22.4 net) wells and
connected 29 (25.1 net) wells to sales during the second quarter of 2010.
The company currently has four rigs working in the basin, including two
rigs dedicated to the Alliance project and one rig on a temporary basis at
the Lake Arlington project in the northern, dry gas portion of the basin
and one rig in the southern portion of the basin, which has predominantly
high-Btu gas. The company still expects to drill and complete a total of
approximately 80 wells in the basin in 2010. The company also expects to
complete at least 25 additional wells this year from its existing
inventory of drilled but uncompleted wells.

    In Canada, drilling, completion and pipeline activities were suspended for
most of the second quarter due to the seasonal break-up period. In the
Horseshoe Canyon area, the company expects to drill 11 (9.3 net) operated
wells during the second half of 2010, resulting in a total of 21 (14.2
net) wells in this area for the full year of 2010. The company expects to
begin completion activities on its third well in the Horn River Basin in
late summer and completion of its fourth well is anticipated at year-end.
In addition, the company now expects to re-enter an existing vertical
well in the Horn River Basin, to drill a horizontal test of the Exshaw oil
formation, later this year.

    During the second quarter of 2010, the company incurred capital costs of
approximately $137 million, primarily associated with drilling and
completion activities in the Fort Worth Basin. In addition, as discussed
above, Quicksilver acquired the remaining 25% working interest that we did
not previously own in the Lake Arlington property for approximately $125
million. Approximately half of the purchase price was funded with
approximately 3.6 million units of BBEP.

    On July 22, the company announced that it had entered into a definitive
agreement to sell all of its interests in Quicksilver Gas Services to
Crestwood Midstream Partners II, LLC, a portfolio company of First Reserve
Corporation. Quicksilver will receive $701 million at closing and up to an
additional $72 million in earn-out payments for all of its general
partner, limited partner and subordinated units and the note receivable
from Quicksilver Gas Services LP (NYSE: KGS). The transaction is not
subject to financing contingencies and is expected to close in October
2010, subject to customary closing conditions.

    Third-Quarter 2010 Outlook

    Third-quarter 2010 production volumes are expected to average in the range
of 365 MMcfe to 370 MMcfe per day. As a result of the Quicksilver board of
directors' decision to divest of the company's interests in Quicksilver
Gas Services, the company will no longer consolidate the results of
Quicksilver Gas Services and therefore, average unit expenses, on a Mcfe
basis, are expected as follows:



--  Production                               $ .60  -  $ .65
--  Gathering and processing                   .70  -    .75
--  Transportation                             .40  -    .45
--  Production taxes                           .20  -    .25
--  General and administrative                 .50  -    .55
--  Depletion, depreciation & accretion       1.40  -   1.45


    
The company has derivatives in place to cover approximately 68% of
expected production for the remainder of 2010. For natural gas, collars
with a weighted-average floor price of $7.40 per thousand cubic feet are
expected to cover approximately 65% of expected natural gas production
for the remaining two quarters of 2010. For NGLs, the company has
fixed-price swaps with a weighted-average price of $33.47 per barrel,
which is anticipated to cover approximately 85% of NGLs production for
the remaining two quarters of 2010.

    Conference Call

    The company will host a conference call to discuss second-quarter 2010
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 44054013, 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 44054013.
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 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 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; and the effects of existing or future litigation; 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.

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

                             For the Three Months     For the Six Months
                                    Ended                   Ended
                                   June 30,                June 30,
                            ----------------------  ----------------------
                               2010        2009        2010        2009
                            ----------  ----------  ----------  ----------
Revenue
  Natural gas, NGL and oil  $  211,687  $  199,315  $  413,250  $  382,869
  Sales of purchased
   natural gas                  16,821       5,217      33,045       5,217
  Other                             62       1,509       4,433       3,887
                            ----------  ----------  ----------  ----------
    Total revenue              228,570     206,041     450,728     391,973
                            ----------  ----------  ----------  ----------

Operating expense
  Oil and gas production
   expense                      38,202      31,703      74,191      63,874
  Production and ad valorem
   taxes                         8,889       7,441      17,372      11,807
  Costs of purchased
   natural gas                   3,756       8,582      37,063       8,582
  Other operating costs            970       1,744       2,224       3,271
  Depletion, depreciation
   and accretion                50,669      50,966      97,426     110,662
  General and
   administrative               17,217      24,389      37,740      41,770
                            ----------  ----------  ----------  ----------
    Total expense              119,703     124,825     266,016     239,966
Impairment related to oil
 and gas properties                  -     (70,643)          -    (967,126)
                            ----------  ----------  ----------  ----------
Operating income (loss)        108,867      10,573     184,712    (815,119)
Income from earnings of
 BBEP - net                     23,168      19,016       7,179      19,016
Other income (expense) -
 net                            53,050        (855)     53,393         (94)
Interest expense               (46,122)    (68,081)    (90,639)   (108,282)
                            ----------  ----------  ----------  ----------
Income (loss) before income
 taxes                         138,963     (39,347)    154,645    (904,479)
Income tax (expense)
 benefit                       (48,219)     18,897     (53,301)    316,720
                            ----------  ----------  ----------  ----------
Net income (loss)               90,744     (20,450)    101,344    (587,759)
Net income attributable to
 noncontrolling interests       (3,941)     (1,312)     (6,353)     (2,982)
                            ----------  ----------  ----------  ----------
Net income (loss)
 attributable to
 Quicksilver                $   86,803  $  (21,762) $   94,991  $ (590,741)
                            ==========  ==========  ==========  ==========

Earnings (loss) per common
 share - basic              $     0.51  $    (0.13) $     0.56  $    (3.50)
Earnings (loss) per common
 share - diluted            $     0.49  $    (0.13) $     0.54  $    (3.50)
Basic weighted average
 shares outstanding            170,290     169,009     170,225     168,894
Diluted weighted average
 shares outstanding            180,872     169,009     180,855     168,894

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

                                                  June 30,    December 31,
                                                    2010          2009
                                                ------------  ------------
                     ASSETS
Current assets
  Cash and cash equivalents                     $      3,308  $      1,785
  Accounts receivable - net of allowance for
   doubtful accounts                                  42,595        65,253
  Derivative assets at fair value                    138,871        97,957
  Other current assets                                63,137        54,943
                                                ------------  ------------
     Total current assets                            247,911       219,938
Investment in BBEP                                    92,956       112,763
Property, plant and equipment
  Oil and gas properties, full cost method
   (including unevaluated costs of
   $375,100 and $458,037, respectively)            2,613,688     2,338,244
  Other property and equipment                       769,214       747,696
                                                ------------  ------------
Property, plant and equipment - net                3,382,902     3,085,940
Derivative assets at fair value                       67,763        14,427
Deferred income taxes                                 73,083       133,051
Other assets                                          42,084        46,763
                                                ------------  ------------
                                                $  3,906,699  $  3,612,882
                                                ============  ============

            LIABILITIES AND EQUITY
Current liabilities
  Accounts payable                              $    122,400  $    157,986
  Accrued liabilities                                156,639       156,604
  Derivative liabilities at fair value                     -           395
  Deferred income taxes                               54,888        51,675
                                                ------------  ------------
     Total current liabilities                       333,927       366,660
Long-term debt                                     2,586,923     2,427,523
Asset retirement obligations                          61,634        59,268
Other liabilities                                     30,396        20,691
Deferred income taxes                                 49,037        41,918
Commitments and contingencies (Note 7)                     -             -
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; 175,496,888 and
   174,469,836 shares issued, respectively             1,755         1,745
  Paid in capital in excess of par value             748,405       730,265
  Treasury stock of 5,025,337 and 4,704,448
   shares, respectively                              (41,167)      (36,363)
  Accumulated other comprehensive income             158,916       121,336
  Retained deficit                                   (85,994)     (180,985)
                                                ------------  ------------
     Quicksilver stockholders' equity                781,915       635,998
Noncontrolling interests                              62,867        60,824
                                                ------------  ------------
  Total equity                                       844,782       696,822
                                                ------------  ------------
                                                $  3,906,699  $  3,612,882
                                                ============  ============

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

                                                      For the Six Months
                                                        Ended June 30,
                                                    ----------------------
                                                       2010        2009
                                                    ----------  ----------
Operating activities:
  Net income (loss)                                 $  101,344  $ (587,759)
  Adjustments to reconcile net income (loss) to
   net cash provided by operating activities:
    Depletion, depreciation and accretion               97,426     110,662
    Impairment related to oil and gas properties             -     967,126
    Deferred income tax expense (benefit)               52,243    (331,321)
    Stock-based compensation                            11,529      11,223
    Non-cash (gain) loss from hedging and
     derivative activities                             (27,852)      5,544
    Non-cash interest expense                           10,178      35,848
    Non cash gain on sale of BBEP units                (35,426)          -
    (Income) loss from BBEP in excess of cash
     distributions, net of impairment                      826      (7,915)
    Other                                                 (469)        420
  Changes in assets and liabilities:
    Accounts receivable                                 22,858      89,580
    Derivative assets at fair value                     18,682      54,896
    Other assets                                       (11,144)     (4,266)
    Accounts payable                                   (20,169)    (25,864)
    Accrued and other liabilities                       26,481      (7,833)
                                                    ----------  ----------
Net cash provided by operating activities              246,507     310,341
                                                    ----------  ----------

Investing activities:
  Purchases of property, plant and equipment          (356,402)   (441,184)
  Proceeds from sales of property and equipment            864     233,488
                                                    ----------  ----------
Net cash used for investing activities                (355,538)   (207,696)
                                                    ----------  ----------

Financing activities:
  Issuance of debt                                     540,032   1,020,750
  Repayments of debt                                  (409,613) (1,144,031)
  Debt issuance costs paid                                (109)    (22,802)
  Gas Purchase Commitment assumed                            -      46,628
  Gas Purchase Commitment repayments                   (16,592)          -
  Issuance of KGS common units - net of offering
   costs                                                11,054           -
  Distributions paid on KGS common units                (8,808)     (4,896)
  Proceeds from exercise of stock options                1,209          80
  Taxes paid by KGS for equity-based compensation
   vesting                                              (1,144)        (63)
  Purchase of treasury stock for stock-based
   compensation vesting                                 (4,804)       (627)
                                                    ----------  ----------
Net cash provided by (used for) financing
 activities                                            111,225    (104,961)
                                                    ----------  ----------

Effect of exchange rate changes in cash                   (671)        125
                                                    ----------  ----------

Net increase (decrease) in cash and cash
 equivalents                                             1,523      (2,191)

Cash and cash equivalents at beginning of period         1,785       2,848
                                                    ----------  ----------

Cash and cash equivalents at end of period          $    3,308  $      657
                                                    ==========  ==========

                        QUICKSILVER RESOURCES INC.
                   Unaudited Selected Operating Results

                                          Three Months    Six Months Ended
                                         Ended June 30,       June 30,
                                        ----------------- -----------------
                                          2010     2009     2010     2009
                                        -------- -------- -------- --------
Average Daily Production:
Natural Gas (Mcfd)                       273,768  234,795  259,734  238,603
NGL (Bbld)                                11,819   14,837   11,557   14,100
Oil (Bbld)                                   864    1,238      860    1,366
  Total (Mcfed)                          349,866  331,248  334,232  331,398

Average Realized Prices:
Natural Gas (per Mcf)                   $   6.93 $   7.52 $   7.17 $   7.28
NGL (per Bbl)                           $  31.27 $  24.22 $  31.23 $  22.77
Oil (per Bbl)                           $  70.24 $  52.48 $  70.79 $  42.65
  Total (Mcfe)                          $   6.65 $   6.61 $   6.83 $   6.38

Expense per Mcfe:
Oil and gas production expense:
  Cash expense                          $   1.18 $   1.02 $   1.21 $   1.03
  Equity compensation                       0.02     0.03     0.02     0.03
                                        -------- -------- -------- --------
Total oil and gas production expense:   $   1.20 $   1.05 $   1.23 $   1.06

Production and ad valorem taxes         $   0.28 $   0.25 $   0.29 $   0.20
Depletion, depreciation and accretion   $   1.59 $   1.69 $   1.61 $   1.84
General and administrative expense:
  Litigation settlement                 $      - $   0.17 $      - $   0.08
  Cash expense                              0.38     0.49     0.46     0.47
  Equity compensation                       0.16     0.15     0.16     0.15
                                        -------- -------- -------- --------
Total general and administrative
 expense                                $   0.54 $   0.81 $   0.62 $   0.70

                        QUICKSILVER RESOURCES INC.
Production, on a million cubic feet of natural gas equivalent (MMcfe) per
                       day basis, by operating area

                                          Three Months    Six Months Ended
                                         Ended June 30,       June 30,
                                        ----------------- -----------------
                                          2010     2009     2010     2009
                                        -------- -------- -------- --------

Texas                                      278.8    262.7    261.4    263.0
Other U.S.                                   4.2      3.0      4.4      3.1
                                        -------- -------- -------- --------
Total U.S.                                 283.0    265.7    265.8    266.1
Alberta                                     60.8     65.6     61.6     65.3
British Columbia                             6.1        -      6.8        -
                                        -------- -------- -------- --------
Total Canada                                66.9     65.6     68.4     65.3
  Total Company                            349.9    331.3    334.2    331.4
                                        ======== ======== ======== ========

                        QUICKSILVER RESOURCES INC.
        RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED NET INCOME
              In thousands, except per share data - Unaudited

                              Three Months Ended      Six Months Ended
                                   June 30,               June 30,
                            ----------------------  ----------------------
                               2010        2009        2010        2009
                            ----------  ----------  ----------  ----------

Net income (loss)           $   86,803  $  (21,762) $   94,991  $ (590,741)
                            ----------  ----------  ----------  ----------

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
   derivatives from BBEP          (277)        852        (987)      6,977
  Equity portion of
   commodity derivatives
   from BBEP                   (15,992)      1,650       6,126    (138,823)
  Equity portion of loss
   from sale of properties
   from BBEP                        46           -         246           -
  BBEP settlement              (18,000)          -     (18,000)          -
  Gain on BBEP units
   conveyed in Lake
   Arlington acquisition       (35,426)          -     (35,426)          -
  Unrealized valuation on
   Gas Purchase Commitment     (17,101)          -        (463)          -
  Debt termination-related
   expenses (interest
   expense)                          -      27,122           -      27,122
  Legal settlement (G&A)             -       5,000           -       5,000
                            ----------  ----------  ----------  ----------
  Total adjustments before
   income tax expense          (86,750)     86,759     (48,504)    986,022
  Income tax expense            30,363     (23,750)     16,976    (327,421)
                            ----------  ----------  ----------  ----------
Adjustments for items after
 taxes                         (56,387)     63,009     (31,528)    658,601
                            ----------  ----------  ----------  ----------

Adjusted net income         $   30,416  $   41,247  $   63,463  $   67,860
                            ==========  ==========  ==========  ==========

Adjusted net income per
 common share - Diluted     $     0.18  $     0.24  $     0.37  $     0.40

Diluted weighted average
 common shares outstanding     180,872     180,136     180,855     179,648


    
KWK 10-12

    

Investor Contact:
Rick Buterbaugh
(817) 665-4835

Copyright 2010, Market Wire, All rights reserved.

-0-
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.