The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from Marketwire

Quicksilver Resources Reports First-Quarter 2010 Results; Reduces 2010 Capital Program

Monday, May 10, 2010

Quicksilver Resources Reports First-Quarter 2010 Results; Reduces 2010 Capital Program07:32 EDT Monday, May 10, 2010FORT WORTH, TX--(Marketwire - May 10, 2010) - Quicksilver Resources Inc. (NYSE: KWK) today reported net income of $8.2 million ($.05 per diluted share) in the 2010 first quarter as compared to a net loss of $569.0 million (a loss of $3.37 per diluted share) in the prior-year period. First-quarter 2010 adjusted net income, a non-GAAP measure, was $33.8 million ($.20 per diluted share) up 27% from the 2009 period adjusted net income of $26.6 million ($.16 per diluted share). Details of adjusted net income are included on page 9 of this news release. Quicksilver also announced that it has reduced its expected 2010 capital program to reflect reduced planned drilling and completion activities in the Fort Worth Basin. As a result, the company now expects its 2010 capital program to total approximately $510 million and its production to average in the range of 360-370 million cubic feet of natural gas equivalents (MMcfe) per day in 2010, an increase of approximately 11%-14% from the 2009 average daily volumes. "Quicksilver has made the decision to reduce development drilling and bring less production online in the current environment," said Glenn Darden, Quicksilver president and chief executive officer. "We have shifted approximately $30 million of capital to add to our acreage positions in both the Fort Worth and the Horn River basins and will save drilling locations for the future." Production, Revenue and Costs For the first quarter of 2010, average production was approximately 318 MMcfe per day compared to approximately 332 MMcfe per day for the same period in 2009. The 2009 period included approximately 17 MMcfe per day of production from the Alliance area that was divested to Eni (NYSE: E) in June 2009. Total production for the first quarter of 2010 was approximately 28.7 billion cubic feet of natural gas equivalents (Bcfe) compared to approximately 29.8 Bcfe for the first quarter of 2009. The 2010 production volumes were comprised of approximately 77% natural gas, approximately 21% natural gas liquids (NGL) 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. Sales of natural gas, NGLs and crude oil increased approximately 10% to $201.6 million in the first quarter of 2010 as compared to $183.6 million in the 2009 quarter. The increase was primarily due to increased realized product prices for natural gas, NGLs and crude oil, which resulted in the company's weighted-average price per thousand cubic feet of natural gas equivalents (Mcfe) in the 2010 first quarter of $7.03, an increase of 14% from the prior year. Total production expense of $36.0 million for the 2010 first quarter was up 12% from the prior-year quarter, primarily due to higher Canadian costs related to the U.S./Canadian exchange rate and costs associated with operating new wells at the company's Horn River project. Loss from Earnings of BreitBurn Quicksilver reported a pre-tax loss of $16.0 million attributable to the company's approximate 40% interest in BreitBurn Energy Partners L.P.'s (NASDAQ: BBEP) fourth-quarter 2009 results, including $22.8 million of interest rate and commodity derivative losses. During the first quarter of 2010, Quicksilver did not receive any cash distributions associated with its ownership of the BBEP units. On February 8, 2010, BBEP announced that it had reached agreement with Quicksilver to settle all litigation between Quicksilver and BBEP and in April, Quicksilver received $18 million in settlement of the litigation. On April 28, BBEP announced a cash distribution of $0.375 per unit for the first quarter of 2010, from which Quicksilver expects to receive a total distribution of approximately $8.0 million in May. Operational Update In the Fort Worth Basin, the company drilled 28 (22.4 net) wells and connected 21 (16.9 net) wells to sales during the first quarter of 2010. The company has recently reduced its drilling activity in the basin and currently has three rigs working, including two rigs dedicated to the Alliance and Lake Arlington projects 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 now expects to drill and complete a total of approximately 98 wells in the basin in 2010. The company also expects to complete approximately 25 additional wells this year from its existing inventory of drilled but uncompleted wells. Following this activity, the company expects to exit the year with approximately 120 drilled but uncompleted Fort Worth Basin wells in inventory, which provide ongoing opportunities to add production at reduced capital levels. In Canada, the company participated in drilling five (4.25 net) wells in the Horseshoe Canyon area of Alberta during the first quarter of 2010. Drilling, completion and pipeline operations are currently suspended for the seasonal break-up period in Canada. In addition, Quicksilver finished exploratory drilling activities on two additional horizontal wells into the Muskwa formation in the Horn River Basin of northeast British Columbia. Completion activities on the first of these new wells are expected to begin in late summer, following the current break-up period, and completion of the second well is anticipated at year-end. In early 2011, the company expects to re-enter an existing well in the Horn River Basin to drill a horizontal test of the Exshaw oil formation, which the company has encountered in each of its four wells drilled to date in the Horn River Basin. During the first quarter of 2010, the company incurred capital costs of approximately $136 million, including approximately $26 million at the Horn River project and $18 million on additional leasehold in the Fort Worth Basin. Second-Quarter 2010 Outlook Second-quarter 2010 production volumes are expected to average in the range of 350 MMcfe to 360 MMcfe per day. Average unit expenses, on a Mcfe basis, are expected as follows: -- Production $.55 - $.60 -- Gathering and processing .15 - .20 -- Transportation .40 - .45 -- Production taxes .25 - .30 -- General and administrative .65 - .70 -- Depletion, depreciation & accretion 1.50 - 1.55 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 three quarters of 2010. For natural gas liquids (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 NGL production for the remaining three quarters of 2010. Conference Call The company will host a conference call to discuss first-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 44053991, 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 44053991. 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 Three Months Ended March 31, ---------------------------- 2010 2009 ------------- ------------- Revenue Natural gas, NGL and crude oil $ 201,563 $ 183,554 Sales of purchased natural gas 16,224 - Other 4,371 2,378 ------------- ------------- Total revenue 222,158 185,932 ------------- ------------- Operating expense Oil and gas production expense 35,989 32,171 Production and ad valorem taxes 8,483 4,366 Costs of purchased natural gas 33,307 - Other operating expense 1,254 1,527 Depletion, depreciation and accretion 46,757 59,696 General and administrative expense 20,523 17,381 ------------- ------------- Total expense 146,313 115,141 Impairment related to oil and gas properties - (896,483) ------------- ------------- Operating income (loss) 75,845 (825,692) Loss from earnings of BBEP - net (15,989) - Other income (expense) - net 343 761 Interest expense (44,517) (40,201) ------------- ------------- Income (loss) before income taxes 15,682 (865,132) Income tax (expense) benefit (5,082) 297,823 ------------- ------------- Net income (loss) 10,600 (567,309) Net income attributable to noncontrolling interests (2,412) (1,670) ------------- ------------- Net income (loss) attributable to Quicksilver $ 8,188 $ (568,979) ============= ============= Earnings (loss) per common share - basic $ 0.05 $ (3.37) Earnings (loss) per common share - diluted $ 0.05 $ (3.37) Basic weighted average shares outstanding 170,175 168,841 Diluted weighted average shares outstanding 171,040 168,841 QUICKSILVER RESOURCES INC. CONDENSED CONSOLIDATED BALANCE SHEETS In thousands, except share data - Unaudited March 31, 2010 December 31, 2009 ----------------- ----------------- ASSETS Current assets Cash and cash equivalents $ 601 $ 1,785 Accounts receivable - net of allowance for doubtful accounts 60,348 65,253 Derivative assets at fair value 172,850 97,957 Other current assets 50,542 54,943 ----------------- ----------------- Total current assets 284,341 219,938 Investment in BBEP 96,774 112,763 Property, plant and equipment Oil and gas properties, full cost method (including unevaluated costs of $392,272 and $458,037, respectively) 2,428,099 2,338,244 Other property and equipment 765,789 747,696 ----------------- ----------------- Property, plant and equipment - net 3,193,888 3,085,940 Derivative assets at fair value 54,304 14,427 Deferred income taxes 118,203 133,051 Other assets 44,489 46,763 ----------------- ----------------- $ 3,791,999 $ 3,612,882 ================= ================= LIABILITIES AND EQUITY Current liabilities Accounts payable $ 150,532 $ 157,986 Accrued liabilities 132,247 156,604 Derivative liabilities at fair value 812 395 Deferred income taxes 71,756 51,675 ----------------- ----------------- Total current liabilities 355,347 366,660 Long-term debt 2,510,494 2,427,523 Asset retirement obligations 61,822 59,268 Other liabilities 20,692 20,691 Derivative liabilities at fair value 654 - Deferred income taxes 49,095 41,918 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; 175,439,552 and 174,469,836 shares issued, respectively 1,754 1,745 Paid in capital in excess of par value 742,773 730,265 Treasury stock of 5,022,244 and 4,704,448 shares, respectively (41,129) (36,363) Accumulated other comprehensive income 200,633 121,336 Retained deficit (172,797) (180,985) ----------------- ----------------- Quicksilver stockholders' equity 731,234 635,998 Noncontrolling interests 62,661 60,824 ----------------- ----------------- Total equity 793,895 696,822 ----------------- ----------------- $ 3,791,999 $ 3,612,882 ================= ================= QUICKSILVER RESOURCES INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS In thousands - Unaudited Three Months Ended March 31, ---------------------------- 2010 2009 ------------- ------------- Operating activities: Net income (loss) $ 10,600 $ (567,309) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depletion, depreciation and accretion 46,757 59,696 Impairment related to oil and gas properties - 896,483 Deferred income tax expense (benefit) 5,082 (304,639) Non-cash interest expense 5,075 4,139 Stock-based compensation 5,680 5,790 Non-cash loss from hedging and derivative activities 1,421 1,128 Loss from BBEP in excess of cash distributions, net of impairment 15,989 11,101 Other (323) 91 Changes in assets and liabilities: Accounts receivable 4,905 33,536 Derivative assets at fair value 14,260 54,896 Prepaid expenses and other assets 5,519 1,566 Accounts payable (15,553) (21,436) Accrued and other liabilities (33,640) (25,692) ------------- ------------- Net cash provided by operating activities 65,772 149,350 ------------- ------------- Investing activities: Purchases of property, plant and equipment (129,331) (255,984) Proceeds from sales of property, plant and equipment 718 416 ------------- ------------- Net cash used for investing activities (128,613) (255,568) ------------- ------------- Financing activities: Issuance of debt 295,446 208,374 Repayment of debt (227,639) (101,188) Debt issuance costs paid (109) (39) Gas Purchase Commitment repayments (7,317) - Issuance of KGS common units - net of offering costs 11,050 - Distributions paid on KGS common units (4,404) (2,448) Proceeds from the exercise of stock options 760 11 Taxes paid by KGS for equity-based compensation vesting (1,144) (63) Purchase of treasury stock from stock-based compensation vesting (4,766) (623) ------------- ------------- Net cash provided by (used for) financing activities 61,877 104,024 ------------- ------------- Effect of exchange rate changes in cash (220) (224) ------------- ------------- Net decrease in cash (1,184) (2,418) Cash and cash equivalents at beginning of period 1,785 2,848 ------------- ------------- Cash and cash equivalents at end of period $ 601 $ 430 ============= ============= QUICKSILVER RESOURCES INC. Unaudited Selected Operating Results Three Months Ended March 31, ------------------------------- 2010 2009 --------------- --------------- Average Daily Production: Natural Gas (Mcfd) 245,545 242,453 NGL (Bbld) 11,291 13,348 Oil (Bbld) 855 1,494 Total (Mcfed) 318,424 331,550 Average Realized Prices: Natural Gas (per Mcf) $ 7.44 $ 7.04 NGL (per Bbl) $ 31.19 $ 21.13 Oil (per Bbl) $ 71.36 $ 34.42 Total (Mcfe) $ 7.03 $ 6.15 Expense per Mcfe: Oil and gas production expense: Cash expense $ 1.24 $ 1.05 Equity compensation 0.02 0.03 --------------- --------------- Total oil and gas production expense: $ 1.26 $ 1.08 Production and ad valorem taxes $ 0.30 $ 0.15 Depletion, depreciation and accretion $ 1.63 $ 2.00 General and administrative expense: Cash expense $ 0.55 $ 0.42 Equity compensation 0.17 0.16 --------------- --------------- Total general and administrative expense $ 0.72 $ 0.58 QUICKSILVER RESOURCES INC. Production, on a million cubic feet of natural gas equivalent (MMcfe) per day Three Months Ended March 31, -------------------------------------------- 2010 2009 Change -------------- -------------- ------------- Texas 243.7 263.5 -8% Other U.S. 4.8 3.1 54% -------------- -------------- 248.5 266.6 -7% Canada 69.9 64.9 8% -------------- -------------- Total 318.4 331.5 -4% ============== ============== QUICKSILVER RESOURCES INC. RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED NET INCOME In thousands, except per share data - Unaudited Three Months Ended March 31, ------------------------------ 2010 2009 -------------- -------------- Net income (loss) $ 8,188 $ (568,979) -------------- -------------- Adjustments Impairment of E&P Properties - 896,483 Impairment of investment in BBEP - 102,084 Equity portion of BBEP impairment of E&P properties - 35,044 Unrealized valuation loss on Gas Purchase Commitment 16,638 - Equity portion of interest rate derivative loss from BBEP 710 6,125 Equity portion of commodity derivative loss (income) from BBEP 22,118 (140,473) -------------- -------------- Total adjustments before income tax expense 39,466 899,263 Income tax expense (13,813) (303,670) -------------- -------------- Adjustments for items after taxes 25,653 595,593 -------------- -------------- Adjusted net income $ 33,841 $ 26,614 ============== ============== Adjusted net income per common share - Diluted $ 0.20 $ 0.16 Diluted weighed average common shares outstanding 180,856 178,973 KWK 10-06 FOR FURTHER INFORMATION PLEASE CONTACT: Investor & Media Contact: Rick Buterbaugh (817) 665-4835