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Quicksilver Seeks Bankruptcy Protection; Seismic Technology Firm Shuttered

Natural gas-heavy Quicksilver Resources Inc. is seeking bankruptcy protection after warning last month that financial problems were mounting.

The Fort Worth, TX-based onshore operator's holdings are concentrated in the Barnett Shale in North Texas, the gassy Horn River Basin in British Columbia and in Horseshoe Canyon, a coalbed methane play in Alberta. Reserves were 82% weighted to gas at the end of 2013.

In its Chapter 11 petition filed Tuesday in Delaware, Quicksilver listed $1.21 billion in assets and $2.35 billion in debt (In re Quicksilver Resources Inc., 15-bk-10585, U.S. Bankruptcy Court, District of Delaware).

Last month the exploration and production (E&P) company warned it had a 30-day grace period before it defaulted for not making an interest payment on $298 million of bonds maturing in 2019 (see Shale DailyFeb. 18). Advisers were retained to evaluate options.

"Quicksilver's strategic marketing process has not produced viable options for asset sales or other alternatives to fully address the company's liquidity and capital structure issues," CEO Glenn Darden said Tuesday. "We believe that Chapter 11 provides the flexibility to accomplish an effective restructuring of Quicksilver for its stakeholders."

In addition to the notes due in 2019, Quicksilver stated it has $350 million in notes due 2016, $325 million due 2021 and $200 million more also due 2019. The company doesn't expect operations to be impacted by the bankruptcy. Canadian unit, Quicksilver Resources Canada Inc. is not included in the filing; it has reached an agreement with its first lien secured lenders regarding a forbearance through June 16.

"Quicksilver has filed a series of motions with the court to ensure the continuation of normal operations, including requesting court approval to continue paying employee wages and salaries and providing employee benefits without interruption," management noted. The company also has asked for authority to continue honoring royalty obligations, working interest obligations, and other obligations related to oil and gas leases.

The Darden family, former majority stakeholders, attempted in 2010 to take Quicksilver private in a $2.7 billion deal  (see Shale DailyOct. 19, 2010). The take-private bid was dropped about five months later (see Daily GPIMarch 18, 2011).

Crestwood Midstream Partners LP, which supplies gathering services for the Barnett operations, said it expects to be paid for some services and would participate "actively" in the bankruptcy.

Quicksilver's filing is the third this month of a U.S.-based energy operator. Houston-based explorer Dune Energy Inc. and marine contractor Cal Dive International Inc. also sought bankruptcy protection this month (see Daily GPIMarch 9March 4).

"Quicksilver in particular is heavily indebted, one of the highest leverage ratios in the industry," said NGI's Pat Rau, director of Strategy & Research. "But that is the risk for all E&Ps right now. The higher the debt burden, the more risk they face. My guess is the big, well funded companies are probably and very quietly licking their chops at the opportunity to pick up good acreage positions and other assets at fire sale prices, especially when hedges start wearing off later this year.

"If weak prices persist throughout 2015, you are going to see some pain when companies have their revolving credit facility borrowing bases redetermined in October, at a time when their higher priced hedges for 2015 are almost gone," he noted. Spring determinations, to get underway soon, are not expected to have as big an impact (see Shale DailyFeb. 24).

The fall redeterminations "will likely put many companies in danger of violating their debt covenants, and/or some of those companies are going to have to pay through the nose to restructure those revolvers so they remain in compliance," Rau said. "It won't be pretty."

Meanwhile, Wilmington, DE-based Acorn Energy, an energy technology holding company, said Wednesday it has ceased funding its majority-owned US Seismic Systems (USSI) subsidiary. USSI has suspended operations and terminated "substantially all employees." The seismic arm intends to sell its assets and "is exploring ways to maximize value for creditors and other stakeholders, expecting that most of the proceeds from any sale of its assets will be used to pay creditors. It is uncertain whether there will be any proceeds available to Acorn Energy or other USSI shareholders."

Acorn plans to record writeoffs on its 2014 financial statements for most of USSI assets, including $4.9 million of inventory, $3.4 million of goodwill and intangibles and $1.0 million of fixed assets.

"While we continue to believe in the value of USSI's technology, we had never planned to go it alone in developing and bringing the technology to market," Acorn CEO John A. Moore said. "The current downturn of the oil industry has caused all of our potential partners to shift from adopting cutting-edge microseismic technology to concentrate on rightsizing their organizations in line with the decreasing microseismic demand. Therefore, we made the hard but necessary decision to end the drain on Acorn's resources and cut overall burn rate by discontinuing our funding of USSI.

"Our board has decided to focus on our businesses that are showing substantial potential.  We believe that defunding USSI and focusing our efforts on our other businesses will allow us to get back to what we do best."

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