Quicksilver Resources Inc. set a production record in the first quarter, thanks mainly to the company's Barnett Shale and Horn River activities. However, the company posted a net loss for the quarter due to one-time items and lower natural gas prices.
Production averaged a record 392.3 MMcfe/d, up 23% from the prior-year quarter, driven by higher volumes from the Barnett Shale and the company's Horn River Basin activities in northeast British Columbia. Production was 81% natural gas, 18% natural gas liquids (NGL) and 1% crude oil and condensate.
"Our base operations continued to improve as production volumes once again set new records while we remained focused on our all-in unit cost structure, which declined 2% versus the prior year," said CEO Glenn Darden. "Concurrently, we built the largest inventory of new projects in our company's history. Quicksilver has assembled meaningful acreage positions in four developing oil plays and three natural gas plays, where Quicksilver can use its expertise in unconventional resource development to cost-effectively grow our reserve base and production."
A 6% decrease in production revenues in the first quarter was primarily due to lower realized natural gas prices , offset in part by higher sales volumes of gas and higher realized prices for NGLs and crude oil, the company said.
Including special items Quicksilver reported a net loss of $70.8 million (minus 42/share) as compared with net income of $8.2 million (5 cents/share) in the prior-year period. Adjusted net income was $2.8 million (2 cents/share) compared with $33.8 million (20 cents/share) in the 2010 period.
During the first quarter activity was concentrated in the Barnett Shale. Two rigs drilled 17 (15 net) operated wells and connected 50 (45.2 net) operated wells to sales. At March 31 Quicksilver had a remaining inventory of approximately 90 operated wells that were drilled in the Barnett but awaiting completion or connection. The company now expects to exit the year with about 45 wells in this inventory.
In the Horseshoe Canyon area of Alberta the company drilled eight (five net) wells and connected two (two net) wells during the first quarter. Six (4.5 net) wells were placed in production.
Quicksilver completed its 2010-2011 winter drilling program in the Horn River and has now drilled eight horizontal wells into the Muskwa and Klua formations, of which four have begun production. Two additional wells are required to validate all of Quicksilver's exploratory licenses and convert these licenses, covering approximately 130,000 net acres, into 10-year development leases, the company said. The company drilled its first horizontal well into the shallower Exshaw oil formation and expects to begin completion activities this summer.
The Quicksilver board has approved an increase in 2011 capital spending to approximately $480 million, mainly for additional lease acquisitions expected within two new exploratory plays in the Sandwash Basin in northwest Colorado and the Delaware Basin in West Texas. Quicksilver now holds leases covering about 197,000 and 54,000 net acres in the Sandwash and Delaware basins, respectively. In May the company expects to spud its first of six initial vertical exploratory wells targeting oil from the Niobrara formation in the Sandwash Basin.
Quarterly average daily production volume is expected to increase approximately 8% sequentially in the second quarter, averaging 420-430 MMcfe/d.
The company said it has hedges in place to cover about 60% of expected production for the second quarter. A total of 190 MMcf/d of natural gas is covered by collars or fixed-price swaps with a weighted-average floor price of $5.95/Mcf, and 10,500 b/d of NGLs are covered by fixed-price swaps with a weighted-average price of $38.84/bbl for the second quarter and remainder of 2011.