The Barnett Shale and Horn River Basin lifted Fort Worth-based Quicksilver Resources Inc. to a quarterly production record during the third quarter while the company continued to chip away at its substantial debt.
During the third quarter Quicksilver said it produced a record 427 MMcfe/d, an 18% increase over the prior-year period and a 2.5% increase over the previous quarter. The year-over-year increase was a result of a 19% increase in production from the Barnett Shale and an increase of more than 200% in the Horn River Basin in northeast British Columbia.
Quicksilver drilled 13 new wells and connected 44 wells in the Barnett Shale.
The company also cut its debt by $317 million from the prior-year quarter as it acquired additional oil-prospective acreage in the Permian and Delaware basins of West Texas, bringing its land position in the Bone Spring/Wolfcamp play to about 150,000 net acres.
"Our goals for Quicksilver remain to increase production in our core projects, continue to knock down unit operating costs, establish new oil and gas production areas, and significantly improve the company's balance sheet. I can say that we are moving forward on all fronts," said CEO Glenn Darden.
More details on the previously announced plan to create a master limited partnership (MLP) to hold Barnett Shale assets and raise cash (see Shale Daily, Oct. 21) would be available in a regulatory filing in the coming weeks, executives said during a conference call with financial analysts. The MLP is expected to be the company's primary vehicle for reducing debt, they said.
As of Sept. 30, the company's total debt was approximately $2.1 billion. Quicksilver has a total of approximately $590 million available under its $1.1 billion U.S and Canadian credit facilities.
Analysts Dan McSpirit and Chris Sloan of BMO Capital Markets found "little to excite" in the company's latest quarterly results except for the continued debt reduction.
"Large land positions in the Sandwash Basin (Niobrara oil; first two vertical wells flowing at 50-100 b/d) and Delaware/Permian Basin (Bone Spring/Wolfcamp oil; vertical well drilling to commence in 1Q12), but each is best characterized as sitting on the risk curve too far out to resonate in today's market, in our opinion," they wrote Monday. "How the company can quicken the pace in making more transparent this resource potential and bring forward the value involved, while strengthening the balance sheet as promised, remains the trick."
Fourth-quarter average daily production is expected to be 425-435 MMcfe/d; full-year 2011 production guidance is 415-420 MMcfe/d.
The company has hedges in place to cover approximately 60% of expected production for the fourth 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 natural gas liquids (NGL) are covered by fixed-price swaps with a weighted-average price of $38.84/bbl.
Net income for the third quarter was $29 million (17 cents/share), compared to net income of $22 million (13 cents/share), in the prior-year quarter. Third-quarter 2011 adjusted net income was $6 million (3 cents/share), compared to $29 million (17 cents/share) in the prior-year quarter.
Total revenue for the third quarter increased to $260 million from $238 million from the prior-year quarter. Production revenue for the third quarter was $208 million, down 5% from the prior-year quarter due to lower realized prices for natural gas including the effects of hedging, partially offset by higher sales volumes of natural gas and higher realized prices for NGLs and crude oil.