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Quicksilver Battening Down After 2Q Loss

Debt- and dry gas-laden Quicksilver Resources Inc. posted a hefty loss for the second quarter, largely due to a nearly $1 billion asset impairment reflecting low commodity prices. Last week management talked up plans to right the balance sheet and weather the low-price period with spending cuts and other measures.

Executives told financial analysts during a conference call that a midstream master limited partnership (MLP) is teed-up for potential launch when market conditions are better. A couple of joint ventures (JV) are in the works, too. They said the company is committed to a deleveraging program while it dials back spending and activity, particularly in dry gas areas.

"Quicksilver is aggressively attacking costs and capital expenditures in this low-commodity price environment," said CEO Glenn Darden. "We have proactively amended our credit facility, reduced capital spending and pushed out capital commitments in the Horn River Basin and our other operating areas. At the same time, we have made significant gains in British Columbia and Colorado. Negotiations on two joint ventures have progressed significantly. We believe these transactions will help push this company forward."

Darden told analysts the company has a "green light" from the U.S. Securities and Exchange Commission for an MLP that would include a portion of its Barnett Shale assets (see NGI, Oct. 24, 2011). However, whether an MLP comes to pass depends upon market conditions, including commodity prices. Other options include asset sales or JVs, he said, declining to disclose details of ongoing talks.

He said the company is seeing increased interest in assets from players that are taking a longer-term view on commodity prices. There is "a lot more value" in Quicksilver's assets than is reflected in the price of the company's shares. Management said the company expects to be operating within "cash inflows" by year end, and these amounts would include any proceeds from asset sales. Proceeds from any JVs would primarily fund new projects with excess amounts used to pare debt.

Adjusted net losses in the second quarter were $21 million(minus 13 cents/share), compared with adjusted net income of $11 million (6 cents) in the 2011 period. Second quarter results were impacted by a $992 million asset write down because of lower natural gas and natural gas liquids (NGL) prices. Including the impact of one-time items, net losses were $673 million (minus $3.96/share) compared with net income of $109 million (61 cents) in the prior-year period.

Asked by an analyst whether there was a risk of future asset writedowns, Darden said that depends upon the forward curve. "I think there is some risk in that regard..." he said. "We need to see where the September price comes out. I think you're accurate in suggesting that there is some risk there."

Capital spending is projected to be $70 million for the second half of 2012 and about $360 million for full-year 2012, or $50 million less than the original budget of $410 million. The reduction is due to a reduction in drilling and related activity across the company's assets.

Production averaged 359 MMcfe/d during the second quarter, down from 417 MMcfe/d in the prior-year quarter, and down from 377 MMcfe/d in the first quarter of 2012. The decline from both periods was primarily due to the delay in bringing Horn River volumes online; a reduction in completion activity in the Barnett Shale; natural production decline of existing wells and temporary shut-ins to support development activity. Production for the second quarter of 2012 was 80% natural gas and 20% NGLs, crude oil and condensate.

Production revenue for the second quarter of 2012 was $151 million, down 28% from the prior-year quarter and down 12% from the first quarter of 2012 due to production declines and lower realized prices for natural gas and NGLs.

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