During an earnings conference call last week, analysts peppered the management of Fort Worth, TX-based Quicksilver Resources Inc. with questions about efforts to establish a joint venture (JV) in the Horn River Basin and take a partner in the Barnett Shale, but executives were tight-lipped, not wanting to disclose details of talks.
"We anticipate significantly reducing company debt with the proceeds from transactions we are currently working on," CEO Glenn Darden said in a press release, to which he didn't add much during the conference call. The company is "nearing the end of a process to bring in a partner in the Barnett," he told analysts. "The objective is to sell a minority position to significantly reduce company debt and have a development partner going forward to fully maximize our position in the Barnett Shale. We continue to have the option of bringing in a partner in combination with the launching of an upstream MLP [master limited partnership].
"In the Horn River Basin, we are in negotiations with international companies regarding integrating our significant upstream reserves with downstream projects, including potentially exporting gas from the West Coast of British Columbia. We are targeting to conclude those negotiations shortly."
It was more than a year ago that Quicksilver said it was hoping to turn some of its Barnett assets into a cash breadbasket through the creation of an MLP, with proceeds used to pay down debt (see NGI, Feb. 13; Oct. 24, 2011). After securing a midstream partnership in the Horn River with Kohlberg Kravis Roberts & Co. early this year, Quicksilver said it was pursuing a partnership to develop its upstream leasehold there (see NGI, Jan. 9).
Meanwhile, long-term debt has grown. As of Sept. 30 it was $2.16 billion, up from $1.9 billion at year-end 2011. During the call, Darden said Quicksilver's first maturity is not until 2015, "so we are going to pay down debt, and we are not going to signal which debt we're attacking, but we are going to lower the leverage in this company."
Quicksilver turned in a net loss for the third quarter of $652 million (minus $3.83/share) compared to net income of $29 million (17 cents/share) in the prior-year period. Third-quarter 2012 results were impacted by a $547 million non-cash impairment of properties, primarily due to lower natural gas and natural gas liquids prices, and a $284 million non-cash valuation allowance of U.S. deferred tax assets. The adjusted net loss for the third quarter was $8 million (minus 4 cents/share) compared to adjusted net income of $6 million (3 cents/share) in the 2011 period.
"Low commodity prices continue to define the theme of our earnings," CFO John Regan told analysts.
Production averaged 362 MMcfe/d during the third quarter, which is 23 MMcfe/d lower than the bottom range of previous guidance due to restriction of production in the Horn River Basin to match its contractual commitment in an existing third-party treating facility. The company expected the third party to commission a second treating facility, but the facility was delayed to an expected commissioning near year-end 2012, and may be further delayed into 2013. Quicksilver is securing alternative treating and transportation arrangements on an interim basis that will allow Horn River production to be increased up to an additional 50 MMcf/d beginning in December, the company said.
Third-quarter 2012 production was down from 427 MMcfe/d in the prior-year quarter but was up from 359 MMcfe/d compared to the second quarter of 2012. The decline from the prior-year quarter was mainly due to a reduction in capital activity, production decline of existing wells, and the impact of completion activities in the Barnett. The increase from the second quarter was due to production growth from the Horn River. Fourth quarter average daily production is expected to be 330-340 MMcfe/d, resulting in full-year 2012 average production of 350-365 MMcfe/d.
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