Shares of debt-burdened Quicksilver Resources Inc. fell Monday after the company reported lower profits and said production would be flat this year. Meanwhile, efforts on two joint venture deals continue, as the company targets more liquids-rich production, executives told financial analysts.
Quicksilver shares closed down nearly 6% at $5.72 Monday.
For this year capital spending for drilling and completions is set at $370 million. Quicksilver said it expects 2012 production to be essentially flat to 2011 volumes. The first-quarter average daily production volume is expected to be in the 375-385 MMcfe/d range with volumes building in the second and third quarters. The company projects oil volumes to increase 62% in 2012 over 2011.
At the end of last year Quicksilver's debt was about $1.9 billion, and the company had about $800 million available under its combined $1.1 billion U.S and Canadian credit facilities. The company is seeking JV partners in West Texas and in the Horn River.
"We're fully committed to closing joint ventures on both Horn River and West Texas in 2012," said CEO Glenn Darden, noting that the company has engaged advisers on both fronts. "Data rooms are open on both projects and marketing efforts are under way for both. We've already received multiple indications of interests on both properties, so this is moving ahead as scheduled and we're going to push it to the finish line this year."
Fourth quarter net income was $49 million (28 cents/share), compared with net income of $332 million ($1.82), in the prior-year period. Full-year 2011 net income was $115 million (67 cents/share), compared with $449 million ($2.52) for 2010.
Fourth-quarter 2011 adjusted net income was essentially breakeven compared to adjusted net income of $30 million (17 cents/share) in the 2010 period. Adjusted net income for full-year 2011 was $20 million (12 cents/share), compared with $120 million (69 cents) for the prior year. Results for 2011 were favorably impacted by gains on sales of Quicksilver's remaining ownership of BreitBurn units, partially offset by an impairment, most of which was related to U.S. midstream assets. Results for 2010 were primarily impacted by a $494 million gain on the sale of the company's interests in Quicksilver Gas Services LP, which was subsequently renamed as Crestwood Midstream Partners LP.
Production averaged 412 MMcfe/d during the fourth quarter, up 6% from the prior-year quarter. For 2011 production averaged a record 412 MMcfe/d, up 16% from the prior year. The increase in full-year production was primarily driven by a 19% increase in the Barnett Shale. The 2011 production volumes were 81% natural gas and 19% natural gas liquids (NGL), crude oil and condensate.
Total revenue for the fourth quarter of 2011 was $216 million compared to $240 million from the prior-year quarter. Production revenue for the fourth quarter of 2011 was $194 million, down 14% from the prior-year quarter. Total revenue for the full-year 2011 was $936 million compared to $928 million in 2010. Production revenue for the full-year 2011 was $801 million, down 7% from 2010. The decrease in production revenue for both periods was caused by lower realized prices for natural gas including the effects of hedging, partially offset by higher production volumes of natural gas and higher realized prices for NGLs and crude oil.
Preliminary year-end 2011 proved reserves total 2.8 Tcfe. Quicksilver's total proved developed reserves percentage increased to 69% as the company converted proved undeveloped reserves into the producing category last year. By product, reserves were 77% natural gas, 22% NGLs and 1% crude oil and condensate. Geographically, 88% of reserves were located in the United States, primarily in the Barnett Shale, and 12% in Canada.
Year-end 2011 reserves include 99.3 billion cubic feet of natural gas equivalents (Bcfe) of reserves from the company's 12 wells drilled on a small portion of its 130,000 net acres in the Horn River Basin of Northeast British Columbia. The company estimates more than 11 Tcfe of additional resource potential from future development of its remaining acreage in the Fort Worth and Horn River basins. No reserves were booked from the West Texas or Sandwash projects in 2011.
Quicksilver's 2011 development activity was concentrated in the Barnett Shale where it utilized two rigs in the basin throughout most of the year. The company drilled 14 (12.4 net) wells and connected 17 (14.8 net) wells to sales in the fourth quarter. For full-year 2011, the company drilled 57 (49.9 net) wells and connected 128 (113.2 net) wells to sales. At the end of last year Quicksilver had a remaining uncompleted well inventory of 50 gross operated wells that have been drilled in the Barnett but await completion or connection to sales lines.
The company said it plans to scale down to one rig in the Fort Worth Basin by the end of the first quarter and plans to drill 25 (20 net) wells and complete 36 (32 net) wells, "a substantial portion of which will be concentrated in the high-Btu acreage where pricing margins are significantly higher."
Quicksilver holds about 260,000 net acres across about 936 square miles in the Sandwash Basin of Northwest Colorado, of which the company believes about 210,000 net acres are situated in the oil window and are prospective to the Niobrara and Lower Mancos formations. It has drilled six wells to date to the Niobrara and they are currently producing.
The company holds 155,000 net acres across the Delaware and Midland basins of West Texas that it believes are prospective for oil in the Wolfcamp and Bone Spring formations. Quicksilver said it plans to commence a drilling program early in the second quarter and hopes to develop the play with a JV partner.
Quicksilver holds 175,000 net acres in the Cut Bank field in Northwest Montana, of which 119,000 acres are held by production. The company has no plans to drill in this area during 2012 but will continue to monitor activity as nearby operators have recently shown encouraging results.
In the Horn River Basin Quicksilver drilled 12 horizontal wells during 2011. "Only two additional wells are required to be drilled to validate virtually all of Quicksilver's exploratory licenses and convert those licenses covering approximately 130,000 net acres into 10-year leases," the company said.
In the Horseshoe Canyon Quicksilver last year drilled 13 (8.6 net) wells and completed 18 (13.1 net) wells. Average net production for the year from the Horseshoe Canyon was approximately 58 MMcfe/d.
"Quicksilver made good progress on a number of fronts in 2011. Our Colorado oil project is looking strong, we are locked in on lower costs on the downstream side of our Horn River project, and we secured a large land position in the red hot Permian and Delaware basin plays. These projects provide big growth opportunities for Quicksilver," Darden said. "Our mission is clear for 2012: advance these projects to full development, significantly increase oil production and reduce public debt by $500 million."