Quicksilver Resources Inc.'s share price jumped Monday on reports that India's Reliance Industries Ltd. is contemplating a joint venture or even a takeover.
The natural gas producer's share price rose almost 17% to close at $12.83/share on reports that it may be close to completing a lucrative deal with the biggest energy company in India.
Reliance apparently has three options on the table: a buyout of the Fort Worth, TX-based producer, buying a stake in the company, or partnering on a leasehold. Quicksilver's estimated enterprise value is $4.6 billion.
Quicksilver currently is developing a leasehold in the Horn River Basin of northeast British Columbia and the Barnett Shale in North Texas. It also has assets in Montana's Bakken Shale.
Quicksilver is expected to have sales of around $900 million this year; estimated proven reserves are 2.4 Tcf.
Neither company would comment on market rumors. However, financial analysts often put Quicksilver on the list as a takeover candidate because it's been short on cash but long on prospects.
Credit Suisse analyst Anish Patel and his colleagues in May wrote that Quicksilver needed a well heeled partner to fund its exploration.
"A partner could help accelerate what will likely be an operationally demanding development, while reducing Quicksilver's marketing and infrastructure risks," said the Credit Suisse team. "A joint venture that included a combination of upfront payment and drilling carries would likewise shape a drilling program and enhance the project value."
Analysts at Lazard Capital Partners downgraded Quicksilver in mid-June and said it had to have a partner to move forward.
"With high debt levels, the company remains more capital (and we believe growth) constrained in a low natural gas price environment than the peers," said the Lazard analysts. "Our valuation does not assign any credit for Quicksilver's Horn River project. We do not believe the project has any material value unless the company monetizes the potential of this asset through a joint venture or sale. We believe this is likely a 2011 or early 2012 catalyst, if it occurs at all."
Reliance already has spent billions this year to claim ownership in U.S. gas shale basins. In April the energy giant bought into Atlas Energy Inc.'s Marcellus Shale leasehold in two transactions that together were worth close to $2 billion (see Daily GPI, April 23). In June Dallas-based Pioneer Natural Resources Corp. agreed to sell almost half of its Eagle Ford Shale interests to Reliance for $1.15 billion (see Daily GPI, June 25).
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