Unconventional natural gas player Quicksilver Resources Inc. on Monday beat Wall Street's expectations in 2Q2010, boosted by increased production and higher commodities prices.
The Fort Worth, TX-based producer reported net income of $86.8 million (49 cents/share) in 2Q2010, compared with a net loss of $21.8 million (minus 13 cents) in the prior-year period. Adjusted net income in the latest quarter was $30.4 million (18 cents/share), down from $41.2 million (18 cents). Revenue increased 11% to $228.6 million.
"Quicksilver has made tremendous progress in strengthening the company and adding growth opportunities for the future," said CEO Glenn Darden. "With the recently announced agreement to sell our interests in Quicksilver Gas Services, we will materially reduce debt and increase liquidity to $1 billion, while retaining 100% of our reserve base and meaningful upside in the Horn River Basin."
During the latest period Quicksilver achieved record average production, which was up 5.6% from a year ago to 350 MMcfe/d. The 2009 period included about 12 MMcfe/d of output from the Alliance area of the Fort Worth Basin, which was sold to Italian producer Eni last year (see Daily GPI, May 19, 2009).
Total production was around 31.8 Bcfe in 2Q2010, compared with 30.1 Bcfe in the year-ago period. Production volumes were weighted 78% natural gas, 20% natural gas liquids (NGL) and 2% crude oil and condensate. Increased activities at the company's Lake Arlington and Alliance projects in the northern portion of its Fort Worth Basin acreage primarily drove the increased production of dry gas, Quicksilver said.
Sales volumes jumped 6.2% to $211.7 million in 2Q2010, compared with $199.3 million in 2Q2009. The increase primarily came from higher gas production, Quicksilver noted.
Higher market prices for natural gas, NGLs and crude oil "more than offset the impact of lower hedging benefits," which resulted in the company's weighted-average price of $6.65/Mcfe in the quarter, up slightly from the prior year.
Total production expenses in the latest quarter reached $38.2 million, which reflected higher compression costs associated with increased production volumes from the Alliance project in the Fort Worth Basin of North Texas and increased costs associated with new production from the Horn River project in northeast British Columbia, the company said.
In the Barnett Shale in the Fort Worth Basin, Quicksilver drilled 26 (22.4 net) wells and connected 29 (25.1 net) wells to sales in 2Q2010. Four rigs currently are working in the basin, including two rigs dedicated to the Alliance project and one rig on a temporary basis at the Lake Arlington project in the northern, dry gas portion of the basin and one rig in the southern portion of the basin, which has predominantly high-Btu gas.
The company still expects to drill and complete around 80 wells in the Barnett Shale this year and it expects to complete "at least" 25 additional wells this year from its existing inventory of drilled but uncompleted wells.
Drilling, completion and pipeline activities in Canada were suspended for most of the quarter because of the seasonal break-up period. In the Horseshoe Canyon area, the company plans to drill 11 (9.3 net) operated wells during the second half of this year resulting in a total of 21 (14.2 net) wells in this area for the full year of 2010.
Completion activities are to begin on the third well in the Horn River Basin in late summer; completion of a fourth well is anticipated at year-end. In addition, the company now expects to reenter an existing vertical well in the Horn River Basin to drill a horizontal test of the Exshaw oil formation later this year.
Capital costs in 2Q2010 reached $137 million, primarily associated with drilling and completion activities in the Barnett Shale.
Quicksilver Gas Services LP, which was formed in 2004 to provide services to Quicksilver Resources, reported a 44% jump in profits in the latest quarter from a year ago. In July Quicksilver agreed to sell the gas services affiliate to Crestwood Midstream Partners II LLC, a portfolio company of First Reserve Corp. (see Daily GPI, July 26). Quicksilver is to receive $701 million at closing and up to an additional $72 million in earn-out payments. The transaction is expected to close in October.
The funds from the sale of Quicksilver Gas Services has taken some pressure off the company's capital commitments, Darden told financial analysts during a conference call. But he said the company is negotiating with companies about midstream partnerships and continues to discuss a joint venture (JV) in the Horn River.
Darden did not comment on what companies Quicksilver is talking to about partnerships. Last month it was reported that India's Reliance Industries Ltd. was contemplating a JV or even a takeover (see Daily GPI, July 20). In addition to its Horn River and Barnett shale prospects, Quicksilver is developing a leasehold in Montana's Bakken Shale.
Darden said Quicksilver now had "no limits" on its production growth, "other than staying within cash flow." In May the producer cut back its production and development plans in the Barnett Shale and shifted about $30 million to buy more acreage in the Fort Worth and Horn River Basins (see Daily GPI, May 11).
The company plans to wait on the "right price" for natural gas before it makes any big financial commitments for development onshore, Darden said.
Asked by an analyst what was the "right price" for gas, Darden said, "I certainly don't think $4.50 is the right gas price...We make great money at $5, but I'd like to see a great price to pull out the liquids side [in the Barnett Shale]...and make more completions...If gas were at $6 tomorrow, we'd certainly accelerate our uncompleted well program..."
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