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Quicksilver to Create Horn River Midstream Unit

Quicksilver Resources Inc. has taken initial steps to create a separate midstream natural gas entity to support its 130,000 net-acre project in the Horn River Basin of northeastern British Columbia (BC).

The independent, which also explores for oil and gas in the Barnett Shale, West Texas and the Rocky Mountains, became one of the early entries into the basin in 2008 when it acquired 18 exploration licenses covering 127,000 net acres (see Daily GPI, April 8, 2008).

The Fort Worth, TX-based company last year sold midstream unit Quicksilver Gas Services to Crestwood Midstream Partners LLC for $701 million in cash and additional earn-out payments to enhance its liquidity (see Daily GPI, July 26, 2010). That midstream unit had gathered and processed gas produced from the Barnett Shale.

The Horn River Basin now is served by Spectra Energy's Westcoast pipeline grid, and its processing plant in Fort Nelson, BC. Expansions of the Spectra facilities, as well as an extension of NOVA Gas Transmission Ltd. by TransCanada Corp. are under way (see Daily GPI, Jan. 28; April 14, 2010). Royalty cuts by the BC government last year ignited gas production development; output has been forecast to reach 5 Bcf/d by 2020 (see Daily GPI, July 19, 2010).

"We expect the company's value creation strategy for the midstream business will be accretive to our oil and gas returns, as was the case in the Fort Worth Basin, through our successful implementation of our midstream strategy," said Quicksilver Chairman Toby Darden.

"We have the pieces in place to ensure that our vast resource capture will move out of the Horn River Basin to the west through the Spectra system and to the south through the TransCanada pipeline system. We believe that creating this midstream entity will provide our lowest cost solution for gathering, treating and transporting our commodity to multiple sales points."

The first piece of Quicksilver's strategy was to construct a 20-mile-long, 20-inch diameter gathering line, which is complete and awaiting a tie-in to the Spectra system, he said. The line is expected to be operational in May and initially would serve "as the spine of Quicksilver's transportation from its Horn River Basin acreage."

Quicksilver has completed four gas wells in the Horn River play and is "at various stages" to complete four additional wells. The four producing wells "are capable of producing more than 30 MMcf/d but are currently restricted to approximately 20 MMcf/d through a third-party line into the Spectra system," the company said. "Upon tie-in of the 20-inch line the company expects production will be unrestricted and will flow through new compression facilities currently being commissioned."

Earlier this week Quicksilver also executed an agreement with NOVA to begin the "second phase of our strategy to create a midstream business in connection with the Horn River Basin asset," said Darden.

Under the agreement, TransCanada would build a 70-mile Horn River extension and Fortune Creek Meter Station, which would be located within Quicksilver's acreage. The Horn River extension is expected to be a 36-inch diameter sales gasline, which would connect TransCanada's Fortune Creek Meter Station and Quicksilver's proposed treatment facility to the NOVA system from the Cabin area of British Columbia. Completion of the extension is expected in mid-2014.

Quicksilver also agreed deliver its gas to receipt points on the Horn River extension pipe; the TransCanada Fortune Creek receipt point would move gas to the AECO hub. "Access to the AECO hub, at favorable rates, is consistent with the company's strategy to ensure multiple markets for each of its developments," the company said.

Plans are on the drawing board to construct the first Fortune Creek treatment facility to remove carbon dioxide (CO2) from the natural gas stream. Initially the facility would have capacity to deliver 125 MMcf/d to the TransCanada system, which would be expandable "in 125 MMcf/d sales increments" to match the expected production growth.

"These steps will create a midstream business that we believe will be the low-cost solution for gathering, treating and transporting natural gas from the Horn River Basin to multiple markets to achieve the highest possible netbacks," said Darden. "This entity will ultimately have its own capital structure and be separately financed."

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