Quicksilver Resources Inc. is hoping to turn some of its Barnett Shale assets into a cash breadbasket through the creation of a master limited partnership (MLP). Proceeds would be used to pay down Quicksilver debt.

The liquidity-hungry company said it would create an MLP with a portion of its Barnett assets and would file before the end of the year to issue MLP units. The MLP — to be called Quicksilver Production Partners — would use offering proceeds as well as borrowings under a planned credit facility to buy the Barnett assets. Quicksilver said it wants to raise more than $400 million to retire debt.

The company has about $940 million of public debt that is callable between now and the end of 2012. This could be eliminated over the next two years with proceeds from asset dropdowns to the MLP, it said. That amount represents about half of the company’s public debt; the remainder could be paid off in “the next few years,” executives said. The play has been a growth engine for the company (see Shale Daily, Aug. 9).

“The creation of this MLP achieves several goals for Quicksilver,” said CEO Glenn Darden. “We believe we will be able to monetize a large maturing asset base at attractive prices which can eliminate all of Quicksilver’s existing public debt over the next few years.” He said the MLP would grow organically through dropdowns for about the next seven years.

Quicksilver shares were up more than 3% at about $8.43 in early trading Thursday.

“We believe that this action will alleviate some Street concerns regarding the balance sheet (…current net debt-to-cap ratio is 71%),” said Wells Fargo analyst David Tameron in a note Thursday. “That said, there may be a concern that the company may be selling a meaningful portion of its producing assets (about 65% of 2Q2011 production came from Barnett assets).”

Assets in the initial sale to the MLP are expected to be 18% of Quicksilver’s current Barnett production levels and 15% of the company’s year-end 2010 proved Barnett reserves. The company is producing about 350 MMcf/d from the Barnett with a current decline rate of about 12% across the asset base, Darden told financial analysts during a conference call Thursday.

“In addition, Quicksilver’s current Barnett Shale asset base provides the ability to drop down similar asset packages with similar decline profiles for at least the next seven years,” the company said. It would retain a “significant ownership position” in the MLP and would own 100% of the general partner.

Analysts at Tudor, Pickering, Holt & Co. said Thursday that $400 million would be “a solid first step” to building liquidity at Quicksilver, “assuming the deal goes through.” They said short interest in Quicksilver shares is 17%.

Fort Worth-based Quicksilver also said negotiations for a joint venture on midstream infrastructure in the Horn River Basin in British Columbia are ongoing. The company is also in discussions with third parties on several upstream projects, it said.

In addition to its interest in the MLP and its general partner, Quicksilver retains all of its assets outside of the Barnett, including its development project in the Horn River Basin, its Horseshoe Canyon coalbed methane assets in Canada, its ownership of eight million Breitburn Energy Partner units, its 210,000 net acre Niobrara project, its West Texas acreage position and its production from a large acreage position in Montana that is held by production.

At the end of the first quarter Darden and members of his family dropped a bid to take Quicksilver private. The Dardens’ proposal was announced in October 2010, and the suitor had retained a financial adviser and counsel and had engaged in discussions with a number of firms regarding equity financing.