Fort Worth, TX-based Quicksilver Resources Inc. last week was said to be negotiating to gain a partner to inject needed funding into its cash-poor natural gas shale plays, but instead, the independent gained some negotiating room by selling its midstream operations.

Late Thursday the producer said it would sell all of its interests in Quicksilver Gas Services (KGS) to Crestwood Midstream Partners II, LLC, a portfolio company of First Reserve Corp., for $701 million in cash. Quicksilver expects to close the transaction in October and it could pocket another $72 million in earnout payments in 2012 and 2013 if it meets certain production targets.

The transaction gives Quicksilver the ability to repay all outstanding borrowings under its $1 billion senior secured credit facility, of which approximately $528 million is currently outstanding, and it would have around $1 billion in total liquidity.

“After building the gathering and processing infrastructure for our Fort Worth Basin assets, we are now able to realize significant value that can be redeployed into our core, higher return exploration and development opportunities including the Fort Worth and Horn River basins,” said CEO Glenn Darden.

Privately held Crestwood was formed in 2007, helmed by former Enterprise Products Partners CEO Bob Phillips (see NGI, Dec. 10, 2007).

Last month at Bentek Energy LLC’s Benposium, Phillips said, “Those of us who have been in the NGL business have been observing the growth of the NGL infrastructure and the NGL supply and the NGL demand for years now” (see NGI, June 14). “There is absolutely no doubt…when you can add 300 to 500 to 600 bbl of NGLs or oil to an Mcf of gas, that’s like selling that gas for $8/Mcf at the wellhead.”

Analysts long have had Quicksilver on a short list as a possible acquisition target, and only days ago it was rumored to be in discussions with India’s Reliance Industries Ltd. concerning a possible joint venture (JV) in the Horn River Shale or even a takeover. The company would not comment on the rumors, but a spokesman said the company’s midstream sale gives it substantially more strength going forward.

Morningstar analysts said Friday both Quicksilver and KGS “are winners in this transaction, in our view.

“For Quicksilver, we estimate that the $701 million sale price implies an enterprise value of at least 10 times KGS’ 2010 earnings…even after assuming an accelerated pace of completions for Quicksilver’s 130-well backlog in the Barnett [Shale], with more upside from earnout payments that are very reasonably achievable, per management…We think this deleveraging expands Quicksilver’s options, particularly in the Horn River Basin.”

If Quicksilver still wants to gain a JV partner in the Horn River, the transaction, said the Morningside team, gives it “a better bargaining position with potential partners, increases Quicksilver’s ability to go it alone, and introduces the possibility of securing a midstream partner to help fund infrastructure development.”

For KGS, the deal “opens up options to expand the partnership’s midstream service offerings, geographic exposure, and client diversity…We think KGS may be able to experience more rapid volume growth and deploy more growth capital under Crestwood than it could have under the more capital-constrained Quicksilver…”

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