The third quarter was a good one for Quicksilver Resources Inc., thanks to a combination of higher earnings, reduced drilling costs and strong results from the first two wells it drilled in West Texas with its joint venture (JV) partner, Italy’s Eni.

Meanwhile, the company’s global borrowing base was reaffirmed at $325 million with unanimous lender approval, and it received favorable covenant changes. Quicksilver also said it will be accepting bids on all of its operating assets during the fourth quarter.

“Quicksilver has made significant progress on our stated goals since our last earnings call,” said CEO Glenn Darden. “Oil discoveries in West Texas, improved well results and cost structure in the Barnett and affirmation of our borrowing base and the covenant changes with our banks are all positive developments.

“These achievements have not only strengthened the company’s asset base, but should also be very helpful in our marketing process and other negotiations.”

On Monday, Fort Worth, TX-based Quicksilver said 3Q2014 production totaled 22.6 Bcfe (246 MMcfe/d), a 10.3% decline from 3Q2013, when production totaled 25.2 Bcfe (274 MMcfe/d). The company gave three reasons for the lower production: a natural decline in Canadian volumes due to minimal capital activity; a scheduled plant outage at a third-party facility in the Horn River Basin; and lower sales volumes — about 2 MMcfe/d — in the Barnett Shale, due to weak ethane prices in September and the subsequent rejection of ethane volumes.

“These declines were partially offset by new natural gas volumes from the Barnett Shale related to the company’s ongoing completion and workover programs, despite curtailed volume from wells adjacent to completion operations,” Quicksilver said.

Production in the Barnett was 15.2 Bcfe (165 MMcfe/d) during 3Q2014, down about 1.3% from the preceding third quarter, when it was 15.4 Bcfe (167 MMcfe/d). Quicksilver said wells completed in 2014 contributed 21 MMcfe/d in 3Q2014, although approximately 2 MMcfe/d of volume was temporarily shut-in due to adjacent completion operations in 3Q2014.

Quicksilver made note of the Barnett in its operational update for the quarter. The company spent $14 million there to drill four gross (three net) wells and complete five gross (three net) wells. It also spent about $2 million to add approximately 8,000 net acres to its position in the southern Barnett Shale, “creating unified acreage blocks [that are] expected to drive improved drilling economics,” Quicksilver said.

The company said that for the full-year 2014, it plans to drill up to 30 gross (16 net) wells and complete up to 47 gross (26 net) wells in the Barnett. Quicksilver and its partners, Tokyo Gas and Eni (see Daily GPI, May 19, 2009), collectively hold about 143,300 gross (93,000 net) acres of leasehold in the Fort Worth Basin, which includes the Barnett.

In West Texas, Quicksilver and Eni drilled and completed the Stallings #1H well in mid-August and it began flowing back at a rate of 750 boe/d. After tubing was installed, the average 83-day flow rate was approximately 535 boe/d (90% oil), with a 3,700-foot lateral tapped into the Third Bone Springs interval.

By late October, Quicksilver and Eni had drilled and completed a second JV well, Mitchell #1H, about four miles north of the Stallings well. The Mitchell well also targeted the Third Bone Springs interval, this time with a 5,200-foot lateral. Quicksilver said the Mitchell well was in the early stages of flowback and is currently producing at a rate of about 700 boe/d (75% oil) on a restricted choke, after approximately 15% of the fracture fluid was recovered.

“Oil volumes have improved daily and continue to increase [at the Mitchell well],” Quicksilver said.

North of the border, the company spent $5 million in 3Q2014 to drill 16 gross (10 net) wells and complete five gross (five net) wells in Horseshoe Canyon, in Alberta, Canada. Production was 4.2 Bcf (45.8 MMcf/d) in 3Q2014, down 8.7% from 4.6 Bcf (49.5 MMcf/d) in 3Q2013. Quicksilver plans to invest $12 million to drill and complete up to 50 gross (30 net) wells in Horseshoe Canyon during the full-year 2014.

Also in Canada, 3Q2014 production in the Horn River Basin in British Columbia was 3.2 Bcf (34.8 MMcf/d), down 37.3% from 5.1 Bcf (55.7 MMcf/d) in 3Q2013. The maintenance outage impacted approximately 35 MMcf/d for a period of five days during the quarter.

Quicksilver said it has been notified that a second maintenance outage at a third-party facility is expected in 4Q2014, over a period of 10 days. Production is expected to be curtailed by about 10 MMcf/d over that time frame, although the company said it “expects to sell a portion of its Horn River volumes at the Station 2 sales hub through a separate third-party treating facility.”

Quicksilver holds approximately 528,000 gross (353,000 net) acres in Horseshoe Canyon and 140,000 gross (130,000 net) acres in the Horn River Basin.

On the company’s global borrowing base, Quicksilver said that this month its combined credit agreements were reaffirmed at $325 million, and were also amended. Specifically, the requirement that the company meet the minimum interest coverage ratio requirement — beginning in 4Q2014 and continuing through 4Q2015 — was eliminated.

Also, Quicksilver said a minimum EBITDAX (earnings before interest, taxes, depreciation, amortization and exploration expenses) covenant was added, again beginning in 4Q2014 and running through 4Q2015. The minimum EBITDAX covenant was amended through the year-end 2015; it was to total $122 million for the 12 months ended Dec. 31, 2015.

Quicksilver hired a strategic alternatives officer in September, pursuant to an agreement with Deloitte Transactions and Business Analytics LLP. The company also retained Houlihan Lokey Capital Inc. to market its operating assets, with plans to accept bids in 4Q2014.

Dan McSpirit, analyst with BMO Capital Markets Corp., touched on the potential sale of Quicksilver’s operating assets in a note Monday.

“Bids [are] due [in] 4Q14 for all or any of the operated assets and the company expressed flexibility on structure, etc.,” McSpirit said. “Sounds like a willing seller. Nothing like creating a sense of urgency, right? Maybe those days are long gone.”

Consolidated lease operating expenses were $17 million ($0.76/Mcfe) in 3Q2014, down 10.5% from $19 million ($0.74/Mcfe) in 3Q2013. Meanwhile, consolidated gathering, processing and transportation costs fell 2.8% — from $36 million ($1.41/Mcfe) in 3Q2013 to $35 million ($1.54/Mcfe) in 3Q2014.

Capital expenditures (capex) for 4Q2014 are expected to range from $22 million to $27 million, bringing full-year capex to $130-135 million.

Reported net income for 3Q2014 was $24 million ($0.13/share), compared to net income of $11 million ($0.06/share) in 3Q2013.