Quicksilver Resources Inc. ( KWK - Analyst Report ) inked an agreement with TG Barnett Resources L.P., a business wing of Japan’s Tokyo Gas Co. Ltd. ("TKGSY"), for the sale of a 25% stake in the Barnett Shale play. The proceeds from the transaction are expected to fetch Quicksilver around $485.0 million.
The purpose behind the stake sale was to minimize the company’s rising debt level. The deal took off on Sep 1, 2012 and is expected to close on Apr 30, 2013 subject to customary closing conditions.
Quicksilver owns 130,000 net acres in the Fort Worth basin and will remain a major operator in the Texas Shale play after the interest sell-off to Tokyo Gas. Both the parties also agreed to split future development expenditures in proportion to the interest held by each in the prospect as per the operating agreements.
The company maintained modest drilling activity in the Barnett play owing to a rise in costs. However, with the help of Tokyo Gas, Quicksilver will now be able to efficiently develop the full potential of the oil and gas assets in the Barnett formation.
Meanwhile, the company at the start of 2013 completed its agreement with Royal Dutch Shell plc.’s ( RDS.A - Analyst Report ) business wing SWEPI LP for the acquisition of a stake in the Sand Wash Basin. As of now, it owns 50% interest in the basin.
Furthermore, Quicksilver’s prospects from the Horn River Basin in Canada look encouraging. This is evident from the proposed Komie North pipeline project which is expected to create outlets for the Horn River production. This will provide easy access to the Canadian markets and hence enhance the company’s profitability.
We believe Quicksilver’s initiatives in multiple projects will prove beneficial for its future earnings stream. Moreover, the company’s strong hedging position will continue to work in its favor.
Quicksilver Resources at present carries a Zacks Rank #2 (Buy).