A Mixed Bag from Quicksilver

Zacks

Quicksilver Resources Inc. (KWK) reported fourth quarter 2011 adjusted earnings per share (EPS) of 17 cents, flat with the year-ago figure, but way ahead of the Zacks Consensus Estimate of 2 cents.

On a GAAP basis, the company reported EPS of 28 cents compared with $1.82 in the year-ago quarter.

Quicksilver Resources' 2011 operating EPS was 12 cents compared with 69 cents reported in 2010. Fiscal 2011 earnings were also lower than the Zacks Consensus Estimate of 14 cents.

Total Revenue

Total revenue at the end of the fourth quarter 2011 was $216.0 million, down 14% from $239.9 million reported in the year-ago quarter.

Reported quarter revenue marginally surpassed the Zacks Consensus Estimate of $215 million.

The company generated total revenue of $936 million in 2011, up 1% from $928.3 million reported in 2010.

Total 2011 revenue outstripped the Zacks Consensus Estimate of $885 million.

Operational Update

Quicksilver Resources achieved average daily production of 412 million cubic feet of natural gas equivalent (MMcfe) in the fourth quarter 2011, an increase of 6.0% from 389.2 MMcfe in the fourth quarter of 2010.

For full-year 2011, production averaged 412 MMcfe per day, reflecting a growth of 16% from the 2010 level. The year-over-year production hike was primarily due to higher volumes from the Barnett Shale.

Annual production volumes comprised roughly 81% natural gas, 19% natural gas liquids (NGL), crude oil and condensate.

Total realized prices during 2011 declined 19.5% to $5.32 per Mcfe, driven by lower natural gas prices realized in the year, offset by a rise in oil and NGL prices. The average realized oil, NGL and natural gas prices during the year were $88.15 per barrel (up 22.6%), $38.63 per barrel (up 22.8%), and $4.95 per thousand cubic feet (Mcf) (down 27.8%), respectively.

Lease operating expenses incurred by the company during the reported quarter and the fiscal year rose 36.4% and 21.2% year over year, respectively.  The rise in expenses, both in the quarter and the fiscal year, was due to higher spending on well work-over activity, salt-water disposal costs, and gas lift expenses.

Financials

Capital expenditure for 2011 amounted to $694 million.  Out of the total expenditure, $409.5 million was allocated for drilling to completion activities, $76 million for midstream activities, $166.5 million used for nee acreage purchases and $42 million on other assets.

Long-term debt at Quicksilver, as of December 31, 2011, was $1.9 billion versus $1.74 billion as of December 31, 2010.

Guidance

The company expects production volumes in the first quarter 2012 to be in the range of 375– 385 MMcfe per day.

The company estimates production taxes; gathering, processing, and transportation expenses; and lease operating expenses in the corresponding range of 23–25 cents per Mcfe, $1.24–$1.28 per Mcfe and 68–72 cents per Mcfe. General & administrative expenses and Depreciation, deletion and amortization expenses are expected to be 53–57 cents per Mcfe and $1.49–$1.53 per Mcfe, respectively.

Additionally, the company has hedged about 65% of its expected total production for the remainder of 2012. About 230 MMcf per day of Quicksilver’s natural gas for the remainder of 2012 is hedged through collars at a floor price of $5.75 per Mcf. The company also has in place fixed-price swaps at a price of $45.01 per barrel for about 7,000 barrels per day of its NGL production for the first quarter and full year 2012.

Peer Comparison

Chesapeake Energy Corporation(CHK) competes with Quicksilver Resources. The former announced operating earnings for the fourth quarter 2011 of 58 cents per share, missing the Zacks Consensus Estimate by a penny, and also falling short of the year-ago quarter earnings of 70 cents per share.

Fiscal 2011 ongoing earnings came in at $2.80 per share, falling short of both the Zacks Consensus Estimate of $2.81 and the year-ago figure of $2.95 per share.

Our View

Quicksilver posted a mixed performance in the final quarter of the year. Undeniably, the overall decline in the realized price for natural gas impacted results.

The good thing for the company was that it ended the year with a proved reserve of 2.8 trillion cubic feet of natural gas equivalents and replaced 165% of production during the year. We expect the significant investment made by the company in its different acreage position in United States and Canada will boost future performance.

Quicksilver Resources currently retains a Zacks #3 Rank which translates into a short-term Hold rating on the stock.

Based in Fort Worth, Texas, independent exploration and production company Quicksilver Resources is primarily engaged in the development of long-lived, unconventional onshore natural gas reserves in the North American continent.

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