We reiterate our Neutral recommendation on Quicksilver Resources Inc. (KWK). Currently, the oil and gas exploration and production operator holds a Zacks Rank #3 (Hold).
Why the Reiteration?
Quicksilver Resources’ first quarter 2013 results were disappointing as low realized prices kept revenue at a weak level. Production also slipped 5.2% year over year due to decline in drilling activities.
Meanwhile, Quicksilver Resources has turned its focus on its Canadian operations. The company's initiative in the expansion of its downstream operations in the Horn River play in Canada to access the markets of British Columbia from the West Coast will boost prospects.
However, Quicksilver Resources is subject to regulatory laws which are expected to present significant cost challenges. Going forward, reliance on third parties for marketing the production would further pose significant constraints on Quicksilver’s operations.
The company tries to control operating costs and strengthen its balance sheet through refinancing and extending its debt maturities and reducing interest cost.
Although, Quicksilver Resources missed our earnings estimates in the last four quarters, the successful completion of an exploration agreement with Royal Dutch Shell plc. (RDS.A) might revive its earnings.
Furthermore, if the company fails to add economically viable reserves to its resource basket, Quicksilver’s operations and financials might be affected. Considering these fundamentals, we have a modest outlook on Quicksilver Resources.
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