Quicksilver Resources Inc. (NYSE:KWK - News) reported second quarter 2011 adjusted earnings per share (:EPS) of 7 cents, substantially lower than the year-ago figure of 18 cents. Earnings during the quarter however beat the Zacks Consensus Estimate by a penny.
On a GAAP basis, the company reported earnings of 61 cents per share compared with earnings of 49 cents per share in the year-ago quarter. The difference between GAAP and operating earnings during the quarter was due to a non-cash gain of $19 million, related to the mark-to-market impact of long-term derivatives, a non-cash loss of $31 million associated with the company's equity interest in BreitBurn Energy Partner's (NasdaqGS:BBEP - News) and a $122 million gain on the sale of BBEP units.
Total revenue at the end of the second quarter 2011 was $229.3 million, up 0.3% from $228.6 million in the year-ago quarter. During the quarter the company experienced a fall in its production revenue, which was mainly due to lower realized prices for natural gas. However, the negative impacts were offset by a 16.3% year-over-year rise in sales of purchased natural gas and also an astronomical growth of its Other segment.
Reported quarter revenue surpassed the Zacks Consensus Estimate of $219 million.
Quicksilver Resources achieved average daily production of 417.1 million cubic feet of natural gas equivalent (MMcfe) in the second quarter 2011, an increase of 19.2% from 349.9 MMcfe in the second quarter of 2010. The growth in the production level was attributable to higher volumes from the Quicksilver’s Fort Worth Basin Barnett Shale asset and its Horn River Basin natural gas project.
The production volumes comprised roughly 80% natural gas, 19% natural gas liquids (:NGL) and 1% crude oil and condensate.
Total realized prices during the second quarter 2011 declined 17.7% to $5.47 per Mcfe, resulting from 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 $96.28 per barrel (up 37.1%), $39.38 per barrel (up 25.9%), and $5.06 per thousand cubic feet (Mcf) (down 27.0%), respectively.
Total expenses incurred by the company during the reported quarter rose 65.5% year over year. The increase in expenses was mainly due to a 180.5% increase in gathering, processing and transportation expenses. Other categories of expenses during the quarter decreased from year-ago levels, reflecting the effect of cost control measures.
Interest expenses during the quarter were $46.9 million versus $46.1 million in the prior-year quarter.
Cash and cash equivalents of the company as of June 30, 2011 were $0.002 million versus $3.3 million as of June 30, 2010.
Cash provided by operating activities during the quarter was $123.3 million versus $246.5 million a year ago.
The capital cost of the company for the second quarter of 2011 amounted to $163 million. Out of the total expenditure, $79 million was allocated for drilling to completion activities, $19 million for midstream activities, $60 million used for acreage purchases and $ 5 million on other assets.
Capital expenditure of the company for 2011 is now expected to be $696 million, up from the previous level of $480 million.
Total debt at Quicksilver, as of June 30, 2011, was $2 billion reflecting a decline of $605 million year over year.
The company expects production volumes in the third quarter 2011 to increase by 3% sequentially to reach 425–435 MMcfe per day.
The company estimates production taxes; gathering, processing, and transportation expenses; and lease operating expenses in the corresponding range of 21–23 cents per Mcfe, $1.24–$1.26 per Mcfe and 60–64 cents per Mcfe. General & administrative expenses and depreciation, deletion and amortization expenses are expected to be 42–45 cents per Mcfe and $1.45–$1.47 per Mcfe, respectively.
The company has hedged about 60% of its expected total production for the third quarter of 2011. About 190 MMcf per day of Quicksilver's natural gas for the third quarter is hedged through collars at a floor price of $5.95 per Mcf. The company also has in place fixed-price swaps at a price of $38.84 per barrel for about 10,500 barrels per day of its NGL production for the third quarter and full year 2011.
At its peer,Chesapeake Energy Corporation (NYSE:CHK - News) announced operating earnings for the second quarter 2011 of 76 cents per share, surpassing the Zacks Consensus Estimate of 72 cents, and beating the year-ago earnings by a penny.
Total revenue of the company surged 65% year over year to $3,318 million, and was ahead of the Zacks Consensus Estimate of $2,752 million.
Lower natural gas realized prices affected the company during the reported quarter as in the sequentially preceding period. On the positive side, apart from gathering, processing and transportation expense, Quicksilver was able to reap the benefits of its cost-saving initiative in all other expense categories and we expect the company to continue to do so in the coming quarters.
We presently have a long-term Neutral recommendation on Quicksilver Resources.
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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