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Quicksilver-Kravis in Midstream Tie

Zacks Equity Research

Exploration and production company Quicksilver Resources Inc. (NYSE:KWK - News) entered into a partnership with Kohlberg Kravis Roberts & Co. (NYSE:KKR - News) to further develop its midstream operations. The partnership will collaborate on the development of natural gas midstream services that will cater to the producers in British Columbia and the northwest region of Canada.

Quicksilver’s 20-mile, 20-inch gathering line and compression facilities, along with 10-year contracts for gas deliveries into those facilities, will form the crux of the partnership. Kohlberg Kravis on its part paid $125 million to Quicksilver for a 50% ownership in the venture. Quicksilver will act as operator and along with Kohlberg Kravis will build and operate midstream natural gas assets.

Quicksilver already has an exposure in British Columbia through its Horn River Basin assets. The company is working continuously to achieve low cost solution for gathering, treating and transporting natural gas from the Horn River Basin to multiple markets. We believe Quicksilver will leverage the midstream assets of the partnership, with the company dedicating its entire production from Horn River acreage to the partnership.

This partnership is part of the long-term strategy of the company to develop its midstream business. In April, Quicksilver entered into an agreement with NOVA Gas Transmission Ltd., a subsidiary of TransCanada Pipelines Limited (TransCanada), to start construction of a 70-mile Horn River extension and the Fortune Creek Meter Station.

This partnership will cater to an increasing natural gas demand in the North American markets, besides exports into Asia. Going forward, we expect the company to strike success on many such projects benefiting shareholders.

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

Based in Fort Worth, Texas, Quicksilver Resources is primarily engaged in the development of long-lived, unconventional, onshore natural gas reserves in the North American continent. Its business model revolves around assembling large acreage positions in early stage developing areas at nominal cost. The company runs operating segments in the U.S. and Alberta, Canada.

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