Earnings Preview: Quicksilver
Quicksilver Resources Inc. (KWK), an independent exploration and production company, is scheduled to release its third-quarter 2012 earnings result before the market opens on November 6, 2012.
Recap, Second Quarter 2012
Quicksilver reported lackluster financial outcomes in the second quarter of 2012 posting net adjusted loss of 13 cents per share, as against year-ago earnings of 6 cents. Quarterly earnings were wider than the Zacks Consensus Estimate of a loss of 6 cents per share. Weak natural gas and natural gas liquids (NGL) prices and decline in core production volumes hit hard the company’s bottom-line.
On the revenue front, it slumped 32.1% at the end of second quarter 2012 to $168.6 million from $248.4 million in the prior-year period. Sluggish output from the Horn River Basin play and slower completion activity at the Barnett Shale primarily resulted in the top-line lag. Moreover, fall in natural gas output from ongoing wells and temporary shutdowns of inefficient facilities further accentuated the revenue downfall.
Reported revenue trailed the Zacks Consensus Estimate of $187 million.
Outlook 2012
Quicksilver Resources expects average output for 2012 in the range of 365–380 million cubic feet per day (MMcfe) as it plans to further reduce its drilling activity in the upcoming quarters. The company has plans to incur capital expenses of $70 million for the second half of 2012 and expend roughly $360 million in oil and gas related activities in 2012.
Zacks Consensus
The Zacks Consensus Estimate for the third quarter 2012 stands at a loss of a penny per share, down 143.8% from earnings of 3 cents reported in the comparable quarter, last year. At present, the Zacks Consensus Estimate for earnings ranges from a loss of 7 cents to income of 5 cents per share.
For full year 2012, the Zacks Consensus Estimate is at a loss of 21 cents per share, lower than the previous year-end earnings of 12 cents per share. The current Zacks Consensus Estimate ranges between a loss of 35 cents and 9 cents per share.
Estimate Revisions Trend
Agreement
We observe considerable estimate revisions at this point. Of the total 16 estimates, 6 estimates went up while 5 estimates moved south in the past 30 days for the third quarter. For the concerned quarter, none of the estimates witnessed any movement in the last 7 days. A similar picture could be seen for 2012, with 6 out of the 16 estimates jumping up and 5 trending down in the past month. The last 7 days saw an upward revision of only one estimate.
Magnitude
The Zacks Consensus Estimate for the third quarter 2012 improved marginally by a penny to a loss of 1 cent from a loss of 2 cents per share in the past 30 days. However, it remained static for the past week. For full year 2012, the consensus estimate narrowed by a cent to a loss of 21 cents from 22 cents in the last month while it was unchanged for the past 7 days.
Surprise History
With respect to earnings surprises, Quicksilver Resources has reported dismal performance missing all the past four quarters. The earnings surprise miss in the last four quarters ranged from (40%) to (125%). The average surprise over the last four quarter remained a negative 95.4%.
Our Recommendation
Quicksilver Resources’ operations at the Horn River Basin and Niobrara will gain momentum in the upcoming quarters as gas prices are expected to steadily improve. We believe the company’s aggressive take on maintaining a strong hedging profile will bode well for its future growth.
However, reduction in the capital expenditure outlook for 2012, pipeline accidents and unexpected outages remain as concerns.
Quicksilver Resources operates in a highly competitive energy market and faces stiff opposition from companies like Denbury Resources Inc. (DNR) and Encana Corporation (ECA).
Currently, we are maintaining a long-term ‘Neutral’ recommendation on Quicksilver Resources Inc. The company has a Zacks #3 Rank implying a short-term Hold rating on the stock.
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