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Quicksilver Misses at Both Ends

Zacks Equity Research

Quicksilver Resources Inc. (KWK) reported loss per share of 9 cents in the first quarter versus earnings per share of 2 cents in the year-ago quarter. The loss in the reported quarter was wider than the Zacks Consensus Estimate of a loss of 4 cents.

On a GAAP basis, the company reported a loss of 35 cents per share compared with loss of 42 cents per share in the year-ago quarter. The difference between GAAP and operating earnings during the quarter was due to a non-cash impairment charge of $63 million, a non-cash loss of $37 million associated with the hedge undertaken by the company, partly mitigated by $41 million of earn-out payment from Crestwood Midstream Partners LP. (CMLP)

Total Revenue

Total revenue at the end of the first quarter 2012 was $145.5 million, down 31.4% from $212.2 million in the year-ago quarter. The year-over-year decline in revenue was mainly due to lower realized gas prices and lower natural gas volumes from the Barnett Shale.

Reported quarter revenue fell short of the Zacks Consensus Estimate of $191 million.

Operational Update

Quicksilver Resources achieved average daily production of 377 million cubic feet of natural gas equivalent (MMcfe) in the first quarter 2012, down 3.8% from 392 MMcfe in the first quarter of 2011. The production volumes comprised roughly 80% natural gas and 20% natural gas liquids (NGL), crude oil and condensate.

Total realized prices during the first quarter 2012 declined 7.0% to $5.01 per Mcfe, from $5.39 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 $94.61 per barrel (up 8.7%), $42.98 per barrel (up 16.6%) and $4.34 per thousand cubic feet (Mcf) (down 14.4%), respectively.

Total expenses incurred by the company during the reported quarter rose 6.5% year over year to $226.8 million. The increase in expenses was mainly due to higher lease operating expenses and general and admistrative expenses. Lease operating expenses increased due to higher salt water disposal expenses and artificial gas lift expenses on the older Barnett Shale wells.

Interest expenses during the quarter were $40 million versus $46 million in the prior-year quarter. The reduction in expenses from the year-ago period was due to lower amortization of deferred financing costs.


Cash and cash equivalents of the company as of March 31, 2012 were $13.03 million versus $13.14 million as of December 31, 2011.

Long-term debt at Quicksilver, as of March 31, 2012, was $2.01 billion versus $1.90 billion as of December 31, 2011.

Cash provided by operating activities during the first quarter was $27.4 million versus $11.7 million a year ago.

The capital cost of the company for the first quarter of 2012 amounted to $136 million.  Out of the total expenditure, $109 million was allocated for drilling to completion activities, $5.4 million for midstream activities, $8 million used for acreage purchases and $ 13.6 million on other assets.


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

The company estimates second quarter production taxes; gathering, processing, and transportation expenses; and lease operating expenses in the corresponding range of 20–22 cents per Mcfe, $1.26–$1.30 per Mcfe and 80–84 cents per Mcfe. General & administrative expenses and depreciation, deletion and amortization expenses are expected to be 52–55 cents per Mcfe and $1.56–$1.58 per Mcfe, respectively.

The company continues to hedge a substantial amount of its production to safeguard against fluctuating prices. The company has hedged 65% of its expected total equivalent production for the remainder of 2012 at a weighted average price of $6.02 per Mcfe.

The company has plans to invest $370 million in oil and gas related activities in 2012.

Peer Comparison

A Quicksilver peer, Chesapeake Energy Corporation (CHK), announced operating earnings for the first quarter 2012 of 18 cents per share, missing the Zacks Consensus Estimate of 29 cents, while falling significantly short of the year-ago earnings of 75 cents per share.

Total revenue of the company increased 50% year over year to $2,419 million, but missed the Zacks Consensus Estimate of $2,752 million.

Our View

Quicksilver reported weak earnings results in the first quarter, with its performance failing to meet our expectation as well as the year-ago results.

The company has decided to invest and develop its existing oil and gas acreage in 2012 but depressed gas prices remain a moot concern.

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

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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