Quicksilver reports third-quarter net income of $730,000

By JACK Z. SMITH

jzsmith@star-telegram.com

Despite strong natural gas production, Fort Worth-based Quicksilver Resources squeezed out a third-quarter net income of only $730,000, or less than a penny a share, on revenues of $206.7 million.

That compared with a net loss of $3.8 million, or 2 cents a share, on revenues of $236.3 million in the third quarter of 2008.

However, Quicksilver’s third-quarter adjusted net income — which investment analysts often pay more attention to — was $42.7 million, or 25 cents a share, compared with $69.8 million, or 40 cents a share, in the corresponding period in 2008.

The adjusted net income excluded net charges of $49.9 million associated with the company’s ownership in Breitburn Energy Partners and an income tax expense of $9.6 million.

Quicksilver said its third-quarter production averaged the equivalent of 311 million cubic feet of natural gas per day, up 12 percent over a year earlier. It was 14 percent higher in the Barnett Shale in North Texas.

Quicksilver is producing 340 million cubic feet of natural gas per day and "is on pace to have a record production year while driving production costs down nearly 30 percent," CEO Glenn Darden said Monday in a conference call with investment analysts.

For the first nine months of 2009, the company’s total production was up 34 percent, and its Barnett Shale production was up 45 percent compared with the same period in 2008, Chief Financial Officer Phil Cook said.

He attributed the increase primarily to higher Barnett output resulting from drilling and completing new wells and the 2008 acquisition of additional Barnett acreage in the Alliance area on the north edge of Fort Worth.

The company has a heavy long-term debt of $2.5 billion but has "started to whittle down" that number and anticipates "making more progress on that by year-end," Darden said.

Help from hedging

Like other natural gas producers, Quicksilver has been hobbled by weak gas prices, but it realized an attractive average price of $7.69 per 1,000 cubic feet in the third quarter as a result of hedging prices on the futures market.

"Overall, Quicksilver is making great progress despite the tough economic environment," Darden said. "We have extended maturities on debt, which allows the company to develop its large asset base."

Just based on its Barnett output, the company is capable of boosting production by more than 20 percent annually "over the next several years" while staying "well within the company’s cash inflows," he said.

For the long term, the company’s holdings of 127,000 net acres in Canada’s Horn River Basin might result in a project that "could very well be several times larger than our current reserve base," Darden said. The company’s initial well there produced at a robust level of 10 million cubic feet of gas per day in its first month.

"Although we are still in the early stages of this project, we firmly believe that this will be a world-class shale production basin," Darden said. Quicksilver’s acreage is "surrounded by significant production from other operators," he said.

Citing another fledgling prospect, Darden said Quicksilver has assembled more than 100,000 acres in the Greater Green River Basin in southern Wyoming and northern Colorado, where it seeks to recover gas from the Mancos and Niobrara geological zones. Quicksilver has drilled but not completed two vertical wells there. "We have a lot more work to do there but are encouraged with the preliminary results," Darden said.

Quicksilver Resources’ stock (ticker: KWK) closed Monday at $13.60 a share, up 75 cents.

Also Monday, its affiliate Quicksilver Gas Services reported a third-quarter net income of $8.7 million, or 31 cents per unit, on revenues of $24.3 million. That compared with earnings of $6.4 million on revenues of $19.3 million for the third quarter of 2008.

Quicksilver Gas is a limited partnership that gathers and processes natural gas produced from the Barnett. In trading Monday, it closed at $19.45 a unit, up 31 cents.

JACK Z. SMITH, 817-390-7724

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