Quicksilver Resources, weighed down by billions of dollars in debt and vexed by perennially low natural gas prices, filed for bankruptcy protection on Tuesday.
The Fort Worth-based company made a big move into the Barnett Shale and other shale natural gas fields across the country and in Canada last decade, and then struggled with a big debt load after natural gas prices collapsed.
According to documents filed in U.S. Bankruptcy Court in Wilmington, Del., the company reported $1.21 billion in assets and $2.35 billion in debts. The Chapter 11 filing, however, does not include Quicksilver’s Canadian subsidiary after it reached a temporary agreement with creditors to avoid default on those assets.
Quicksilver suggested it was heading toward bankruptcy last month when it announced that it was skipping a $13.6 million interest payment. The company has been working with strategic advisers to address its debt and to boost liquidity by selling off some of its assets.
“Quicksilver’s strategic marketing process has not produced viable options for asset sales or other alternatives to fully address the company’s liquidity and capital structure issues,” said Chief Executive Officer Glenn Darden in a prepared statement. “We believe Chapter 11 provides the flexibility to accomplish an effective restructuring of Quicksilver for its stakeholders.”
Filing of the bankruptcy petition is not expected to trigger any additional layoffs, and Quicksilver has asked the court for approval to continue paying its employees. In February, the company laid off about 10 percent of its workforce.
“We view this as a turning point and the company has every intent to operate as usual,” said David Erdman, director of investor relations. “We can’t control the outcomes, but the intent is to emerge a stronger company.”
Delisted from the New York Stock Exchange in January after its stock traded below $1 for a long period, Quicksilver’s stock closed Tuesday at 4 cents on the over-the-counter market.
Betting heavy on gas
Launched a half century ago, the company exploded in size and scope during the natural gas revolution. Headquartered in Burnett Plaza in downtown Fort Worth, the company also has offices in Glen Rose and in Calgary, in Canada’s Alberta province.
Founded by the late Frank Darden, the company has long been controlled by the socially-prominent Fort Worth family. Glenn served as president and chief executive officer; his brother, Thomas “Toby” Darden, served on the company’s board until December 2013; their sister, Anne Darden Self, is the vice president of human resources.
At one time, Quicksilver had about 600 employees, but those numbers have dwindled and recently dropped to about 300 as pressure mounted from its creditors to pay its debts.
Quicksilver’s primary producing areas are in the Barnett Shale, where it has about 85,000 acres. It has another 130,000 gas-rich acres in the Horn River Basin in northeast British Columbia, and 353,000 acres in coal beds of the Horseshoe Canyon in Alberta.
“They bet heavy on the gas,” said Ross Craft, chief executive officer of Approach Resources in Fort Worth. Craft said that banks, at one point, approached his company, along with others, about buying Quicksilver. “If gas prices had hung in there, all these projects would have been fine,” he said.
In recent years, Quicksilver expanded into the oil-rich Permian Basin in West Texas where, with its joint venture partners, it had 90,000 acres and interest in up to 10 wells. But that diversification wasn’t enough to save the company, observers said.
“They had too much leverage and too much debt and they were focused on gas and, when that declined, they tried to switch to oil but they were late to the party,” said Steve Pruett, president and CEO of Elevation Resources in Midland, a private exploration and production company.
Last year, Quicksilver hired Houlihan Lokey Capital to evaluate its options to address its “near-term debt maturities, enhancement of its liquidity position and evaluation of its strategic alternatives. It also brought on board John Little of Deloitte Transactions and Business Analytics to work as a “strategic alternatives officer” to evaluate financial issues confronting the company.
Erdman said the “marketing process has not produced any viable options for asset sales that are likely to have a material impact on our capital structure.” He said most of the marketing has focused on the company’s Canadian assets.
Listed among its top 30 creditors are Wilmington Trust National Association ($361.6 million); Delaware Trust Co. ($332.6 million); and U.S. Bank National Association ($312.7 million). The company also owes millions more to several pipeline companies including Oasis Pipeline and Energy Transfer Fuel.
Quicksilver grew out of a company started by Frank Darden, a former Humble Oil Co. executive, who created the Mercury Exploration Co. in 1965. In 1995, Mercury absorbed MSR Exploration Co., becoming a public company. The name was changed to Quicksilver Resources in 1999.
For years, the company was a stalwart resident of the city’s south side, first operating out of four Victorian homes in the Medical District, then in the Central Bank & Trust Building on Rosedale Street. In 2010, the company moved its 250 employees into the top four floors of Burnett Plaza.
The elder Darden, who died in 2001, ran the company with his two sons. The family made decisions by “consensus,” said Glenn Darden, who was considered to be the numbers man in the family with Toby overseeing properties. At one time, the Darden family owned 60 percent of the stock.
With the shale oil revolution, Quicksilver grew in size and influence with holdings in the Barnett Shale and in south Texas, Indiana, Michigan, Montana, Wyoming and Canada.
Part of the optimism was fueled by the price of natural gas.
In the fall of 2000, natural gas prices reached a 10-year-high, topping $4.86 per thousand cubic feet, but that was only the beginning. In 2007, Quicksilver was getting $6.17, and a year later the amount the Fort Worth driller was being paid was $7.24.
During that time, Glenn Darden said: “This is a very good time to be in the natural gas business.”
Their good fortune was reflected in the company’s stock price, which by 2004 had almost doubled to $39.88, then hit $55.44 the next year and split twice. Quicksilver was even mentioned as an Exxon Mobil takeover target when its stock value hit $3.5 billion in 2005.
By 2007, the company decided to concentrate on the Barnett Shale and Canada. It sold its properties in Indiana, Kentucky and Michigan for $750 million to reduce debt and pay for its projects.
In 2008, it bought 13,000 acres and assets for $1.3 billion near Alliance Airport from Hillwood Oil & Gas and two partners. At the time it was the largest acquisition for Quicksilver, what one company official called a “real pricey deal.”
The same year, Quicksilver expanded its Canadian holdings in the Horn River Basin by buying 127,000 acres for $82 million. It already had 450,000 acres leased in Horseshoe Canyon.
The sound of silence
But by the end of 2008, falling natural gas prices began to curb drilling in the Barnett and elsewhere. Quicksilver and other independent producers had outspent their cash flow as oil and gas prices soared and a land rush continued in the nation’s burgeoning shale fields.
Across the Barnett Shale, there was the sound of silence — by 2009 the number of rigs working in the Barnett had dropped to as low as 63 from about 200 in 2008. By March 2013, the average monthly price for gas was $2.05, according to the Powell Shale Digest.
Canada also proved to be a tough place to do business. Pruett said Horn River is a remote site where work can only be done when the ground is frozen to get the equipment in and out. He also said there is not a local market, so drillers have to transport the gas long distances before it can be sold.
“Canada has been tough place to create value lately,” Pruett said. “The resource is there, but the price isn’t there at the well head to recover the capital investment.”
Quicksilver would sell 27.5 percent of its Alliance properties to Italian oil giant Eni for $280 million in 2009 to pay down debts, and then another 25 percent to Toyko Gas for $485 million in 2013.
Erdman said he couldn’t point to a reason for the bankruptcy filing.
“There have been several factors, all of which are underscored by weak prices [for natural gas],” he said, which dropped about a dollar in the last four or five months.
“That puts a strain on the balance sheet,” he said.
Max B. Baker, 817-390-7714