Exploration and production company Quicksilver Resources Inc. (KWK) is now venturing into the midstream business to support the development of its Horn River Basin and Canadian assets.
Quicksilver Resources has embarked on creating a separate midstream entity that will help grow sales from its 130,000 net acre project in the Horn River Basin of northeast British Columbia as well as position its Canadian assets for development success. This entity will ultimately have its own capital structure and be separately financed.
Quicksilver’s value creation strategy for the midstream business aims at providing a lowest cost solution for gathering, treating and transporting natural gas from the Horn River Basin to multiple markets to achieve the highest possible netbacks. The company expects the strategy to be accretive to its oil and gas returns.
Quicksilver said it has strategies in place to ensure the supply of its Horn River Basin resources to the west through the Spectra system and to the south through the Trans Canadian pipeline system.
As the first step in its midstream strategy, Quicksilver has already constructed a 20-mile, 20-inch gathering line to be linked to the Spectra system. The company expects this line to be operational in May 2011. The company expects this line to initially serve as the backbone of transporting resources from its Horn River Basin acreage.
In the Horn River Basin, Quicksilver currently has four completed wells and continues to drill on four additional wells, expected to be completed soon.
The company said these four wells with the capacity to produce more than 30 million cubic feet per day (MMcf/d) of natural gas are presently restricted to supplying only 20 MMcf/d through a third-party line into the Spectra system. On successfully tying up its 20-inch line to the Spectra system, the company expects to be able to de-restrict supplies through the new compression facilities currently being commissioned.
In step two, Quicksilver has signed an agreement, earlier this week, 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.
The Horn River extension is expected to be a 36-inch sales gas line to connect TransCanada’s Fortune Creek Meter Station and Quicksilver’s proposed treatment facility to TransCanada’s Alberta System from the Cabin area of British Columbia. Completion of the Horn River extension is expected in mid-2014.
Quicksilver said it already has commitments to deliver its gas to receipt points on the Horn River extension pipeline. The TransCanada Fortune Creek receipt point will provide a low-cost transportation solution to move gas to the AECO hub. Access to the AECO hub, at favorable rates, is consistent with the company’s strategy to ensure multiple markets for each of its developments.
Alongside, Quicksilver has also started sketching plans for construction of its Fortune Creek treatment facility to remove carbon dioxide from the natural gas stream. In its initial phase, the facility will have a capacity to deliver 125 MMcf /d of natural gas to TransCanada and is expected to be operational by mid-2014. The facility is designed to be expandable in sales increments to meet the company’s growing production profile for the basin.
Quicksilver has a history of creating value by building assets in the upstream exploration and production sector as well as in the midstream gathering, treating and transportation sector. Going forward, we expect the company to continue achieving success on many such projects to benefit shareholders.
Quicksilver Resources currently retains a Zacks #3 Rank (short-term Hold rating). The company completes head-to-head with peers like Chesapeake Energy Corporation (CHK) and Denbury Resources Inc. (DNR).
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 the lowest cost. The company has operating segments in the U.S. and Alberta, Canada.
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