Quicksilver Resources Inc. (KWK) reported fourth quarter 2010 adjusted earnings per share (EPS) of 18 cents, lower than the year-ago figure of 27 cents, but ahead of the Zacks Consensus Estimate of 15 cents.
On a GAAP basis, the company reported EPS of $1.77 compared with 19 cents in the year-ago quarter. The $1.59 per share hiatus between GAAP and operating EPS was due to a number of one-time or extraordinary items.
Reported earnings during the quarter were boosted by the sale of KGS, gain on sale of BBEP units and unrealized valuation gain on gas purchases. Negating these gains, reported results were adversely affected by impairment of assets, Crestwood transaction expenses and the impact of equity portion of commodity derivatives from BBEP.
Quicksilver Resources’ 2010 operating EPS was 70 cents compared with 86 cents reported in 2009. Fiscal 2010 earnings however pipped the Zacks Consensus Estimate of 68 cents as provided by 20 covering analysts.
Total Revenue
Total revenue at the end of the fourth quarter 2010 was $239.9 million versus $234.1 million in the year-ago quarter.
Reported quarter revenue surpassed the Zacks Consensus Estimate of $222 million.
The company generated total revenue of $928.3 million in 2010, up 11.5% from $832.7 million reported in 2009.
The year-over-year growth in revenue sprung from higher volumes, aided by an increase in the realized price for NGLs and crude oil, which were offset in part by lower realized prices on natural gas.
Total 2010 revenue outstripped the Zacks Consensus Estimate of $888 million.
Operational Update
Quicksilver Resources achieved average daily production of 389.2 million cubic feet of natural gas equivalent (MMcfe) in the fourth quarter 2010, an increase of 20.0% from 324.3 MMcfe in the fourth quarter of 2009.
For full-year 2010, production averaged 355.2 MMcfe per day, reflecting a growth of 9% from the 2009 level. The year-over-year production hike was primarily due to higher volumes from the Barnett Shale.
The production volumes in the year comprised roughly 79% natural gas, 20% natural gas liquids (NGL) and 1% crude oil and condensate.
Total realized prices during 2010 declined 1.8% to $6.61 per Mcfe, driven by 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 $71.90 per barrel (up 38.7%), $31.46 per barrel (up 15.1%), and $6.86 per thousand cubic feet (Mcf) (down 7.5%), respectively.
Total expenses incurred by the company during the reported quarter rose 28.1% year over year. However, full year 2010 total expenses of $613.5 million improved 57.6% from $1,446.6 million in 2009. The decline was mainly due to lower impairment expenses in 2010.
The decline in total expenses during 2010 boosted the operating results of the company. The company registered an operating income of $787.9 million in 2010, a marked improvement from an operating loss of $613.8 million in 2009.
For 2010, expenses incurred on interests were $188.3 million versus $195.1 million at the end of 2009. The reduction in the interest burden was mainly due to lower debts.
Financials
Cash and cash equivalents of the company as of December 31, 2010 were $54.9 million versus $1.03 million as of December 31, 2009.
Cash from operating activities was $397.7 million in 2010 versus $612.3 million in 2009.
The capital cost of the company for 2010 amounted to $588 million. Out of the total expenditure, $452.8 million was allocated for drilling to completion activities, $76 million for midstream activities, $47 million used for nee acreage purchases and $11.8 million on other assets.
The company lowered its debt levels during the year. Long-term debt at Quicksilver, as of December 31, 2010, was $1.74 billion versus $2.3 billion as of December 31, 2009.
Guidance
The company expects production volumes in the first quarter 2011 to be in the range of 390– 400 MMcfe per day.
The company estimates production taxes; gathering, processing, and transportation expenses; and lease operating expenses in the corresponding range of 24–26 cents per Mcfe, $1.22–$1.27 per Mcfe and 59–64 cents per Mcfe. General & administrative expenses and depreciation, deletion and amortization expenses are expected to be 57–60 cents per Mcfe and $1.45–$1.50 per Mcfe, respectively.
Additionally, the company has hedged about 64% of its expected total production for the first quarter of 2011. About 190 MMcf per day of Quicksilver’s natural gas for the first quarter is hedged through collars at a floor price of $5.95 per Mcf.
The company also has in place fixed-price swaps at a price of $38.84 per barrel for about 10,500 barrels per day of its NGL production for the first quarter and full year 2011.
Peer Comparison
Chesapeake Energy Corporation (CHK) competes with Quicksilver Resources. The former announced operating earnings for the fourth quarter 2010 of 70 cents per share, surpassing the Zacks Consensus Estimate of 64 cents, while falling short of the year-ago quarter earnings of 77 cents per share.
Fiscal 2010 ongoing earnings came in at $2.95 per share, beating both the Zacks Consensus Estimate of $2.92 and the year-ago figure of $2.55 per share.
Our View
The company’s proved reserves for 2010 increased more than 20% from 2009 levels to over 2.9 trillion cubic feet of natural gas equivalent (Tcfe). The majority of these reserves came from its Fort Worth Basin Barnett Shale acreage.
In the long run, Quicksilver expects to add another 12 Tcfe to its reserves from its remaining acreage in the Fort Worth and Horn River basins. This gels well with the strategy of Quicksilver to operate in limited areas with a high reserve and production potential. This strategy has helped the company become a successful low-cost operator in the industry.
Quicksilver Resources currently retains a Zacks #3 Rank (short-term Hold rating) on the stock.
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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