Quicksilver Resources Inc’s (KWK) third quarter 2010 earnings of 17 cents per share, climbed compared with the Zacks Consensus Estimate of 15 cents but slipped 32% from last year’s earnings of 25 cents.
Operational Update
Total revenues of $237.7 million rose 9.5% from the Zacks Consensus Estimate of $217 million and 15% from the year-ago revenues of $206.7 million. Net natural gas, natural gas liquids (NGL) and oil sales in the quarter improved 10% to $218.2 million. The increase was driven by greater production volumes of natural gas offset in part by lower realized prices for natural gas, NGLs and crude oil.
Quicksilver Resources achieved record average daily production of 362 million cubic feet of natural gas equivalent (MMcfe), an increase of 16.4% from 311 MMcfe in the third quarter of 2009.
Total production in the quarter was 33.3 billion cubic feet of natural gas equivalents (Bcfe) compared with 28.6 Bcfe last year. Higher volumes of dry gas from the company’s Lake Arlington and Alliance projects in the northern portion of its Fort Worth Basin acreage drove volumes growth in the quarter.
The production volumes in the quarter comprised roughly 78% natural gas, 21% natural gas liquids (NGL) and 1% crude oil and condensate.
Total realized prices during the quarter declined 5.5% to $6.55 per Mcfe, driven by lower natural gas prices realized in the quarter, offset by a rise in oil and NGL prices. The average realized oil, NGL and natural gas prices in the quarter were $69.32 per barrel (up 14.5%), $30.91 per barrel (up 9.8%), and $6.83 per thousand cubic feet (Mcf) (down 11.2%), respectively.
During the quarter, the company incurred $39.4 million toward production expenses, up 35.4% year over year, primarily associated with higher production volumes and increases for saltwater disposal costs and the costs of operating the Alliance midstream system. Unit production expense increased 16 cents per Mcfe to $1.18 per Mcfe during the quarter.
Furthermore, production and ad valorem taxes in the quarter moved up 5 cents per Mcfe to 28 cents per Mcfe. Depletion, depreciation and accretion expenses in the quarter shot up 2 cents per Mcfe to $1.58 per Mcfe and general and administrative expenses increased 16% to 72 cents per Mcfe.
Financials
The company generated net cash from operating activities of $347.4 million for the nine months ended September 30, 2010, down from $450.6 million in the same period last year. The company’s long- term debt at quarter-end increased $94.6 million from year-end 2009 to $2.4 billion. As on September 30, 2010, the company had $15.1 million of cash and equivalents.
In October 2010, Quicksilver completed the sale of its interests in Quicksilver Gas Services L.P., the primary provider of midstream services for our Fort Worth Basin operations, to Crestwood Holdings LLC for $701 million in cash and up to an additional $72 million in earn-out payments.
In accordance with GAAP, Quicksilver will not treat this divestment as discontinued operations because the divested entity will continue to provide midstream services to Quicksilver.
Guidance
For the third quarter of 2010, the company expects production volumes of roughly $385–$395 MMcfe per day.
The company expects production, gathering & processing, and transportation expenses in the range of 53–58 cents per Mcfe, 75–80 cents per Mcfe and 40–45 cents per Mcfe, respectively. Production taxes, per Mcfe, are expected in the 23–25 cent range. G&A and DD&A expenses are expected to be 55–58 cents per Mcfe and $1.35–$1.40 per Mcfe, respectively.
Additionally, the company has hedged about 66% of its expected total production for the fourth quarter of 2010. About 200 MMcf per day of Quicksilver’s natural gas for the fourth quarter is hedged through collars at a floor price of $7.40 per Mcf. The company also has in place fixed-price swaps at a price of $33.47 per barrel for about 10,000 barrels per day of its NGL production for the fourth quarter.
For 2011, the company has hedged roughly 150 MMcf per day of natural gas under collars and fixed-price swaps at a floor price of $6.20 per Mcf and 8,000 barrels per day of NGLs covered by fixed-price swaps at a price of $38.33 per barrel.
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