FORT WORTH, Texas, May 7, 2013 (GLOBE NEWSWIRE) -- Quicksilver Resources Inc. (NYSE:KWK) today announced preliminary 2013 first-quarter results.
Highlights:
-
Signed and closed agreement to sell 25% of Barnett Shale assets to TG Barnett Resources LP ("TG") for $485 million before closing adjustments
-
Closed amendment to credit agreement, providing additional flexibility in the company's efforts to reduce leverage
- Produced 32 billion cubic feet of natural gas equivalent (Bcfe)
"Quicksilver Resources is continuing to make progress on our streamlining and deleveraging efforts," said Glenn Darden, Quicksilver's President and Chief Executive Officer. "We are focused on the most important projects and we're bringing in partners to both reduce debt and assist in the development of our assets."
Financial Results
Adjusted net loss for the first quarter, a non-GAAP financial measure, was $6 million, or $0.04 per diluted share, compared to adjusted net loss of $15 million, or $0.09 per diluted share in the prior-year period. Reported net loss for the first quarter of 2013, which includes $41 million of non-cash derivative losses, was $60 million, or $0.35 per diluted share, compared to a net loss of $212 million, or $1.24 per diluted share, in the prior-year period, which was restated as disclosed in the company's 2012 Annual Report on Form 10-K. Reported first-quarter 2012 results include a restated $318 million non-cash ceiling test impairment.
Included in the first-quarter 2013 reported net loss is an unrealized loss from all commodity derivatives. Effective December 31, 2012, the company discontinued the use of hedge accounting on all existing derivatives and all unrealized derivative gains and losses are now recorded in revenue. The unrealized gains and losses are excluded for purposes of presenting adjusted net earnings, which is a non-GAAP measure.
Quicksilver's first-quarter 2013 results do not include the sale of 25% of the company's Barnett Shale assets as the conveyance was reflected on the date proceeds were received, in accordance with accounting rules. The transaction closed on April 30, 2013.
Further details of unrealized derivative losses and adjusted net income are included in the tables accompanying this earnings release.
Production
First-quarter 2013 production was 32.2 Bcfe, or an average of 358 million cubic feet of natural gas equivalent per day (MMcfed). Production from the Barnett Shale was 21.2 Bcfe, or 236 MMcfed, which is down 5% from the fourth quarter due to minimal capital activity. Production from Canada was 10.7 Bcfe, or 119 MMcfed, which is 30% higher compared to the fourth quarter as gross production in the Horn River Basin was increased to approximately 85 MMcfd.
First-quarter 2013 actual production was approximately 2 MMcfd lower than the bottom of first quarter guidance as Horn River Basin volumes were curtailed to produce at optimal levels. However, production from the Barnett Shale was higher than expected due to the improved effects of recent workover activity.
Revenue and Expenses
Production revenue for the first quarter of 2013 was $133 million, which excludes approximately $3 million of cash proceeds from certain derivatives that will not be recognized until future periods to match their original settlement dates.
The average realized price for the first quarter of 2013 was $4.42 per Mcfe, which excludes approximately $0.09 per Mcfe of cash proceeds from derivatives described above.
Lease operating expense for the first quarter of 2013 was $25 million, or $0.77 per Mcfe, compared to $29 million, or $0.84 per Mcfe in the prior-year quarter. Lease operating expense in the Barnett Shale declined 22% compared to the prior year quarter due to lower water disposal volumes and ongoing cost containment initiatives. Lease operating expense in the Horn River Basin increased approximately $0.5 million compared to the prior-year quarter, but decreased 74% on a unit basis due to the relatively fixed nature of operating expenses and substantially higher production volumes.
Cash Flow
Operating cash flow for the first quarter was $22 million before changes in working capital. Working capital was an outflow of approximately $36 million due primarily to scheduled semiannual interest payments on outstanding bonds and the impact of Barnett property tax payments in the first quarter. Investing cash flows were a net outflow of $27 million.
Capital Spending
The company incurred approximately $24 million of capital expenditures in the first quarter of 2013, of which approximately $11 million was associated with drilling and completion activities, $7 million for acreage purchases, and $6 million for capitalized interest and overhead costs.
Due to the sale of 25% of the company's Barnett Shale assets, the 2013 capital budget will be slightly reduced to reflect the proportionate amount of Barnett capital TG is expected to fund. The company does not expect other significant changes to its previously announced capital program for 2013.
Credit Facility Amendment
The company amended its Combined Credit Agreements on April 30, 2013, resulting in, among other things, a decreased borrowing base, relaxed financial covenants, and additional flexibility to support the company's efforts to reduce leverage. The global borrowing base was redetermined at $350 million, which includes the effects of the TG transaction. The amendment permits the issuance of second-lien financing to repay a portion of outstanding senior notes. It also allows for repayment of senior notes and senior subordinated notes with the proceeds from asset sales and second-lien issuance if the borrowing base is less than 75% utilized. Previously, the company was restricted from repaying bonds with asset sale proceeds until utilization was less than 25% and certain other conditions were met.
Further, the company has the ability to retain cash from the Barnett transaction and is only required to reduce the balance outstanding under the credit facility to the extent that utilization exceeds the newly redetermined global borrowing base.
The minimum interest coverage ratio was also amended to provide additional flexibility. The ratio was relaxed to 1.25x through the end of 2013, and it is scheduled to further decline in stages to 1.1x by the third quarter of 2014, where it will remain through the first quarter of 2015. The ratio will then increase in stages to 2.0x by the second quarter of 2016, which is the last test period prior to the facility's scheduled maturity.
Additionally, the maximum senior secured debt leverage ratio was reduced to 2.0 and was amended to include only first lien debt, and the applicable margin was increased by 75 basis points for each type of loan and issued letters of credit.
Barnett Sale
On April 30, 2013, the company received net cash proceeds of $463 million for the sale of 25% of the company's Barnett Shale assets to TG. The effective date of the transaction is September 1, 2012. TG's ratable share of production, operating expenses and capital spending from the effective date to the closing date, as well as other customary adjustments at closing, amounted to approximately $22 million, which was included in the adjustment to the previously announced $485 million purchase price.
The proceeds were used to reduce outstanding borrowings under the Combined Credit Agreements by $250 million, with the remainder retained in cash.
Debt
As of April 30, 2013, and including repayment of the credit facility from TG transaction proceeds, the company had approximately $251 million utilized under its Combined Credit Agreements. Within the utilized amount is $57 million of outstanding letters-of-credit, which includes the release of $16 million from a letter-of-credit related to the proposed Komie North pipeline, and a $13 million increase in an existing letter-of-credit related to the step-up of the treating commitment in the Horn River Basin associated with increasing volumes.
Total net debt on April 30, 2013 is approximately $1.6 billion, which includes the pro forma effect of repayments under the credit facility from TG transaction proceeds.
Status of Proposed Barnett Master Limited Partnership
In light of having closed the TG transaction and the persistence of challenging NGL pricing, Quicksilver Production Partners LP will today file with the Securities and Exchange Commission an application for the withdrawal of its Registration Statement on Form S-1.
Second Quarter 2013 Guidance
Second-quarter 2013 average daily production volume is expected to be 282 - 288 MMcfe per day. Full-year average production volume is expected to be 290 - 300 MMcfe per day.
For the second quarter of 2013, average unit expenses, on a Mcfe basis, are expected as follows:
• Lease Operating Expense $0.88 - $0.92 • Gathering, processing & transportation 1.32 - 1.36 • Production and ad-valorem taxes 0.18 - 0.21 • General & administrative 0.50 - 0.54 • Depletion, depreciation & accretion 0.56 - 0.60
All figures include the impact of the sale of 25% of the company's Barnett Shale assets as of April 30, 2013.
Commodity Derivatives
The company's natural gas swap portfolio is as follows: 200 MMcfd for 2013 at a weighted-average price of $5.10 per Mcf, 170 MMcfd for 2014 at $5.08 per Mcf, 150 MMcfd for 2015 at $5.23 per Mcf, and 40 MMcfd for 2016-2021 at $4.48 per Mcf.
No derivatives were conveyed in the sale of 25% of the company's Barnett Shale assets.
Operational Update
Canada
The company began ramping up production from its Horn River Basin Asset in mid-December 2012. Due to limitations of surface equipment and water disposal, gross production is currently at 87 MMcfd, which is sourced from eleven of the twelve wells capable of production.
Quicksilver's treating commitment in the Horn River stepped up to 100 MMcfd on May 1, 2013 after a third-party treating facility was commissioned. This commitment will remain at the 100 MMcfd gross production level until May 1, 2018.
The company continues work toward a potential joint venture in the Horn River Basin, with the downstream marketing of the gas a top priority.
Production from Horseshoe Canyon was 51 MMcfd during the first quarter. Development activity was limited in the first quarter and the company expects it will continue to be limited for the remainder of 2013.
United States - Barnett Shale
The company did not conduct development activity in the first quarter, but expects to drill up to 10 wells in the Barnett beginning in the third quarter, which is consistent with the timing contemplated by the 2013 capital budget.
TG will have the right to participate in 25% of Barnett capital spending. The company does not believe the joint venture with TG will cause a near-term acceleration of drilling activity.
United States - Sand Wash Basin
The company expects to participate in the drilling and completion of up to eight Sand Wash wells in 2013.
Quicksilver holds approximately 167,000 net acres in the Sand Wash Basin, which the company believes is prospective of oil production from the Niobrara formation. The company has found 1,200 feet of productive Niobrara across 35-miles in an east-to-west band and 15 miles in a north-to-south band across the Sand Wash leasehold.
United States - West Texas
The company expects a minimal drilling program in its West Texas Asset in 2013.
Quicksilver holds approximately 126,000 net acres across the Delaware and Midland basins of West Texas, which the company believes is prospective of oil production from the Wolfcamp and Bone Springs formations.
Conference Call Information
The company will host a conference call at 10:00 a.m. central time today to discuss preliminary first-quarter operating and financial results.
Quicksilver invites interested parties to listen to the call via the Events & Presentations page on the company's website at http://investors.qrinc.com, or by calling 1-877-313-7932, using the conference ID number 88746683, approximately 10 minutes before the call. A digital replay of the conference call will be available at 2:00 p.m. central time the same day, and will remain available for 30 days. The replay can be accessed by dialing 1-855-859-2056 using the conference ID number 88746683. The replay will also be archived for 30 days on the company's website.
Use of Non-GAAP Financial Measure
This news release and the accompanying schedule include the non-generally accepted accounting principles ("non-GAAP") financial measure of adjusted net income. The accompanying schedule provides reconciliations of this non-GAAP financial measure to its most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Our non-GAAP financial measure should not be considered as an alternative to GAAP measures such as net income or operating income or any other GAAP measure of liquidity or financial performance.
About Quicksilver Resources
Fort Worth, Texas-based Quicksilver Resources is an independent oil and gas company engaged in the exploration, development and acquisition of oil and gas, primarily from unconventional reservoirs including gas from shales and coal beds in North America. Quicksilver's Canadian subsidiary, Quicksilver Resources Canada Inc., is headquartered in Calgary, Alberta. For more information about Quicksilver Resources, visit www.qrinc.com.
Forward-Looking Statements
Certain statements contained in this press release and other materials we file with the SEC, or in other written or oral statements made or to be made by us, other than statements of historical fact, are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current expectations or forecasts of future events. Words such as "may," "assume," "forecast," "position," "predict," "strategy," "expect," "intend," "plan," "contemplate," "estimate," "anticipate," "believe," "project," "budget," "potential," or "continue," and similar expressions are used to identify forward-looking statements. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include: changes in general economic conditions; fluctuations in natural gas, NGL and oil prices; failure or delays in achieving expected production from exploration and development projects; our ability to achieve anticipated cost savings and other spending reductions; uncertainties inherent in estimates of natural gas, NGL and oil reserves and predicting natural gas, NGL and oil production and reservoir performance; effects of hedging natural gas, NGL and oil prices; fluctuations in the value of certain of our assets and liabilities; competitive conditions in our industry; actions taken or non-performance by third parties, including suppliers, contractors, operators, processors, transporters, customers and counterparties; changes in the availability and cost of capital; delays in obtaining oilfield equipment and increases in drilling and other service costs; delays in construction of transportation pipelines and gathering, processing and treating facilities; operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control; the effects of existing and future laws and governmental regulations, including environmental and climate change requirements; failure or delay in completing strategic transactions; the effects of existing or future litigation; and additional factors described elsewhere in this press release.
This list of factors is not exhaustive, and new factors may emerge or changes to these factors may occur that would impact our business. Additional information regarding these and other factors may be contained in our filings with the SEC, especially on Forms 10-K, 10-Q and 8-K. All such risk factors are difficult to predict, and are subject to material uncertainties that may affect actual results and may be beyond our control. The forward-looking statements included in this press release are made only as of the date of this press release, and we undertake no obligation to update any of these forward-looking statements to reflect subsequent events or circumstances except to the extent required by applicable law.
All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.
KWK 13-10
| QUICKSILVER RESOURCES INC. | ||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||
| In thousands, except for per share data - Unaudited | ||
| For the Three Months Ended March 31, | ||
| 2013 | 2012 | |
| (Restated) | ||
| Revenue | ||
| Production | $ 132,614 | $ 166,454 |
| Sales of purchased natural gas | 16,558 | 12,086 |
| Net derivative gains (losses) | (31,369) | (6,664) |
| Other | 900 | 990 |
| Total revenue | 118,703 | 172,866 |
| Operating expense | ||
| Lease operating | 24,895 | 28,691 |
| Gathering, processing and transportation | 39,824 | 43,077 |
| Production and ad valorem taxes | 5,484 | 6,763 |
| Costs of purchased natural gas | 16,518 | 11,937 |
| Depletion, depreciation and accretion | 18,256 | 54,439 |
| Impairment | — | 317,928 |
| General and administrative | 16,163 | 19,095 |
| Other operating | 1,437 | 18 |
| Total expense | 122,577 | 481,948 |
| Crestwood earn-out | — | 41,097 |
| Operating income (loss) | (3,874) | (267,985) |
| Other income - net | (150) | 93 |
| Fortune Creek accretion | (4,845) | (4,741) |
| Interest expense | (43,942) | (40,170) |
| Income (loss) before income taxes | (52,811) | (312,803) |
| Income tax (expense) benefit | (6,896) | 101,238 |
| Net income (loss) | $ (59,707) | $ (211,565) |
| Earnings (loss) per common share - basic | $ (0.35) | $ (1.24) |
| Earnings (loss) per common share - diluted | $ (0.35) | $ (1.24) |
| QUICKSILVER RESOURCES INC. | ||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||
| In thousands, except share data - Unaudited | ||
| March 31, 2013 | December 31, 2012 | |
| ASSETS | ||
| Current assets | ||
| Cash | $ 9,850 | $ 4,951 |
| Accounts receivable - net of allowance for doubtful accounts | 57,419 | 64,149 |
| Derivative assets at fair value | 54,566 | 113,367 |
| Other current assets | 25,881 | 25,046 |
| Total current assets | 147,716 | 207,513 |
| Property, plant and equipment - net | ||
| Oil and gas properties, full cost method (including unevaluated costs of $304,340 and $307,267, respectively) | 788,900 | 780,960 |
| Other property and equipment | 238,632 | 248,098 |
| Property, plant and equipment - net | 1,027,532 | 1,029,058 |
| Derivative assets at fair value | 96,314 | 105,270 |
| Other assets | 37,647 | 39,947 |
| $ 1,309,209 | $ 1,381,788 | |
| LIABILITIES AND EQUITY | ||
| Current liabilities | ||
| Accounts payable | $ 17,857 | $ 37,131 |
| Accrued liabilities | 105,854 | 130,660 |
| Derivative liabilities at fair value | 532 | — |
| Total current liabilities | 124,243 | 167,791 |
| Long-term debt | 2,108,319 | 2,063,206 |
| Partnership liability | 129,814 | 130,912 |
| Asset retirement obligations | 115,665 | 115,949 |
| Derivative liabilities at fair value | 14,858 | 17,485 |
| Other liabilities | 19,242 | 19,242 |
| Commitments and contingencies (Note 8) | ||
| Stockholders' equity | ||
| Preferred stock, par value $0.01, 10,000,000 shares authorized, none outstanding | — | — |
| Common stock, $0.01 par value, 400,000,000 shares authorized, and 182,882,012 and 179,015,118 shares issued, respectively | 1,829 | 1,790 |
| Paid in capital in excess of par value | 756,388 | 751,394 |
| Treasury stock of 6,288,230 and 5,921,102 shares, respectively | (50,502) | (49,495) |
| Accumulated other comprehensive income | 147,039 | 161,493 |
| Retained earnings (deficit) | (2,057,686) | (1,997,979) |
| Total stockholders' equity | (1,202,932) | (1,132,797) |
| $ 1,309,209 | $ 1,381,788 | |
| QUICKSILVER RESOURCES INC. | ||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| In thousands - Unaudited | ||
| For the Three Months Ended March 31, | ||
| 2013 | 2012 | |
| (Restated) | ||
| Operating activities: | ||
| Net income (loss) | $ (59,707) | $ (211,565) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||
| Depletion, depreciation and accretion | 18,256 | 54,439 |
| Impairment expense | — | 317,928 |
| Crestwood earn-out | — | (41,097) |
| Deferred income tax expense (benefit) | 6,596 | (101,586) |
| Non-cash (gain) loss from hedging and derivative activities | 43,920 | 18,251 |
| Stock-based compensation | 5,033 | 5,630 |
| Non-cash interest expense | 1,858 | 1,742 |
| Fortune Creek accretion | 4,845 | 4,741 |
| Other | 925 | (29) |
| Changes in assets and liabilities | ||
| Accounts receivable | 6,730 | 32,612 |
| Prepaid expenses and other assets | (190) | (1,874) |
| Accounts payable | (17,299) | (16,319) |
| Accrued and other liabilities | (25,361) | (35,503) |
| Net cash provided by operating activities | (14,394) | 27,370 |
| Investing activities: | ||
| Purchases of property, plant and equipment | (27,442) | (174,922) |
| Proceeds from Crestwood earn-out | — | 41,097 |
| Proceeds from sale of properties and equipment | 608 | 460 |
| Net cash used by investing activities | (26,834) | (133,365) |
| Financing activities: | ||
| Issuance of debt | 54,040 | 161,658 |
| Repayments of debt | (4,011) | (53,115) |
| Debt issuance costs paid | — | (191) |
| Distribution of Fortune Creek Partnership funds | (3,198) | — |
| Proceeds from exercise of stock options | — | 10 |
| Purchase of treasury stock | (1,007) | (2,341) |
| Net cash provided by financing activities | 45,824 | 106,021 |
| Effect of exchange rate changes in cash | 303 | (140) |
| Net increase (decrease) in cash | 4,899 | (114) |
| Cash at beginning of period | 4,951 | 13,146 |
| Cash at end of period | $ 9,850 | $ 13,032 |
| QUICKSILVER RESOURCES INC. | ||
| UNAUDITED SELECTED OPERATING RESULTS | ||
| Quarter ended March 31, | ||
| 2013 | 2012 | |
| Average Daily Production: | ||
| Natural Gas (MMcfd) | 295.3 | 302.8 |
| NGL (Bbld) | 9,674 | 11,531 |
| Oil (Bbld) | 688 | 845 |
| Total (MMcfed) | 357.5 | 377.0 |
| Average Realized Prices, including hedging: | ||
| Natural Gas (per Mcf) | $ 4.25 | $ 4.34 |
| NGL (per Bbl) | $ 27.44 | $ 42.98 |
| Oil (per Bbl) | $ 87.63 | $ 94.61 |
| Total (Mcfe) | $ 4.42 | $ 5.01 |
| Average Realized Prices, excluding hedging: | ||
| Natural Gas (per Mcf) | $ 3.19 | $ 2.57 |
| NGL (per Bbl) | $ 27.44 | $ 42.67 |
| Oil (per Bbl) | $ 87.63 | $ 94.61 |
| Total (Mcfe) | $ 3.55 | $ 3.58 |
| Expense per Mcfe: | ||
| Lease operating expense: | ||
| Cash expense | $ 0.76 | $ 0.82 |
| Equity compensation | 0.01 | 0.02 |
| Total lease operating expense: | $ 0.77 | $ 0.84 |
| Gathering, processing and transportation expense | $ 1.24 | $ 1.26 |
| Production and ad valorem taxes | $ 0.17 | $ 0.20 |
| Depletion, depreciation and accretion | $ 0.57 | $ 1.59 |
| General and administrative expense: | ||
| Cash expense | $ 0.32 | $ 0.36 |
| Audit and accounting fees | 0.04 | 0.05 |
| Equity compensation | 0.14 | 0.15 |
| Total general and administrative expense | $ 0.50 | $ 0.56 |
| Cash expense on debt outstanding | $ 1.37 | $ 1.23 |
| Add: | ||
| Non-cash interest | 0.06 | 0.05 |
| Capitalized interest | (0.06) | (0.11) |
| Total interest expense | $ 1.37 | $ 1.17 |
| QUICKSILVER RESOURCES INC. | ||
| PRODUCTION, ON A MILLION CUBIC FEET OF NATURAL GAS EQUIVALENT (MMcfe) | ||
| per day basis, by operating area | ||
| Quarter ended March 31, | ||
| 2013 | 2012 | |
| Barnett Shale | 235.5 | 304.0 |
| Other U.S. | 2.7 | 3.8 |
| Total U.S. | 238.2 | 307.8 |
| Horseshoe Canyon | 51.3 | 57.9 |
| Horn River | 68.0 | 11.3 |
| Total Canada | 119.3 | 69.2 |
| Total Company | 357.5 | 377.0 |
| QUICKSILVER RESOURCES INC. | ||
| RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME (LOSS) | ||
| In thousands, except per share data - Unaudited | ||
| Quarter Ended March 31, | ||
| 2013 | 2012 | |
| (Restated) | ||
| Net income (loss) | (59,707) | (211,565) |
| Adjustments | ||
| Unrealized (gain)/loss on commodity derivatives | 40,965 | (6,831) |
| Restructure of hedge contracts | — | 13,836 |
| Loss from hedge ineffectiveness | — | 5,241 |
| Impairment of assets | — | 317,928 |
| Crestwood earn-out | — | (41,097) |
| Inventory adjustment | 1,738 | — |
| Valuation allowance on deferred tax asset | 23,986 | — |
| Other | 826 | 800 |
| Total adjustments before income tax expense | 67,515 | 289,877 |
| Income tax expense for above adjustments | (13,841) | (93,214) |
| Total adjustments after tax | 53,674 | 196,663 |
| Adjusted net income (loss) | (6,033) | (14,902) |
| Adjusted net income (loss) per common share - diluted | $ (0.04) | $ (0.09) |
| Diluted weighted average common shares outstanding | 171,826 | 169,939 |