Quicksilver Resources has reported operating and financial results for the 2009 second quarter.
Second-Quarter 2009 Highlights
"Quicksilver's second-quarter operating results were as expected and met our stated goals to maintain production volumes, reduce unit costs, and reduce total debt," said Glenn Darden, Quicksilver president and chief executive officer. "We have increased Quicksilver's financial flexibility and continue to benefit from our natural gas hedging position which will underpin the company's cash flow through 2010."
Second-quarter 2009 adjusted net income, a non-GAAP measure, was $41.2 million ($.24 per diluted share) compared to adjusted net income of $65.9 million ($.40 per diluted share) in the 2008 period. Adjusted net income excludes the following items:
Including the items noted above, Quicksilver reported a net loss of $21.8 million (a loss of $.13 per diluted share) in the 2009 second quarter as compared to net income of $51.3 million ($.31 per diluted share) in the prior-year period.
For the second quarter of 2009, average daily production was approximately 331 million cubic feet of natural gas equivalent (MMcfe) per day compared to approximately 236 MMcfe per day for the same period in 2008, an increase of approximately 40%. Total production for the second quarter of 2009 was approximately 30.1 billion cubic feet of natural gas equivalent (Bcfe) compared to approximately 21.5 Bcfe for the second quarter of 2008. The 2009 production volumes were comprised of approximately 71% natural gas, approximately 27% natural gas liquids (NGLs) and approximately 2% crude oil and condensate. Increased activities at the company's Lake Arlington and Alliance projects in the northern portion of its Fort Worth Basin acreage resulted in increased production of dry gas as a percent of total production in the 2009 quarter as compared to the 2008 quarter.
Revenues and Costs
Sales of natural gas, NGLs and crude oil totaled $199.3 million in the second quarter of 2009 and were essentially unchanged from the prior-year quarter. Sales from increased production volumes from the company's Fort Worth Basin in Texas and Horseshoe Canyon area in Alberta, Canada were nearly completely offset by lower average realized prices for all commodities, which resulted in an approximate 28% decrease in the average realized price per thousand cubic feet of natural gas equivalent (Mcfe).
Total production expense was $31.7 million for the 2009 second quarter, down $1.3 million from the prior-year quarter even though total production increased more than 40%. Unit production expense, including production, gathering and processing and transportation expense, decreased to $1.05 per Mcfe during the second quarter of 2009, a 32% reduction from $1.54 per Mcfe reported in the prior-year period.
Quicksilver's ongoing efforts to reduce and control costs enabled the company to remain as one of the lowest-cost operators in North America.
Income from Earnings of Unconsolidated Affiliate
Quicksilver reported $19.0 million of pre-tax earnings attributable to the company's approximate 41% interest in BreitBurn Energy Partners L.P.'s (BBEP) first-quarter 2009 results, including $18.5 million of income from the early settlement of derivative positions, a $1.7 million loss on the unrealized mark-to-market of commodity derivative positions and a $.9 million loss on interest rate derivatives. On April 17, 2009, BBEP announced that it was suspending its distributions and, therefore, Quicksilver did not receive any cash distributions from this partnership during the quarter.
Interest Expense and Debt
Interest expense in the 2009 second quarter increased to $68.1 million, due to higher outstanding debt balances, primarily associated with the acquisition of the Alliance properties in August 2008, and the early retirement of the company's senior secured second-lien facility. In June 2009, the company issued $600 million face amount of senior notes due 2016 and fully repaid its senior secured second-lien facility. We recognized $27.1 million of additional interest expense for the remaining unamortized original issue discount and deferred financing costs upon early retirement of the senior secured second-lien facility.
Quicksilver continued to focus on the exploitation and development of the 175,000 net acres in its core fairway within the Barnett Shale formation of the Fort Worth Basin. During the second quarter of 2009, the company drilled 29 (22.9 net) wells and connected 27 (25.2 net) wells to sales. The company currently has five rigs working in the basin, including four rigs dedicated to the Lake Arlington and Alliance areas in Tarrant and Denton counties.
In Canada, drilling, completion and pipeline activities were suspended for most of the quarter due to the seasonal break-up period. The company drilled just one well during the second quarter of 2009 in the Horseshoe Canyon area and expects to drill nine (seven net) wells for the remainder of this year. The company now anticipates participating in a total of 145 (42.2 net) wells in this area for the full year of 2009.
During the second quarter of 2009, the company incurred costs of approximately $136 million, including approximately $103 million for drilling and completion activities and $31 million for midstream activities and approximately $2 million for other corporate items. The company expects to incur an additional $216 million of capitalized costs during the second half of 2009.
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