Quicksilver Boosts Proved Reserves by 42%, Boasts 'Outstanding' Production

Quicksilver has provided its preliminary operating results for year-end 2008 including:

  • 2.2 Tcfe of proved reserves -- an increase of 42% from year-end 2007
  • 474% organic production replacement; 785% total production replacement
  • Record average production of 263 MMcfe per day
  • $2.14 per Mcfe Finding & Development cost; three-year average of $1.45/Mcfe
  • $2.50 per Mcfe Finding, Development & Acquisition costs; three-year average of $1.71/Mcfe

"Quicksilver had another outstanding year of production and reserve growth at very attractive finding and development costs," said Glenn Darden, Quicksilver president and chief executive officer. "Our low cost structure coupled with our strong hedge position is serving us well during these uncertain economic times. We are confident that our operating team will realize additional efficiencies to maximize our margins in 2009."

Estimated Year-end 2008 Proved Reserves

Preliminary estimates of year-end 2008 proved reserves total approximately 2.2 trillion cubic feet of natural gas equivalents (Tcfe), an increase of approximately 42% from year-end 2007. By product, 2008 reserves were comprised: 74% from natural gas, 25% from natural gas liquids and 1% from crude oil. Approximately 63% of the reserves are classified as proved developed. Reserves in the Fort Worth Basin Barnett Shale totaled approximately 1.9 Tcfe at year-end 2008, an increase of approximately 58% from the prior year and reserves in Canada were approximately 333 billion cubic feet of natural gas equivalents (Bcfe).

Preliminary 2008 production totaled a record 96.2 Bcfe or 263 million cubic feet of natural gas equivalents (MMcfe) per day. Preliminary net reserve additions of approximately 755 Bcfe consisted of approximately 456 Bcfe from organic drilling activities and 299 billion cubic feet (Bcf) of acquired reserves, resulting in organic production replacement of 474% and total production replacement of 785%. Additions to reserves from organic drilling activities were impacted by approximately 154 Bcfe in negative revisions of prior estimates, primarily due to lower prevailing prices for natural gas liquids at year-end 2008 versus 2007. Excluding these revisions the company would have organically replaced 634% of its production in 2008.

Total all-in finding and development cost (F&D) for 2008 is estimated at $2.14 per thousand cubic feet of natural gas equivalent (Mcfe) which would result in a three-year average of $1.45 per Mcfe. Finding, development and acquisition cost (FD&A) is estimated at $2.50 per Mcfe for 2008 resulting in a three-year average of $1.71 per Mcfe. Absent the negative reserve revisions due to pricing, the 2008 estimated all-in F&D and FD&A costs would have been $1.60 per Mcfe and $2.07 per Mcfe, respectively. The all-in F&D and FD&A costs will be finalized upon filing of the company's annual report on Form 10-K. Reconciliations of the "Preliminary 2008 F&D and FD&A Costs" are available on the company's website -- www.qrinc.com. For a description of the calculation of, and certain other information regarding, F&D and FD&A costs, please see the discussion below under the heading "F&D and FD&A Costs."

2008 Year-end Debt, Liquidity and Debt Covenants

Quicksilver's senior secured revolving credit facility has a borrowing base of $1.2 billion, of which approximately $828 million was drawn and $3 million in letters of credit was secured at December 31, 2008, resulting in current liquidity of approximately $369 million. The company's borrowing base is subject to redetermination during the second quarter of 2009 based upon the final year-end 2008 reserves and includes credit for the company's hedge positions. Based on preliminary results for 2008 and year-end reserves, the company remains in compliance with all of its debt covenants.

2008 Impairments

Quicksilver utilizes the full cost method of accounting for its oil and natural gas properties. Based upon commodity prices in effect as of December 31, 2008, the company expects to record a pre-tax, noncash impairment charge of approximately $635 million ($412 million after tax) against its U.S. oil and gas properties. Additionally, the company expects to record a pre-tax, noncash impairment charge of approximately $320 million ($208 million after tax) associated with its investment in BreitBurn Energy Partners.

Hedging Summary

For 2009 and 2010, the company has hedged approximately 75% and 65%, respectively, of its anticipated natural gas production at a NYMEX weighted average floor price of approximately $8.60 per million British thermal unit (MMbtu) in both years. For 2009, the company has basis hedges covering approximately 95% of its expected Canadian natural gas production at $0.84 per MMbtu. In addition, Quicksilver holds firm transportation to Henry Hub for 100 MMcf per day at approximately $0.52 per Mcf and 260 MMcf per day priced at the Houston Ship Channel at approximately $0.35 per Mcf, including fuel, for production from the Fort Worth Basin. The company also holds 50 MMcf per day of firm transportation on the Mid Continent Express pipeline, which is scheduled to be completed in the third quarter of 2009. This pipeline will take gas from the Fort Worth Basin to Transco Station 85 in Alabama. The company has used a combination of fixed-price swaps and collars in its hedging program to underpin its $600 million capital budget for 2009.