Quicksilver Generates Record Cash Flow for Third Quarter '09
Quicksilver has reported operating and financial results for the 2009 third quarter.
Third-Quarter 2009 Highlights
- Produced volumes of approximately 311 MMcfe per day; up 12% year-over-year
- Reduced oil and gas production expense to $1.02 per Mcfe; down 22% year-over-year
- Increased Fort Worth Basin daily production volumes 14% year-over-year
- Increased Canadian daily production volumes 9% year-over-year
- Drilled 32 horizontal wells in the Fort Worth Basin
- Completed successful test of first Horn River Basin well
"For the nine months ended September 30, Quicksilver generated record cash flow through operating activities, reduced unit production costs nearly 30%, and is on pace for a record production year," said Glenn Darden, Quicksilver president and chief executive officer. "All of this has been accomplished while limiting capital expenditures below cash inflows."
Third-quarter 2009 adjusted net income, a non-GAAP measure, was $42.7 million ($.25 per diluted share) compared to adjusted net income of $69.8 million ($.40 per diluted share) in the 2008 period. Adjusted net income excludes the following items:
- net charges of $49.9 million ($32.5 million after tax) in the 2009 quarter associated with the company's ownership in BreitBurn Energy Partners that included gains related to the early settlement of hedges and interest rate swaps, and a charge for the unrealized mark-to-market loss on oil and gas derivative positions;
- an income tax expense of $9.6 million in the 2009 quarter associated with the tax rate change to prior quarters;
- a charge of $103.5 million ($67.3 million after tax) in the 2008 quarter related to the unrealized mark-to-market loss of derivative positions held by BreitBurn Energy Partners, associated with the company's ownership in BreitBurn Energy Partners; and
- a charge of $9.6 million ($6.2 million after tax) in the 2008 quarter related to the company's settlement of litigation.
Including the items noted above, Quicksilver reported net income of $0.7 million in the 2009 third quarter as compared to a net loss of $3.8 million (a loss of $.02 per diluted share) in the prior-year period.
For the third quarter of 2009, average daily production was approximately 311 million cubic feet of natural gas equivalent (MMcfe) per day compared to approximately 277 MMcfe per day for the same period in 2008, an increase of approximately 12%. Total production for the third quarter of 2009 was approximately 28.6 billion cubic feet of natural gas equivalent (Bcfe) compared to approximately 25.5 Bcfe for the third 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 $198.3 million in the third quarter of 2009, down approximately $20.0 million from the prior-year quarter. Sales from increased production volumes attributable to the company's properties in the Fort Worth Basin in Texas and Horseshoe Canyon area in Alberta, Canada were more than offset by lower average realized prices for all commodities, which resulted in an approximate 19% decrease in the average realized price per thousand cubic feet of natural gas equivalent (Mcfe) after hedge consideration.
Total production expense was $29.1 million for the 2009 third quarter, down $4.0 million from the prior-year quarter even though total production increased more than 12%. Unit production expense, including production, gathering and processing and transportation expense, decreased to $1.02 per Mcfe during the third quarter of 2009, a 22% reduction from $1.30 per Mcfe reported in the prior-year period. Quicksilver's ongoing efforts to reduce and control costs enabled the company to remain one of the lowest-cost operators in North America.
Income from Earnings of Unconsolidated Affiliate
Quicksilver reported a $43.7 million loss attributable to the company's approximate 40% interest in BreitBurn Energy Partners L.P.'s (BBEP) second-quarter 2009 results, including income of $10.1 million from the early settlement of derivative positions and $0.1 million on interest rate derivatives and a loss of $60.2 million on the unrealized mark-to-market of commodity derivative positions. 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 third quarter of 2009.
Interest Expense and Debt
Third-quarter 2009 interest expense increased to $41.6 million, compared with the 2008 quarter, primarily due to a higher weighted-average interest rate and slightly higher average debt balances. During the 2009 third quarter, the company issued $300 million of senior notes due 2019 and used the proceeds to repay a portion of its senior credit facility. In October, Quicksilver's bank group affirmed the borrowing base under the company's senior secured credit facility at $1 billion. The company currently has approximately $514 million drawn on this facility.
Third-Quarter 2009 Operations
During the third quarter of 2009, Quicksilver drilled 32 (23.7 net) operated wells and connected 11 (9.35 net) operated wells to sales in the Fort Worth Basin. The company currently has five rigs working in the basin, including three rigs dedicated to the Lake Arlington and Alliance areas in Tarrant and Denton counties.
In Canada, the company drilled four (2.9 net) operated wells during the third quarter of 2009 in the Horseshoe Canyon area and expects to drill three (1.8 net) operated wells for the remainder of this year. The company now expects to participate in a total of 145 (42.2 net) wells in this area for the full year of 2009.
During the third quarter of 2009, the company incurred costs of approximately $139 million, including approximately $79 million for drilling and completion activities, $44 million for midstream activities, approximately $12 million for leasehold and approximately $4 million for other corporate items. The company expects to incur an additional $75 million of capitalized costs during the 2009 fourth quarter.
Fourth-Quarter 2009 Outlook
Fourth-quarter 2009 production volumes are expected to average in the range of 330 MMcfe to 340 MMcfe per day.
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