Quicksilver Resources Inc.
) posted a loss per share of 4 cents in the third quarter of 2012
versus earnings per share of 3 cents in the year-ago quarter. The
loss in the reported quarter was wider than the Zacks Consensus
Estimate of a loss of a penny.
The weak quarterly earnings performance was due to lower
natural gas and natural gas liquids (NGL) prices as well as a
decline in production volumes.
On a GAAP basis, the company reported a loss of $3.83 per
share compared with net income of 17 cents per share in the
year-earlier quarter. The difference of $3.79 between GAAP and
operating loss per share during the quarter was due to the impact
of non-operational items.
Reported revenue at the end of the third quarter 2012 was
$177.7 million, down 31.6% from $259.9 million in the year-ago
quarter. The fall in natural gas and natural liquids output
resulted in the revenue decline.
Quarterly revenue also trailed the Zacks Consensus Estimate of
Overall production shrank 15.2% in the third quarter 2012 to
362.4 million cubic feet of natural gas equivalent per day
(MMcfed) from 427.4 MMcfed in the year-ago quarter. This was due
to diminished capital investments, lower production from existing
wells and weak volumes from the Barnett Shale play.
Quicksilver Resources locked in average daily production of
291.3 million cubic feet of natural gas equivalent (MMcfe) in the
third quarter 2012, down 17.2% from 351.6 MMcfe in the third
quarter 2011. Natural gas liquids also witnessed production loss
of 7.3% compared to the 2011 third quarter. Oil production growth
of 9.3% in the reported quarter partially mitigated the negative
Total realized prices during the third quarter 2012 declined
10.6% to $4.73 per thousand cubic feet equivalent (Mcfe) from
$5.29 per Mcfe due to collapsing natural gas and NGL prices
partially offset by a marginal increase in oil price. The average
realized oil, NGL and natural gas prices in the third quarter
were a respective $83.9 per barrel (up 1.6%), $37.8 per barrel
(down 2.3%) and $4.23 per thousand cubic feet (Mcf) (down
Total operating expenses during the reported quarter shot up
264.6% year over year to $699.6 million owing to an impairment
cost of $546.8 million.
Excluding the impairment charge, operating expenses decreased
20.4% year over year to $152.8 million. Cost decelerated mainly
due to a 20% and 37.2% fall in lease and general and
administrative expenses, respectively, partially offset by a 6.5%
increase in cost of gas purchase.
Moderating lease operating expenses (LOE) resulted from a
decline in water hauling, compression and gas lift cost owing to
idling of production in high-cost wells and cost control
measures. This was also helped by lower LOE in the Canadian
Interest expenses during the quarter were $42.1 million versus
$48.4 million in the prior-year period.
Cash and cash equivalents of the company as of September 30,
2012 were $7.4 million versus $13.1 million as of December 31,
Long-term debt at Quicksilver, as of September 30, 2012, was
$2.2 billion versus $1.9 billion as of December 31, 2011.
Capital expenditure for the third quarter 2012 amounted to $68
million. Out of the total cost, $48.0 million was allocated for
drilling and completion activities, $2.0 million for midstream
activities, $7.0 million associated with acreage purchases and
$11.0 million on corporate and other.
The company estimates production volumes in the fourth quarter
2012 in the range of 330-340 MMcfe per day. For 2012, the average
output is expected in the range of 350-365 MMcfe per day as
Quicksilver's drilling activity is set to be tepid in the
The company projects fourth quarter production taxes;
gathering, processing, and transportation expenses; and lease
operating expenses in the corresponding range of 20-22 cents per
Mcfe, $1.22-$1.26 per Mcfe and 70-75 cents per Mcfe. General
& administrative expenses and depreciation, deletion and
amortization expenses are expected in the band of 50-53 cents per
Mcfe and $1.10-$1.14 per Mcfe, respectively. The company has
plans to incur capital expenses of $389 million for the full-year
The company expects to strengthen its hedging of production
capacities to safeguard against fluctuating prices. It has
entered into a multi-year hedging program which includes 267
MMcfe/d of output hedged for 2012 which translates to roughly 80%
of its expected total equivalent production for the fourth
quarter of 2012 at a weighted average price of $6.02 per
For 2013, 2014 and 2015, the volume hedged is 200 MMcfd, 170
MMcfd and 150 MMcfd, at average prices of $5.10 per Mcf, $5.08
per Mcf and $5.23 per Mcf, respectively. For the period
2016-2021, the company has hedged 40 MMcfd at a weighted price of
$4.48 per Mcf.
A Quicksilver peer,
Chesapeake Energy Corporation
), announced operating earnings for the third quarter 2012 of 10
cents per share, beating the Zacks Consensus Estimate by a
penny, while plummeting roughly 86% from the year-ago earnings
of 72 cents per share.
Total revenue of the company decreased 25.3% year over year to
$2,970.0 million but surpassed the Zacks Consensus Estimate of
Quicksilver reported drab earnings outcome in the third
quarter 2012 owing to continued sluggish production and weak
We are however encouraged by the company's association with
high-quality ventures with
Royal Dutch Shell plc.
) and its development of the oil prospect in West Texas. In
addition, the company's strong hedging profile will cushion its
operations from commodity price volatilities leading to stable
However, costs pressure stemming from environmental laws and
disruption in operations from weather conditions and pipeline
accidents could limit the growth goals of the company.
Quicksilver Resources presently has a Zacks #3 Rank (Hold
rating). Based in Fort Worth, Texas, independent exploration and
production company Quicksilver Resources is primarily engaged in
the development of long-lived, unconventional, onshore natural
gas reserves in the North American continent
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