We reiterate our Neutral recommendation on Texas-based
exploration and production company,
Quicksilver Resources Inc.
). Quicksilver Resources posted lackluster top- and bottom- line
performance in the second quarter 2012 due to decline in natural
gas and natural gas liquids prices as well as lower core production
In view of the growing priority on ecological protection, the US
and Canadian governments have adopted environmental regulations and
permits to keep a check on a company's resource use as well as
emission, which could lead to generation of lower margins by
Quicksilver. In addition, seasonal variations in demand for oil and
natural gas could lead to revenue volatility.
We believe the company's aggressive stance on managing a solid
hedging profile will contribute to positive results. For the second
half of 2012, the company has hedged a total of 230 million cubic
feet per day of natural gas at an average price of $5.75 and
natural gas liquids volume of 7,000 barrels per day at $45. For its
Canadian portfolio, the company hedged 60 million cubic feet per
day at an average price of $5.82.
Quicksilver's hardened focus on its various investment projects
will expand its growth options. The company's successful
negotiations on its joint venture programs and steady progress in
the Horn River as well as Niobrara play will warrant enhanced
profitability in the future.
Going forward, Quicksilver's maintenance of a strong financial
profile will support its multiple long-term growth programs.
Nonetheless, cyclical risks like accidents and unexpected outages
in pipeline or gathering system could severely impact the company's
ability to market, fractionate and deliver production.
For 2012, the average output is expected in the range of 365-380
million cubic feet per day. The company has plans to incur capital
expenses of $70 million for the latter half of 2012 and roughly
$360 million in oil and gas related activities in 2012. The Zacks
Consensus Estimates for the third quarter and full year 2012 are
presently pegged at a loss of 2 cents per share and a loss of 22
cents per share, respectively.
The company's closest competitor is
Denbury Resources Inc.
). Quicksilver currently has a Zacks #3 Rank (Hold Rating).
Quicksilver Resources engages in the acquisition, exploration,
development, and production of onshore oil and gas in North
America. The company focuses primarily on unconventional
reservoirs, such as fractured shales, coal beds, and tight
DENBURY RES INC (DNR): Free Stock Analysis
QUICKSILVER RES (KWK): Free Stock Analysis
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