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Quicksilver Resources Inc. (KWK)

Q4 2009 Earnings Call Transcript

March 1, 2010 11:00 am ET


Rick Buterbaugh – VP, IR and Corporate Planning

Glenn Darden – President and CEO

Phil Cook – SVP and CFO

Toby Darden – Chairman


Noel Parks – Ladenburg Thalmann

Mike Jacobs – Tudor, Pickering, Holt

Subash Chandra – Jefferies & Company

Brian Singer – Goldman Sachs

Brian Corales – Howard Weil

David Snow – Energy Equities Incorporated

Manav Gupta – Canaccord

Dan McSpirit – BMO Capital Markets

Mike Scialla – Thomas Weisel Partners

Scott Hanold – RBC



Good afternoon. My name is Cathy and I will be your conference operator today. At this time, I would like to welcome everyone to the Quicksilver Resources fourth quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Mr. Buterbaugh, you may begin your conference.

Rick Buterbaugh

Thank you, Cathy and good morning. Joining me today are Glenn Darden, President and Chief Executive Officer; Toby Darden, Chairman; and Phil Cook, Senior Vice President and Chief Financial Officer. This morning, the company issued a press release detailing Quicksilver Resources' results for the fourth quarter and full year of 2009. If you do not have a copy of this release, you can retrieve a copy on the company's website at under the News and Updates tab.

During today's call, the company will be making forward-looking statements, which are subject to risks and uncertainties. Actual results might differ materially from those projected in these forward-looking statements. Additional information concerning risk factors that could cause such differences is detailed in the company's filings with the SEC.

Today's presentation will include information regarding adjusted net income and net cash from operating activities before changes in working capital, which are non-GAAP financial measures. As required by SEC rules, reconciliations of adjusted net income and net cash from operating activities before changes in working capital to their most directly comparable GAAP financial measures are available on our website under the Investor Relations tab.

At this time, I will turn the call over to Glenn Darden for a review of our financial and operating results in a little more detail.

Glenn Darden

Thank you, Rick. Good morning. Quicksilver Resources had fourth quarter 2009 adjusted net income of $46.9 million or $0.27 per diluted share. That’s up 19% from the 2008 period. For the year, Quicksilver reported adjusted net income of $147.6 million or $0.86 per diluted share as compared to $216.4 million or $1.29 per diluted share for 2008.

The company took a non-cash $656 million after-tax impairment charge on our oil and gas properties due to lower natural gas prices earlier in the year, which caused an overall net loss of $557.5 million of the year. Phil Cook, our Chief Financial Officer, will go into detail on the numbers after my remark.

In 2009, Quicksilver produced record volumes of nearly 325 million cubic feet equivalent gas per day, up 23% year-over-year. We replaced 377% of production with the drill bit, excluding price revisions and reduced our unit operating cost to $1.17 per Mcf equivalent. Company's finding and development cost was $1.25 per Mcf equivalent, which compares to our average organic F&D cost over the last five years of slightly less than $1.40 per Mcf equivalent.

Quicksilver increased its reserves to 2.4 trillion cubic feet equivalent despite selling 120 – roughly 120 Bcf in an asset sale last June, an increase proved developed reserves to 68% of total reserves. We also reduced total company debt by $165 million and self-funded all capital investment including proving at least one new growth area for the future.

Quicksilver made great progress in 2009 in a challenging economic environment. What I hope is becoming clear to our shareholders and the investment community is the low-cost production machine we have built. Very few players in this industry can compete with our low-cost structure. It is certainly showing up in the numbers. This year's top priority is to fund – self fund capital expenditures for the company like we did in 2009 and continue to grow our asset base. We are seeing opportunities to add acreage to existing core areas, which will add to the inventory and we will factor those opportunities into the overall plan.

Quicksilver's forecast is to grow production volumes 20% in 2010. We will have a steep incline in volumes as the year progresses, as we have over 80 Barnett wells coming online in the next several months, which includes some wells that were shut in for fracing. But we do have flexibility on our spending decisions due to limited requirements on lease expirations and drilling commitments. If the current gas prices continue throughout the year, we will probably reduce our capital spending appropriately.

As we have disclosed, Quicksilver has hedges on 200 million a day of gas and a – at a price of $7.40 per Mcf and 10,000 barrels per day of natural gas liquids at $33 a barrel for 2010. This covers approximately 65% of our projected gas volumes and 90% of our liquid volumes based on the 20% production growth rate.

Quicksilver is going to four drilling rigs from five in the Barnett and will move capital to more completions in order to work down on uncompleted well inventory. At this point, we anticipate drilling 100 Barnett wells and roughly completing 130 wells. We will more than meet our drilling completion and lease requirements with this plan.

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