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Quicksilver Resources (KWK)

Q1 2011 Earnings Call

May 09, 2011 11:00 am ET


Philip Cook - Chief Financial Officer and Senior Vice President

Thomas Darden - Chairman, Chairman of MSR, Chief Executive Officer of MSR and President of MSR

Glenn Darden - Chief Executive Officer, President and Director

Richard Buterbaugh - Vice President of Investor Relations & Corporate Planning


Jeffrey Robertson - Barclays Capital

Brian Singer - Goldman Sachs Group Inc.

David Kistler - Simmons & Company International

Eli Kantor - Jefferies & Company, Inc.

Brian Corales - Howard Weil Incorporated

Marshall Carver - Capital One Southcoast, Inc.

Michael Scialla - Stifel, Nicolaus & Co., Inc.

Unknown Analyst -

Michael Bodino - Global Hunter Securities, LLC

Noel Parks - Ladenburg Thalmann & Co. Inc.



Good morning. Welcome to the Quicksilver First Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to our host, Rick Buterbaugh, Vice President of Investor Relations and Corporate Planning. Mr. Buterbaugh, you may begin your call.

Richard Buterbaugh

Thank you, Debbie, and good morning. Joining me today are Toby Darden, Chairman; Glenn Darden, President and Chief Executive Officer; Phil Cook, Senior Vice President and Chief Financial Officer; Chris Cirone, Senior Vice President and General Counsel; and John Hinton, Vice President of Finance.

This morning, the company issued a press release detailing Quicksilver's results for the first quarter of 2011. If you do not have a copy of the release, you can retrieve a copy of it 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 those 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, which is a non-GAAP financial measure. As required by SEC rules, reconciliations of adjusted net income to the most directly comparable GAAP measures are available on our website under the Investor Relations tab.

At this time, I'll turn the call over to Glenn Darden to review our financial and operating results.

Glenn Darden

Thank you, Rick. Good morning. Quicksilver Resources today reported adjusted net income for the first quarter of 2011 of $2.8 million or $0.02 per diluted share as compared to $0.18 per diluted share in the previous quarter. Production volumes were on target, averaging 392 million cubic feet equivalent per day, up 23% year-over-year, with cost in line and coming down.

Phil Cook, our Chief Financial Officer, will give you the details on the revenue and expenses following my remarks.

Quicksilver is on target to grow production volumes in excess of 20% this year, primarily on the back of our Barnett development. This growth rate does not factor in any significant volumes from our new project drilling. Our team has done an excellent job of not only containing unit costs, but actually lowering them in terms of lease operating expense, G&A and interest expense.

Before I go into more discussion on operations and new projects, I would like to address the "take private" effort that my family recently discontinued. This process was very educational for both the Darden family, Quicksilver's largest shareholder, and the Quicksilver Board of Directors.

We received confirmation from savvy outside investors of the tremendous value of the assets in Quicksilver's portfolio, value that is not being recognized in the company's stock price today. After a thorough process and analysis, the Darden family decided that the best way to close that value gap was to continue as a public company and to be more aggressive in highlighting and developing these various assets. And that we will do. We have outlined these plans to the Quicksilver Board, and we are fully aligned going forward.

As you see by our production results and cost numbers, the company did not skip a beat in terms of efficiency and that is a tribute to the management and employees continuing to do their jobs. We truly appreciate their dedication and focus.

As we said in the company's earnings release, Quicksilver has assembled the largest and highest potential inventory of new projects in company history, with large acreage blocks leased in a number of attractive areas and basins. We will be drilling initial test wells this summer in our 200,000-acre Niobrara project in the Sandwash Basin of Northwest Colorado.

The company initially leased in the gas window and we have good prospects there, but all of this new acreage is updip and definitely in the oil window, targeting the Niobrara Shale at depths between 5,000 and 9,500 feet.

Also this summer, our Canadian team will complete a horizontal Exshaw/Bakken well to test the potential of this shallow fractured shale in the Horn River Basin in British Columbia. Activity in this play is increasing as other neighboring companies are currently testing the Exshaw as well.

We anticipate new drilling in the Alberta Bakken leasehold Quicksilver has in northern Montana where several formations look attractive to pursue oil development. Quiksilver holds approximately 175,000 acres in this area.

One other oil project we are working on is in West Texas where we will test the Bone Springs and Wolfcamp formations in an area originally taken for deeper gas potential.

In all of these projects, we have assembled large acreage positions at low-curve acre costs and low royalty rates.

The new project that has the most momentum is the Horn River Basin, Devonian shale play and associated midstream build-out. Quiksilver has drilled 8 wells on our 130,000 acre block and have only 2 more wells to drill to validate all of our exploratory licenses and convert these licenses into 10-year development leases.

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