Quicksilver Resources Inc. (KWK)

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Quicksilver Resources (KWK)

Q3 2012 Earnings Call

November 06, 2012 11:00 am ET

Executives

David Erdman

Glenn M. Darden - Chief Executive Officer, President and Director

John C. Regan - Chief Financial Officer, Chief Accounting Officer, Senior Vice President and Controller

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

Analysts

Brian Singer - Goldman Sachs Group Inc., Research Division

Curtis Ryan Trimble - Global Hunter Securities, LLC, Research Division

David W. Kistler - Simmons & Company International, Research Division

Subash Chandra - Jefferies & Company, Inc., Research Division

Joseph Patrick Magner - Macquarie Research

Noel A. Parks - Ladenburg Thalmann & Co. Inc., Research Division

Hubert Van der Heijden - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Steven Karpel - Crédit Suisse AG, Research Division

Brian M. Corales - Howard Weil Incorporated, Research Division

Presentation

Operator

Good morning, my name is Tamika, and I will be your conference operator today. At this time, I would like to welcome everyone to the Quicksilver Resources Third Quarter Earnings Conference Call. [Operator Instructions] Thank you. Mr. David Erdman, Manager of Investor Relations, you may begin your conference.

David Erdman

Thank you, Tamika, and good morning, everyone. I'm joined this morning by Toby Darden, Chairman; Glenn Darden, President and Chief Executive Officer; and John Regan, Chief Financial Officer. This morning, the company issued a press release detailing our preliminary results for the third quarter of 2012. A copy of the release was available on the Investor Relations page of our website at qrinc.com, under the News and Updates tab. First, let's cover the Safe Harbor provisions.

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

This morning's conference will include information regarding adjusted net income, which is a non-GAAP financial measure. As required by SEC rules, a reconciliation of adjusted net income to the most directly comparable GAAP measure is available with the press release we issued this morning. So with that, I'll turn the call over to Glenn.

Glenn M. Darden

Thank you, David. Good morning. Quicksilver had an adjusted net loss of $8 million, or $0.04 per diluted share, for the third quarter of 2012. This compares to adjusted net income of $6 million, or $0.03 per diluted share, in the 2011 period. Third quarter 2012 results were impacted by a $547 million noncash impairment of properties due to lower average natural gas and natural gas liquids prices compared to the 12 months ended June 30, 2012, and a $284 million noncash valuation allowance of U.S. deferred tax assets related to impaired recoverability of future tax assets. John Regan will discuss this in greater detail in a moment.

Over the last few months, we have made very good progress on reducing capital commitments, securing hedges over $5 per MCF for a majority of Quicksilver's gas production in 2013 and 2014, improving debt covenants with our bank group and attracting partners in our key development areas. In September, Quicksilver announced a joint development agreement with Shell in the Sand Wash Basin in Northwest Colorado. Together, we will develop our combined 330,000 net acres in the Niobrara oil trend.

Quicksilver is also nearing the end of our process to bring in a partner in the Barnett. The objective is to sell a minority position to significantly reduce company debt and have a development partner going forward to fully maximize our position in the Barnett Shale. We continue to have the option of bringing a partner in combination with the launching of an upstream MLP.

In the Horn River Basin, we are in negotiations with international companies regarding integrating our significant upstream reserves with downstream projects, including potentially exporting gas from the West Coast of British Columbia. We are targeting to conclude those negotiations shortly.

On the production side, we were under guidance for the third quarter production due primarily to a delay in third-party plant startup in the Horn River. Our production there was geared to deliver 75 million cubic feet a day beginning in May and is actually capable of producing double that amount. It now appears this delay will be extended beyond year-end, so we're implementing plans to utilize other transportation and treating agreements on an interruptible basis beginning December 1 to begin selling up to an additional 50 million cubic feet a day.

We have also slowed drilling in our dry gas areas of the Barnett Shale and Horseshoe Canyon coals in Canada. We will increase activity as gas prices improve, and in the case of the Barnett, when we complete our partner selection process.

Quicksilver has continued to lower costs and reduce capital commitments. Our team has been very successful on both fronts and we'll keep pushing. As I said earlier, we are closing in on bringing partners in and outside capital to de-lever Quicksilver's balance sheet and to solidify our longer-term development plans. We are advancing the company's oil projects in Colorado and West Texas. And these projects have the size and scale to make a big impact for Quicksilver. We have high-quality assets and a team of talented managers and employees who are dedicated to ensure that we realize a long-term value for our shareholders.

And now, I'll turn the call over to John to discuss the numbers, and we'll be available for questions following his remarks. John?

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