Effective December 31, 2012, the company discontinued the use of hedge accounting on all existing hedge contracts. The net deferred hedge gains that are included in Accumulated Other Comprehensive Income as of December 31, 2012 will be recognized as production revenue during the periods in which the hedged transaction occurs.
The company's Horn River Basin Asset began ramping-up production in mid-December 2012 to 100 MMcfd of raw natural gas, which is being sourced from ten out of the twelve wells capable of production in the basin. Four wells have been producing for over 18 months, and six wells were brought online in stages since the d-50 pad was completed in the third quarter of 2012. Two wells on the d-50 pad are currently shut-in and will be brought online as additional volumes are needed to meet minimum commitments. Net sales volume after CO 2 treating is expected to be approximately 80 MMcfd based on gross production of 100 MMcfd.On January 30, 2013, the Canadian National Energy Board (NEB) issued its report recommending against approval of NOVA Gas Transmission Ltd.'s (NGTL) Komie North pipeline extension project (Project), which proposed construction of a 75-mile pipeline to connect NGTL's Alberta system to a meter station planned to be constructed on the company's acreage in the Horn River Basin. The company believes the NEB's recommendation against the Project will be adopted by the federal authority. The NEB concluded that the evidence presented at this time did not justify a 36-inch line as proposed; however, its recommendation notwithstanding, the NEB emphasized its belief in the long-term prospects for development of the Horn River Basin. The company believes NGTL will undertake efforts to secure additional shipper support for building of this 36" line. In connection with the Project, the company had previously provided $30 million in letters of credit, which is expected to be reduced to $15 million or completely eliminated through a cash payment. Future financial assurances upon a revised application would be reduced proportionately to the extent of any additional shipper support and are expected to be delayed by up to two years. Consequently, Quicksilver is planning to defer drilling in the Horn River Basin until 2014 and will likely defer construction of a natural gas treating facility until at least 2016 to coincide with any new projected timelines for the Project.
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