Quicksilver Resources Inc. (KWK)
Q2 2010 Earnings Call Transcript
August 09, 2010 11:00 am
Rick Buterbaugh - VP, IR
Glenn Darden - President and CEO
Phil Cook - SVP and CFO
David Heikkinen - Tudor, Pickering, Holt
Noel Parks - Ladenburg Thalmann
Brian Singer - Goldman Sachs
Kim Pacanovsky - MLV
Brian Corales - Howard Weil
Jude Bintger - Lazard Capital Management
Philip Dodge - Tuohy Brothers Investments
Noel Parks - Ladenburg Thalmann
Eli Kantor - Jefferies & Company
Previous Statements by KWK
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Good morning and welcome to the Quicksilver second quarter 2010 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)
I would now like to turn the call over to our host Rick Buterbaugh Vice President of Invest Relation and Corporate Planning. Thank you Mr. Buterbaugh you may begin your conference.
Thank you Sherday and good morning. Joining me today are Glenn Darden, President and Chief Executive Officer and Phil Cook, Senior Vice President and Chief Financial Officer. This morning, the company issued a press release detailing Quicksilver Resources' results for the second quarter of 2010. If you do not have a copy of this release, you can retrieve a copy on the company's website at www.qrinc.com 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 as detailed in the company's filings with the SEC.
Today's presentation will include information regarding adjusted net income and net debt which are non-GAAP financial measures. As required by SEC rules, reconciliations of adjusted net income and net debt to the most directly comparable GAAP measures are available on our website under the Investor Relations tab.
At this time, I will turn the call over to Glenn Darden to review of our financial and operating activities in more detail.
Thank you, Rick and good morning. Quicksilver reported net income of $86.8 million or $0.49 per diluted share for the second quarter of 2010. Second quarter 2010 adjusted net income was $30.4 million or $0.18 per diluted share. For the second quarter average daily production was approximately 350 million cubic feet equivalent, a record production level for the company. This production was an increase of approximately 6% over the same period last year which included roughly 12 million cubic feet of gas per day from the alliance area that was sold to Alliance area that was sold to Eni in June of 2009.
On July 22
this year Quicksilver announced and entered into a definitive agreement to sell all of interest in Quicksilver Gas Services to Crestwood Midstream Partners II, a portfolio company for First Reserve Corporation.
We anticipate that this transaction will result in total liquidity of more than $1 billion for the company. Quicksilver will completely pay down its senior secured credit facility and eliminate $228 million of consolidated debt associated with Quicksilver Gas Services LP. This transaction is the latest in a series of moves undertaken over the last 18 months to improve the financial strength of Quicksilver Resources.
First we refinanced our long term debt eliminating the second lien notes and removing all owners’ debt covers. Next we sold approximately 121 Bcf of gas or 27.5% working interest in our Alliance project to Eni for $280 million. We later replaced those reserves at half the price in a purchase of 125 Bcf of gas for $122 million. This acquisition was in our best Barnett project Lake Arlington and 50% of the consideration was in by BreitBurn Energy units.
We had previously beneficially settled all outstanding legal issues with BreitBurn and with Lake Arlington transaction we have lowered our ownership position in BreitBurn from 40% to approximately 33%. All the while, we have continued to add reserves with the drill bit and are now at 2.8 trillion cubic feet equivalent, over two-thirds of which is proved developed.
The net results of all these transactions is that Quicksilver Resources has reduced its debt on a pro forma basis by 28% over the last year without selling any reserves on a net basis and without selling any equity. So today on a pro forma basis, Quicksilver’s net debt to proved reserves is $0.63 per Mcf equivalent as compared to a $17 per Mcf equivalent 12 months ago.
We have an additional $300 million or so of value in the BreitBurn units as well. While debt has been reduced productivity has improved as measured by EBITDA per Mcf equivalent despite a declining gas price environment and Phil Cook will go through those numbers and that analysis. We have more work to do, but I’m quite proud of the team’s accomplishment in making these very positive strides for the company.
On the operational fund we currently have four routes running in the Barnett. We have added one rig on a temporary basis to drill in Lake Arlington area following the receipt of permits and rights of way that we had expected at the beginning of the year. The company still expects to drill and complete a total of 80 wells in the Basin in 2010. Company also expects to complete at least 25 additional wells from its existing inventory of drill, but uncompleted wells.
In Canada, activity was suspended for most of the second quarter due to the seasonal breakup period. In the Horseshoe Canyon, we expect to drill 11 operated wells during the second half of the year, resulting in a total of 21 wells in the area for the full year of 2010. Company expects to begin completion activities on its third Horn River Basin well in late summer and began completion work on the fourth well, by year end.