Quicksilver Resources Inc. (KWK)

October 20, 2011 9:00 am ET

Executives

Philip W. Cook - Chief Financial Officer and Senior Vice President

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

John E. Hinton - Vice President of Finance

Analysts

Pearce W. Hammond - Simmons & Company International, Research Division

Kim M. Pacanovsky - McNicoll, Lewis & Vlak LLC, Research Division

Ravi S. Kamath - Global Hunter Securities, LLC, Research Division

James Jampel - HITE

Jeffrey W. Robertson - Barclays Capital, Research Division

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

Marshall H. Carver - Capital One Southcoast, Inc., Research Division

Gary Stromberg - Barclays Capital, Research Division

Mark Caruso - Millennium Partners

Brian M. Corales - Howard Weil Incorporated, Research Division

Unknown Analyst -

Steven Karpel - Credit Suisse

David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Presentation

Operator

Good morning. My name is LaTonya, and I will be your conference operator today. At this time, I would like to welcome everyone to the Quiksilver Strategy Discussion Conference Call. [Operator Instructions] Now, I'd like to hand the floor to Mr. John Hinton. Thank you. Please go ahead.

John E. Hinton

Thank you, LaTonya, and good morning. Joining me today are Glenn Darden, President and Chief Executive Officer; Phil Cook, Senior Vice President and Chief Financial Officer; and Chris Cirone, Senior Vice President and General Counsel.

Yesterday, the company issued a press release announcing our plan to form a master limited partnership with a portion of the company's Barnett Shale assets. This call is to discuss strategy matters related to Quicksilver.

In terms of why now, the company's management felt that this was a material information that should be available to company investors and bondholders. We currently have a convertible security with put rights outstanding and the deadline for the bondholders on the exercise of debt purchase is next Friday.

This call and press release gives them notice of our plans. We are not permitted to discuss specific attributes of the MLP. That information will be available on the S-1 when it is filed. If you do not have a copy of the release, you can retrieve a copy of it on the company's website at www.qrinc.com under the News and Updates path.

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

I will now turn the call over to Glenn Darden.

Glenn M. Darden

Good morning, and thank you for joining us. Today, we'd like to discuss with you Quicksilver Resources' strategy to enhance the value of this company. As all of you know, who had followed our company over the years, we have a long-held strategy to acquire acreage in the early stages of unconventional plays and build the acreage out to a level of development at which time we monetize the asset.

You saw us employ this strategy when we developed then sold our Michigan assets to BreitBurn, and again with a different type of asset when we sold our midstream infrastructure in the Fort Worth Basin to Crestwood. The combination of those transactions netted our company approximately $2.3 billion, which we have reinvested back into the business over time.

Today, we are continuing with that strategies through a different vehicle, which will allow the company to monetize our Barnett assets over time, retain an interest in them and pay down the company's debt.

In the near future, we intend to file an S-1 with the SEC to form a publicly traded master limited partnership that we use the proceeds of proposed initial public offering and borrowings under a new bank facility to buy certain of our Barnett assets.

This new MLP will be called Quicksilver Production Partners. We are targeting the initial drop-down of assets to the MLP to generate in excess of $400 million of proceeds to the parent. We intend to use these proceeds to pay down debt at the parent in the near term and for growth in the long term.

The company has in total about $940 million of public debt that is callable between now and the end of 2012, which we expect to takeout with cash generated from the drop-downs to the MLP.

The initial sale to the MLP will have the following profile: 15% of our Barnett reserves, 18% of our current production. And Quicksilver will have the ability to drop-down assets with a similar profile each year, and therefore, grow organically for at least the next 7 years.

Quicksilver will also continue to own a significant percentage of the MLP limited partner units and 100% of the general partner. Quicksilver has a proven track record of managing and growing public MLPs since we first took Quicksilver Gas Services public in 2007. We leveraged our knowledge base from a KGS experience to establish this new entity, and we intend to drop-down assets as they mature.

This strategic move is designed to allow the company to pay down half of its existing public debt over the next 2 years, and ultimately, all of our public debt in the next few years. It will also create another vehicle for Quicksilver to aggregate additional assets outside of the Barnett that are suitable for an MLP. We have a talented team dedicated to our low-cost philosophy. We project Quicksilver Production Partners to be of significant size with the ability to have organic growth via drop-downs for the next 7-plus years, all the while looking for additional opportunities in the marketplace. Quicksilver will have a significant ownership in the MLP, which will reduce over time as asset drop-downs occur. We are also exploring the possibility of monetizing a portion of the general partner interest in the MLP.

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