Quicksilver Resources' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Quicksilver Resources (KWK)

Q1 2012 Earnings Call

May 08, 2012 11:00 am ET

Executives

John E. Hinton - Vice President of Finance

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

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

Analysts

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

Brian M. Corales - Howard Weil Incorporated, Research Division

Daniel Guffey - Stifel, Nicolaus & Co., Inc., Research Division

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

Vivek Pal

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

Stephen P. Shepherd - Simmons & Company International, Research Division

Brian T. Horey - Aurelian Management LLC

Brad Carpenter - Wells Fargo Securities, LLC, Research Division

Kathryn O'Connor

Steven Karpel

Steven Karpel - Crédit Suisse AG, Research Division

Unknown Analyst

Presentation

Operator

Good morning, and welcome to the Quicksilver First Quarter 2012 Earnings Conference Call. My name is Terrence, and I will be your conference operator. [Operator Instructions] I would now like to turn the call over to our host, John Hinton, Vice President of Finance and Investor Relations. Thank you. Mr. Hinton, you may begin your conference.

John E. Hinton

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Thank you, Terrence, and good morning. Joining me today are Glenn Darden, President and Chief Executive Officer; John Regan, Senior Vice President and Chief Financial Officer; Chris Cirone, Executive Vice President and General Counsel. Toby Darden, our Chairman, is traveling today on business.

This morning, the company issued a press release detailing Quicksilver's results for the first quarter of 2012. 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 tab.

During today'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 is detailed in the company's filing 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, reconciliation of adjusted net income to the most directly comparable GAAP measures are available on our website under the Investor Relations tab.

I will now turn the call over to Glenn Darden to review our financial and operating activities in detail.

Glenn M. Darden

Thank you, John, and good morning. Quicksilver Resources reported a net loss of $60 million or $0.35 per diluted share for the first quarter of 2012. First quarter results were negatively impacted by a $63 million noncash impairment of oil and gas properties due to lower average natural gas prices compared to December 31, 2011. There were also noncash charges of $37 million related to the restructure of the hedge platform and an unrealized loss on new 10-year hedges. Earnings were improved by a $41 million earn-out payment from Crestwood Midstream Partners LP. Excluding these items, the first quarter 2012 adjusted net loss was $15 million or $0.09 per diluted share compared to adjusted net income of $3 million or $0.02 per diluted share for the 2011 period. John Regan, our Chief Financial Officer, will provide more details on the financials in his discussion.

As we projected, due to reduced activity in the Barnett area, company production volumes came in at 377 million cubic feet equivalent per day for the quarter, which is roughly 9% below fourth quarter 2011 volumes. Volumes will build back in the second half of the year, and our forecast is for total annual volumes to be approximately within 5% of 2011 volumes. With the reduction of gas prices, Quicksilver has taken steps to minimize spending in dry gas areas, as well as to target the cost side.

This quarter shows higher costs on the lease operating side, which is primarily attributable to gas lift costs in certain projects. We are aggressively attacking these costs and have shut in certain production pads. These shut-ins will positively affect company EBITDA, but will have a minimal effect on company production volumes.

Additionally, in the Barnett, the company is on track to launch our master limited partnership when it receives final approval from the SEC, which we expect relatively shortly.

Quicksilver has certain development commitments in the Horn River Basin project in Northeast British Columbia. These commitments tie to contracts for pipeline transportation. Quicksilver's volume commitment is 75 million cubic feet per day for the rest of 2012, building to 100 million per day in May of 2013. There may be certain delays on the Spectra side on the pipeline -- and processing side, which could allow us to delay some of that ramp-up to 75 million a day. But we'll keep you abreast of that as that develops.

The commitments to KKR in our midstream joint venture are contained within these volumes and are not in addition to them. We will be bringing on our first multi-well development pad in the next 30 days in order to satisfy these obligations. In anticipation of this activity and new production, Quicksilver has the majority of Canadian gas hedged. It also is important to note that Quicksilver has 2/3 of total company production hedged for the remainder of the year at an average price of $6.02 per Mcf equivalent.

In addition to meeting pipeline commitments, we believe that these new Horn River wells will showcase the quality of the reservoir and production for our potential partners. We anticipate securing an upstream partner for this project later this year. Quicksilver's land team has been busy finalizing drilling permits and clearing title in both Colorado and West Texas. We have begun drilling a 6-well program in West Texas and we're roughly at total depth on our first well today, and we'll commence our second round of drilling up to another half a dozen wells or so in Colorado by the end of the month.

Read the rest of this transcript for free on seekingalpha.com

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