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Quicksilver Resources Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 9, 2010 02:38PM
Quicksilver Resources Inc. (KWK) filed Quarterly Report for the period ended 2010-06-30.
Highlight of Business Operations:
In May 2010, we completed the acquisition of an approximate 25% working interest in our company-operated Lake Arlington Project. We acquired the additional working interests in the Lake Arlington Project, subject to customary adjustments as provided in the purchase agreement, for which we conveyed $62.0 million in cash and 3,619,901 of the BBEP common units we owned to the seller on the date of closing. The acquired interests include proved natural gas reserves of approximately 125 Bcf of which 82% are proved developed. We expect to finalize adjustments to the purchase price in the third quarter of 2010. As a result of our conveyance of the 3.6 million BBEP common units for the acquired properties, we recognized a $35.4 million gain as other income in the second quarter of 2010.
In April 2010, we finalized a global settlement agreement with BBEP and all other parties to our lawsuit whereby we received $18.0 million in cash. Pursuant to the agreement, we retained full voting rights for our units held in BBEP subject to the provisions of a limited standstill agreement and the ability to name two directors to the board of directors of BBEPs general partner. BBEP also agreed to the reinstitution of the BBEP quarterly distributions and other governance accommodations. The $18.0 million settlement was recognized as other income in the second quarter of 2010. Additionally, we received a quarterly distribution of $8.0 million for the first quarter of 2010. Completion of the Lake Arlington acquisition in May 2010 reduced our ownership of BBEP to 33%.
In July 2010, we entered into a purchase agreement to sell all of our interests in KGS to Crestwood. The Crestwood Transaction will include the sale of a 100% ownership interest in Quicksilver Gas Services Holdings LLC, which owns (a) 5,696,752 common units of KGS, (b) 11,513,635 subordinated units of KGS representing limited partner interests in KGS and (c) 100% of the outstanding membership interests in Quicksilver Gas Services GP LLC including 469,949 general partner units in KGS and 100% of the outstanding incentive distribution rights in KGS. Crestwood will also purchase a $57 million subordinated promissory note issued to us by KGS. We expect to receive $701 million in cash at closing and up to $72 million in future earn-out payments in 2012 and 2013. The Crestwood Transaction is expected to close in the fourth quarter 2010, subject to customary closing conditions.
Commodity prices, drilling and well completion costs and access to capital and services are the most significant drivers of our business. As of the date of this report, natural gas prices have remained depressed and we continue to focus on ways to optimize our 2010 capital program. Our 2010 capital program will also be influenced by the closing of the Crestwood Transaction, which will cause us to reduce our midstream program and to possibly redirect additional capital toward our exploration and production activities. We currently expect that our 2010 capital program will total approximately $470 million, excluding acquisitions. Our focus remains on the continued development of our properties in the Barnett Shale and exploration in the Horn River and Greater Green River Basins. For 2010, we expect to spend approximately $393 million for exploration and development activities. Our 2010 capital program has $75 million for midstream facilities of which $22 million will be spent in the Horn River Basin in Canada and $53 million will be spent in the U.S. directly by KGS prior to the closing of the Crestwood Transaction. On a regional basis, approximately $390 million is forecasted to be spent in Texas to drill approximately 80 net wells on operated properties, to complete and tie-in approximately 105 net wells and on midstream infrastructure. Canadian spending for 2010 is forecasted to be approximately $73 million chiefly to explore the Horn River Basin and develop midstream infrastructure and, to a lesser extent, maintain current production levels in our CBM projects in Alberta. The remaining capital program is spread among our other operating areas.
Utilization of derivatives to hedge our sales of natural gas, NGL and crude oil resulted in realized prices that varied from market prices received from the sale our production. Our production revenue from natural gas, NGL and oil production was $70.4 million and $88.2 million higher because of our hedging activities for the 2010 quarter and the 2009 quarter, respectively.
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