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Quicksilver Resources Inc. Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: April 16, 2012 11:10AM
Quicksilver Resources Inc. (KWK) filed Annual Report for the period ended 2011-12-31. Quicksilver Res has a market cap of $705.96 million; its shares were traded at around $4.13 with a P/E ratio of 34.33 and P/S ratio of 0.75.
Highlight of Business Operations:Operating income for 2010 includes gains of $494.0 million and $57.6 million from the sales of KGS and BBEP Units, respectively. Operating income also includes charges for impairment of $28.6 million and $19.4 million for our HCDS and Canadian oil and gas properties, respectively.
Other revenue increased compared to 2010 due to our recognition of $48.9 million in the 2011 period for unrealized gains on commodity derivatives that were not designated as hedges at inception. These instruments were subsequently designated as hedges in August 2011 with unrealized gains and losses from that date forward recognized as a component of AOCI. We do not expect these charges to recur. These unrealized gains were partially offset by a decrease in fair value of the related hedge assets due to credit risk of our counterparties as of December 31, 2011. U.S. midstream revenue declined in 2011 primarily as a result of the sale of our interests in KGS in October 2010 and a decrease in volumes gathered in our HCDS (which contributed to the impairment more fully discussed elsewhere in these results of operations). The increase in Canada is primarily the result of additional customers under contract for the
GPT increased for 2011 compared to 2010 primarily due to the loss of fees earned by KGS for gathering and processing production from our Barnett Shale Asset following the closing of the Crestwood Transaction and the increase in our Barnett Shale Asset production. KGS revenue, net of associated operating expenses, was $72.9 million, or 0.71 per Mcfe, for 2010. The remainder of the increase is attributable to increases in production although unit costs were lower in 2010 (excluding KGS effects) because more production came from the northern portion of the basin. Canadian GPT increased for 2011 as compared to 2010 both in total dollars and on a per Mcfe basis primarily as a result of higher gathering fees and increased production from our Horn River Asset for 2011 and the recognition of $4.6 million for unutilized capacity under the Companys firm transportation agreements with third parties. The decrease in our Horseshoe Canyon Asset is primarily due to reduced transportation fees and a decrease in production volumes. Our Horseshoe Canyon Asset GPT also decreased due to reduced operating costs on gathering lines which feature cost sharing arrangements.
We recognized an $8.4 million loss and income of $22.3 million for equity earnings from our investment in BBEP based upon its reported earnings for the 12-month period ended September 30, 2011 and 2010, respectively. During the time we owned BBEP Units, BBEP experienced significant volatility in its net earnings primarily due to changes in the value of its derivative instruments for which it did not employ hedge accounting.
Under the full cost method, net capitalized costs are limited to the lower of unamortized cost reduced by the related net deferred tax liability and asset retirement obligations or the cost center ceiling. The cost center ceiling is defined as the sum of (1) estimated future net revenue, discounted at 10% per annum, from proved reserves, based on the unweighted average of the preceding 12-month first day-of the-month prices adjusted to reflect local differentials and contract provisions, unescalated year-end costs and financial derivatives that hedge our oil and gas revenue, (2) the cost of properties not being amortized, (3) the lower of cost or market value of unproved properties included in the cost being amortized less (4) income tax effects related to differences between the book and tax bases of the oil and gas properties. If the net book value reduced by the related net deferred income tax liability and asset retirement obligations exceeds the cost center ceiling limitation, a non-cash impairment charge is required.
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