Quicksilver Resources Inc. Reports Operating Results (10-Q)
Quicksilver Resources Inc. has a market cap of $2.55 billion; its shares were traded at around $14.99 with a P/E ratio of 16.66 and P/S ratio of 3.07. KWK is in the portfolios of T Boone Pickens of BP Capital, Stanley Druckenmiller of Duquesne Capital Management, LLC, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Columbia Wanger of Columbia Wanger Asset Management, Louis Moore Bacon of Moore Capital Management, LP, Bruce Kovner of Caxton Associates, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors.
Highlight of Business Operations: We received $701 million in cash at closing and recognized a gain of approximately $540 million after consideration of approximately $2.6 million in transaction costs. We have the right to earn up to an additional $72 million in future earn-out payments in 2012 and 2013.
In May 2010, we completed the acquisition of an additional 25% working interest in our company-operated Lake Arlington Project. We acquired the additional working interests in the Lake Arlington Project for which we conveyed $62.1 million in cash and 3,619,901 of the BBEP common units that we owned. The acquired interests include proved natural gas reserves of approximately 125 Bcf of which 82% are proved developed. 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 have named 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. We have also received quarterly distributions totaling $14.8 million in 2010. Completion of additional working interests in the Lake Arlington project in May 2010 and the sale of 1.4 million units in September 2010 reduced our ownership of BBEP to approximately 31%. In October 2010, we sold an additional 650,000 units at a unit price of $17.72 and a recognized a gain of $7.7 million. Subsequent to the October unit sale, our ownership of BBEP decreased to approximately 29%.
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 Crestwood Transaction, which causes our exit from the midstream business. We may possibly redeploy additional capital toward our exploration and production activities. We currently expect that our 2010 capital program will total approximately $560 million, excluding approximately $170 million for 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 $475 million for exploration and development activities. Our 2010 capital program has $85 million for midstream facilities of which $37 million will be spent in Canada and $48 million was spent in the U.S. directly by KGS prior to the closing of the Crestwood Transaction. On a regional basis, approximately $460 million is forecasted to be spent in Texas to drill approximately 82 net wells on operated properties and to complete and tie-in approximately 105 net wells. Canadian spending for
Utilization of derivatives to hedge our sales of natural gas and NGL oil resulted in realized prices that varied from market prices received from the sale of our production. Our production revenue from natural gas and NGL production was $69.1 million and $92.6 million higher because of our hedging activities for the 2010 quarter and the 2009 quarter, respectively.
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