2011年5月22日星期日

Quicksilver Resources counting on a big year

Quicksilver Resources CEO Glenn Darden expects 2011 to be "a breakout year" as the company advances into the development phase of its Horn River Basin project in Canada, moves into oil exploration and continues amping up natural gas production from North Texas' Barnett Shale.

"It looks like it's going to be a fabulous year," Darden said at last week's annual shareholders meeting of the Fort Worth-based natural gas producer, which has a healthy $500 million capital budget for 2011. "We're moving more toward oil, but we're still a gas company, and we'll always be a gas company," Darden told shareholders at the downtown Fort Worth Club.

Quicksilver will soon start to show "how valuable Horn River is," as it completes more natural gas wells in cold, remote northeast British Columbia and benefits from new pipeline links allowing it to transport more gas to market more cheaply, Darden said. The company is also testing for oil there.

With 130,000 net acres leased at Horn River, Quicksilver has drilled eight natural gas wells there and completed four, which cumulatively are producing 30 million cubic feet a day. It expects to complete the other four wells this coming winter, when drilling equipment can be transported on ice roads. In warm weather equipment bogs down in the swamplike terrain called muskeg.

Horn River potential

Quicksilver estimates that each Horn River well will have an exceptional "estimated ultimate recovery," or lifetime output, ranging from 8.8 billion to 19.4 billion cubic feet of gas. Those numbers far exceed the 1 billion to 5 billion cubic feet estimated for most Barnett Shale gas wells, although operating costs are considerably lower in the Barnett.

Quicksilver's latest annual report said Horn River "appears to be the largest gas find in the company's history and has the potential to quadruple our current total company reserves." The company estimates that it could recover 10 trillion cubic feet of natural gas from Horn River, or nearly double what it expects from the Barnett.

As of Dec. 31, Quicksilver's proved reserves were equivalent to 2.9 trillion cubic feet of natural gas, with 2.6 trillion from the Barnett. The reserves are 99 percent natural gas and natural gas liquids such as propane and butane.

Getting more 'oily'

Crude oil accounts for a tiny 1 percent of Quicksilver's reserves, but that could rise. U.S. energy producers are increasingly focusing on oil and natural gas liquids, which command higher prices than natural gas. Quicksilver is pushing this year to become more "oily."

The company expects to complete a horizontal well in the Exshaw formation at Horn River this summer, with oil the target instead of natural gas. Quicksilver has "gotten great oil shows" there, Darden said, from both the Exshaw and from natural gas in the Muskwa and Klua formations below it.

Darden said Quicksilver's biggest thrust into oil this year will be in the emerging Niobrara play in the Green River Basin, where the company has 200,000 net acres leased in northwest Colorado. The company expects to drill up to six exploratory wells there this year.

"We're in oily country, and we're very excited about it," Darden said. "The Niobrara has about 1,500 feet of thickness, so it's a very big target."

Quicksilver is also launching some oil prospecting in the Bakken formation in northern Montana, where it has 175,000 net acres.

The company is also "targeting multiple formations" in the Delaware Basin in West Texas that could yield oil, said Rick Buterbaugh, Quicksilver's vice president for investor relations and corporate planning. These targets include the Bone Springs formation that is attracting increasing attention.

The company has 54,000 net acres leased in Culberson, Reeves, Jeff Davis and Presidio counties and expects to acquire more.

Quicksilver can move quickly in West Texas by re-entering "noncommercial natural gas wells" the company drilled in the West Texas portion of the Barnett Shale, Buterbaugh said. The clay content in the Barnett zone made the results from fracking "less than desired," Buterbaugh said.

With the new oil plays, Quicksilver has "some very high-potential prospects that can really change the look of this company," Darden said.

The company has had lackluster earnings the past two years, primarily because of weak gas prices and related write-downs. The company's stock (ticker: KWK) closed Friday at $14.44, up 14 cents. The stock is down about 2 percent this year.

Quicksilver, however, generally has been a low-cost operator and profited from the sale of its majority interest in Quicksilver Gas Services, which helped trim its debt to a manageable $1.7 billion, with major debt maturing in late 2015. It had 65 cents of debt per 1,000 cubic feet of reserves as of Dec. 31, down 44 percent from $1.17 two years earlier.

Barnett still mainstay

The company's bread-and-butter revenue source this year should continue to be the Barnett Shale, where Quicksilver hopes to boost production by 20 percent. Some of the company's biggest gas wells, with estimated lifetime production of 4 billion to 5.5 billion cubic feet, are in the Alliance and Lake Arlington areas, but smaller wells in the southern Barnett provide more natural gas liquids.

Although natural gas prices have barely topped $4 per 1,000 cubic feet, Darden said Quicksilver will benefit by hedging most of its 2011 gas production at just under $6.

In the company's annual report, Darden said Quicksilver doesn't believe today's abnormal price disparity between oil and natural gas will continue. And at the shareholders meeting he said company officials believe its stock is undervalued.

"We believe this presents a tremendous opportunity to invest in natural gas at the bottom of the cycle," he concludes in the annual report.

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