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Quicksilver’s 1Q13 Loss Widens

Quicksilver Resources Inc. (KWK - Analyst Report) posted a loss per share of 4 cents in the first quarter of 2013 versus a loss of 9 cents in the year-ago quarter. The reported loss was wider than the Zacks Consensus Estimate of a loss of 2 cents.  Earnings underperformed on account of decline in drilling activities, diminished output volume and fall in natural gas liquids (NGL) prices.

On a GAAP basis, the company reported a loss of 35 cents per share compared with a loss of $1.24 per share in the year-ago quarter. The difference between GAAP and operating loss during the quarter was due to a 39 cent charge associated with inventory adjustment, unrealized derivative losses, valuation allowance on deferred tax and other offset by an 8 cent gain from income tax expense adjustments.

Total Revenue

Quicksilver Resources overall revenue at the end of first-quarter 2013 was $118.7 million, down 31.3% from the year-ago quarter. The year-over-year decline in revenue was mainly due to lower production and weak crude oil and natural gas liquids prices.

Reported quarter revenues fell short of the Zacks Consensus Estimate by 22.7%.

Operational Update

Quicksilver Resources achieved overall average daily production of 357.5 million cubic feet of natural gas equivalent (MMcfe) in the first quarter, down 5.2% from the prior-year period. This was due to a drop in production activities in the U.S., partially offset by rise in output levels from the Canadian operations.

Total realized prices during the quarter declined 11.8% year over year to $4.42 per thousand cubic feet (Mcfe), resulting from 36.2%, 7.4%, 2.1% downswings in NGL, oil and natural gas prices, respectively.

Total expenses incurred by Quicksilver Resources during the reported quarter plunged 74.6% year over year to $122.6 million. A 38%, 14% and 8% decrease in the cost of natural gas purchase, lease operating expense and gathering, processing as well as transportation costs, respectively, led to the cost reduction.

The operating loss in the first quarter narrowed substantially from the prior-year period owing to greater costs savings relative to revenue decline.

Interest expenses of Quicksilver Resources during the quarter were $43.9 million versus $40.2 million in the prior-year quarter.

Financials

Cash and cash equivalents as of Mar 31, 2013 were $9.9 million versus $5.0 million as of Dec 31, 2012.

Long-term debt climbed 2.2% as of Mar 31, 2013, to $2,108.3 million from $2,063.2 million as of Dec 31, 2012.

Cash provided by operating activities during the first quarter was $14.4 million versus $27.4 million a year ago.

The capital cost Quicksilver Resources for the first quarter amounted to $24 million. Out of the total expenditure, $11 million was allocated for drilling and completion activities, $7 million used for acreage purchases and $6 million for interest on capital as well as overhead costs.

Guidance

Quicksilver Resources expects production volumes in the second quarter of 2013 to be 282–288 MMcfe per day. For 2013, Quicksilver Resources expects production volume in the range of 290–300 MMcfe per day.

The company estimates second-quarter production taxes; gathering, processing, and transportation expenses; and lease operating expenses in the corresponding range of 18–21 cents per Mcfe, $1.32–$1.36 per Mcfe and 88–92 cents per Mcfe. General & administrative expenses and depreciation, depletion and amortization expenses are expected to be 50–54 cents per Mcfe and 56–60 cents per Mcfe, respectively.

It continues to hedge a substantial amount of production to cushion against fluctuating prices. The company has hedged 200 MMcfd for the remainder of 2013 at a weighted average price of $5.10 per Mcfe, 170 MMcfd at a weighted average price of $5.08 for 2014 and 150 MMcfd at a weighted average price of $5.23 for 2015.

Quicksilver Resources will witness a slight reduction in its 2013 capital outlay due to the addition of $485.0 million as proceeds from the 25% Barnett stake sale.

Other Oil & Gas Operator Releases

Noble Energy Inc. (NBL - Analyst Report) recorded earnings per share of $1.48, exceeding the Zacks Consensus Estimate by 21.3%.

Anadarko Petroleum Corporation (APC - Analyst Report) posted net earnings from continuing operations of $1.08 per share for the first quarter of 2013, breezing past the Zacks Consensus Estimate by 17.4%.

Our View

Quicksilver Resources failed to recuperate from the negative earnings surprise trend seen in the six of the last seven quarters. The company’s first-quarter 2013 earnings also lagged our expectation.

The company’s high-end interest acquisition deal with Royal Dutch Shell plc. (RDS.A - Analyst Report) in the Sand Wash basin is anticipated to be a key growth driver, going forward. Moreover, its encouraging cost management efforts might help ease the negative margin pressure.  

On the flip side, reduction in drilling activities across the major operational plays of Barnett and West Texas as well as challenging NGL prices would undermine Quicksilver Resources’ development opportunities.

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