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Neutral on Quicksilver

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We reiterated our Neutral recommendation on exploration and production company, Quicksilver Resources Inc. . Quicksilver’s listless financial performance continued into the third quarter of 2012 with both the top- and the bottom-line lagging the Zacks Consensus Estimates.

The company’s initiatives like the contract with Royal Dutch Shell plc. (RDS.A - Free Report) for expansion of oil and gas interests in Colorado could provide a thrust to its near-term profitability. In addition, we appreciate Quicksilver’s plans to integrate its upstream assets with downstream programs as it will open up export options to the British Columbia from the West Coast.

However, regulatory pressure from the U.S. as well as Canadian governments and commodity price sensitivities are generic risks that will continue to hinder Quicksilver’s growth goals.

Admittedly the company has in place a sound hedging profile that is expected to ensure consistent top-line progress in the upcoming quarters. For 2013 and 2014, the company hedged 200 million cubic feet per day (MMcf/d) and 170 MMcf/d at an average price of $5.10 per thousand cubic feet (Mcf) and $5.08 per Mcf, respectively.

Despite these efforts, fluctuating natural gas prices and moderate oil prices along with a slowdown in drilling activity will act as headwinds to the company. The Zacks Consensus Estimates for the fourth quarter and full year 2012 are presently pegged at 2 cents per share and at a loss of 23 cents per share, respectively. Quicksilver currently retains a short-term Zacks #3 Rank (Hold rating).

For 2012, the company expects average output in the range of 350–365 million cubic feet equivalent (MMcfe) per day.

Another Zacks #3 Ranked exploration and production operator, Anadarko Petroleum Corporation (APC - Free Report) is stepping up its exploration activities by recently signing a Heads of Agreement ("HOA") with Italy’s biggest oil and gas company Eni Spa (E - Free Report) for the development of natural gas reservoirs in offshore Mozambique.

Fort Worth, Texas-based Quicksilver Resources is primarily engaged in the development of long-lived, unconventional reservoirs which includes fractured shales, coalbeds and tight sands in the North American continent.

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