UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549
_______________
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 OR 15(d) of The Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported): February 18,
2010
QUICKSILVER
RESOURCES INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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001-14837
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75-2756163
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(State or other jurisdiction of
incorporation)
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(Commission File
Number)
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(IRS Employer Identification
No.)
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777 West Rosedale
Street
Fort Worth, Texas
76104
(Address
of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:
(817)
665-5000
_______________
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
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¨
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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¨
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
8.01. Other
Events.
On
February 18, 2010, Quicksilver Resources Inc. issued a press release
announcing the following preliminary operating results for year-end
2009:
Preliminary Operating
Results
Estimates
of year-end 2009 proved reserves total approximately 2.4 trillion cubic feet of
natural gas equivalents (Tcfe), an increase of 9% from year-end
2008. This growth was driven by a 15% increase in the company’s Fort
Worth Basin Barnett Shale reserves that totaled 2.1 Tcfe at year-end
2009.
Proved
developed reserves increased to 68% of the total year-end 2009 reserves, up from
63% in the prior year. By product, reserves were comprised 75%
from natural gas, 24% from natural gas liquids and 1% from crude
oil.
A summary
of 2009 reserves changes, in billion cubic feet of natural gas equivalents
(Bcfe), is as follows:
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Balance
at December 31, 2008
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2,208 | |||
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Extensions,
discoveries and performance revisions
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699 | |||
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Price
revisions
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(252 | ) | ||
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Purchase
of reserves
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0 | |||
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Sale
of reserves
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(121 | ) | ||
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Production
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(118 | ) | ||
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Balance
at December 31, 2009
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2,416 |
Preliminary
2009 average production increased 23% from the prior year to 325 million cubic
feet of natural gas equivalents (MMcfe) per day, resulting in record total
production of approximately 118 Bcfe for the year. Organic reserve
additions of approximately 699 Bcfe represent nearly a six-fold replacement of
production, before the impact of pricing revisions. Net of price
revisions, the company replaced 377% of the year’s record
production.
Total
all-in preliminary finding and development cost (F&D) for 2009 is estimated
at $1.25 per thousand cubic feet of natural gas equivalent (Mcfe) and F&D on
just proved developed reserves is $1.27 per Mcfe. Absent the reserve
revisions due to pricing, the 2009 estimated all-in F&D cost would be $0.80
per Mcfe. The all-in F&D cost will be finalized upon filing of
the company’s annual report on Form 10-K. Reconciliations of the
“Preliminary 2009 F&D Cost” are available on the company’s website – www.qrinc.com. For
a description of the calculation of, and certain other information regarding,
F&D cost, please see the discussion below under the heading “F&D
Cost.”
The new
Securities and Exchange Commission (SEC) reporting rules applicable for year-end
2009 reporting allow proved undeveloped (PUD) reserves to be booked beyond one
offset location where reliable technology exists that establishes reasonable
certainty of economic producibility at greater distances. In
accordance with the new rules, the company recorded incremental PUD locations in
the Fort Worth Basin. In the Fort Worth Basin Barnett, the company
had 919 proved developed and 281 proved undeveloped gas well locations at
year-end 2009. The new rules also suggest that five years is a
reasonable timeframe to develop existing PUDs. The company did not
lose any previously recorded PUD reserves in the Fort Worth Basin due to this
requirement. Quicksilver’s PUD reserves, which total approximately
768 Bcfe, are all scheduled to be drilled before the end of
2014. Based on current NYMEX strip prices and Quicksilver's commodity
derivatives position, the company's currently forecasted cash flow during this
period is expected to be more than sufficient to fund this
drilling.
In
addition to the above rule changes, the new SEC reporting rules require that
year-end proved reserve volumes be calculated using an average of the NYMEX spot
prices for sales of gas and oil on the first calendar day of each month during
2009. On this basis, the prices for gas and oil for 2009 reserves
reporting purposes were $3.87 per million British thermal units (MMBtu) and
$61.18 per barrel, respectively. The prices used to calculate proved
reserves for year-end 2008, when Quicksilver's proved reserves were last
reported, were $5.71 per MMBtu of gas and $44.60 per barrel of oil, representing
the NYMEX spot prices on December 31, 2008 as required by the previous SEC
reporting rules. These pricing changes resulted in net negative
pricing revisions of approximately 252 Bcfe. The negative pricing
revisions were primarily attributable to gas assets, offset in part by higher
prices on their related natural gas liquids.
Hedging
Summary
For 2010,
2011 and 2012, the company has hedged approximately 200 million cubic feet
(Mmcf), 120 Mmcf and 60 Mmcf per day, respectively, of its anticipated future
natural gas production at weighted-average floor prices of approximately $7.40
per thousand cubic feet (Mcf), $6.25 per Mcf and $6.50 per Mcf,
respectively. For 2010, the company has basis hedges covering
approximately 60% of its expected Canadian natural gas production at $0.45 per
Mcf under NYMEX.
The
company also has liquids swaps in place on 10,000 and 8,000 barrels per day for
2010 and 2011, respectively. The average swap price for 2010 is
$33.47 per barrel and for 2011 is $38.33 per barrel. The company uses
its hedging program to underpin its expected $540 million capital program for
2010.
In
addition, Quicksilver holds firm transportation from the Fort Worth Basin, which
we believe provides sufficient takeaway capacity for all expected production for
the next several years. The company’s firm transportation includes
100 Mmcf per day to Henry Hub and 50 Mmcf per day of firm transportation on the
Mid Continent Express pipeline. This pipeline will enable gas from
the Fort Worth Basin to go to Perryville in Mississippi and Transco Station 85
in Alabama. The remaining volumes can be delivered to hubs at Katy
and Carthage, Texas and would receive Houston Ship Channel pricing.
Forward-Looking Statements
The
statements in this current report regarding future events, occurrences,
circumstances, activities, performance, outcomes and results are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although these statements reflect the current views, assumptions and
expectations of Quicksilver Resources’ management, the matters addressed herein
are subject to numerous risks and uncertainties, which could cause actual
activities, performance, outcomes and results to differ materially from those
indicated. Factors that could result in such differences or otherwise materially
affect Quicksilver Resources’ financial condition, results of operations and
cash flows include: changes in general economic conditions; fluctuations in
natural gas, NGL and crude oil prices; failure or delays in achieving expected
production from exploration and development projects; uncertainties inherent in
estimates of natural gas, NGL and crude oil reserves and predicting natural gas,
NGL and crude oil reservoir performance; effects of hedging natural gas, NGL and
crude oil prices; fluctuations in the value of certain of our assets and
liabilities; competitive conditions in our industry; actions taken or
non-performance by third parties, including suppliers, contractors, operators,
processors, transporters, customers and counterparties; changes in the
availability and cost of capital; delays in obtaining oilfield equipment and
increases in drilling and other service costs; operating hazards, natural
disasters, weather-related delays, casualty losses and other matters beyond our
control; the effects of existing and future laws and governmental regulations,
including environmental and climate change requirements; the effects of
existing or future litigation; and other factors disclosed in Quicksilver
Resources’ filings with the Securities and Exchange Commission. Except as
required by law, we do not intend to update or revise any forward-looking
statements, whether as a result of new information, future events, or
otherwise.
F&D Cost
Finding
and development cost, or F&D cost, is calculated by dividing (x)
development, exploitation, and exploration capital expenditures for the period,
plus unevaluated capital expenditures as of the beginning of the period, less
unevaluated capital expenditures as of the end of the period, by (y) reserve
additions for the period, excluding acquired reserves. The methods we
use to calculate our F&D cost may differ significantly from methods used by
other companies to compute similar measures. As a result, our F&D
cost may not be comparable to similar measures provided by other
companies. We believe that providing a measure of F&D cost is
useful in evaluating the costs, on a per thousand cubic feet of natural gas
equivalent basis, to add proved reserves.
However,
these measures are provided in addition to, and not as an alternative for, and
should be read in conjunction with, the information contained in our financial
statements prepared in accordance with generally accepted accounting
principles. Due to various factors, including timing differences in
the addition of proved reserves and the related costs to develop those reserves,
F&D cost does not necessarily reflect precisely the cost associated with
particular reserves. As a result of various factors that could
materially affect the timing and amounts of future increases in reserves and the
timing and amounts of future costs, we cannot assure you that our future F&D
cost will not differ materially from those presented.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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QUICKSILVER
RESOURCES INC.
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By:
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/s/
Philip Cook
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Philip
Cook
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Senior
Vice President -
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Chief
Financial Officer
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Date:
February 18, 2010