Quicksilver Resources Reports Second-Quarter 2009 Results

FORT WORTH, TX--(Marketwire - August 10, 2009) - Quicksilver Resources Inc. KWK today reported operating and financial results for the 2009 second quarter.

Second-Quarter 2009 Highlights

-- Produced volumes of approximately 331 MMcfe per day; up 40% year-over- year -- Reduced oil and gas production expense to $1.05 per Mcfe; down 32% year-over-year -- Increased Fort Worth Basin daily production volumes 54% year-over-year -- Increased Canadian daily production volumes 5% year-over-year -- Drilled 29 horizontal wells in the Fort Worth Basin -- Closed joint venture transaction with Eni on Alliance properties -- Reduced total debt by $196 million during the quarter

"Quicksilver's second-quarter operating results were as expected and met our stated goals to maintain production volumes, reduce unit costs, and reduce total debt," said Glenn Darden, Quicksilver president and chief executive officer. "We have increased Quicksilver's financial flexibility and continue to benefit from our natural gas hedging position which will underpin the company's cash flow through 2010."

Financial Results

Second-quarter 2009 adjusted net income, a non-GAAP measure, was $41.2 million ($.24 per diluted share) compared to adjusted net income of $65.9 million ($.40 per diluted share) in the 2008 period. Adjusted net income excludes the following items:

-- a noncash impairment charge of $70.6 million ($53.1 million after tax) in the 2009 quarter related to the company's Canadian oil and gas properties; -- a noncash charge of $27.1 million ($17.6 million after tax) in the 2009 quarter for debt expense related to the company's early repayment of its senior secured second-lien notes; -- net income of $16.0 million ($10.4 million after tax) in the 2009 quarter associated with the company's ownership in BreitBurn Energy Partners that included a gain related to the early settlement of hedges, a charge for the unrealized mark-to-market loss on oil and gas derivative positions and a charge on interest rate swaps; -- a charge of $5.0 million ($3.3 million after tax) in the 2009 quarter related to the company's settlement of litigation; and -- a charge of $22.1 million ($14.4 million after tax) in the 2008 quarter related to the unrealized mark-to-market loss of derivative positions held by BreitBurn Energy Partners, associated with the company's ownership in BreitBurn Energy Partners.

Including the items noted above, Quicksilver reported a net loss of $21.8 million (a loss of $.13 per diluted share) in the 2009 second quarter as compared to net income of $51.3 million ($.31 per diluted share) in the prior-year period.

Production

For the second quarter of 2009, average daily production was approximately 331 million cubic feet of natural gas equivalent (MMcfe) per day compared to approximately 236 MMcfe per day for the same period in 2008, an increase of approximately 40%. Total production for the second quarter of 2009 was approximately 30.1 billion cubic feet of natural gas equivalent (Bcfe) compared to approximately 21.5 Bcfe for the second quarter of 2008. The 2009 production volumes were comprised of approximately 71% natural gas, approximately 27% natural gas liquids (NGLs) and approximately 2% crude oil and condensate. Increased activities at the company's Lake Arlington and Alliance projects in the northern portion of its Fort Worth Basin acreage resulted in increased production of dry gas as a percent of total production in the 2009 quarter as compared to the 2008 quarter.

Revenues and Costs

Sales of natural gas, NGLs and crude oil totaled $199.3 million in the second quarter of 2009 and were essentially unchanged from the prior-year quarter. Sales from increased production volumes from the company's Fort Worth Basin in Texas and Horseshoe Canyon area in Alberta, Canada were nearly completely offset by lower average realized prices for all commodities, which resulted in an approximate 28% decrease in the average realized price per thousand cubic feet of natural gas equivalent (Mcfe).

Total production expense was $31.7 million for the 2009 second quarter, down $1.3 million from the prior-year quarter even though total production increased more than 40%. Unit production expense, including production, gathering and processing and transportation expense, decreased to $1.05 per Mcfe during the second quarter of 2009, a 32% reduction from $1.54 per Mcfe reported in the prior-year period. Quicksilver's ongoing efforts to reduce and control costs enabled the company to remain as one of the lowest-cost operators in North America.

Income from Earnings of Unconsolidated Affiliate

Quicksilver reported $19.0 million of pre-tax earnings attributable to the company's approximate 41% interest in BreitBurn Energy Partners L.P.'s (BBEP) first-quarter 2009 results, including $18.5 million of income from the early settlement of derivative positions, a $1.7 million loss on the unrealized mark-to-market of commodity derivative positions and a $.9 million loss on interest rate derivatives. On April 17, 2009, BBEP announced that it was suspending its distributions and, therefore, Quicksilver did not receive any cash distributions from this partnership during the quarter.

Interest Expense and Debt

Interest expense in the 2009 second quarter increased to $68.1 million, due to higher outstanding debt balances, primarily associated with the acquisition of the Alliance properties in August 2008, and the early retirement of the company's senior secured second-lien facility. In June 2009, the company issued $600 million face amount of senior notes due 2016 and fully repaid its senior secured second-lien facility. We recognized $27.1 million of additional interest expense for the remaining unamortized original issue discount and deferred financing costs upon early retirement of the senior secured second-lien facility.

Operational Update

Quicksilver continued to focus on the exploitation and development of the 175,000 net acres in its core fairway within the Barnett Shale formation of the Fort Worth Basin. During the second quarter of 2009, the company drilled 29 (22.9 net) wells and connected 27 (25.2 net) wells to sales. The company currently has five rigs working in the basin, including four rigs dedicated to the Lake Arlington and Alliance areas in Tarrant and Denton counties.

In Canada, drilling, completion and pipeline activities were suspended for most of the quarter due to the seasonal break-up period. The company drilled just one well during the second quarter of 2009 in the Horseshoe Canyon area and expects to drill nine (seven net) wells for the remainder of this year. The company now anticipates participating in a total of 145 (42.2 net) wells in this area for the full year of 2009.

During the second quarter of 2009, the company incurred costs of approximately $136 million, including approximately $103 million for drilling and completion activities and $31 million for midstream activities and approximately $2 million for other corporate items. The company expects to incur an additional $216 million of capitalized costs during the second half of 2009.

Third-Quarter 2009 Outlook

Third-quarter 2009 production volumes are expected to average in the range of 310 MMcfe to 320 MMcfe per day. Average unit expenses, on a Mcfe basis, are expected as follows:

-- Production $.55 - $.60 -- Gathering and processing .15 - .18 -- Transportation .35 - .40 -- Production taxes .15 - .20 -- General and administrative .62 - .67 -- Depletion, depreciation & accretion 1.65 - 1.70

Conference Call

The company will host a conference call to discuss second-quarter 2009 operating and financial results and its outlook for the future at 11:00 a.m. eastern time today.

Quicksilver invites interested parties to participate in the call via the company's website at http://www.qrinc.com or by calling 1-877-313-7932, using the conference ID number 80367823, prior to 10:55 a.m. eastern time. A digital replay of the conference call will be available at 3:00 p.m. eastern time today, and will remain available for 30 days. The replay can be accessed at 1-800-642-1687 and enter the conference ID number 80367823. The replay will also be archived for 30 days on the company's website.

Use of Non-GAAP Financial Measure

This press release and the accompanying schedule include the non-generally accepted accounting principles ("non-GAAP") financial measure of adjusted net income. The accompanying schedule provides reconciliations of this non-GAAP financial measure to its most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Our non-GAAP financial measure should not be considered as an alternative to GAAP measures such as net income or operating income or any other GAAP measure of liquidity or financial performance.

About Quicksilver Resources

Fort Worth, Texas-based Quicksilver Resources is a natural gas and crude oil exploration and production company engaged in the development and acquisition of long-lived, unconventional natural gas reserves, including coalbed methane, shale gas, and tight sands gas in North America. The company has U.S. offices in Fort Worth, Texas; Glen Rose, Texas and Cut Bank, Montana. Quicksilver's Canadian subsidiary, Quicksilver Resources Canada Inc., is headquartered in Calgary, Alberta. For more information about Quicksilver Resources, visit www.qrinc.com.

Forward-Looking Statements

The statements in this press release 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, natural gas liquids and crude oil prices; failure or delays in achieving expected production from exploration and development projects; uncertainties inherent in estimates of natural gas, natural gas liquids and crude oil reserves and predicting natural gas, natural gas liquids and crude oil reservoir performance; effects of hedging natural gas, natural gas liquids 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; and the effects of existing or future litigation; as well as, 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.

KWK 09-12

QUICKSILVER RESOURCES INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) In thousands, except for per share data - Unaudited For the Three Months Ended For the Six Months Ended June 30, June 30, -------------------------- -------------------------- 2009 2008 2009 2008 ------------ ------------ ------------ ------------ Revenue Natural gas, NGL and crude oil $ 199,315 $ 198,147 $ 382,869 $ 356,503 Sales of purchased natural gas 5,217 - 5,217 - Other 1,509 (246) 3,887 (985) ------------ ------------ ------------ ------------ Total revenue 206,041 197,901 391,973 355,518 ------------ ------------ ------------ ------------ Operating expenses Oil and gas production expense 31,703 33,019 63,874 65,375 Production and ad valorem taxes 7,441 3,081 11,807 5,740 Costs of purchased natural gas 8,582 - 8,582 - Other operating costs 1,744 396 3,271 1,801 Depletion, depreciation and accretion 50,966 38,920 110,662 73,979 General and administrative 24,389 15,382 41,770 30,797 ------------ ------------ ------------ ------------ Total expenses 124,825 90,798 239,966 177,692 Impairment related to oil and gas properties (70,643) - (967,126) - ------------ ------------ ------------ ------------ Operating income (loss) 10,573 107,103 (815,119) 177,826 Income (loss) from earnings of BBEP, net 19,016 (10,269) 19,016 (4,050) Other income (expense), net (855) (428) (94) 1,058 Interest expense (68,081) (16,098) (108,282) (29,533) ------------ ------------ ------------ ------------ Income (loss) before income taxes (39,347) 80,308 (904,479) 145,301 Income tax (expense) benefit 18,897 (27,985) 316,720 (51,336) ------------ ------------ ------------ ------------ Net income (loss) (20,450) 52,323 (587,759) 93,965 Net income attributable to noncontrolling interests (1,312) (988) (2,982) (1,496) ------------ ------------ ------------ ------------ Net income (loss) attributable to Quicksilver $ (21,762) $ 51,335 $ (590,741) $ 92,469 ============ ============ ============ ============ Earnings (loss) per common share - basic $ (0.13) $ 0.32 $ (3.50) $ 0.58 Earnings (loss) per common share - diluted $ (0.13) $ 0.31 $ (3.50) $ 0.57 Basic weighted average shares outstanding 169,009 158,290 168,894 158,209 Diluted weighted average shares outstanding 169,009 169,185 168,894 169,094 QUICKSILVER RESOURCES INC. CONDENSED CONSOLIDATED BALANCE SHEETS In thousands, except share data - Unaudited June 30, December 31, 2009 2008 ------------ ------------ ASSETS Current assets Cash and cash equivalents $ 657 $ 2,848 Accounts receivable, net of allowance for doubtful accounts 53,450 143,315 Derivative assets at fair value 202,332 171,740 Other current assets 70,516 75,433 ------------ ------------ Total current assets 326,955 393,336 Investment in BreitBurn Energy Partners 158,418 150,503 Property, plant and equipment Oil and gas properties, full cost method (including unevaluated costs of $512,568 and $543,533, respectively) 2,150,528 3,142,608 Other property and equipment 697,264 655,107 ------------ ------------ Property, plant and equipment, net 2,847,792 3,797,715 Derivative assets at fair value 55,729 116,006 Deferred income taxes 138,759 - Other assets 41,525 40,648 ------------ ------------ $ 3,569,178 $ 4,498,208 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of long-term debt $ - $ 6,579 Accounts payable 138,016 282,636 Income taxes payable 7,767 40 Accrued liabilities 96,043 66,923 Derivative liabilities at fair value 276 9,928 Deferred inocme taxes 76,639 52,393 Total current liabilities 318,741 418,499 Long-term debt 2,497,693 2,586,046 Asset retirement obligations 41,476 34,753 Derivative liabilities at fair value 503 - Other liabilities 31,768 12,962 Deferred income taxes 27,314 234,385 Stockholders' equity Preferred stock, par value $0.01, 10,000,000 shares authorized, none outstanding - - Common stock, $0.01 par value, 400,000,000 shares authorized; 173,895,897 and 171,742,699 shares issued, respectively 1,739 1,717 Paid in capital in excess of par value 667,427 656,958 Treasury stock of 4,674,212 and 4,572,795 shares, respectively (36,068) (35,441) Accumulated other comprehensive income 207,203 185,104 Retained earnings (deficit) (214,253) 376,488 ------------ ------------ Quicksilver stockholders' equity 626,048 1,184,826 Noncontrolling interests 25,635 26,737 ------------ ------------ Total equity 651,683 1,211,563 ------------ ------------ $ 3,569,178 $ 4,498,208 ============ ============ QUICKSILVER RESOURCES INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS In thousands - Unaudited For the Six Months Ended June 30, ------------------------ 2009 2008 ----------- ----------- Operating activities: Net income (loss) $ (587,759) $ 93,965 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depletion, depreciation and accretion 110,662 73,979 Impairment related to oil and gas properties 967,126 - Deferred income tax expense (benefit) (331,321) 50,243 Stock-based compensation 11,223 7,641 Non-cash loss from hedging and derivative activities 5,544 11,069 Non-cash interest expense 35,848 4,532 (Income) loss from BBEP in excess of cash distributions, net of impairment (7,915) 4,050 Other 420 1,067 Changes in assets and liabilities: Accounts receivable 89,580 (26,057) Derivative assets at fair value 54,896 - Other assets (4,266) (9,213) Accounts payable (25,864) (8,566) Income taxes payable 7,726 (46,497) Accrued and other liabilities (15,622) (19,602) ----------- ----------- Net cash provided by operating activities 310,278 136,611 ----------- ----------- Investing activities: Purchases of property, plant and equipment (441,184) (650,458) Proceeds from sales of property, plant and equipment 233,488 598 Return of investment from BBEP - 20,334 ----------- ----------- Net cash used for investing activities (207,696) (629,526) ----------- ----------- Financing activities: Issuance of debt 1,020,750 1,030,288 Repayment of debt (1,144,031) (547,566) Debt issuance costs (22,802) (10,837) Eni Gas Purchase Commitment assumed 46,628 - Noncontrolling interest distributions (4,896) (4,042) Proceeds from exercise of stock options 80 1,082 Purchase of treasury stock (627) (2,354) ----------- ----------- Net cash provided by (used for) financing activities (104,898) 466,571 ----------- ----------- Effect of exchange rate changes in cash 125 447 ----------- ----------- Net decrease in cash (2,191) (25,897) Cash and cash equivalents at beginning of period 2,848 28,226 ----------- ----------- Cash and cash equivalents at end of period $ 657 $ 2,329 =========== =========== QUICKSILVER RESOURCES INC. Production, on a thousand cubic feet of natural gas equivalent (Mcfe) per day basis, by operating area Three Months Ended June 30, Six Months Ended June 30, --------------------------- --------------------------- 2009 2008 Change 2009 2008 Change --------- --------- ------ --------- --------- ------ Texas 262,695 170,187 54% 263,005 157,605 67% Other U.S. 2,960 3,118 -5% 3,131 3,358 -7% --------- --------- --------- --------- 265,655 173,305 53% 266,136 160,963 65% Canada 65,593 62,498 5% 65,262 62,513 4% --------- --------- --------- --------- Total 331,248 235,803 40% 331,398 223,476 48% ========= ========= ========= ========= QUICKSILVER RESOURCES INC. Unaudited Selected Operating Results Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2009 2008 2009 2008 --------- --------- --------- --------- Average Daily Production: Natural Gas (Mcfd) 234,795 158,540 238,603 151,002 NGL (Bbld) 14,837 11,484 14,100 10,757 Oil (Bbld) 1,238 1,393 1,366 1,322 Total (Mcfed) 331,248 235,803 331,398 223,476 Average Realized Prices: Natural Gas (per Mcf) $ 7.52 $ 9.02 $ 7.28 $ 8.53 NGL (per Bbl) $ 24.22 $ 54.45 $ 22.77 $ 52.07 Oil (per Bbl) $ 52.48 $ 88.25 $ 42.65 $ 83.15 Total (Mcfe) $ 6.61 $ 9.23 $ 6.38 $ 8.77 Expense per Mcfe: Oil and gas production expense: Cash expense $ 1.02 $ 1.51 $ 1.03 $ 1.57 Stock-based compensation 0.03 0.03 0.03 0.04 --------- --------- --------- --------- Total oil and gas production expense: $ 1.05 $ 1.54 $ 1.06 $ 1.61 Production and ad valorem taxes $ 0.25 $ 0.14 $ 0.20 $ 0.14 Depletion, depreciation and accretion $ 1.69 $ 1.81 $ 1.84 $ 1.82 General and administrative expense: Other cash expense $ 0.49 $ 0.57 $ 0.47 $ 0.60 Litigation settlement 0.17 - 0.08 - Stock-based compensation 0.15 0.15 0.15 0.16 --------- --------- --------- --------- Total general and administrative expense $ 0.81 $ 0.72 $ 0.70 $ 0.76 QUICKSILVER RESOURCES INC. RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED NET INCOME In thousands, except per share data - Unaudited For the Three Months For the Six Months Ended June 30, Ended June 30, ---------------------- ---------------------- 2009 2008 2009 2008 ---------- ---------- ---------- ---------- Net income (loss) $ (21,762) $ 51,535 $ (590,741) $ 92,469 ---------- ---------- ---------- ---------- Adjustments Impairment of E&P Properties 70,643 - 967,126 - Impairment of investment in BBEP - - 102,084 - Equity portion of BBEP impairment of E&P properties - - 35,044 - Equity portion of early settlement of hedges from BBEP (18,508) - (18,508) - Equity portion of interest rate derivative loss from BBEP 852 - 6,977 - Equity portion of commodity derivative loss (income) from BBEP 1,650 22,133 (138,823) 22,840 Debt termination-related expenses (interest expense) 27,122 - 27,122 - Legal settlement (G&A) 5,000 - 5,000 - ---------- ---------- ---------- ---------- Total adjustments before income tax expense 86,759 22,133 986,022 22,840 Income tax expense (23,750) (7,747) (327,421) (7,994) ---------- ---------- ---------- ---------- Adjustments for items after taxes 63,009 14,386 658,601 14,846 ---------- ---------- ---------- ---------- Adjusted net income $ 41,247 $ 65,921 $ 67,860 $ 107,315 ========== ========== ========== ========== Adjusted net income per common share - Diluted $ 0.24 $ 0.40 $ 0.40 $ 0.65 Diluted weighed average common shares outstanding 180,136 169,185 179,648 169,094