Oil and natural gas exploration company Quicksilver Resources Inc. (KWK) reported lackluster performance in the first quarter mainly due to lower realized gas prices and natural gas volumes from the Barnett Shale. The company recorded a loss per share of 9 cents in the first quarter compared with earnings per share of 2 cents in the year-ago quarter. However, Quicksilver’s priority on effective growth of production and reserves by focusing on its unconventional resource plays onshore North America will provide greater longevity and enhance its production profiles. We thus reiterate our Neutral Recommendation on Quicksilver Resources.
The recent emphasis laid by the US and Canadian governments on environmental regulations and permits could impose operational restrictions and failure to comply with these laws could lead to generation of lower margins by the company in the coming years.
However, the company’s efficient capital program of $370 million for 2012 is expected to fuel its operational activities in the core domestic areas which would increase its production rate and complement its earnings portfolio. In addition, the company’s strong liquidity profile and constant modernization of drilling technologies should further strengthen opportunities for growth.
Conversely, disruption resulting from unforeseen weather conditions and unplanned outages could severely impact the company’s supply operations. Moreover, volatility in oil and natural gas prices owing to macroeconomic factors could also adversely impact Quicksilver’s profitability.
The company projects production volumes in the second quarter 2012 to be in the range of 375–385 million cubic feet equivalents (MMcfe) per day. The company anticipated production taxes; gathering, processing, and transportation expenses; and lease operating expenses to be in the range of $0.20–$0.22 thousand cubic feet equivalent (Mcfe) per day, $1.26–$1.30 per Mcfe and $0.80–$0.84 per Mcfe, respectively.
The company continues to hedge a substantial amount of its production to safeguard against fluctuating prices. The company has hedged 65% of its expected total equivalent production for the remainder of 2012 at a weighted average price of $6.02 per Mcfe.
The Zacks Consensus Estimate for the second quarter and full year 2012 are currently pegged at negative 6 cents per share and negative 24 cents per share, respectively.
The company retains a Zacks #3 Rank which translates into a short-term Hold rating. Quicksilver’s closest competitor is Chesapeake Energy Corporation (CHK).
Based in Fort Worth, Texas, the company is primarily engaged in the development of long-lived, unconventional reserves which include fractured shales, coalbeds and tight sands in the North American continent.
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