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Quicksilver Resources' First-Quarter Net Income Surges 85% in 2008

Posted on: Wednesday, 7 May 2008, 06:00 CDT

Quicksilver Resources Inc. (NYSE: KWK) today reported net income for the first quarter of 2008 of $42.2 million ($.25 per diluted share), up 85% from the 2007 first-quarter net income of $22.9 million ($.14 per diluted share). Net cash from operating activities before changes in working capital, a non-GAAP measure, was $111.7 million for the first quarter of 2008, up 79% versus the comparable 2007 level of $62.3 million, as presented in the attached Condensed Consolidated Statements of Cash Flows. Per share data reflects the two-for-one stock split effected in the form of a stock dividend on January 31, 2008.

First-Quarter 2008 Highlights

 --  Increased Fort Worth Basin daily production volumes 183% year-over-     year --  Increased Canadian daily production volumes 11% year-over-year --  Drilled 55 horizontal wells in the Fort Worth Basin; connected 56     wells to sales --  Acquired additional acreage in the Horn River Basin to total more than     127,000 net acres      

"The solid production growth achieved by our team in the first quarter is further validation of the quality of Quicksilver's core development areas," said Glenn Darden, Quicksilver president and chief executive officer. "Additionally, we have secured a very attractive lease position in the Horn River Basin in British Columbia that, along with our existing acreage in the Delaware Basin of West Texas, provides future growth opportunities for the company. Quicksilver is on target to increase comparable total company production by nearly 70% and average 255 MMcfe per day in 2008."

Production

For the first quarter of 2008, average daily production was approximately 211 million cubic feet of natural gas equivalent (MMcfe) per day compared to approximately 187 MMcfe per day for the same period in 2007, an increase of approximately 13%. The 2007 quarter included production of approximately 77 MMcfe per day associated with the company's previously owned Northeast Operations, which were divested as of November 1, 2007. Total production for the first quarter of 2008 was approximately 19.2 billion cubic feet of natural gas equivalent (Bcfe) compared to approximately 16.9 Bcfe for the first quarter of 2007. The 2008 production volumes were comprised of approximately 68% natural gas, approximately 29% natural gas liquids (NGL) and approximately 3% crude oil and condensate.

Production, on a thousand cubic feet of natural gas equivalent (Mcfe) per day basis, by operating area, for the three months ended March 31, was as follows:

                                 Quarter Ended March 31,                                 -------------------------                                  2008     2007    Change                                 -------  -------  ------ Texas                           145,023   51,195     183% Other U.S.                        3,598    3,272      10%                                 -------  -------                                 148,621   54,467     173% Canada                           62,529   56,123      11%                                 -------  -------                                 211,150  110,590      91% Northeast Operations*                 -   76,675                                 -------  -------   Total                         211,150  187,265      13%                                 =======  ======= *The company's Northeast Operations were divested as of November 1, 2007. 

Revenues and Costs

Sales of natural gas, NGLs and crude oil increased approximately 40% to $158.4 million in the first quarter of 2008 as compared to $113.3 million in the 2007 quarter. The increase reflects a 13% increase in equivalent daily production volumes and a 23% increase in the average realized price per Mcfe.

Production expense of $32.5 million for the 2008 first quarter represents a $4.0 million increase from the prior-year quarter. This increase was primarily due to increased production volumes from the Fort Worth Basin in Texas, which more than offset the divested production from our Northeast Operations. Unit production expense, including production, gathering and processing and transportation expense, was $1.69 per Mcfe during the first quarter of 2008 down $.01 per Mcfe as compared to $1.70 per Mcfe expense in the prior-year quarter.

Capital Structure

At March 31, 2008, the company's total debt outstanding was $1.1 billion. Total debt as a percent of total capitalization was approximately 52% at March 31, 2008 versus approximately 65% at March 31, 2007.

Income from Earnings of Unconsolidated Affiliate

Quicksilver reported $6.2 million of pre-tax earnings attributable to the company's approximate 32% interest in BreitBurn Energy Partners L.P.'s (BBEP) fourth-quarter 2007 results for the period after Quicksilver's acquisition of the BBEP units. Quicksilver received approximately $9.7 million of cash distributions during the first quarter of 2008 associated with the ownership of these units.

Operational Update

The company continued to focus on the exploitation and development of the 160,000 net acres in its core fairway within the Barnett Shale formation of the Fort Worth Basin. During the first quarter of 2008, the company drilled 55 (50.02 net) wells and connected 56 (54.25 net) wells to sales. At March 31, 2008, the company had 12 rigs working in the basin, including two rigs dedicated to the Lake Arlington area in Tarrant County.

In Canada, the company drilled 50 (35.5 net) wells in the Horseshoe Canyon area during the first quarter of 2008. Drilling, completion and pipeline operations are currently suspended for the seasonal breakup period in Canada. The company still anticipates drilling a total of approximately 265 (165 net) wells in this area during 2008. As a result, the company remains on track to achieve annual production growth in the range of 7% to 9% from its Canadian operations in 2008.

Total company capital expenditures for the first quarter of 2008 were approximately $343 million, with approximately 62% for drilling and completion activities, approximately 20% for acreage purchases and approximately 17% for midstream activities.

Second-Quarter 2008 Outlook

Second-quarter 2008 production volumes are expected to average in the range of 225 MMcfe to 235 MMcfe per day. Average unit expenses, on a Mcfe basis, are expected as follows:

     --   Production                                  $1.25 - $1.30     --   Gathering and processing                      .20 -   .23     --   Transportation                                .22 -   .25     --   Production taxes                              .13 -   .15     --   General and administrative                    .75 -   .85     --   Depletion, depreciation & accretion          1.80 -  1.85 

Conference Call

The company will host a conference call to discuss first-quarter 2008 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 27095177, 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 27095177. 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 net cash from operating activities before changes in working capital. The accompanying schedule provides a reconciliation 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 the GAAP measures of net cash provided by operating activities or any other GAAP measure of liquidity or financial performance. The items excluded from our calculation of net cash flow from operating activities before working capital changes include cash items that may significantly affect our cash flows.

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 natural gas, natural gas liquids and crude oil exploration and development projects; effects of hedging natural gas, natural gas liquids and crude oil prices; 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; competitive conditions in our industry; actions taken by third parties, including operators, processors and transporters; 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.

                         QUICKSILVER RESOURCES INC.                 CONDENSED CONSOLIDATED STATEMENTS OF INCOME             In thousands, except for per share data - Unaudited                                                       For the Three Months                                                               Ended                                                             March 31,                                                       --------------------                                                         2008     2007 (1)                                                       ---------  --------- Revenues   Natural gas, NGL and crude oil sales                $ 158,356  $ 113,292   Other                                                    (853)     3,288                                                       ---------  ---------     Total revenues                                      157,503    116,580                                                       ---------  --------- Operating expenses   Oil and gas production expense                         32,530     28,569   Production and ad valorem taxes                         2,659      4,490   Other operating costs                                   1,231        784   Depletion, depreciation and accretion                  35,059     24,594   General and administrative                             15,415      9,698                                                       ---------  ---------     Total expenses                                       86,894     68,135 Income from equity affiliates                                 -        115                                                       ---------  --------- Operating income                                         70,609     48,560 Income from earnings of unconsolidated affiliate          6,219          - Other income - net                                        1,600        601 Interest expense                                        (11,832)   (14,952)                                                       ---------  --------- Income from continuing operations before income taxes  and minority interest                                   66,596     34,209 Income tax expense                                       23,912     11,295 Minority interest expense, net of income tax                508         63                                                       ---------  --------- Net income                                            $  42,176  $  22,851                                                       =========  ========= Earnings per common share - basic                     $    0.27  $    0.15 Earnings per common share - diluted                   $    0.25  $    0.14 Basic weighted average shares outstanding               157,731    154,389 Diluted weighted average shares outstanding             169,730    167,659 (1) Share amounts have been adjusted to reflect a two-for-one stock split     effected in the form of a stock dividend in January 2008.  The split     did not affect treasury shares.                          QUICKSILVER RESOURCES INC.                   CONDENSED CONSOLIDATED BALANCE SHEETS              In thousands, except for share data - Unaudited                                                   March 31,   December 31,                                                     2008          2007                                                 ------------  ------------                      ASSETS Current assets   Cash and cash equivalents                     $      1,976  $     28,226   Accounts receivable - net of allowance for    doubtful accounts                                 115,957        90,244   Derivative assets at fair value                     22,125        10,797   Current deferred income tax asset                   54,180        18,946   Other current assets                                42,769        42,188                                                 ------------  ------------     Total current assets                             237,007       190,401 Investments in unconsolidated affiliate              416,731       420,171 Property, plant and equipment - net   Oil and gas properties, full cost method    (including unevaluated costs of    $281,130 and $215,228, respectively)            2,001,458     1,764,400   Other property and equipment                       429,306       377,946                                                 ------------  ------------ Property, plant and equipment - net                2,430,764     2,142,346 Derivative assets at fair value                            -           354 Other assets                                          25,439        22,574                                                 ------------  ------------                                                 $  3,109,941  $  2,775,846                                                 ============  ============            LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities   Current portion of long-term debt             $          -  $         34   Accounts payable                                   182,606       192,855   Income taxes payable                                 1,457        46,601   Accrued liabilities                                 40,406        54,981   Derivative liabilities at fair value               186,301        64,104                                                 ------------  ------------     Total current liabilities                        410,770       358,575 Long-term debt                                     1,115,811       813,817 Asset retirement obligations                          24,989        23,864 Derivative liabilities at fair value                  20,474        16,327 Other liabilities                                     10,609        10,609 Deferred income taxes                                392,286       374,645 Deferred gain on sale of partnership interests        79,316        79,316 Minority interests in consolidated subsidiaries       29,412        30,338 Stockholders' equity   Preferred stock, par value $0.01, 10,000,000    shares authorized, none outstanding                     -             -   Common stock, $0.01 par value, 200,000,000    shares authorized; 161,244,642    and 160,633,270 shares issued, respectively         1,612         1,606   Paid in capital in excess of par value             277,112       272,515   Treasury stock of  2,652,981 and 2,616,726    shares, respectively                              (14,284)      (12,304)   Accumulated other comprehensive (loss) income      (46,814)       40,066   Retained earnings                                  808,648       766,472                                                 ------------  ------------     Total stockholders' equity                     1,026,274     1,068,355                                                 ------------  ------------                                                 $  3,109,941  $  2,775,846                                                 ============  ============                        QUICKSILVER RESOURCES INC.             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                        In thousands - Unaudited                                                            For the Three                                                            Months Ended                                                             March 31,                                                         ------------------                                                           2008      2007                                                         --------  -------- Operating activities:    Net income                                           $ 42,176  $ 22,851    Adjustments to reconcile net income to net cash     provided by operating activities:       Depletion, depreciation and accretion               35,059    24,594       Deferred income taxes                               23,016    11,265       Stock-based compensation                             4,009     2,899       Amortization of deferred charges                       458       563       Amortization of deferred loan costs                    589       456       Minority interest expense                              508        63       Non-cash loss from hedging and derivative        activities                                          5,735        29       Income from equity affiliates                            -      (115)       Other                                                  197      (264)    Changes in assets and liabilities:       Accounts receivable                                 (5,226)      605       Prepaid expenses and other assets                   (1,109)   (3,777)       Accounts payable                                     5,027     6,507       Income taxes payable                               (45,144)     (394)       Accrued and other liabilities                      (22,011)    7,724                                                         --------  -------- Net cash provided by operating activities                 43,284    73,006                                                         --------  -------- Investing activities:    Purchases of property, plant and equipment           (331,936) (209,926)    Advances to BreitBurn Energy Partners                 (50,150)        -    Return of investment from BreitBurn Energy Partners     and equity affiliates                                  3,440       202                                                         --------  -------- Net cash used for investing activities                  (378,646) (209,724)                                                         --------  -------- Financing activities:    Issuance of debt                                      330,741   143,446    Repayments of debt                                    (18,061)   (6,868)    Debt issuance costs                                         -    (2,303)    Minority interest contributions                             -       167    Minority interest distributions                        (1,972)        -    Proceeds from exercise of stock options                   858     2,976    Purchase of treasury stock                             (1,980)     (494)                                                         --------  -------- Net cash provided by financing activities                309,586   136,924                                                         --------  -------- Effect of exchange rate changes in cash                     (474)      231                                                         --------  -------- Net (decrease) increase in cash                          (26,250)      437 Cash and cash equivalents at beginning of period          28,226     5,281                                                         --------  -------- Cash and cash equivalents at end of period              $  1,976  $  5,718                                                         ========  ========                         QUICKSILVER RESOURCES INC.                    Unaudited Selected Operating Results                                                    Three Months Ended                                                         March 31,                                                   ---------------------                                                      2008       2007                                                   ---------- ---------- Average Daily Production: Natural Gas (Mcfd)                                   143,463    157,389 NGL (Bbld)                                            10,030      3,316 Oil (Bbld)                                             1,251      1,665   Total (MMcfed)                                     211,150    187,265 Average Realized Prices: Natural Gas (per Mcf)                             $     8.00 $     6.75 NGL (per Bbl)                                     $    49.36 $    33.81 Oil (per Bbl)                                     $    77.46 $    50.99   Total (Mcfe)                                    $     8.24 $     6.72 Expense per Mcfe: Oil and gas production cost                       $     1.69 $     1.70 Production and ad valorem taxes                   $     0.14 $     0.27 Depletion, depreciation and accretion             $     1.82 $     1.46 General and administrative expense:   Cash expense                                    $     0.64 $     0.46   Stock-based compensation                              0.16       0.12                                                   ---------- ---------- Total general and administrative expense          $     0.80 $     0.58                            QUICKSILVER RESOURCES INC.     RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES BEFORE    WORKING CAPITAL CHANGES TO NET CASH PROVIDED BY OPERATING ACTIVITIES                            In thousands - Unaudited                                                        Three Months Ended                                                             March 31,                                                       --------------------                                                         2008       2007                                                       ---------  --------- Net cash provided by operating activities before  working capital changes                              $ 111,747  $  62,341 Working capital changes:    Accounts receivable                                   (5,226)       605    Prepaid expenses and other assets                     (1,109)    (3,777)    Accounts payable                                       5,027      6,507    Income taxes payable                                 (45,144)      (394)    Accrued and other liabilities                        (22,011)     7,724                                                       ---------  --------- Total working capital changes                           (68,463)    10,665                                                       ---------  --------- Net cash provided by operating activities             $  43,284  $  73,006                                                       =========  ========= 

 Investor & Media Contact: Rick Buterbaugh (817) 665-4835  

SOURCE: Quicksilver Resources Inc.

Source: MARKET WIRE

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