"We're going to have some pain for a little while, but gas is not going away," Glen Darden, president and chief executive of Dallas-based Quicksilver Resources Inc. (NYSE: KWK), told attendees at the Houston Petroleum Club September 28. He and the company were being honored by the Houston Wildcatters, a program of the Texas Alliance of Energy Producers.
"In the short term, I think gas prices will stay low. We have close to 3 Tcfe in our asset base and we are 80% natural gas, so we like gas. It will be back in favor. We've geared this company to withstand some pain while prices are low, but people need to stop drilling.
"We are hedged 75% this year and 45% or so for next year. The five-year number is about $5.20 on the forward curve, so you don't have the hedging escape hatch we used to have, so we'll all be dealing with low gas prices for a while."
Darden said Quicksilver's full-cycle finding and development cost is about $4 or $4.25 per thousand. "We are a relatively smaller player, and when you are smaller, you've got to watch expenses. We pride ourselves on that. I am the frugal one. [Brother and chairman] Toby is the risk-taker.
"I can tell you, we are as efficient as any company in the top 10%. But we are going to hit a wall, as an industry, with these low gas prices. We'll see how long this industry can stand the pain."
Quicksilver is a family affair. Darden, a geologist graduated from Tulane, is a member of the All-American Wildcatters. Brother Toby is chairman and sister Anne is vice president of human resources. The company employs about 500 people.
"Being smaller, Toby and I feel we have to have a first-mover advantage and establish our lease position early. We started 20 years ago in the Antrim shale in Michigan, then we moved to CBM in Alberta, then to the Barnett and Horn River. Now we are in a couple basins in the Rockies."
The company's predecessor, started by their father, was a first-mover in a prior incarnation called Mercury Exploration. It partnered with a Calgary firm several years ago to become the first E&P pursuing coalbed methane in Canada. Today Quicksilver is active in the Barnett shale, in emerging plays in Colorado and the Green River Basin in Wyoming, and in British Columbia's Horn River Basin.
The latter play is outstanding and full of potential, Darden said. "We've never found a shale like the Horn River. It is 500 feet thick with a high silica content that makes it easy to frac. It is overpressured. That's going to take this company a long way.
"We think Horn River can quadruple our existing asset base. We have found working in Canada to be very friendly and pro industry."
In July Quicksilver, the owner of 100% of a public master limited partnership's general partner, Quicksilver Gas Services GP, inked an agreement to sell all of its interests in Quicksilver Gas Services to Crestwood Midstream Partners II LLC, a portfolio company of First Reserve Corp. Quicksilver will receive $701 million in cash at closing, with up to an additional $72 million in earn-out payments in the future. The transaction is not subject to financing contingencies and is expected to close in October 2010.
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