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Quicksilver Resources Inc. (NYSE:KWK)

Capital One Securities 2013 Energy Conference

December 12, 2013, 4:40 PM ET

Executives

Glenn Darden - President and Chief Executive Officer

Analysts

Unidentified Analyst

So our last presenter today is Glenn Darden. Glenn is the CEO and President of Quicksilver Resources. And Glenn, I'll turn it over to you.

Glenn Darden

Thank you, [ph] Bob. Afternoon. I'd like to thank Capital One for the pleasure of being here. New Orleans, it's always a fun spot for a conference. See a few familiar faces. Today, I'd like to walk through what we're doing at Quicksilver, and we've had a very interesting year, very productive year and setting us up for a much more productive 2014.

Here's our forward-looking statement, and I will be talking about a few of those today. This slide just shows you, it's a maturity slide, in lower left, our asset portfolio lifecycle. And basically, we have two big cash-flowing assets right now, our Horseshoe Canyon, which is the most mature and that's a water free coalbed production in Canada, in the plains of Alberta; and then the Barnett Shale, which we still have a lot of development to do, but is more maturing. And then we move down to Horn River Basin, which is our highest potential asset. And West Texas and our Niobrara projects, which are oil.

So we've monetized a couple of areas this year. We sold our Montana assets, I'll talk about that. At the top of the slide, shows you a snapshot of our asset base valued at the last year's numbers, yearend '12 of $2.87 gas, which lowered our reserve number, but I think you'll see an uplift with better pricing this year.

Why invest in Quicksilver? We've got a great developed asset base, as I talked about, with the Horseshoe Canyon and the Barnett. We'll be growing that and we believe through development and perhaps some bolt-on acquisition. Substantial upside potential, that's primarily the Horn River, but also our new oil plays that we have worked to reduce our exposure from the capital side, but still have exposure to the upside. So essentially getting carried in a number of wells in West Texas and we're working on a project in the Rockies that may do the same in the Rockies.

We worked very hard this year on getting financial flexibility. And John Regan, who is here, our Chief Financial Officer, and his team have done a great job of extending maturities, getting us some runway to have the flexibility to do the best deals on the new venture side. So we've lowered our cost of debt. We've extended maturities, had given us a nice runway there. And so we've got the ability now to land some very significant deals.

Let's look at our 2013 goals, and this is our report card so far in '13. We told the Street we're going to monetize a portion of our Barnett assets. We did that through a sale of 25% of our asset base to Tokyo Gas. I think we've perhaps surprised the Street a bit with the price, but truly the motivation here was we're going to go to better markets, better markets aren't coming to us. And so where we've been spending a lot of time in the last several years working on is accessing better markets.

And the best markets we see are the ones that actually need the gas and the motivation of Tokyo Gas was to lower their supply cost. And we reached a satisfactory transaction deal terms with them. And what I believe we've done also is create a long-term partnership with TG that will blossom into future deals.

It's interesting, since we first met Tokyo Gas in 2011, we have toured over 400 individuals from Asia. Probably half of that number from Japan or Korea, China, but we've really taken the measure or gotten the measure of what these people are looking for and what these companies are looking for.

Since we did the transaction with Tokyo Gas, we've toured 150 representatives of TG, their constituents, Japanese senators and diet members and just constituents of Tokyo Gas. So we've gotten a very good perspective of what they are looking for and certainly what other players in similar positions are looking for and that's helped us in our Horn River project.

The second bullet here is reduced debt and interest expense, and I talked about that a moment ago. But we've done that, given ourselves a more flexibility there. We've relieved covenant requirements. We continue to attack our cost structure and we are one of the lowest cost players in the field.

We've extended debt maturities, as I talked about. We've advanced our Midland and Delaware Basin projects. And we announced a few weeks ago, a deal with Eni, a partner that we had in the Barnett. And this is another thing that you'll see with Quicksilver, we don't have many partners, but the partners that we have are strong, they are motivated and we believe long-term.

So in the case of Eni, the Italian integrated company, we made a deal with them in 2009 to sell 27.5% of one asset in the Barnett, the Alliance asset. And we now, basically almost five years later have done our second deal, and this is this joint venture on about 50,000-plus acres in the Delaware.

So in that deal, they will carry us for $52 million of drilling acreage, renewal, and seismic. So we're excited about that project and we'll kick-off drilling there in the spring. We also did another [ph] form-out deal to get carried on some drilling by another top domestic player who will drill the first well by the end of the first quarter.

We preserved liquidity, and that goes back to some of the refinancing we've done, but also just looking at our spending, so this year '13 was one of a year of really preserving that liquidity, playing a little more defense to go on offense now, and so we've begin drilling again in the Barnett. So we're moving that ahead.

And the biggest thing that we haven't done in the last on our list for '13, and whether that gets accomplished in '13 or early '14 is securing a partner in the Horn River Basin. And I will talk a little bit more about that in a moment. But that is something we've been working on.

That project has gotten better, the more we've worked on it. Well, basically we've narrowed the field down to a very small list and we're at the end of that process. So we've worked hard to make sure we have the right partner, the right deal structure and we're feeling confident that this process is going to result in accomplishing those goals. So we're moving ahead on that and that really moves needle for Quicksilver.

Talked about the multiple JVs. We've done two deals there and will get significant amount of drilling probably on the order of $60 million or $65 million of carry, for Quicksilver in both of those combined. We monetized Montana. That was a non-core asset for us and that was monetized for about $46 million.

We sold other things. And just we've cleaned up our asset base a bit and we did a nice equalization of our Sand Wash acreage with Shell. There is more to do in the Sand Wash Basin in Colorado there and we're working on another project as we speak.

On the debt maturities schedule. This slide just shows you kind of what we did, moving out maturities to at the earliest 2016, so that does give us some runaway. We've lowered a cost of debt. And just kind of push things out to give us a bit more breathing room to accomplish our sale goals.

We've always had a strong derivative position on the hedging side, hedging of product. We have a very strong hedge position for the next couple of years. We've added to that on the natural gas side with adding to with NGL swaps. We've hedge basis at AECO, protecting for a basis flow out there, and we're in very good shape on that side.

We've also opened some doors on some physical contracts, and so you maybe seeing us to doing some along those lines, but basically today we've got over 80% of our gas hedged at nice prices above $5, next year 75% or so hedged again above $5, and did some work on the basis and NGLs.

This slide just shows you kind of the way we look at the business. Our internal target is getting our leverage down to four times, and we won't stop there, but that's our nearer-term target. But this shows you our plan to restore shareholder value. And basically we start with that linking ourselves and our product to better gas markets and we're showing that we're doing that. We believe we'll do more with existing partners and we believe we'll add new partners that have a similar goal of lowering their supply cost.

So we feel like we've got a very good plan in Horn River to enlist good partners and to bring in another way to play that game, linking that gas to better markets. We're doing it through other joint ventures. And as I talked about, we're continuing to attack our cost side. Our capital deployment efficiency is very good and obviously getting carried is the best capital deployment efficiency we can do. The physical contract side, we're working on and there seems to be more of an appetite for that and longer-term gas contracts.

And then we'll look at equity, as prudent equity as needed to improve our balance sheet. So we want to knock down some of these thins, certainly get the Horn River behind us, but we're going to improve this balance sheet, we're going to improve this company and raise the value for our shareholders. So maybe helped along the way by increased gas prices, we may have a winner this winter. And I think people maybe surprised how much demand is out there on that side.

So with that, I think we'll move to our breakout room. And I'm not exactly sure, where that is. [ph] Bob, do you? Great. Well, thank you for your attention. And I look forward to looking at better things in '14.

Question-and-Answer Session

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