Quicksilver looks for gold

Financially squeezed unconventional gas player rumored to be candidate for BC shale gas JV with India’s Reliance Industries

Gary Park

For Petroleum News

Quicksilver Resources, one of the leading edge unconventional gas players in North America, is seizing the spotlight in northern British Columbia, with speculation that it is exploring a possible joint shale gas venture with India’s Reliance Industries and its own disclosure of an oil strike in its B.C. acreage.

Without commenting directly on the Reliance reports initiated by an Indian newspaper, a Quicksilver spokesman said his company expects to embark on “some type of transaction” to reduce its debt load in 2010.

He said that would be most likely to involve Horn River, where Quicksilver has a 100 percent interest in 20 licenses covering 130,000 acres, where it booked reserves of 250 billion cubic feet of gas equivalent at the end of 2009 and has indicated a gas resource potential of 5 trillion to 10 trillion cubic feet.

Reliance, India’s largest private company, has long been rumored as the next major foreign entry into Canada’s oil and gas sector, with the oil sands identified as the likeliest target.

However, the company has shown more immediate interest in shale gas, investing $1.7 billion in April for a 40 percent stake in Pittsburgh-based Atlas for 120,000 net acres in Pennsylvania’s Marcellus Shale.

On the heels of that deal, it added another 42,000 acres in the same region for $192 million and in late June established a combined $1.35 billion joint venture with Pioneer and its partner Newpek, taking 45 percent in about 212,000 net acres in the Eagle Ford play in southern Texas.

Quicksilver had previously entered a joint-venture with Italy’s Eni, which paid $280 million for a 27.5 percent share of the Barnett Shale properties.

JVs key in BC plays

Korea Gas has committed to spend $1.1 billion through a partnership with Encana, while signing a memorandum of understanding to take 40 percent of the LNG volumes from the proposed Kitimat LNG project along with an option to become an equity owner in the export terminal.

Encana and China National Petroleum Corp. are also exploring a possible joint venture to develop B.C. gas.

Quicksilver is currently producing 7 million cubic feet per day from two B.C. wells and expects to complete another two later this year.

Analysts have set the economic breakeven threshold for Horn River at $5.20 per million British thermal units, compared with $3.50 in Marcellus, reflecting the lack of infrastructure in B.C. and believe a joint venture with Reliance would be worth about $500 million.

Word of a possible deal pumped fresh life into Quicksilver shares raising them from the $11-$12 range to $13, where they have remained for the past two weeks, still far short of their all-time peak of $40 in 2008.

As it grapples to bring its debt under control, Quicksilver has trimmed capital spending and production over the past two years, conserving its resources during the gas price slump.

Although some analysts have ruled out a complete takeover bid for Quicksilver, Subash Chandra, with Jefferies & Co., said the bruising the company has taken suggests it could be bought for “not all that much.”

Horn River oil strike

He is now hoping tests later this year will “encourage us to go forward with some serious stratigraphic testing of the play.”

Darden said a horizontal leg will be drilled from an existing gas well to prove up the oil potential of the Bakken and Exshaw formations, which are at about half of the 10,000-foot depths of the gas deposits.

He said it’s possible oil in commercial quantities could “help carry the development economics during times of low gas prices.”

Darden rated Horn River as a “world-class basin. … It is the best resource rock we have seen after studying all of the basins available in North America.”

“Pound for pound, we are the most weighted toward the Horn River of any public company in our space and around us.”