Quicksilver Resources Inc.

Transcription

1 CORPORATE FINANCE FINANCIAL ADVISORY SERVICES FINANCIAL RESTRUCTURING STRATEGIC CONSULTING Quicksilver Introductory Memorandum September 2015 HL.com

2 Transaction Overview Quicksilver and its domestic subsidiaries (collectively, the Debtors ) are debtors-in-possession in chapter 11 cases (jointly administered under No (LSS)) pending in the United States Bankruptcy Court for the District of Delaware (the Bankruptcy Court ). On September 17, 2015, the Debtors filed the Sales Motion which sought approval of, among other things, the procedures (the Bidding Procedures ) by which they will solicit and select the highest or otherwise best offer for the sale of substantially all or a portion of their U.S. assets (the Assets ) either through one sale or multiple sales to one or more Successful Bidders (as defined in the Bidding Procedures). The terms of a transaction will be governed by an order entered by the Bankruptcy Court (the Bidding Procedures Order ), which, among other things, will set forth the Bidding Procedures. The Bidding Procedures provide that the Debtors may also consider competing bids in the form of a non-taxable recapitalization transaction effectuated through a chapter 11 plan of reorganization, subject to the requirements set forth herein (a Chapter 11 Plan Bid ). Please reference the Bidding Procedures Order or the Bankruptcy Court docket ( for key dates and contact one of the Houlihan Lokey team members listed below with any questions regarding a potential transaction. This Introductory Memorandum (this Memorandum ) relates to a potential transaction for the Debtors Assets (a Transaction ). The assets of Quicksilver Resources Canada Inc. ( QRCI and the QRCI Assets ) are also being sold separately from the Assets of the Debtors. References to QRCI Assets presented herein are for convenience purposes only and are not an offer to sell the QRCI Assets. Houlihan Lokey Capital, Inc., acting through itself and its affiliates (collectively, Houlihan Lokey ) has been authorized to act as an agent of the Company with respect to Transaction proposals. All communications or inquires relating to a transaction and the Company should be directed to Houlihan Lokey. JP Hanson Managing Director JHanson@hl.com New York 245 Park Avenue, 20th Floor, New York, NY Dan Crowley Sr. Vice President DCrowley@hl.com Michael Haney Vice President MHaney@hl.com Marcus Bellows Associate MBellows@hl.com Dallas 200 Crescent Ct., Suite 1900, Dallas, TX Adam Dunayer Managing Director ADunayer@hl.com Michael Boone Director MBoone@hl.com Justin Zammit Associate JZammit@hl.com Houlihan Lokey Capital, Inc. 1

3 Business Description Quicksilver is an independent oil and gas E&P company that focuses on unconventional resources in North America Key Operations Key areas of operations include: and Reserves Barnett Shale ( Barnett ) in the Fort Worth Basin located in north-central Texas, United States Delaware Basin ( West Texas ) located in western Texas, United States Horseshoe Canyon ( HSC ) located in Alberta, Canada Horn River Basin ( HRB or Horn River ) located in northeast British Columbia, Canada Campbell River proposed LNG Site ( Discovery LNG ) located on Vancouver Island, British Columbia, Canada Exploratory Shale Asset ( NWAB ) located in Northwest Alberta, Canada Net acreage of ~580,000 includes (i) 1P reserves of ~1.2 Tcfe and (ii) 2,000+ net producing wells Assets contain enormous resource potential of over 14.0 Tcfe + ~200 MMbbl Unless otherwise noted, all reserve data is based on strip pricing as of July 31, 2015 and Company data as of June 30, 2015 and assumes a 2 year drilling program in the U.S. and Canada per Company business plan with reduced GPT rates in the Barnett and HRB; all dollars are in USD Highlights In 2Q 2015, Quicksilver produced: MMcfed (net), of which ~87% was natural gas ~75% of its total production in the U.S. and ~25% in Canada Net 1P Reserves (1) Total (Bcfe) PV-10 ($ in MM) Barnett Shale 947 $519 West Texas 2 5 Total Proved U.S. 949 $524 Horseshoe Canyon Horn River Basin Total Proved Canada 282 $139 Total Proved 1,231 $663 2Q 2015 Net Composition Natural Gas NGL Oil Source: Company data (1) Reserves and values include operated and non-operated wells (2) Values may not sum to the total due to rounding (3) Historical financial information is not reflected pro forma of the Tokyo Gas transaction completed in April % 1% 87% Net History (MMcfed) (2)(3) Reflects shut-ins Q Barnett Shale West Texas Horseshoe Canyon Horn River Q

4 Key Investment Highlights Long-Lived Producing Assets in Barnett Shale & Horseshoe Canyon Rationalized Cost Structure Substantial Reserve Upside Existing and Extensive Inventory at Attractive Returns Management Team with Proven Track Record Favorable Existing Strategic Partnerships Acquisition Opportunities 3

5 Asset Geography High-quality, large-scale resource base provides long-term drilling inventory in both oil and gas plays Classification Area Description / Barnett Alliance Highly productive core dry gas area with low cost structure and future development at current strip Cowtown Liquids rich area with hundreds of additional potential drilling locations under improved pricing Lake Arlington, Hill County & Village Creek Developed, predictable assets Horn River Basin Northwest Alberta Shale Discovery LNG Horseshoe Canyon QRCI Horseshoe Canyon Low cost, dry coalbed methane ( CBM ) with 2,000+ future locations under improved pricing Horn River Basin 13 Tcf of resource potential Exploration / Assessment Campbell River, Vancouver Island, BC Proposed site for construction of Discovery LNG facility Best-in-class location for up to 7 x 5 Mtpa LNG trains Received a 25-year, 20-Mtpa export license on June 30, 2015 Barnett West Texas QRI West Texas Northwest Alberta Shale Oil ~200 MMbbl resource potential, encouraging well results Early exploratory phase tight oil acreage ~32,800 net acres / Exploration / Assessment Discovery LNG Site Source: Company data 4

6 Asset Overview / Exploration / Assessment Barnett Horseshoe Canyon Horn River Basin West Texas Northwest Alberta Shale Proved Reserves 947 Bcfe 227 Bcf 55 Bcf 324 Mboe NA Reserve Mix (Gas/Liquids) Gas: 75% / Liq.: 25% Gas: 100% Gas: 100% Gas: 29% / Liq.: 71% Gas: 30% / Liq.: 70% (Estimated) % of Total Reserves 78% 18% 4% < 1% NA PV-10 (1) $519MM $128MM $11MM $5MM NA Acreage (Net) ~85,600 ~308,400 ~126,500 ~27,600 ~32,800 Operated Wells Gross / Net (2) 902 / 615 1,357 / 1, / 12 5 / 3 NA Operated Net (2Q 15) 132 Mmcfed 46 MMcfd NA (3) 114 Bbld NA Working Interest (2) 68% 81% 100% 50% 100% Key Highlights High-quality, low-risk asset in the Fort Worth Basin Attractive water handling / gas lift infrastructure Access to markets with existing midstream infrastructure Electric compression results in high level of reliability Quicksilver owns midstream assets in Hill County Plunger installations in Lake Arlington improve operational efficiencies Stable cash flows with low-risk development Shallow decline curves Low geologic risk Quick, low-cost drilling Existing field office Minimal maintenance capital High-quality shale gas reservoir; next generation asset being transitioned to development phase 13 Tcf of resource potential Discovery LNG approved to export 20 Mtpa for 25 years Oil exploration opportunities targeting the Wolfbone formation Initial test well results have been encouraging Probabilistic assessments yield resource potential of MMbbl (P90-P50-P10) Prospect is drill-ready and requires no seismic Multiple zone potential Note: Reserves and values include operated and non-operated wells (1) Values assume revised gathering and processing rates effective January 1, 2016 in the Barnett and HRB assets (2) Represents operated wells only. Includes producing, shut-in, drilled but not completed and salt water disposal ( SWD ) wells; West Texas working interest includes JV wells only (3) Horn River Basin assets are currently shut-in 5

7 PV-10 Overview Unless otherwise noted, all reserve data is based on strip pricing as of July 31, 2015 and Company data as of June 30, 2015 and assumes a 2 year drilling program in the U.S. and Canada per Company business plan with reduced GPT rates in the Barnett and HRB; all dollars are in USD Proved Reserves (1) Proved PV-10 (1) Reserves (Bcfe) PDP PDNP PUD Total Barnett Alliance Cowtown Hill County Village Creek Lake Arlington West Texas Subtotal: U.S HRB HSC Subtotal: Canada Total ,231 Strip Pricing as of July 31, 2015 PV-10 ($MM) PDP PDNP PUD Total Barnett $408 $69 $42 $519 Alliance Cowtown Hill County Village Creek Lake Arlington West Texas $3 $2 - $5 Subtotal: U.S. $410 $72 $42 $524 HRB - $11 - $11 HSC Subtotal: Canada $122 $13 $5 $139 Total $532 $85 $46 $ Differentials by Area (3) ($USD) U.S. Canada NYMEX NYMEX AECO Gas Oil NGL Gas ($/MMBtu) ($/Bbl) ($/Bbl) (2) ($/MMBtu) 2015 $2.84 $47.95 $14.61 $ Source: Company data Note: Values may not sum to totals due to rounding (1) Values assume revised gathering and processing rates effective January 1, 2016 in the Barnett and HRB assets (2) Represents net NGL pricing. U.S. net NGL pricing assumed at ~30% of NYMEX oil price; net differential (3) Represents minimum and maximum differentials over the 5-year period (4) Represents blended differentials over all Barnett areas ($USD) Gas Oil NGL HH / AECO WTI Benchmark (2) Barnett (4) ($0.02) - ($0.05) ($6.30) - ($6.81) ($2.31) - ($2.37) Alliance (0.02) - (0.05) (6.80) - (6.81) (2.31) - (2.36) Cowtown (0.02) - (0.06) (5.14) - (6.91) (2.31) - (2.37) West Texas (0.02) - (0.04) (6.79) - (7.13) N/A HSC (0.57) - (0.83) N/A N/A HRB (0.76) - (0.86) N/A N/A 6

8 Supplemental Information vs. Strip: Net Reserve Reconciliation Consolidated (Bcfe) 1,400 1,200 1,114 (36) 192 (39) 1,231 1, U.S. (Bcfe) Canada (Bcf) 1,200 1, (26) 167 (28) (10) 25 (11)

9 Supplemental Information vs. Strip: Net PV-10 Reconciliation Consolidated ($MM) $1,400 $1,200 $1,000 $1,043 $(24) $126 $(482) $800 $600 $663 $400 $200 $0 U.S. ($MM) Canada ($MM) $1,000 $800 $600 $400 $756 $(18) $143 $(357) $524 $350 $300 $250 $200 $150 $287 $(6) $(17) $(125) $139 $200 $0 $100 $50 $0 8