This Natural Gas Company Could Get Crushed by Shell's Asset Sale

Royal Dutch Shell (NYSE: RDS-A  ) recently announced that it would be selling off its holdings in the Eagle Ford, Mississippian Lime, and the Niobrara formation. This shouldn't come as too much of a surprise because Shell has not been able to crack the code of shale drilling, and it has plenty of other projects it can develop instead. There is one company, though, that could really be hurt by this decision: Quicksilver Resources (NASDAQOTH: KWKAQ  ) . 

Quicksilver and Shell were slated to jointly develop 850,000 acres in the Niobrara, and Shell was going to pay a large chunk of the development costs. Now that Shell is looking to get out, the company is going to have to rely on its other assets even more. Tune into the video below to see why this could be devastating for Quicksilver and whether top Niobrara drillers Whiting Petroleum (NYSE: WLL  ) or Noble Energy (NYSE: NBL  ) would consider these assets. 

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  • Report this Comment On November 07, 2013, at 10:43 PM, champion5000 wrote:

    I disagree with your article and video. It seems like the shorts last attempt to cover before the price per share explodes with the Horn River deal. This is old news from August; 3 months ago. Shell is marketing the asset and will not necessarily walk away or abandoned local partners. In addition, this could take up to two years to play out. At which point natural gas could be significantly higher. The Horn River deal will be completed, the balance sheet will be clean, and the price per share will be higher. Hence, it should have minimal impact long term. This article is trying to shake out investors.

    Per the conference call earlier this week from Glenn. In Colorado, we have been busy with our partner Shell on unitizing acreage, getting drilling permits starting our joint drilling project. We will not drill as many wells in the last half of 2013 as we budgeted, but we should have 3 wells drilled in the fourth quarter. Our concentration has been to hold leases with our drilling and unitization program and to high-grade our acreage position with 3D seismic and test wells. We should begin to see production results from this program in the first half of 2014. Well, we're plowing ahead and we are working with Shell, truly what we're trying to do is high-grade the acreage via 3D seismic and test wells. We've done, led by Shell, done a very good job of unitization and so we've got a clearer picture on how we keep our land position together. And now, we're trying to get -- move towards commerciality. So we're working together on the technical side. It's been a good relationship with Shell, and they are as focused on getting commercial production as we are.

    Income and revenue are not going to continue to decline at the rates they have been. The main reason for this decline has been the decline in natural gas prices to decade lows. Natural gas prices have seemed to bottom in 2012 around 2. Natural gas prices have historically traded around 1/10 the price of oil. There is a great imbalance between the price of oil and natural gas. Based upon this historical rule of thumb, natural gas should be trading around 9 today based upon the price of oil in the 90s. Even if oil falls to 70, natural gas should still be trading around 7. Natural gas is trading at 2 to 3 times the price globally in comparison the United States. Again, another imbalance that will correct itself. KWK will soon return to profitability.

    In 2011, the Darden family valued this company at around 16 per share in a potential private takeover. I find it hard to believe the assets today will not cover any debts concerns. Further, shareholders should be protected with the strong ownership by the Dardens and institutional investors with a vested interest. In my opinion, I think the company would be bought out before facing any bankruptcy concerns. However, I do not see any bankruptcy concerns based upon their strong asset base, especially with the 14TCF potential from the Horn River. Do your own research and due diligence. Read the 10Qs, listen to the conference calls. Trust your own logic. The market cap is currently only 390M. Calculate how much horn river is worth and compare that to the debt of the company and current market cap. Shell or no Shell in Colorado will have minimal impact long term.

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