Quicksilver Resources Inc. (KWK), the target of a failed management-led takeover attempt, fell 4.8 percent after announcing plans to form a master-limited partnership to hold some of its Barnett Shale natural-gas assets.
Quicksilver, based in Fort Worth, Texas, dropped to $7.77 at the close in New York. The shares have declined 47 percent this year.
The initial public offering is expected to raise more than $400 million, and proceeds will be used to help eliminate about $940 million of public debt in the next two years, Quicksilver said in a statement yesterday. Quicksilver will retain control of the partnership, to be called Quicksilver Production Partners.
“Target proceeds look out of reach,” Drew Venker, a Denver-based analyst for Lazard Capital Markets, wrote in a note to clients today. Lazard rates Quicksilver “sell.”
Energy companies have used master-limited partnerships to raise cash while keeping control of assets. Partnership payouts, unlike corporate dividends, aren’t subject to U.S. income tax.
Quicksilver’s partnership will compete with seven other exploration and production partnerships with average payouts that represent a 7.8 percent return for investors, Venker and Nicholas Pope, a New York-based analyst for Dahlman Rose & Co. wrote in notes today.
Because investors will seek comparable returns on comparable investments, Quicksilver’s proceeds may be as little as $325 million, Venker wrote.
Quicksilver intends to sell the partnership 18 percent of its production from the Barnett Shale deposit in the Fort Worth area and 15 percent of its year-end 2010 reserves in the formation. Further sales to the partnership are possible during the next seven years, which may provide enough funding to retire all existing corporate debt, it said.
Agreement on a joint venture that would buy pipeline and gas-processing operations in British Columbia’s Horn River Basin is expected “fairly shortly,” Chief Executive Officer Glenn Darden said today on a conference call with investors. “The negotiations have dragged on a little longer than we wanted.” Quicksilver had expected a deal by Sept. 30, he said.
Registration papers for the initial public offering may be filed by year-end, Quicksilver said. The company gave advance notice of the decision because some bondholders have options expiring Oct. 28 to sell the debt back, Chief Financial Officer Philip W. Cook said today on the call.
Darden and other family members announced plans to take Quicksilver private in October 2010 and abandoned the proposal March 17 after talks with bankers and private-equity firms.
Quicksilver’s $350 million of 7.125 percent notes due in April 2016 surged 6.5 cents to 98.5 cents on the dollar in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.
The company can redeem the bonds at 103.6 cents on Nov. 21, according to data compiled by Bloomberg.
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