0001060990-16-000122.txt : 20160314 0001060990-16-000122.hdr.sgml : 20160314 20160314171949 ACCESSION NUMBER: 0001060990-16-000122 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20160308 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Changes in Registrant's Certifying Accountant ITEM INFORMATION: Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers: Compensatory Arrangements of Certain Officers ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20160314 DATE AS OF CHANGE: 20160314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUICKSILVER RESOURCES INC CENTRAL INDEX KEY: 0001060990 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 752756163 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14837 FILM NUMBER: 161504785 BUSINESS ADDRESS: STREET 1: 801 CHERRY STREET STREET 2: SUITE 3700, UNIT 19 CITY: FORT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 817-665-5000 MAIL ADDRESS: STREET 1: 801 CHERRY STREET STREET 2: SUITE 3700, UNIT 19 CITY: FORT WORTH STATE: TX ZIP: 76102 8-K 1 kwk8-k201603142.htm 8-K 8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

 
 
 

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934


Date of Report (Date of earliest event reported): March 8, 2016


QUICKSILVER RESOURCES INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation)
001-14837
(Commission
File Number)
75-2756163
(IRS Employer
Identification No.)

801 Cherry Street
Suite 3700, Unit 19
Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (817) 665-5000

 
 
 


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



Item 2.01.    Completion of Acquisition or Disposition of Assets.
Quicksilver Resources Canada Inc. (“QRCI”) and certain of its wholly owned subsidiaries (the “Canadian Entities”) applied for and received protection from their creditors (the “Filing”) under the Companies’ Creditors Arrangement Act (Canada) in the Court of Queen’s Bench (the “Court”) in Alberta, Canada on March 8, 2016 (the “Filing Date”). As a result of the Filing, Quicksilver Resources Inc. (the “Company”) has determined that the Canadian Entities will be deconsolidated from the Company’s financial statements as of the Filing Date. In connection with the deconsolidation of the Canadian Entities, the Company is filing certain pro forma financial information as Exhibit 99.1 to this Current Report on Form 8‑K.
Item 4.01.    Changes in Registrant’s Certifying Accountant.
On March 14, 2016, Ernst & Young LLP (“E&Y”), the Company’s independent registered public accounting firm, resigned since, as discussed in Item 7.01 of this Current Report on Form 8-K, the Company intends to suspend the filing of its regular periodic reports on Form 10-K and Form 10-Q with the SEC.
The Company’s financial statements for the year ended December 31, 2015 have not been audited. E&Y’s reports on the Company’s financial statements for the fiscal years ended December 31, 2014 and 2013, the last fiscal years for which a report on the Company’s financial statements was issued by E&Y, did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that the report of E&Y dated March 31, 2015 expressed an unqualified opinion that included an explanatory note about the Company’s ability to continue as a going concern.
During the fiscal years ended December 31, 2014 and 2013 and the subsequent period through March 14, 2016, the Company did not have any disagreements (within the meaning of Item 304(a)(1)(iv) of Regulation S-K) with E&Y on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, that, if not resolved to E&Y’s satisfaction, would have caused E&Y to make reference to the subject matter thereof in connection with its reports on the Company’s financial statements for such years.
During the fiscal years ended December 31, 2014 and 2013 and the subsequent period through March 14, 2016, there were two reportable events (within the meaning of Item 304(a)(1)(v) of Regulation S-K) related to material weaknesses in internal control over financial reporting. As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, management concluded that, as of December 31, 2013, it did not maintain effective internal control over financial reporting due to material weaknesses in the operating effectiveness of controls related to the: (i) reconciliation of deferred income taxes, particularly related to the tax basis in property, plant and equipment and (ii) accounting for significant non-recurring transactions. Because of these material weaknesses, E&Ys report dated March 17, 2014 with respect to the Company’s internal control over financial reporting concluded that the Company had not maintained effective internal control over financial reporting as of December 31, 2013. As disclosed in the Company’s Quarterly Report on Form 10-Q/A for the quarterly period ended September 30, 2015, management concluded that, as of September 30, 2015, it did not maintain


effective internal control over financial reporting due to a material weakness in the operating effectiveness of controls related to the inputs used in the estimate of our oil and natural gas proved reserves. Management and the Audit Committee discussed each of these material weaknesses with E&Y.
The Company provided E&Y with a copy of this Current Report on Form 8-K and requested that E&Y furnish the Company with a letter addressed to the SEC stating whether E&Y agrees with the statements in this Item 4.01 and, if E&Y does not agree, the respects in which it does not agree. A copy of E&Y’s letter is attached as Exhibit 16.1 to this Current Report on Form 8-K.
Item 5.02
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
In connection with the Filing, J. David Rushford, the Senior Vice President - Chief Operating Officer of QRCI, continues in that position at QRCI but ceased to be an executive officer of the Company.
Item 7.01.    Regulation FD.
As previously reported by the Company:
•
On March 17, 2015, the Company and its U.S. subsidiaries each filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).
•
On January 22, 2016, the Company and its U.S. subsidiaries entered into an asset purchase agreement pursuant to which they will dispose of substantially all of their U.S. oil and gas assets.
•
On March 1, 2016, QRCI entered into an asset purchase agreement pursuant to which it will dispose of its oil and gas assets primarily located in the Horseshoe Canyon area of Alberta, Canada.
•
As disclosed in Item 2.01 of this Current Report on Form 8-K, on March 8, 2016, the Canadian Entities applied for and received protection from their creditors under the Companies’ Creditors Arrangement Act (Canada) in the Court of Queen’s Bench in Alberta, Canada and, as a result of the filing, the Canadian Entities were deconsolidated from the Company’s financial statements as of the date of the submission.
As a result of these events and the Company’s limited resources, the Company intends to suspend the filing of its regular periodic reports on Form 10-K and Form 10-Q with the SEC. The Company, however, intends to furnish copies of the Monthly Operating Reports that are required to be submitted to the Bankruptcy Court under cover of Current Reports on Form 8-K and to continue to file Forms 8-K disclosing material developments concerning the Company.


Item 8.01.    Other Events.
As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2016, QRCI entered in an asset purchase agreement with CPC Resources ULC (the “Buyer”) on March 1, 2016 pursuant to which the Buyer agreed to purchase certain of QRCI’s oil and gas assets primarily located in the Horseshoe Canyon area of Alberta, Canada. An order of the Court approving the sale of the assets to the Buyer is a condition to the closing of the transactions contemplated by the asset purchase agreement.
Item 9.01.     Financial Statements and Exhibits.

(b)    Pro Forma Financial Information.

Unaudited pro forma consolidated financial information is filed as Exhibit 99.1 and incorporated into Item 9.01 of this Current Report on Form 8-K by reference.

(d)    Exhibits.

Exhibit
Number
Description
16.1
Letter dated March 14, 2016 from Ernst & Young LLP to the SEC
99.1
Unaudited pro forma consolidated financial information


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
QUICKSILVER RESOURCES INC.

 
 
 
 
By:
/s/ Glenn Darden
 
 
Glenn Darden
 
 
President and Chief Executive Officer

Date: March 14, 2016


INDEX TO EXHIBITS
Exhibit
Number
Description
16.1
Letter dated March 14, 2016 from Ernst & Young LLP to the SEC
99.1
Unaudited pro forma consolidated financial information


 EX-16.1 2 kwk8-k201603142ex161.htm LETTER DATED MARCH 14, 2016 FROM ERNST & YOUNG LLP TO THE SEC Exhibit
Exhibit 16.1

March 14, 2016
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549

Ladies and Gentlemen:
We have read Item 4.01 of the Form 8-K dated March 14, 2016, of Quicksilver Resources Inc. and are in agreement with the statements about our firm contained therein.
Regarding the registrant's statement concerning the lack of internal control to prepare financial statements, included in the fourth paragraph of item 4.01, we had considered such matter in determining the nature, timing and extent of procedures performed in our audit of the registrant's 2013 financial statements.
/s/ Ernst & Young LLP



 EX-99.1 3 kwk8-k201603142ex991.htm UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION Exhibit
Exhibit 99.1

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(DEBTOR IN POSSESSION)
The following unaudited pro forma condensed consolidated balance sheet and statements of operations are derived from the historical consolidated financial statements of Quicksilver Resources Inc. (“Quicksilver”). The pro forma condensed consolidated balance sheet as of September 30, 2015 gives effect to the deconsolidation of Quicksilver Resources Canada Inc. (“QRCI”) and its wholly owned subsidiaries and its affiliates, including Fortune Creek Gathering and Processing Partnership (collectively the “Canadian Entities”) due to commencement of restructuring proceedings of certain of the Canadian Entities under the Companies Creditors Arrangement Act (Canada) as if it had occurred on September 30, 2015. The pro forma condensed consolidated statement of operations for the year ended December 31, 2014 and the nine months ended September 30, 2015 reflects the deconsolidation of the Canadian Entities as if it had occurred on January 1, 2014. The pro forma statements of operations exclude any recognition of gain or loss related to the deconsolidation of the Canadian Entities as a non-recurring transaction. The unaudited pro forma condensed consolidated balance sheet and statements of operations have been derived from and should be read in conjunction with the related notes and Quicksilver's historical financial statements, including the related notes, included in its 2014 Annual Report on Form 10-K for the year ended December 31, 2014 and Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2015.
The preparation of the unaudited pro forma consolidated financial information is based on financial statements prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates that affect the reported amounts of revenues and expenses. Actual results could differ from those estimates.
The unaudited pro forma consolidated financial information is provided for illustrative purposes only and does not purport to represent what the actual results of Quicksilver's operations would have been had the deconsolidation of the Canadian Entities occurred on the respective dates assumed, nor is it necessarily indicative of Quicksilver's future operating results. However, the pro forma adjustments reflected in the accompanying unaudited pro forma consolidated financial information reflect estimates and assumptions that Quicksilver believes to be reasonable.




QUICKSILVER RESOURCES INC. (DEBTOR IN POSSESSION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2015
In thousands
 
Historical
 
Pro Forma Adjustments
 
Pro Forma
 
(Restated)
 
(a)
 
 
ASSETS
Current assets
 
 
 
 
 
Cash and cash equivalents
$
175,673

 
$
(20,672
)
 
$
155,001

Accounts receivable - net of allowance for doubtful accounts
27,537

 
9,299

(b)
36,836

Other current assets
17,794

 
(7,320
)
 
10,474

Total current assets
221,004

 
(18,693
)
 
202,311

Property, plant and equipment - net
 
 
 
 
 
Oil and gas properties, full cost method
 
 
 
 
 
Evaluated oil and gas properties
320,111

 
(115,929
)
 
204,182

Unevaluated oil and gas properties
21,377

 
—

 
21,377

Other property and equipment
99,332

 
(41,450
)
 
57,882

Property, plant and equipment - net
440,820

 
(157,379
)
 
283,441

Other assets
6,640

 
(4,665
)
 
1,975

 
$
668,464

 
$
(180,737
)
 
$
487,727

LIABILITIES AND EQUITY
Current liabilities
 
 
 
 
 
Current portion of long-term debt
$
156,985

 
$
(78,367
)
 
$
78,618

Accounts payable
19,528

 
(1,094
)
 
18,434

Accrued liabilities
38,004

 
(4,523
)
 
33,481

Total current liabilities
214,517

 
(83,984
)
 
130,533

Partnership liability
87,935

 
(87,935
)
 
—

Asset retirement obligations
99,791

 
(53,554
)
 
46,237

Other liabilities
10,195

 
—

 
10,195

Liabilities subject to compromise
1,884,128

 
—

 
1,884,128

 
 
 
 
 
 
Stockholders' equity
(1,628,102
)
 
44,736

(c)
(1,583,366
)
 
$
668,464

 
$
(180,737
)
 
$
487,727

The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial information.




QUICKSILVER RESOURCES INC. (DEBTOR IN POSSESSION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015
In thousands, except for per share data
 
 
Historical
 
Pro Forma Adjustments
 
Pro Forma
 
(Restated)
 
(a)
 
 
Revenue
 
 
 
 
 
Production
$
161,875

 
$
(38,798
)
 
$
123,077

Sales of purchased natural gas
29,921

 
—

 
29,921

Net derivative gains (losses)
27,863

 
(7,833
)
 
20,030

Other
7,460

 
(1,306
)
 
6,154

Total revenue
227,119

 
(47,937
)
 
179,182

Operating expense
 
 
 
 
 
Lease operating
39,763

 
(19,928
)
 
19,835

Gathering, processing and transportation
65,270

 
(9,803
)
 
55,467

Production and ad valorem taxes
8,046

 
(2,663
)
 
5,383

Costs of purchased natural gas
29,863

 
—

 
29,863

Depletion, depreciation and accretion
39,793

 
(17,494
)
 
22,299

Impairment
241,929

 
(91,113
)
 
150,816

General and administrative
39,312

 
(3,253
)
 
36,059

Other operating
937

 
(774
)
 
163

Total expense
464,913

 
(145,028
)
 
319,885

Operating income (loss)
(237,794
)
 
97,091

 
(140,703
)
Other income (expense) - net
(26,106
)
 
26,245

 
139

Fortune Creek accretion
(9,877
)
 
9,877

 
—

Interest expense
(43,537
)
 
5,401

(b)
(38,136
)
Reorganization items, net
(148,568
)
 
—

 
(148,568
)
Income (loss) before income taxes
(465,882
)
 
138,614

 
(327,268
)
Income tax (expense) benefit
(5,836
)
 
(657
)
 
(6,493
)
Net income (loss)
$
(471,718
)
 
$
137,957

 
$
(333,761
)
 
 
 
 
 
 
Earnings (loss) per common share - basic
$
(2.68
)
 
 
 
$
(1.90
)
Earnings (loss) per common share - diluted
$
(2.68
)
 
 
 
$
(1.90
)
Weighted average common shares outstanding - basic
176,021

 
 
 
176,021

Weighted average common shares outstanding - diluted
176,021

 
 
 
176,021

The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial information.






QUICKSILVER RESOURCES INC. (DEBTOR IN POSSESSION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2014
In thousands, except for per share data
 
 
Historical
 
Pro Forma Adjustments
 
Pro Forma
 
 
 
(a)
 
 
Revenue
 
 
 
 
 
Production
$
425,154

 
$
(132,767
)
 
$
292,387

Sales of purchased natural gas
70,468

 
—

 
70,468

Net derivative gains (losses)
65,698

 
(18,109
)
 
47,589

Other
8,108

 
(2,367
)
 
5,741

Total revenue
569,428

 
(153,243
)
 
416,185

Operating expense
 
 
 
 
 
Lease operating
76,975

 
(37,024
)
 
39,951

Gathering, processing and transportation
136,283

 
(43,295
)
 
92,988

Production and ad valorem taxes
17,344

 
(3,901
)
 
13,443

Costs of purchased natural gas
70,376

 
—

 
70,376

Depletion, depreciation and accretion
61,126

 
(23,902
)
 
37,224

Impairment
71,988

 
(69,403
)
 
2,585

General and administrative
47,294

 
(3,569
)
 
43,725

Other operating
2,608

 
(2,114
)
 
494

Total expense
483,994

 
(183,208
)
 
300,786

Operating income (loss)
85,434

 
29,965

 
115,399

Other income (expense) - net
(6,581
)
 
2,889

 
(3,692
)
Fortune Creek accretion
(15,067
)
 
15,067

 
—

Interest expense
(163,286
)
 
1,535

(b)
(161,751
)
Income (loss) before income taxes
(99,500
)
 
49,456

 
(50,044
)
Income tax (expense) benefit
(3,600
)
 
986

 
(2,614
)
Net income (loss)
$
(103,100
)
 
$
50,442

 
$
(52,658
)
 
 
 
 
 
 
Earnings (loss) per common share - basic
$
(0.59
)
 
 
 
$
(0.30
)
Earnings (loss) per common share - diluted
$
(0.59
)
 
 
 
$
(0.30
)
Weighted average common shares outstanding - basic
173,822

 
 
 
173,822

Weighted average common shares outstanding - diluted
173,822

 
 
 
173,822

The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial information.





NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (DEBTOR IN POSSESSION)
(a)
Reflects the deconsolidation of the Canadian Entities’ assets and liabilities (including intercompany balances) at their historical carrying amounts included in Quicksilver's financial statements as of September 30, 2015.
(b)
Accounts receivable has been adjusted to reflect the estimated fair value of our accounts receivable and loan receivable from QRCI. Prior to deconsolidation, both these receivables were considered intercompany balances with QRCI and were eliminated in consolidation. Subsequent to the deconsolidation, these amounts are recorded as balances with QRCI at an estimated fair value based on their carrying amounts. We have estimated a recovery rate based upon the estimated fair value of the net assets of QRCI available for distribution in relation to the secured and unsecured claims in the CCAA filing.
(c)
Retained earnings has been adjusted to reflect the impairment loss on our investment in the Canadian Entities and the pro forma adjustments including the estimated fair value of our receivables as discussed above.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 (DEBTOR IN POSSESSION)
(a)
Reflects the deconsolidation of production revenue, direct operating expenses and other income/expense from Canadian Entities.
(b)
Adjustment to increase interest expense by $6.2 million to reflect the removal of intercompany interest income.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2014 (DEBTOR IN POSSESSION)
(a)
Reflects the deconsolidation of production revenue, direct operating expenses and other income/expense from Canadian Entities.
(b)
Adjustment to increase interest expense by $8.2 million to reflect the removal of intercompany interest income.