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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION

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From: Dennis Roth	9/17/2007 10:02:14 AM
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Quicksilver Resources, Inc. (KWK): Michigan sale reduces overhang as Barnett results remain strong September 17, 2007 Goldman Sachs What's changed We continue to rate Quicksilver Resources Buy relative to an Attractive coverage view. Quicksilver shares have performed well in the last three trading days since the company announced it plans to sell its Michigan, Indiana and Kentucky properties for $750 million in cash and 21.3 million units of the BreitBurn Energy Partners with a current value of $709 million. Implications The Michigan sale was at a higher valuation than expected, reduces leverage to more normal levels helps to make Quicksilver more of a Barnett pure play (along with exposure to MLP yields). This complements continued Street skepticism on Barnett Shale asset quality despite better-than-expected Barnett production. We believe momentum and sentiment towards Quicksilver can continue to improve. Growing NGL volumes give Quicksilver increased liquids exposure, somewhat unique versus other unconventional gas growth companies. Valuation We see 24% upside to a $57 12-month discounted cash flow based target price, versus 22% upside for E&P stocks. We are raising our 12-month target price to $57 from our previous $41 per share to reflect updates to commodity prices, the recent asset sale and our views on the company’s Barnett Shale acreage. While essentially the upside for Quicksilver is similar to that of other stocks, we believe Quicksilver could more quickly move towards our target as the Street sees the company as more of a Barnett Shale pure-play with more limited leverage concerns. Key risks Key risks include commodity price volatility, drilling results, MLP market fluctuations, cost pressures and government pronouncements.

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