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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION

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To: Dennis Roth who wrote (28)	11/7/2007 11:08:08 AM
From: Dennis Roth	Read Replies (1) of 111

Quicksilver Resources, Inc. (KWK): Stock receiving greater credit for Barnett assets; we still see upside - Goldman Sachs - 11/07/07 What's changed Quicksilver reported 3Q 2007 adjusted EPS of $0.34 versus our estimate of $0.35 and First Call consensus estimate of $0.37. Total production was 238 MMcfe/d versus our 228 MMcfe/d. Operating cash flow was $77 million in line with our estimate of $77 million. Implications We continue to rate Quicksilver Buy relative to our Attractive coverage view. Following recent outperformance, we believe the company’s Barnett Shale acreage in Hood and Somervell counties are likely receiving greater credit, although potential upside from its Hill and Bosque county acreage as well as its up-and-coming Lake Arlington development are not fully being considered. We believe the Street has taken a wait-and-see attitude towards the company’s well performance and liquids content, and as results have come in that has supported management’s bullish outlook the stock is now receiving greater credit. Given our bullish commodity views as well as the potential for unit cost decreases following the sale of Michigan properties that are likely to lead to strong 4Q 2007 results, we see further upside for Quicksilver shares from current levels. Valuation Quicksilver trades at 11.8x 2008 EV/debt-adjusted cash flow versus a range of 9.0x-14.5x for other small- and mid-cap unconventional/repeatable E&Ps. We are raising our 12-month discounted cash flow based target price to $66 from $64 on improved costs following the Michigan sale and see 14% upside versus 14% upside for E&P stocks. Key risks Key risks include commodity price fluctuations, drilling results, service costs and government pronouncements.

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