Quicksilver Resources Inc. (KWK) announces the execution of an agreement with SWEPI LP, a subsidiary of Royal Dutch Shell plc (RDS.A), to jointly develop their oil and gas interests in the Sand Wash Basin in Northwest Colorado and to establish an Area of Mutual Interest (AMI) covering in excess of 850,000 acres in the basin.
The parties will each assign to the other a 50% working interest in the majority of their acreage in the Sand Wash Basin so that each party will own a 50% interest in approximately 330,000 acres and have the right to a 50% interest in any acquisition within the AMI. In addition, the agreement provides that SWEPI will pay Quicksilver an equalization payment for 50% of the differential in acreage contributed by Quicksilver in excess of the acreage that SWEPI contributes. “This alliance with Shell in the Sand Wash Basin is a validation of Quicksilver’s efforts over the past two years to unlock significant oil reserves in the Niobrara shale formation. We will now combine our resources to push a much larger project forward,” said Quicksilver Chairman Toby Darden. “This agreement is in addition to - and independent of - the two joint ventures we referred to on our recent earnings conference call.”
SWEPI will be the operator of the majority of the lands subject to the agreement, although Quicksilver will continue to operate wells it drilled prior to the agreement and other designated lands. Closing is expected to occur before year-end 2012 and is subject to customary due diligence and other closing conditions. In unrelated news, regarding Quicksilver’s Horn River project in British Columbia, on September 7, 2012, Quicksilver Resources and NOVA Gas Transmission Ltd. (NGTL), a subsidiary of TransCanada Pipelines Limited, entered into an agreement to delay the targeted in-service date of the Komie North pipeline and meter station facilities from May 1, 2014 to August 1, 2015, and revise NGTL’s spend profile and Quicksilver’s obligations to provide related financial assurances in the form of letters of credit. As a direct result, NGTL released C$39 million of letters of credit that were previously posted to the project as of July 1, 2012. Quicksilver’s next scheduled letter-of-credit placement is April 1, 2014.