##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission file number: 001-14837
 Quicksilver Resources Inc.
  Delaware
    
    75-2756163(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 777 West Rosedale, Fort Worth, Texas
    
    76104(Address of principal executive offices)
    
    (Zip Code)
 (817) 665-5000
 None
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Title of Class
    
    Outstanding as of October 31, 2008Common Stock, $0.01 par value
    
    166,870,164




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##### 



QUICKSILVER RESOURCES INC.
INDEX TO FORM 10-Q
For the Period Ending September 30, 2008
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Statements of Income (Loss) and Comprehensive Income
    
    
    5Condensed Consolidated Balance Sheets
    
    
    6Condensed Consolidated Statements of Cash Flows
    
    
    7Notes to Condensed Consolidated Interim Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4. Controls and Procedures
    
    
    40PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    41Item 1A. Risk Factors
    
    
    41Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 3. Defaults Upon Senior Securities
    
    
    42Item 4. Submission of Matters to a Vote of Security Holders
    
    
    42Item 5. Other Information
    
    
    42Item 6. Exhibits
    
    
    42Signatures
    
    
    43
  2




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DEFINITIONS
  ABR
 AECO
 Bbl Bbls
 Bbld
 Bcf
 Bcfd
 Bcfe
 Btu
 Canada
 CBM
 Domestic
 LIBOR
 MBbls
 MMBbls
 MMBtu
 MMBtud
 Mcf
 MMcf
 MMcfd
 MMcfe
 NGL NGLs
 NYMEX
 Oil
 Tcf
 Tcfe
 COMMONLY USED TERMS
  Alliance Acquisition
 BBEP
 BreitBurn Transaction
 FASB
 IPO
 KGS
 Michigan Sales Contract
 Northeast Operations
 SEC
 SFAS
 3




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Explanatory Statement
  Forward-Looking Information
  
    
    changes in general economic conditions;
    
    fluctuations in natural gas, NGL and crude oil prices;
    
    failure or delays in achieving expected production from exploration and development
projects;
    
    uncertainties inherent in estimates of natural gas, NGL and crude oil reserves and
predicting natural gas, NGL and crude oil reservoir performance;
    
    effects of hedging natural gas, NGL and crude oil prices;
    
    fluctuations in the value of certain of our assets and liabilities;
    
    competitive conditions in our industry;
    
    actions taken or non-performance by third parties, including suppliers, contractors
operators, processors, transporters, customers and counterparties;
    
    changes in the availability and cost of capital;
    
    delays in obtaining oilfield equipment and increases in drilling and other service costs;
    
    operating hazards, natural disasters, weather-related delays, casualty losses and other
matters beyond our control;
    
    the effects of existing and future laws and governmental regulations; and
    
    the effects of existing or future litigation
   4




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited)
 QUICKSILVER RESOURCES INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME
 In thousands, except for per share data  Unaudited
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007RevenuesNatural gas, NGL and crude oil sales
    
    $
    218,214
    
    
    $
    151,046
    
    
    $
    574,717
    
    
    $
    398,297Other
    
    
    18,048
    
    
    
    8,153
    
    
    
    17,063
    
    
    
    13,880Total revenues
    
    
    236,262
    
    
    
    159,199
    
    
    
    591,780
    
    
    
    412,177Operating expensesOil and gas production expense
    
    
    33,467
    
    
    
    44,246
    
    
    
    99,557
    
    
    
    104,804Production and ad valorem taxes
    
    
    4,448
    
    
    
    4,366
    
    
    
    9,315
    
    
    
    13,068Other operating costs
    
    
    975
    
    
    
    855
    
    
    
    2,934
    
    
    
    1,940Depletion, depreciation and accretion
    
    
    51,777
    
    
    
    32,115
    
    
    
    125,756
    
    
    
    84,614General and administrative
    
    
    25,605
    
    
    
    14,328
    
    
    
    56,402
    
    
    
    34,324Total expenses
    
    
    116,272
    
    
    
    95,910
    
    
    
    293,964
    
    
    
    238,750Income from equity affiliates
    
    
    
    
    
    
    285
    
    
    
    
    
    
    
    682Operating income
    
    
    119,990
    
    
    
    63,574
    
    
    
    297,816
    
    
    
    174,109Equity loss from BreitBurn Energy Partners
    
    
    89,814
    
    
    
    
    
    
    
    93,864
    
    
    
    Other expense (income)  net
    
    
    2,113
    
    
    
    (385
    )
    
    
    1,055
    
    
    
    (1,856
    )Interest expense
    
    
    34,327
    
    
    
    20,690
    
    
    
    60,625
    
    
    
    53,858Income (loss) before income taxes and
minority interest
    
    
    (6,264
    )
    
    
    43,269
    
    
    
    142,272
    
    
    
    122,107Income tax expense (benefit)
    
    
    (4,714
    )
    
    
    14,093
    
    
    
    47,754
    
    
    
    38,158Minority interest expense, net of income tax
    
    
    1,125
    
    
    
    457
    
    
    
    2,621
    
    
    
    648Net income (loss)
    
    $
    (2,675
    )
    
    $
    28,719
    
    
    $
    91,897
    
    
    $
    83,301Other comprehensive income (loss)  net of
income taxReclassification adjustments related to
settlements of derivative contracts
    
    
    17,500
    
    
    
    (15,146
    )
    
    
    40,396
    
    
    
    (29,299
    )Net change in derivative fair value
    
    
    308,096
    
    
    
    14,547
    
    
    
    46,847
    
    
    
    (4,381
    )Foreign currency translation adjustment
    
    
    (11,044
    )
    
    
    13,698
    
    
    
    (17,858
    )
    
    
    28,678Comprehensive income
    
    $
    311,877
    
    
    $
    41,818
    
    
    $
    161,282
    
    
    $
    78,299Earnings (loss) per common share  basic
    
    $
    (0.02
    )
    
    $
    0.18
    
    
    $
    0.57
    
    
    $
    0.54Earnings (loss) per common share  diluted
    
    $
    (0.02
    )
    
    $
    0.17
    
    
    $
    0.54
    
    
    $
    0.50Basic weighted average shares outstanding
    
    
    164,087
    
    
    
    155,750
    
    
    
    159,914
    
    
    
    155,114Diluted weighted average shares outstanding
    
    
    164,087
    
    
    
    168,370
    
    
    
    171,759
    
    
    
    168,028
  5




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##### Table of Contents



QUICKSILVER RESOURCES INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 In thousands, except for share data  Unaudited
 September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    13,465
    
    
    $
    28,226Accounts receivable  net of allowance for doubtful accounts
    
    
    106,776
    
    
    
    90,244Derivative assets at fair value
    
    
    74,966
    
    
    
    10,797Current deferred income tax asset
    
    
    
    
    
    
    18,946Other current assets
    
    
    59,854
    
    
    
    42,188Total current assets
    
    
    255,061
    
    
    
    190,401Investment in BreitBurn Energy Partners
    
    
    294,872
    
    
    
    420,171Property, plant and equipmentOil and gas properties, full cost method (including unevaluated costs of
$745,684 and $215,228, respectively)
    
    
    3,633,013
    
    
    
    1,764,400Other property and equipment
    
    
    597,279
    
    
    
    377,946Property, plant and equipment  net
    
    
    4,230,292
    
    
    
    2,142,346Derivative assets at fair value
    
    
    55,044
    
    
    
    354Other assets
    
    
    49,071
    
    
    
    22,574$
    4,884,340
    
    
    $
    2,775,846LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt
    
    $
    6,956
    
    
    $
    34Accounts payable
    
    
    226,792
    
    
    
    192,855Income taxes payable
    
    
    187
    
    
    
    46,601Accrued liabilities
    
    
    58,034
    
    
    
    54,981Derivative liabilities at fair value
    
    
    26,741
    
    
    
    64,104Current deferred tax liability
    
    
    14,454
    
    
    
    Total current liabilities
    
    
    333,164
    
    
    
    358,575Long-term debt
    
    
    2,474,687
    
    
    
    813,817Asset retirement obligations
    
    
    28,300
    
    
    
    23,864Derivative liabilities at fair value
    
    
    46
    
    
    
    16,327Other liabilities
    
    
    12,929
    
    
    
    10,609Deferred income taxes
    
    
    426,327
    
    
    
    374,645Deferred gain on sale of partnership interests
    
    
    79,316
    
    
    
    79,316Minority interests in consolidated subsidiaries
    
    
    28,782
    
    
    
    30,338Stockholders equityPreferred stock, par value $0.01, 10,000,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value, 400,000,000 and 200,000,000 shares authorized
respectively; 171,706,359 and 160,633,270 shares issued, respectively
    
    
    1,717
    
    
    
    1,606Paid in capital in excess of par value
    
    
    546,791
    
    
    
    272,515Treasury stock of 2,686,622 and 2,616,726 shares, respectively
    
    
    (15,539
    )
    
    
    (12,304
    )Accumulated other comprehensive income
    
    
    109,451
    
    
    
    40,066Retained earnings
    
    
    858,369
    
    
    
    766,472Total stockholders equity
    
    
    1,500,789
    
    
    
    1,068,355$
    4,884,340
    
    
    $
    2,775,846
  6




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##### Table of Contents



QUICKSILVER RESOURCES INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 In thousands  Unaudited
 For the Nine Months EndedSeptember 30,2008
    
    
    2007Operating activities:Net income
    
    $
    91,897
    
    
    $
    83,301Adjustments to reconcile net income to net cash provided
by operating activities:Depletion, depreciation and accretion
    
    
    125,756
    
    
    
    84,614Deferred income taxes
    
    
    45,036
    
    
    
    37,912Stock-based compensation
    
    
    11,810
    
    
    
    9,415Amortization of deferred charges
    
    
    1,669
    
    
    
    1,659Amortization of deferred loan costs
    
    
    2,531
    
    
    
    1,458Minority interest expense
    
    
    2,621
    
    
    
    648Non-cash loss (gain) from hedging and derivative activities
    
    
    (2,065
    )
    
    
    (2,959
    )Non-cash loss (income) from equity affiliates
    
    
    93,864
    
    
    
    (682
    )Other
    
    
    276
    
    
    
    616Changes in assets and liabilitiesAccounts receivable
    
    
    (16,532
    )
    
    
    6,754Other assets
    
    
    (4,819
    )
    
    
    1,545Accounts payable
    
    
    (9,619
    )
    
    
    511Income taxes payable
    
    
    (46,414
    )
    
    
    157Accrued and other liabilities
    
    
    (21,891
    )
    
    
    36,750Net cash provided by operating activities
    
    
    274,120
    
    
    
    261,699Investing activities:Purchases of property, plant and equipment
    
    
    (985,124
    )
    
    
    (720,208
    )Alliance Acquisition
    
    
    (990,649
    )
    
    
    Return of investment from BBEP and equity affiliates
    
    
    31,435
    
    
    
    162Proceeds from sales of properties and equipment
    
    
    818
    
    
    
    166Net cash used for investing activities
    
    
    (1,943,520
    )
    
    
    (719,880
    )Financing activities:Issuance of senior notes
    
    
    468,611
    
    
    
    Issuance of term loans
    
    
    686,000
    
    
    
    Repayment of notes and loans
    
    
    (1,784
    )
    
    
    Credit facility borrowings  net
    
    
    537,304
    
    
    
    357,673Debt issuance costs
    
    
    (24,545
    )
    
    
    (4,513
    )Minority interest contributions
    
    
    
    
    
    
    109,809Minority interest distributions
    
    
    (6,343
    )
    
    
    (7,694
    )Proceeds from exercise of stock options
    
    
    1,240
    
    
    
    15,570Purchase of treasury stock
    
    
    (3,235
    )
    
    
    (1,525
    )Net cash provided by financing activities
    
    
    1,657,248
    
    
    
    469,320Effect of exchange rate changes in cash
    
    
    (2,609
    )
    
    
    3,170Net (decrease) increase in cash
    
    
    (14,761
    )
    
    
    14,309Cash and cash equivalents at beginning of period
    
    
    28,226
    
    
    
    5,281Cash and cash equivalents at end of period
    
    $
    13,465
    
    
    $
    19,590
  7




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##### Table of Contents



QUICKSILVER RESOURCES INC.
 
 NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
 UNAUDITED
 1. ACCOUNTING POLICIES AND DISCLOSURES
     Stock Split
  Earnings per Common Share
   8




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per
    
    
    (In thousands, except pershare data)
    
    
    share data)Net income (loss)
    
    $
    (2,675
    )
    
    $
    28,719
    
    
    $
    91,897
    
    
    $
    83,301Impact of assumed conversions  interest on 1.875%
convertible debentures, net of income taxes
    
    
    
    
    
    
    475
    
    
    
    1,425
    
    
    
    1,425Income (loss) available to stockholders assuming
conversion of convertible debentures
    
    $
    (2,675
    )
    
    $
    29,194
    
    
    $
    93,322
    
    
    $
    84,726Weighted average common shares  basic
    
    
    164,087
    
    
    
    155,750
    
    
    
    159,914
    
    
    
    155,114Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    1,314
    
    
    
    677
    
    
    
    1,526Employee stock and stock unit awards
    
    
    
    
    
    
    1,490
    
    
    
    1,352
    
    
    
    1,572Contingently convertible debentures
    
    
    
    
    
    
    9,816
    
    
    
    9,816
    
    
    
    9,816Weighted average common shares  diluted
    
    
    164,087
    
    
    
    168,370
    
    
    
    171,759
    
    
    
    168,028Earnings (loss) per common share  basic
    
    $
    (0.02
    )
    
    $
    0.18
    
    
    $
    0.57
    
    
    $
    0.54Earnings (loss) per common share  diluted
    
    $
    (0.02
    )
    
    $
    0.17
    
    
    $
    0.54
    
    
    $
    0.50
 Recently Issued Accounting Standards
 
    
    Pronouncements Implemented
 Fair Value Measurements,
    The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115
 Amendment of FASB
Interpretation No. 39
 9




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Accounting for Derivative Instruments and Hedging Activities
 
    
    Pronouncements Not Yet Implemented
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated Financial Statements  an amendment of
ARB No. 51
 Disclosures about Derivative Instruments and Hedging Activities,
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.
  2. ALLIANCE ACQUISITION
  10




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##### Table of Contents



(In thousands)Purchase Price:Cash paid
    
    $
    1,000,000Cash received from post-closing settlement
    
    
    (10,851
    )Cash paid for acquisition-related expenses
    
    
    1,500Total cash
    
    
    990,649Issuance of 10,400,468 common shares
    
    
    262,092$
    1,252,741
  (In thousands)Allocation of Purchase Price:Oil and gas properties  proved
    
    $
    787,918Oil and gas properties  unproved
    
    
    436,066Midstream assets
    
    
    30,024Liabilities assumed
    
    
    (496
    )Asset retirement obligations
    
    
    (771
    )$
    1,252,741
  Pro Forma Information
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share data)Revenues
    
    $
    249,956
    
    
    $
    178,267
    
    
    $
    667,762
    
    
    $
    461,617Net income
    
    $
    968
    
    
    $
    15,513
    
    
    $
    88,727
    
    
    $
    43,487Earnings per share  basic
    
    $
    0.01
    
    
    $
    0.09
    
    
    $
    0.53
    
    
    $
    0.26Earnings per share  diluted
    
    $
    0.01
    
    
    $
    0.09
    
    
    $
    0.50
    
    
    $
    0.25
 11




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3. DERIVATIVES AND FAIR VALUE MEASUREMENTS
  Fair Value Measurements as of September 30, 2008Balance SheetLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Other(1)
    
    
    Total(in thousands)Derivative assets
    
    $
    
    
    
    $
    133,588
    
    
    $
    
    
    
    $
    (3,578
    )
    
    $
    130,010Derivative liabilities
    
    $
    
    
    
    $
    30,365
    
    
    $
    
    
    
    $
    (3,578
    )
    
    $
    26,787
 
 (1)
    
    Represents amounts netted under master netting arrangements.    12




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##### Table of Contents



September 30,
    
    
    December 31,2008
    
    
    2007(in thousands)Derivative assets:Natural gas basis swaps
    
    $
    1,089
    
    
    $
    Natural gas fixed-price swaps
    
    
    7,790
    
    
    
    4,666Natural gas price collars
    
    
    124,709
    
    
    
    10,491$
    133,588
    
    
    $
    15,157Derivative liabilities:Natural gas basis swaps
    
    $
    537
    
    
    $
    1,224Natural gas price collars
    
    
    102
    
    
    
    1,625Natural gas fixed-price swaps (1)
    
    
    1,493
    
    
    
    Crude oil price collars
    
    
    2,954
    
    
    
    6,517NGL fixed-price swaps
    
    
    793
    
    
    
    11,294Fixed-price natural gas sales contracts (2)
    
    
    24,486
    
    
    
    63,777$
    30,365
    
    
    $
    84,437
 
 (1)
    
    Includes $1.5 million and $  million for two fixed-priced swaps related to
the Michigan Sales Contract at September 30, 2008 and December 31, 2007, respectively.(2)
    
    Includes $24.5 million and $63.5 million for the Michigan Sales Contract at
September 30, 2008 and December 31, 2007, respectively.  4. INVESTMENT IN BREITBURN ENERGY PARTNERS L.P.
    13




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As ofJune 30, 2008(In thousands)Current assets
    
    $
    115,294Property, plant and equipment
    
    
    1,880,340Other assets
    
    
    14,825Current liabilities
    
    
    275,976Long-term debt
    
    
    694,000Other non-current liabilities
    
    
    357,073Partners equity
    
    
    699,421For the Eight MonthsEndedJune 30, 2008(In thousands)Revenues
    
    $
    (118,175
    )Operating expenses
    
    
    181,747Operating income
    
    
    (299,922
    )Interest and other
    
    
    16,274Income tax benefit
    
    
    (2,006
    )Minority interests
    
    
    155Net loss
    
    $
    (314,345
    )Net loss available to
common unitholders
    
    $
    (312,794
    )
   5. PROPERTY, PLANT AND EQUIPMENT
  September 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Oil and gas propertiesSubject to depletion
    
    $
    3,247,501
    
    
    $
    1,811,295Unevaluated costs
    
    
    745,684
    
    
    
    215,228Accumulated depletion
    
    
    (360,172
    )
    
    
    (262,123
    )Net oil and gas properties
    
    
    3,633,013
    
    
    
    1,764,400Other plant and equipmentPipelines and processing facilities
    
    
    525,980
    
    
    
    347,187General properties
    
    
    46,649
    
    
    
    32,966Construction in progress
    
    
    76,639
    
    
    
    32,682Accumulated depreciation
    
    
    (51,989
    )
    
    
    (34,889
    )Net other property and equipment
    
    
    597,279
    
    
    
    377,946Property, plant and equipment, net of accumulated depletion and depreciation
    
    $
    4,230,292
    
    
    $
    2,142,346
 14




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##### Table of Contents



6. LONG-TERM DEBT
  September 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Senior secured credit facility
    
    $
    725,716
    
    
    $
    310,710Second-lien term loan facility, net of unamortized discount
    
    
    684,599
    
    
    
    Senior notes due 2015, net of unamortized discount
    
    
    468,837
    
    
    
    Senior subordinated notes due 2016
    
    
    350,000
    
    
    
    350,000Convertible debentures, net of unamortized discount
    
    
    148,191
    
    
    
    148,107KGS credit agreement
    
    
    104,300
    
    
    
    5,000Other loans
    
    
    
    
    
    
    34Total debt
    
    
    2,481,643
    
    
    
    813,851Less current maturities
    
    
    (6,956
    )
    
    
    (34
    )Long-term debt
    
    $
    2,474,687
    
    
    $
    813,817
     15




---



##### Table of Contents



Long-Term Debt,
 7. ASSET RETIREMENT OBLIGATIONS
  (In thousands)Beginning asset retirement obligations
    
    $
    24,510Incremental liability incurred
    
    
    4,314Accretion expense
    
    
    1,096Change in estimates
    
    
    361Asset retirement costs incurred
    
    
    (292
    )Currency translation adjustment
    
    
    (1,043
    )Ending asset retirement obligations
    
    
    28,946Less current portion
    
    
    (646
    )Long-term asset retirement obligations
    
    $
    28,300
 8. INCOME TAXES
  (In thousands)Unrecognized tax benefits at January 1, 2008
    
    $
    9,997Gross increases in unrecognized tax benefits as a
result of tax positions taken during a prior period
    
    
    834Gross decreases in unrecognized tax benefits as a
result of tax positions taken during a prior period
    
    
    (1,301
    )Reductions resulting from the lapse of applicable
statutes of limitation
    
    
    (275
    )Unrecognized tax benefits at September 30, 2008
    
    $
    9,255
     16




---



##### Table of Contents



9. COMMITMENTS AND CONTINGENCIES
 Commitments and Contingencies
 Contingencies
   Commitments
   10. STOCK-BASED COMPENSATION
 Stockholders Equity
 Quicksilver Stock Options
   StockOptionsIssuedWtd avg grant date fair value
    
    $13.67Wtd avg grant date
    
    Jan 2, 2008Wtd avg risk-free interest rate
    
    3.41%Expected life (in years)
    
    6.0Wtd avg volatility
    
    40.2%Expected dividends
    
    
 17




---



##### Table of Contents



Wtd Avg
    
    
    Wtd Avg
    
    
    AggregateExercise
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Price
    
    
    Contractual Life
    
    
    Value(In years)
    
    
    (In thousands)Outstanding at December 31, 2007
    
    
    1,021,912
    
    
    $
    7.48Granted
    
    
    373,382
    
    
    
    30.95Exercised
    
    
    (249,444
    )
    
    
    4.98Cancelled
    
    
    (42,226
    )
    
    
    28.20Outstanding at September 30, 2008
    
    
    1,103,624
    
    
    $
    14.20
    
    
    
    4.0
    
    
    $
    9,822Exercisable at September 30, 2008
    
    
    572,988
    
    
    $
    7.29
    
    
    
    1.8
    
    
    $
    7,084Vested or expected to vest at September, 30, 2008
    
    
    1,088,091
    
    
    $
    14.32
  Quicksilver Restricted Stock and Restricted Stock Units
   Wtd AvgGrant DateShares
    
    Fair ValueOutstanding at December 31, 2007
    
    
    1,340,122
    
    
    $
    18.76Granted
    
    
    588,712
    
    
    
    31.59Vested
    
    
    (480,602
    )
    
    
    31.19Cancelled
    
    
    (144,347
    )
    
    
    22.72Outstanding at September 30, 2008
    
    
    1,303,885
    
    
    $
    24.22
  18




---



##### Table of Contents



KGS Restricted Phantom Units
  Payable in cash
    
    Payable in unitsWtd Avg
    
    
    
    
    
    Wtd AvgGrant Date
    
    
    
    
    
    Grant DateUnits
    
    Fair Value
    
    Units
    
    Fair ValueOutstanding at December 31, 2007
    
    
    84,961
    
    
    $
    21.36
    
    
    
    9,833
    
    
    $
    21.36Granted
    
    
    6,605
    
    
    
    24.12
    
    
    
    137,148
    
    
    
    25.25Vested
    
    
    (27,330
    )
    
    
    21.36
    
    
    
    (6,089
    )
    
    
    21.36Cancelled
    
    
    (3,000
    )
    
    
    21.36
    
    
    
    (974
    )
    
    
    25.25Outstanding at September 30, 2008
    
    
    61,236
    
    
    $
    21.66
    
    
    
    139,918
    
    
    $
    25.15
  11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
   Condensed Consolidating Balance Sheets
 September 30, 2008QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)ASSETSCurrent assets
    
    $
    312,186
    
    
    $
    
    
    
    $
    336,875
    
    
    $
    (394,000
    )
    
    $
    255,061Property and equipment
    
    
    3,177,418
    
    
    
    10,977
    
    
    
    1,041,897
    
    
    
    
    
    
    
    4,230,292Investment in subsidiaries (equity method)
    
    
    741,170
    
    
    
    166,853
    
    
    
    
    
    
    
    (613,151
    )
    
    
    294,872Other assets
    
    
    152,040
    
    
    
    151,864
    
    
    
    5,080
    
    
    
    (204,869
    )
    
    
    104,115Total assets
    
    $
    4,382,814
    
    
    $
    329,694
    
    
    $
    1,383,852
    
    
    $
    (1,212,020
    )
    
    $
    4,884,340LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities
    
    $
    413,613
    
    
    $
    152,390
    
    
    $
    161,161
    
    
    $
    (394,000
    )
    
    $
    333,164Long-term liabilities
    
    
    2,468,412
    
    
    
    
    
    
    
    678,746
    
    
    
    (204,869
    )
    
    
    2,942,289Deferred gain
    
    
    
    
    
    
    
    
    
    
    79,316
    
    
    
    
    
    
    
    79,316Minority interest
    
    
    
    
    
    
    
    
    
    
    28,782
    
    
    
    
    
    
    
    28,782Stockholders equity
    
    
    1,500,789
    
    
    
    177,304
    
    
    
    435,847
    
    
    
    (613,151
    )
    
    
    1,500,789Total liabilities and stockholders equity
    
    $
    4,382,814
    
    
    $
    329,694
    
    
    $
    1,383,852
    
    
    $
    (1,212,020
    )
    
    $
    4,884,340
 19




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##### Table of Contents



December 31, 2007QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)ASSETSCurrent assets
    
    $
    213,288
    
    
    $
    596
    
    
    $
    243,086
    
    
    $
    (266,569
    )
    
    $
    190,401Property and equipment
    
    
    1,294,573
    
    
    
    1,858
    
    
    
    845,915
    
    
    
    
    
    
    
    2,142,346Investment in subsidiaries (equity method)
    
    
    819,119
    
    
    
    160,825
    
    
    
    
    
    
    
    (559,773
    )
    
    
    420,171Other assets
    
    
    72,426
    
    
    
    82,251
    
    
    
    2,171
    
    
    
    (133,920
    )
    
    
    22,928Total assets
    
    $
    2,399,406
    
    
    $
    245,530
    
    
    $
    1,091,172
    
    
    $
    (960,262
    )
    
    $
    2,775,846LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities
    
    $
    470,690
    
    
    $
    77,529
    
    
    $
    76,925
    
    
    $
    (266,569
    )
    
    $
    358,575Long-term liabilities
    
    
    860,361
    
    
    
    
    
    
    
    512,821
    
    
    
    (133,920
    )
    
    
    1,239,262Deferred gain
    
    
    
    
    
    
    
    
    
    
    79,316
    
    
    
    
    
    
    
    79,316Minority interest
    
    
    
    
    
    
    
    
    
    
    30,338
    
    
    
    
    
    
    
    30,338Stockholders equity
    
    
    1,068,355
    
    
    
    168,001
    
    
    
    391,772
    
    
    
    (559,773
    )
    
    
    1,068,355Total liabilities and stockholders equity
    
    $
    2,399,406
    
    
    $
    245,530
    
    
    $
    1,091,172
    
    
    $
    (960,262
    )
    
    $
    2,775,846
 Condensed Consolidating Statements of Income
 For the Three Months Ended September 30, 2008QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Revenues
    
    $
    171,634
    
    
    $
    
    
    
    $
    81,037
    
    
    $
    (16,409
    )
    
    $
    236,262Operating expenses
    
    
    100,636
    
    
    
    376
    
    
    
    31,669
    
    
    
    (16,409
    )
    
    
    116,272Income from equity affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income
    
    
    70,998
    
    
    
    (376
    )
    
    
    49,368
    
    
    
    
    
    
    
    119,990Equity in net earnings of subsidiaries
    
    
    (31,846
    )
    
    
    (5,263
    )
    
    
    
    
    
    
    37,109
    
    
    
    Loss from earnings of BBEP
    
    
    89,814
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,814Interest expense and other
    
    
    30,287
    
    
    
    (1,736
    )
    
    
    9,014
    
    
    
    
    
    
    
    37,565Income tax (benefit) provision
    
    
    (14,582
    )
    
    
    476
    
    
    
    9,392
    
    
    
    
    
    
    
    (4,714
    )Net (loss) income
    
    $
    (2,675
    )
    
    $
    6,147
    
    
    $
    30,962
    
    
    $
    (37,109
    )
    
    $
    (2,675
    )
 For the Three Months Ended September 30, 2007QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Revenues
    
    $
    104,237
    
    
    $
    
    
    
    $
    63,307
    
    
    $
    (8,345
    )
    
    $
    159,199Operating expenses
    
    
    73,375
    
    
    
    (784
    )
    
    
    31,664
    
    
    
    (8,345
    )
    
    
    95,910Income from equity affiliates
    
    
    (4
    )
    
    
    
    
    
    
    289
    
    
    
    
    
    
    
    285Operating income
    
    
    30,858
    
    
    
    784
    
    
    
    31,932
    
    
    
    
    
    
    
    63,574Equity in net earnings of subsidiaries
    
    
    (18,852
    )
    
    
    (552
    )
    
    
    
    
    
    
    19,404
    
    
    
    Interest expense and other
    
    
    15,109
    
    
    
    (999
    )
    
    
    6,652
    
    
    
    
    
    
    
    20,762Income tax provision
    
    
    5,882
    
    
    
    624
    
    
    
    7,587
    
    
    
    
    
    
    
    14,093Net income
    
    $
    28,719
    
    
    $
    1,711
    
    
    $
    17,693
    
    
    $
    (19,404
    )
    
    $
    28,719
 20




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##### Table of Contents



For the Nine Months Ended September 30, 2008QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Revenues
    
    $
    437,512
    
    
    $
    
    
    
    $
    197,813
    
    
    $
    (43,545
    )
    
    $
    591,780Operating expenses
    
    
    240,274
    
    
    
    1,389
    
    
    
    95,846
    
    
    
    (43,545
    )
    
    
    293,964Income from equity affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income
    
    
    197,238
    
    
    
    (1,389
    )
    
    
    101,967
    
    
    
    
    
    
    
    297,816Equity in net earnings of subsidiaries
    
    
    (63,759
    )
    
    
    (12,258
    )
    
    
    
    
    
    
    76,017
    
    
    
    Loss from earnings of BBEP
    
    
    93,864
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93,864Interest expense and other
    
    
    45,705
    
    
    
    (4,663
    )
    
    
    23,259
    
    
    
    
    
    
    
    64,301Income tax provision
    
    
    29,531
    
    
    
    1,146
    
    
    
    17,077
    
    
    
    
    
    
    
    47,754Net income
    
    $
    91,897
    
    
    $
    14,386
    
    
    $
    61,631
    
    
    $
    (76,017
    )
    
    $
    91,897
 For the Nine Months Ended September 30, 2008QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Revenues
    
    $
    264,053
    
    
    $
    
    
    
    $
    167,355
    
    
    $
    (19,231
    )
    
    $
    412,177Operating expenses
    
    
    174,523
    
    
    
    355
    
    
    
    83,103
    
    
    
    (19,231
    )
    
    
    238,750Income from equity affiliates
    
    
    18
    
    
    
    
    
    
    
    664
    
    
    
    
    
    
    
    682Operating income
    
    
    89,548
    
    
    
    (355
    )
    
    
    84,916
    
    
    
    
    
    
    
    174,109Equity in net earnings of subsidiaries
    
    
    (53,025
    )
    
    
    (4,627
    )
    
    
    
    
    
    
    57,652
    
    
    
    Interest expense and other
    
    
    39,935
    
    
    
    (1,020
    )
    
    
    13,735
    
    
    
    
    
    
    
    52,650Income tax provision
    
    
    19,337
    
    
    
    233
    
    
    
    18,588
    
    
    
    
    
    
    
    38,158Net income
    
    $
    83,301
    
    
    $
    5,059
    
    
    $
    52,593
    
    
    $
    (57,652
    )
    
    $
    83,301
 Condensed Consolidating Statements of Cash Flows
 For the Nine Months Ended September 30, 2008QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Cash flow provided by operations
    
    $
    53,455
    
    
    $
    9,688
    
    
    $
    210,977
    
    
    $
    
    
    
    $
    274,120Cash flow used for investing activities
    
    
    (1,627,306
    )
    
    
    72,342
    
    
    
    (289,446
    )
    
    
    (99,110
    )
    
    
    (1,943,520
    )Cash flow provided by financing activities
    
    
    1,560,117
    
    
    
    (82,030
    )
    
    
    80,051
    
    
    
    99,110
    
    
    
    1,657,248Effect of exchange rates on cash
    
    
    (155
    )
    
    
    
    
    
    
    (2,454
    )
    
    
    
    
    
    
    (2,609
    )Net increase (decrease) in cash and
equivalents
    
    
    (13,889
    )
    
    
    
    
    
    
    (872
    )
    
    
    
    
    
    
    (14,761
    )Cash and equivalents at beginning of
period
    
    
    27,010
    
    
    
    
    
    
    
    1,216
    
    
    
    
    
    
    
    28,226Cash and equivalents at end of period
    
    $
    13,121
    
    
    $
    
    
    
    $
    344
    
    
    $
    
    
    
    $
    13,465
 21




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##### Table of Contents



For the Nine Months Ended September 30, 2007QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Cash flow provided by operations
    
    $
    116,890
    
    
    $
    (496
    )
    
    $
    145,305
    
    
    $
    
    
    
    $
    261,699Cash flow used for investing activities
    
    
    (562,188
    )
    
    
    29,092
    
    
    
    (191,881
    )
    
    
    5,097
    
    
    
    (719,880
    )Cash flow provided by financing activities
    
    
    446,035
    
    
    
    (28,596
    )
    
    
    56,978
    
    
    
    (5,097
    )
    
    
    469,320Effect of exchange rates on cash
    
    
    588
    
    
    
    
    
    
    
    2,582
    
    
    
    
    
    
    
    3,170Net increase (decrease) in cash and
equivalents
    
    
    1,325
    
    
    
    
    
    
    
    12,984
    
    
    
    
    
    
    
    14,309Cash and equivalents at beginning of
period
    
    
    83
    
    
    
    
    
    
    
    5,198
    
    
    
    
    
    
    
    5,281Cash and equivalents at end of period
    
    $
    1,408
    
    
    $
    
    
    
    $
    18,182
    
    
    $
    
    
    
    $
    19,590
 12. SUPPLEMENTAL CASH FLOW INFORMATION
  Nine Months EndedSeptember 30,2008
    
    2007(In thousands)Interest
    
    $
    58,762
    
    
    $
    56,608Income taxes
    
    
    49,775
    
    
    
    696
  Nine Months EndedSeptember 30,2008
    
    2007(In thousands)Working capital related to acquisition of
property, plant and equipment  net
    
    $
    191,959
    
    
    $
    126,569Issuance of Quicksilver Resources Inc. common
stock as consideration in the Alliance Acquisition
    
    
    262,092
    
    
    
    
 13. RELATED-PARTY TRANSACTIONS
     22




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##### Table of Contents



14. SEGMENT INFORMATION
  Exploration & Production
    
    Processing &
    
    
    
    
    
    
    
    
    
    QuicksilverUnited States
    
    Canada
    
    Gathering
    
    Corporate
    
    Elimination
    
    Consolidated(in thousands)For the
Three Months Ended
September 30, 2008Revenues
    
    $
    171,422
    
    
    $
    61,484
    
    
    $
    19,304
    
    
    $
    
    
    
    $
    (15,948
    )
    
    $
    236,262Depletion, depreciation and accretion
    
    
    36,178
    
    
    
    11,337
    
    
    
    3,990
    
    
    
    272
    
    
    
    
    
    
    
    51,777Operating income
    
    
    94,649
    
    
    
    40,927
    
    
    
    8,818
    
    
    
    (24,404
    )
    
    
    
    
    
    
    119,990Property and equipment costs incurred
    
    
    1,484,080
    
    
    
    21,208
    
    
    
    97,525
    
    
    
    215
    
    
    
    
    
    
    
    1,603,0282007Revenues
    
    $
    112,180
    
    
    $
    45,068
    
    
    $
    10,282
    
    
    $
    
    
    
    $
    (8,331
    )
    
    $
    159,199Depletion, depreciation and accretion
    
    
    19,528
    
    
    
    10,128
    
    
    
    2,209
    
    
    
    250
    
    
    
    
    
    
    
    32,115Operating income
    
    
    46,618
    
    
    
    25,695
    
    
    
    3,485
    
    
    
    (12,224
    )
    
    
    
    
    
    
    63,574Property and equipment costs incurred
    
    
    216,238
    
    
    
    32,422
    
    
    
    35,174
    
    
    
    906
    
    
    
    
    
    
    
    284,740For the
Nine Months Ended
September 30, 2008Revenues
    
    $
    436,926
    
    
    $
    145,825
    
    
    $
    52,694
    
    
    $
    
    
    
    $
    (43,665
    )
    
    $
    591,780Depletion, depreciation and accretion
    
    
    79,731
    
    
    
    34,353
    
    
    
    10,874
    
    
    
    798
    
    
    
    
    
    
    
    125,756Operating income
    
    
    247,310
    
    
    
    81,862
    
    
    
    21,131
    
    
    
    (52,487
    )
    
    
    
    
    
    
    297,816Property and equipment costs incurred
    
    
    1,938,667
    
    
    
    108,482
    
    
    
    204,330
    
    
    
    769
    
    
    
    
    
    
    
    2,252,2482007Revenues
    
    $
    289,865
    
    
    $
    118,327
    
    
    $
    22,771
    
    
    $
    
    
    
    $
    (18,786
    )
    
    $
    412,177Depletion, depreciation and accretion
    
    
    50,519
    
    
    
    28,011
    
    
    
    5,362
    
    
    
    722
    
    
    
    
    
    
    
    84,614Operating income
    
    
    135,307
    
    
    
    64,800
    
    
    
    6,694
    
    
    
    (32,692
    )
    
    
    
    
    
    
    174,109Property and equipment costs incurred
    
    
    536,833
    
    
    
    62,965
    
    
    
    112,570
    
    
    
    1,877
    
    
    
    
    
    
    
    714,245Property, Plant and Equipment-netSeptember 30, 2008
    
    $
    3,143,511
    
    
    $
    603,498
    
    
    $
    478,984
    
    
    $
    4,299
    
    
    
    
    
    
    $
    4,230,292December 31, 2007
    
    
    1,290,728
    
    
    
    571,496
    
    
    
    275,807
    
    
    
    4,315
    
    
    
    
    
    
    
    2,142,346
 23




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 RESULTS OF OPERATIONS
 Summary Financial Data
Three Months Ended September 30, 2008 Compared with the Three Months Ended September 30, 2007
 Revenues
 Oil, Gas and Related Product Sales
   Natural Gas
    
    
    NGL
    
    
    Oil and Condensate
    
    
    Total2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Texas
    
    $
    117.4
    
    
    $
    29.6
    
    
    $
    61.6
    
    
    $
    30.8
    
    
    $
    9.1
    
    
    $
    1.7
    
    
    $
    188.1
    
    
    $
    62.1Northeast Operations
    
    
    
    
    
    
    30.2
    
    
    
    
    
    
    
    1.6
    
    
    
    
    
    
    
    6.5
    
    
    
    
    
    
    
    38.3Other U.S.
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.4
    
    
    
    (0.8
    )
    
    
    4.7
    
    
    
    2.6
    
    
    
    5.3
    
    
    
    1.9Hedging
    
    
    (15.1
    )
    
    
    6.3
    
    
    
    (4.9
    )
    
    
    (0.1
    )
    
    
    (3.4
    )
    
    
    (0.1
    )
    
    
    (23.4
    )
    
    
    6.1Total U.S.
    
    
    102.5
    
    
    
    66.2
    
    
    
    57.1
    
    
    
    31.5
    
    
    
    10.4
    
    
    
    10.7
    
    
    
    170.0
    
    
    
    108.4Canada
    
    
    51.6
    
    
    
    27.4
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    51.6
    
    
    
    27.5Hedging
    
    
    (3.4
    )
    
    
    15.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.4
    )
    
    
    15.1Total Canada
    
    
    48.2
    
    
    
    42.5
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    48.2
    
    
    
    42.6Total Company
    
    $
    150.7
    
    
    $
    108.7
    
    
    $
    57.1
    
    
    $
    31.6
    
    
    $
    10.4
    
    
    $
    10.7
    
    
    $
    218.2
    
    
    $
    151.0
  Natural Gas
    
    
    NGL
    
    
    Oil and Condensate
    
    
    Equivalent Total2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(MMcfd)
    
    
    (Bbld)
    
    
    (Bbld)
    
    
    (MMcfed)Texas
    
    
    137.1
    
    
    
    53.2
    
    
    
    11,485
    
    
    
    7,766
    
    
    
    865
    
    
    
    262
    
    
    
    211.2
    
    
    
    101.4Northeast Operations
    
    
    
    
    
    
    67.8
    
    
    
    
    
    
    
    408
    
    
    
    
    
    
    
    983
    
    
    
    
    
    
    
    76.2Other U.S.
    
    
    0.2
    
    
    
    0.3
    
    
    
    49
    
    
    
    33
    
    
    
    469
    
    
    
    428
    
    
    
    3.3
    
    
    
    3.1Total U.S.
    
    
    137.3
    
    
    
    121.3
    
    
    
    11,534
    
    
    
    8,207
    
    
    
    1,334
    
    
    
    1,673
    
    
    
    214.5
    
    
    
    180.7Canada
    
    
    62.5
    
    
    
    56.9
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    62.5
    
    
    
    57.0Total Company
    
    
    199.8
    
    
    
    178.2
    
    
    
    11,534
    
    
    
    8,227
    
    
    
    1,334
    
    
    
    1,673
    
    
    
    277.0
    
    
    
    237.7
  Natural Gas
    
    NGL
    
    Oil and Condensate
    
    Equivalent Total2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007(per Mcf)
    
    (per Bbl)
    
    (per Bbl)
    
    (per Mcfe)Texas
    
    $
    9.31
    
    
    $
    6.05
    
    
    $
    58.30
    
    
    $
    43.06
    
    
    $
    114.11
    
    
    $
    70.89
    
    
    $
    9.68
    
    
    $
    6.66Northeast Operations
    
    
    
    
    
    
    4.85
    
    
    
    
    
    
    
    43.83
    
    
    
    
    
    
    
    72.23
    
    
    
    
    
    
    
    5.48Other U.S.
    
    
    3.77
    
    
    
    3.78
    
    
    
    88.26
    
    
    
    57.04
    
    
    
    107.59
    
    
    
    65.51
    
    
    
    16.69
    
    
    
    10.05Hedging  U.S.
    
    
    (1.19
    )
    
    
    0.61
    
    
    
    (4.61
    )
    
    
    (1.36
    )
    
    
    (27.01
    )
    
    
    
    
    
    
    (1.18
    )
    
    
    0.34Total U.S.
    
    
    8.11
    
    
    
    5.93
    
    
    
    53.82
    
    
    
    41.79
    
    
    
    84.80
    
    
    
    69.67
    
    
    
    8.61
    
    
    
    6.53Canada
    
    
    8.97
    
    
    
    5.23
    
    
    
    
    
    
    
    52.17
    
    
    
    
    
    
    
    
    
    
    
    8.97
    
    
    
    5.23Hedging  Canada
    
    
    (0.58
    )
    
    
    2.88
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.58
    )
    
    
    2.88Total Canada
    
    
    8.39
    
    
    
    8.11
    
    
    
    
    
    
    
    52.17
    
    
    
    
    
    
    
    
    
    
    
    8.39
    
    
    
    8.12Total Company
    
    $
    8.20
    
    
    $
    6.63
    
    
    $
    53.82
    
    
    $
    41.82
    
    
    $
    84.80
    
    
    $
    69.67
    
    
    $
    8.56
    
    
    $
    6.91
 24




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##### Table of Contents



NaturalGas
    
    
    NGL
    
    
    Oil
    
    
    Total(In thousands)Revenue for the quarter ended September 30, 2007
    
    $
    108,670
    
    
    $
    31,655
    
    
    $
    10,721
    
    
    $
    151,046Volume changes
    
    
    13,150
    
    
    
    12,719
    
    
    
    (2,171
    )
    
    
    23,698Price changes
    
    
    28,878
    
    
    
    12,734
    
    
    
    1,858
    
    
    
    43,470Revenue for the quarter ended September 30, 2008
    
    $
    150,698
    
    
    $
    57,108
    
    
    $
    10,408
    
    
    $
    218,214
     Other Revenue
  25




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##### Table of Contents



Operating Expenses
 Oil and Gas Production Expense
 Three Months Ended September 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeTexasCash expense
    
    $
    22,043
    
    
    $
    1.13
    
    
    $
    15,225
    
    
    $
    1.64Equity compensation
    
    
    301
    
    
    
    0.02
    
    
    
    118
    
    
    
    0.01$
    22,344
    
    
    $
    1.15
    
    
    $
    15,343
    
    
    $
    1.65Northeast OperationsCash expense
    
    $
    
    
    
    $
    
    
    
    $
    19,186
    
    
    $
    2.74Equity compensation
    
    
    
    
    
    
    
    
    
    
    307
    
    
    
    0.04$
    
    
    
    $
    
    
    
    $
    19,493
    
    
    $
    2.78Other U.S.Cash expense
    
    $
    1,639
    
    
    $
    5.01
    
    
    $
    773
    
    
    $
    2.70Equity compensation
    
    
    42
    
    
    
    0.14
    
    
    
    39
    
    
    
    0.14$
    1,681
    
    
    $
    5.15
    
    
    $
    812
    
    
    $
    2.84Total U.S.Cash expense
    
    $
    23,682
    
    
    $
    1.20
    
    
    $
    35,184
    
    
    $
    2.12Equity compensation
    
    
    343
    
    
    
    0.02
    
    
    
    464
    
    
    
    0.03$
    24,025
    
    
    $
    1.22
    
    
    $
    35,648
    
    
    $
    2.15CanadaCash expense
    
    $
    8,837
    
    
    $
    1.54
    
    
    $
    8,082
    
    
    $
    1.54Equity compensation
    
    
    605
    
    
    
    0.10
    
    
    
    516
    
    
    
    0.10$
    9,442
    
    
    $
    1.64
    
    
    $
    8,598
    
    
    $
    1.64Total CompanyCash expense
    
    $
    32,519
    
    
    $
    1.27
    
    
    $
    43,266
    
    
    $
    1.98Equity compensation
    
    
    948
    
    
    
    0.04
    
    
    
    980
    
    
    
    0.04$
    33,467
    
    
    $
    1.31
    
    
    $
    44,246
    
    
    $
    2.02
    26




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##### Table of Contents



Production and Ad Valorem Taxes
 Three Months Ended September 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeProduction and ad valorem taxesU.S.
    
    $
    4,670
    
    
    $
    0.24
    
    
    $
    3,720
    
    
    $
    0.22Canada
    
    
    (222
    )
    
    
    (0.04
    )
    
    
    646
    
    
    $
    0.12Total production and ad valorem taxes
    
    $
    4,448
    
    
    $
    0.17
    
    
    $
    4,366
    
    
    $
    0.20
  Depletion, Depreciation and Accretion
 Three Months Ended September 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeDepletionU.S.
    
    $
    34,348
    
    
    $
    1.74
    
    
    $
    17,705
    
    
    $
    1.07Canada
    
    
    10,120
    
    
    
    1.76
    
    
    
    8,827
    
    
    
    1.68Total depletion
    
    
    44,468
    
    
    
    1.74
    
    
    
    26,532
    
    
    
    1.21Depreciation of other fixed assets:U.S.
    
    $
    5,928
    
    
    $
    0.30
    
    
    $
    4,039
    
    
    $
    0.24Canada
    
    
    1,006
    
    
    
    0.17
    
    
    
    1,121
    
    
    
    0.21Total depreciation
    
    
    6,934
    
    
    
    0.27
    
    
    
    5,160
    
    
    
    0.24Accretion
    
    
    375
    
    
    
    0.02
    
    
    
    423
    
    
    
    0.02Total depletion, depreciation and accretion
    
    $
    51,777
    
    
    $
    2.03
    
    
    $
    32,115
    
    
    $
    1.47
  27




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##### Table of Contents



General and Administrative Expense
 Three Months Ended September 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeGeneral and administrative expenseCash expense
    
    $
    12,674
    
    
    $
    0.49
    
    
    $
    12,133
    
    
    $
    0.56Litigation resolution
    
    
    9,633
    
    
    
    0.38
    
    
    
    
    
    
    
    Equity compensation
    
    
    3,298
    
    
    
    0.13
    
    
    
    2,195
    
    
    
    0.10Total general and administrative expense
    
    $
    25,605
    
    
    $
    1.00
    
    
    $
    14,328
    
    
    $
    0.66
  Interest Expense
 Three Months Ended June 30,September 30,2008
    
    
    2007(in thousands)Interest costs
    
    $
    37,101
    
    
    $
    20,831Less: Interest capitalized
    
    
    (2,774
    )
    
    
    (141
    )Interest expense
    
    $
    34,327
    
    
    $
    20,690
  Income Tax Expense
 Three Months Ended June 30,September 30,2008
    
    2007Income tax (in thousands)
    
    $
    (4,714
    )
    
    $
    14,093Effective tax rate
    
    
    75.3
    %
    
    
    32.6
    %
  28




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##### Table of Contents



Summary Financial Data
Nine Months Ended September 30, 2008 Compared with the Nine Months Ended September 30, 2007
 Revenues
 Oil, Gas and Related Product Sales
   Natural Gas
    
    
    NGL
    
    
    Oil and Condensate
    
    
    Total2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Texas
    
    $
    272.8
    
    
    $
    77.6
    
    
    $
    171.5
    
    
    $
    60.6
    
    
    $
    25.8
    
    
    $
    4.5
    
    
    $
    470.1
    
    
    $
    142.7Northeast Operations
    
    
    
    
    
    
    93.5
    
    
    
    
    
    
    
    3.9
    
    
    
    
    
    
    
    16.4
    
    
    
    
    
    
    
    113.8Other U.S.
    
    
    0.4
    
    
    
    0.2
    
    
    
    1.0
    
    
    
    (0.4
    )
    
    
    13.2
    
    
    
    7.0
    
    
    
    14.6
    
    
    
    6.8Hedging
    
    
    (28.5
    )
    
    
    22.8
    
    
    
    (13.4
    )
    
    
    (0.2
    )
    
    
    (8.6
    )
    
    
    (0.2
    )
    
    
    (50.5
    )
    
    
    22.4Total U.S.
    
    
    244.7
    
    
    
    194.1
    
    
    
    159.1
    
    
    
    63.9
    
    
    
    30.4
    
    
    
    27.7
    
    
    
    434.2
    
    
    
    285.7Canada
    
    
    151.1
    
    
    
    92.8
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    151.1
    
    
    
    93.0Hedging
    
    
    (10.6
    )
    
    
    19.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10.6
    )
    
    
    19.6Total Canada
    
    
    140.5
    
    
    
    112.4
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    140.5
    
    
    
    112.6Total Company
    
    $
    385.2
    
    
    $
    306.5
    
    
    $
    159.1
    
    
    $
    64.1
    
    
    $
    30.4
    
    
    $
    27.7
    
    
    $
    574.7
    
    
    $
    398.3
  Natural Gas
    
    
    NGL
    
    
    Oil and Condensate
    
    
    Equivalent Total2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(MMcfd)
    
    
    (Bbld)
    
    
    (Bbld)
    
    
    (MMcfed)Texas
    
    
    104.6
    
    
    
    42.4
    
    
    
    10,976
    
    
    
    5,447
    
    
    
    864
    
    
    
    262
    
    
    
    175.6
    
    
    
    76.7Northeast Operations
    
    
    
    
    
    
    67.5
    
    
    
    
    
    
    
    391
    
    
    
    
    
    
    
    972
    
    
    
    
    
    
    
    75.6Other U.S.
    
    
    0.3
    
    
    
    0.3
    
    
    
    42
    
    
    
    31
    
    
    
    462
    
    
    
    458
    
    
    
    3.4
    
    
    
    3.2Total U.S.
    
    
    104.9
    
    
    
    110.2
    
    
    
    11,018
    
    
    
    5,869
    
    
    
    1,326
    
    
    
    1,692
    
    
    
    179.0
    
    
    
    155.5Canada
    
    
    62.5
    
    
    
    55.6
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    62.5
    
    
    
    55.7Total Company
    
    
    167.4
    
    
    
    165.8
    
    
    
    11,018
    
    
    
    5,880
    
    
    
    1,326
    
    
    
    1,692
    
    
    
    241.5
    
    
    
    211.2
  Natural Gas
    
    NGL
    
    Oil and Condensate
    
    Equivalent Total2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007(per Mcf)
    
    (per Bbl)
    
    (per Bbl)
    
    (per Mcfe)Texas
    
    $
    9.52
    
    
    $
    6.70
    
    
    $
    57.03
    
    
    $
    40.74
    
    
    $
    109.30
    
    
    $
    62.37
    
    
    $
    9.77
    
    
    $
    6.81Northeast Operations
    
    
    
    
    
    
    5.08
    
    
    
    
    
    
    
    36.37
    
    
    
    
    
    
    
    61.83
    
    
    
    
    
    
    
    5.51Other U.S.
    
    
    4.45
    
    
    
    5.03
    
    
    
    86.32
    
    
    
    47.68
    
    
    
    103.65
    
    
    
    55.75
    
    
    
    16.11
    
    
    
    8.82Hedging  U.S.
    
    
    (0.99
    )
    
    
    0.79
    
    
    
    (4.46
    )
    
    
    
    
    
    
    (23.62
    )
    
    
    
    
    
    
    (1.03
    )
    
    
    0.56Total U.S.
    
    
    8.51
    
    
    
    6.45
    
    
    
    52.69
    
    
    
    39.84
    
    
    
    83.70
    
    
    
    60.06
    
    
    
    8.85
    
    
    
    6.73Canada
    
    
    8.83
    
    
    
    6.12
    
    
    
    
    
    
    
    61.08
    
    
    
    
    
    
    
    
    
    
    
    8.83
    
    
    
    6.12Hedging  Canada
    
    
    (0.62
    )
    
    
    1.29
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.62
    )
    
    
    1.29Total Canada
    
    
    8.21
    
    
    
    7.41
    
    
    
    
    
    
    
    61.08
    
    
    
    
    
    
    
    
    
    
    
    8.21
    
    
    
    7.41Total Company
    
    $
    8.40
    
    
    $
    6.77
    
    
    $
    52.69
    
    
    $
    39.88
    
    
    $
    83.70
    
    
    $
    60.06
    
    
    $
    8.69
    
    
    $
    6.91
 29




---



##### Table of Contents



NaturalGas
    
    
    NGL
    
    
    Oil
    
    
    Total(In thousands)Revenue for the nine months ended September 30, 2007
    
    $
    306,539
    
    
    $
    64,023
    
    
    $
    27,735
    
    
    $
    398,297Volume changes
    
    
    4,109
    
    
    
    56,383
    
    
    
    (5,915
    )
    
    
    54,577Price changes
    
    
    74,596
    
    
    
    38,655
    
    
    
    8,592
    
    
    
    121,843Revenue for the nine months ended September 30, 2008
    
    $
    385,244
    
    
    $
    159,061
    
    
    $
    30,412
    
    
    $
    574,717
     Other Revenue
  30




---



##### Table of Contents



Operating Expenses
 Oil and Gas Production Expense
 Nine Months Ended September 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeTexasCash expense
    
    $
    66,243
    
    
    $
    1.38
    
    
    $
    33,918
    
    
    $
    1.62Equity compensation
    
    
    925
    
    
    
    0.02
    
    
    
    353
    
    
    
    0.02$
    67,168
    
    
    $
    1.40
    
    
    $
    34,271
    
    
    $
    1.64Northeast OperationsCash expense
    
    $
    
    
    
    $
    
    
    
    $
    43,912
    
    
    $
    2.12Equity compensation
    
    
    
    
    
    
    
    
    
    
    980
    
    
    
    0.05$
    
    
    
    $
    
    
    
    $
    44,892
    
    
    $
    2.17Other U.S.Cash expense
    
    $
    4,273
    
    
    $
    4.31
    
    
    $
    2,412
    
    
    $
    2.73Equity compensation
    
    
    133
    
    
    
    0.15
    
    
    
    136
    
    
    
    0.15$
    4,406
    
    
    $
    4.46
    
    
    $
    2,548
    
    
    $
    2.88Total U.S.Cash expense
    
    $
    70,516
    
    
    $
    1.44
    
    
    $
    80,242
    
    
    $
    1.89Equity compensation
    
    
    1,058
    
    
    
    0.02
    
    
    
    1,469
    
    
    
    0.03$
    71,574
    
    
    $
    1.46
    
    
    $
    81,711
    
    
    $
    1.92CanadaCash expense
    
    $
    26,440
    
    
    $
    1.54
    
    
    $
    21,580
    
    
    $
    1.42Equity compensation
    
    
    1,543
    
    
    
    0.09
    
    
    
    1,513
    
    
    
    0.10$
    27,983
    
    
    $
    1.63
    
    
    $
    23,093
    
    
    $
    1.52Total CompanyCash expense
    
    $
    96,956
    
    
    $
    1.46
    
    
    $
    101,822
    
    
    $
    1.77Equity compensation
    
    
    2,601
    
    
    
    0.04
    
    
    
    2,982
    
    
    
    0.05$
    99,557
    
    
    $
    1.50
    
    
    $
    104,804
    
    
    $
    1.82
    31




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##### Table of Contents



Production and Ad Valorem Taxes
 Nine Months Ended September 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeProduction and ad valorem taxesU.S.
    
    $
    7,688
    
    
    $
    0.16
    
    
    $
    10,645
    
    
    $
    0.25Canada
    
    
    1,627
    
    
    
    0.10
    
    
    
    2,423
    
    
    
    0.16Total production and ad valorem taxes
    
    $
    9,315
    
    
    $
    0.14
    
    
    $
    13,068
    
    
    $
    0.23
  Depletion, Depreciation and Accretion
 Nine Months Ended September 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeDepletionU.S.
    
    $
    75,649
    
    
    $
    1.54
    
    
    $
    45,244
    
    
    $
    1.07Canada
    
    
    30,967
    
    
    
    1.81
    
    
    
    24,506
    
    
    
    1.61Total depletion
    
    
    106,616
    
    
    
    1.61
    
    
    
    69,750
    
    
    
    1.21Depreciation of other fixed assets:U.S.
    
    $
    15,293
    
    
    $
    0.31
    
    
    $
    10,668
    
    
    $
    0.25Canada
    
    
    2,751
    
    
    
    0.16
    
    
    
    3,007
    
    
    
    0.20Total depreciation
    
    
    18,044
    
    
    
    0.27
    
    
    
    13,675
    
    
    
    0.24Accretion
    
    
    1,096
    
    
    
    0.02
    
    
    
    1,189
    
    
    
    0.02Total depletion, depreciation and accretion
    
    $
    125,756
    
    
    $
    1.90
    
    
    $
    84,614
    
    
    $
    1.47
  General and Administrative Expense
 Nine Months Ended September 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeGeneral and administrative expenseCash expense
    
    $
    37,175
    
    
    $
    0.56
    
    
    $
    27,844
    
    
    $
    0.49Litigation resolution
    
    
    9,633
    
    
    
    0.14
    
    
    
    
    
    
    
    Equity compensation
    
    
    9,594
    
    
    
    0.15
    
    
    
    6,480
    
    
    
    0.11Total general and administrative expense
    
    $
    56,402
    
    
    $
    0.85
    
    
    $
    34,324
    
    
    $
    0.60
 32




---



##### Table of Contents



Interest Expense
 Nine Months EndedSeptember 30,2008
    
    
    2007(in thousands)Interest costs
    
    $
    67,026
    
    
    $
    54,877Less: Interest capitalized
    
    
    (6,401
    )
    
    
    (1,019
    )Interest expense
    
    $
    60,625
    
    
    $
    53,858
  Income Tax Expense
 Nine Months EndedSeptember 30,2008
    
    2007Income tax (in thousands)
    
    $
    47,754
    
    
    $
    38,158Effective tax rate
    
    
    33.6
    %
    
    
    31.2
    %
  LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
 Overview
   33




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##### Table of Contents



Nine Months EndedSeptember 30,2008
    
    2007(In thousands)Net cash provided by operating activities
    
    $
    274,120
    
    
    $
    261,699Net cash used for investing activities
    
    
    (1,943,520
    )
    
    
    (719,880
    )Net cash provided by financing activities
    
    
    1,657,248
    
    
    
    469,320Effect of exchange rate changes in cash
    
    
    (2,609
    )
    
    
    3,170
     34




---



##### Table of Contents



Nine Months EndedSeptember 30, 2008(In thousands)Alliance Acquisition
    
    $
    1,253,280Exploration and development:Texas
    
    
    659,090Other U.S.
    
    
    24,631Total U.S.
    
    
    683,721Canada
    
    
    104,837Total exploration and development
    
    
    788,558Midstream:Texas
    
    
    194,245Canada
    
    
    3,515Total midstream
    
    
    197,760Corporate and field office
    
    
    12,650Total plant and equipment costs incurred
    
    $
    2,252,248
     35




---



##### Table of Contents



September 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Long-term and short-term debt:Senior secured credit facility
    
    $
    725,716
    
    
    $
    310,710Second-lien term note facility
    
    
    684,599
    
    
    
    Senior notes due 2015
    
    
    468,837
    
    
    
    Senior subordinated notes due 2016
    
    
    350,000
    
    
    
    350,000Convertible subordinated debentures
    
    
    148,191
    
    
    
    148,107KGS credit agreement
    
    
    104,300
    
    
    
    5,000Other loans
    
    
    
    
    
    
    34Total debt
    
    
    2,481,643
    
    
    
    813,851Stockholders equity
    
    
    1,500,789
    
    
    
    1,068,355Total capitalization
    
    $
    3,982,432
    
    
    $
    1,882,206
  Financial Position
  
    
    An increase of more than $2.09 billion in our net property, plant and equipment
assets, which includes approximately $1.25 billion for exploration and producing
properties and midstream assets purchased in the Alliance Acquisition and $1.0 billion in
capital costs incurred principally for development, exploitation and exploration of our
existing oil and gas properties as well as additional natural gas processing and
gathering system assets.
    
    We incurred additional long-term debt of $1.69 billion, primarily as a result of our
Alliance Acquisition and our capital expenditure program partially offset by cash flow
from operations. During 2008, we entered into a $700 million Term Loan Facility, issued
$475 million of Senior Notes due 2015 and increased borrowing under our senior secured
credit facility and the KGS credit facility.
    
    Our current and non-current derivative assets have increased $118.9 million while our
current and non-current derivative liabilities have decreased $53.6 million. The fair
value of our fixed-price natural gas purchase swaps and the estimated fair value of the
remaining commitment under the Michigan Sales Contract decreased our total derivative
assets and liabilities by $1.5 million and $39.3 million, respectively. The remaining
changes to our derivative assets and liabilities are the result of changes in the
estimated fair value of our cash-flow hedges. The fair value changes to the cash-flow
hedge derivatives are the result of lower pricing of natural gas, crude oil and NGLs
compared to pricing under our derivative contracts at September 30, 2008. Additionally,
our net current deferred tax asset position of $18.9 million at December 31, 2007 has
reversed and we have recorded a current deferred income tax liability position of $14.5
million as a result of the increase in estimated fair value of our natural gas, crude oil
and NGL cash-flow hedge derivatives and net cash payments of $34.2 million in settlement
of the Michigan Sales contract.
 Contractual Obligations and Commercial Commitments
  
    
    We have commitments of approximately $87 million outstanding to
purchase components for our drilling program; and
    
    We have issued additional surety bonds to fulfill contractual, legal
or regulatory requirements bringing the total of surety bonds
outstanding to approximately $36 million.
 36




---



##### Table of Contents



Accounting Developments
  Critical Accounting Estimates
  
    
    Oil and gas properties, including underlying reserves and cost capitalization limitations;
    
    Derivative instruments;
    
    Asset retirement obligations;
    
    Stock-based compensation;
    
    Income taxes;
    
    Income from earnings of BBEP; and
    
    Revenue.
  
 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
   Commodity Price Risk
   37




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##### Table of Contents



Weighted AvgPrice Per McfProduct
    
    Type
    
    Contract Period
    
    Volume
    
    
    or Bbl
    
    
    Fair Value(In thousands)Gas
    
    Swap
    
    Oct 2008-Dec 2008
    
    25,000 Mcfd
    
    $
    8.13
    
    
    $
    1,293Gas
    
    Swap
    
    Oct 2008-Dec 2008
    
    7,500 Mcfd
    
    
    8.13
    
    
    
    388Gas
    
    Swap
    
    Oct 2008-Dec 2008
    
    5,000 Mcfd
    
    
    8.14
    
    
    
    263Gas
    
    Swap
    
    Oct 2008-Dec 2008
    
    2,500 Mcfd
    
    
    8.15
    
    
    
    134Gas
    
    Swap
    
    Oct 2008-Dec 2008
    
    10,000 Mcfd
    
    
    8.21
    
    
    
    591Gas
    
    Swap
    
    Oct 2008-Dec 2008
    
    10,000 Mcfd
    
    
    8.22
    
    
    
    600Gas
    
    Swap
    
    Jan 2009-Dec 2009
    
    10,000 Mcfd
    
    
    8.45
    
    
    
    1,121Gas
    
    Swap
    
    Jan 2009-Dec 2009
    
    10,000 Mcfd
    
    
    8.45
    
    
    
    1,121Gas
    
    Swap
    
    Jan 2009-Dec 2009
    
    20,000 Mcfd
    
    
    8.46
    
    
    
    2,279Gas
    
    Collar
    
    Oct 2008-Dec 2008
    
    20,000 Mcfd
    
    
    7.50-  9.15
    
    
    
    541Gas
    
    Collar
    
    Oct 2008-Dec 2008
    
    10,000 Mcfd
    
    
    9.00-11.70
    
    
    
    1,429Gas
    
    Collar
    
    Oct 2008-Dec 2008
    
    20,000 Mcfd
    
    
    8.25-  9.75
    
    
    
    1,562Gas
    
    Collar
    
    Oct 2008-Dec 2008
    
    10,000 Mcfd
    
    
    9.00-12.60
    
    
    
    1,390Gas
    
    Collar
    
    Oct 2008-Dec 2008
    
    30,000 Mcfd
    
    
    12.00-16.50
    
    
    
    12,002Gas
    
    Collar
    
    Oct 2008-Dec 2008
    
    10,000 Mcfd
    
    
    12.00-16.90
    
    
    
    4,056Gas
    
    Collar
    
    Oct 2008-Mar 2009
    
    20,000 Mcfd
    
    
    7.50-  9.35
    
    
    
    903Gas
    
    Collar
    
    Oct 2008-Mar 2009
    
    20,000 Mcfd
    
    
    8.00-10.20
    
    
    
    2,346Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    20,000 Mcfd
    
    
    7.50-  9.34
    
    
    
    (102
    )Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    20,000 Mcfd
    
    
    7.75-10.20
    
    
    
    2,083Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    10,000 Mcfd
    
    
    7.75-10.26
    
    
    
    1,092Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    20,000 Mcfd
    
    
    8.25-  9.60
    
    
    
    3,288Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    10,000 Mcfd
    
    
    8.25-10.45
    
    
    
    2,267Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    10,000 Mcfd
    
    
    8.25-10.45
    
    
    
    2,267Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    10,000 Mcfd
    
    
    8.25-10.45
    
    
    
    2,267Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    10,000 Mcfd
    
    
    11.50-14.48
    
    
    
    12,381Gas
    
    Collar
    
    Apr 2009-Dec 2009
    
    10,000 Mcfd
    
    
    8.50-13.15
    
    
    
    2,766Gas
    
    Collar
    
    Apr 2009-Dec 2009
    
    30,000 Mcfd
    
    
    11.00-13.50
    
    
    
    23,601Gas
    
    Collar
    
    Jan 2010-Dec 2010
    
    20,000 Mcfd
    
    
    8.00-11.00
    
    
    
    2,307Gas
    
    Collar
    
    Jan 2010-Dec 2010
    
    20,000 Mcfd
    
    
    8.00-11.00
    
    
    
    2,275Gas
    
    Collar
    
    Jan 2010-Dec 2010
    
    20,000 Mcfd
    
    
    8.00-12.20
    
    
    
    3,372Gas
    
    Collar
    
    Jan 2010-Dec 2010
    
    20,000 Mcfd
    
    
    8.00-12.20
    
    
    
    3,473Gas
    
    Collar
    
    Jan 2010-Dec 2010
    
    20,000 Mcfd
    
    
    8.50-12.05
    
    
    
    5,173Gas
    
    Collar
    
    Jan 2010-Dec 2010
    
    10,000 Mcfd
    
    
    8.50-12.05
    
    
    
    2,586Gas
    
    Collar
    
    Jan 2010-Dec 2010
    
    10,000 Mcfd
    
    
    8.50-12.08
    
    
    
    2,654Gas
    
    Collar
    
    Jan 2010-Dec 2010
    
    40,000 Mcfd
    
    
    10.00-13.50
    
    
    
    26,628Gas
    
    Basis
    
    Oct 2008-Dec 2008
    
    10,000 Mcfd
    
    
    
    
    
    
    218Gas
    
    Basis
    
    Oct 2008-Dec 2008
    
    10,000 Mcfd
    
    
    
    
    
    
    218Gas
    
    Basis
    
    Oct 2008-Dec 2008
    
    20,000 Mcfd
    
    
    
    
    
    
    436Gas
    
    Basis
    
    Oct 2008-Dec 2008
    
    10,000 Mcfd
    
    
    
    
    
    
    217Gas
    
    Basis
    
    Jan 2009-Dec 2009
    
    20,000 Mcfd
    
    
    
    
    
    
    (358
    )Gas
    
    Basis
    
    Jan 2009-Dec 2009
    
    10,000 Mcfd
    
    
    
    
    
    
    (179
    )NGL
    
    Swap
    
    Oct 2008-Dec 2008
    
    1,000 Bbld
    
    
    39.58
    
    
    
    (653
    )NGL
    
    Swap
    
    Oct 2008-Dec 2008
    
    2,000 Bbld
    
    
    45.94
    
    
    
    (140
    )Oil
    
    Collar
    
    Oct 2008-Dec 2008
    
    500 Bbld
    
    
    65.00-73.90
    
    
    
    (1,448
    )Oil
    
    Collar
    
    Oct 2008-Dec 2008
    
    500 Bbld
    
    
    65.00-77.45
    
    
    
    (1,506
    )Total
    
    $
    129,202
 38




---



##### Table of Contents



Weighted AvgPrice PerProduct
    
    Type
    
    
    Contract Period
    
    
    Volume
    
    
    Mcf or Bbl
    
    
    Fair Value(In thousands)Gas
    
    Sale
    
    Oct 2008-Mar 2009
    
    25,000 Mcfd
    
    $
    2.49
    
    
    $
    (24,486
    )Gas
    
    Swap
    
    Oct 2008-Mar 2009
    
    10,000 Mcfd
    
    
    8.20
    
    
    
    (597
    )Gas
    
    Swap
    
    Oct 2008-Mar 2009
    
    15,000 Mcfd
    
    
    8.20
    
    
    
    (896
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (25,979
    )
   Michigan
    
    
    Cash FlowContracts
    
    
    Derivatives
    
    
    Total(in thousands)Derivative fair value at December 31, 2007
    
    $
    (63,777
    )
    
    $
    (5,503
    )
    
    $
    (69,280
    )Net cash payment due
    
    
    4,436
    
    
    
    1,461
    
    
    
    5,897Net cash paid in settlement
    
    
    34,198
    
    
    
    59,706
    
    
    
    93,904Change in value reported in other revenue
    
    
    (836
    )
    
    
    4,507
    
    
    
    3,671Change in value reported in other comprehensive income
    
    
    
    
    
    
    69,031
    
    
    
    69,031Derivative fair value at September 30, 2008
    
    $
    (25,979
    )
    
    $
    129,202
    
    
    $
    103,223
 Credit Risk
  39




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##### Table of Contents



ITEM 4. Controls and Procedures
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  40




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
      
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity Securities
  Total Number of
    
    
    Maximum NumberTotal Number
    
    
    
    
    
    
    Shares Purchased as
    
    
    of Shares that Mayof Shares
    
    
    Average Price
    
    
    Part of Publicly
    
    
    Yet Be PurchasedPeriod
    
    Purchased (1)
    
    
    Paid per Share
    
    
    Announced Plan (2)
    
    
    Under the Plan (2)July 2008
    
    
    23,773
    
    
    $
    36.24
    
    
    
    
    
    
    
    August 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    September 2008
    
    
    882
    
    
    $
    22.50
    
    
    
    
    
    
    
    Total
    
    
    24,655
    
    
    $
    35.75
    
    
    
    
    
    
    
    
 
 (1)
    
    Represents shares of common stock surrendered by employees to satisfy our income tax
withholding obligations arising upon the vesting of restricted stock issued under our Amended
and Restated 1999 Stock Option and Retention Stock Plan or
Amended and Restated 2006 Equity Plan. 41




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##### Table of Contents



(2)
    
    We do not currently have in place any publicly announced, specific plans or programs
to purchase equity securities. 
 ITEM 3. Defaults Upon Senior Securities
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  
 ITEM 5. Other Information
  
 ITEM 6. Exhibits:
 Exhibit No.

    
    Description*2.1
    
    
    Purchase and Sale Agreement, dated as of July 3, 2008, among Nortex
Minerals, L.P., Petrus Investment, L.P., Petrus Development, L.P., and
Perot Investment Partners, Ltd., as Sellers, and Quicksilver Resources
Inc., as Purchaser (filed as Exhibit 10.1 to the Companys Form 8-K
filed July 7, 2008 and included herein by reference).*2.2
    
    
    Purchase and Sale Agreement, dated as of July 3, 2008, among Hillwood
Oil & Gas, L.P., Burtex Minerals, L.P., Chief Resources, LP, Hillwood
Alliance Operating Company, L.P., Chief Resources Alliance Pipeline
LLC, Chief Oil & Gas LLC, Berry Barnett, L.P., Collins and Young,
L.L.C. and Mark Rollins, as Sellers, and Quicksilver Resources Inc., as
Purchaser (filed as Exhibit 10.2 to the Companys Form 8-K filed July
7, 2008 and included herein by reference).*4.1
    
    
    Sixth Supplemental Indentures, dated as of July 10, 2008, among
Quicksilver Resources Inc., the subsidiary guarantors named therein and
The Bank of New York Mellon Trust, N.A., as trustee (filed as Exhibit
4.1 to the Companys Form 8-K filed July 10, 2008 and included herein
by reference).10.1
    
    
    Fifth Amendment to Combined Credit Agreements, dated as of August 4,
2008, among Quicksilver Resources Inc., Quicksilver Resources Canada
Inc. and the agents and combined lenders identified therein (filed as
Exhibit 10.1 to the Companys Form 8-K filed August 5, 2008 and
included herein by reference).10.2
    
    
    Credit Agreement, dated as of August 8, 2008, among Quicksilver
Resources Inc., the lenders party thereto and Credit Suisse, Cayman
Islands Branch, as administrative agent (filed as Exhibit 10.1 to the
Companys Form 8-K filed August 8, 2008 and included herein by
reference).** 31.1
    
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** 31.2
    
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** 32.1
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Excludes schedules and exhibits we agree to furnish supplementally to the SEC upon request.**
    
    Filed herewith 42




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##### Table of Contents



SIGNATURES
   Quicksilver Resources Inc.By:
    /s/ Glenn DardenGlenn DardenPresident and Chief Executive OfficerBy:
    /s/ Philip CookPhilip CookSenior Vice President  Chief Financial Officer 43




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.

    
    Description*2.1
    
    
    Purchase and Sale Agreement, dated as of July 3, 2008, among Nortex
Minerals, L.P., Petrus Investment, L.P., Petrus Development, L.P., and
Perot Investment Partners, Ltd., as Sellers, and Quicksilver Resources
Inc., as Purchaser (filed as Exhibit 10.1 to the Companys Form 8-K
filed July 7, 2008 and included herein by reference).*4.1
    
    
    Sixth Supplemental Indentures, dated as of July 10, 2008, among
Quicksilver Resources Inc., the subsidiary guarantors named therein and
The Bank of New York Mellon Trust, N.A., as trustee (filed as Exhibit
4.1 to the Companys Form 8-K filed July 10, 2008 and included herein
by reference).*2.2
    
    
    Purchase and Sale Agreement, dated as of July 3, 2008, among Hillwood
Oil & Gas, L.P., Burtex Minerals, L.P., Chief Resources, LP, Hillwood
Alliance Operating Company, L.P., Chief Resources Alliance Pipeline
LLC, Chief Oil & Gas LLC, Berry Barnett, L.P., Collins and Young,
L.L.C. and Mark Rollins, as Sellers, and Quicksilver Resources Inc., as
Purchaser (filed as Exhibit 10.2 to the Companys Form 8-K filed July
7, 2008 and included herein by reference).10.1
    
    
    Fifth Amendment to Combined Credit Agreements, dated as of August 4,
2008, among Quicksilver Resources Inc., Quicksilver Resources Canada
Inc. and the agents and combined lenders identified therein (filed as
Exhibit 10.1 to the Companys Form 8-K filed August 5, 2008 and
included herein by reference).10.2
    
    
    Credit Agreement, dated as of August 8, 2008, among Quicksilver
Resources Inc., the lenders party thereto and Credit Suisse, Cayman
Islands Branch, as administrative agent (filed as Exhibit 10.1 to the
Companys Form 8-K filed August 8, 2008 and included herein by
reference).** 31.1
    
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** 31.2
    
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** 32.1
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Excludes schedules and exhibits we agree to furnish supplementally to the SEC upon request.**
    
    Filed herewith 44