##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 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
 o 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 April 30, 2009Common Stock, $0.01 par value
    
    169,020,040




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##### 



QUICKSILVER RESOURCES INC.
INDEX TO FORM 10-Q
For the Period Ending March 31, 2009
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Statements of Income (Loss) and Comprehensive Loss
    
    
    5Condensed Consolidated Balance Sheets
    
    
    6Condensed Consolidated Statements of Stockholders Equity
    
    
    7Condensed Consolidated Statements of Cash Flows
    
    
    8Notes to Condensed Consolidated Interim Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    35PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    49Item 3. Defaults Upon Senior Securities
    
    
    50Item 4. Submission of Matters to a Vote of Security Holders
    
    
    50Item 5. Other Information
    
    
    50Item 6. Exhibits
    
    
    50Signatures
    
    
    51EX-31.1EX-31.2EX-32.1
   2




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##### Table of Contents



DEFINITIONS
  AECO
 Bbl Bbls
 Bbld
 Bcf
 Bcfd
 Bcfe
 Btu
 Canada
 CBM
 DD&A
 Domestic
 LIBOR
 MBbl MBbls
 MBbld
 MMBbls
 MMBtu
 MMBtud
 Mcf
 Mcfe
 MMcf
 MMcfd
 MMcfe
 MMcfed
 NGL NGLs
 NYMEX
 Oil
 Tcf
 Tcfe
 COMMONLY USED TERMS
  ABR
 AOCI
 Alliance Acquisition
 BBEP
 BreitBurn Transaction
 FASB
 GAAP
 IPO
 KGS
 Mercury
 Michigan Sales Contract
 Northeast Operations
 OCI
 PCAOB
 RSU
 SEC
 SFAS
 3




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##### Table of Contents



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;
 
    
    the effects of existing or future litigation; and
 
    
    certain factors discussed elsewhere in this quarterly report.
 
  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 LOSS
 In thousands, except for per share data  Unaudited
 For the Three Months EndedMarch 31,2009
    
    
    2008RevenueNatural gas, NGL and crude oil
    
    $
    183,554
    
    
    $
    158,356Other
    
    
    2,378
    
    
    
    (739
    )Total revenue
    
    
    185,932
    
    
    
    157,617Operating expensesOil and gas production expense
    
    
    32,734
    
    
    
    32,530Production and ad valorem taxes
    
    
    4,366
    
    
    
    2,659Other operating costs
    
    
    964
    
    
    
    1,231Depletion, depreciation and accretion
    
    
    59,696
    
    
    
    35,059General and administrative
    
    
    17,381
    
    
    
    15,415Total expenses
    
    
    115,141
    
    
    
    86,894Impairment related to oil and gas properties
    
    
    (896,483
    )
    
    
    Operating income (loss)
    
    
    (825,692
    )
    
    
    70,723Income from earnings of BBEP, net
    
    
    
    
    
    
    6,219Other income  net
    
    
    761
    
    
    
    1,486Interest expense
    
    
    (40,201
    )
    
    
    (13,435
    )Income (loss) before income taxes
    
    
    (865,132
    )
    
    
    64,993Income tax (expense) benefit
    
    
    297,823
    
    
    
    (23,351
    )Net income (loss)
    
    
    (567,309
    )
    
    
    41,642Net income attributable to noncontrolling interests
    
    
    (1,670
    )
    
    
    (508
    )Net income (loss) attributable to Quicksilver
    
    $
    (568,979
    )
    
    $
    41,134Other comprehensive income (loss)  net of income taxReclassification adjustments related to
settlements of derivative contracts
    
    
    (36,914
    )
    
    
    1,982Net change in derivative fair value
    
    
    108,603
    
    
    
    (80,219
    )Foreign currency translation adjustment
    
    
    (7,224
    )
    
    
    (8,643
    )Comprehensive loss
    
    $
    (504,514
    )
    
    $
    (45,746
    )Earnings (loss) per common share  basic
    
    $
    (3.37
    )
    
    $
    0.26Earnings (loss) per common share  diluted
    
    $
    (3.37
    )
    
    $
    0.25Basic weighted average shares outstanding
    
    
    168,841
    
    
    
    158,139Diluted weighted average shares outstanding
    
    
    168,841
    
    
    
    169,060
  5




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##### Table of Contents



QUICKSILVER RESOURCES INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 In thousands, except for share data  Unaudited
 March 31,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assetsCash and cash equivalents
    
    $
    430
    
    
    $
    2,848Accounts receivable  net of allowance for doubtful accounts
    
    
    109,694
    
    
    
    143,315Derivative assets at fair value
    
    
    261,216
    
    
    
    171,740Other current assets
    
    
    66,496
    
    
    
    75,433Total current assets
    
    
    437,836
    
    
    
    393,336Investment in BreitBurn Energy Partners
    
    
    139,402
    
    
    
    150,503Property, plant and equipmentOil and gas properties, full cost method (including unevaluated costs of
$577,391 and $543,533, respectively)
    
    
    2,357,275
    
    
    
    3,142,608Other property and equipment
    
    
    670,032
    
    
    
    655,107Property, plant and equipment  net
    
    
    3,027,307
    
    
    
    3,797,715Derivative assets at fair value
    
    
    81,959
    
    
    
    116,006Deferred income taxes
    
    
    108,779
    
    
    
    Other assets
    
    
    36,273
    
    
    
    40,648$
    3,831,556
    
    
    $
    4,498,208LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt
    
    $
    6,579
    
    
    $
    6,579Accounts payable
    
    
    193,954
    
    
    
    282,636Accrued liabilities
    
    
    54,211
    
    
    
    66,963Derivative liabilities at fair value
    
    
    852
    
    
    
    9,928Deferred income taxes
    
    
    90,036
    
    
    
    52,393Total current liabilities
    
    
    345,632
    
    
    
    418,499Long-term debt
    
    
    2,687,214
    
    
    
    2,586,046Asset retirement obligations
    
    
    39,276
    
    
    
    34,753Other liabilities
    
    
    12,996
    
    
    
    12,962Deferred income taxes
    
    
    35,052
    
    
    
    234,385Stockholders equityPreferred stock, par value $0.01, 10,000,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value, 400,000,000 shares authorized; 173,947,192
and 171,742,699 shares issued, respectively
    
    
    1,739
    
    
    
    1,717Paid in capital in excess of par value
    
    
    662,256
    
    
    
    656,958Treasury stock of 4,673,730 and 4,572,795 shares, respectively
    
    
    (36,064
    )
    
    
    (35,441
    )Accumulated other comprehensive income
    
    
    249,569
    
    
    
    185,104Retained earnings (deficit)
    
    
    (192,491
    )
    
    
    376,488Quicksilver stockholders equity
    
    
    685,009
    
    
    
    1,184,826Noncontrolling interests
    
    
    26,377
    
    
    
    26,737Total equity
    
    
    711,386
    
    
    
    1,211,563$
    3,831,556
    
    
    $
    4,498,208
  6




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##### Table of Contents



QUICKSILVER RESOURCES INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 In thousands  Unaudited
 Quicksilver Resources Inc. StockholdersAccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    RetainedCommon
    
    
    Paid-in
    
    
    Treasury
    
    
    Comprehensive
    
    
    Earnings
    
    
    NoncontrollingStock
    
    
    Capital
    
    
    Stock
    
    
    Income
    
    
    (Deficit)
    
    
    Interest
    
    
    TotalBalances at December 31, 2007
    
    $
    1,606
    
    
    $
    378,622
    
    
    $
    (12,304
    )
    
    $
    40,066
    
    
    $
    754,764
    
    
    $
    29,714
    
    
    $
    1,192,468Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,134
    
    
    
    508
    
    
    
    41,642Hedge derivative contract settlements
reclassified into earnings from accumulated
other comprehensive income, net of
income tax of $1,027
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,982
    
    
    
    
    
    
    
    
    
    
    
    1,982Net change in derivative fair value,
net of income tax benefit of $39,686
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80,219
    )
    
    
    
    
    
    
    
    
    
    
    (80,219
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,643
    )
    
    
    
    
    
    
    
    
    
    
    (8,643
    )Issuance and vesting of stock compensation
    
    
    5
    
    
    
    3,740
    
    
    
    (1,980
    )
    
    
    
    
    
    
    
    
    
    
    264
    
    
    
    2,029Stock option exercises
    
    
    1
    
    
    
    857
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    858Distributions paid on KGS common units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,972
    )
    
    
    (1,972
    )Balances at March 31, 2008
    
    $
    1,612
    
    
    $
    383,219
    
    
    $
    (14,284
    )
    
    $
    (46,814
    )
    
    $
    795,898
    
    
    $
    28,514
    
    
    $
    1,148,145Balances at December 31, 2008
    
    $
    1,717
    
    
    $
    656,958
    
    
    $
    (35,441
    )
    
    $
    185,104
    
    
    $
    376,488
    
    
    $
    26,737
    
    
    $
    1,211,563Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (568,979
    )
    
    
    1,670
    
    
    
    (567,309
    )Hedge derivative contract settlements
reclassified into earnings from accumulated
other comprehensive income, net of
income tax benefit of $16,950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,914
    )
    
    
    
    
    
    
    
    
    
    
    (36,914
    )Net change in derivative fair value,
net of income tax of $52,805
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108,603
    
    
    
    
    
    
    
    
    
    
    
    108,603Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,224
    )
    
    
    
    
    
    
    
    
    
    
    (7,224
    )Issuance and vesting of stock compensation
    
    
    22
    
    
    
    5,287
    
    
    
    (623
    )
    
    
    
    
    
    
    
    
    
    
    418
    
    
    
    5,104Stock option exercises
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Distributions paid on KGS common units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,448
    )
    
    
    (2,448
    )Balances at March 31, 2009
    
    $
    1,739
    
    
    $
    662,256
    
    
    $
    (36,064
    )
    
    $
    249,569
    
    
    $
    (192,491
    )
    
    $
    26,377
    
    
    $
    711,386
  7




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QUICKSILVER RESOURCES INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 In thousands  Unaudited
 For the Three Months EndedMarch 31,2009
    
    
    2008Operating activities:Net income (loss)
    
    $
    (567,309
    )
    
    $
    41,642Adjustments to reconcile net income (loss)
to net cash provided by operating activities:Depletion, depreciation and accretion
    
    
    59,696
    
    
    
    35,059Impairment related to oil and gas properties
    
    
    896,483
    
    
    
    Deferred income tax expense (benefit)
    
    
    (304,639
    )
    
    
    22,455Stock-based compensation
    
    
    5,727
    
    
    
    4,009Non-cash interest expense
    
    
    4,139
    
    
    
    2,220Non-cash loss from hedging and derivative activities
    
    
    1,128
    
    
    
    5,735Income from BBEP in excess of cash distributions,
net of impairment
    
    
    11,101
    
    
    
    Other
    
    
    91
    
    
    
    627Changes in assets and liabilitiesAccounts receivable
    
    
    33,536
    
    
    
    (5,226
    )Derivative assets at fair value
    
    
    54,896
    
    
    
    Other assets
    
    
    1,566
    
    
    
    (1,109
    )Accounts payable
    
    
    (21,436
    )
    
    
    5,027Income taxes payable
    
    
    
    
    
    
    (45,144
    )Accrued and other liabilities
    
    
    (25,692
    )
    
    
    (22,011
    )Net cash provided by operating activities
    
    
    149,287
    
    
    
    43,284Investing activities:Purchases of property, plant and equipment
    
    
    (255,984
    )
    
    
    (331,936
    )Proceeds from sales of property, plant and equipment
    
    
    416
    
    
    
    Advances to BBEP
    
    
    
    
    
    
    (50,150
    )Return of investment from BBEP
    
    
    
    
    
    
    3,440Net cash used for investing activities
    
    
    (255,568
    )
    
    
    (378,646
    )Financing activities:Issuance of debt
    
    
    208,374
    
    
    
    330,741Repayment of debt
    
    
    (101,188
    )
    
    
    (18,061
    )Debt issuance costs
    
    
    (39
    )
    
    
    Noncontrolling interest distributions
    
    
    (2,448
    )
    
    
    (1,972
    )Proceeds from exercise of stock options
    
    
    11
    
    
    
    858Purchase of treasury stock
    
    
    (623
    )
    
    
    (1,980
    )Net cash provided by financing activities
    
    
    104,087
    
    
    
    309,586Effect of exchange rate changes in cash
    
    
    (224
    )
    
    
    (474
    )Net decrease in cash
    
    
    (2,418
    )
    
    
    (26,250
    )Cash and cash equivalents at beginning of period
    
    
    2,848
    
    
    
    28,226Cash and cash equivalents at end of period
    
    $
    430
    
    
    $
    1,976
  8




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##### Table of Contents



QUICKSILVER RESOURCES INC.
 
 NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
 UNAUDITED
 1. ACCOUNTING POLICIES AND DISCLOSURES
    Earnings per Share
 Recently Issued Accounting Standards
 Three Months EndedMarch 31,2009
    
    
    2008(In thousands, except per share data)Net income (loss)
    
    $
    (568,979
    )
    
    $
    41,134Impact of assumed conversions  interest on
1.875% convertible debentures, net of income taxes
    
    
    
    
    
    
    475Income (loss) available to stockholders assuming
conversion of convertible debentures
    
    $
    (568,979
    )
    
    $
    41,609Weighted average common shares  basic
    
    
    168,841
    
    
    
    158,139Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    730Employee stock unit awards
    
    
    
    
    
    
    375Contingently convertible debentures
    
    
    
    
    
    
    9,816Weighted average common shares  diluted
    
    
    168,841
    
    
    
    169,060Earnings (loss) per common share  basic
    
    $
    (3.37
    )
    
    $
    0.26Earnings (loss) per common share  diluted
    
    $
    (3.37
    )
    
    $
    0.25
 9




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##### Table of Contents



Recently Issued Accounting Standards
 
    
    Pronouncements Impacting Quicksilver That Have Been Implemented
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated Financial Statements  an amendment
of ARB No. 51
 Effective Date of FASB Statement No. 157
 Disclosures about Derivative Instruments and Hedging
Activities,
 Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants
 10




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For the Three Months Ended March 31, 2008As Originally
    
    
    
    
    
    
    Effect ofReported
    
    
    As Adjusted
    
    
    Change(In thousands, except for per share data)Operating income
    
    $
    70,723
    
    
    $
    70,723
    
    
    $
    Income from earnings of BBEP
    
    
    6,219
    
    
    
    6,219
    
    
    
    Interest expense and other
    
    
    (10,346
    )
    
    
    (11,949
    )
    
    
    (1,603
    )Income before income tax
    
    
    66,596
    
    
    
    64,993
    
    
    
    (1,603
    )Income tax (expense) benefit
    
    
    (23,912
    )
    
    
    (23,351
    )
    
    
    561Net income attributable to
to noncontrolling interests
    
    
    (508
    )
    
    
    (508
    )
    
    
    Net income attributable to
Quicksilver
    
    $
    42,176
    
    
    $
    41,134
    
    
    $
    (1,042
    )Earnings per share  basic
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    (0.01
    )Earnings per share  diluted
    
    $
    0.25
    
    
    $
    0.25
    
    
    $
    
 Determining Whether Instruments Granted in Share-Based
Payments Transactions Are Participating Securities
 Interim Disclosures about
Fair Value of Financial Instruments. Disclosures about Fair
Value of Financial Instruments Interim Financial Reporting Interim Financial Reporting
 Recognition and Presentation of Other-Than-Temporary
Impairments,
 Determining Fair Value When the Volume and Level of Activity for the Asset
or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
 
    
    Pronouncements Not Yet Implemented
  11




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##### Table of Contents



2. ALLIANCE ACQUISITION
  (In thousands)Purchase Price:Cash paid
    
    $
    1,000,000Cash received from post-closing settlement
    
    
    (3,088
    )Cash paid for acquisition-related expenses
    
    
    1,368Total cash
    
    
    998,280Issuance of 10,400,468 common shares
    
    
    262,092$
    1,260,372
  (In thousands)Allocation of Purchase Price:Oil and gas properties  proved
    
    $
    792,647Oil and gas properties  unproved
    
    
    446,371Midstream assets
    
    
    27,652Liabilities assumed
    
    
    (5,226
    )Asset retirement obligations
    
    
    (1,072
    )$
    1,260,372
  Pro Forma Information
  (In thousands, except for per share data)1st Quarter 2008 Pro Forma Results:Revenues
    
    $
    182,662Net income
    
    $
    33,111Earnings per share  basic
    
    $
    0.20Earnings per share  diluted
    
    $
    0.19
 3. DERIVATIVES AND FAIR VALUE MEASUREMENTS
   12




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Asset Derivatives
    
    
    
    Liability DerivativesMarch 31,
    
    
    December 31,
    
    
    
    March 31,
    
    
    December 31,2009
    
    
    2008
    
    
    
    2009
    
    
    2008(in thousands)
    
    
    
    (in thousands)Derivatives designated as hedging
instruments under SFAS 133Commodity contracts reported in:Current derivative assets
    
    $
    261,994
    
    
    $
    179,079
    
    
    
    $
    778
    
    
    $
    2,500Noncurrent derivative assets
    
    
    81,959
    
    
    
    116,006
    
    
    
    
    
    
    
    
    Current derivative liabilities
    
    
    
    
    
    
    
    
    
    
    
    852
    
    
    
    1,865Total derivatives designated as
hedging instruments under SFAS 133
    
    $
    343,953
    
    
    $
    295,085
    
    
    
    $
    1,630
    
    
    $
    4,365Derivatives not designated as hedging
instruments under SFAS 133Michigan Sales Contract natural gas
purchase derivatives (1) reported
in current derivative assets
    
    $
    
    
    
    $
    
    
    
    
    $
    
    
    
    $
    4,839Michigan Sales Contract (1) reported
in current derivative liabilities
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,063Total derivatives not designated as
hedging instruments under SFAS 133
    
    $
    
    
    
    $
    
    
    
    
    $
    
    
    
    $
    12,902Total derivatives
    
    $
    343,953
    
    
    $
    295,085
    
    
    
    $
    1,630
    
    
    $
    17,267
 
 (1)
    
    During 2009, our net cash payments were $16.5 million, including
derivative settlements, to satisfy our obligations under the Michigan Sales
Contract.  Fair Value Measurements as of March 31, 2009Balance SheetLevel 1
    
    
    Level 2
    
    
    Level 3
    
    

Other(1)
    
    
    Total(in thousands)Derivative assets
    
    $
    
    
    
    $
    343,953
    
    
    $
    
    
    
    $
    (778
    )
    
    $
    343,175Derivative liabilities
    
    $
    
    
    
    $
    1,630
    
    
    $
    
    
    
    $
    (778
    )
    
    $
    852
 13




---



##### Table of Contents



Fair Value Measurements as of December 31, 2008Balance SheetLevel 1
    
    
    Level 2
    
    
    Level 3
    
    

Other(1)
    
    
    Total(in thousands)Derivative assets
    
    $
    
    
    
    $
    295,085
    
    
    $
    
    
    
    $
    (7,339
    )
    
    $
    287,746Derivative liabilities
    
    $
    
    
    
    $
    17,267
    
    
    $
    
    
    
    $
    (7,339
    )
    
    $
    9,928
 
 (1)
    
    Represents amounts netted under master netting arrangements with
counterparties.  Michigan
    
    
    Cash FlowContract
    
    
    Derivatives
    
    
    Total(in thousands)Derivative fair value at December 31, 2008
    
    $
    (12,901
    )
    
    $
    290,719
    
    
    $
    277,818Net cash payment due
    
    
    (3,518
    )
    
    
    
    
    
    
    (3,518
    )Net cash paid for monthly settlements
    
    
    16,479
    
    
    
    
    
    
    
    16,479Net cash received from monthly
settlements and reported in revenue
    
    
    
    
    
    
    (53,864
    )
    
    
    (53,864
    )Ineffectiveness reported in other revenue
    
    
    (60
    )
    
    
    (1,068
    )
    
    
    (1,128
    )Cash received and reported in OCI
    
    
    
    
    
    
    (54,896
    )
    
    
    (54,896
    )Change in value reported in OCI
    
    
    
    
    
    
    161,432
    
    
    
    161,432Derivative fair value at March 31, 2009
    
    $
    
    
    
    $
    342,323
    
    
    $
    342,323
 Michigan
    
    
    Cash FlowContract
    
    
    Derivatives
    
    
    Total(in thousands)Derivative fair value at December 31, 2007
    
    $
    (63,777
    )
    
    $
    (5,859
    )
    
    $
    (69,636
    )Net cash payment due
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Net cash paid for monthly settlements
    
    
    7,153
    
    
    
    
    
    
    
    7,153Net cash paid for monthly settlements and reported in revenue
    
    
    
    
    
    
    3,009
    
    
    
    3,009Ineffectiveness reported in other revenue
    
    
    337
    
    
    
    (5,860
    )
    
    
    (5,523
    )Change in value reported in OCI
    
    
    
    
    
    
    (119,646
    )
    
    
    (119,646
    )Derivative fair value at March 31, 2008
    
    $
    (56,294
    )
    
    $
    (128,356
    )
    
    $
    (184,650
    )
  4. INVESTMENT IN BREITBURN ENERGY PARTNERS L.P.
  14




---



##### Table of Contents



For the Three Months
    
    
    For the Two MonthsEnded
    
    
    EndedDecember 31, 2008
    
    
    December 31, 2007(In thousands)Revenues (1)
    
    $
    443,247
    
    
    $
    61,165Operating expenses (2)
    
    
    165,796
    
    
    
    44,365Operating income
    
    
    277,451
    
    
    
    16,800Interest and other (3)
    
    
    25,599
    
    
    
    4,403Income tax benefit
    
    
    677
    
    
    
    (669
    )Minority interests
    
    
    13
    
    
    
    31Net income
    
    $
    251,162
    
    
    $
    13,035Net income available to
common unitholders
    
    $
    251,162
    
    
    $
    12,567
 
 (1)
    
    Includes $346.3 million of unrealized gains and $2.3 million of
unrealized losses on commodity derivatives in the 2008 and 2007 periods,
respectively.(2)
    
    Includes $86.4 million for impairment charges of its oil and gas
properties in the 2008 period.(3)
    
    Includes $15.1 million for unrealized losses on interest rate swaps in
the 2008 period. As ofDecember 31, 2008(In thousands)Current assets
    
    $
    140,566Property, plant and equipment
    
    
    1,840,341Other assets
    
    
    235,927Current liabilities
    
    
    79,990Long-term debt
    
    
    736,000Other non-current liabilities
    
    
    47,952Partners equity
    
    
    1,352,892
  15




---



##### Table of Contents



(In thousands)Balance at December 31, 2008
    
    $
    150,503Equity income in BBEP
    
    
    102,084Distributions from BBEP
    
    
    (11,101
    )Non-cash impairment of BBEP
    
    
    (102,084
    )Balance at March 31, 2009
    
    $
    139,402
 5. PROPERTY, PLANT AND EQUIPMENT
  March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Oil and gas propertiesSubject to depletion
    
    $
    3,744,339
    
    
    $
    3,621,831Unevaluated costs
    
    
    577,391
    
    
    
    543,533Accumulated depletion
    
    
    (1,964,455
    )
    
    
    (1,022,756
    )Net oil and gas properties
    
    
    2,357,275
    
    
    
    3,142,608Other plant and equipmentPipelines and processing facilities
    
    
    666,755
    
    
    
    529,555General properties
    
    
    61,485
    
    
    
    57,941Construction in progress
    
    
    16,440
    
    
    
    134,557Accumulated depreciation
    
    
    (74,648
    )
    
    
    (66,946
    )Net other property and equipment
    
    
    670,032
    
    
    
    655,107Property, plant and equipment, net of
accumulated depletion and
depreciation
    
    $
    3,027,307
    
    
    $
    3,797,715
 Ceiling Test Analysis
   Net
    
    
    
    
    
    
    Pre-taxCapitalized
    
    
    Ceiling
    
    
    Charge forCosts (1)
    
    
    Limitation (2)
    
    
    Impairment(In thousands)United States
    
    $
    2,727,130
    
    
    $
    1,940,263
    
    
    $
    786,867Canada
    
    
    458,135
    
    
    
    348,519
    
    
    
    109,616Total
    
    $
    3,185,265
    
    
    $
    2,288,782
    
    
    $
    896,483
 
 (1)
    
    Net capitalized costs before impairment includes all costs associated
with development, exploration and acquisition of oil and gas properties net of
accumulated depletion and impairment, reduced by the related deferred income tax
liability and asset retirement obligations.(2)
    
    The ceiling limitation is the sum of (i) estimated future net cash
flows, discounted at 10% per annum, from proved reserves, based on unescalated
period-end prices and costs, adjusted for asset retirement obligations and
financial derivatives that hedge our oil and gas revenue, (ii) the costs of
properties not being amortized, (iii) the lower of cost or market value of
unproved properties not included in the costs being amortized, less (iv) income
tax effects related to differences between book and tax bases of the oil and gas
properties. 16




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##### Table of Contents



6. LONG-TERM DEBT
  March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Senior secured credit facility
    
    $
    906,182
    
    
    $
    827,868Senior secured second lien facility, net of unamortized discount
    
    
    640,507
    
    
    
    641,555Senior notes due 2015, net of unamortized discount
    
    
    469,288
    
    
    
    469,062Senior subordinated notes due 2016
    
    
    350,000
    
    
    
    350,000Convertible debentures, net of unamortized discount
    
    
    130,916
    
    
    
    129,240KGS credit agreement
    
    
    196,900
    
    
    
    174,900Total debt
    
    
    2,693,793
    
    
    
    2,592,625Less current maturities
    
    
    (6,579
    )
    
    
    (6,579
    )Long-term debt
    
    $
    2,687,214
    
    
    $
    2,586,046
 Senior Secured Credit Facility
  Convertible Debentures
    KGS Credit Agreement
  Summary of All Outstanding Debt
 Long-Term Debt
 17




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##### Table of Contents



Priority of Right to Collateralized Assets(7)Highest priority
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lowest priority
    
    Recourse only toEqual priority
    
    Equal priority
    
    KGS assetsSenior Secured
    
    Senior Secured
    
    
    
    
    
    Senior
    
    Convertible
    
    KGS CreditCredit Facility
    
    Second Lien Facility
    
    Senior Notes
    
    Subordinated Notes
    
    Debentures
    
    AgreementMaturity date
    
    February 9, 2012
    
    August 8, 2013
    
    June 27, 2015
    
    March 16, 2016
    
    November 1, 2024
    
    August 10, 2012Interest rate at
March 31, 2009 (1)
    
    
    2.81
    %
    
    
    7.75
    %
    
    
    8.25
    %
    
    
    7.125
    %
    
    
    1.875
    %
    
    
    2.30
    %Base interest rate options
(5) (6)
    
    LIBOR, ABR or specified
    
    LIBOR or ABR
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    LIBOR, ABR or
specifiedFinancial covenants for
2009(3)
    
    - Minimum current ratio
of 1.0
- Minimum EBITDA to
interest expense ratio
of 2.5
- Minimum reserve PV 10
plus 50% of BBEP
investment fair value
to total debt of 1.5
- Minimum reserve PV 10
plus 50% of BBEP
investment fair value
to secured debt of 2.0
    
    - Minimum current ratio
of 1.0
- Minimum EBITDA to
interest expense ratio
of 2.25
- Minimum reserve PV 10
plus 50% of BBEP
investment fair value
to total debt of 1.5
- Minimum reserve PV 10
plus 50% of BBEP
investment fair value
to secured debt of 2.0
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    - Maximum debt to
EBITDA ratio of 4.5
- Minimum EBITDA to
interest expense
ratio of 2.5Financial covenants beyond
2009(3) (4)
    
    - Minimum current ratio
of 1.0
- Minimum EBITDA to
interest expense ratio
of 2.5
- Minimum reserve PV 10
plus 50% of BBEP
investment fair value
to total debt of 1.5
 Reserve PV 10 plus
50% of BBEP investment
fair value to secured
debt of 2.25 beginning
December 31, 2010
    
    - Minimum current ratio
of 1.0
- Minimum EBITDA to
interest expense ratio
of 2.25
- Minimum reserve PV 10
plus 50% of BBEP
investment fair value
to total debt of 1.5
 Reserve PV 10 plus
50% of BBEP investment
fair value to secured
debt steps to 2.25
beginning December 31,
2010
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    - Maximum debt to
EBITDA ratio of 4.5
- Minimum EBITDA to
interest expense
ratio of 2.5Significant
restrictive
covenants (3)
    
    - Incurrence of debt
- Incurrence of liens
- Payment of dividends
- Equity purchases
- Asset sales
- Affiliate transactions
- Limitations on
derivatives
    
    - Incurrence of debt
- Incurrence of liens
- Payment of dividends
- Equity purchases
- Asset sales
- Affiliate transactions
- Limitations on
derivatives
    
    - Incurrence of debt
- Incurrence of liens
- Payment of dividends
- Equity purchases
- Asset sales
- Affiliate transactions
    
    - Incurrence of debt
- Incurrence of liens
- Payment of dividends
- Equity purchases
- Asset sales
- Affiliate transactions
    
    
    N/A
    
    
    - Incurrence of debt
- Incurrence of liens
- Equity purchases
- Asset sales
- Limitations on
derivativesEstimated
fair value (2)
    
    $906.2 million
    
    $525.0 million
    
    $313.5 million
    
    $166.3 million
    
    $108.4 million
    
    $196.9 million
 
 (1)
    
    Represents the weighted average borrowing rate payable to lenders(2)
    
    The estimated fair value is determined based on market quotations on the balance
sheet date for fixed rate obligations. We consider debt with market-based interest rates to
have a fair value equal to its carrying value(3)
    
    The covenant information presented in this table is qualified in all respects by
reference to the full text of the covenants and related definitions contained in the documents
governing the various components of our debt(4)
    
    Represents the most restrictive requirement for each covenant during its period
outstanding(5)
    
    Interest rate options include a base rate plus a spread. For the Senior Secured
Second Lien Facility the LIBOR rate has a floor of 3.25% and the ABR has a floor of 4.25%.(6)
    
    The Senior Secured Credit Facility was amended to add a floor to ABR of one- month
LIBOR plus 1%, increase the ABR margin to a range of 1.375% to 2.375% and increase the
Eurodollar and specified rate margins to a range of 2.25% to 3.25% after the redetermination
in April 2009(7)
    
    Priority of right to assets is not necessarily the same as priority to receive
payments 18




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##### Table of Contents



8. ASSET RETIREMENT OBLIGATIONS
  (In thousands)Beginning asset retirement obligations
    
    $
    35,193Incremental liability incurred
    
    
    4,448Accretion expense
    
    
    589Change in estimates
    
    
    157Asset retirement costs incurred
    
    
    (50
    )Currency translation adjustment
    
    
    (621
    )Ending asset retirement obligations
    
    
    39,716Less current portion
    
    
    (440
    )Long-term asset retirement obligations
    
    $
    39,276
 9. INCOME TAXES
   10. COMMITMENTS AND CONTINGENCIES
 Commitments
and Contingencies
 Commitments
  11. STOCK-BASED COMPENSATION
 Stockholders Equity
 19




---



##### Table of Contents



Quicksilver Stock Options
   StockOptionsIssuedWtd avg grant date fair value
    
    $6.21Wtd avg grant date
    
    Jan 2, 2009Wtd avg risk-free interest rate
    
    1.90%Expected life (in years)
    
    6.0Wtd avg volatility
    
    56.8%Expected dividends
    
    
  Wtd Avg
    
    
    Wtd Avg
    
    
    AggregateExercise
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Price
    
    
    Contractual Life
    
    
    Value(In years)
    
    
    (In thousands)Outstanding at December 31, 2008
    
    
    1,103,336
    
    
    $
    14.20Granted
    
    
    2,605,699
    
    
    
    6.21Exercised
    
    
    (2,028
    )
    
    
    5.51Cancelled
    
    
    (31,879
    )
    
    
    9.81Outstanding at March 31, 2009
    
    
    3,675,128
    
    
    $
    8.58
    
    
    
    7.9
    
    
    $
    74Exercisable at March 31, 2009
    
    
    893,716
    
    
    $
    9.86
    
    
    
    2.2
    
    
    $
    74Vested at
March 31, 2009 or expected to vest in the future
    
    
    3,394,006
    
    
    $
    7.16
  Quicksilver Restricted Stock and Restricted Stock Units
  Payable in stock
    
    Payable in cashWtd Avg
    
    
    
    
    
    Wtd AvgGrant Date
    
    
    
    
    
    Grant DateShares
    
    Fair Value
    
    Stock Units
    
    Fair ValueOutstanding at December 31, 2008
    
    
    1,336,111
    
    
    $
    24.01
    
    
    
    
    
    
    $
    Granted
    
    
    2,264,679
    
    
    
    6.23
    
    
    
    339,835
    
    
    
    6.22Vested
    
    
    (600,274
    )
    
    
    23.31
    
    
    
    
    
    
    
    Cancelled
    
    
    (64,292
    )
    
    
    12.51
    
    
    
    
    
    
    
    Outstanding at March 31, 2009
    
    
    2,936,224
    
    
    $
    10.69
    
    
    
    339,835
    
    
    $
    6.22
  20




---



##### Table of Contents



KGS Phantom Units
  Payable in units
    
    Payable in cashWtd Avg
    
    
    
    
    
    Wtd AvgGrant Date
    
    
    
    
    
    Grant DateUnits
    
    Fair Value
    
    Units
    
    Fair ValueOutstanding at December 31, 2008
    
    
    139,918
    
    
    $
    25.15
    
    
    
    60,319
    
    
    $
    21.63Granted
    
    
    405,428
    
    
    
    10.06
    
    
    
    
    
    
    
    Vested
    
    
    (49,789
    )
    
    
    25.25
    
    
    
    
    
    
    
    Cancelled
    
    
    (8,284
    )
    
    
    17.03
    
    
    
    (3,640
    )
    
    
    21.36Outstanding at March 31, 2009
    
    
    487,273
    
    
    $
    12.72
    
    
    
    56,679
    
    
    $
    21.65
  12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
  Condensed Consolidating Balance Sheets
 March 31, 2009QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)ASSETSCurrent assets
    
    $
    530,105
    
    
    $
    
    
    
    $
    495,065
    
    
    $
    (587,334
    )
    
    $
    437,836Property and equipment
    
    
    2,071,301
    
    
    
    2,055
    
    
    
    953,951
    
    
    
    
    
    
    
    3,027,307Investment in subsidiaries (equity method)
    
    
    530,036
    
    
    
    193,042
    
    
    
    
    
    
    
    (583,676
    )
    
    
    139,402Other assets
    
    
    278,591
    
    
    
    128,098
    
    
    
    2,661
    
    
    
    (182,339
    )
    
    
    227,011Total assets
    
    $
    3,410,033
    
    
    $
    323,195
    
    
    $
    1,451,677
    
    
    $
    (1,353,349
    )
    
    $
    3,831,556LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities
    
    $
    453,084
    
    
    $
    126,464
    
    
    $
    353,418
    
    
    $
    (587,334
    )
    
    $
    345,632Long-term liabilities
    
    
    2,271,940
    
    
    
    
    
    
    
    684,937
    
    
    
    (182,339
    )
    
    
    2,774,538Stockholders equity
    
    
    685,009
    
    
    
    196,731
    
    
    
    386,945
    
    
    
    (583,676
    )
    
    
    685,009Noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    26,377
    
    
    
    
    
    
    
    26,377Total liabilities and stockholders equity
    
    $
    3,410,033
    
    
    $
    323,195
    
    
    $
    1,451,677
    
    
    $
    (1,353,349
    )
    
    $
    3,831,556
 21




---



##### Table of Contents



December 31, 2008QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)ASSETSCurrent assets
    
    $
    502,803
    
    
    $
    163
    
    
    $
    426,297
    
    
    $
    (535,927
    )
    
    $
    393,336Property and equipment
    
    
    2,756,915
    
    
    
    1,774
    
    
    
    1,039,026
    
    
    
    
    
    
    
    3,797,715Investment in subsidiaries (equity method)
    
    
    596,149
    
    
    
    170,150
    
    
    
    
    
    
    
    (615,796
    )
    
    
    150,503Other assets
    
    
    207,474
    
    
    
    123,298
    
    
    
    2,826
    
    
    
    (176,944
    )
    
    
    156,654Total assets
    
    $
    4,063,341
    
    
    $
    295,385
    
    
    $
    1,468,149
    
    
    $
    (1,328,667
    )
    
    $
    4,498,208LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities
    
    $
    518,837
    
    
    $
    122,677
    
    
    $
    312,912
    
    
    $
    (535,927
    )
    
    $
    418,499Long-term liabilities
    
    
    2,359,678
    
    
    
    
    
    
    
    685,412
    
    
    
    (176,944
    )
    
    
    2,868,146Stockholders equity
    
    
    1,184,826
    
    
    
    172,708
    
    
    
    443,088
    
    
    
    (615,796
    )
    
    
    1,184,826Noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    26,737
    
    
    
    
    
    
    
    26,737Total liabilities and stockholders equity
    
    $
    4,063,341
    
    
    $
    295,385
    
    
    $
    1,468,149
    
    
    $
    (1,328,667
    )
    
    $
    4,498,208
 Condensed Consolidating Statements of Income
 For the Three Months Ended March 31, 2009QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Revenues
    
    $
    137,859
    
    
    $
    108
    
    
    $
    70,564
    
    
    $
    (22,599
    )
    
    $
    185,932Operating expenses
    
    
    892,490
    
    
    
    360
    
    
    
    141,373
    
    
    
    (22,599
    )
    
    
    1,011,624Equity in net earnings of subsidiaries
    
    
    (54,897
    )
    
    
    7,765
    
    
    
    
    
    
    
    47,132
    
    
    
    Operating income
    
    
    (809,528
    )
    
    
    7,513
    
    
    
    (70,809
    )
    
    
    47,132
    
    
    
    (825,692
    )Income from earnings of BBEP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense and other
    
    
    (36,551
    )
    
    
    1,383
    
    
    
    (4,272
    )
    
    
    
    
    
    
    (39,440
    )Income tax benefit (provision)
    
    
    277,100
    
    
    
    (396
    )
    
    
    21,119
    
    
    
    
    
    
    
    297,823Net income (loss)
    
    $
    (568,979
    )
    
    $
    8,500
    
    
    $
    (53,962
    )
    
    $
    47,132
    
    
    $
    (567,309
    )Net income attributable to
noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    (1,670
    )
    
    
    
    
    
    
    (1,670
    )Net income(loss) attributable to
Quicksilver
    
    $
    (568,979
    )
    
    $
    8,500
    
    
    $
    (55,632
    )
    
    $
    47,132
    
    
    $
    (568,979
    )
 For the Three Months Ended March 31, 2008QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Revenues
    
    $
    116,887
    
    
    $
    
    
    
    $
    53,375
    
    
    $
    (12,645
    )
    
    $
    157,617Operating expenses
    
    
    66,957
    
    
    
    499
    
    
    
    32,083
    
    
    
    (12,645
    )
    
    
    86,894Equity in net earnings of subsidiaries
    
    
    11,895
    
    
    
    2,376
    
    
    
    
    
    
    
    (14,271
    )
    
    
    Operating income
    
    
    61,825
    
    
    
    1,877
    
    
    
    21,292
    
    
    
    (14,271
    )
    
    
    70,723Income from earnings of BBEP
    
    
    6,219
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,219Interest expense and other
    
    
    (7,049
    )
    
    
    1,433
    
    
    
    (6,333
    )
    
    
    
    
    
    
    (11,949
    )Income tax provision
    
    
    (19,861
    )
    
    
    (327
    )
    
    
    (3,163
    )
    
    
    
    
    
    
    (23,351
    )Net income
    
    $
    41,134
    
    
    $
    2,983
    
    
    $
    11,796
    
    
    $
    (14,271
    )
    
    $
    41,642Net income attributable to
noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    (508
    )
    
    
    
    
    
    
    (508
    )Net income attributable to Quicksilver
    
    $
    41,134
    
    
    $
    2,983
    
    
    $
    11,288
    
    
    $
    (14,271
    )
    
    $
    41,134
 22




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##### Table of Contents



Condensed Consolidating Statements of Cash Flows
 For the Three Months Ended March 31, 2009QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Cash flow provided by operations
    
    $
    119,199
    
    
    $
    67
    
    
    $
    30,021
    
    
    $
    
    
    
    $
    149,287Cash flow used for investing activities
    
    
    (205,445
    )
    
    
    9,985
    
    
    
    (43,421
    )
    
    
    (16,687
    )
    
    
    (255,568
    )Cash flow provided by financing activities
    
    
    84,707
    
    
    
    (10,052
    )
    
    
    12,745
    
    
    
    16,687
    
    
    
    104,087Effect of exchange rates on cash
    
    
    (61
    )
    
    
    
    
    
    
    (163
    )
    
    
    
    
    
    
    (224
    )Net decrease in cash and equivalents
    
    
    (1,600
    )
    
    
    
    
    
    
    (818
    )
    
    
    
    
    
    
    (2,418
    )Cash and equivalents at beginning of
period
    
    
    1,677
    
    
    
    
    
    
    
    1,171
    
    
    
    
    
    
    
    2,848Cash and equivalents at end of period
    
    $
    77
    
    
    $
    
    
    
    $
    353
    
    
    $
    
    
    
    $
    430
 For the Three Months Ended March 31, 2008QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Cash flow provided by operations
    
    $
    (45,590
    )
    
    $
    9,093
    
    
    $
    79,781
    
    
    
    
    
    
    $
    43,284Cash flow used for investing activities
    
    
    (231,747
    )
    
    
    23,270
    
    
    
    (132,502
    )
    
    
    (37,667
    )
    
    
    (378,646
    )Cash flow provided by financing activities
    
    
    252,122
    
    
    
    (32,363
    )
    
    
    52,160
    
    
    
    37,667
    
    
    
    309,586Effect of exchange rates on cash
    
    
    (58
    )
    
    
    
    
    
    
    (416
    )
    
    
    
    
    
    
    (474
    )Net decrease in cash and equivalents
    
    
    (25,273
    )
    
    
    
    
    
    
    (977
    )
    
    
    
    
    
    
    (26,250
    )Cash and equivalents at beginning of
period
    
    
    27,010
    
    
    
    
    
    
    
    1,216
    
    
    
    
    
    
    
    28,226Cash and equivalents at end of period
    
    $
    1,737
    
    
    $
    
    
    
    $
    239
    
    
    $
    
    
    
    $
    1,976
 13. SUPPLEMENTAL CASH FLOW INFORMATION
  Three Months EndedMarch 31,2009
    
    2008(In thousands)Interest
    
    $
    46,325
    
    
    $
    18,295Income taxes
    
    
    
    
    
    
    47,196
  Three Months EndedMarch 31,2009
    
    2008(In thousands)Working capital related to acquisition
of property, plant and equipment
    
    $
    163,378
    
    
    $
    174,354
 14. RELATED-PARTY TRANSACTIONS
  23




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##### Table of Contents



15. SEGMENT INFORMATION
  Exploration & Production
    
    Processing &
    
    
    
    
    
    
    
    
    
    QuicksilverUnited States
    
    Canada
    
    Gathering
    
    Corporate
    
    Elimination
    
    Consolidated(in thousands)For the Three Months Ended March 31,2009Revenues
    
    $
    137,729
    
    
    $
    45,929
    
    
    $
    25,075
    
    
    $
    
    
    
    $
    (22,801
    )
    
    $
    185,932Depletion, depreciation and accretion
    
    
    44,250
    
    
    
    10,293
    
    
    
    4,827
    
    
    
    326
    
    
    
    
    
    
    
    59,696Operating income
    
    
    (739,359
    )
    
    
    (82,076
    )
    
    
    13,450
    
    
    
    (17,707
    )
    
    
    
    
    
    
    (825,692
    )Property and equipment costs incurred
    
    
    137,632
    
    
    
    42,778
    
    
    
    17,897
    
    
    
    526
    
    
    
    
    
    
    
    198,8332008Revenues
    
    $
    116,731
    
    
    $
    38,626
    
    
    $
    15,185
    
    
    $
    
    
    
    $
    (12,925
    )
    
    $
    157,617Depletion, depreciation and accretion
    
    
    20,089
    
    
    
    11,431
    
    
    
    3,275
    
    
    
    264
    
    
    
    
    
    
    
    35,059Operating income
    
    
    62,951
    
    
    
    16,830
    
    
    
    4,805
    
    
    
    (13,863
    )
    
    
    
    
    
    
    70,723Property and equipment costs incurred
    
    
    212,006
    
    
    
    76,443
    
    
    
    54,430
    
    
    
    381
    
    
    
    
    
    
    
    343,260Property, Plant and Equipment-netMarch 31, 2009
    
    $
    2,030,023
    
    
    $
    457,315
    
    
    $
    535,017
    
    
    $
    4,952
    
    
    
    
    
    
    $
    3,027,307December 31, 2008
    
    
    2,723,103
    
    
    
    550,413
    
    
    
    519,447
    
    
    
    4,752
    
    
    
    
    
    
    
    3,797,715
 24




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 
 EXECUTIVE OVERVIEW
  FIRST QUARTER AND OTHER 2009 HIGHLIGHTS
 Increase in Production
 Results of
Operations
 Amended Senior Secured Credit Facility
   Update on Horn River
  BBEP Update
  25




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##### Table of Contents



OUTLOOK FOR REMAINDER OF 2009
    RESULTS OF OPERATIONS  Three Months Ended March 31, 2009 and 2008
 Revenue
 Natural Gas, NGL and Crude Oil
  Natural Gas
    
    
    NGL
    
    
    Oil and Condensate
    
    
    Total2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008(In millions)Texas
    
    $
    72.7
    
    
    $
    58.6
    
    
    $
    25.4
    
    
    $
    48.4
    
    
    $
    3.3
    
    
    $
    6.5
    
    
    $
    101.4
    
    
    $
    113.5Other U.S.
    
    
    0.1
    
    
    
    0.2
    
    
    
    
    
    
    
    0.3
    
    
    
    1.3
    
    
    
    3.8
    
    
    
    1.4
    
    
    
    4.3Hedging
    
    
    34.8
    
    
    
    2.6
    
    
    
    
    
    
    
    (3.6
    )
    
    
    
    
    
    
    (1.5
    )
    
    
    34.8
    
    
    
    (2.5
    )Total U.S.
    
    
    107.6
    
    
    
    61.4
    
    
    
    25.4
    
    
    
    45.1
    
    
    
    4.6
    
    
    
    8.8
    
    
    
    137.6
    
    
    
    115.3Canada
    
    
    26.9
    
    
    
    43.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26.9
    
    
    
    43.5Hedging
    
    
    19.0
    
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.0
    
    
    
    (0.4
    )Total Canada
    
    
    45.9
    
    
    
    43.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45.9
    
    
    
    43.1Total Company
    
    $
    153.5
    
    
    $
    104.5
    
    
    $
    25.4
    
    
    $
    45.1
    
    
    $
    4.6
    
    
    $
    8.8
    
    
    $
    183.5
    
    
    $
    158.4
  Natural Gas
    
    
    NGL
    
    
    Oil and Condensate
    
    
    Equivalent Total2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008(MMcfd)
    
    
    (Bbld)
    
    
    (Bbld)
    
    
    (MMcfed)Texas
    
    
    177.3
    
    
    
    80.4
    
    
    
    13,348
    
    
    
    9,989
    
    
    
    1,019
    
    
    
    777
    
    
    
    263.5
    
    
    
    145.0Other U.S.
    
    
    0.3
    
    
    
    0.5
    
    
    
    
    
    
    
    41
    
    
    
    475
    
    
    
    474
    
    
    
    3.1
    
    
    
    3.6Total U.S.
    
    
    177.6
    
    
    
    80.9
    
    
    
    13,348
    
    
    
    10,030
    
    
    
    1,494
    
    
    
    1,251
    
    
    
    266.6
    
    
    
    148.6Canada
    
    
    64.9
    
    
    
    62.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64.9
    
    
    
    62.5Total Company
    
    
    242.5
    
    
    
    143.4
    
    
    
    13,348
    
    
    
    10,030
    
    
    
    1,494
    
    
    
    1,251
    
    
    
    331.5
    
    
    
    211.1
 26




---



##### Table of Contents



Natural Gas
    
    NGL
    
    Oil and Condensate
    
    Equivalent Total2009
    
    2008
    
    2009
    
    2008
    
    2009
    
    2008
    
    2009
    
    2008(per Mcf)
    
    (per Bbl)
    
    (per Bbl)
    
    (per Mcfe)Texas
    
    $
    4.56
    
    
    $
    8.01
    
    
    $
    21.13
    
    
    $
    53.28
    
    
    $
    36.24
    
    
    $
    91.58
    
    
    $
    4.28
    
    
    $
    8.60Other U.S.
    
    
    3.91
    
    
    
    4.36
    
    
    
    
    
    
    
    84.30
    
    
    
    30.54
    
    
    
    88.65
    
    
    
    4.67
    
    
    
    13.80Hedging  U.S.
    
    
    2.18
    
    
    
    0.35
    
    
    
    
    
    
    
    (4.05
    )
    
    
    
    
    
    
    (13.01
    )
    
    
    1.45
    
    
    
    (0.19
    )Total U.S.
    
    
    6.73
    
    
    
    8.34
    
    
    
    21.13
    
    
    
    49.36
    
    
    
    34.42
    
    
    
    77.46
    
    
    
    5.74
    
    
    
    8.53Canada
    
    
    4.60
    
    
    
    7.64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.60
    
    
    
    7.64Hedging  Canada
    
    
    3.26
    
    
    
    (0.07
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.26
    
    
    
    (0.07
    )Total Canada
    
    
    7.86
    
    
    
    7.57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.86
    
    
    
    7.57Total Company
    
    $
    7.04
    
    
    $
    8.00
    
    
    $
    21.13
    
    
    $
    49.36
    
    
    $
    34.42
    
    
    $
    77.46
    
    
    $
    6.15
    
    
    $
    8.24
  NaturalGas
    
    
    NGL
    
    
    Oil
    
    
    Total(In thousands)Revenue for the quarter ended March 31, 2008
    
    $
    104,487
    
    
    $
    45,053
    
    
    $
    8,816
    
    
    $
    158,356Volume changes
    
    
    70,154
    
    
    
    14,268
    
    
    
    1,611
    
    
    
    86,033Price changes
    
    
    (21,117
    )
    
    
    (33,925
    )
    
    
    (5,793
    )
    
    
    (60,835
    )Revenue for the quarter ended March 31, 2009
    
    $
    153,524
    
    
    $
    25,396
    
    
    $
    4,634
    
    
    $
    183,554
     Other Revenue
  27




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##### Table of Contents



Operating Expenses
 Oil and Gas Production Expense
 Three Months Ended March 31,2009
    
    
    2008(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeTexasCash expense
    
    $
    22,878
    
    
    $
    0.97
    
    
    $
    21,836
    
    
    $
    1.66Equity compensation
    
    
    303
    
    
    
    0.01
    
    
    
    314
    
    
    
    0.02$
    23,181
    
    
    $
    0.98
    
    
    $
    22,150
    
    
    $
    1.68Other U.S.Cash expense
    
    $
    1,832
    
    
    $
    6.16
    
    
    $
    888
    
    
    $
    2.71Equity compensation
    
    
    50
    
    
    
    0.17
    
    
    
    48
    
    
    
    0.15$
    1,882
    
    
    $
    6.33
    
    
    $
    936
    
    
    $
    2.86Total U.S.Cash expense
    
    $
    24,710
    
    
    $
    1.03
    
    
    $
    22,724
    
    
    $
    1.68Equity compensation
    
    
    353
    
    
    
    0.01
    
    
    
    362
    
    
    
    0.03$
    25,063
    
    
    $
    1.04
    
    
    $
    23,086
    
    
    $
    1.71CanadaCash expense
    
    $
    7,075
    
    
    $
    1.21
    
    
    $
    8,763
    
    
    $
    1.54Equity compensation
    
    
    596
    
    
    
    0.10
    
    
    
    681
    
    
    
    0.12$
    7,671
    
    
    $
    1.31
    
    
    $
    9,444
    
    
    $
    1.66Total CompanyCash expense
    
    $
    31,785
    
    
    $
    1.07
    
    
    $
    31,487
    
    
    $
    1.64Equity compensation
    
    
    949
    
    
    
    0.03
    
    
    
    1,043
    
    
    
    0.05$
    32,734
    
    
    $
    1.10
    
    
    $
    32,530
    
    
    $
    1.69
   28




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##### Table of Contents



Production and Ad Valorem Taxes
 Three Months Ended March 31,2009
    
    
    2008(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeProduction and ad valorem taxesU.S.
    
    $
    3,942
    
    
    $
    0.16
    
    
    $
    1,738
    
    
    $
    0.13Canada
    
    
    424
    
    
    
    0.07
    
    
    
    921
    
    
    
    0.16Total production and ad valorem taxes
    
    $
    4,366
    
    
    $
    0.15
    
    
    $
    2,659
    
    
    $
    0.14
  Depletion, Depreciation and Accretion
 Three Months Ended March 31,2009
    
    
    2008(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeDepletionU.S.
    
    $
    41,872
    
    
    $
    1.74
    
    
    $
    19,062
    
    
    $
    1.41Canada
    
    
    9,102
    
    
    
    1.56
    
    
    
    10,505
    
    
    
    1.85Total depletion
    
    
    50,974
    
    
    
    1.71
    
    
    
    29,567
    
    
    
    1.54Depreciation of other fixed assetsU.S.
    
    $
    7,310
    
    
    $
    0.30
    
    
    $
    4,422
    
    
    $
    0.33Canada
    
    
    823
    
    
    
    0.14
    
    
    
    718
    
    
    
    0.13Total depreciation
    
    
    8,133
    
    
    
    0.27
    
    
    
    5,140
    
    
    
    0.27Accretion
    
    
    589
    
    
    
    0.02
    
    
    
    352
    
    
    
    0.01Total depletion, depreciation and accretion
    
    $
    59,696
    
    
    $
    2.00
    
    
    $
    35,059
    
    
    $
    1.82
  Impairment of Oil and Gas Properties
  29




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##### Table of Contents



General and Administrative Expense
 Three Months Ended March 31,2009
    
    
    2008(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeGeneral and administrative expenseCash expense
    
    $
    12,665
    
    
    $
    0.42
    
    
    $
    12,296
    
    
    $
    0.64Equity compensation
    
    
    4,716
    
    
    
    0.16
    
    
    
    3,119
    
    
    
    0.16Total general and administrative expense
    
    $
    17,381
    
    
    $
    0.58
    
    
    $
    15,415
    
    
    $
    0.80
  BBEP-Related Income and Expense
   Interest Expense
 Three Months EndedMarch 31,2009
    
    
    2008(in thousands)Interest costs
    
    $
    37,373
    
    
    $
    12,934Add: Non-cash interest
    
    
    4,139
    
    
    
    2,220Less: Interest capitalized
    
    
    (1,311
    )
    
    
    (1,719
    )Interest expense
    
    $
    40,201
    
    
    $
    13,435
  Income Tax Expense
 Three Months EndedMarch 31,2009
    
    2008Income tax (benefit)  in thousands
    
    $
    (297,823
    )
    
    $
    23,351Effective tax rate
    
    
    34.4
    %
    
    
    35.9
    %
 30




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##### Table of Contents



LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
 Cash Flow Activity
    Three Months Ended March 31,2009
    
    2008(In thousands)Net cash provided by operating activities
    
    $
    149,287
    
    
    $
    43,284Net cash used for investing activities
    
    
    (255,568
    )
    
    
    (378,646
    )Net cash provided by financing activities
    
    
    104,087
    
    
    
    309,586Effect of exchange rate changes in cash
    
    
    (224
    )
    
    
    (474
    )
 Operating Cash Flows
    Investing Cash Flows
  31




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##### Table of Contents



Three Months EndedMarch 31, 2009(In thousands)Exploration and development:Texas
    
    $
    122,800Other U.S.
    
    
    14,563Total U.S.
    
    
    137,363Canada
    
    
    42,774Total exploration and development
    
    
    180,137Midstream:Texas
    
    
    16,906Canada
    
    
    991Total midstream
    
    
    17,897Corporate and field office
    
    
    799Total plant and equipment costs incurred
    
    $
    198,833
  Financing Cash Flows
 First Quarter and Other 2009 Highlights
   March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Long-term and short-term debtSenior secured credit facility
    
    $
    906,182
    
    
    $
    827,868Senior secured second lien facility
    
    
    640,507
    
    
    
    641,555Senior notes
    
    
    469,288
    
    
    
    469,062Senior subordinated notes
    
    
    350,000
    
    
    
    350,000Convertible subordinated debentures
    
    
    130,916
    
    
    
    129,240KGS credit agreement
    
    
    196,900
    
    
    
    174,900Total debt
    
    
    2,693,793
    
    
    
    2,592,625Quicksilvers stockholders equity
    
    
    685,009
    
    
    
    1,184,826Total capitalization
    
    $
    3,378,802
    
    
    $
    3,777,451
  Financial Position
  
    
    Our current derivative assets increased $89.5 million while our deferred
derivative assets decreased $34.0 million as a result of higher derivative
valuations partially offset by monthly settlements of $53.9 million, and the early
settlement of a derivative hedging a portion of our 2010 production for $54.9
million. Our derivative liabilities decreased $9.1 million as a result of
 the Michigan Sales Contract expiring on March 31, 2009. Our current
 32




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##### Table of Contents



deferred
income tax liability increased $37.6 million as a result of an overall increase in
the valuations of our derivatives.
    
    Our net property, plant and equipment balances decreased $785 million as a result
of charges for impairment of our oil gas properties of $896.5 million and DD&A
expense of $59.7 million partially offset by $198.8 million of costs incurred for
property, plant and equipment.
    
    Our deferred income tax liability decreased $104.1 million and a deferred tax
asset of $204.2 million was reclassified in connection with the impairment of both
our investment in BBEP and our oil and gas properties.
 Contractual Obligations and Commercial Commitments
  Critical Accounting Estimates
  
    
    full cost ceiling calculation;
    
    oil and gas reserves;
    
    derivative instruments;
    
    asset retirement obligations;
    
    stock-based compensation; and
    
    income taxes.
  Off-Balance Sheet Arrangements
  Recently Issued Accounting Standards
  
 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
   Commodity Price Risk
  33




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##### Table of Contents



Weighted Avg PriceProduct
    
    Type
    
    Contract Period
    
    Volume
    
    Per Mcf
    
    
    Fair Value(In thousands)Gas
    
    Swap
    
    Apr 2009Dec 2009
    
    10 MMcfd
    
    $
    8.45
    
    
    $
    11,440Gas
    
    Swap
    
    Apr 2009Dec 2009
    
    10 MMcfd
    
    
    8.45
    
    
    
    11,440Gas
    
    Swap
    
    Apr 2009Dec 2009
    
    20 MMcfd
    
    
    8.46
    
    
    
    22,907Gas
    
    Collar
    
    Apr 2009Dec 2009
    
    20 MMcfd
    
    
    7.50 9.34
    
    
    
    17,913Gas
    
    Collar
    
    Apr 2009Dec 2009
    
    20 MMcfd
    
    
    7.7510.20
    
    
    
    19,256Gas
    
    Collar
    
    Apr 2009Dec 2009
    
    10 MMcfd
    
    
    7.7510.26
    
    
    
    9,655Gas
    
    Collar
    
    Apr 2009Dec 2009
    
    20 MMcfd
    
    
    8.25 9.60
    
    
    
    21,899Gas
    
    Collar
    
    Apr 2009Dec 2009
    
    10 MMcfd
    
    
    8.2510.45
    
    
    
    10,964Gas
    
    Collar
    
    Apr 2009Dec 2009
    
    10 MMcfd
    
    
    8.2510.45
    
    
    
    10,964Gas
    
    Collar
    
    Apr 2009Dec 2009
    
    10 MMcfd
    
    
    8.2510.45
    
    
    
    10,964Gas
    
    Collar
    
    Apr 2009Dec 2009
    
    10 MMcfd
    
    
    8.5013.15
    
    
    
    11,678Gas
    
    Collar
    
    Apr 2009Dec 2009
    
    30 MMcfd
    
    
    11.0013.50
    
    
    
    55,226Gas
    
    Collar
    
    Apr 2009Dec 2009
    
    10 MMcfd
    
    
    11.5014.48
    
    
    
    19,809Gas
    
    Collar
    
    Jan 2010Dec 2010
    
    20 MMcfd
    
    
    8.0011.00
    
    
    
    17,052Gas
    
    Collar
    
    Jan 2010Dec 2010
    
    20 MMcfd
    
    
    8.0011.00
    
    
    
    17,052Gas
    
    Collar
    
    Jan 2010Dec 2010
    
    20 MMcfd
    
    
    8.0012.20
    
    
    
    17,396Gas
    
    Collar
    
    Jan 2010Dec 2010
    
    20 MMcfd
    
    
    8.0012.20
    
    
    
    17,396Gas
    
    Collar
    
    Jan 2010Dec 2010
    
    10 MMcfd
    
    
    8.5012.05
    
    
    
    10,211Gas
    
    Collar
    
    Jan 2010Dec 2010
    
    20 MMcfd
    
    
    8.5012.05
    
    
    
    20,421Gas
    
    Collar
    
    Jan 2010Dec 2010
    
    10 MMcfd
    
    
    8.5012.08
    
    
    
    10,310Gas
    
    Basis
    
    Apr 2009Dec 2009
    
    20 MMcfd
    
    
    (1
    )
    
    
    (852
    )Gas
    
    Basis
    
    Apr 2009Dec 2009
    
    10 MMcfd
    
    
    (1
    )
    
    
    (426
    )Gas
    
    Basis
    
    Apr 2009Dec 2009
    
    15 MMcfd
    
    
    (1
    )
    
    
    (166
    )Gas
    
    Basis
    
    Apr 2009Dec 2009
    
    15 MMcfd
    
    
    (1
    )
    
    
    (186
    )Total
    
    
    $
    342,323
 
 (1)
    
    Basis swaps for 60 MMcfd hedge the AECO basis adjustment at a weighted average
deduction of $0.84 per Mcf from NYMEX for the remainder of 2009.    34




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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
  35




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
  Natural gas, NGL and crude oil prices fluctuate widely, and low prices could have a material
adverse impact on our business, financial condition, results of operations and cash flows.
   
    
    domestic and foreign demand for natural gas and crude oil;
    
    the level of domestic and foreign natural gas and crude oil supplies;
    
    the price and availability of alternative fuels;
    
    weather conditions;
    
    domestic and foreign governmental regulations;
    
    impact of trade organizations, such as OPEC;
    
    political conditions in oil and natural gas producing regions; and
    
    worldwide economic conditions.
  If natural gas, NGL or crude oil prices decrease, our exploration and development efforts are
unsuccessful or our costs increase substantially, we may be required to recognize impairment of our
oil and gas properties, which could have a material adverse effect on our financial condition, our
results of operations and our ability to borrow under and comply with our debt agreements.
  36




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##### Table of Contents



Reserve estimates depend on many assumptions that may turn out to be inaccurate and any material
inaccuracies in these reserve estimates or underlying assumptions may materially affect the
quantities and present value of our reserves.
      Our production is concentrated in a small number of geographic areas.
  Our Canadian operations present unique risks and uncertainties, different from or in addition to
those we face in our domestic operations.
  We may have difficulty financing our planned growth.
 .
 37




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##### Table of Contents



We are vulnerable to operational hazards, transportation dependencies, regulatory risks and other
uninsured risks associated with our activities.
    The failure to replace our reserves could adversely affect our production and cash flows.
  We have risk through our investment in BBEP.
   38




---



##### Table of Contents



We have risk through our ownership of KGS.
  Natural gas, NGL and crude oil prices fluctuate widely, and low prices could have a material
adverse impact on our business, financial condition, results of operations and cash flows.
   
    
    domestic and foreign demand for natural gas and crude oil;
    
    the level of domestic and foreign natural gas and crude oil supplies;
    
    the price and availability of alternative fuels;
    
    weather conditions;
    
    domestic and foreign governmental regulations;
    
    impact of trade organizations, such as OPEC;
    
    political conditions in oil and natural gas producing regions; and
    
    worldwide economic conditions.
  If natural gas, NGL or crude oil prices decrease, our exploration and development efforts are
unsuccessful or our costs increase substantially, we may be required to recognize impairment of our
oil and gas properties, which could have a material adverse effect on our financial condition, our
results of operations and our ability to borrow under and comply with our debt agreements.
  Reserve estimates depend on many assumptions that may turn out to be inaccurate and any material
inaccuracies in these reserve estimates or underlying assumptions may materially affect the
quantities and present value of our reserves.
  39




---



##### Table of Contents



Our production is concentrated in a small number of geographic areas.
  Our Canadian operations present unique risks and uncertainties, different from or in addition to
those we face in our domestic operations.
  We may have difficulty financing our planned growth.
 .
 40




---



##### Table of Contents



We are vulnerable to operational hazards, transportation dependencies, regulatory risks and other
uninsured risks associated with our activities.
    The failure to replace our reserves could adversely affect our production and cash flows.
  We have risk through our investment in BBEP.
   We have risk through our ownership of KGS.
  
    
    changes in general economic conditions;
    
    fluctuations in natural gas prices;
    
    failure or delays in us and third parties achieving expected production from natural gas
projects;
    
    competitive conditions in the midstream industry;
 41




---



##### Table of Contents




    
    actions taken on non-performance by third parties, including suppliers, contractors,
operators, processors, transporters and customers;
    
    changes in the availability and cost of capital;
    
    operating hazards, natural disasters, weather-related delays, casualty losses and other
matters beyond our control;
    
    construction costs or capital expenditures exceeding estimated or budgeted amounts;
    
    the effects of existing and future laws and governmental regulations;
    
    the effects of future litigation; and
    
    other factors discussed in KGS Annual Report on Form 10-K and as are or may be detailed
from time to time in KGS public announcements and other filings with the SEC.
 We cannot control the operations of gas processing and transportation facilities we do not own or
operate.
  The loss of key personnel could adversely affect our ability to operate.
  Competition in our industry is intense, and we are smaller and have a more limited operating
history than many of our competitors.
  Hedging our production may result in losses or limit our ability to benefit from price increases.
  
    
    our production could be materially less than expected; or
    
    the other parties to the hedging contracts could fail to perform their contractual
obligations.
  Delays in obtaining oil field equipment and increases in drilling and other service costs could
adversely affect our ability to pursue our drilling program and our results of operations.
  42




---



##### Table of Contents



Our activities are regulated by complex laws and regulations, including environmental regulations
that can adversely affect the cost, manner or feasibility of doing business.
  
    
    discharge permits for drilling operations;
    
    water obtained for drilling purposes;
    
    drilling permits and bonds;
    
    reports concerning operations;
    
    spacing of wells;
    
    disposal wells;
    
    unitization and pooling of properties;
    
    environmental protection; and
    
    taxation.
    The risks associated with our debt could adversely affect our business, financial condition and
results of operations and the value of our securities, and such risks could increase if we incur
more debt.
   
    
    make it more difficult for us to satisfy our obligations with respect to our debt;
    
    require us to dedicate a substantial portion of our cash flow from operations to
payments on our debt, thereby reducing the amount of our cash flow available for working
capital, capital expenditures, acquisitions and other general corporate purposes;
    
    require us to make principal payments if the quantity and value of our proved reserves
are insufficient to support our level of borrowings;
    
    limit our flexibility in planning for, or reacting to, changes in the oil and natural
gas industry;
    
    place us at a competitive disadvantage compared to our competitors who may have lower
debt service obligations and greater financing flexibility than we do;
    
    limit our financial flexibility, including our ability to borrow additional funds;
 43




---



##### Table of Contents




    
    increase our interest expense on our variable rate borrowings if interest rates
increase;
    
    limit our ability to make capital expenditures to develop our properties;
    
    increase our vulnerability to exchange risk associated with Canadian dollar denominated
indebtedness;
    
    increase our vulnerability to general adverse economic and industry conditions; and
    
    result in a default or event of default under our debt agreements, which, if not cured
or waived, could adversely affect our financial condition, results of operations and cash
flows.
  
    
    reducing or delaying capital expenditures;
    
    seeking additional debt financing or equity capital;
    
    selling assets;
    
    restructuring or refinancing debt; or
    
    reorganizing our capital structure.
  Our debt agreements restrict our ability to engage in certain activities.
  
    
    incur additional debt;
    
    pay dividends on or redeem or repurchase capital stock;
    
    make certain investments;
    
    incur or permit certain liens to exist;
    
    enter into certain types of transactions with affiliates;
    
    merge, consolidate or amalgamate with another company;
    
    transfer or otherwise dispose of assets, including capital stock of subsidiaries; and
    
    redeem subordinated debt.
     44




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##### Table of Contents



A small number of existing stockholders exercise significant control over our company, which could
limit your ability to influence the outcome of stockholder votes.
  A large number of our outstanding shares and shares to be issued upon conversion of our outstanding
convertible debentures or exercise of our outstanding options may be sold into the market in the
future, which could cause the market price of our common stock to drop significantly, even if our
business is performing well.
   Our amended and restated certificate of incorporation, restated bylaws and stockholder rights plan
contain provisions that could discourage an acquisition or change of control without our board of
directors approval.
  
    
    our board of directors is authorized to issue preferred stock without stockholder
approval;
    
    our board of directors is classified; and
    
    advance notice is required for director nominations by stockholders and actions to be
taken at annual meetings at the request of stockholders.
  
    
    changes in general economic conditions;
    
    fluctuations in natural gas prices;
    
    failure or delays in us and third parties achieving expected production from natural gas
projects;
    
    competitive conditions in the midstream industry;
    
    actions taken on non-performance by third parties, including suppliers, contractors,
operators, processors, transporters and customers;
    
    changes in the availability and cost of capital;
    
    operating hazards, natural disasters, weather-related delays, casualty losses and other
matters beyond our control;
    
    construction costs or capital expenditures exceeding estimated or budgeted amounts;
    
    the effects of existing and future laws and governmental regulations;
    
    the effects of future litigation; and
    
    other factors discussed in KGS Annual Report on Form 10-K and as are or may be detailed
from time to time in KGS public announcements and other filings with the SEC.
 45




---



##### Table of Contents



We cannot control the operations of gas processing and transportation facilities we do not own or
operate.
  The loss of key personnel could adversely affect our ability to operate.
  Competition in our industry is intense, and we are smaller and have a more limited operating
history than many of our competitors.
  Hedging our production may result in losses or limit our ability to benefit from price increases.
  
    
    our production could be materially less than expected; or
    
    the other parties to the hedging contracts could fail to perform their contractual
obligations.
  Delays in obtaining oil field equipment and increases in drilling and other service costs could
adversely affect our ability to pursue our drilling program and our results of operations.
  Our activities are regulated by complex laws and regulations, including environmental regulations
that can adversely affect the cost, manner or feasibility of doing business.
  
    
    discharge permits for drilling operations;
    
    water obtained for drilling purposes;
 46




---



##### Table of Contents




    
    drilling permits and bonds;
    
    reports concerning operations;
    
    spacing of wells;
    
    disposal wells;
    
    unitization and pooling of properties;
    
    environmental protection; and
    
    taxation.
    The risks associated with our debt could adversely affect our business, financial condition and
results of operations and the value of our securities, and such risks could increase if we incur
more debt.
   
    
    make it more difficult for us to satisfy our obligations with respect to our debt;
    
    require us to dedicate a substantial portion of our cash flow from operations to
payments on our debt, thereby reducing the amount of our cash flow available for working
capital, capital expenditures, acquisitions and other general corporate purposes;
    
    require us to make principal payments if the quantity and value of our proved reserves
are insufficient to support our level of borrowings;
    
    limit our flexibility in planning for, or reacting to, changes in the oil and natural
gas industry;
    
    place us at a competitive disadvantage compared to our competitors who may have lower
debt service obligations and greater financing flexibility than we do;
    
    limit our financial flexibility, including our ability to borrow additional funds;
    
    increase our interest expense on our variable rate borrowings if interest rates
increase;
    
    limit our ability to make capital expenditures to develop our properties;
    
    increase our vulnerability to exchange risk associated with Canadian dollar denominated
indebtedness;
    
    increase our vulnerability to general adverse economic and industry conditions; and
    
    result in a default or event of default under our debt agreements, which, if not cured
or waived, could adversely affect our financial condition, results of operations and cash
flows.
  47




---



##### Table of Contents




    
    reducing or delaying capital expenditures;
    
    seeking additional debt financing or equity capital;
    
    selling assets;
    
    restructuring or refinancing debt; or
    
    reorganizing our capital structure.
  Our debt agreements restrict our ability to engage in certain activities.
  
    
    incur additional debt;
    
    pay dividends on or redeem or repurchase capital stock;
    
    make certain investments;
    
    incur or permit certain liens to exist;
    
    enter into certain types of transactions with affiliates;
    
    merge, consolidate or amalgamate with another company;
    
    transfer or otherwise dispose of assets, including capital stock of subsidiaries; and
    
    redeem subordinated debt.
   Parties with whom we do business may become unable or unwilling to timely perform their obligations
to us.
  A small number of existing stockholders exercise significant control over our company, which could
limit your ability to influence the outcome of stockholder votes.
  48




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##### Table of Contents



A large number of our outstanding shares and shares to be issued upon conversion of our outstanding
convertible debentures or exercise of our outstanding options may be sold into the market in the
future, which could cause the market price of our common stock to drop significantly, even if our
business is performing well.
   Our amended and restated certificate of incorporation, restated bylaws and stockholder rights plan
contain provisions that could discourage an acquisition or change of control without our board of
directors approval.
  
    
    our board of directors is authorized to issue preferred stock without stockholder
approval;
    
    our board of directors is classified; and
    
    advance notice is required for director nominations by stockholders and actions to be
taken at annual meetings at the request of stockholders.
  
 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)January 2009
    
    
    98,304
    
    
    $
    6.15
    
    
    
    
    
    
    
    February 2009
    
    
    2,104
    
    
    $
    6.95
    
    
    
    
    
    
    
    March 2009
    
    
    527
    
    
    $
    5.96
    
    
    
    
    
    
    
    Total
    
    
    100,935
    
    
    $
    6.16
    
    
    
    
    
    
    
    
 
 (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.(2)
    
    We do not currently have in place any publicly announced, specific plans
or programs to purchase equity securities. 49




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##### Table of Contents



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* 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.
 
 *
    
    Filed herewith 50




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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 51




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description* 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.
 
 *
    
    Filed herewith