##### 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 September 30, 2007
 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 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)777 West Rosedale, Fort Worth, Texas
    
    76104(Address of principal executive offices)
    
    (Zip Code)
 (817) 665-5000
 None
 þ o
  þ o o
 o þ
  Title of Class
    
    Outstanding as of October 31, 2007Common Stock, $0.01 par value
    
    79,050,986




---



##### 



QUICKSILVER RESOURCES INC.
INDEX TO FORM 10-Q
For the Period Ending September 30, 2007
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)
    
    
    3Report of Independent Registered Public Accounting Firm
    
    
    3Condensed Consolidated Balance Sheets at September 30, 2007 and December 31, 2006
    
    
    4Condensed Consolidated Statements of Income and Comprehensive Income for the Three
and Nine Months Ended September 30, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2007 and 2006
    
    
    6Notes to Condensed Consolidated Interim Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    38PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    39Item 1A. Risk Factors
    
    
    40Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 6. Exhibits
    
    
    42Signatures
    
    
    43Awareness Letter of Deloitte & Touche LLPCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited)
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Share-Based Payment
  
 3




---



##### Table of Contents



QUICKSILVER RESOURCES INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 In thousands, except for share data  Unaudited
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    19,590
    
    
    $
    5,281Accounts receivable, net of allowance for doubtful accounts
    
    
    69,895
    
    
    
    76,521Current derivative assets
    
    
    26,638
    
    
    
    64,086Other current assets
    
    
    38,632
    
    
    
    25,076Total current assets
    
    
    154,755
    
    
    
    170,964Investments in and advances to equity affiliates
    
    
    7,161
    
    
    
    7,434Property, plant and equipment  NetOil and gas properties, full cost method (including unevaluated costs of $239,807 and $191,665, respectively)
    
    
    2,027,035
    
    
    
    1,444,059Other property and equipment
    
    
    360,816
    
    
    
    235,221Property, plant and equipment  Net
    
    
    2,387,851
    
    
    
    1,679,280Non-current derivative assets
    
    
    
    
    
    
    3,753Other assets
    
    
    22,209
    
    
    
    21,481$
    2,571,976
    
    
    $
    1,882,912LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt
    
    $
    126
    
    
    $
    400Accounts payable
    
    
    133,920
    
    
    
    109,914Accrued liabilities
    
    
    89,325
    
    
    
    67,697Derivative obligations
    
    
    3,822
    
    
    
    Current deferred income taxes
    
    
    6,238
    
    
    
    21,378Total current liabilities
    
    
    233,431
    
    
    
    199,389Long-term debt
    
    
    1,318,441
    
    
    
    919,117Derivative obligations
    
    
    2,733
    
    
    
    Asset retirement obligations
    
    
    31,114
    
    
    
    25,058Deferred gain
    
    
    81,613
    
    
    
    Deferred income taxes
    
    
    200,453
    
    
    
    156,251Minority interest
    
    
    28,795
    
    
    
    7,431Stockholders equityPreferred stock, $0.01 par value, 10,000,000 shares authorized,
no shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value, 200,000,000 shares authorized
and 81,382,738 and 80,181,593 shares issued, respectively
    
    
    814
    
    
    
    802Paid in capital in excess of par value
    
    
    261,352
    
    
    
    238,063Treasury stock of 2,615,943 and 2,579,671 shares, respectively
    
    
    (12,262
    )
    
    
    (10,737
    )Accumulated other comprehensive income
    
    
    55,097
    
    
    
    60,099Retained earnings
    
    
    370,395
    
    
    
    287,439Total stockholders equity
    
    
    675,396
    
    
    
    575,666$
    2,571,976
    
    
    $
    1,882,912
  4




---



##### Table of Contents



QUICKSILVER RESOURCES INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 In thousands, except for per share data  Unaudited
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006RevenuesOil, gas and related product sales
    
    $
    151,046
    
    
    $
    98,150
    
    
    $
    398,297
    
    
    $
    285,375Other revenue
    
    
    8,153
    
    
    
    1,063
    
    
    
    13,880
    
    
    
    2,953Total revenues
    
    
    159,199
    
    
    
    99,213
    
    
    
    412,177
    
    
    
    288,328ExpensesOil and gas production costs
    
    
    44,246
    
    
    
    24,602
    
    
    
    104,804
    
    
    
    70,232Production and ad valorem taxes
    
    
    4,366
    
    
    
    4,502
    
    
    
    13,068
    
    
    
    10,661Other operating costs
    
    
    855
    
    
    
    300
    
    
    
    1,940
    
    
    
    1,249Depletion, depreciation and accretion
    
    
    32,115
    
    
    
    19,933
    
    
    
    84,614
    
    
    
    55,560General and administrative
    
    
    14,328
    
    
    
    6,245
    
    
    
    34,324
    
    
    
    17,936Total expenses
    
    
    95,910
    
    
    
    55,582
    
    
    
    238,750
    
    
    
    155,638Equity income from affiliates
    
    
    285
    
    
    
    210
    
    
    
    682
    
    
    
    318Operating income
    
    
    63,574
    
    
    
    43,841
    
    
    
    174,109
    
    
    
    133,008Other income  net
    
    
    (385
    )
    
    
    (167
    )
    
    
    (1,856
    )
    
    
    (1,015
    )Interest expense
    
    
    20,690
    
    
    
    11,040
    
    
    
    53,858
    
    
    
    30,808Income before income taxes and minority interest
    
    
    43,269
    
    
    
    32,968
    
    
    
    122,107
    
    
    
    103,215Income tax expense
    
    
    14,093
    
    
    
    10,046
    
    
    
    38,158
    
    
    
    29,139Minority interest expense
    
    
    457
    
    
    
    61
    
    
    
    648
    
    
    
    72Net income
    
    $
    28,719
    
    
    $
    22,861
    
    
    $
    83,301
    
    
    $
    74,004Other comprehensive income, net of income taxesReclassification adjustments  hedge settlements
    
    
    (15,146
    )
    
    
    (3,409
    )
    
    
    (29,299
    )
    
    
    (4,239
    )Unrealized gain (loss) on derivative instruments
    
    
    14,547
    
    
    
    33,717
    
    
    
    (4,381
    )
    
    
    73,282Foreign currency translation adjustments
    
    
    13,698
    
    
    
    694
    
    
    
    28,678
    
    
    
    5,605Comprehensive income
    
    $
    41,818
    
    
    $
    53,863
    
    
    $
    78,299
    
    
    $
    148,652Earnings per common share  basic
    
    $
    0.37
    
    
    $
    0.30
    
    
    $
    1.07
    
    
    $
    0.97Earnings per common share  diluted
    
    $
    0.35
    
    
    $
    0.28
    
    
    $
    1.01
    
    
    $
    0.91Weighted average common shares outstandingBasic
    
    
    77,875
    
    
    
    77,007
    
    
    
    77,557
    
    
    
    76,593Diluted
    
    
    84,185
    
    
    
    83,306
    
    
    
    84,014
    
    
    
    83,056
  5




---



##### Table of Contents



QUICKSILVER RESOURCES INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 In thousands  Unaudited
 For the Nine Months EndedSeptember 30,2007
    
    
    2006Operating activities:Net income
    
    $
    83,301
    
    
    $
    74,004Adjustments to reconcile net income to net cash provided by operating activitiesDepletion, depreciation and accretion
    
    
    84,614
    
    
    
    55,560Deferred income tax expense
    
    
    37,912
    
    
    
    29,095Non-cash equity-based compensation
    
    
    9,415
    
    
    
    4,775Amortization of deferred loan costs
    
    
    1,458
    
    
    
    1,615Non-cash gain from hedging activities
    
    
    (2,959
    )
    
    
    (114
    )Equity income from affiliates
    
    
    (682
    )
    
    
    (318
    )Minority interest expense
    
    
    648
    
    
    
    72Other non-cash items
    
    
    2,275
    
    
    
    232Changes in assets and liabilitiesAccounts receivable
    
    
    6,754
    
    
    
    7,748Current and other assets
    
    
    (12,628
    )
    
    
    (17,921
    )Accounts payable
    
    
    511
    
    
    
    14,844Accrued and other liabilities
    
    
    36,907
    
    
    
    18,114Net cash provided by operating activities
    
    
    247,526
    
    
    
    187,706Investing activities:Purchases of property, plant and equipment
    
    
    (706,035
    )
    
    
    (429,485
    )Return of investment in equity affiliates
    
    
    162
    
    
    
    558Proceeds from sales of properties
    
    
    166
    
    
    
    5,670Net cash used for investing activities
    
    
    (705,707
    )
    
    
    (423,257
    )Financing activities:Issuance of debt
    
    
    540,030
    
    
    
    483,148Repayments of debt
    
    
    (182,357
    )
    
    
    (271,808
    )Debt issuance costs
    
    
    (4,513
    )
    
    
    (9,213
    )Proceeds from exercise of stock options
    
    
    15,570
    
    
    
    18,480Minority interest contributions
    
    
    109,809
    
    
    
    4,506Minority interest distributions
    
    
    (7,694
    )
    
    
    Purchase of treasury stock
    
    
    (1,525
    )
    
    
    (480
    )Net cash provided by financing activities
    
    
    469,320
    
    
    
    224,633Effect of exchange rates on cash
    
    
    3,170
    
    
    
    (37
    )Net increase (decrease) in cash and cash equivalents
    
    
    14,309
    
    
    
    (10,955
    )Cash and cash equivalents at beginning of period
    
    
    5,281
    
    
    
    14,318Cash and cash equivalents at end of period
    
    $
    19,590
    
    
    $
    3,363
  6




---



##### Table of Contents



QUICKSILVER RESOURCES INC.
 
 NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
 UNAUDITED
 1. ACCOUNTING POLICIES AND DISCLOSURES
    Earnings per Common Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands, except per share amounts)Net income
    
    $
    28,719
    
    
    $
    22,861
    
    
    $
    83,301
    
    
    $
    74,004Impact of assumed conversions  interest on 1.875%
contingently convertible debentures, net of income taxes
    
    
    475
    
    
    
    475
    
    
    
    1,425
    
    
    
    1,425Net income available to stockholders assuming
conversion of contingently convertible debentures
    
    $
    29,194
    
    
    $
    23,336
    
    
    $
    84,726
    
    
    $
    75,429Weighted
average common shares - basic
    
    
    77,875
    
    
    
    77,007
    
    
    
    77,557
    
    
    
    76,593Effect of dilutive securities:Employee stock options
    
    
    657
    
    
    
    901
    
    
    
    763
    
    
    
    1,178Employee stock awards
    
    
    745
    
    
    
    490
    
    
    
    786
    
    
    
    377Contingently convertible debentures
    
    
    4,908
    
    
    
    4,908
    
    
    
    4,908
    
    
    
    4,908Weighted
average common shares - diluted
    
    
    84,185
    
    
    
    83,306
    
    
    
    84,014
    
    
    
    83,056Basic earnings per common share
    
    $
    0.37
    
    
    $
    0.30
    
    
    $
    1.07
    
    
    $
    0.97Diluted earnings per common share
    
    $
    0.35
    
    
    $
    0.28
    
    
    $
    1.01
    
    
    $
    0.91
 7




---



##### Table of Contents



Property, Plant and Equipment
      Recently Issued Accounting Standards
 
    
    Pronouncements Implemented
 Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No.
109 Accounting for Income Taxes.
 8




---



##### Table of Contents




    
    Pronouncements Not Yet Implemented
 Fair Value Measurements,
 Amendment of FASB
Interpretation No. 39 Accounting for Derivative Instruments and Hedging Activities
  2. QUICKSILVER GAS SERVICES LP
   OwnershipQuicksilver
    
    
    Non-Quicksilver
    
    
    TotalGeneral partner interests
    
    
    1.9
    %
    
    
    
    
    
    
    1.9
    %Limited partner interests:Common interests
    
    
    23.5
    %
    
    
    27.1
    %
    
    
    50.6
    %Subordinated interests
    
    
    47.5
    %
    
    
    
    
    
    
    47.5
    %Total limited partner interests
    
    
    71.0
    %
    
    
    27.1
    %
    
    
    98.1
    %Total interests
    
    
    72.9
    %
    
    
    27.1
    %
    
    
    100.0
    %
  1.
    
    KGS has earned and paid at least $0.30 per quarter on each outstanding common unit,
subordinated unit and general partner unit for any three consecutive four-quarter periods
ending on or after June 30, 2010; or
 9




---



##### Table of Contents



2.
    
    KGS has earned and paid at least $0.45 per quarter on each outstanding common unit,
subordinated unit and general partner unit for any consecutive four quarters.
   3. DIVESTITURE OF NORTHEAST REGION OPERATIONS
       10




---



##### Table of Contents



4. HEDGING
  September 30,
    
    
    December 31,2007
    
    
    2006(in thousands)Derivative assets:Fixed price sale commitments
    
    $
    
    
    
    $
    53Natural gas basis swaps
    
    
    487
    
    
    
    159Crude oil financial collars
    
    
    6
    
    
    
    689Natural gas financial swaps
    
    
    2,582
    
    
    
    1,009Natural gas financial collars
    
    
    22,894
    
    
    
    65,982$
    25,969
    
    
    $
    67,892Derivative liabilities:Floating price natural gas financial swaps
    
    $
    
    
    
    $
    53NGL financial swaps
    
    
    3,424
    
    
    
    Crude oil financial collars
    
    
    1,933
    
    
    
    Natural gas financial collars
    
    
    529
    
    
    
    $
    5,886
    
    
    $
    53
    11




---



##### Table of Contents



5. PROPERTY, PLANT AND EQUIPMENT
  September 30,
    
    
    December 31,2007
    
    
    2006(in thousands)Oil and gas properties:Subject to depletion
    
    $
    2,177,4841
    
    
    $
    1560,459Unevaluated costs
    
    
    239,807
    
    
    
    191,665Accumulated depletion
    
    
    (390,256
    )
    
    
    (308,065
    )Net oil and gas properties
    
    
    2,027,035
    
    
    
    1,444,059Other property and equipmentPipelines and processing facilities
    
    
    366,510
    
    
    
    225,771General properties
    
    
    30,778
    
    
    
    17,183Construction in progress
    
    
    17,767
    
    
    
    31,613Accumulated depreciation
    
    
    (54,239
    )
    
    
    (39,346
    )Net other property and equipment
    
    
    360,816
    
    
    
    235,221Property, plant and equipment  Net
    
    $
    2,387,851
    
    
    $
    1,679,280
 6. LONG-TERM DEBT
  September 30,
    
    
    December 31,2007
    
    
    2006(in thousands)Senior secured credit facility
    
    $
    820,363
    
    
    $
    421,123Senior subordinated notes
    
    
    350,000
    
    
    
    350,000Contingently convertible debentures, net of unamortized discount
    
    
    148,078
    
    
    
    147,994KGS credit facility
    
    
    
    
    
    
    Other loans
    
    
    126
    
    
    
    4001,318,567
    
    
    
    919,517Less current maturities
    
    
    (126
    )
    
    
    (400
    )$
    1,318,441
    
    
    $
    919,117
   12




---



##### Table of Contents



7. ASSET RETIREMENT OBLIGATIONS
  13




---



##### Table of Contents



Nine Months EndedSeptember 30,2007
    
    
    2006(in thousands)Beginning asset retirement obligation
    
    $
    25,206
    
    
    $
    20,965Additional liability incurred
    
    
    2,993
    
    
    
    2,068Accretion expense
    
    
    1,187
    
    
    
    959Change in estimates
    
    
    
    
    
    
    29Loss on settlement of liability
    
    
    4
    
    
    
    115Asset retirement costs incurred
    
    
    (6
    )
    
    
    (200
    )Sale of properties
    
    
    
    
    
    
    (2,439
    )Currency translation adjustment
    
    
    1,878
    
    
    
    387Ending asset retirement obligation
    
    $
    31,262
    
    
    $
    21,884
 8. COMMITMENTS AND CONTINGENCIES
  Remainder of 2007
    
    $
    8,8322008
    
    
    29,1062009
    
    
    29,0912010
    
    
    2,753$
    69,782
  Remainder of 2007
    
    $
    2008
    
    
    4,0202009
    
    
    9,5062010
    
    
    10,4942011
    
    
    10,494Thereafter
    
    
    70,154$
    104,668
  14




---



##### Table of Contents



9. STOCK-BASED COMPENSATION
    2006 Equity Plan
  Quicksilver Stock Options
  15




---



##### Table of Contents



WeightedAverageShares
    
    
    Exercise PriceOutstanding at beginning of year
    
    
    1,689,190
    
    
    $
    16.84Granted
    
    
    
    
    
    
    Exercised
    
    
    (825,046
    )
    
    
    18.87Forfeited
    
    
    (13,590
    )
    
    
    10.80Outstanding at period end
    
    
    850,554
    
    
    $
    14.97Exercisable at September 30, 2007
    
    
    580,427
    
    
    $
    16.30Vested or expected to vest
at September 30, 2007
    
    
    827,073
    
    
    $
    15.08
   Quicksilver Restricted Stock and Restricted Stock Units
   WeightedAverageGrant DateShares
    
    
    Fair ValueOutstanding at beginning of year
    
    
    511,873
    
    
    $
    38.35Granted
    
    
    425,694
    
    
    
    36.77Vested
    
    
    (153,590
    )
    
    
    37.14Forfeited
    
    
    (49,595
    )
    
    
    36.18Outstanding at period end
    
    
    734,382
    
    
    $
    37.84
  KGS Restricted Phantom Units
  16




---



##### Table of Contents



Payable in cash
    
    
    Payable in unitsWeighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageGrant Date
    
    
    
    
    
    
    Grant DateShares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair ValueNumber of unvested unitsOutstanding  January 1, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Vested
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issued
    
    
    84,961
    
    
    
    21.36
    
    
    
    9,833
    
    
    
    21.36Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unvested Phantom Units  September 30, 2007
    
    
    84,961
    
    
    $
    21.36
    
    
    
    9,833
    
    
    $
    21.36
  10. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
  Condensed Consolidating Balance Sheets
 September 30, 2007Non-
    
    
    
    
    
    
    QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets
    
    $
    4,589
    
    
    $
    275,229
    
    
    $
    229,188
    
    
    $
    (354,251
    )
    
    $
    154,755Investments in and advances to equity affiliates
    
    
    622,217
    
    
    
    165,585
    
    
    
    
    
    
    
    (780,641
    )
    
    
    7,161Property, plant and equipment  net
    
    
    1,544,145
    
    
    
    86,797
    
    
    
    756,909
    
    
    
    
    
    
    
    2,387,851Other assets
    
    
    70,727
    
    
    
    64,328
    
    
    
    2,238
    
    
    
    (115,084
    )
    
    
    22,209Total assets
    
    $
    2,241,678
    
    
    $
    591,939
    
    
    $
    988,335
    
    
    $
    (1,249,976
    )
    
    $
    2,571,976LIABILITIESCurrent liabilities
    
    $
    366,089
    
    
    $
    162,143
    
    
    $
    59,450
    
    
    $
    (354,251
    )
    
    $
    233,431Non-current liabilities
    
    
    1,200,193
    
    
    
    24,545
    
    
    
    524,700
    
    
    
    (115,084
    )
    
    
    1,634,354Minority interest
    
    
    
    
    
    
    
    
    
    
    28,795
    
    
    
    
    
    
    
    28,795Stockholders equity
    
    
    675,396
    
    
    
    405,251
    
    
    
    375,390
    
    
    
    (780,641
    )
    
    
    675,396Total liabilities and stockholders equity
    
    $
    2,241,678
    
    
    $
    591,939
    
    
    $
    988,335
    
    
    $
    (1,249,976
    )
    
    $
    2,571,976
 December 31, 2006Non-
    
    
    
    
    
    
    QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets
    
    $
    165,061
    
    
    $
    250,928
    
    
    $
    78,531
    
    
    $
    (323,556
    )
    
    $
    170,964Investments in and advances to equity affiliates
    
    
    510,548
    
    
    
    131,750
    
    
    
    
    
    
    
    (634,864
    )
    
    
    7,434Property, plant and equipment  net
    
    
    1,043,037
    
    
    
    87,025
    
    
    
    549,218
    
    
    
    
    
    
    
    1,679,280Other assets
    
    
    22,397
    
    
    
    
    
    
    
    2,837
    
    
    
    
    
    
    
    25,234Total assets
    
    $
    1,741,043
    
    
    $
    469,703
    
    
    $
    630,586
    
    
    $
    (958,420
    )
    
    $
    1,882,912LIABILITIESCurrent liabilities
    
    $
    368,073
    
    
    $
    91,414
    
    
    $
    63,458
    
    
    $
    (323,556
    )
    
    $
    199,389Non-current liabilities
    
    
    797,304
    
    
    
    24,577
    
    
    
    278,545
    
    
    
    
    
    
    
    1,100,426Minority interest
    
    
    
    
    
    
    
    
    
    
    7,431
    
    
    
    
    
    
    
    7,431Stockholders equity
    
    
    575,666
    
    
    
    353,712
    
    
    
    281,152
    
    
    
    (634,864
    )
    
    
    575,666Total liabilities and stockholders equity
    
    $
    1,741,043
    
    
    $
    469,703
    
    
    $
    630,586
    
    
    $
    (958,420
    )
    
    $
    1,882,912
 17




---



##### Table of Contents



Condensed Consolidating Statements of Income
 For the Three Months Ended September 30, 2007Non-
    
    
    
    
    
    
    QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Revenues
    
    $
    104,415
    
    
    $
    8,390
    
    
    $
    54,739
    
    
    $
    (8,345
    )
    
    $
    159,199Operating expenses
    
    
    73,375
    
    
    
    3,741
    
    
    
    27,139
    
    
    
    (8345
    )
    
    
    95,910Income from equity affiliates
    
    
    (4
    )
    
    
    289
    
    
    
    
    
    
    
    
    
    
    
    285Income from operations
    
    
    31,036
    
    
    
    4,938
    
    
    
    27,600
    
    
    
    
    
    
    
    63,574Equity income from affiliates
    
    
    18,674
    
    
    
    374
    
    
    
    
    
    
    
    (19,048
    )
    
    
    Interest expense and other
    
    
    15,109
    
    
    
    (1,000
    )
    
    
    6,653
    
    
    
    
    
    
    
    20,762Income tax provision
    
    
    5,882
    
    
    
    2,078
    
    
    
    6,133
    
    
    
    
    
    
    
    14,093Net income
    
    $
    28,719
    
    
    $
    4,234
    
    
    $
    14,814
    
    
    $
    (19,048
    )
    
    $
    28,719
 For the Three Months Ended September 30, 2006Non-
    
    
    
    
    
    
    QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Revenues
    
    $
    64,106
    
    
    $
    9,078
    
    
    $
    30,048
    
    
    $
    (4,019
    )
    
    $
    99,213Operating expenses
    
    
    38,810
    
    
    
    3,819
    
    
    
    16,972
    
    
    
    (4,019
    )
    
    
    55,582Income from equity affiliates
    
    
    7
    
    
    
    203
    
    
    
    
    
    
    
    
    
    
    
    210Income from operations
    
    
    25,303
    
    
    
    5,462
    
    
    
    13,076
    
    
    
    
    
    
    
    43,841Equity income from affiliates
    
    
    10,843
    
    
    
    808
    
    
    
    
    
    
    
    (11,651
    )
    
    
    Interest expense and other
    
    
    7,446
    
    
    
    63
    
    
    
    3,425
    
    
    
    
    
    
    
    10,934Income tax provision
    
    
    5,839
    
    
    
    1,890
    
    
    
    2,317
    
    
    
    
    
    
    
    10,046Net income
    
    $
    22,861
    
    
    $
    4,317
    
    
    $
    7,334
    
    
    $
    (11,651
    )
    
    $
    22,861
 For the Nine Months Ended September 30, 2007Non-
    
    
    
    
    
    
    QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Revenues
    
    $
    264,053
    
    
    $
    27,024
    
    
    $
    140,331
    
    
    $
    (19,231
    )
    
    $
    412,177Operating expenses
    
    
    174,523
    
    
    
    13,240
    
    
    
    70,218
    
    
    
    (19,231
    )
    
    
    238,750Income from equity affiliates
    
    
    18
    
    
    
    664
    
    
    
    
    
    
    
    
    
    
    
    682Income from operations
    
    
    89,548
    
    
    
    14,448
    
    
    
    70,113
    
    
    
    
    
    
    
    174,109Equity income from affiliates
    
    
    53,025
    
    
    
    4,627
    
    
    
    
    
    
    
    (57,652
    )
    
    
    Interest expense and other
    
    
    39,935
    
    
    
    (1,090
    )
    
    
    13,805
    
    
    
    
    
    
    
    52,650Income tax provision
    
    
    19,337
    
    
    
    5,438
    
    
    
    13,383
    
    
    
    
    
    
    
    38,158Net income
    
    $
    83,301
    
    
    $
    14,727
    
    
    $
    42,925
    
    
    $
    (57,652
    )
    
    $
    83,301
 For the Nine Months Ended September 30, 2006Non-
    
    
    
    
    
    
    QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Revenues
    
    $
    172,949
    
    
    $
    33,183
    
    
    $
    90,997
    
    
    $
    (8,801
    )
    
    $
    288,328Operating expenses
    
    
    106,766
    
    
    
    12,043
    
    
    
    45,630
    
    
    
    (8,801
    )
    
    
    155,638Income from equity affiliates
    
    
    9
    
    
    
    309
    
    
    
    
    
    
    
    
    
    
    
    318Income from operations
    
    
    66,192
    
    
    
    21,449
    
    
    
    45,367
    
    
    
    
    
    
    
    133,008Equity income from affiliates
    
    
    44,499
    
    
    
    956
    
    
    
    
    
    
    
    (45,455
    )
    
    
    Interest expense and other
    
    
    20,386
    
    
    
    72
    
    
    
    9,407
    
    
    
    
    
    
    
    29,865Income tax provision
    
    
    16,301
    
    
    
    7,482
    
    
    
    5,356
    
    
    
    
    
    
    
    29,139Net income
    
    $
    74,004
    
    
    $
    14,851
    
    
    $
    30,604
    
    
    $
    (45,455
    )
    
    $
    74,004
 18




---



##### Table of Contents



Condensed Consolidating Statements of Cash Flows
 For the Nine Months Ended September 30, 2007Non-
    
    
    
    
    
    
    QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flow provided by operations
    
    $
    108,596
    
    
    $
    3,384
    
    
    $
    135,546
    
    
    $
    
    
    
    $
    247,526Cash flow used for investing activities
    
    
    (554,885
    )
    
    
    25,212
    
    
    
    (181,131
    )
    
    
    5,097
    
    
    
    (705,707
    )Cash flow provided by financing activities
    
    
    447,026
    
    
    
    (28,596
    )
    
    
    55,987
    
    
    
    (5,097
    )
    
    
    469,320Effect of exchange rates on cash
    
    
    588
    
    
    
    
    
    
    
    2,582
    
    
    
    
    
    
    
    3,170Net increase (decrease) in cash & equivalents
    
    
    1,325
    
    
    
    
    
    
    
    12,984
    
    
    
    
    
    
    
    14,309Cash & equivalents at beginning of period
    
    
    83
    
    
    
    
    
    
    
    5,198
    
    
    
    
    
    
    
    5,281Cash & equivalents at end of period
    
    $
    1,408
    
    
    $
    
    
    
    $
    18,182
    
    
    $
    
    
    
    $
    19,590
 For the Nine Months Ended September 30, 2006Non-
    
    
    
    
    
    
    QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flow provided by operations
    
    $
    96,708
    
    
    $
    32,822
    
    
    $
    58,176
    
    
    $
    
    
    
    $
    187,706Cash flow used for investing activities
    
    
    (288,096
    )
    
    
    (54,780
    )
    
    
    (133,117
    )
    
    
    52,736
    
    
    
    (423,257
    )Cash flow provided by financing activities
    
    
    183,529
    
    
    
    26,368
    
    
    
    67,472
    
    
    
    (52,736
    )
    
    
    224,633Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    ( 37
    )
    
    
    
    
    
    
    (37
    )Net decrease in cash & equivalents
    
    
    (7,859
    )
    
    
    4,410
    
    
    
    (7,506
    )
    
    
    
    
    
    
    (10,955
    )Cash & equivalents at beginning of period
    
    
    8,990
    
    
    
    (4,410
    )
    
    
    9,738
    
    
    
    
    
    
    
    14,318Cash & equivalents at end of period
    
    $
    1,131
    
    
    $
    
    
    
    $
    2,232
    
    
    $
    
    
    
    $
    3,363
 11. SUPPLEMENTAL CASH FLOW INFORMATION
  Nine Months EndedSeptember 30,2007
    
    2006(in thousands)Interest
    
    $
    56,608
    
    
    $
    16,874Income taxes
    
    $
    696
    
    
    $
    3
  Nine Months EndedSeptember 30,2007
    
    2006(in thousands)Noncash investing activities  changes in working capital
associated with property and equipment
    
    $
    8,210
    
    
    $
    2,487
 12. RELATED PARTY TRANSACTIONS
    19




---



##### Table of Contents



13. SEGMENT INFORMATION
  Exploration & ProductionUnited
    
    
    
    
    
    Processing &
    
    
    
    
    
    
    
    
    
    QuicksilverStates
    
    Canada
    
    Transportation
    
    Corporate
    
    Elimination
    
    Consolidated(in thousands)For the Three Months EndedSeptember 30, 2007Revenues
    
    $
    112,180
    
    
    $
    45,068
    
    
    $
    10,357
    
    
    $
    
    
    
    $
    (8,406
    )
    
    $
    159,199Depletion, depreciation and accretion
    
    
    19,528
    
    
    
    10,128
    
    
    
    2,209
    
    
    
    250
    
    
    
    
    
    
    
    32,115Operating income
    
    
    47,634
    
    
    
    25,695
    
    
    
    2,469
    
    
    
    (12,224
    )
    
    
    
    
    
    
    63,574Property and equipment costs incurred
    
    
    216,238
    
    
    
    32,422
    
    
    
    35,174
    
    
    
    906
    
    
    
    
    
    
    
    284,740September 30, 2006Revenues
    
    $
    72,766
    
    
    $
    26,199
    
    
    $
    3,938
    
    
    $
    
    
    
    $
    (3,690
    )
    
    $
    99,213Depletion, depreciation and accretion
    
    
    11,599
    
    
    
    7,042
    
    
    
    1,037
    
    
    
    255
    
    
    
    
    
    
    
    19,933Operating income
    
    
    36,661
    
    
    
    12,261
    
    
    
    1,419
    
    
    
    (6,500
    )
    
    
    
    
    
    
    43,841Property and equipment costs incurred
    
    
    122,870
    
    
    
    35,065
    
    
    
    21,275
    
    
    
    
    
    
    
    
    
    
    
    179,210
 Exploration & ProductionUnited
    
    
    
    Processing &
    
    
    
    
    
    QuicksilverStates
    
    Canada
    
    Transportation
    
    Corporate
    
    Elimination
    
    Consolidated(in thousands)For the Nine Months EndedSeptember 30, 2007Revenues
    
    $
    289,865
    
    
    $
    118,327
    
    
    $
    22,840
    
    
    $
    
    
    
    $
    (18,855
    )
    
    $
    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
    
    
    
    
    
    
    
    714,245September 30, 2006Revenues
    
    $
    203,036
    
    
    $
    84,709
    
    
    $
    10,009
    
    
    $
    
    
    
    $
    (9,426
    )
    
    $
    288,328Depletion, depreciation and accretion
    
    
    32,120
    
    
    
    20,725
    
    
    
    2,141
    
    
    
    574
    
    
    
    
    
    
    
    55,560Operating income
    
    
    103,217
    
    
    
    45,295
    
    
    
    3,006
    
    
    
    (18,510
    )
    
    
    
    
    
    
    133,008Property and equipment costs incurred
    
    
    282,089
    
    
    
    86,133
    
    
    
    62,543
    
    
    
    1,207
    
    
    
    
    
    
    
    431,972Fixed Assets  netSeptember 30, 2007
    
    $
    1,625,048
    
    
    $
    528,674
    
    
    $
    299,704
    
    
    $
    4,425
    
    
    $
    
    
    
    $
    2,387,851December 31, 2006
    
    $
    1,126,350
    
    
    $
    417,199
    
    
    $
    132,457
    
    
    $
    3,274
    
    
    $
    
    
    
    $
    1,679,280
 20




---



##### Table of Contents



14. INCOME TAXES
     21




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Explanatory Statement
  Forward-Looking Information
   
    
    changes in general economic conditions;
    
    fluctuations in natural gas and crude oil prices;
    
    failure or delays in achieving expected production from natural gas and crude oil
exploration and development projects;
    
    effects of hedging natural gas and crude oil prices;
    
    uncertainties inherent in estimates of natural gas and crude oil reserves and predicting
natural gas and crude oil reservoir performance;
    
    competitive conditions in our industry;
    
    actions taken by third-party operators, processors and transporters;
    
    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
    
    factors discussed in our Form 10-K for the year ended December 31, 2006.
  22




---



##### Table of Contents



RESULTS OF OPERATIONS
 Summary Financial Data
Three Months Ended September 30, 2007 Compared with the Three Months Ended September 30, 2006
 Revenues
 Oil, Gas and Related Product Sales
   Three Months EndedSeptember 30,2007
    
    
    2006(in thouands)Northeast Operations
    
    $
    38,413
    
    
    $
    39,772Texas
    
    
    62,071
    
    
    
    26,668Other U.S.
    
    
    2,874
    
    
    
    3,027Corporate and hedging
    
    
    5,099
    
    
    
    2,488Total U.S.
    
    
    108,457
    
    
    
    71,955Canada
    
    
    42,589
    
    
    
    26,195Total
    
    $
    151,046
    
    
    $
    98,150
  Natural Gas
    
    
    Oil and
    
    
    
    
    
    
    
    
    
    
    Equivalent Total(MMcfd)
    
    
    Condensate (bbld)
    
    
    NGL (bbld)
    
    
    (MMcfed)2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Northeast Operations
    
    
    67.8
    
    
    
    72.8
    
    
    
    983
    
    
    
    915
    
    
    
    408
    
    
    
    504
    
    
    
    76.2
    
    
    
    81.4Texas
    
    
    53.2
    
    
    
    27.6
    
    
    
    262
    
    
    
    203
    
    
    
    7,766
    
    
    
    1,946
    
    
    
    101.4
    
    
    
    40.5Other U.S.
    
    
    0.3
    
    
    
    0.4
    
    
    
    428
    
    
    
    484
    
    
    
    34
    
    
    
    33
    
    
    
    3.1
    
    
    
    3.4Total U.S.
    
    
    121.3
    
    
    
    100.8
    
    
    
    1,673
    
    
    
    1,602
    
    
    
    8,208
    
    
    
    2,483
    
    
    
    180.7
    
    
    
    125.3Canada
    
    
    56.9
    
    
    
    49.1
    
    
    
    
    
    
    
    1
    
    
    
    20
    
    
    
    8
    
    
    
    57.0
    
    
    
    49.2Total
    
    
    178.2
    
    
    
    149.9
    
    
    
    1,673
    
    
    
    1,603
    
    
    
    8,228
    
    
    
    2,491
    
    
    
    237.7
    
    
    
    174.5Average Realized Prices:Natural Gas
    
    Oil and
    
    
    
    
    
    
    
    
    
    Equivalent Total($/Mcf)
    
    Condensate ($/bbl)
    
    NGL ($/bbl)
    
    ($/Mcfe)2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006Northeast Operations
    
    $
    4.85
    
    
    $
    4.85
    
    
    $
    72.23
    
    
    $
    66.41
    
    
     $
    43.83
    
    
    $
    36.62
    
    
    $
    5.48
    
    
    $
    5.31Texas
    
    
    6.05
    
    
    
    6.96
    
    
    
    70.89
    
    
    
    68.53
    
    
    
    43.06
    
    
    
    42.99
    
    
    
    6.66
    
    
    
    7.16Other U.S.
    
    
    3.78
    
    
    
    6.49
    
    
    
    65.51
    
    
    
    59.98
    
    
    
    57.04
    
    
    
    51.01
    
    
    
    10.05
    
    
    
    9.57Total U.S.
    
    
    5.93
    
    
    
    5.70
    
    
    
    69.67
    
    
    
    64.74
    
    
    
    41.79
    
    
    
    41.80
    
    
    
    6.53
    
    
    
    6.24Canada
    
    
    8.11
    
    
    
    5.78
    
    
    
    
    
    
    
    66.19
    
    
    
    52.17
    
    
    
    78.66
    
    
    
    8.12
    
    
    
    5.79Total
    
    $
    6.63
    
    
    $
    5.73
    
    
    $
    69.67
    
    
    $
    64.74
    
    
    $
    41.82
    
    
    $
    41.91
    
    
    $
    6.91
    
    
    $
    6.11
 23




---



##### Table of Contents



(Amounts in thousands)
    
    Natural Gas
    
    
    Oil
    
    
    NGLs
    
    
    TotalRevenue for the quarter ended September 30, 2006
    
    $
    78,994
    
    
    $
    9,551
    
    
    $
    9,605
    
    
    $
    98,150Volume changes
    
    
    17,260
    
    
    
    444
    
    
    
    22,072
    
    
    
    39,776Price changes
    
    
    12,416
    
    
    
    726
    
    
    
    (22
    )
    
    
    13,120Revenue for the quarter ended September 30, 2007
    
    $
    108,670
    
    
    $
    10,721
    
    
    $
    31,655
    
    
    $
    151,046
    Other Revenue
  Operating Expenses
 Oil and Gas Production Cost
 Three Months Ended September 30,2007
    
    
    2006(in thousands, except per unit amounts)Cost
    
    
    
    
    
    
    CostAmount
    
    
    Per mcf
    
    
    Amount
    
    
    Per mcfNortheast Operations
    
    $
    19,493
    
    
    $
    2.78
    
    
    $
    10,380
    
    
    $
    1.39Texas
    
    
    15,343
    
    
    
    1.65
    
    
    
    6,621
    
    
    
    1.78Other U.S.
    
    
    812
    
    
    
    2.84
    
    
    
    1,035
    
    
    
    3.27Total U.S.
    
    
    35,648
    
    
    
    2.15
    
    
    
    18,036
    
    
    
    1.56Canada
    
    
    8,598
    
    
    
    1.64
    
    
    
    6,566
    
    
    
    1.45Total
    
    $
    44,246
    
    
    $
    2.02
    
    
    $
    24,602
    
    
    $
    1.53
 24




---



##### Table of Contents

\

Production and Ad Valorem Taxes
  Other Operating Cost
  25




---



##### Table of Contents



Depletion, Depreciation and Accretion
 Three Months Ended September 30,2007
    
    
    2006(in thousands, except per unit amounts)Cost
    
    
    
    
    
    
    CostAmount
    
    
    Per mcf
    
    
    Amount
    
    
    Per mcfDepletionU.S.
    
    $
    17,705
    
    
    $
    1.07
    
    
    $
    10,216
    
    
    $
    0.88Canada
    
    
    8,827
    
    
    
    1.68
    
    
    
    6,124
    
    
    
    1.36Total Depletion
    
    
    26,532
    
    
    
    1.21
    
    
    
    16,340
    
    
    
    1.02Depreciation of other fixed assets:U.S.
    
    
    4,039
    
    
    
    0.24
    
    
    
    2,476
    
    
    
    0.21Canada
    
    
    1,121
    
    
    
    0.21
    
    
    
    807
    
    
    
    0.18Total Depreciation
    
    
    5,160
    
    
    
    0.24
    
    
    
    3,283
    
    
    
    0.20Accretion
    
    
    423
    
    
    
    0.02
    
    
    
    310
    
    
    
    0.02Total depletion, depreciation and accretion
    
    $
    32,115
    
    
    $
    1.47
    
    
    $
    19,933
    
    
    $
    1.24
  General and Administrative Expense
  Interest Expense
  Income Tax Expense
  26




---



##### Table of Contents



Divestiture-Related Items
  (Amounts in thousands)Description
    
    Financial Statement Caption
    
    AmountHedging de-designation for Northeast Operations
    
    Increase to Other Revenue
    
    $
    2,000Severance benefits to terminated Northeast Operations employees
    
    Increase to Oil and gas production costs
    
    
    (5,400
    )Professional fees associated with the BreitBurn Transaction
    
    Increase to General and administrative expense
    
    
    (2,000
    )Total net divestiture-related items
    
    Reduction to pretax income
    
    $
    (5,400
    )
  Three Months Ended September 30, 2007(in thousands, except per unit amounts)ExcludingAmount
    
    Cost
    
    Divestiture
    
    CostAs Reported
    
    Per mcf
    
    Expenses
    
    Per mcfOil and gas operations expense:Northeast Operations
    
    $
    19,493
    
    
    $
    2.78
    
    
    $
    14,093
    
    
    $
    2.01Total U.S.
    
    
    35,648
    
    
    
    2.15
    
    
    
    30,248
    
    
    
    1.82Total Company
    
    
    44,246
    
    
    
    2.02
    
    
    
    38,846
    
    
    
    1.78General and administrative expense
    
    $
    14,328
    
    
    $
    0.66
    
    
    $
    12,328
    
    
    $
    0.56
 27




---



##### Table of Contents



Nine Months Ended September 30, 2007 Compared with the Nine Months Ended September 30, 2006
 Revenues
 Oil and Gas Related Product Sales
   Nine Months Ended September 30,2007
    
    
    2006(in thousands)Northeast Operations
    
    $
    113,830
    
    
    $
    127,166Texas
    
    
    142,610
    
    
    
    65,168Other U.S.
    
    
    7,791
    
    
    
    8,573Corporate and hedging
    
    
    21,457
    
    
    
    341Total U.S.
    
    
    285,688
    
    
    
    201,248Canada
    
    
    112,609
    
    
    
    84,127Total
    
    $
    398,297
    
    
    $
    285,375
  Natural Gas
    
    
    Oil and
    
    
    
    
    
    
    
    
    
    
    Equivalent Total(MMcfd)
    
    
    Condensate (bbld)
    
    
    NGL (bbld)
    
    
    (MMcfed)2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Northeast Operations
    
    
    67.5
    
    
    
    72.3
    
    
    
    972
    
    
    
    941
    
    
    
    391
    
    
    
    424
    
    
    
    75.6
    
    
    
    80.5Texas
    
    
    42.4
    
    
    
    22.9
    
    
    
    262
    
    
    
    215
    
    
    
    5,447
    
    
    
    1,229
    
    
    
    76.7
    
    
    
    31.5Other U.S.
    
    
    0.3
    
    
    
    0.3
    
    
    
    458
    
    
    
    472
    
    
    
    31
    
    
    
    31
    
    
    
    3.2
    
    
    
    3.4Total U.S.
    
    
    110.2
    
    
    
    95.5
    
    
    
    1,692
    
    
    
    1,628
    
    
    
    5,869
    
    
    
    1,684
    
    
    
    155.5
    
    
    
    115.4Canada
    
    
    55.6
    
    
    
    48.9
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    14
    
    
    
    55.7
    
    
    
    49.0Total
    
    
    165.8
    
    
    
    144.4
    
    
    
    1,692
    
    
    
    1,628
    
    
    
    5,880
    
    
    
    1,698
    
    
    
    211.2
    
    
    
    164.4Average Realized Prices:Natural Gas
    
    Oil and
    
    
    
    Equivalent Total($/Mcf)
    
    Condensate ($/bbl)
    

    NGL ($/bbl)
    
    ($/Mcfe)2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006Northeast Operations
    
    $
    5.08
    
    
    $
    5.38
    
    
    $
    61.83
    
    
    $
    64.41
    
    
    $
    36.37
    
    
    $
    37.98
    
    
    $
    5.51
    
    
    $
    5.78Texas
    
    
    6.70
    
    
    
    7.55
    
    
    
    62.37
    
    
    
    65.93
    
    
    
    40.74
    
    
    
    42.43
    
    
    
    6.81
    
    
    
    7.58Other U.S.
    
    
    5.03
    
    
    
    7.27
    
    
    
    55.75
    
    
    
    58.33
    
    
    
    47.68
    
    
    
    47.73
    
    
    
    8.82
    
    
    
    9.38Total U.S.
    
    
    6.45
    
    
    
    5.94
    
    
    
    60.06
    
    
    
    61.84
    
    
    
    39.84
    
    
    
    41.41
    
    
    
    6.73
    
    
    
    6.39Canada
    
    
    7.41
    
    
    
    6.28
    
    
    
    
    
    
    
    
    
    
    
    61.08
    
    
    
    53.71
    
    
    
    7.41
    
    
    
    6.29Total
    
    $
    6.77
    
    
    $
    6.05
    
    
    $
    60.06
    
    
    $
    61.84
    
    
    $
    39.88
    
    
    $
    41.51
    
    
    $
    6.91
    
    
    $
    6.36
  (Amounts in thousands)
    
    Natural Gas
    
    
    Oil
    
    
    NGLs
    
    
    TotalRevenue for the nine months ended September 30, 2006
    
    $
    238,651
    
    
    $
    27,477
    
    
    $
    19,247
    
    
    $
    285,375Volume changes
    
    
    39,483
    
    
    
    1,049
    
    
    
    45,530
    
    
    
    86,062Price changes
    
    
    28,405
    
    
    
    (791
    )
    
    
    (754
    )
    
    
    26,860Revenue for the nine months ended September 30, 2007
    
    $
    306,539
    
    
    $
    27,735
    
    
    $
    64,023
    
    
    $
    398,297
 28




---



##### Table of Contents



Other Revenue
  Operating Expenses
 Oil and Gas Production Cost
 Nine Months Ended September 30,2007
    
    
    2006(in thousands, except per unit amounts)Cost
    
    
    
    
    
    
    CostAmount
    
    
    Per mcf
    
    
    Amount
    
    
    Per mcfNortheast Operations
    
    $
    44,892
    
    
    $
    2.17
    
    
    $
    34,166
    
    
    $
    1.55Texas
    
    
    34,271
    
    
    
    1.64
    
    
    
    15,942
    
    
    
    1.85Other U.S.
    
    
    2,548
    
    
    
    2.88
    
    
    
    2,556
    
    
    
    2.80Total U.S.
    
    
    81,711
    
    
    
    1.92
    
    
    
    52,664
    
    
    
    1.67Canada
    
    
    23,093
    
    
    
    1.52
    
    
    
    17,568
    
    
    
    1.31Total
    
    $
    104,804
    
    
    $
    1.82
    
    
    $
    70,232
    
    
    $
    1.56
    29




---



##### Table of Contents



Production and Ad Valorem Taxes
  Other Operating Expense
  Depletion, Depreciation and Accretion
 Nine Months Ended September 30,2007
    
    
    2006(in thousands, except per unit amounts)Cost
    
    
    
    
    
    
    CostAmount
    
    
    Per mcf
    
    
    Amount
    
    
    Per mcfDepletionU.S.
    
    $
    45,245
    
    
    $
    1.07
    
    
    $
    27,912
    
    
    $
    0.89Canada
    
    
    24,506
    
    
    
    1.61
    
    
    
    18,099
    
    
    
    1.35Total Depletion
    
    
    69,751
    
    
    
    1.21
    
    
    
    46,011
    
    
    
    1.03Depreciation of other fixed assets:U.S.
    
    
    10,668
    
    
    
    0.25
    
    
    
    6,323
    
    
    
    0.20Canada
    
    
    3,007
    
    
    
    0.20
    
    
    
    2,267
    
    
    
    0.17Total Depreciation
    
    
    13,675
    
    
    
    0.24
    
    
    
    8,590
    
    
    
    0.19Accretion
    
    
    1,188
    
    
    
    0.02
    
    
    
    959
    
    
    
    0.02Total depletion, depreciation and accretion
    
    $
    84,614
    
    
    $
    1.47
    
    
    $
    55,560
    
    
    $
    1.24
  General and Administrative Expense
  30




---



##### Table of Contents



Interest Expense
  Income Tax Expense
  Divestiture-Related Items
  (Amounts in thousands)Description
    
    Financial Statement Caption
    
    AmountHedging de-designation for Northeast Operations
    
    Increase to Other Revenue
    
    $
    2,000Severance benefits to terminated Northeast Operations employees
    
    Increase to Oil and gas production costs
    
    
    (5,400
    )Professional fees associated with the BreitBurn Transaction
    
    Increase to General and administrative expense
    
    
    (2,000
    )Total net divestiture-related items
    
    Reduction to pretax income
    
    $
    (5,400
    )
  Nine Months Ended September 30, 2007(in thousands, except per unit amounts)ExcludingAmount
    
    Cost
    
    Divestiture
    
    CostAs Reported
    
    Per mcf
    
    Expenses
    
    Per mcfOil and gas operations expense:Northeast Operations
    
    $
    44,892
    
    
    $
    2.17
    
    
    $
    39,492
    
    
    $
    1.91Total U.S.
    
    
    81,711
    
    
    
    1.92
    
    
    
    76,311
    
    
    
    1.80Total Company
    
    
    104,804
    
    
    
    1.82
    
    
    
    99,404
    
    
    
    1.72General and administrative expense
    
    $
    34,324
    
    
    $
    0.60
    
    
    $
    32,324
    
    
    $
    0.56
 31




---



##### Table of Contents



LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
      Nine Months EndedSeptember 30, 2007(in thousands)Exploration and development:Northeast Operations
    
    $
    17,558Texas
    
    
    503,842Other U.S.
    
    
    919Total U.S.
    
    
    522,319Canada
    
    
    54,304Total exploration and development:
    
    
    576,623Gas processing and transportation:Northeast Operations
    
    
    876Texas
    
    
    120,055Other U.S.
    
    
    Total U.S.
    
    
    120,931Canada
    
    
    8,027Total gas processing and transportation:
    
    
    128,958Corporate and field office
    
    
    8,664Total plant and equipment costs incurred
    
    $
    714,245
  32




---



##### Table of Contents



InterestsLimited Partner
    
    General Partner
    
    TotalQuicksilver ownershipCommon
    
    
    23.5
    %
    
    
    1.9
    %
    
    
    25.4
    %Subordinate
    
    
    47.5
    %
    
    
    
    
    
    
    47.5
    %Non-Quicksilver ownership
    
    
    27.1
    %
    
    
    
    
    
    
    27.1
    %Total
    
    
    98.1
    %
    
    
    1.9
    %
    
    
    100.0
    %
      33




---



##### Table of Contents



September 30,
    
    
    December 31,2007
    
    
    2006(in thousands)Senior secured credit facility
    
    $
    820,363
    
    
    $
    421,123Senior subordinated notes
    
    
    350,000
    
    
    
    350,000Convertible subordinated debentures
    
    
    148,078
    
    
    
    147,994KGS secured credit facility
    
    
    
    
    
    
    Other loans
    
    
    126
    
    
    
    400Total debt
    
    
    1,318,567
    
    
    
    919,517Stockholders equity
    
    
    675,396
    
    
    
    575,666$
    1,993,963
    
    
    $
    1,495,183
 Financial Position
  
    
    Over $700 million increase in our net property, plant and equipment assets
includes approximately $714.2 million in capital costs incurred principally for
development, exploitation and exploration of our oil and gas properties as well as
additional natural gas processing and gathering system assets in Texas.
    
    We incurred additional long-term debt of $400 million, primarily as a result of
our capital expenditure program and partially offset by cash flow from operations.
These borrowings have been drawn from our senior secured credit facility. A portion
of these borrowings was repaid using after-tax proceeds from the BreitBurn
Transaction during November 2007.
    
    Our current and deferred derivative assets have decreased $41.2 million and we
have recorded current and non-current derivative liabilities of $3.8 million and $2.7
million, respectively. These fluctuations reflect the relatively less favorable
pricing of our financial derivatives as compared to the forward pricing of natural
gas, crude oil and NGLs at September 30, 2007 as market prices have generally trended
upward. Additionally, our current deferred tax liability decreased $15.1 million as
a result of the lower estimated fair value of our natural gas, crude oil and NGL
financial derivatives.
    
    Minority interest in our Texas gas processing and gathering subsidiaries increased
$21.4 million as a result of the initial public offering of KGS limited partnership
units to the public. The KGS IPO resulted in a gain of $81.6 million that will be
deferred until the subordination period covering a portion of our continued interests
is terminated. We also received $112.1 million in cash as a result of the KGS IPO.
    
    Accumulated other comprehensive income decreased $5.0 million as a result of the
decrease in the estimated fair value of our financial derivatives, net of income
taxes. Partially offsetting that decrease was a $28.7 million increase in our
currency translation adjustment that resulted from the strengthening of the Canadian
dollar in relation to the U.S. dollar compared with the first nine months of 2007.
 Recently Issued Accounting Standards
 
    
    Pronouncements Implemented
 Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement
No. 109 Accounting for Income Taxes.
 34




---



##### Table of Contents




    
    Pronouncements Not Yet Implemented
 Fair Value Measurements,
 Amendment of FASB
Interpretation No. 39 Accounting for Derivative Instruments and Hedging Activities
  35




---



##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
   Commodity Price Risk
  th
  36




---



##### Table of Contents



Remaining
    
    
    
    Price PerProduct
    
    Type
    
    Contract Period
    
    Volume
    
    Mcf or Bbl
    
    Fair Value(in thousands)Gas
    
    Collar
    
    Oct 2007
    
    10,000 Mcfd
    
    $7.50-11.50
    
    $
    334Gas
    
    Collar
    
    Oct 2007
    
    10,000 Mcfd
    
    7.50-11.75
    
    
    334Gas
    
    Collar
    
    Oct 2007
    
    5,000 Mcfd
    
    7.50-11.78
    
    
    166Gas
    
    Collar
    
    Oct 2007
    
    5,000 Mcfd
    
    7.50-11.80
    
    
    167Gas
    
    Collar
    
    Oct 2007-Dec 2007
    
    20,000 Mcfd
    
    7.00-  9.15
    
    
    684Gas
    
    Collar
    
    Oct 2007-Dec 2007
    
    10,000 Mcfd
    
    8.00-11.20
    
    
    1,088Gas
    
    Collar
    
    Oct 2007-Dec 2007
    
    10,000 Mcfd
    
    9.00-12.10
    
    
    1,912Gas
    
    Collar
    
    Oct 2007-Dec 2007
    
    20,000 Mcfd
    
    9.00-12.10
    
    
    3,824Gas
    
    Collar
    
    Oct 2007-Mar 2008
    
    15,000 Mcfd
    
    7.50-  8.70
    
    
    822Gas
    
    Collar
    
    Oct 2007-Mar 2008
    
    5,000 Mcfd
    
    7.50-  8.90
    
    
    314Gas
    
    Collar
    
    Oct 2007-Mar 2008
    
    10,000 Mcfd
    
    9.00-12.00
    
    
    3,099Gas
    
    Collar
    
    Oct 2007-Mar 2008
    
    10,000 Mcfd
    
    9.00-12.05
    
    
    3,138Gas
    
    Collar
    
    Nov 2007-Mar 2008
    
    10,000 Mcfd
    
    8.00-15.00
    
    
    1,305Gas
    
    Collar
    
    Nov 2007-Mar 2008
    
    10,000 Mcfd
    
    8.00-15.65
    
    
    1,315Gas
    
    Collar
    
    Jan 2008-Dec 2008
    
    20,000 Mcfd
    
    7.00-  9.15
    
    
    939Gas
    
    Collar
    
    Apr 2008-Mar 2009
    
    20,000 Mcfd
    
    7.50-  9.35
    
    
    165Gas
    
    Collar
    
    Apr 2008-Mar 2009
    
    20,000 Mcfd
    
    8.00-10.20
    
    
    3,288Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    20,000 Mcfd
    
    7.50-  9.34
    
    
    (529
    )Oil
    
    Collar
    
    Oct 2007-Dec 2007
    
    500 Bbld
    
    70.00-91.10
    
    
    6Oil
    
    Collar
    
    Oct 2007-Dec 2007
    
    500 Bbld
    
    60.00-72.80
    
    
    (471
    )Oil
    
    Collar
    
    Jan 2008-Dec 2008
    
    500 Bbld
    
    65.00-73.90
    
    
    (912
    )Oil
    
    Collar
    
    Jan 2008-Dec 2008
    
    500 Bbld
    
    65.00-77.45
    
    
    (550
    )Gas
    
    Swap
    
    Jan 2008-Dec 2008
    
    25,000 Mcfd
    
    $8.13
    
    
    1,608Gas
    
    Swap
    
    Jan 2008-Dec 2008
    
    7,500 Mcfd
    
    8.13
    
    
    470Gas
    
    Swap
    
    Jan 2008-Dec 2008
    
    5,000 Mcfd
    
    8.14
    
    
    330Gas
    
    Swap
    
    Jan 2008-Dec 2008
    
    2,500 Mcfd
    
    8.15
    
    
    174NGL
    
    Swap
    
    Oct 2007-Dec 2007
    
    1,000 Bbld
    
    40.32
    
    
    (1,030
    )NGL
    
    Swap
    
    Oct 2007-Dec 2007
    
    2,000 Bbld
    
    42.46
    
    
    (1,185
    )NGL
    
    Swap
    
    Jan 2008-Dec 2008
    
    1,000 Bbld
    
    39.58
    
    
    (1,209
    )Gas
    
    Basis Swap
    
    Oct 2007-Dec 2007
    
    25,000 Mcfd
    
    
    
    
    197Gas
    
    Basis Swap
    
    Oct 2007-Dec 2007
    
    20,000 Mcfd
    
    
    
    
    62Gas
    
    Basis Swap
    
    Jan 2008-Dec 2008
    
    10,000 Mcfd
    
    
    
    
    114Gas
    
    Basis Swap
    
    Jan 2008-Dec 2008
    
    10,000 Mcfd
    
    
    
    
    114Total
    
    $
    20,083
   37




---



##### Table of Contents



ITEM 4. Controls and Procedures
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  38




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  39




---



##### Table of Contents



ITEM 1A. Risk Factors
 Other than as set forth below, there have been no material changes from the risk factors
previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006.
 We depend on KGS to gather, process and transport most of our Barnett Shale gas production, and we
own a significant equity interest in 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 our industry;
    
    actions taken by third-party operators, processors and transporters;
    
    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 budgeted costs or
expenditures;
    
    the effects of existing and future laws and governmental regulations;
    
    the effects of future litigation; and
    
    other factors discussed in KGS Registration Statement on Form S-1 (No. 333-140599) and
as are or may be detailed from time to time in KGS public announcements and other filings
with the Securities and Exchange Commission.
 40




---



##### Table of Contents



ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity Securities
  Total Number of
    
    
    Maximum NumberShares Purchased
    
    
    of Shares that Mayas Part of Publicly
    
    
    Yet Be PurchasedTotal Number of
    
    
    Average Price
    
    
    Announced Plans
    
    
    Under the Plans orPeriod
    
    Shares Purchased (1)
    
    
    Paid per Share
    
    
    or Programs (2)
    
    
    Programs (2)July 1 to July 31, 2007
    
    
    15,407
    
    
    $
    45.70
    
    
    
    
    
    
    
    August 1 to August 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September 1 to September 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    15,407
    
    
    $
    45.70
    
    
    
    
    
    
    
    
 
 (1)
    
    Represents shares of common stock surrendered by employees to satisfy the Companys 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 2006 Equity Plan.(2)
    
    The Company does not currently have in place any publicly announced, specific plans or programs to purchase equity securities. 41




---



##### Table of Contents



ITEM 6. Exhibits:
 Exhibit No.
    
    Description10.1
    
    Contribution Agreement, dated
September 11, 2007, between Quicksilver Resources Inc. and
BreitBurn Operating L.P. (filed as Exhibit 10.2 to the Companys Form
8-K filed November 7, 2007 and included herein by reference.)*15.1
    
    Awareness Letter of Deloitte & Touche LLP.*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 42




---



##### 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




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    Contribution Agreement, dated September 11, 2007, between Quicksilver Resources Inc. and BreitBurn Operating L.P. (filed as Exhibit 10.2 to the Companys Form
8-K filed November 7, 2007 and included herein by reference.)*15.1
    
    Awareness Letter of Deloitte & Touche LLP.*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 44