##### 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 June 30, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 001-14837
 Quicksilver Resources Inc.
  Delaware
    
    75-2756163(State or other jurisdiction of 
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
 
 Large accelerated filer þAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o
 o þ
  Title of Class
    
    Outstanding as of July 25, 2008Common Stock, $0.01 par value
    
    158,617,077




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##### 



QUICKSILVER RESOURCES INC.
INDEX TO FORM 10-Q
For the Period Ending June 30, 2008
 PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Statements of Income and Comprehensive (Loss) Income
    
    
    5Condensed Consolidated Balance Sheets
    
    
    6Condensed Consolidated Statements of Cash Flows
    
    
    7Notes to Condensed Consolidated Interim Financial Statements
    
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4.
    
    Controls and Procedures
    
    
    38PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    39Item 1A.
    
    Risk Factors
    
    
    39Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 3.
    
    Defaults Upon Senior Securities
    
    
    39Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    39Item 5.
    
    Other Information
    
    
    40Item 6.
    
    Exhibits
    
    
    40Signatures
    
    
    
    
    41Certification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906
  2




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DEFINITIONS
                          COMMONLY USED TERMS
            3




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Explanatory Statement
  Forward-Looking Information
  
    
    the conditions to the completion of the Alliance Transaction, as set for in the purchase
and sale agreements providing for the Alliance Transaction;
    
    the availability and terms of the financing we intend to procure in order to fund a portion
of the purchase price for the Alliance Transaction;
    
    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;
    
    competitive conditions in our industry;
    
    actions taken by third parties, including 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; and
    
    the effects of existing or future litigation
   4




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited)
 
 QUICKSILVER RESOURCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE (LOSS) INCOME
In thousands, except for per share data  Unaudited
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007RevenuesNatural gas, NGL and crude oil sales
    
    $
    198,147
    
    
    $
    133,959
    
    
    $
    356,503
    
    
    $
    247,251Other
    
    
    (132
    )
    
    
    2,542
    
    
    
    (985
    )
    
    
    5,830Total revenues
    
    
    198,015
    
    
    
    136,501
    
    
    
    355,518
    
    
    
    253,081Operating expensesOil and gas production expense
    
    
    33,560
    
    
    
    31,989
    
    
    
    66,090
    
    
    
    60,558Production and ad valorem taxes
    
    
    2,208
    
    
    
    4,212
    
    
    
    4,867
    
    
    
    8,702Other operating costs
    
    
    728
    
    
    
    301
    
    
    
    1,959
    
    
    
    1,085Depletion, depreciation and accretion
    
    
    38,920
    
    
    
    27,905
    
    
    
    73,979
    
    
    
    52,499General and administrative
    
    
    15,382
    
    
    
    10,298
    
    
    
    30,797
    
    
    
    19,996Total expenses
    
    
    90,798
    
    
    
    74,705
    
    
    
    177,692
    
    
    
    142,840Income from equity affiliates
    
    
    
    
    
    
    282
    
    
    
    
    
    
    
    397Operating income
    
    
    107,217
    
    
    
    62,078
    
    
    
    177,826
    
    
    
    110,638Loss from
earnings of BreitBurn Energy
Partners
    
    
    (10,269
    )
    
    
    
    
    
    
    (4,050
    )
    
    
    Other (expense) income  net
    
    
    (542
    )
    
    
    767
    
    
    
    1,058
    
    
    
    1,368Interest expense
    
    
    14,466
    
    
    
    18,216
    
    
    
    26,298
    
    
    
    33,168Income before income taxes and minority interest
    
    
    81,940
    
    
    
    44,629
    
    
    
    148,536
    
    
    
    78,838Income tax expense
    
    
    28,556
    
    
    
    12,770
    
    
    
    52,468
    
    
    
    24,065Minority interest expense, net of income tax
    
    
    988
    
    
    
    128
    
    
    
    1,496
    
    
    
    191Net income
    
    $
    52,396
    
    
    $
    31,731
    
    
    $
    94,572
    
    
    $
    54,582Other comprehensive (loss) income  net of
income taxReclassification adjustments related to
settlements
of derivative contracts
    
    
    24,836
    
    
    
    (4,643
    )
    
    
    22,896
    
    
    
    (14,153
    )Net change in derivative fair value
    
    
    (184,952
    )
    
    
    16,751
    
    
    
    (261,249
    )
    
    
    (18,928
    )Foreign currency translation adjustment
    
    
    1,829
    
    
    
    13,356
    
    
    
    (6,814
    )
    
    
    14,980Comprehensive (loss) income
    
    $
    (105,891
    )
    
    $
    57,195
    
    
    $
    (150,595
    )
    
    $
    36,481Earnings per common share  basic
    
    $
    0.33
    
    
    $
    0.20
    
    
    $
    0.60
    
    
    $
    0.35Earnings per common share  diluted
    
    $
    0.31
    
    
    $
    0.19
    
    
    $
    0.56
    
    
    $
    0.33Basic weighted average shares outstanding
    
    
    157,889
    
    
    
    155,188
    
    
    
    157,807
    
    
    
    154,791Diluted weighted average shares outstanding
    
    
    169,855
    
    
    
    168,254
    
    
    
    169,764
    
    
    
    168,058
  5




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QUICKSILVER RESOURCES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except for share data  Unaudited
 June 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    2,329
    
    
    $
    28,226Accounts receivable 
net of allowance for doubtful accounts
    
    
    116,301
    
    
    
    90,244Derivative assets at fair value
    
    
    
    
    
    
    10,797Current deferred income tax asset
    
    
    97,980
    
    
    
    18,946Other current assets
    
    
    58,012
    
    
    
    42,188Total current assets
    
    
    274,622
    
    
    
    190,401Investment in BreitBurn Energy Partners
    
    
    395,787
    
    
    
    420,171Property, plant and equipmentOil and gas properties, full cost method (including unevaluated costs of
$293,312 and $215,228, respectively)
    
    
    2,213,819
    
    
    
    1,764,400Other property and equipment
    
    
    488,827
    
    
    
    377,946Property, plant and equipment  net
    
    
    2,702,646
    
    
    
    2,142,346Derivative assets at fair value
    
    
    
    
    
    
    354Other assets
    
    
    40,232
    
    
    
    22,574$
    3,413,287
    
    
    $
    2,775,846LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt
    
    $
    
    
    
    $
    34Accounts payable
    
    
    209,815
    
    
    
    192,855Income taxes payable
    
    
    104
    
    
    
    46,601Accrued liabilities
    
    
    42,289
    
    
    
    54,981Derivative liabilities at fair value
    
    
    297,087
    
    
    
    64,104Total current liabilities
    
    
    549,295
    
    
    
    358,575Long-term debt
    
    
    1,288,824
    
    
    
    813,817Asset retirement obligations
    
    
    26,326
    
    
    
    23,864Derivative liabilities at fair value
    
    
    121,893
    
    
    
    16,327Other liabilities
    
    
    10,609
    
    
    
    10,609Deferred income taxes
    
    
    384,298
    
    
    
    374,645Deferred gain on sale of partnership interests
    
    
    79,316
    
    
    
    79,316Minority interests in consolidated subsidiaries
    
    
    29,098
    
    
    
    30,338Stockholders equityPreferred stock, par value $0.01, 10,000,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value, 400,000,000 and 200,000,000 shares authorized
respectively; 161,260,383 and 160,633,270 shares issued, respectively
    
    
    1,613
    
    
    
    1,606Paid in capital in excess of par value
    
    
    280,730
    
    
    
    272,515Treasury
stock of 2,661,967
and 2,616,726 shares, respectively
    
    
    (14,658
    )
    
    
    (12,304
    )Accumulated other comprehensive (loss) income
    
    
    (205,101
    )
    
    
    40,066Retained earnings
    
    
    861,044
    
    
    
    766,472Total stockholders equity
    
    
    923,628
    
    
    
    1,068,355$
    3,413,287
    
    
    $
    2,775,846
  6




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QUICKSILVER RESOURCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands  Unaudited
 For the Six Months EndedJune 30,2008
    
    
    2007Operating activities:Net income
    
    $
    94,572
    
    
    $
    54,582Adjustments to reconcile net income to net cash provided
by operating activities:Depletion, depreciation and accretion
    
    
    73,979
    
    
    
    52,499Deferred income taxes
    
    
    51,375
    
    
    
    23,907Stock-based compensation
    
    
    7,641
    
    
    
    6,288Amortization of deferred charges
    
    
    849
    
    
    
    1,071Amortization of deferred loan costs
    
    
    1,243
    
    
    
    929Minority interest expense
    
    
    1,496
    
    
    
    191Non-cash loss (gain) from hedging and derivative activities
    
    
    11,069
    
    
    
    (981
    )Non-cash loss (income) from equity affiliates
    
    
    4,050
    
    
    
    (397
    )Other
    
    
    272
    
    
    
    484Changes in assets and liabilitiesAccounts receivable
    
    
    (26,057
    )
    
    
    9,709Other assets
    
    
    (9,213
    )
    
    
    (476
    )Accounts payable
    
    
    (8,566
    )
    
    
    8,992Income taxes payable
    
    
    (46,497
    )
    
    
    (401
    )Accrued and other liabilities
    
    
    (19,602
    )
    
    
    (1,849
    )Net cash provided by operating activities
    
    
    136,611
    
    
    
    154,548Investing activities:Purchases of property, plant and equipment
    
    
    (650,458
    )
    
    
    (442,667
    )Return of investment from BreitBurn Energy Partners and equity affiliates
    
    
    20,334
    
    
    
    167Proceeds from sales of properties and equipment
    
    
    598
    
    
    
    162Net cash used for investing activities
    
    
    (629,526
    )
    
    
    (442,338
    )Financing activities:Issuance of senior notes
    
    
    468,611
    
    
    
    Credit facility borrowings  net
    
    
    14,111
    
    
    
    274,896Debt issuance costs
    
    
    (10,837
    )
    
    
    (2,546
    )Minority interest contributions
    
    
    
    
    
    
    167Minority interest distributions
    
    
    (4,042
    )
    
    
    Proceeds from exercise of stock options
    
    
    1,082
    
    
    
    12,187Purchase of treasury stock
    
    
    (2,354
    )
    
    
    (821
    )Net cash provided by financing activities
    
    
    466,571
    
    
    
    283,883Effect of exchange rate changes in cash
    
    
    447
    
    
    
    1,884Net decrease in cash
    
    
    (25,897
    )
    
    
    (2,023
    )Cash and cash equivalents at beginning of period
    
    
    28,226
    
    
    
    5,281Cash and cash equivalents at end of period
    
    $
    2,329
    
    
    $
    3,258
  7




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




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per
    
    
    (In thousands, except pershare data)
    
    
    share data)Net income
    
    $
    52,396
    
    
    $
    31,731
    
    
    $
    94,572
    
    
    $
    54,582Impact of assumed conversions  interest on
1.875%
convertible debentures, net of income taxes
    
    
    475
    
    
    
    475
    
    
    
    950
    
    
    
    950Income available to stockholders assuming
conversion
of convertible debentures
    
    $
    52,871
    
    
    $
    32,206
    
    
    $
    95,522
    
    
    $
    55,532Weighted average common shares  basic
    
    
    157,889
    
    
    
    155,188
    
    
    
    157,807
    
    
    
    154,791Effect of dilutive securities:Employee stock options
    
    
    761
    
    
    
    1,632
    
    
    
    742
    
    
    
    1,810Employee stock and stock unit awards
    
    
    1,389
    
    
    
    1,618
    
    
    
    1,399
    
    
    
    1,641Contingently convertible debentures
    
    
    9,816
    
    
    
    9,816
    
    
    
    9,816
    
    
    
    9,816Weighted average common shares  diluted
    
    
    169,855
    
    
    
    168,254
    
    
    
    169,764
    
    
    
    168,058Earnings per common share  basic
    
    $
    0.33
    
    
    $
    0.20
    
    
    $
    0.60
    
    
    $
    0.35Earnings per common share  diluted
    
    $
    0.31
    
    
    $
    0.19
    
    
    $
    0.56
    
    
    $
    0.33
 Recently Issued Accounting Standards
 
    
    Pronouncements ImplementedSFAS No. 157, Fair Value Measurements,was issued by the FASB in September 2006. SFAS No. 157
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP) and expands disclosures about fair value measurements. The
Statement applies under other accounting pronouncements that require or permit fair value
measurement. No new requirements are included in SFAS No. 157, but application of the Statement
has changed current practice. On February 12, 2008, the FASB issued FASB Staff Position 157-2
(FSP 157-2) which delayed the effective date of SFAS No. 157 for non-financial assets and
liabilities. The delay allows companies additional time to consider the effect of various
implementation issues that have arisen, or that may arise, from the application of SFAS No. 157.
The Company adopted SFAS No. 157 on January 1, 2008 for new fair value measurements of
financial instruments, including its derivative instruments, and recurring fair value
measurements of non-financial assets and liabilities. All financial instruments are measured
using inputs from three levels of fair value hierarchy. The three levels are as follows:
    The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115
 Amendment of FASB
Interpretation No. 39
 9




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Accounting for Derivative Instruments
and Hedging Activities
 
    
    Pronouncements Not Yet ImplementedSFAS No. 141 (revised 2007), Business Combinations, SFAS No. 141(R) was issued in December
2007. SFAS No. 141(R) replaces SFAS No. 141, Business Combinations, while retaining its
fundamental requirements that the acquisition method of accounting be used for all business
combinations and for an acquirer to be identified for each business combination. SFAS No.
141(R) defines the acquirer as the entity that obtains control in the business combination and
it establishes the criteria to determine the acquisition date. The Statement also requires an
acquirer to recognize the assets acquired and liabilities assumed measured at their fair values
as of the acquisition date. In addition, acquisition costs are required to be recognized
separately from the acquisition. The Statement will apply to any acquisition completed by the
Company on or after January 1, 2009, but may not be applied to any acquisition completed prior
to January 1, 2009.SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements  an amendment of
ARB No. 51was issued in December 2007. The Statement amends ARB 51 to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary (previously referred to as
minority interest) and for the deconsolidation of a subsidiary. SFAS No. 160 clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that
should be reported as a component of equity in the consolidated financial statements. The
Statement also changes the way the consolidated income statement is presented by requiring
consolidated net income to be reported at amounts that include the amounts attributable to both
the parent and noncontrolling interest. Additionally, SFAS No. 160 establishes a single method
for accounting for changes in a parents ownership interest in a subsidiary that do not result
in deconsolidation. The Statement is effective for the Company beginning January 1, 2009.
Management is determining the extent, if any, this adoption will have on the Companys financial
statements in addition to reclassifying the Companys noncontrolling interests into equity.The FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities,
in March 2008. Under SFAS No. 161, the Company will be required to disclose the fair value of
all derivative and hedging instruments and their gains or losses in tabular format and
information about credit risk-related features in derivative agreements, counterparty credit
risk, and its strategies and objectives for using derivative instruments. SFAS No. 161 is to be
applied prospectively by the Company beginning January 1, 2009. The Company expects that
application of SFAS No. 161 will affect the Companys disclosures about its derivative and
hedging instruments, but will not impact the Companys accounting for them.In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles, which identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting principles (GAAP)
in the United States of America (the GAAP hierarchy). This Statement is effective 60 days
following the SECs approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.We do not expect the adoption of SFAS 162 to have an impact on our financial
statements or related disclosures.In May 2008, the FASB issued Staff Position (FSP) APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
(FSP APB 14-1), which clarifies that convertible debt instruments that may be settled in cash
upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB
Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants.
In addition, FSP APB 14-1 indicates that issuers of such instruments generally should separately
account for the liability and equity components in a manner that will reflect the entitys
nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP
APB 14-1 is effective for financial statements issued for fiscal years beginning after December
15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. We must
adopt FSP APB 14-1 beginning in the first quarter of fiscal 2009 and will be required to
retroactively present prior period information. We are currently evaluating FSP APB 14-1 the
effect FSP APB 14-1 will have on our consolidated financial statements.
 2. DERIVATIVES AND FAIR VALUE MEASUREMENTS
  10




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FairValue Measurements as of June 30, 2008Balance atLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Other
    
    
    June 30, 2008Derivative assets
    
    $
    
    
    
    $
    40,743
    
    
    $
    
    
    
    $
    (40,743
    )
    
    $
    Derivative
liabilities
    
    $
    
    
    
    $
    459,723
    
    
    $
    
    
    
    $
    (40,743
    )
    
    $
    418,980
      11




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June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Derivative assets:Natural gas basis swaps
    
    $
    2,326
    
    
    $
    Natural gas fixed-price swaps (1)
    
    
    38,417
    
    
    
    4,666Natural gas price collars
    
    
    
    
    
    
    10,491$
    40,743
    
    
    $
    15,157Derivative liabilities:Natural gas basis swaps
    
    $
    
    
    
    $
    1,224Crude oil price collars
    
    
    10,560
    
    
    
    6,517NGL fixed-price swaps
    
    
    14,810
    
    
    
    11,294Natural gas fixed-price swaps
    
    
    116,809
    
    
    
    Natural gas price collars
    
    
    232,987
    
    
    
    1,625Fixed-price natural gas sales contracts
(2)
    
    
    84,557
    
    
    
    63,777$
    459,723
    
    
    $
    84,437
 
 (1)
    
    Includes $38.4 million and $  million for two fixed-priced swaps related to
the Michigan Sales Contract at June 30, 2008 and December 31, 2007, respectively.(2)
    
    Includes $84.3 million and $63.5 million for the Michigan Sales Contract at
June 30, 2008 and December 31, 2007, respectively.  3. INVESTMENT IN BREITBURN ENERGY PARTNERS L.P.
   12




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For the QuarterAs of
    
    
    
    
    
    
    EndedMarch 31, 2008
    
    
    
    
    
    
    March 31, 2008(In thousands)
    
    
    
    
    
    
    (In thousands)Current assets
    
    $
    97,364
    
    
    
    
    Revenues
    
    $
    33,337Property, plant and
equipment
    
    
    1,863,274
    
    
    
    
    Operating expenses
    
    
    67,792Other assets
    
    
    23,397
    
    
    
    
    Operating income
    
    
    (34,455
    )Current liabilities
    
    
    171,408
    
    
    
    
    Interest and other
    
    
    6,877Long-term debt
    
    
    331,000
    
    
    
    
    Income tax benefit
    
    
    (246
    )Other non-current
liabilities
    
    
    127,489
    
    
    
    
    Minority interests
    
    
    54Partners equity
    
    
    1,354,138
    
    
    
    
    Net loss
    
    $
    (41,140
    )Net loss available to common unitholders
    
    $
    (40,867
    )
   4. PROPERTY, PLANT AND EQUIPMENT
  June 30,
    
    
    December 31,2008
    
    
    2007Oil and gas properties
    
    (In thousands)Subject to depletion
    
    $
    2,241,522
    
    
    $
    1,811,295Unevaluated costs
    
    
    293,312
    
    
    
    215,228Accumulated depletion
    
    
    (321,015
    )
    
    
    (262,123
    )Net oil and gas properties
    
    
    2,213,819
    
    
    
    1,764,400Other plant and equipmentPipelines and processing facilities
    
    
    421,887
    
    
    
    347,187General properties
    
    
    40,270
    
    
    
    32,966Construction in progress
    
    
    72,264
    
    
    
    32,682Accumulated depreciation
    
    
    (45,594
    )
    
    
    (34,889
    )Net other property and equipment
    
    
    488,827
    
    
    
    377,946Property, plant and equipment, net of
accumulated depletion and
depreciation
    
    $
    2,702,646
    
    
    $
    2,142,346
 13




---



##### Table of Contents



5. LONG-TERM DEBT
  June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Senior secured credit facility
    
    $
    266,750
    
    
    $
    310,710Senior notes due 2015, net of
unamortized discount
    
    
    468,611
    
    
    
    Senior subordinated notes due 2016
    
    
    350,000
    
    
    
    350,000Convertible debentures, net of
unamortized discount
    
    
    148,163
    
    
    
    148,107KGS credit agreement
    
    
    55,300
    
    
    
    5,000Other loans
    
    
    
    
    
    
    34Total debt
    
    
    1,288,824
    
    
    
    813,851Less current maturities
    
    
    
    
    
    
    (34
    )Long-term debt
    
    $
    1,288,824
    
    
    $
    813,817
   Long-Term Debt,
 6. ASSET RETIREMENT OBLIGATIONS
   (In thousands)Beginning asset retirement obligations
    
    $
    24,510Incremental liability incurred
    
    
    2,001Accretion expense
    
    
    722Change in estimates
    
    
    361Asset retirement costs incurred
    
    
    (209
    )Currency translation adjustment
    
    
    (413
    )Ending asset retirement obligations
    
    
    26,972Less current portion
    
    
    (646
    )Long-term asset retirement obligation
    
    $
    26,326
 14




---



##### Table of Contents



7. INCOME TAXES
     8. COMMITMENTS AND CONTINGENCIES
     9. STOCK-BASED COMPENSATION
 Stockholders Equity
 15




---



##### Table of Contents



Quicksilver Stock Options
   StockOptionsIssuedWeighted average grant date fair value
    
    $
    13.67Weighted average grant date
    
    Jan 2, 2008Weighted average risk-free interest rate
    
    
    3.41
    %Expected life (in years)
    
    
    6.0Weighted average volatility
    
    
    40.2
    %Expected dividends
    
    
    
  Wtd Avg
    
    
    Wtd AvgExercise
    
    
    Remaining
    
    
    AggregateShares
    
    
    Price
    
    
    Contractual Life
    
    
    Intrinsic Value(In years)
    
    
    (In thousands)Outstanding at December 31, 2007
    
    
    1,021,912
    
    
    $
    7.48Granted
    
    
    373,382
    
    
    
    30.95Exercised
    
    
    (227,664
    )
    
    
    4.60Cancelled
    
    
    (42,226
    )
    
    
    28.20Outstanding at June 30, 2008
    
    
    1,125,404
    
    
    $
    14.06
    
    
    
    4.2
    
    
    $
    27,661Exercisable at June 30, 2008
    
    
    594,778
    
    
    $
    7.29
    
    
    
    2.0
    
    
    $
    18,648Vested or expected to vest at
June, 30, 2008
    
    
    1,109,871
    
    
    $
    14.14
  Quicksilver Restricted Stock and Restricted Stock Units
   Wtd AvgGrant DateShares
    
    Fair ValueOutstanding at December 31, 2007
    
    
    1,340,122
    
    
    $
    18.76Granted
    
    
    551,712
    
    
    
    31.40Vested
    
    
    (380,858
    )
    
    
    18.87Cancelled
    
    
    (131,075
    )
    
    
    22.58Outstanding at June 30, 2008
    
    
    1,379,901
    
    
    $
    23.39
 16




---



##### Table of Contents



KGS Restricted Phantom Units
  Payable in cash
    
    Payable in unitsWtd Avg
    
    
    
    
    
    Wtd AvgGrant Date
    
    
    
    
    
    Grant DateUnits
    
    Fair Value
    
    Units
    
    Fair ValueOutstanding at December 31,
2007
    
    
    84,961
    
    
    $
    21.36
    
    
    
    9,833
    
    
    $
    21.36Vested
    
    
    
    
    
    
    
    
    
    
    (6,089
    )
    
    
    21.36Issued
    
    
    6,200
    
    
    
    24.27
    
    
    
    137,148
    
    
    
    25.25Cancelled
    
    
    (3,000
    )
    
    
    21.36
    
    
    
    
    
    
    
    Outstanding at June 30, 2008
    
    
    88,161
    
    
    $
    21.56
    
    
    
    140,892
    
    
    $
    25.15
  10. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
   17




---



##### Table of Contents



Condensed Consolidating Balance Sheets
 June 30, 2008QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)ASSETSCurrent assets
    
    $
    416,922
    
    
    $
    
    
    
    $
    301,450
    
    
    $
    (443,750
    )
    
    $
    274,622Property and equipment
    
    
    1,699,550
    
    
    
    10,981
    
    
    
    992,115
    
    
    
    
    
    
    
    2,702,646Investment in subsidiaries (equity method)
    
    
    744,722
    
    
    
    167,796
    
    
    
    
    
    
    
    (516,731
    )
    
    
    395,787Other assets
    
    
    90,642
    
    
    
    131,911
    
    
    
    2,198
    
    
    
    (184,519
    )
    
    
    40,232Total assets
    
    $
    2,951,836
    
    
    $
    310,688
    
    
    $
    1,295,763
    
    
    $
    (1,145,000
    )
    
    $
    3,413,287LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities
    
    $
    608,806
    
    
    $
    133,800
    
    
    $
    250,439
    
    
    $
    (443,750
    )
    
    $
    549,295Long-term liabilities
    
    
    1,419,402
    
    
    
    
    
    
    
    597,067
    
    
    
    (184,519
    )
    
    
    1,831,950Deferred gain
    
    
    
    
    
    
    
    
    
    
    79,316
    
    
    
    
    
    
    
    79,316Minority interest
    
    
    
    
    
    
    
    
    
    
    29,098
    
    
    
    
    
    
    
    29,098Stockholders equity
    
    
    923,628
    
    
    
    176,888
    
    
    
    339,843
    
    
    
    (516,731
    )
    
    
    923,628Total liabilities and stockholders equity
    
    $
    2,951,836
    
    
    $
    310,688
    
    
    $
    1,295,763
    
    
    $
    (1,145,000
    )
    
    $
    3,413,287
 December 31, 2007QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)ASSETSCurrent assets
    
    $
    213,288
    
    
    $
    596
    
    
    $
    243,086
    
    
    $
    (266,569
    )
    
    $
    190,401Property and equipment
    
    
    1,294,573
    
    
    
    1,858
    
    
    
    845,915
    
    
    
    
    
    
    
    2,142,346Investment in subsidiaries (equity method)
    
    
    819,119
    
    
    
    160,825
    
    
    
    
    
    
    
    (559,773
    )
    
    
    420,171Other assets
    
    
    72,426
    
    
    
    82,251
    
    
    
    2,171
    
    
    
    (133,920
    )
    
    
    22,928Total assets
    
    $
    2,399,406
    
    
    $
    245,530
    
    
    $
    1,091,172
    
    
    $
    (960,262
    )
    
    $
    2,775,846LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities
    
    $
    470,690
    
    
    $
    77,529
    
    
    $
    76,925
    
    
    $
    (266,569
    )
    
    $
    358,575Long-term liabilities
    
    
    860,361
    
    
    
    
    
    
    
    512,821
    
    
    
    (133,920
    )
    
    
    1,239,262Deferred gain
    
    
    
    
    
    
    
    
    
    
    79,316
    
    
    
    
    
    
    
    79,316Minority interest
    
    
    
    
    
    
    
    
    
    
    30,338
    
    
    
    
    
    
    
    30,338Stockholders equity
    
    
    1,068,355
    
    
    
    168,001
    
    
    
    391,772
    
    
    
    (559,773
    )
    
    
    1,068,355Total liabilities and stockholders equity
    
    $
    2,399,406
    
    
    $
    245,530
    
    
    $
    1,091,172
    
    
    $
    (960,262
    )
    
    $
    2,775,846
 18




---



##### Table of Contents



Condensed Consolidating Statements of Income
 For the Three Months Ended June 30, 2008QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Revenues
    
    $
    148,991
    
    
    $
    
    
    
    $
    63,515
    
    
    $
    (14,491
    )
    
    $
    198,015Operating expenses
    
    
    72,681
    
    
    
    514
    
    
    
    32,094
    
    
    
    (14,491
    )
    
    
    90,798Income from equity affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income
    
    
    76,310
    
    
    
    (514
    )
    
    
    31,421
    
    
    
    
    
    
    
    107,217Equity in net earnings of subsidiaries
    
    
    20,018
    
    
    
    4,619
    
    
    
    
    
    
    
    (24,637
    )
    
    
    Income from earnings of BBEP
    
    
    (10,269
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,269
    )Interest expense and other
    
    
    (9,972
    )
    
    
    1,494
    
    
    
    (7,518
    )
    
    
    
    
    
    
    (15,996
    )Income tax provision
    
    
    (23,691
    )
    
    
    (343
    )
    
    
    (4,522
    )
    
    
    
    
    
    
    (28,556
    )Net income
    
    $
    52,396
    
    
    $
    5,256
    
    
    $
    19,381
    
    
    $
    (24,637
    )
    
    $
    52,396
 For the Three Months Ended June 30, 2007QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Revenues
    
    $
    88,948
    
    
    $
    
    
    
    $
    53,961
    
    
    $
    (6,408
    )
    
    $
    136,501Operating expenses
    
    
    54,687
    
    
    
    680
    
    
    
    25,746
    
    
    
    (6,408
    )
    
    
    74,705Income from equity affiliates
    
    
    16
    
    
    
    
    
    
    
    266
    
    
    
    
    
    
    
    282Operating income
    
    
    34,277
    
    
    
    (680
    )
    
    
    28,481
    
    
    
    
    
    
    
    62,078Equity in net earnings of subsidiaries
    
    
    19,437
    
    
    
    2,794
    
    
    
    
    
    
    
    (22,231
    )
    
    
    Interest expense and other
    
    
    (13,706
    )
    
    
    84
    
    
    
    (3,955
    )
    
    
    
    
    
    
    (17,577
    )Income tax provision
    
    
    (8,277
    )
    
    
    208
    
    
    
    (4,701
    )
    
    
    
    
    
    
    (12,770
    )Net income
    
    $
    31,731
    
    
    $
    2,406
    
    
    $
    19,825
    
    
    $
    (22,231
    )
    
    $
    31,731
 For the Six Months Ended June 30, 2008QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Revenues
    
    $
    265,878
    
    
    $
    
    
    
    $
    116,776
    
    
    $
    (27,136
    )
    
    $
    355,518Operating expenses
    
    
    139,638
    
    
    
    1,013
    
    
    
    64,177
    
    
    
    (27,136
    )
    
    
    177,692Income from equity affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income
    
    
    126,240
    
    
    
    (1,013
    )
    
    
    52,599
    
    
    
    
    
    
    
    177,826Equity in net earnings of subsidiaries
    
    
    31,913
    
    
    
    6,995
    
    
    
    
    
    
    
    (38,908
    )
    
    
    Income from earnings of BBEP
    
    
    (4,050
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,050
    )Interest expense and other
    
    
    (15,418
    )
    
    
    2,927
    
    
    
    (14,245
    )
    
    
    
    
    
    
    (26,736
    )Income tax provision
    
    
    (44,113
    )
    
    
    (670
    )
    
    
    (7,685
    )
    
    
    
    
    
    
    (52,468
    )Net income
    
    $
    94,572
    
    
    $
    8,239
    
    
    $
    30,669
    
    
    $
    (38,908
    )
    
    $
    94,572
 19




---



##### Table of Contents



For the Six Months Ended June 30, 2007QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Revenues
    
    $
    159,816
    
    
    $
    
    
    
    $
    104,151
    
    
    $
    (10,886
    )
    
    $
    253,081Operating expenses
    
    
    101,148
    
    
    
    1,139
    
    
    
    51,439
    
    
    
    (10,886
    )
    
    
    142,840Income from equity affiliates
    
    
    22
    
    
    
    
    
    
    
    375
    
    
    
    
    
    
    
    397Operating income
    
    
    58,690
    
    
    
    (1,139
    )
    
    
    53,087
    
    
    
    
    
    
    
    110,638Equity in net earnings of subsidiaries
    
    
    34,173
    
    
    
    4,075
    
    
    
    
    
    
    
    (38,248
    )
    
    
    Interest expense and other
    
    
    (24,826
    )
    
    
    21
    
    
    
    (7,186
    )
    
    
    
    
    
    
    (31,991
    )Income tax provision
    
    
    (13,455
    )
    
    
    391
    
    
    
    (11,001
    )
    
    
    
    
    
    
    (24,065
    )Net income
    
    $
    54,582
    
    
    $
    3,348
    
    
    $
    34,900
    
    
    $
    (38,248
    )
    
    $
    54,582
 Condensed Consolidating Statements of Cash Flows
 For the Six Months Ended June 30, 2008QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Cash flow provided by operations
    
    $
    (79,043
    )
    
    $
    9,443
    
    
    $
    206,211
    
    
    $
    
    
    
    $
    136,611Cash flow used for investing activities
    
    
    (404,699
    )
    
    
    48,163
    
    
    
    (204,511
    )
    
    
    (68,479
    )
    
    
    (629,526
    )Cash flow provided by financing activities
    
    
    457,023
    
    
    
    (57,606
    )
    
    
    (1,325
    )
    
    
    68,479
    
    
    
    466,571Effect of exchange rates on cash
    
    
    (70
    )
    
    
    
    
    
    
    517
    
    
    
    
    
    
    
    447Net increase (decrease) in cash and
equivalents
    
    
    (26,789
    )
    
    
    
    
    
    
    892
    
    
    
    
    
    
    
    (25,897
    )Cash and equivalents at beginning of period
    
    
    27,010
    
    
    
    
    
    
    
    1,216
    
    
    
    
    
    
    
    28,226Cash and equivalents at end of period
    
    $
    221
    
    
    $
    
    
    
    $
    2,108
    
    
    $
    
    
    
    $
    2,329
 For the Six Months Ended June 30, 2007QuicksilverQuicksilver
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    Resources Inc.Resources Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(In thousands)Cash flow provided by operations
    
    $
    77,788
    
    
    $
    (735
    )
    
    $
    77,495
    
    
    $
    
    
    
    $
    154,548Cash flow used for investing activities
    
    
    (370,426
    )
    
    
    (45,333
    )
    
    
    (117,535
    )
    
    
    90,956
    
    
    
    (442,338
    )Cash flow provided by financing activities
    
    
    292,304
    
    
    
    46,068
    
    
    
    36,467
    
    
    
    (90,956
    )
    
    
    283,883Effect of exchange rates on cash
    
    
    390
    
    
    
    
    
    
    
    1,494
    
    
    
    
    
    
    
    1,884Net increase (decrease) in cash and
equivalents
    
    
    56
    
    
    
    
    
    
    
    (2,079
    )
    
    
    
    
    
    
    (2,023
    )Cash and equivalents at beginning of period
    
    
    83
    
    
    
    
    
    
    
    5,198
    
    
    
    
    
    
    
    5,281Cash and equivalents at end of period
    
    $
    139
    
    
    $
    
    
    
    $
    3,119
    
    
    $
    
    
    
    $
    3,258
 11. SUPPLEMENTAL CASH FLOW INFORMATION
  Six Months EndedJune 30,2008
    
    2007(In thousands)Interest
    
    $
    28,084
    
    
    $
    32,383Income taxes
    
    
    48,546
    
    
    
    695
 20




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##### Table of Contents



Six Months EndedJune 30,2008
    
    2007(In thousands)Noncash changes in working capital related to
acquisition of property, plant and equipment 
net
    
    $
    14,109
    
    
    $
    (5,582
    )
 12. RELATED-PARTY TRANSACTIONS
       13. SEGMENT INFORMATION
  Exploration & Production
    
    Processing &
    
    
    
    
    
    
    
    
    
    QuicksilverUnited States
    
    Canada
    
    Gathering
    
    Corporate
    
    Elimination
    
    Consolidated(In thousands)For the Three Months
Ended June 30,2008Revenues
    
    $
    148,775
    
    
    $
    45,828
    
    
    $
    18,204
    
    
    $
    
    
    
    $
    (14,792
    )
    
    $
    198,015Depletion, depreciation and accretion
    
    
    23,010
    
    
    
    11,584
    
    
    
    3,609
    
    
    
    717
    
    
    
    
    
    
    
    38,920Operating income
    
    
    90,166
    
    
    
    24,219
    
    
    
    7,508
    
    
    
    (14,676
    )
    
    
    
    
    
    
    107,217Property and equipment costs incurred
    
    
    242,581
    
    
    
    10,831
    
    
    
    52,375
    
    
    
    193
    
    
    
    
    
    
    
    305,9802007Revenues
    
    $
    98,464
    
    
    $
    37,211
    
    
    $
    7,085
    
    
    $
    
    
    
    $
    (6,259
    )
    
    $
    136,501Depletion, depreciation and accretion
    
    
    16,682
    
    
    
    9,132
    
    
    
    1,845
    
    
    
    246
    
    
    
    
    
    
    
    27,905Operating income
    
    
    49,442
    
    
    
    20,229
    
    
    
    2,950
    
    
    
    (10,543
    )
    
    
    
    
    
    
    62,078Property and equipment costs incurred
    
    
    189,258
    
    
    
    14,104
    
    
    
    43,200
    
    
    
    365
    
    
    
    
    
    
    
    246,927
 21




---



##### Table of Contents



Exploration & Production
    
    Processing &
    
    
    
    
    
    
    
    
    
    QuicksilverUnited States
    
    Canada
    
    Gathering
    
    Corporate
    
    Elimination
    
    Consolidated(In thousands)For the Six Months Ended June 30,2008Revenues
    
    $
    265,506
    
    
    $
    84,340
    
    
    $
    33,389
    
    
    $
    
    
    
    $
    (27,717
    )
    
    $
    355,518Depletion, depreciation and accretion
    
    
    43,099
    
    
    
    23,015
    
    
    
    6,884
    
    
    
    981
    
    
    
    
    
    
    
    73,979Operating income
    
    
    153,117
    
    
    
    40,935
    
    
    
    12,313
    
    
    
    (28,539
    )
    
    
    
    
    
    
    177,826Property and equipment costs incurred
    
    
    454,587
    
    
    
    87,274
    
    
    
    106,805
    
    
    
    554
    
    
    
    
    
    
    
    649,2202007Revenues
    
    $
    177,684
    
    
    $
    73,362
    
    
    $
    12,457
    
    
    $
    
    
    
    $
    (10,422
    )
    
    $
    253,081Depletion, depreciation and accretion
    
    
    30,991
    
    
    
    17,884
    
    
    
    3,153
    
    
    
    471
    
    
    
    
    
    
    
    52,499Operating income
    
    
    87,673
    
    
    
    39,208
    
    
    
    4,225
    
    
    
    (20,468
    )
    
    
    
    
    
    
    110,638Property and equipment costs incurred
    
    
    324,673
    
    
    
    33,663
    
    
    
    70,198
    
    
    
    970
    
    
    
    
    
    
    
    429,504Property, Plant and EquipmentJune 30, 2008
    
    $
    1,695,721
    
    
    $
    618,971
    
    
    $
    383,613
    
    
    $
    4,341
    
    
    $
    
    
    
    $
    2,702,646December 31, 2007
    
    
    1,290,728
    
    
    
    571,496
    
    
    
    275,807
    
    
    
    4,315
    
    
    
    
    
    
    
    2,142,346
 14. ACQUISITIONS
  22




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 RESULTS OF OPERATIONS
 Summary Financial Data
Three Months Ended June 30, 2008 Compared with the Three Months Ended June 30, 2007
 Revenues
 Oil, Gas and Related Product Sales
   Natural Gas
    
    
    NGL
    
    
    Oil and Condensate
    
    
    Total2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Texas
    
    $
    96.7
    
    
    $
    27.7
    
    
    $
    61.5
    
    
    $
    20.8
    
    
    $
    10.3
    
    
    $
    1.5
    
    
    $
    168.5
    
    
    $
    50.0Northeast Operations
    
    
    
    
    
    
    33.9
    
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    5.5
    
    
    
    
    
    
    
    40.7Other U.S.
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    4.7
    
    
    
    2.4
    
    
    
    5.1
    
    
    
    2.7Hedging
    
    
    (16.2
    )
    
    
    4.7
    
    
    
    (4.8
    )
    
    
    (0.1
    )
    
    
    (3.8
    )
    
    
    
    
    
    
    (24.8
    )
    
    
    4.6Total U.S.
    
    
    80.7
    
    
    
    66.4
    
    
    
    56.9
    
    
    
    22.2
    
    
    
    11.2
    
    
    
    9.4
    
    
    
    148.8
    
    
    
    98.0Canada
    
    
    56.1
    
    
    
    33.9
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    56.1
    
    
    
    34.0Hedging
    
    
    (6.8
    )
    
    
    2.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.8
    )
    
    
    2.0Total Canada
    
    
    49.3
    
    
    
    35.9
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    49.3
    
    
    
    36.0Total Company
    
    $
    130.0
    
    
    $
    102.3
    
    
    $
    56.9
    
    
    $
    22.3
    
    
    $
    11.2
    
    
    $
    9.4
    
    
    $
    198.1
    
    
    $
    134.0
  Natural Gas
    
    NGL
    
    Oil and Condensate
    
    Equivalent Total2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007(MMcfd)
    
    (Bbld)
    
    (Bbld)
    
    (MMcfed)Texas
    
    
    95.8
    
    
    
    41.6
    
    
    
    11,449
    
    
    
    5,623
    
    
    
    950
    
    
    
    264
    
    
    
    170.2
    
    
    
    76.9Northeast Operations
    
    
    
    
    
    
    65.9
    
    
    
    
    
    
    
    375
    
    
    
    
    
    
    
    998
    
    
    
    
    
    
    
    74.1Other U.S.
    
    
    0.2
    
    
    
    0.2
    
    
    
    35
    
    
    
    33
    
    
    
    443
    
    
    
    475
    
    
    
    3.1
    
    
    
    3.4Total U.S.
    
    
    96.0
    
    
    
    107.7
    
    
    
    11,484
    
    
    
    6,031
    
    
    
    1,393
    
    
    
    1,737
    
    
    
    173.3
    
    
    
    154.4Canada
    
    
    62.5
    
    
    
    53.8
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    62.5
    
    
    
    53.8Total Company
    
    
    158.5
    
    
    
    161.5
    
    
    
    11,484
    
    
    
    6,042
    
    
    
    1,393
    
    
    
    1,737
    
    
    
    235.8
    
    
    
    208.2
  Natural Gas
    
    NGL
    
    Oil and Condensate
    
    Equivalent Total2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007(per Mcf)
    
    (per Bbl)
    
    (per Bbl)
    
    (per Mcfe)Texas
    
    $
    11.10
    
    
    $
    7.33
    
    
    $
    59.02
    
    
    $
    40.63
    
    
    $
    119.36
    
    
    $
    61.38
    
    
    $
    10.88
    
    
    $
    7.14Northeast Operations
    
    
    
    
    
    
    5.66
    
    
    
    
    
    
    
    37.83
    
    
    
    
    
    
    
    60.96
    
    
    
    
    
    
    
    6.04Other U.S.
    
    
    5.29
    
    
    
    4.48
    
    
    
    85.95
    
    
    
    44.96
    
    
    
    115.48
    
    
    
    54.64
    
    
    
    18.09
    
    
    
    8.61Hedging  U.S.
    
    
    (1.84
    )
    
    
    0.50
    
    
    
    (4.65
    )
    
    
    
    
    
    
    (29.88
    )
    
    
    
    
    
    
    (1.57
    )
    
    
    0.35Total U.S.
    
    
    9.24
    
    
    
    6.77
    
    
    
    54.45
    
    
    
    40.48
    
    
    
    88.25
    
    
    
    59.30
    
    
    
    9.44
    
    
    
    6.97Canada
    
    
    9.87
    
    
    
    6.93
    
    
    
    
    
    
    
    58.71
    
    
    
    
    
    
    
    
    
    
    
    9.87
    
    
    
    6.93Hedging  Canada
    
    
    (1.21
    )
    
    
    0.42
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.21
    )
    
    
    0.42Total Canada
    
    
    8.66
    
    
    
    7.35
    
    
    
    
    
    
    
    58.71
    
    
    
    
    
    
    
    
    
    
    
    8.66
    
    
    
    7.35Total Company
    
    $
    9.02
    
    
    $
    6.96
    
    
    $
    54.45
    
    
    $
    40.52
    
    
    $
    88.25
    
    
    $
    59.30
    
    
    $
    9.23
    
    
    $
    7.07
 23




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##### Table of Contents



NaturalGas
    
    
    NGL
    
    
    Oil
    
    
    Total(In thousands)Revenue for the
quarter ended June
30, 2007
    
    $
    102,308
    
    
    $
    22,277
    
    
    $
    9,374
    
    
    $
    133,959Volume changes
    
    
    (1,866
    )
    
    
    20,064
    
    
    
    (1,857
    )
    
    
    16,341Price changes
    
    
    29,619
    
    
    
    14,558
    
    
    
    3,670
    
    
    
    47,847Revenue for the
quarter ended June
30, 2008
    
    $
    130,061
    
    
    $
    56,899
    
    
    $
    11,187
    
    
    $
    198,147
    Other Revenue
  24




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##### Table of Contents



Operating Expenses
 Oil and Gas Production Costs
 Three Months Ended June 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeTexasCash expense
    
    $
    22,364
    
    
    $
    1.44
    
    
    $
    11,480
    
    
    $
    1.64Equity compensation
    
    
    310
    
    
    
    0.02
    
    
    
    118
    
    
    
    0.02$
    22,674
    
    
    $
    1.46
    
    
    $
    11,598
    
    
    $
    1.66Northeast OperationsCash expense
    
    $
    
    
    
    $
    
    
    
    $
    12,100
    
    
    $
    1.79Equity compensation
    
    
    
    
    
    
    
    
    
    
    373
    
    
    
    0.06$
    
    
    
    $
    
    
    
    $
    12,473
    
    
    $
    1.85Other U.S.Cash expense
    
    $
    1,747
    
    
    $
    5.74
    
    
    $
    897
    
    
    $
    3.10Equity compensation
    
    
    42
    
    
    
    0.15
    
    
    
    59
    
    
    
    0.19$
    1,789
    
    
    $
    5.89
    
    
    $
    956
    
    
    $
    3.29Total U.S.Cash expense
    
    $
    24,111
    
    
    $
    1.53
    
    
    $
    24,478
    
    
    $
    1.74Equity compensation
    
    
    352
    
    
    
    0.02
    
    
    
    549
    
    
    
    0.04$
    24,463
    
    
    $
    1.55
    
    
    $
    25,027
    
    
    $
    1.78CanadaCash expense
    
    $
    8,840
    
    
    $
    1.55
    
    
    $
    6,450
    
    
    $
    1.32Equity compensation
    
    
    257
    
    
    
    0.05
    
    
    
    512
    
    
    
    0.10$
    9,097
    
    
    $
    1.60
    
    
    $
    6,962
    
    
    $
    1.42Total CompanyCash expense
    
    $
    32,951
    
    
    $
    1.53
    
    
    $
    30,928
    
    
    $
    1.63Equity compensation
    
    
    609
    
    
    
    0.03
    
    
    
    1,061
    
    
    
    0.06$
    33,560
    
    
    $
    1.56
    
    
    $
    31,989
    
    
    $
    1.69
    25




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##### Table of Contents



Production and Ad Valorem Taxes


Three Months Ended June 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeProduction and ad valorem taxesU.S.
    
    $
    1,280
    
    
    $
    0.08
    
    
    $
    3,324
    
    
    $
    0.24Canada
    
    
    928
    
    
    
    0.16
    
    
    
    888
    
    
    
    0.18Total production and ad valorem taxes
    
    $
    2,208
    
    
    $
    0.10
    
    
    $
    4,212
    
    
    $
    0.22
  Other Operating Costs
  Depletion, Depreciation and Accretion
 Three Months Ended June 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeDepletionU.S.
    
    $
    22,239
    
    
    $
    1.41
    
    
    $
    14,901
    
    
    $
    1.06Canada
    
    
    10,341
    
    
    
    1.82
    
    
    
    7,957
    
    
    
    1.62Total depletion
    
    
    32,580
    
    
    
    1.52
    
    
    
    22,858
    
    
    
    1.21Depreciation of other fixed assetsU.S.
    
    $
    4,943
    
    
    $
    0.31
    
    
    $
    3,638
    
    
    $
    0.26Canada
    
    
    1,027
    
    
    
    0.18
    
    
    
    1,006
    
    
    
    0.21Total depreciation
    
    
    5,970
    
    
    
    0.27
    
    
    
    4,644
    
    
    
    0.25Accretion
    
    
    370
    
    
    
    0.02
    
    
    
    403
    
    
    
    0.02Total depletion, depreciation and accretion
    
    $
    38,920
    
    
    $
    1.81
    
    
    $
    27,905
    
    
    $
    1.47
  26




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##### Table of Contents



General and Administrative Expense
 Three Months Ended June 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeGeneral and administrative expenseCash expense
    
    $
    12,204
    
    
    $
    0.57
    
    
    $
    7,971
    
    
    $
    0.42Equity compensation
    
    
    3,178
    
    
    
    0.15
    
    
    
    2,327
    
    
    
    0.12Total general and administrative expense
    
    $
    15,382
    
    
    $
    0.72
    
    
    $
    10,298
    
    
    $
    0.54
  Interest Expense
  Income Tax Expense
 Three Months EndedJune 30,2008
    
    2007Income tax (in thousands)
    
    $
    28,556
    
    
    $
    12,770Effective tax rate
    
    
    34.8
    %
    
    
    28.6
    %
  27




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##### Table of Contents



Summary Financial Data
Six Months Ended June 30, 2008 Compared with the Six Months Ended June 30, 2007
 Revenues
 Oil, Gas and Related Product Sales
   Natural Gas
    
    
    NGL
    
    
    Oil and Condensate
    
    
    Total2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Texas
    
    $
    155.4
    
    
    $
    48.0
    
    
    $
    109.9
    
    
    $
    29.8
    
    
    $
    16.8
    
    
    $
    2.8
    
    
    $
    282.1
    
    
    $
    80.6Northeast Operations
    
    
    
    
    
    
    63.3
    
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    9.9
    
    
    
    
    
    
    
    75.4Other U.S.
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.6
    
    
    
    0.3
    
    
    
    8.5
    
    
    
    4.4
    
    
    
    9.4
    
    
    
    5.0Hedging
    
    
    (13.5
    )
    
    
    16.4
    
    
    
    (8.5
    )
    
    
    
    
    
    
    (5.3
    )
    
    
    (0.1
    )
    
    
    (27.3
    )
    
    
    16.3Total U.S.
    
    
    142.2
    
    
    
    128.0
    
    
    
    102.0
    
    
    
    32.3
    
    
    
    20.0
    
    
    
    17.0
    
    
    
    264.2
    
    
    
    177.3Canada
    
    
    99.6
    
    
    
    65.4
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    99.6
    
    
    
    65.5Hedging
    
    
    (7.3
    )
    
    
    4.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.3
    )
    
    
    4.5Total Canada
    
    
    92.3
    
    
    
    69.9
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    92.3
    
    
    
    70.0Total Company
    
    $
    234.5
    
    
    $
    197.9
    
    
    $
    102.0
    
    
    $
    32.4
    
    
    $
    20.0
    
    
    $
    17.0
    
    
    $
    356.5
    
    
    $
    247.3
  Natural Gas
    
    NGL
    
    Oil and Condensate
    
    Equivalent Total2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007(MMcfd)
    
    (Bbld)
    
    (Bbld)
    
    (MMcfed)Texas
    
    
    88.1
    
    
    
    36.9
    
    
    
    10,719
    
    
    
    4,269
    
    
    
    864
    
    
    
    262
    
    
    
    157.6
    
    
    
    64.1Northeast Operations
    
    
    
    
    
    
    67.3
    
    
    
    
    
    
    
    382
    
    
    
    
    
    
    
    966
    
    
    
    
    
    
    
    75.4Other U.S.
    
    
    0.4
    
    
    
    0.3
    
    
    
    38
    
    
    
    30
    
    
    
    458
    
    
    
    473
    
    
    
    3.4
    
    
    
    3.3Total U.S.
    
    
    88.5
    
    
    
    104.5
    
    
    
    10,757
    
    
    
    4,681
    
    
    
    1,322
    
    
    
    1,701
    
    
    
    161.0
    
    
    
    142.8Canada
    
    
    62.5
    
    
    
    54.9
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    62.5
    
    
    
    55.0Total Company
    
    
    151.0
    
    
    
    159.4
    
    
    
    10,757
    
    
    
    4,687
    
    
    
    1,322
    
    
    
    1,701
    
    
    
    223.5
    
    
    
    197.8
  Natural Gas
    
    NGL
    
    Oil and Condensate
    
    Equivalent Total2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007(per Mcf)
    
    (per Bbl)
    
    (per Bbl)
    
    (per Mcfe)Texas
    
    $
    9.69
    
    
    $
    7.17
    
    
    $
    56.35
    
    
    $
    38.60
    
    
    $
    106.87
    
    
    $
    58.04
    
    
    $
    9.83
    
    
    $
    6.94Northeast Operations
    
    
    
    
    
    
    5.20
    
    
    
    
    
    
    
    32.32
    
    
    
    
    
    
    
    56.46
    
    
    
    
    
    
    
    5.53Other U.S.
    
    
    4.66
    
    
    
    5.78
    
    
    
    85.06
    
    
    
    42.30
    
    
    
    101.61
    
    
    
    51.26
    
    
    
    15.82
    
    
    
    8.23Hedging  U.S.
    
    
    (0.83
    )
    
    
    0.89
    
    
    
    (4.37
    )
    
    
    
    
    
    
    (21.90
    )
    
    
    
    
    
    
    (0.93
    )
    
    
    0.65Total U.S.
    
    
    8.83
    
    
    
    6.76
    
    
    
    52.07
    
    
    
    38.11
    
    
    
    83.15
    
    
    
    55.25
    
    
    
    9.02
    
    
    
    6.86Canada
    
    
    8.75
    
    
    
    6.58
    
    
    
    
    
    
    
    76.31
    
    
    
    
    
    
    
    
    
    
    
    8.75
    
    
    
    6.58Hedging  Canada
    
    
    (0.64
    )
    
    
    0.45
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.64
    )
    
    
    0.45Total Canada
    
    
    8.11
    
    
    
    7.03
    
    
    
    
    
    
    
    76.31
    
    
    
    
    
    
    
    
    
    
    
    8.11
    
    
    
    7.03Total Company
    
    $
    8.53
    
    
    $
    6.86
    
    
    $
    52.07
    
    
    $
    38.16
    
    
    $
    83.15
    
    
    $
    55.25
    
    
    $
    8.77
    
    
    $
    6.91
  28




---



##### Table of Contents



NaturalGas
    
    
    NGL
    
    
    Oil
    
    
    Total(In thousands)Revenue for the six
months ended June 30,
2007
    
    $
    197,870
    
    
    $
    32,368
    
    
    $
    17,013
    
    
    $
    247,251Volume changes
    
    
    (9,447
    )
    
    
    42,337
    
    
    
    (3,720
    )
    
    
    29,170Price changes
    
    
    46,124
    
    
    
    27,248
    
    
    
    6,710
    
    
    
    80,082Revenue for the six
months ended June 30,
2008
    
    $
    234,547
    
    
    $
    101,953
    
    
    $
    20,003
    
    
    $
    356,503
    Other Revenue
  29




---



##### Table of Contents



Operating Expenses
 Oil and Gas Production Costs
 Six Months Ended June 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeTexasCash expense
    
    $
    44,200
    
    
    $
    1.54
    
    
    $
    18,693
    
    
    $
    1.61Equity compensation
    
    
    624
    
    
    
    0.02
    
    
    
    235
    
    
    
    0.02$
    44,824
    
    
    $
    1.56
    
    
    $
    18,928
    
    
    $
    1.63Northeast OperationsCash expense
    
    $
    
    
    
    $
    
    
    
    $
    24,725
    
    
    $
    1.81Equity compensation
    
    
    
    
    
    
    
    
    
    
    674
    
    
    
    0.05$
    
    
    
    $
    
    
    
    $
    25,399
    
    
    $
    1.86Other U.S.Cash expense
    
    $
    2,636
    
    
    $
    3.96
    
    
    $
    1,640
    
    
    $
    3.02Equity compensation
    
    
    90
    
    
    
    0.15
    
    
    
    96
    
    
    
    0.16$
    2,726
    
    
    $
    4.11
    
    
    $
    1,736
    
    
    $
    3.18Total U.S.Cash expense
    
    $
    46,836
    
    
    $
    1.60
    
    
    $
    45,058
    
    
    $
    1.74Equity compensation
    
    
    714
    
    
    
    0.02
    
    
    
    1,005
    
    
    
    0.04$
    47,550
    
    
    $
    1.62
    
    
    $
    46,063
    
    
    $
    1.78CanadaCash expense
    
    $
    17,602
    
    
    $
    1.55
    
    
    $
    13,498
    
    
    $
    1.36Equity compensation
    
    
    938
    
    
    
    0.08
    
    
    
    997
    
    
    
    0.10$
    18,540
    
    
    $
    1.63
    
    
    $
    14,495
    
    
    $
    1.46Total CompanyCash expense
    
    $
    64,438
    
    
    $
    1.58
    
    
    $
    58,556
    
    
    $
    1.63Equity compensation
    
    
    1,652
    
    
    
    0.04
    
    
    
    2,002
    
    
    
    0.06$
    66,090
    
    
    $
    1.62
    
    
    $
    60,558
    
    
    $
    1.69
    30




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##### Table of Contents



Production and Ad Valorem Taxes
 Six Months Ended June 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeProduction and ad valorem taxesU.S.
    
    $
    3,018
    
    
    $
    0.10
    
    
    $
    6,925
    
    
    $
    0.27Canada
    
    
    1,849
    
    
    
    0.16
    
    
    
    1,777
    
    
    
    0.18Total production and ad valorem taxes
    
    $
    4,867
    
    
    $
    0.12
    
    
    $
    8,702
    
    
    $
    0.24
  Other Operating Costs
  Depletion, Depreciation and Accretion
 Six Months Ended June 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    
    PerMcfe
    
    
    
    
    
    
    McfeDepletionU.S.
    
    $
    41,301
    
    
    $
    1.41
    
    
    $
    27,539
    
    
    $
    1.07Canada
    
    
    20,847
    
    
    
    1.83
    
    
    
    15,680
    
    
    
    1.58Total depletion
    
    
    62,148
    
    
    
    1.53
    
    
    
    43,219
    
    
    
    1.21Depreciation of other fixed assetsU.S.
    
    $
    9,365
    
    
    $
    0.32
    
    
    $
    6,631
    
    
    $
    0.26Canada
    
    
    1,745
    
    
    
    0.15
    
    
    
    1,885
    
    
    
    0.19Total depreciation
    
    
    11,110
    
    
    
    0.27
    
    
    
    8,516
    
    
    
    0.24Accretion
    
    
    721
    
    
    
    0.02
    
    
    
    764
    
    
    
    0.02Total depletion, depreciation and
accretion
    
    $
    73,979
    
    
    $
    1.82
    
    
    $
    52,499
    
    
    $
    1.47
  31




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##### Table of Contents



General and Administrative Expense
 Six Months Ended June 30,2008
    
    
    2007(In thousands, except per unit amounts)Per
    
    
    
    
    
    PerGeneral and administrative expense
    
    
    
    
    
    Mcfe
    
    
    
    
    
    McfeCash expense
    
    $
    24,501
    
    
    $
    0.60
    
    
    $
    15,711
    
    
    $
    0.44Equity compensation
    
    
    6,296
    
    
    
    0.16
    
    
    
    4,285
    
    
    
    0.12Total general and administrative expense
    
    $
    30,797
    
    
    $
    0.76
    
    
    $
    19,996
    
    
    $
    0.56
  Interest Expense
  Income Tax Expense
 Six Months EndedJune 30,2008
    
    
    2007Income tax (in thousands)
    
    $
    52,468
    
    
    $
    24,065Effective tax rate
    
    
    35.3
    %
    
    
    30.5
    %
  LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
 For the Six Months EndedJune 30,2008
    
    
    2007(In thousands)Net cash provided by operating
activities
    
    $
    136,611
    
    
    $
    154,548Net cash used for investing activities
    
    
    (629,526
    )
    
    
    (442,338
    )Net cash provided by financing
activities
    
    
    466,571
    
    
    
    283,883Effect of exchange rate changes in cash
    
    
    447
    
    
    
    1,884
  32




---



##### Table of Contents



Six Months EndedJune 30, 2008(In thousands)Exploration and development:Texas
    
    $
    435,157Other U.S.
    
    
    10,761Total U.S.
    
    
    445,918Canada
    
    
    85,032Total exploration and development
    
    
    530,950Midstream:Texas
    
    
    108,300Canada
    
    
    1,857Total midstream
    
    
    110,157Corporate and field office
    
    
    8,113Total plant and equipment costs incurred
    
    $
    649,220
   33




---



##### Table of Contents



June 30,
    
    
    Decenber 31,2008
    
    
    2007(In thousands)Long-term and short-term debt:Senior secured credit facility
    
    $
    266,750
    
    
    $
    310,710Senior notes due 2015
    
    
    468,611
    
    
    
    Senior subordinated notes due 2016
    
    
    350,000
    
    
    
    350,000Convertible subordinated debentures
    
    
    148,163
    
    
    
    148,107KGS credit agreement
    
    
    55,300
    
    
    
    5,000Other loans
    
    
    
    
    
    
    34Total debt
    
    
    1,288,824
    
    
    
    813,851Stockholders equity
    
    
    923,628
    
    
    
    1,068,355Total capitalization
    
    $
    2,212,452
    
    
    $
    1,882,206
  Financial Position
  
    
    An increase of over $560.3 million in our net property, plant and equipment assets,
which includes approximately $649.2 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.
    
    We incurred additional long-term debt of $475 million, primarily as a result of our
capital expenditure program and partially offset by cash flow from operations.
Borrowings were drawn from our senior secured credit facility and the KGS credit
facility. A portion of the borrowings under our senior secured credit facility were
repaid with the proceeds from the issuance of our Senior Notes due 2015.
    
    Our current and non-current derivative liabilities have increased $233.0 million and
$105.6 million, respectively. Our current derivative liabilities include $45.6 million
for the estimated fair value of the Michigan Sales Contract, net of the swap valuation of
$38.7 million for the fixed-price swaps entered into in January 2008 to offset our net
earnings exposure for the remaining contract period under the Michigan Sales Contract.
All other changes in derivative assets and liabilities reflect changes in the estimated
fair value of our cash-flow hedges. The changes are the result of higher pricing of
natural gas, crude oil and NGLs compared to our derivative contracts at June 30, 2008 as
market prices have generally trended upward. Additionally, our current deferred tax
asset increased $79.0 million as a result of the increase in estimated fair value of our
natural gas, crude oil and NGL financial derivatives.
 Alliance Transaction
   34




---



##### Table of Contents



Contractual Obligations and Commercial Commitments
  
    
    We have commitments of approximately $43 million outstanding to
purchase components for our drilling program; and,
    
    We have issued additional surety bonds to fulfill contractual, legal
or regulatory requirements bringing the total of surety bonds
outstanding to approximately $27 million.
 Accounting Developments
  Critical Accounting Estimates
  
    
    Oil and gas properties, including underlying reserves and cost capitalization limitations;
    
    Derivative instruments;
    
    Asset retirement obligations;
    
    Stock-based compensation;
    
    Income taxes;
    
    Equity earnings from BreitBurn Energy Partners; and,
    
    Revenue.
  
 ITEM 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
   Commodity Price Risk
  35




---



##### Table of Contents



Weighted AvgPrice PerProduct
    
    Type
    
    
    Contract Period
    
    
    Volume
    
    
    Mcf or Bbl
    
    
    Fair Value(In thousands)Gas
    
    Swap
    
    Jul 2008-Dec 2008
    
    25,000 Mcfd
    
    $
    8.13
    
    
    $
    (24,735
    )Gas
    
    Swap
    
    Jul 2008-Dec 2008
    
    7,500 Mcfd
    
    
    8.13
    
    
    
    (7,420
    )Gas
    
    Swap
    
    Jul 2008-Dec 2008
    
    5,000 Mcfd
    
    
    8.14
    
    
    
    (4,938
    )Gas
    
    Swap
    
    Jul 2008-Dec 2008
    
    2,500 Mcfd
    
    
    8.15
    
    
    
    (2,464
    )Gas
    
    Swap
    
    Jul 2008-Dec 2008
    
    10,000 Mcfd
    
    
    8.21
    
    
    
    (9,748
    )Gas
    
    Swap
    
    Jul 2008-Dec 2008
    
    10,000 Mcfd
    
    
    8.22
    
    
    
    (9,729
    )Gas
    
    Swap
    
    Jan 2009-Dec 2009
    
    10,000 Mcfd
    
    
    8.45
    
    
    
    (14,453
    )Gas
    
    Swap
    
    Jan 2009-Dec 2009
    
    10,000 Mcfd
    
    
    8.45
    
    
    
    (14,453
    )Gas
    
    Swap
    
    Jan 2009-Dec 2009
    
    20,000 Mcfd
    
    
    8.46
    
    
    
    (28,869
    )Gas
    
    Collar
    
    Jul 2008-Dec 2008
    
    20,000 Mcfd
    
    
    7.50-  9.15
    
    
    
    (16,134
    )Gas
    
    Collar
    
    Jul 2008-Dec 2008
    
    10,000 Mcfd
    
    
    9.00-11.70
    
    
    
    (3,963
    )Gas
    
    Collar
    
    Jul 2008-Dec 2008
    
    20,000 Mcfd
    
    
    8.25-  9.75
    
    
    
    (14,381
    )Gas
    
    Collar
    
    Oct 2008-Dec 2008
    
    10,000 Mcfd
    
    
    9.00-12.60
    
    
    
    (1,978
    )Gas
    
    Collar
    
    Jul 2008-Mar 2009
    
    20,000 Mcfd
    
    
    7.50-  9.35
    
    
    
    (23,657
    )Gas
    
    Collar
    
    Jul 2008-Mar 2009
    
    20,000 Mcfd
    
    
    8.00-10.20
    
    
    
    (19,512
    )Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    20,000 Mcfd
    
    
    7.50-  9.34
    
    
    
    (23,754
    )Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    20,000 Mcfd
    
    
    7.75-10.20
    
    
    
    (19,563
    )Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    10,000 Mcfd
    
    
    7.75-10.26
    
    
    
    (9,627
    )Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    20,000 Mcfd
    
    
    8.25-  9.60
    
    
    
    (21,780
    )Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    10,000 Mcfd
    
    
    8.25-10.45
    
    
    
    (9,116
    )Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    10,000 Mcfd
    
    
    8.25-10.45
    
    
    
    (9,116
    )Gas
    
    Collar
    
    Jan 2009-Dec 2009
    
    10,000 Mcfd
    
    
    8.25-10.45
    
    
    
    (9,116
    )Gas
    
    Collar
    
    Apr 2009-Dec 2009
    
    10,000 Mcfd
    
    
    8.50-13.15
    
    
    
    (2,689
    )Gas
    
    Collar
    
    Jan 2010-Dec 2010
    
    20,000 Mcfd
    
    
    8.00-11.00
    
    
    
    (10,198
    )Gas
    
    Collar
    
    Jan 2010-Dec 2010
    
    20,000 Mcfd
    
    
    8.00-11.00
    
    
    
    (10,198
    )Gas
    
    Collar
    
    Jan 2010-Dec 2010
    
    20,000 Mcfd
    
    
    8.00-12.20
    
    
    
    (7,371
    )Gas
    
    Collar
    
    Jan 2010-Dec 2010
    
    20,000 Mcfd
    
    
    8.00-12.20
    
    
    
    (7,371
    )Gas
    
    Collar
    
    Jan 2010-Dec 2010
    
    20,000 Mcfd
    
    
    8.50-12.05
    
    
    
    (6,764
    )Gas
    
    Collar
    
    Jan 2010-Dec 2010
    
    10,000 Mcfd
    
    
    8.50-12.05
    
    
    
    (3,382
    )Gas
    
    Collar
    
    Jan 2010-Dec 2010
    
    10,000 Mcfd
    
    
    8.50-12.08
    
    
    
    (3,317
    )Gas
    
    Basis
    
    Jul 2008-Dec 2008
    
    10,000 Mcfd
    
    
    
    
    
    
    1,163Gas
    
    Basis
    
    Jul 2008-Dec 2008
    
    10,000 Mcfd
    
    
    
    
    
    
    1,163NGL
    
    Swap
    
    Jul 2008-Dec 2008
    
    1,000 Bbld
    
    
    39.58
    
    
    
    (5,648
    )NGL
    
    Swap
    
    Jul 2008-Dec 2008
    
    2,000 Bbld
    
    
    45.94
    
    
    
    (9,162
    )Oil
    
    Collar
    
    Jul 2008-Dec 2008
    
    500 Bbld
    
    
    65.00-73.90
    
    
    
    (5,441
    )Oil
    
    Collar
    
    Jul 2008-Dec 2008
    
    500 Bbld
    
    
    65.00-77.45
    
    
    
    (5,119
    )Total
    
    $
    (372,840
    )
  36




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##### Table of Contents



Weighted AvgPrice PerProduct
    
    Type
    
    
    Contract Period
    
    
    Volume
    
    
    Mcf or Bbl
    
    
    Fair Value(In thousands)Gas
    
    Sale
    
    Jul 2008-Mar 2009
    
    25,000 Mcfd
    
    $
    2.49
    
    
    $
    (84,313
    )Gas
    
    Swap
    
    Jul 2008-Mar 2009
    
    10,000 Mcfd
    
    
    8.20
    
    
    
    15,367Gas
    
    Swap
    
    Jul 2008-Mar 2009
    
    15,000 Mcfd
    
    
    8.20
    
    
    
    23,050Total
    
    $
    (45,896
    )
  Credit Risk
  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
  , t
 
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity Securities
  Total Number of
    
    
    Maximum Number ofTotal Number
    
    
    
    
    
    
    Shares Purchased as
    
    
    Shares that May Yetof Shares
    
    
    Average Price
    
    
    Part of Publicly
    
    
    Be Purchased UnderPeriod
    
    Purchased (1)
    
    
    Paid per Share
    
    
    Announced Plan (2)
    
    
    the Plan (2)April 2008
    
    
    8,584
    
    
    $
    41.63
    
    
    
    
    
    
    
    May 2008
    
    
    218
    
    
    $
    38.97
    
    
    
    
    
    
    
    June 2008
    
    
    184
    
    
    $
    39.85
    
    
    
    
    
    
    
    Total
    
    
    8,986
    
    
    $
    41.53
    
    
    
    
    
    
    
    
 
 (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. 
 ITEM 3. Defaults Upon Senior Securities
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  Election of Directors
  Total VoteTotal Vote for
    
    Withheld forName
    
    Each Director
    
    Each DirectorThomas F. Darden
    
    
    144,842,890
    
    
    
    5,138,337W. Byron Dunn
    
    
    137,223,350
    
    
    
    12,757,877Mark J. Warner
    
    
    148,232,362
    
    
    
    1,748,865
 39




---



##### Table of Contents



Approval of Quicksilvers Amended and Restated Certificate of Incorporation
  For
    
    
    115,079,609Against
    
    
    25,642,489Abstentions
    
    
    19,892
 
 ITEM 5. Other Information
  
 ITEM 6. Exhibits:
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of Quicksilver
Resources Inc. filed with the Secretary of State of the State of
Delaware on May 21, 2008 (filed as Exhibit 4.1 to the Companys Form
S-3, File No. 333-151847, filed June 23, 2008 and included herein by
reference).4.1
    
    Fifth Supplemental Indenture, dated as of June 27, 2008, among
Quicksilver Resources Inc., the subsidiary guarantors named therein and
The Bank of New York Trust Company, N.A., as trustee (filed as Exhibit
4.1 to the Companys Form 8-K filed June 30, 2008 and included herein
by reference).10.1
    
    Fourth Amendment to Combined Credit Agreements, dated as of June 20,
2008, among Quicksilver Resources Inc., Quicksilver Resources Canada
Inc. and the agents and combined lenders identified therein (filed as
Exhibit 10.1 to the Companys Form 8-K filed June 25, 2008 and included
herein by reference).* 31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 31.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith 40




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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 41




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of Quicksilver
Resources Inc. filed with the Secretary of State of the State of
Delaware on May 21, 2008 (filed as Exhibit 4.1 to the Companys Form
S-3, File No. 333-151847, filed June 23, 2008 and included herein by
reference).4.1
    
    Fifth Supplemental Indenture, dated as of June 27, 2008, among
Quicksilver Resources Inc., the subsidiary guarantors named therein and
The Bank of New York Trust Company, N.A., as trustee (filed as Exhibit
4.1 to the Companys Form 8-K filed June 30, 2008 and included herein
by reference).10.1
    
    Fourth Amendment to Combined Credit Agreements, dated as of June 20,
2008, among Quicksilver Resources Inc., Quicksilver Resources Canada
Inc. and the agents and combined lenders identified therein (filed as
Exhibit 10.1 to the Companys Form 8-K filed June 25, 2008 and included
herein by reference).* 31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 31.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith 42