Over the years, the stock price of Quicksilver Resources (KWK) has certainly been volatile. Then again, the company's industry -- natural gas -- has also seen lots of change. No doubt, such an environment makes it difficult to take-on long-term investments.
So the Darden family, which owns roughly 24% of Quicksilver, has made an overture to take the company private. The price tag? Well, that hasn't been disclosed. Instead, the offer is likely to be at a "substantial premium to the current market price" (this is according to a letter from the Darden family).
That's nice news for shareholders. As a result, the stock price is up 16%, to $14.61.
But in light of this move, is there still more room on the upside? Actually, it looks like the answer is yes.
A Look at Quicksilver
Based in Forth Worth, Texas, Quicksilver focuses on exploration and production of natural gas and oil properties. These are mostly unconventional sources of energy like shale gas, coal bed methane and tight gas sands. Such things can be difficult and costly to extract. However, they represent a large source of energy.
In fact, Quicksilver has proved reserves of approximately 2.4 trillion cubic feet equivalents, primarily in Texas and Alberta, Canada. Although, the company has been exploring areas in places like Horn River Basin of Northeast British Columbia and the Green River Basin of Colorado.
What's more, Quicksilver has also taken equity interests in various energy operators. For example, the company hold 33% of the limited partner unit in Breitburn Energy Partners LP (BBEP), which has a market value over $1 billion.
As for its latest earnings report, Quicksilver reported net income of $86.8 million. This was up from a loss of $21.8 million in the same period a year ago.
During the past few years, natural gas prices have been fairly depressed. There has been a glut of supply, as well as reduced demand because of the global recession.
So why take Quicksilver private? It looks like the main attraction is the Horn River Basin property. Based on preliminary results, the reserves there may be multiples above the current forecasts.
Of course, it will take much time to realize that potential and capture a nice return. But as a private company, it will be easier to do this without the need to cater to the quarter-by-quarter demainds of investors. Besides, credit markets are improving and Quicksilver should be able to get debt financing for a buyout.
But in light of this potential, the company will probably need to pay a higher price to get a deal done. After all, the current stock price is still at a discount to its 52-week high.