UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

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.

(Exact name of registrant as specified in its charter)

Delaware		75-2756163
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
777 West Rosedale, Fort Worth, Texas		76104
(Address of principal executive offices)		(Zip Code)

(817) 665-5000
(Registrant’s telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last report)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Title of Class		Outstanding as of July 30, 2010
Common Stock, $0.01 par value		170,355,422

 

 

DEFINITIONS

As used in this quarterly report unless the context otherwise requires:

“Bbl” or “Bbls” means barrel or barrels

“Bbld” means barrel or barrels per day

“Bcf” means billion cubic feet

“Canada” means the division of Quicksilver encompassing oil and natural gas properties located in Canada

“DD&A” means Depletion, Depreciation and Accretion

“LIBOR” means London Interbank Offered Rate

“MBbl” or “MBbls” means thousand barrels

“MBbld” means thousand barrels per day

“MMBbls” means million barrels

“MMBtu” means million British Thermal Units, a measure of heating value approximately equal to 1 Mcf of natural gas

“MMBtud” means million Btu per day

“Mcf” means thousand cubic feet

“Mcfe” means Mcf natural gas equivalents calculated as one Bbl of oil or NGLs equaling six Mcf of natural gas

“MMcf” means million cubic feet

“MMcfd” means million cubic feet per day

“MMcfe” means MMcf of natural gas equivalents calculated as one Bbl of oil or NGLs equaling six Mcf of natural gas

“MMcfed” means MMcfe per day

“NGL” or “NGLs” means natural gas liquids

“NYMEX” means New York Mercantile Exchange

“Oil” includes crude oil and condensate

COMMONLY USED TERMS

Other commonly used terms and abbreviations include:

“ABR” means adjusted base rate

“AOCI” means accumulated other comprehensive income

“Alliance Leasehold” means the natural gas leasehold and royalty interests acquired on August 8, 2008 in northern Tarrant and southern Denton counties of Texas and developed thereafter

“Alliance Midstream Assets” means the natural gas gathering system and processing facility purchased by KGS from Quicksilver in January 2010

“BBEP” means BreitBurn Energy Partners L.P.

“Crestwood” means Crestwood Midstream Partners, LP and its affiliates

“Crestwood Transaction” means the sale to Crestwood of all our interests in KGS, consisting of 100% of the general partner units, including incentive distribution rights, all of our common and subordinated units and the subordinated note due from KGS

“Eni” means either or both Eni Petroleum US LLC and Eni US Operating Co. Inc., which are subsidiaries of Eni SpA

“Eni Production” means production attributable to Eni pursuant to the Eni Transaction

“Eni Transaction” means the June 19, 2009 conveyance of a 27.5% interest in our Alliance Leasehold

“FASB” means the Financial Accounting Standards Board, which promulgates accounting standards in the U.S.

“FASC” means the FASB Accounting Standards Codification, which is the single source of authoritative U.S. GAAP not promulgated by the SEC

“GAAP” means accounting principles generally accepted in the U.S.

“Gas Purchase Commitment” means the commitment pursuant to the Eni Transaction to purchase Eni Production through December 2010

“KGS” means Quicksilver Gas Services LP, which is our publicly traded partnership, which trades under the ticker symbol of “KGS”

“KGS Credit Facility” means the KGS senior secured revolving credit facility

“KGS Secondary Offering” means the public offering of 4,000,000 KGS common units on December 16, 2009 and the underwriters’ purchase of an additional 549,200 KGS common units in January 2010

“Lake Arlington Project” means our natural gas leasehold and royalty interests in Tarrant County that we have developed and also includes an additional 25% working interest we purchased on May 11, 2010

“Mercury” means Mercury Exploration Company, which is owned by members of the Darden family

“Michigan Sales Contract” means the gas supply contract, which expired in March 2009 under which we agreed to deliver 25 MMcfd at a floor price of $2.49 per Mcf

“OCI” means other comprehensive income

“RSU” means restricted stock unit

“SEC” means the U.S. Securities and Exchange Commission

“Senior Secured Credit Facility” means our U.S. senior secured revolving credit facility and our Canadian senior secured revolving credit facility

QUICKSILVER RESOURCES INC.
INDEX TO FORM 10-Q
For the Period Ending June 30, 2010

PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Interim Financial Statements (Unaudited)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. [Removed and Reserved]
Item 5. Other Information
Item 6. Exhibits
Signature
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Except as otherwise specified and unless the context otherwise requires, references to the “Company,” “Quicksilver,” “we,” “us,” and “our” refer to Quicksilver Resources Inc. and its subsidiaries.

Forward-Looking Information

     Certain statements contained in this report and other materials we file with the SEC, or in other written or oral statements made or to be made by us, other than statements of historical fact, are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995.  Forward-looking statements give our current expectations or forecasts of future events. Words such as “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking statements.  They can be affected by assumptions used or by known or unknown risks or uncertainties.  Consequently, no forward-looking statements can be guaranteed.  Actual results may vary materially.  You are cautioned not to place undue reliance on any forward-looking statements.  You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties.  Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

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

     This list of factors is not exhaustive, and new factors may emerge or changes to these factors may occur that would impact our business.  Additional information regarding these and other factors may be contained in our filings with the SEC, especially on Forms 10-K, 10-Q and 8-K.  All such risk factors are difficult to predict, and are subject to material uncertainties that may affect actual results and may be beyond our control.  The forward-looking statements included in this report are made only as of the date of this quarterly report, and we undertake no obligation to update any of these forward-looking statements to reflect subsequent events or circumstances except to the extent required by applicable law.

     All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.

PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Interim Financial Statements (Unaudited)

QUICKSILVER RESOURCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
In thousands, except for per share data — Unaudited

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Revenue
Natural gas, NGL and oil		$	211,687			$	199,315			$	413,250			$	382,869
Sales of purchased natural gas			16,821				5,217				33,045				5,217
Other			62				1,509				4,433				3,887
Total revenue			228,570				206,041				450,728				391,973
Operating expense
Oil and gas production expense			38,202				31,703				74,191				63,874
Production and ad valorem taxes			8,889				7,441				17,372				11,807
Costs of purchased natural gas			3,756				8,582				37,063				8,582
Other operating costs			970				1,744				2,224				3,271
Depletion, depreciation and accretion			50,669				50,966				97,426				110,662
General and administrative			17,217				24,389				37,740				41,770
Total expense			119,703				124,825				266,016				239,966
Impairment related to oil and gas properties			-				(70,643	)			-				(967,126	)
Operating income (loss)			108,867				10,573				184,712				(815,119	)
Income from earnings of BBEP - net			23,168				19,016				7,179				19,016
Other income (expense) - net			53,050				(855	)			53,393				(94	)
Interest expense			(46,122	)			(68,081	)			(90,639	)			(108,282	)
Income (loss) before income taxes			138,963				(39,347	)			154,645				(904,479	)
Income tax (expense) benefit			(48,219	)			18,897				(53,301	)			316,720
Net income (loss)			90,744				(20,450	)			101,344				(587,759	)
Net income attributable to noncontrolling interests			(3,941	)			(1,312	)			(6,353	)			(2,982	)
Net income (loss) attributable to Quicksilver		$	86,803			$	(21,762	)		$	94,991			$	(590,741	)
Other comprehensive income (loss) - net of income tax
Reclassification adjustments related to settlements of derivative contracts			(46,089	)			(60,073	)			(72,358	)			(96,987	)
Net change in derivative fair value			14,087				3,701				112,693				112,304
Foreign currency translation adjustment			(9,715	)			14,007				(2,755	)			6,782
Comprehensive income (loss)		$	45,086			$	(64,127	)		$	132,571			$	(568,642	)
Earnings (loss) per common share - basic		$	0.51			$	(0.13	)		$	0.56			$	(3.50	)
Earnings (loss) per common share - diluted		$	0.49			$	(0.13	)		$	0.54			$	(3.50	)
Basic weighted average shares outstanding			170,290				169,009				170,225				168,894
Diluted weighted average shares outstanding			180,872				169,009				180,855				168,894

The accompanying notes are an integral part of these condensed consolidated financial statements.

QUICKSILVER RESOURCES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except for share data — Unaudited

		June 30,				December 31,
		2010				2009
ASSETS
Current assets
Cash and cash equivalents		$	3,308			$	1,785
Accounts receivable - net of allowance for doubtful accounts			42,595				65,253
Derivative assets at fair value			138,871				97,957
Other current assets			63,137				54,943
Total current assets			247,911				219,938
Investment in BBEP			92,956				112,763
Property, plant and equipment
Oil and gas properties, full cost method (including unevaluated costs of $375,100 and $458,037, respectively)			2,613,688				2,338,244
Other property and equipment			769,214				747,696
Property, plant and equipment - net			3,382,902				3,085,940
Derivative assets at fair value			67,763				14,427
Deferred income taxes			73,083				133,051
Other assets			42,084				46,763
		$	3,906,699			$	3,612,882
LIABILITIES AND EQUITY
Current liabilities
Accounts payable		$	122,400			$	157,986
Accrued liabilities			156,639				156,604
Derivative liabilities at fair value			-				395
Deferred income taxes			54,888				51,675
Total current liabilities			333,927				366,660
Long-term debt			2,586,923				2,427,523
Asset retirement obligations			61,634				59,268
Other liabilities			30,396				20,691
Deferred income taxes			49,037				41,918
Commitments and contingencies (Note 7)			-				-
Equity
Preferred stock, par value $0.01, 10,000,000 shares authorized, none outstanding			-				-
Common stock, $0.01 par value, 400,000,000 shares authorized; 175,496,888 and 174,469,836 shares issued, respectively			1,755				1,745
Paid in capital in excess of par value			748,405				730,265
Treasury stock of 5,025,337 and 4,704,448 shares, respectively			(41,167	)			(36,363	)
Accumulated other comprehensive income			158,916				121,336
Retained deficit			(85,994	)			(180,985	)
Quicksilver stockholders’ equity			781,915				635,998
Noncontrolling interests			62,867				60,824
Total equity			844,782				696,822
		$	3,906,699			$	3,612,882

The accompanying notes are an integral part of these condensed consolidated financial statements.

QUICKSILVER RESOURCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
In thousands — Unaudited

		Quicksilver Resources Inc. Stockholders
														Accumulated
						Additional								Other				Retained
		Common				Paid-in				Treasury				Comprehensive				Earnings				Noncontrolling
		Stock				Capital				Stock				Income				(Deficit)				Interests				Total
Balances at December 31, 2008		$	1,717			$	656,958			$	(35,441	)		$	185,104			$	376,488			$	26,737			$	1,211,563
Net income (loss)			-				-				-				-				(590,741	)			2,982				(587,759	)
Hedge derivative contract settlements reclassified into earnings from accumulated other comprehensive income, net of income tax of $45,138			-				-				-				(96,987	)			-				-				(96,987	)
Net change in derivative fair value, net of income tax of $53,212			-				-				-				112,304				-				-				112,304
Foreign currency translation adjustment			-				-				-				6,782				-				-				6,782
Issuance and vesting of stock compensation			22				10,389				(627	)			-				-				812				10,596
Stock option exercises			-				80				-				-				-				-				80
Distributions paid on KGS common units			-				-				-				-				-				(4,896	)			(4,896	)
Balances at June 30, 2009		$	1,739			$	667,427			$	(36,068	)		$	207,203			$	(214,253	)		$	25,635			$	651,683
Balances at December 31, 2009		$	1,745			$	730,265			$	(36,363	)		$	121,336			$	(180,985	)		$	60,824			$	696,822
Net income			-				-				-				-				94,991				6,353				101,344
Hedge derivative contract settlements reclassified into earnings from accumulated other comprehensive income, net of income tax of $38,226			-				-				-				(72,358	)			-				-				(72,358	)
Net change in derivative fair value, net of income tax of $56,906			-				-				-				112,693				-				-				112,693
Foreign currency translation adjustment			-				-				-				(2,755	)			-				-				(2,755	)
Issuance and vesting of stock compensation			8				10,187				(4,804	)			-				-				190				5,581
Stock option exercises			2				1,207				-				-				-				-				1,209
Issuance of KGS common units			-				6,746				-				-				-				4,308				11,054
Distributions paid on KGS common units			-				-				-				-				-				(8,808	)			(8,808	)
Balances at June 30, 2010		$	1,755			$	748,405			$	(41,167	)		$	158,916			$	(85,994	)		$	62,867			$	844,782

The accompanying notes are an integral part of these condensed consolidated financial statements.

QUICKSILVER RESOURCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands — Unaudited

		For the Six Months Ended
		June 30,
		2010				2009
Operating activities:
Net income (loss)		$	101,344			$	(587,759	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depletion, depreciation and accretion			97,426				110,662
Impairment related to oil and gas properties			-				967,126
Deferred income tax expense (benefit)			52,243				(331,321	)
Stock-based compensation			11,529				11,223
Non-cash (gain) loss from hedging and derivative activities			(27,852	)			5,544
Non-cash interest expense			10,178				35,848
Non-cash gain on sale of BBEP units			(35,426	)			-
(Income) loss from BBEP in excess of cash distributions, net of impairment			826				(7,915	)
Other			(469	)			420
Changes in assets and liabilities
Accounts receivable			22,858				89,580
Derivative assets at fair value			18,682				54,896
Other assets			(11,144	)			(4,266	)
Accounts payable			(20,169	)			(25,864	)
Accrued and other liabilities			26,481				(7,833	)
Net cash provided by operating activities			246,507				310,341
Investing activities:
Purchases of property, plant and equipment			(356,402	)			(441,184	)
Proceeds from sales of property and equipment			864				233,488
Net cash used for investing activities			(355,538	)			(207,696	)
Financing activities:
Issuance of debt			540,032				1,020,750
Repayments of debt			(409,613	)			(1,144,031	)
Debt issuance costs paid			(109	)			(22,802	)
Gas Purchase Commitment assumed			-				46,628
Gas Purchase Commitment repayments			(16,592	)			-
Issuance of KGS common units - net of offering costs			11,054				-
Distributions paid on KGS common units			(8,808	)			(4,896	)
Proceeds from exercise of stock options			1,209				80
Taxes paid by KGS for equity-based compensation vesting			(1,144	)			(63	)
Purchase of treasury stock for stock-based compensation vesting			(4,804	)			(627	)
Net cash provided by (used for) financing activities			111,225				(104,961	)
Effect of exchange rate changes in cash			(671	)			125
Net increase (decrease) in cash and cash equivalents			1,523				(2,191	)
Cash and cash equivalents at beginning of period			1,785				2,848
Cash and cash equivalents at end of period		$	3,308			$	657

The accompanying notes are an integral part of these condensed consolidated financial statements.

QUICKSILVER RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Unaudited

1. ACCOUNTING POLICIES AND DISCLOSURES

     The accompanying condensed consolidated interim financial statements have not been audited. In management’s opinion, the accompanying condensed consolidated interim financial statements contain all adjustments necessary to fairly present our financial position as of June 30, 2010 and our results of operations for the three and six months ended June 30, 2010 and 2009 and cash flows for the six months ended June 30, 2010 and 2009. All such adjustments are of a normal recurring nature. The results for interim periods are not necessarily indicative of annual results.

     Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during each reporting period. We believe our estimates and assumptions are reasonable, but actual results could differ from our estimates.

     Certain disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our 2009 Annual Report on Form 10-K.

Recently Issued Accounting Standards

     Accounting standards-setting organizations frequently issue new or revised accounting rules. We regularly review all new pronouncements to determine their impact, if any, on our financial statements. No pronouncements materially affecting our financial statements have been issued since the filing of our 2009 Annual Report on Form 10-K.

2. DERIVATIVES AND FAIR VALUE MEASUREMENTS

     The following table shows the level of inputs used in our fair value calculations of our derivative instruments at June 30, 2010 and December 31, 2009:

		Significant Other Observable
		Inputs - Level 2
		June 30,				December 31,
		2010				2009
		(in thousands)
Commodity contracts		$	193,394			$	107,881
Interest rate contracts			13,240				4,108
Gas Purchase Commitment			(6,161	)			(6,625	)
Total		$	200,473			$	105,364

     The fair value of all derivative instruments included in these disclosures was estimated using prices quoted in active markets for the periods covered by the derivatives and the value confirmed by counterparties. Estimates were determined by applying the net differential between the prices in each derivative and market prices for future periods to the amounts stipulated in each contract to arrive at an estimated future value. This estimated future value was discounted on each contract at rates commensurate with federal treasury instruments with similar contractual lives.

Commodity Price Derivatives

     As of June 30, 2010, we had price collars and fixed price swaps that hedge 200 MMcfd, 150 MMcfd and 90 MMcfd of our anticipated natural gas production for 2010, 2011 and 2012, respectively. We also have fixed price swaps that hedge 30 MMcfd of our anticipated natural gas production for 2013 through 2015. A portion of our anticipated 2010 and 2011 NGL production has been hedged with fixed price swaps that cover 10 MBbld and 8 MBbld, respectively.

     The increase in carrying value of our commodity price derivatives since December 31, 2009 principally resulted from the overall decline in market prices for natural gas and NGLs relative to the prices of our open derivative instruments. Additional derivatives entered into further increased the carrying value. Monthly settlements received during 2010 have partially offset these increases.

Interest Rate Derivatives

     In February 2010, we executed the early settlement of the 2009 interest rate swaps that hedged our senior notes due 2015 and our senior subordinated notes. We received cash of $18.0 million in the settlement, including $3.7 million for interest previously accrued and earned, and recognized an adjustment of $14.3 million to the carrying value of the debt. In February 2010, we entered into new interest swaps to hedge the same debt instruments. In May 2010, we executed an early settlement of a portion of the 2010 interest rate swaps. We received cash of $6.8 million in the settlement, including $2.4 million for interest previously accrued and earned, and recognized an additional adjustment of $4.4 million to the carrying value of the debt. These two settlements, totaling $18.7 million, will be recognized as a reduction of interest expense over the life of the associated underlying debt instruments currently scheduled as follows:

(In thousands)
2010 (1)		$	2,263
2011			2,899
2012			3,142
2013			3,404
2014			3,689
2015			2,908
2016			377
		$	18,682

     As of June 30, 2010, our remaining interest swaps, entered into during February 2010, cover $295 million of our senior notes due 2015 and $155 million of our senior subordinated notes. The interest rate swaps convert the interest paid on those issues from a fixed to a floating rate indexed to six-month LIBOR. The maturity dates and all other significant terms are the same as those of the underlying debt. As a result, the remaining 2010 interest rate swaps qualify for accounting treatment as fair value hedges. The value of the remaining 2010 interest rate swaps, excluding the net interest accrual, amounted to a net asset of $13.2 million as of June 30, 2010. The offsetting fair value adjustment to the debt hedged decreased the carrying value of the debt. There was no ineffectiveness recorded in connection with the remaining 2010 interest rate swaps. The average effective interest rates on the senior notes due 2015 and the senior subordinated notes, including all interest earned from both the early settled and open interest rate swaps, were approximately 5.52% and 4.25%, respectively, for the first half of 2010.

     In July 2010, we executed the early settlement of our remaining 2010 interest rate swaps. We received cash of $16.7 million, including $4.6 million for interest previously accrued and earned. We will recognize the remaining $12.1 million as an adjustment to the carrying value of the debt that will be recognized as a reduction of interest expense over the life of the associated underlying debt instruments.

Gas Purchase Commitment

     The Gas Purchase Commitment, which is effective through December 31, 2010, contains an embedded derivative revalued for changes to estimated volumes and prices from June 19, 2009 to June 30, 2010. At June 30, 2010, we have estimated the remaining liability at $33.7 million, including an embedded derivative liability for cumulative changes in estimates since inception of $6.2 million. The derivative reflects a 3.3 Bcf reduction of the total estimated volumes we expect to purchase under the commitment offset by a decrease in market prices over the remaining commitment period compared with our December 31, 2009 estimate. The following summarizes 2010 activity to the Gas Purchase Commitment:

(In thousands)
Liability fair value at December 31, 2009		$	50,744
Decrease due to gas volumes purchased			(16,592	)
Embedded derivative increase (decrease) due to:
Price changes			8,930
Volume changes			(9,394	)
Total increase (decrease) in embedded derivative			(464	)
Liability fair value at June 30, 2010 (1)		$	33,688

     The estimated fair value of our derivatives at June 30, 2010 and December 31, 2009 were as follows:

		Asset Derivatives									Liability Derivatives
		June 30,				December 31,					June 30,				December 31,
		2010				2009					2010				2009
		(In thousands)									(In thousands)
Derivatives designated as hedges:
Commodity contracts reported in:
Current derivative assets		$	137,473			$	97,883				$	1,107			$	638
Noncurrent derivative assets			57,028				11,031					-				-
Current derivative liabilities			-				243					-				638
Interest rate contracts reported in:
Current derivative assets			2,505				712					-				-
Noncurrent derivative assets			10,735				3,396					-				-
Total derivatives designated as hedges		$	207,741			$	113,265				$	1,107			$	1,276
Derivatives not designated as hedges:
Gas Purchase Commitment reported in accrued liabilities		$	-			$	-				$	6,161			$	6,625
Total derivatives not designated as hedges		$	-			$	-				$	6,161			$	6,625
Total derivatives		$	207,741			$	113,265				$	7,268			$	7,901

     The changes in the carrying value of our derivatives for the three and six months ended June 30, 2010 and 2009 are presented below:

		For the Three Months Ended June 30, 2010
		Gas Purchase				Interest Rate				Commodity
		Commitment				Swaps				Hedges				Total
		(In thousands)
Derivative fair value at March 31, 2010		$	(23,263	)		$	(5,030	)		$	230,718			$	202,425
Net change in amounts receivable/payable			-				209				1,362				1,571
Net settlements reported in revenue			-				-				(57,076	)			(57,076	)
Net settlements reported in interest expense			-				(4,267	)			-				(4,267	)
Cash settlements reported in long-term debt			-				(4,422	)			-				(4,422	)
Change in fair value of Gas Purchase Commitment
reported in costs of purchased gas			17,102				-				-				17,102
Change in fair value of effective interest swaps			-				26,750				-				26,750
Ineffectiveness reported in other revenue			-				-				(2,983	)			(2,983	)
Unrealized gains reported in OCI			-				-				21,373				21,373
Derivative fair value at June 30, 2010		$	(6,161	)		$	13,240			$	193,394			$	200,473

		For the Three Months Ended June 30, 2009
		Gas Purchase				Interest Rate				Commodity
		Commitment				Swaps				Hedges				Total
		(In thousands)
Derivative fair value at March 31, 2009		$	-			$	-			$	342,323			$	342,323
Net change in amounts receivable/payable			-				768				-				768
Net settlements reported in revenue			-				-				(88,261	)			(88,261	)
Change in fair value of Gas Purchase Commitment
reported in costs of purchased gas			(3,818	)			-				-				(3,818	)
Change in fair value of effective interest swaps			-				(1,034	)			-				(1,034	)
Ineffectiveness reported in other revenue			-				-				(598	)			(598	)
Unrealized gains reported in OCI			-				-				4,083				4,083
Derivative fair value at June 30, 2009		$	(3,818	)		$	(266	)		$	257,547			$	253,463

		For the Six Months Ended June 30, 2010
		Gas Purchase				Interest Rate				Commodity
		Commitment				Swaps				Hedges				Total
		(In thousands)
Derivative fair value at December 31, 2009		$	(6,625	)		$	4,108			$	107,881			$	105,364
Net change in amounts receivable/payable			-				(4,788	)			(861	)			(5,649	)
Net settlements reported in revenue			-				-				(81,633	)			(81,633	)
Net settlements reported in interest expense			-				(6,237	)			-				(6,237	)
Cash settlements reported in long-term debt			-				(18,682	)			-				(18,682	)
Change in fair value of Gas Purchase Commitment reported in costs of purchased gas			464				-				-				464
Change in fair value of effective interest swaps			-				38,839				-				38,839
Ineffectiveness reported in other revenue			-				-				(1,588	)			(1,588	)
Cash settlement reported in OCI			-				-				-				-
Unrealized gains reported in OCI			-				-				169,595				169,595
Derivative fair value at June 30, 2010		$	(6,161	)		$	13,240			$	193,394			$	200,473

		For the Six Months Ended June 30, 2009
		Michigan				Gas Purchase				Interest Rate				Commodity
		Contract				Commitment				Swaps				Hedges				Total
		(In thousands)
Derivative fair value at December 31, 2008		$	(12,901	)		$	-			$	-			$	290,719			$	277,818
Net change in amounts receivable/payable			(3,518	)			-				768				-				(2,750	)
Net settlements			16,479				-				-				-				16,479
Net settlements reported in revenue			-				-				-				(142,125	)			(142,125	)
Change in fair value of Gas Purchase Commitment reported in costs of purchased gas			-				(3,818	)			-				-				(3,818	)
Change in fair value of effective interest swaps			-				-				(1,034	)			-				(1,034	)
Ineffectiveness reported in other revenue			(60	)			-				-				(1,666	)			(1,726	)
Cash settlement reported in OCI			-				-				-				(54,896	)			(54,896	)
Unrealized gains reported in OCI			-				-				-				165,516				165,516
Derivative fair value at June 30, 2009		$	-			$	(3,818	)		$	(266	)		$	257,548			$	253,464

     Gains and losses from the effective portion of derivative assets and liabilities held in AOCI expected to be reclassified into earnings over the next twelve months would result in a gain of $89.4 million net of income taxes. An additional $17.4 million, net of income taxes, remains from the early settlement of the 2010 natural gas collar settled in 2009 and will be reclassified from AOCI into revenue during the remainder of 2010. Hedge derivative ineffectiveness resulted in losses of $1.6 million and $1.7 million recorded in other revenue for the six months ended June 30, 2010 and 2009, respectively.

3. INVESTMENT IN BREITBURN ENERGY PARTNERS L.P.

     We own approximately 17.7 million common units, or 33%, of BBEP, a publicly traded limited partnership, whose price closed at $14.93 per unit at June 30, 2010. Note 4 contains additional information regarding the use of 3.6 million BBEP common units as partial consideration in the acquisition of oil and gas properties in May 2010.

     We account for our investment in BBEP units using the equity method, utilizing a one-quarter lag from BBEP’s publicly available information. Summarized estimated financial information for BBEP is as follows:

		For the Three Months Ended								For the Six Months Ended
		March 31,								March 31,
		2010				2009				2010				2009
		(In thousands)
Revenues (1)		$	133,166			$	127,939			$	171,429			$	571,186
Operating expenses			69,277				74,243				142,549				240,039
Operating income (loss)			63,889				53,696				28,880				331,147
Interest and other (2)			5,835				6,871				11,694				32,470
Income tax (benefit) expense			144				468				(1,030	)			1,145
Noncontrolling interests			71				7				90				20
Net income attributable to BBEP		$	57,839			$	46,350			$	18,126			$	297,512

		As of				As of
		March 31,				December 31,
		2010				2009
		(In thousands)
Current assets		$	155,455			$	142,441
Property, plant and equipment			1,728,086				1,741,089
Other assets			98,523				87,499
Current liabilities			88,691				91,890
Long-term debt			523,000				559,000
Other non-current liabilities			79,604				91,338
Total equity			1,290,769				1,228,801

     For the six months ended June 30, 2010, we recognized income of $7.2 million, or approximately 40%, of BBEP’s income for the six months ended March 31, 2010. For the comparable 2009 period, we recognized income of $121.1 million and impairment expense of $102.1 million.

     Changes in the balance of our investment in BBEP for the six months ended June 30, 2010 were as follows:

(In thousands, except unit data)
Balance at December 31, 2009		$	112,763
Equity income from BBEP			7,179
Distributions from BBEP			(8,005	)
Conveyance of 3,619,901 BBEP units			(18,981	)
Balance at June 30, 2010		$	92,956

     Note 7 contains additional information regarding the April 2010 settlement of our lawsuit against BBEP and other parties.

4.  PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consisted of the following:

		June 30,				December 31,
		2010				2009
		(In thousands)
Oil and gas properties
Subject to depletion		$	4,376,233			$	3,947,676
Unevaluated costs			375,100				458,037
Accumulated depletion			(2,137,645	)			(2,067,469	)
Net oil and gas properties			2,613,688				2,338,244
Other plant and equipment
Pipelines and processing facilities			799,045				767,430
General properties			72,035				68,698
Construction in progress			23,533				17,693
Accumulated depreciation			(125,399	)			(106,125	)
Net other property and equipment			769,214				747,696
Property, plant and equipment, net of
accumulated depletion and depreciation		$	3,382,902			$	3,085,940

Ceiling Test Analysis

     Our U.S. and Canadian ceiling tests for the first and second quarters of 2010 resulted in no impairment of our U.S. or Canadian oil and gas properties.  The ceiling limitations were determined using internally prepared proved reserve reports using the unweighted average of the preceding 12-month first-day-of-the-month prices for natural gas, NGL and oil.

     In the first half of 2009, we recorded impairments of our U.S. and Canadian oil and gas properties that totaled $786.9 million and $109.6 million, respectively.  Lower period-end benchmark prices for natural gas, oil and NGL prices at March 31, 2009 and June 30, 2009 were the primary factor contributing to a reduction of the U.S. and Canadian ceiling limitations at March 31, 2009 and the Canadian ceiling limit at June 30, 2009.

     For additional information regarding our property, plant and equipment and our 2009 full cost ceiling impairments, see Note 10 to our consolidated financial statements in our 2009 Annual Report on Form 10-K.

Lake Arlington Acquisition

     On May 11, 2010, we completed the acquisition of an additional 25% working interest in our company-operated Lake Arlington Project.  We acquired the Lake Arlington assets, subject to customary adjustments as provided in the purchase and agreement, for which we conveyed $62.0 million in cash and 3,619,901 BBEP common units we had previously owned with a market value of $54.4 million to the seller on the date of closing.  We recognized a gain of $35.4 million as other income for the difference between our carrying value of $5.24 per BBEP unit and the fair value of $15.03 per BBEP unit.  We expect to finalize adjustments to the purchase price in the third quarter of 2010.

5.  LONG-TERM DEBT

     Long-term debt consisted of the following:

		June 30,				December 31,
		2010				2009
		(In thousands)
Senior Secured Credit Facility		$	493,234			$	467,569
Senior notes due 2015, net of unamortized discount			470,415				469,964
Senior notes due 2016, net of unamortized discount			582,448				581,359
Senior notes due 2019, net of unamortized discount			293,254				293,004
Senior subordinated notes due 2016			350,000				350,000
Convertible debentures, net of unamortized discount			139,736				136,119
KGS credit agreement			226,800				125,400
Total debt			2,555,887				2,423,415
Unamortized deferred gain - terminated interest rate swaps			17,796				-
Fair value - interest rate swaps			13,240				4,108
Long-term debt		$	2,586,923			$	2,427,523

Senior Secured Credit Facility

     The $1.0 billion borrowing base on our Senior Secured Credit Facility was re-affirmed in May 2010.

Convertible Debentures

     The convertible debentures are contingently convertible into shares of Quicksilver common stock at a rate of 65.4418 shares for each $1,000 debenture, subject to adjustment.  In the event of conversion, we have the option to deliver either Quicksilver common stock, cash, or any combination thereof.  Should all debentures be converted to Quicksilver common stock, an additional 9,816,270 shares would become outstanding; however, as of July 1, 2010, the debentures were not convertible based on share prices for the quarter ended June 30, 2010.

     At June 30, 2010 and December 31, 2009, the remaining unamortized discount on the debentures was $10.3 million and $13.9 million, respectively, resulting in a carrying value of $139.7 million and $136.1 million, respectively.  The remaining discount will be accreted to face value through October 2011.  For the six months ended June 30, 2010 and 2009, interest expense on our convertible debentures, recognized at an effective interest rate of 6.75%, was $5.0 million and $4.8 million, respectively, including contractual interest of $1.4 million for each period.

Summary of All Outstanding Debt

     The following table summarizes significant aspects of our long-term debt:

Priority on Collateral and Structural Seniority (1)

Recourse only to

Highest priority

Lowest priority

KGS assets(2)

Equal priority

Senior Secured

2015

2016

2019

Senior

Convertible

KGS Credit

Credit Facility

Senior Notes

Senior Notes

Senior Notes

Subordinated Notes

Debentures

Agreement

Scheduled maturity date

February 9, 2012

August 1, 2015

January 1, 2016

August 15, 2019

April 1, 2016

November 1, 2024

August 10, 2012

Interest rate at June 30, 2010 (3)

3.44%

8.25%

11.75%

9.125%

7.125%

1.875%

3.49%

Base interest rate options (4)

LIBOR, ABR or specified (5)

N/A

N/A

N/A

N/A

N/A

LIBOR, ABR or specified (6)

Financial covenants (7)

- Minimum current ratio of 1.0

N/A

N/A

N/A

N/A

N/A

- Maximum debt to EBITDA ratio of 4.5

- Minimum EBITDA to interest expense ratio of 2.5

- Minimum EBITDA to interest expense ratio of 2.5

Significant restrictive

- Incurrence of debt

- Incurrence of debt

- Incurrence of debt

- Incurrence of debt

- Incurrence of debt

N/A

- Incurrence of debt

covenants (7)

- Incurrence of liens

- Incurrence of liens

- Incurrence of liens

- Incurrence of liens

- Incurrence of liens

- Incurrence of liens

- Payment of dividends

- Payment of dividends

- Payment of dividends

- Payment of dividends

- Payment of dividends

- Equity purchases

- Equity purchases

- Equity purchases

- Equity purchases

- Equity purchases

- Equity purchases

- Asset sales

- Asset sales

- Asset sales

- Asset sales

- Asset sales

- Asset sales

- Limitations on

- Affiliate transactions

- Affiliate transactions

- Affiliate transactions

- Affiliate transactions

- Affiliate transactions

derivatives

- Limitations on derivatives

Estimated fair value (8)

$493.2 million

$469.1 million

$666.0 million

$304.5 million

$321.1 million

$152.6 million

$226.8 million

     For a more complete description of our long-term debt, see Note 13 to the consolidated financial statements in our 2009 Annual Report on Form 10-K.

6.   ASSET RETIREMENT OBLIGATIONS

     The following table provides information about our estimated asset retirement obligation activity for the six months ended June 30, 2010.

(In thousands)
Beginning asset retirement obligations		$	59,377
Incremental liability incurred			1,422
Accretion expense			1,513
Asset retirement costs incurred			(352	)
Gain on settlement of liability			271
Currency translation adjustment			(488	)
Ending asset retirement obligations			61,743
Less current portion			(109	)
Long-term asset retirement obligations		$	61,634

7.  COMMITMENTS AND CONTINGENCIES

     As of June 30, 2010, our estimate of total Eni Production volumes purchased under the Gas Purchase Commitment has been reduced 3.3 Bcf from our December 31, 2009 estimates and we determined our remaining liability to be $33.7 million, including an embedded derivative liability of $6.2 million.  Valuation of the liability was based on the most recent estimate of remaining 2010 Eni Production volumes and natural gas prices at June 30, 2010.

     In April 2010, we finalized a global settlement agreement with BBEP and all other parties to our lawsuit whereby we received $18.0 million in cash, which was recognized as other income in the second quarter of 2010.  Pursuant to the agreement, we also retained full voting rights for our units held in BBEP subject to the provisions of a limited standstill agreement and the ability to name two directors to the board of directors of BBEP’s general partner.  If we were to own less than 10% of the outstanding BBEP common units, one of the directors appointed by us would resign. BBEP also agreed to the reinstitution of quarterly distributions and other governance accommodations.

     In April 2010, Quicksilver entered into a lease of office space for a term of 12 years that is scheduled to commence August 2010.  Aggregate rentals over the life of the lease will total $29.8 million.

     In June 2010, we structured a portion of the credit support for our surety bonds to include a $15.0 million cash deposit reported in other current assets. We have the option to replace the cash deposit with a letter of credit in the future.  As of July 2010, our letters of credit were reduced to $25.2 million, which includes $13.9 million issued in support of surety bonds.

     There have been no other significant changes to our commitments and contingencies as reported in Note 16 to the consolidated financial statements in our 2009 Annual Report on Form 10-K.

8.  NONCONTROLLING INTERESTS AND KGS

     In January 2010, the underwriters purchased an additional 549,200 newly issued common units for $11.0 million in connection with the KGS Secondary Offering.  After the underwriters’ purchase of additional units, our ownership of KGS was reduced to 61.0%.  As a result of the transaction, we recognized an increase of $6.7 million to “Additional Paid-in Capital” at that time.  In December 2009, KGS offered units to the public as part of its funding strategy for its acquisition of the Alliance Midstream Assets from us.  The acquisition was completed in January 2010 for an initial purchase price of $95.2 million, which was subsequently reduced to $84.4 million due to a purchase price adjustment based on timing of construction costs of the system.  KGS’ ownership, as of June 30, 2010, is summarized in the following table.

		KGS Ownership
		Quicksilver				Public				Total
General partner interests			1.6	%			-				1.6	%
Limited partner interests:
Common interests			19.7	%			39.0	%			58.7	%
Subordinated interests			39.7	%			-				39.7	%
Total interests			61.0	%			39.0	%			100.0	%

     The subordinated units will convert into an equal number of common units upon termination of the subordination period, which would end in the fourth quarter of 2010, if KGS continues to earn and pay at least $0.30 per quarter on each outstanding common and subordinated unit through that time.

     In July 2010, we agreed to sell all of our interests in KGS to Crestwood.  The Crestwood Transaction will include the sale of a 100% ownership interest in Quicksilver Gas Services Holdings LLC, which owns (a) 5,696,752 common units of KGS, (b) 11,513,635 subordinated units of KGS representing limited partner interests in KGS and (c) 100% of the outstanding membership interests in Quicksilver Gas Services GP LLC including 469,949 general partner units in KGS and 100% of the outstanding incentive distribution rights in KGS.  Crestwood will also receive a $57 million subordinated promissory note issued to us by KGS with a carrying value of $57 million at June 30, 2010.  We expect to receive $701 million in cash at closing and up to $72 million in future earn-out payments in 2012 and 2013.  The Crestwood Transaction is expected to close in the fourth quarter 2010, subject to customary closing conditions.

9.  STOCK-BASED COMPENSATION

     Note 19 to the consolidated financial statements in our 2009 Annual Report on Form 10-K contains additional information about our equity-based compensation plans.

Quicksilver Stock Options

     Options to purchase shares of common stock were granted in 2010 with an estimated fair value of $8.9 million over the vesting period.  We recognized expense of $3.5 million for all unvested stock options in the first six months of 2010.

     We estimated the fair value of stock options granted in 2010 on the dates of grant using the Black-Scholes option-pricing model with the following assumptions:

		Stock
		Options
		Issued
Weighted average grant date fair value		$	15.88
Weighted average grant date		Jan 4, 2010
Weighted average risk-free interest rate			3.00	%
Expected life (in years)			6.0
Weighted average volatility			66.76	%
Expected dividends			-

     The following table summarizes stock option activity during the six months ended June 30, 2010:

						Wtd Avg				Wtd Avg
						Exercise				Remaining				Aggregate
		Shares				Price				Contractual Life				Intrinsic Value
										(In years)				(In thousands)
Outstanding at December 31, 2009			3,014,441			$	8.97
Granted			901,887				15.88
Exercised			(206,876	)			5.85
Cancelled			(77,113	)			8.70
Outstanding at June 30, 2010			3,632,339			$	10.87				8.6			$	11,414
Exercisable at June 30, 2010			1,096,610			$	11.49				8.0			$	3,967
Vested at June 30, 2010 or expected to vest in the future			3,548,324			$	10.91

     Cash received from the exercise of stock options was $1.2 million for the six months ended June 30, 2010 and the total fair value of those options exercised was $1.9 million.

Quicksilver Restricted Stock and Restricted Stock Units

     The following table summarizes information regarding our restricted stock and RSU activity:

		Payable in stock								Payable in cash
						Wtd Avg								Wtd Avg
						Grant Date								Grant Date
		Shares				Fair Value				Stock Units				Fair Value
Outstanding at December 31, 2009			2,722,875			$	10.33				328,695			$	6.22
Granted			892,069				15.58				167,618				15.82
Vested			(1,084,214	)			12.18				(109,602	)			6.22
Cancelled			(68,737	)			11.37				(47,995	)			10.22
Outstanding at June 30, 2010			2,461,993			$	11.39				338,716			$	10.40

     At January 1, 2010, we had total unvested compensation cost of $15.1 million. During the first six months of 2010, we recognized compensation expense for all unvested restricted stock and RSUs of $6.7 million. Grants of restricted stock and stock-settled RSUs during the six months ended June 30, 2010 had an estimated grant date fair value of $13.9 million, which will be recognized as expense over the vesting period. Unrecognized compensation cost remaining at June 30, 2010 for restricted stock and stock-settled RSUs was $21.5 million, which will be recognized through March 2013. The fair value of unvested RSUs settled in cash was $3.7 million at June 30, 2010. The total fair value of restricted shares and RSUs vested during the six months ended June 30, 2010 was $13.1 million.

     Expense for all Quicksilver unvested stock-based compensation granted to our employees who become KGS employees will be recognized upon closing of the Crestwood Transaction. Grant date fair value for unvested stock options and restricted stock was $0.6 million and $0.4 million, respectively.

KGS Phantom Units

     The following table summarizes information regarding KGS phantom unit activity:

		Payable in units								Payable in cash
						Wtd Avg Grant Date								Wtd Avg Grant Date
		Units				Fair Value				Units				Fair Value
Outstanding at December 31, 2009			485,672			$	12.75				33,240			$	20.90
Granted			211,600				21.15				-				-
Vested			(179,886	)			13.74				(1,956	)			18.94
Cancelled			(763	)			17.52				-				-
Outstanding at June 30, 2010			516,623			$	15.83				31,284			$	20.82

     At January 1, 2010, KGS had total unrecognized compensation cost of $2.9 million related to unvested phantom unit awards.  KGS recognized compensation expense of approximately $1.8 million during the six months ended June 30, 2010.  Grants of phantom units during the six months ended June 30, 2010 had an estimated grant date fair value of $4.5 million.

     KGS has unearned compensation expense of $4.4 million at June 30, 2010 that will be recognized in expense over the vesting period.  Phantom units that vested during the six months ended June 30, 2010 had a fair value of $2.5 million on their vesting date.  We will recognize $4.4 million of expense for all unvested KGS phantom units upon closing of the Crestwood Transaction in accordance with the terms of KGS’ amended 2007 Equity plan.

10.  EARNINGS PER SHARE

The following is a reconciliation of the components used to compute basic and diluted net income per common share.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
		(In thousands, except per share								(In thousands, except per share
		data)								data)
Net income (loss) attributable to Quicksilver		$	86,803			$	(21,762	)		$	94,991			$	(590,741	)
Impact of assumed conversions - interest on 1.875%
convertible debentures, net of income taxes (1)			1,787				-				3,552				-
Income (loss) available to stockholders assuming
conversion of convertible debentures		$	88,590			$	(21,762	)		$	98,543			$	(590,741	)
Weighted average common shares - basic			170,290				169,009				170,225				168,894
Effect of dilutive securities(1):
Employee stock options			766				-				814				-
Employee stock unit awards			-				-				-				-
Contingently convertible debentures			9,816				-				9,816				-
Weighted average common shares - diluted			180,872				169,009				180,855				168,894
Earnings (loss) per common share - basic		$	0.51			$	(0.13	)		$	0.56			$	(3.50	)
Earnings (loss) per common share - diluted		$	0.49			$	(0.13	)		$	0.54			$	(3.50	)