Forest Oil Corporation
) has struck an agreement with a subsidiary of Tristate Midstream
II, LLC to divest a lion's share of its East Texas natural gas
The deal is likely to fetch the company around $34 million. Forest
Oil can obtain another $9 million as a payment for additional
performance, depending on future activities.
Forest Oil has inked another 10-year natural gas gathering contract
with the purchaser, in conjunction with the sale. Per the deal, the
company will assign its yield from its existing as well as future
operated wells situated within 5 miles of the current configuration
of the gathering system.
Forest Oil expects the transaction to close on October 31, 2012,
pending customary closing conditions and purchase price
adjustments. The funds raised from this sale are likely to be used
to pay off a portion of the outstanding borrowings under its bank
Earlier, the company announced plans to trim its spending rate as
well as divest non-core properties during the second half of 2012.
This is needed to boost its financial strength and flexibility.
Forest Oil's effort to expand its liquid production in order to
maximize its margins is also gaining traction.
During the second quarter, although net sales volumes remained flat
year over year, the company increased the liquid proportion of its
production. During 2011 and early 2012, the company added
considerable acreage in the Permian Basin, gaining access to
potential oil resources in several oil-bearing pay zones, including
the Wolfbone and Wolfcamp Shale plays.
Forest Oil - which completed the spin-off of
Lone Pine Resources Inc.
) in 2011 - holds a Zacks #3 Rank, equivalent to a Hold rating for
a period of one to three months. Longer term, we maintain our
Neutral recommendation on the stock.
FOREST OIL CORP (FST): Free Stock Analysis
LONE PINE RSRCS (LPR): Free Stock Analysis
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