Forest Oil Corporation
) fourth quarter 2011 earnings from continuing operations of 18
cents per share (excluding non-recurring items) missed the Zacks
Consensus Estimate of 26 cents and the year-earlier number of 41
The lackluster performance was mainly due to the lower prices
realized for natural gas as well as natural gas liquids (NGLs) and
decline in net sales volumes, which were partially offset by the
higher oil price.
Total revenue in the reported quarter was down at $176.7 million
from the year-ago level of $179.2 million, and came nowhere near
the Zacks Consensus Estimate of $188 million.
Net sales volumes shrunk 12% year over year to 341.6 million
cubic feet equivalent per day (MMcfe/d) in the reported quarter,
mainly due to production downtime in the Texas Panhandle associated
with third party infrastructure issues. However, the company has
been able to raise its liquid proportion of production, which
comprises 30% of total production versus 27% in the third quarter
The average equivalent price per Mcf (including the effect of
hedging) was $6.13, up from the year-ago realization of $5.73.
Average realized natural gas price was $4.41 per Mcf, down 3.5%
from the comparable prior-year quarter, and natural gas liquids
(NGLs) were sold at $31.25 per barrel, down 17.6% from third
quarter 2010. However, average realized oil price was $93.93 per
barrel, up 24.56% from the year-ago quarter.
During the quarter, production expenses increased 31.6% year
over year to $1.29 per Mcfe. Unit general and administrative
expenses increased 31% year over year to 38 cents per Mcfe.
Depreciation and depletion expenses per unit increased 36% to $2.05
per Mcfe from $1.51 per Mcfe in the corresponding 2010 quarter.
At quarter end, Forest had $3.0 million of cash and cash
equivalents with $1,693.0 million of long-term debt, representing a
debt-to-capitalization ratio of 58.7% (up from 61.4% at the end of
third quarter 2011).
Lone Pine Spin-off
During 2011, the company completed the spin-off of
Lone Pine Resources Inc.
). Subsequent to the initial public offering of Lone Pine on June
1, 2011, Forest owned approximately 82% of the outstanding shares
of Lone Pine's common stock.
On September 30, 2011, Forest distributed, or spun off its
remaining ownership in Lone Pine in the form of a pro rata common
stock dividend to all Forest shareholders of record as of the close
of business on September 16, 2011 (the Record Date). Forest
shareholders received 0.61248511 of a share of Lone Pine common
stock for every share of Forest common stock held as of the close
of business on the record date.
We like Forest Oil's initiatives toward increased liquids
production. The company's focus on cost control and the upside from
Granite Wash and the Missourian Wash interval position it well to
weather the weakness in natural gas prices.
The company's drilling results from its new Texas Panhandle oil
zones and the Granite Wash "A" zone were well above its
expectations, demonstrating strong hydrocarbon potential in the
Texas Panhandle from 'new' zones. Except the success achieved in
the Missourian Wash and Cleveland oil zones, the company also
achieved success in the new oil zone, with an 80% working interest,
located outside of Wheeler and Hemphill Counties.
However, with natural gas accounting for almost 70% of the total
production in the fourth quarter of 2011, Forest Oil is exposed to
the tentative outlook of the North American natural gas market. Its
operations and cash flow are more sensitive to fluctuations in the
market price for natural gas than to fluctuations in the market
price for oil and NGLs.
Forest faces tough competition from its peer such as
SM Energy Company
), which reported better-than-expected fourth quarter 2011 results.
Consequently, we maintain our long-term Neutral recommendation for
the stock. Forest Oil also holds a Zacks #3 Rank (short-term Hold
FOREST OIL CORP (
): Free Stock Analysis Report
SM ENERGY CO (
): Free Stock Analysis Report
To read this article on Zacks.com click here.