Forest Oil Corporation
) first quarter 2012 earnings from continuing operations of 11
cents per share (excluding non-recurring items) missed the Zacks
Consensus Estimate of 20 cents and the year-earlier number of 19
The lackluster performance was mainly due to the lower prices
realized for natural gas as well as natural gas liquids (NGLs) and
declines in net sales volumes, which were partially offset by the
higher oil price.
Total revenue in the reported quarter decreased to $158.9
million from the year-ago level of $166.9 million, and came nowhere
near the Zacks Consensus Estimate of $189 million.
Net sales volumes decreased by 1% year over year to 337.3
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 32% of the total output versus 26% in the first
quarter of 2011.
The average equivalent price per Mcf (including the effect of
hedging) was $5.87, up from the year-ago realization of $5.57.
Average realized natural gas price was $3.47 per Mcf, down 20% from
the comparable prior-year quarter, and natural gas liquids (NGLs)
were sold at $35.16 per barrel, flat compared to the year-ago
quarter. However, average realized oil price was $100.80 per
barrel, up 18.1% from the year-ago quarter.
During the quarter, production expenses increased 10.3% year
over year to $1.39 per Mcfe. Unit general and administrative
expenses increased 8.3% year over year to 39 cents per Mcfe.
Depreciation and depletion expenses per unit increased 38% to $2.18
per Mcfe from $1.58 per Mcfe in the corresponding 2011 quarter.
At quarter end, Forest had $0.9 million of cash and cash
equivalents with $1,804.5 million of long-term debt, representing a
debt-to-capitalization ratio of 60.0% (up from 58.7% at the end of
fourth 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 to increase 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 Tonkawa well, located in the Texas
However, with natural gas accounting for almost 70% of the total
production in the first quarter of 2012, 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
SM Energy Company
), which is expected to report first quarter 2012 results later in
the day. We maintain our long-term Neutral recommendation on Forest
Oil. However, the company holds a Zacks #4 Rank (short-term Sell
FOREST OIL CORP (FST): Free Stock Analysis
LONE PINE RSRCS (LPR): Free Stock Analysis
SM ENERGY CO (SM): Free Stock Analysis Report
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