Forest Oil Corporation
) announced the results of the previously announced cash tender
offer to repurchase senior notes worth $700 million. These were
senior notes due in 2019 and 2020 with coupon rates of 7.25% and
7.50%, respectively. The company would utilize the proceeds from
the sale of its Texas Panhandle assets to reduce its debt level.
In response to the offer made at the inception of the month, the
company received a redemption offer for approximately $890.6
million and $277.9 million in aggregate principal amount for the
2019 notes and the 2020 notes, respectively.
The company would redeem in full the 2020 notes but will redeem
on a pro rata basis the 2019 notes received for redemption. This
is due to the fact that the amount of 2019 notes received for
redemption is far higher than the aggregate maximum tender amount
of $700 million.
Denver-based independent oil and gas company Forest Oil's efforts
to expand its liquid production in order to maximize margin is
The company's focus on cost control along with the upside from
Granite Wash and Missourian Wash interval position it well to
weather the weakness in natural gas prices. Forest Oil has a
growing upstream presence in the emerging basins of Texas, Canada
Moreover, the company has already added considerable acreage in
the Permian Basin, enabling Forest to access potential oil
resources in several oil-bearing pay zones, including the
Wolfbone and Wolfcamp Shale plays. Production for the year is
expected to average 220-230 million cubic feet equivalent per day
(MMcfe/d). The forecast is mainly centered on oil, which should
be favorable in light of volatile gas prices with liquids
comprising 40% of the total production.
Forest Oil has a growing upstream presence in the emerging basins
of Texas, Canada and Mexico. Production growth from the Eagle
Ford Shale is a key component of the company's overall annual
upstream growth plans for the next few years.
On the flip side, the company has a highly gas-weighted
reserves/production profile and exposure to the inherently
cyclical and volatile exploration and production sector. This
does not get any help from its highly levered balance sheet.
Long-term debt (including current portion) was $1,615.3 million,
representing a debt-to-capitalization ratio of 64.9% at the end
of the third quarter.
The company nonetheless is intent on divesting its non-core
properties to boost financial strength and flexibility. We
believe this will eventually allow Forest Oil to aggressively
pursue growth opportunities in its plays and provide a meaningful
upside potential for investors.
Forest Oil holds a Zacks Rank #3 (Hold). However, there are
better-ranked stocks in the oil and gas sector such as
VOC Energy Trust
SM Energy Company
Matador Resources Company
). All these stocks hold a Zacks Rank #1 (Strong Buy).
FOREST OIL CORP (FST): Free Stock Analysis
MATADOR RESOURC (MTDR): Free Stock Analysis
SM ENERGY CO (SM): Free Stock Analysis Report
VOC ENERGY TRST (VOC): Free Stock Analysis
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