Forest Oil Corporation
) signed a definitive deal with
) to develop Forest Oil's Eagle Ford Shale land in Gonzales
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The agreement stipulates that for Schlumberger to acquire a 50%
stake in Forest Oil's Eagle Ford Shale acreage position, it would
have to shell out $90 million drilling carry in the form of
future drilling and completion services and related development
capital. Following the completion of the phased contribution of
the drilling carry, Forest Oil and Schlumberger would participate
in future drilling on a 50/50 basis.
Per the agreement, Schlumberger would acquire stake in wells spud
on or subsequent to Nov 28, 2012, none of which had been placed
on production prior to Apr 1, 2013. However, Forest Oil would
retain all its interests in wells and production that have been
spud prior to Nov 28, 2012. Forest Oil would be the operator of
the drilling program and expects that the drilling carry would be
fully realized by the end of 2014.
Denver-based independent oil and gas company, Forest Oil's
efforts to expand its liquid production in order to maximize
margin is gaining traction. The company added considerable
acreage in the Permian Basin in 2012, giving it access to the
potential oil resources in several oil-bearing pay zones,
including the Wolfbone and Wolfcamp Shale plays.
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 over the next few years.
However, 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 is
not helped by its highly levered balance sheet.
The company nonetheless is intent on divesting its non-core
properties to boost financial strength and flexibility. We
believe this will eventually allow the company to aggressively
pursue growth opportunities in its plays and provide meaningful
upside potential for investors.
Forest Oil currently retains a Zacks Rank #3 (Hold), implying
that it is expected to perform in-line with the broader U.S.
equity market over the next one to three months. However, there
are other companies in the energy sector that are expected to
significantly outperform the equity markets in the next one to
three months. These include Zacks Rank #1 (Strong Buy) stocks
Range Resources Corporation
Stone Energy Corporation