Forest Oil Corporation
) announced a definitive agreement with an undisclosed buyer to
sell a portion of its largely undeveloped acreage position in the
Permian Basin of West Texas. The proceeds of the transaction are
estimated at $35 million.
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The sale includes approximately 58,200 gross acres (52,350 net)
located in Crockett County, Texas. It is expected to close on or
before Sep 10, 2013.
Forest intends to use the proceeds from the sale to reduce debt
and enhance financial flexibility. Following closure, Forest will
retain its Permian Basin acreage position of approximately 68,250
gross acres (63,500 net) located in Pecos and Reeves Counties,
We like the initiatives undertaken by Forest Oil to increase its
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.
Forest Oil has a significant upstream presence in the emerging
basins of Texas, Canada and Mexico.
In its attempt to expand liquids production, Forest Oil has
already added considerable acreage in the Permian Basin, getting
access to 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 weak 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 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 aided by its highly levered balance sheet. Long-term debt
(including current portion) stood at $1,630.3 million.
The company is consequently 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 holds a Zacks Rank #3 (Hold). However, there are other
stocks in the oil and gas sector like
Carrizo Oil & Gas Inc.
Whiting USA Trust I
Oiltanking Partners, L.P.
) which hold a Zacks Rank #1 (Strong Buy) and are expected to
perform better in the near term.