On Nov 13, we reiterated our long-term Neutral recommendation
Forest Oil Corporation
) as it is proactive in expanding liquid production and growing
its upstream presence. However, the tepid gas price scenario
keeps us on the sidelines. The stock retains a Zacks Rank #3,
which is equivalent to a short-term Hold rating.
Why the Reiteration?
Denver-based independent oil and gas company Forest Oil's
efforts to expand its liquid production in order to maximize
margin is gaining traction.
FOREST OIL CORP (FST): Free Stock Analysis
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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 growing
upstream presence in the emerging basins of Texas, Canada and
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.
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
does not get any help from its highly levered balance sheet.
Long-term debt (including current portion) stood at $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 meaningful
upside potential for investors.
Other Stocks to Consider
Stocks within the oil and gas sector worth considering are
SM Energy Company
Matador Resources Company
). All these look attractive with a Zacks Rank #1 (Strong Buy).