Forest Oil Corporation (FST)

FST 
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Forest Oil Corporation (FST)

April 12, 2013 9:00 am ET

Executives

Larry C. Busnardo - Director of Investor Relations

Patrick R. McDonald - Chief Executive Officer, President, Director and Member of Executive Committee

Michael N. Kennedy - Chief Financial Officer and Executive Vice President

Analysts

Pearce W. Hammond - Simmons & Company International, Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division

David R. Tameron - Wells Fargo Securities, LLC, Research Division

Joseph Patrick Magner - Macquarie Research

Jason Gilbert - Goldman Sachs Group Inc., Research Division

David Deckelbaum - KeyBanc Capital Markets Inc., Research Division

John P. Herrlin - Societe Generale Cross Asset Research

Gregg Brody - JP Morgan Chase & Co, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Forest Oil Details Accelerated Eagle Ford Shale Drilling Program. My name is Stephanie, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. And now, I'd like to hand the call over to Mr. Larry Busnardo, Director of Investor Relations. Please go ahead, sir.

Larry C. Busnardo

Thank you, Stephanie, and good morning. I want to thank you for joining us today. We issued 2 press releases this morning, one announcing the signing of a development agreement with Schlumberger for our Eagle Ford Shale asset and one detailing plans for accelerated Eagle Ford Shale drilling program. We have also posted a slide presentation on our website that will be used in conjunction with this call. You can find the slides under the Investor Relations section of our website and then go under Presentations, and you should find them there.

I would also like to note that a replay of this call will be available through April 19. The details are in the release that details the accelerated drilling program.

Joining me on the call today is Patrick McDonald, Forest's President and CEO; and Michael Kennedy, Executive Vice President and Chief Financial Officer.

Some of the presenters today may reference certain non-GAAP financial measures regularly used by Forest in measuring its financial performance. Reconciliations of such non-GAAP financial measures with the most comparable financial measures calculated in accordance with GAAP is available on our website and can be used by clicking on the Investor Relations tab, then Non-GAAP, at forestoil.com.

In addition, Forest's comments today will include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are subject to a number of risks and uncertainties that may cause the actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties are described in Forest's earnings release and in Forest's public filings made with the Securities and Exchange Commission.

With that, I will now turn the call over to Pat.

Patrick R. McDonald

Good morning, everyone. Thank you for joining us on the call. We're pleased to report the signing of a definitive agreement with Schlumberger for the future development of our Eagle Ford Shale acreage. We believe this Eagle Ford asset is a valuable oil resource, which holds significant development opportunities. After several months of conducting their own thorough technical review, Schlumberger also came away with a similar view of the asset, and we're pleased to have them as our partner. Being strategically aligned and working together with a partner with such technical capability as Schlumberger will greatly enhance the value of this asset and help us to achieve the best possible results.

One of our stated strategic initiatives for the year was to evaluate attractive opportunities to accelerate the development of our opportunity set, and this transaction helps to accomplish this. The Eagle Ford was a high priority for us and -- as this was our most pressing area due to the pending lease expirations and our desire to hold and develop a larger acreage position.

We believe the transaction is important for several reasons. The transaction economics are very attractive, as our opportunity cost was only a net 12,500 acres compared to the 40,000 net acres we were able to hold on the go-it-alone plan. This calculates to an acreage value of approximately $7,200 an acre when factoring in the $90 million drilling carry provided by Schlumberger. The agreement allows for an accelerated drilling program resulting in oil production growth and improved project economics as we implement the leading-edge technologies and achieve economies of scale, which should result in the best possible well productivity and lowest possible well cost. The drilling carry, combined with the accelerated development activity, brings forward approximately $250 million of PV-10 economic value to the Forest shareholders. We believe Schlumberger's extensive experience in developing unconventional shale resources across the globe, and particularly in North America, will allow us to optimize all facets of our drilling and completion operations to achieve the best possible result for Forest and our shareholders, and we look forward to leveraging this expertise as we move forward.

May I ask you, please, to turn to the slide presentation on Slide 2. It describes an overview of the transaction. As we outlined in our press release, Schlumberger will pay a $90 million drilling carry to earn a 50% working interest in the Eagle Ford Shale position held by Forest. Forest will remain the operator of the program, and we plan on increasing drilling activity to 4 rigs from the 1- to 2-rig plan currently in place. We expect this level of activity to be fully active by the third quarter of 2013.

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