Forest Oil Corporation (FST)

FST 
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Forest Oil (FST)

Q1 2013 Earnings Call

May 07, 2013 9:00 am ET

Executives

Larry C. Busnardo - Director of Investor Relations

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

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

Analysts

Scott Hanold - RBC Capital Markets, LLC, Research Division

Trevor Seelye - Wells Fargo Securities, LLC, Research Division

Dan McSpirit - BMO Capital Markets U.S.

Dan McSpirit - BMO Capital Markets Canada

Stephen Shepherd

Jeoffrey Lambujon - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Jason Gilbert - Goldman Sachs Group Inc., Research Division

Presentation

Operator

:

Good day, ladies and gentlemen, and welcome to the Q1 2013 Forest Oil Corporation Earnings Conference Call. My name is Cathy, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to Mr. Larry Busnardo, Director, Investor Relations. Please proceed, sir.

Larry C. Busnardo

:

Thank you, Catherine, and good morning. Thank you for joining us for the Forest Oil First Quarter 2013 Earnings Conference Call. Joining me on the call today is Patrick McDonald, Forest President and CEO; and Michael Kennedy, Executive Vice President and Chief Financial Officer. If you have not already done so, please go to our website, forestoil.com, to obtain a copy of our earnings release. A replay of this call will be available through May 21 as described in our press issued yesterday afternoon.

Before we begin, Some of the presenters today will 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 measure calculated in accordance with GAAP will be available on our website and can be viewed by clicking on the Investor Relations tab, then Non-GAAP. 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 Mike.

Michael N. Kennedy

:

Thanks, Larry, and good morning, everyone. Pat will provide an operational update in his prepared remarks. So I'll start out with a summary of the financial highlights for the first quarter.

The first order of business for the first quarter of 2013 was the closing of our previously announced South Texas asset divestiture on February 15. At closing, Forest received net cash proceeds of $307 million, after closing adjustments and a hold back of $14 million for certain properties that the required assignments have not been received prior to closing. Since the end of the quarter, Forest has received the remaining $14 million of additional proceeds. The proceeds from the sale were used to redeem the remaining $300 million 8 1/2% senior notes that were due in 2014. Forest paid a $21 million call premium in conjunction with the early redemption of the notes.

I would highlight that with this transaction, we now completed over $600 million of asset sales since the middle of 2012, with all the proceeds being used to pay down debt. In connection with the closing of this transaction, the global borrowing base under Forest's credit facilities was reduced to $900 million. And earlier this month, our lenders reaffirmed the borrowing base at $900 million as part of their regularly scheduled semi-annual redetermination.

Now turning to production. We reported first quarter equivalent net sales volumes of 243 million per day. When stripping out half a quarter of production associated with the South Texas asset divestiture, our pro forma sales volumes came in at 214 million per day, of which 37% were liquids.

Our pro forma oil volumes for the quarter were approximately 5,800 barrels per day. The lower sequential oil volumes were primarily the result of the timing of oil well completions in both the Eagle Ford Shale and in the Texas Panhandle, and the impact that weather had on our operations in both the Texas Panhandle and the East Texas area.

Specifically, the 6 gross or 3 net wells that were drilled in the Eagle Ford Shale did not contribute to first quarter volumes as they did not come online until April. We should begin to see a more gradual increase in oil volumes throughout the year as the Eagle Ford drilling program increases. We are currently forecasting second quarter equivalent net sales volumes to be at approximately the same levels they were in the first quarter on a pro forma basis with natural gas volumes lower and oil volumes higher. This incorporates the impact of the recently announced Eagle Ford Shale development agreement. However, our continued focus on oil opportunities will allow oil volumes to begin to overtake the declines in our natural gas production, and we should see a steady uptick in our oil volumes and our total volumes during the second half of the year as our activity increases.

I'd now like to spend a moment on our first quarter capital spending. Capital expenditures for the quarter were approximately $125 million. The first quarter was anticipated to be the highest quarter related to this year's spending. This is primarily due to the timing and sequence of drilling and completion operations associated with the pad drilling in the Eagle Ford Shale. And we added a second rig in the quarter in anticipation of the Eagle Ford Shale development agreement.

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