Forest Oil Corp. announced last Monday it has agreed to acquire a private company whose primary asset is an operated average working interest of 83% in the Buffalo Wallow Field and approximately 33,300 gross acres primarily in Hemphill and Wheeler Counties, TX, including estimated proved reserves of 120 Bcfe with estimated production of 25-30 MMcfe/d.

Forest will pay an estimated $200 million cash for the company’s equity and assume an estimated $30 million of debt (net of working capital) at closing. Forest intends to fund the acquisition using internally generated cash flow.

The Buffalo Wallow Field will become the largest field by value and estimated proved reserves in the Denver-based firm’s portfolio. About 46% of the reserves are proved developed and 71% are natural gas. Production is expected to increase to 40-45 MMcfe/d in 2006. The Buffalo Wallow Field has recently been approved for 20-acre down-spacing, Forest Oil said.

The purchase gives the company approximately 370 identified drillsites and increases Forest’s expected activity in the 2005 and 2006 work plans by 60 and 110 wells, respectively. It also adds approximately 25,000 gross acres of additional undeveloped land primarily in Wheeler County that is prospective for Granite Wash, Atoka and Morrow formations and increases its pro forma reserve life by 3% to eight years’

“The Buffalo Wallow Field has been under development on 40-acre spacing for the last several years and has just recently received approval for 20-acre spacing,” said Forest Oil CEO Craig Clark. “It is a high-quality field which gives us a significant multi-year, multi-rig development drilling program.

“Without allocating any of the purchase price to land or other categories of reserves, Forest’s acquisition cost per proved Mcfe is about $1.92 and cost per daily unit of production is $9,000 per Mcfe per day, which is very attractive for this type of resource play. With this acquisition, Forest has now spent over $1 billion in acquisitions since the introduction of the Four-Point Game Plan.”

In the Buffalo Wallow Field, Forest has identified 40 proved undeveloped and 330 probable and possible locations. Current well economics in the Buffalo Wallow Field indicate an investment of approximately $1.4 million to $1.9 million to drill and complete a well with an estimated ultimate recovery of 1.4-1.8 Bcfe. The field presently has estimated lease operating expenses of $0.63 per Mcfe.

In connection with the transaction, Forest has executed natural gas hedges for 20,000 MMbtu/d with price protection averaging $6.70 per MMbtu through 2006. The price protection level is above the gas prices used to evaluate the property. Forest expects the transaction to be accretive to cash flow in 2005 and beyond. In addition, Forest has announced plans to dispose of approximately $50 million in noncore assets during 2005.

The acquisition is scheduled to close on March 31, 2005, and is subject to customary closing conditions. Assuming a timely closing, the acquisition should add production of 7-8 Bcfe in 2005 and 15-16 Bcfe in 2006. Forest will announce further updated guidance following the closing of the transaction.

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