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Forest Oil Offering Texas Panhandle Properties

Denver-based Forest Oil Corp. said Monday it will market its Texas Panhandle oil and gas assets after having received unsolicited interest in the properties. A deal could garner $1 billion or more and would be "transformative" for the company, one analyst said.

"Over the last several years, drilling and completion efforts by Forest and other companies have delineated substantial oil, natural gas and natural gas liquids resources in the Texas Panhandle. Our significant acreage position, which is largely operated by Forest and held by production, presents a large-scale, low-risk development opportunity," said Forest CEO Patrick McDonald. "If completed, the sale of the Texas Panhandle assets should allow us to reduce meaningfully our indebtedness and enhance our financial flexibility and ability to accelerate development of our assets."

Wells Fargo Securities analyst David Tameron said in a note Monday that such a sale by Forest would be "transformative," adding that investors have been concerned about the company's Panhandle development as well as debt.

"This transaction will unlock value and address leverage," Tameron said, "reducing estimated 2013 debt/EBITDAX [earnings before interest, taxes, depreciation, amortization and exploration expenses] from 4.8x to 1.5-2.3x (assuming the transaction closes in 2013) by our calculations."

Forest's Panhandle assets are concentrated in Lipscomb, Roberts, Hemphill and Wheeler counties and target the Granite Wash, Cleveland-Tonkawa and Missourian Wash (also known as the Hogshooter), Tameron said. The company is running a two-rig program in the play. At the end of the first quarter, production in the area was about 100 MMcfe/d (50% liquids) and reserves were estimated at about 520 Bcfe, Tameron said.

Given the liquids-rich production -- and based on deals by Apache Corp.-Cordillera Energy Partners III LLC (see Shale Daily, Jan. 24, 2012) and Unit Petroleum Co.-Noble Energy Inc. (see Shale Daily, July 12, 2012) -- the assets could snare proceeds of $1 billion or more, Tameron said. "...[A]nd we estimate a value of $900 million to $1.2 billion based on about 17,000 boe/d at about $60,000 boe/d..." Tameron said.

After a sale, Forest's remaining assets would be anchored by ongoing oil development in the Eagle Ford Shale, where oil production is projected to more than double during 2014 (see Shale Daily, May 9). Forest also has a position of 111,000 net acres in East Texas, which is largely held by production and upon which the company plans to continue the development of its oil and natural gas liquids properties, McDonald said. Forest also intends to maintain its exposure to potential natural gas development through its natural gas properties in the Ark-La-Tex region, he said.

The company hired J.P. Morgan Securities LLC to assist in the marketing effort.

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