Forest Cuts Estimated Alaskan Reserves, Warns of Other Reductions
Denver-based Forest Oil Corp. on Tuesday slashed its estimated Alaskan oil reserves by 86% and warned that other oil and gas field estimates may be cut. In addition, the independent forecast a fourth quarter write off of some of its overseas assets.
Forest reduced its estimated proved oil reserves at its Redoubt Shoal Field in the Cook Inlet of Alaska by 49 million bbl, which dropped the total proved reserves to 8 million bbl from 57 million bbl. Forest also recategorized 36 million bbl as proved undeveloped.
"We are extremely disappointed with the results at Redoubt Shoal," said CEO Craig Clark. "However, our strategy is clear, we are committed to our four-point strategy of cost reduction, reduced frontier exploration exposure, acquisitions and improvements in our balance sheet. We expect to continue the implementation of this strategy in 2004." Clark was appointed CEO of Forest last summer (see Daily GPI, Aug. 1, 2003).
Redoubt Shoal production began in December 2002, and data from wells drilled there last year, when integrated with pre-existing data, "reflect significantly lower oil in place than the estimates at Dec. 31, 2002, lower overall recovery efficiencies and economic cutoffs."
Last year, Forest undertook an integrated field study of the field, which examined the production performance, field data and well data for 2003 activity. Forest's estimated proved reserves at Redoubt Shoal were independently estimated by a third party engineering firm as of the end of 2000, 2001, 2002 and 2003.
Rumors of problems at the Redoubt Shoal field were reported last fall, when the company's senior vice president of Alaska operations, Gary Carlson, resigned. Redoubt Shoal's oil production wells were reported to be experiencing an unexpected buildup of water.
In addition to reclassifying Redoubt Shoal reserves, Forest also disclosed that it will impair the carrying value of some of its international exploration assets. Specifically, Forest expects to record a non-cash impairment expense for 2003 of approximately $15-$20 million ($10 million-$13 million after-tax) to reflect a reduction in the estimated fair market value of the assets at the end of last year.
Preliminary estimates from other properties worldwide also could reduce proved reserve estimates by as much as 150 Bcfe, the company said. If Forest records an additional downward revision of 150 Bcfe, estimated proved reserves at the end of last year, including the effect of acquisitions completed in 2003, would be approximately 1,300 Bcfe versus 1,560 Bcfe a year earlier.
None of the revisions is expected to be to properties it acquired in 2003.
Because of the reserve revisions, Forest said the results of results of operations would include an increase in the depletion rate and depletion expense for the fourth quarter of 2003 and in the future periods. The consolidated depletion rate for the fourth quarter of 2003 is expected to be between $1.80-$1.90/Mcfe. Even with the reduction, however, Forest management said that the planned reserve revisions would not have any effect on near-term production levels, which are estimated to be between 400-420 MMcfe/d.
Forest intends to release 2003 results after market close on Feb. 11. It also plans to provide guidance for 2004 results at that time.