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Quebec Gas Find, East Texas Add Spur Forest Oil

Forest Oil Corp. is stepping up its game, announcing it has discovered natural gas in the Utica Shale in Quebec where it has accumulated 269,000 net acres. In addition, the Denver-based independent will pay $285 million to nearly double its position in the East Texas/North Louisiana area.

Based on technical data and the vertical pilot well program undertaken last year in the Utica Shale, the preliminary net resource potential on Forest's acreage is estimated to be 4 Tcfe. First production is expected in 2009 with the potential for a full-scale drilling program in 2010 and beyond. In the past two years Forest has accumulated its position in the Utica Shale, under lease or farmout, in the St. Lawrence Lowlands in Quebec. Two vertical pilot wells were drilled there last year to a total depth of 4,800 feet, and production rates tested up to 1 MMcfe/d.

The play is "still in the early stages," said Forest. However, "the initial results were encouraging," based on several factors:

Three horizontal wells in the play are planned this year to refine drilling and completion techniques, said the producer.

The Utica Shale discovery is one of the first major gas plays announced in Quebec, which traditionally has relied on gas imports from Alberta. However, with new horizontal drilling techniques, producers are taking a closer look at several plays across North America, including Canada. For instance, new well techniques have unlocked a potentially huge gas play bordering British Columbia and Alberta in the Montney tight gas sands (see NGI, March 31a).

Forest last week also entered into a definitive agreement with a private company to acquire producing assets located in its core Ark-La-Tex region, in the East Texas area. The purchase includes about 69,000 gross acres (47,000 net acres).

"This negotiated transaction adds significant acreage and drilling opportunities to our sizeable presence in the Ark-La-Tex area," said CEO Craig Clark. "Forest had little activity in this area two years ago, but it has been the fastest growing area within the company recently.

"The acquisition nearly doubles our East Texas/North Louisiana leasehold to over 140,000 gross acres," he said. "Our near-term work will focus on the Cotton Valley and Travis Peak intervals, both vertically and horizontally. Additionally, we may have opportunities in the Bossier/Haynesville Shale and James Lime. This is an excellent bolt-on acquisition for our Eastern Business Unit."

Several producers have moved into the emerging East Texas/North Louisiana area in recent years because it is considered a prime region for natural gas. Chesapeake Energy Corp. said last month that its Haynesville Shale holdings, which are in the same area, could surpass its production from the Barnett Shale (see NGI, March 31b).

Estimated proved reserves in the East Texas/Louisiana properties are estimated at about 110 Bcfe (45% proved developed); the assets produced an average of 13 MMcfe/d in 2007. More than 500 additional vertical and horizontal drilling locations also have been identified by Forest on the assets, primarily in the Cotton Valley and Travis Peak intervals.

Forest will use cash on hand and its credit facility to pay for the Ark-La-Tex assets, tied to an economic effective date of March 1, 2008. The company intends to update 2008 guidance when the acquisition is closed, which is scheduled in the next three months.

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