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:

Forest plans to drill three horizontal wells in the play this year to refine its drilling and completion techniques.

Forest also entered into a definitive agreement with a private company to acquire producing assets that are located in its core Ark-La-Tex area around East Texas. 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 are rapidly moving into the East Texas/North Louisiana area, which is said to hold the potential for huge amounts of natural gas. Chesapeake Energy Corp. announced last week that its Haynesville Shale holdings may surpass its production from the Barnett Shale (see Daily GPI, March 26).

Forest estimated proved reserves in properties it is purchasing to be about 110 Bcfe (45% proved developed); the assets produced an average of 13 MMcfe/d in 2007. Forest also has identified more than 500 additional vertical and horizontal drilling locations on the properties, 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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