Denver-based Forest Oil Corp. is spinning off its natural gas-weighted operations in Canada by selling one-fifth of its Lone Pine Resources unit for up to $375 million in shares through an initial public offering (IPO).
About four months after the IPO is completed, Forest would spin off the remaining shares of Lone Pine through a special dividend to shareholders, according to a filing with the Securities and Exchange Commission. Lone Pine, to be listed on the New York Stock Exchange under the symbol "LPR," would become the parent of Canadian Forest Oil Ltd., the entity that now owns all of Forest's Canadian assets.
"Forest believes that the separation will enhance Lone Pine's ability to achieve a valuation comparable to those of stand-alone Canadian peer companies, by allowing Lone Pine to focus its exploration and development efforts at capital levels consistent with its own business strategy," Forest stated in the filing.
"In that regard, Lone Pine intends to focus on growing its estimated proved reserves and production through its repeatable vertical and horizontal development inventory and shale positions with initial investment of capital in excess of cash flow."
Once the Canadian business is spun off, Forest said it would turn its focus to developing properties that are spread across parts of Arkansas, Colorado, New Mexico, Oklahoma, Texas, Utah and Wyoming. Through the IPO Lone Pine would be able to repay about $224 million in debt to Forest.
The filing indicated that Forest has been preparing for the spin-off since late last year. In 2009 Lone Pine recorded a net loss of US$139 million on revenue of $112 million, versus 2008's net profit of $49 million on revenue of $251 million.
"Starting in the fourth quarter of 2009, we have endeavored to reposition our asset base, divesting approximately $148 million in noncore or nonoperated assets, and spending approximately $47 million on new undeveloped leasehold acreage primarily in the [Canadian] Narraway/Ojay and Evi fields, which we believe have strong growth potential," the filing stated.
"During the nine-month period ending Sept. 30, 2010, we achieved companywide organic production growth, pro forma for divestitures, of approximately 36%, and we intend to build on that growth going forward."
The Canadian arm holds an estimated 322 Bcfe of proved reserves in Alberta, British Columbia and Quebec, which are 69% weighted to gas. Lone Pine booked US$141 million in sales for the 12-month period ending Sept. 30.
Lone Pine holds drilling rights on nearly 50,000 net hectares in the Deep Basin of western Alberta and eastern British Columbia. Development also is under way in the Peace River Arch area of Alberta, as well as in Quebec's Utica Shale, where it has about 110,000 net hectares. Another 25,000 net hectares are held in the Liard Basin, which is adjacent to the Horn River Basin.
Lone Pine said it plans to use a one-rig drilling program in the Utica Shale beginning in 2Q2011. Liard Basin development is planned beginning late next year with the re-entry of an existing wellbore.
In 3Q2010 Forest reported net sales volumes of 279.2 MMcf/d in the United States and 59.7 MMcf/d in Canada. During the quarter it also produced 10,600 b/d of natural gas liquids in the United States and 2,400 b/d in Canada.
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