Forest Oil Corp. has agreed to pay $892 million in cash and stock to privately held Cordillera Texas LP for a package of natural gas-weighted properties in Oklahoma, East Texas and North Louisiana that now produce around 34 MMcfe/d. Total reserves are estimated at 350 Bcfe, which are 36% proved developed.

Additional net unrisked potential on the 118,000 gross acres is 1,200 Bcfe, with 1,500 additional vertical and horizontal drilling locations as well as 1,194 unbooked locations. Most of the properties are located in the Anadarko Basin’s Granite Wash, Atoka and Morrow intervals in the Greater Buffalo Wallow area and in the Cotton Valley and Travis Peak intervals of East Texas. The East Texas and North Louisiana properties include James Lime, Haynesville Shale/Bossier and Pettet rights, the company said.

“We have a well developed core operational expertise for the assets in the Greater Buffalo Wallow and East Texas, which has led to these assets being the primary contributors to our organic growth in the last two years,” said Forest CEO Craig Clark. “With this acquisition and through our intense focus on these assets we expect each of the Greater Buffalo Wallow and East Texas/North Louisiana areas to exit the year with 13 rigs running.

In the Greater Buffalo Wallow area, Forest would add 67,700 gross (54,000 net) acres to its current 51,900 gross (36,900 net) acres, giving it 119,300 gross (90,900 net) acres once the sale is completed. Forest would add 206 Bcfe of estimated proved reserves to its current 259 Bcfe total in the Greater Buffalo Wallow area.

In East Texas and North Louisiana, Forest would add 50,300 (31,000 net) to its 143,000 gross (113,000 net) acreage, giving it 193,300 gross (144,000 net) acreage in the combined plays. Estimated proved reserves from the new assets total 144 Bcfe; Forest now has around 435 Bcfe in East Texas and North Louisiana.

The transaction is expected to close by the end of September. The company wants to ramp up its rig count in the plays by 20% in 2009 and would have more than 30 rigs running in the two areas by the end of next year, said Clark. Forest has nine rigs scheduled to run in the Greater Buffalo Hollow play in the last three months of this year; Cordillera expected to have four rigs in the play. In East Texas/North Louisiana, Forest had slated 12 rigs for the final quarter; Cordillera had scheduled one rig.

“This activity is expected to result in a greater than 30% organic production increase on the acquired assets in 2009,” said Clark. “As you have come to expect from Forest, we will not stand still with acquired assets but will employ our operational expertise in these assets and drive value to our organization and our shareholders.”

Denver-based Forest would pay Cordillera, headquartered in Englewood, CO, $708 million in cash and give Cordillera 3.5 million shares of common stock. Based on Forest’s closing price on Friday (Aug. 15), the transaction is valued at around $892 million. Ultimately, Forest plans to pay for the deal by selling $500-600 million of noncore assets — in addition to the $300-500 million of noncore assets it has on the market.

“Assuming the completion of our proposed divestitures, we will have acquired approximately $600 million of new assets in each of Greater Buffalo Wallow and East Texas/North Louisiana this year and [plan to] fund it primarily by selling $800 million to $1.1 billion of noncore properties,” said Clark. In revamping its portfolio in the past year, Forest already has sold almost $100 million in noncore assets that had estimated output of 5 MMcfe/d.

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