Forest Oil Corp. has agreed to sell all of its South Texas properties — excluding those in the Eagle Ford Shale — for proceeds of $325 million after tax as part of its ongoing deleveraging plan, the company said Thursday.
The properties produced 66 MMcfe/d (86% natural gas) during the third quarter of 2012, had estimated proved reserves of 272 Bcfe (85% natural gas) as of Dec. 31, 2011, and generated about $60 million of lease-level income during 2012, Forest said. The company intends to use the proceeds to pay down debt. Forest is retaining all of its natural gas hedges.
“We have now made significant progress in executing our stated goal of improving and restoring flexibility to our balance sheet,” said Forest CEO Patrick R. McDonald. “The allocation of capital and resources towards our core oil and liquids assets in the Texas Panhandle and Eagle Ford, alongside the evident improvement in our financial position, is a material positive for us.
“In addition to the deleveraging aspect of this transaction, on a pro forma basis, the liquids contribution of our production mix is approximately 40% and will continue to increase due to our oil-focused drilling program. Furthermore, Forest continues to maintain its strategic natural gas optionality within our significant East Texas/North Louisiana acreage position.”
The transaction with the undisclosed buyer is expected to close by Feb. 15 with an effective date of Jan. 1 and is subject to customary conditions and post-closing price adjustments.
“Since announcing the plan to shed noncore assets, FST [Forest] has raised $602 million in proceeds for 88 MMcfe/d of Q3 production and 324 Bcfe of proved reserves (17% of 2011 year-end proved reserves),” Wells Fargo Securities analysts said in a note Thursday. “Forest had originally said it would target $300 million in proceeds.
“In addition to the proceeds, the continued execution of planned asset sales also helps build Street credibility for a CEO who has only been in place five months, and sends a positive signal to the market about the current management team’s willingness to evaluate and execute transactions that make sense.”
Last summer Denver-based Forest agreed to sell the majority of its East Texas natural gas gathering assets to a subsidiary of Tristate Midstream II LLC for proceeds of $34 million (see Shale Daily, Aug. 21, 2012).
Forest management said last year that doing a deal in the Eagle Ford was a top priority of then-interim CEO McDonald (see Shale Daily, June 25). But by mid-July McDonald had backtracked (see Shale Daily, July 12). McDonald was made the company’s permanent CEO last September (see Shale Daily, Sept. 13, 2012).
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