Forest Oil Corporation (FST) announced the results of the previously announced cash tender offer to repurchase senior notes worth $700 million. These were senior notes due in 2019 and 2020 with coupon rates of 7.25% and 7.50%, respectively. The company would utilize the proceeds from the sale of its Texas Panhandle assets to reduce its debt level.
In response to the offer made at the inception of the month, the company received a redemption offer for approximately $890.6 million and $277.9 million in aggregate principal amount for the 2019 notes and the 2020 notes, respectively.
The company would redeem in full the 2020 notes but will redeem on a pro rata basis the 2019 notes received for redemption. This is due to the fact that the amount of 2019 notes received for redemption is far higher than the aggregate maximum tender amount of $700 million.
Denver-based independent oil and gas company Forest Oil’s efforts to expand its liquid production in order to maximize margin is gaining traction.
The company’s focus on cost control along with the upside from Granite Wash and Missourian Wash interval position it well to weather the weakness in natural gas prices. Forest Oil has a growing upstream presence in the emerging basins of Texas, Canada and Mexico.
Moreover, the company has already added considerable acreage in the Permian Basin, enabling Forest to access potential oil resources in several oil-bearing pay zones, including the Wolfbone and Wolfcamp Shale plays. Production for the year is expected to average 220–230 million cubic feet equivalent per day (MMcfe/d). The forecast is mainly centered on oil, which should be favorable in light of volatile gas prices with liquids comprising 40% of the total production.
Forest Oil has a growing upstream presence in the emerging basins of Texas, Canada and Mexico. Production growth from the Eagle Ford Shale is a key component of the company’s overall annual upstream growth plans for the next few years.
On the flip side, the company has a highly gas-weighted reserves/production profile and exposure to the inherently cyclical and volatile exploration and production sector. This does not get any help from its highly levered balance sheet. Long-term debt (including current portion) was $1,615.3 million, representing a debt-to-capitalization ratio of 64.9% at the end of the third quarter.
The company nonetheless is intent on divesting its non-core properties to boost financial strength and flexibility. We believe this will eventually allow Forest Oil to aggressively pursue growth opportunities in its plays and provide a meaningful upside potential for investors.
Forest Oil holds a Zacks Rank #3 (Hold). However, there are better-ranked stocks in the oil and gas sector such as VOC Energy Trust (VOC), SM Energy Company (SM) and Matador Resources Company (MTDR). All these stocks hold a Zacks Rank #1 (Strong Buy).
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