Denver-based independent oil and gas company, Forest Oil Corporation (FST) has provided an update on its proposed merger with Sabine Oil & Gas LLC. Forest has set Nov 20, as the date for the special meeting of its shareholders to vote on the proposed merger. Forest shareholders of record as of the close of business on Oct 3, will be entitled to vote at the special meeting. Both Forest and Sabine remain focused to complete the merger by year-end 2014.
Under the merger agreement, Forest Oil and Sabine Oil & Gas will merge their businesses. According to the agreemnt, Sabine Investor Holdings, LLC, the owner of Sabine Oil & Gas, will contribute its interests in Sabine Oil & Gas to Forest Oil, in return for the issuance of common and preferred stock in Forest Oil.
Following the transaction, Sabine Oil & Gas will become a wholly owned subsidiary of Forest Oil, Sabine Investor Entities will hold common and preferred shares representing an aggregate 73.5% interest in Forest Oil and the existing common shareholders of Forest Oil will hold the remaining 26.5% interest in the company.
Further, with the issuance of preferred stock to Sabine, the latter will have about 80% of the combined voting interest in Forest Oil. The transaction is anticipated to be tax-free for Forest Oil shareholders and Sabine Investor Entities. The headquarters of the combined entity will be in Houston, TX, and will be supervised by Sabine’s current executive management team.
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.
The company nonetheless is intent on divesting its non-core properties to boost financial strength and flexibility. We believe that this will eventually allow Forest Oil to aggressively pursue growth opportunities in its plays and provide a meaningful upside potential for investors.
At present, Forest Oil carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the same industry include Delek Logistics Partners LP (DKL), Spectra Energy Partners LP (SEP) and Sunoco Logistics Partners LP (SXL). All of these stocks sport a Zacks Rank #1 (Strong Buy).
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