Forest Oil Corp. inked a strategic partnership with oil-fields services giant Schlumberger Ltd. to develop the energy producer's Eagle Ford Shale land in Gonzales County, Texas, allowing for accelerated production growth and improvement of the project's economics.
Forest's shares jumped 11% premarket to $5.55. As of Thursday's close, the stock was down 25% so far this year. Schlumberger's shares closed at $77.14 and were unchanged premarket.
Under the terms of the agreement, Schlumberger will pay a $90 million drilling carry in the form of future drilling and completion services and related development capital in order to earn a 50% working interest in Forest's Eagle Ford Shale acreage position. Forest and Schlumberger will then participate in future drilling on a 50/50 basis.
"We believe that our Eagle Ford position is a valuable oil asset and being aligned and working together cooperatively with a strategic partner such as Schlumberger will greatly enhance the value of this important asset," Forest Chief Executive Patrick R. McDonald said.
He added Schlumberger will provide the technology, integrated services and capital resources needed for Forest to retain and develop a substantial portion of its acreage position.
Forest will be the operator of the drilling program and currently expects the drilling carry will be fully realized by the end of 2014.
As natural gas prices have tumbled, Forest and other companies that focus on natural-gas production have seen revenue decline. Forest has been shedding some of its noncore assets, shifting its focus toward liquids, in an effort to improve its balance sheet. In January, the company sold properties in South Texas, excluding the Eagle Ford Shale, for about $307 million to raise cash to repay debt.
In February, Forest said it swung to a fourth-quarter loss as write-downs and debt extinguishment costs weighed on the company's results, though core earnings topped market expectations.
Copyright (c) 2012 Dow Jones & Company, Inc.
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