Forest Oil Announces First Quarter 2005 Results
Forest Oil (NYSE: FST) announced financial and operational results for the first quarter of 2005. In the first quarter of 2005, the Company had the following highlights:
- Sales volumes were 44.9 Bcfe, a year-over-year increase of 15%.
- Lease operating expense was $1.07 per Mcfe, a year-over-year decrease of 13%.
- EBITDA and net cash flow from operations, exclusive of working capital items, increased 42% and 40%, respectively, compared to the first quarter of 2004.
- Free cash flow was $79 million.
- Net debt at March 31, 2005, was reduced to $733 million resulting in a net debt to book capitalization rate of 33%.
- Announced the acquisition of a private company whose primary assets are in the Buffalo Wallow Field in Texas.
H. Craig Clark, President and CEO, stated: "Our business model of generating growth combined with significant free cash flow continues to provide positive results for our shareholders. During the first quarter, production increased about 2% from our 2004 exit rate without any production from our Buffalo Wallow acquisition which closed on April 1, 2005. This organic production growth, which almost replaced production sold in our fourth quarter property dispositions, was achieved while generating almost $80 million in free cash flow. Exploration and development capital expenditures in the quarter represented only 53% of our cash flow. The rate at which we are generating free cash flow should allow us flexibility on acquisitions.
"I am particularly pleased with our continued success in holding the line on cash costs in our operations. Total cash costs per-unit during the quarter were below those experienced in 2004. Our goal remains to not exceed the cash costs per-unit achieved in 2004 by offsetting inflation in services with additional efficiencies.
"In addition to our operational achievements, we added the Buffalo Wallow development project to our inventory of opportunities. This project further improves the quality of our inventory and substantially increases our project count. It adds a legacy asset in the Western Business Unit."
First Quarter 2005 Results
For the first three months of 2005, Forest's sales volumes were 498 MMcfe/d or an increase of 15% compared to the first quarter of 2004. Natural gas volumes increased 13% and liquids volumes increased 17% in the 2005 period compared to the 2004 period. The Company's EBITDA increased 42% compared to the first quarter of 2004 to $185 million, due to the 15% increase in production and higher per unit netbacks (oil and gas sales revenue less lease operating expenses, production and property taxes, and transportation costs).
During the first quarter, net cash flow from operations, exclusive of working capital items, was approximately $167 million. This was used to reduce long-term debt and to fund capital expenditures. At March 31, 2005, net debt (principal amount of long-term debt less cash on hand) decreased to $733 million compared to $797 million at December 31, 2004, and $830 million at March 31, 2004. The Company exited the first quarter of 2005 with a net debt to book capitalization rate of 33%. As a result of its Buffalo Wallow acquisition, the Company's net debt increased to $968 million and its net debt to book capitalization rate increased to approximately 40% on April 1, 2005.
For the quarter ended March 31, 2005, Forest reported net earnings of $38.9 million or $.65 per basic share. Earnings for the first quarter of 2005 included a $6.6 million charge ($4.1 million after-tax) related to unrealized losses recorded for the ineffective portions of our commodity hedges as well as a $2.9 million charge ($1.8 million after-tax) primarily due to the impairment of properties related to our exit from Romania. Without the effect of these items, net earnings for the quarter would have been $44.8 million or $.74 per basic share. This amount compares to net earnings of $19.7 million or $.37 per basic share in the corresponding 2004 period computed on a comparable basis, excluding losses recorded for ineffective commodity hedges of $1.0 million ($.6 million after-tax). Increased earnings for the quarter ended March 31, 2005, as compared to the corresponding period of 2004 were due primarily to increased sales volumes and higher oil and gas prices offset by higher depletion expense.
Certain Comparative Financial and Operating Data
The following table sets forth certain of Forest's financial and operating data for the quarters ended March 31, 2005 and 2004:
Three Months Ended March 31, ------------ 2005 2004 ------------ Daily natural gas sales volumes (MMcf): United States 258.7 233.8 Canada 49.0 34.5 ------------ Total 307.7 268.3 Daily liquids sales volumes (MBbls): United States 28.1 24.4 Canada 3.7 2.5 ------------ Total 31.8 26.9 Equivalent daily sales volumes (MMcfe): United States 427.1 380.0 Canada 71.2 49.5 ------------ Total 498.3 429.5 Total equivalent sales volumes (Bcfe) 44.9 39.1 Oil and gas sales revenue (millions)(1) $258.9 193.8 Average gas sales price (per Mcf)(1) $5.58 5.08 Average liquids sales price (per Bbl)(1) $36.48 28.54 Costs (per Mcfe): Lease operating expenses $1.07 1.23 Production and property taxes $.22 .19 Transportation costs $.12 .09 General and administrative expense $.24 .16 Interest expense $.32 .33 Current income tax expense $.03 .02 Capital expenditures (millions): Exploration and development $89 49 Acquisitions 8 10 ------------ Total $97 59 (1) Includes effects of hedging.
First Quarter 2005 Financial and Operational Results
In the quarter ended March 31, 2005, oil and gas sales volumes increased approximately 15% compared to the first quarter of 2004 due primarily to acquisitions of producing properties made in June 2004 (net of approximately $100 million of property dispositions) and organic growth. Increased sales volumes coupled with increased net price realizations of 28% and 10% for oil and natural gas, respectively, increased oil and gas revenue 34% in the first quarter of 2005 compared to the first quarter of 2004.
Lease operating expenses (LOE) decreased to $47.9 million for the quarter ended March 31, 2005, or 1% from $48.2 million for the corresponding 2004 period despite a 15% increase in production. On a per-unit basis, LOE decreased 13% from $1.23 per Mcfe in the first quarter of 2004 to $1.07 per Mcfe in the first quarter of 2005.
Production and property taxes increased by $2.4 million or 33% during the first quarter 2005 compared to the prior year's first quarter. The increase was attributable to higher commodity prices. As a percentage of oil and natural gas revenue excluding hedging, the first quarter 2005 and 2004 production and property taxes were consistent at 3.5%.
General and administrative expense increased 69% to $10.8 million for the quarter ended March 31, 2005, compared to $6.4 million for the corresponding period in 2004. The increase resulted primarily from increased headcount due to acquisition activities and a decrease in our overhead capitalization rate from 48% in 2004 to 37% in 2005. Combined capitalized and expensed overhead costs increased 39% year-over-year.
Depreciation and depletion expense increased to $96.3 million for the quarter ended March 31, 2005, from $79.6 million for the corresponding period in 2004. On a per-unit basis, the depletion rate was $2.13 per Mcfe for the quarter ended March 31, 2005, compared to $2.02 per Mcfe in the corresponding period in 2004. The increases in depletion expense and in the per-unit depletion rate in 2005 compared to 2004 were due primarily to the full effect of marginal properties sold in Canada. The sales price received per unit was less than that cost pool's depletion rate. Therefore, the depletion rate on the remaining reserves in Canada increased.
Forest currently has hedges in place for the remainder of 2005 and 2006 covering the aggregate average daily volumes and weighted average prices shown below. Substantially all of the volumes hedged for 2005 and 2006 are associated with Forest's acquisition activities.
Remainder of 2005 2006(1) ------------------ Natural gas swaps: ------------------ Contract volumes (BBtu/d) 107.8(2) 50.0 Weighted average price (per MMBtu) $5.16 6.02 Natural gas collars: -------------------- Contract volumes (BBtu/d) 47.8(2) -- Weighted average ceiling price (per MMBtu) $7.18 -- Weighted average floor price (per MMBtu) $5.90 -- Oil swaps: ---------- Contract volumes (MBbls/d) 8.8(2) 4.0 Weighted average price (per Bbl) $35.96 31.58 Oil collars: ------------ Contract volumes (MBbls/d) 1.5(2) 1.0 Weighted average ceiling price (per Bbl) $49.11 47.30 Weighted average floor price (per Bbl) $43.00 42.00 Oil three-way collars: ---------------------- Contract volumes (MBbls/d) 1.5 -- Weighted average ceiling price (per Bbl) $32.00 -- Weighted average floor price (per Bbl) $28.00 -- Three-way weighted average floor price (per Bbl) $24.00 -- (1) Represents hedged volumes associated with Forest's acquisition activities. (2) 100.0 of the 107.8 BBtu/d of hedged natural gas volumes, 27.8 of the 47.8 BBtu/d of hedged natural gas collar volumes, 6.5 of the 8.8 MBbls/d of hedged oil swap volumes, and 1.0 of the 1.5 MBbls/d of hedged oil collar volumes in 2005 are associated with Forest's acquisition activities.
Operational Project Update
Buffalo Wallow Acquisition, Texas Panhandle (66-100% Working Interest) -- As previously announced, Forest closed on this acquisition on April 1, 2005. Since closing, four additional Granite Wash wells have been completed with initial rates ranging from 1.2 to 3.2 MMcfe/d. Forest currently has four rigs running in the area. Additionally, production casing has been set on the Frye 1-10 well located in the Frye Ranch area southeast of Buffalo Wallow. This well, drilled to 15,052 feet, logged Granite Wash pay as well as deeper pay in the Atoka formation.
Delaware Basin and Winkler County, Texas, Permian Basin (98-100% Working Interest) -- Forest increased its gross acreage position in the area to approximately 27,000 acres and is currently drilling its first deep test in the Haley Atoka trend. A second test will commence in the second quarter of 2005.
Minihan Acquisition, Permian Basin (50-100% Working Interest) -- Exploitation and development drilling increased net production from 4 to 8 MMcfe/d. Additional drilling and waterflood installations are in progress.
Tex-Mex Field, Permian Basin (60% Working Interest) -- Gross field production had increased from 600 to 1,200 Bbls/d as a result of waterflood and exploitation activity. Recent new shallow field pay has been discovered in the Clearfork formation and tested 160 Bbls/d.
Williston Basin (90% Working Interest) -- Forest has acquired 8,000 gross acres in the Northwestern Williston Basin along with the corresponding 3-D seismic survey. Drilling on the identified oil prospects is expected to commence later this year.
Unocal Acquisition, Gulf Coast Onshore and Offshore (50-100% Working Interest) -- During the first quarter of 2005, net production reached its highest levels since acquiring these properties in November 2003. Net production has increased from 66 MMcfe/d at closing to a first quarter of 2005 average of 77 MMcfe/d despite a significant forecasted decline. Other offshore highlights include the South Marsh Island 66 D-6 ST #1 well completed in the lower Pleistocene at 7.4 MMcfe/d and the South Marsh Island 11 #16, which tested 7.7 MMcfe/d from the Pliocene Sand.
South Pass 24, South Louisiana (100% Working Interest) -- Forest assumed the remaining working interest and took over operatorship in the first quarter of 2005. Production has increased from 3 MMcfe/d to 9 MMcfe/d. Additional workover and drilling activity is expected in 2005 as well as operating cost reductions.
Wild River Area, Alberta, Canada (25-89% Working Interest) -- Wild River continues to be our most active area in Canada with a two rig drilling program. Gross production has increased from 17 to 26 MMcfe/d since the fourth quarter of 2004. There are currently five wells awaiting completion and nine wells awaiting pipeline connection. Operations are currently delayed due to spring break-up.
Foothills Area, Alberta, Canada (40-100% Working Interest) -- Three wells were drilled and cased during the first quarter of 2005. Pipeline construction and additional drilling was delayed due to spring break-up. The wells will be placed on-line and the additional drilling commenced as soon as weather permits.
There are no changes to the 2005 guidance provided in Forest's
press release dated April 4, 2005.
- Forest Oil to Put Texas Panhandle Properties Up For Sale (Jul 15)
- Forest Oil Partners with Schlumberger on Eagle Ford Shale Land (Apr 12)
- Forest Oil to Sell South Texas Assets Excluding Eagle Ford (Jan 03)