Forest Oil Announces Results for Q1
Forest Oil Corporation on Monday announced financial and operational results for the first quarter 2007. For the quarter ended March 31, 2007, the Company reported the following highlights:
-- Forest's Remainco average net production increased 6% year-over-year to 302.4 MMcfe/d, despite being negatively impacted by a delayed shipment of 113,000 Bbls (8 MMcfe/d effect) of crude in Alaska, and severe winter weather downtime and refinery outages (11 MMcfe/d effect) -- Adjusted EBITDA was $156.5 million, an increase of 34% compared to 2006 Remainco -- Discretionary cash flow was $123.0 million, an increase of 19% compared to 2006 Remainco -- Sale of Australia assets nets $7.2 million, kicking off the 2007 asset rationalization plan
H. Craig Clark, President and CEO, stated, "The first quarter was solid for the Company despite negative sales volume impacts caused primarily by weather. Forest's improved price realizations and improved hedge portfolio protected our top line. Costs continue to remain stable and we are beginning to see some service sector cost relief. With the announced sale process of our Alaskan entity and the addition of the assets associated with Houston Exploration we are very excited with the prospects of our upgraded portfolio. We believe, with the closing of these pending transactions, Forest will have a favorable cost structure within the industry and will be able to continue to invest to deliver additional reserves at very competitive costs. We have and will continue to put the Company in a position to grow production, drive costs down and deliver free cash flow."
"Remainco" corresponds to the portion of Forest not included in the March 2, 2006 spin-off of the Company's Gulf of Mexico operations and subsequent merger of those operations with a subsidiary of Mariner Energy, Inc. It refers to the operations spun-off as "Spinco." When it refers to "Total Company" or "Forest," the Company means Remainco or, for the time prior to the spin-off, Remainco and Spinco added together.
FIRST QUARTER 2007 RESULTS
For the quarter ended March 31, 2007, Forest reported net earnings of $6.9 million or $.11 per basic share. Remainco reported a net loss of $3.3 million or a $.05 loss per basic share in the corresponding period in 2006. The net earnings for the quarter ended March 31, 2007 were affected by the following items:
-- The non-cash effect of net unrealized losses relating to the mark to market valuation on derivative instruments and foreign currency exchange was $57.8 million ($36.0 million net of tax). This amount represents the change in value during the quarter of our outstanding hedges. -- Gain on sale of Australia overriding royalty interest of $7.2 million ($4.5 million net of tax)
Without the effect of these items, Forest's adjusted net earnings would have been $38.4 million or $.62 per basic share. This amount is an increase of 59% over Remainco's net earnings of $24.2 million or $.39 per basic share in the corresponding 2006 period on a comparable basis.
Adjusted net earnings in the first quarter of 2007 increased compared to the same period in 2006 primarily due to increased production, lower price differentials and realized gains on derivative instruments offset by increased interest expense.
Forest's adjusted EBITDA increased 34% to $156.5 million in 2007 compared to Remainco's adjusted EBITDA of $117.2 million in the first quarter of 2006. Forest's discretionary cash flow was $123.0 million, an increase of 19% compared to Remainco's discretionary cash flow of $103.3 million in the first quarter of 2006. Adjusted EBITDA and discretionary cash flow increased compared to the same period in 2006 primarily due to increased production, lower price differentials and realized gains on derivative instruments.
Forest's oil and gas sales volumes increased 6% to 302 MMcfe/d in 2007 compared to Remainco's sales volumes of 285 MMcfe/d in the first quarter of 2006. Inclement weather delayed the shipment of Forest's Alaska oil production scheduled for the end of March 2007 until April 5, 2007. The effect of this delay caused reported sales volumes to be lower by approximately 113,000 Bbls (8 MMcfe/d effect) for the three months ended March 31, 2007. Further, due to severe winter weather downtime and crude transportation issues, including refinery outages in the Panhandle of Texas, sales volumes were adversely affected by approximately 1.0 Bcfe (11 MMcfe/d effect).
Forest's oil and gas sales revenue increased 6% compared to Remainco's in the first quarter of 2006 to $182.6 million from $172.8 million. The increase was primarily the result of increased sales volumes. Lower price differentials substantially offset the lower NYMEX prices during the quarter. Forest's differential to NYMEX prices for natural gas decreased to $.80 per Mcf in the first quarter 2007 compared to Remainco's $2.49 per Mcf in the first quarter of 2006.
Forest's per-unit oil and gas production expense increased 7% to $1.76 per Mcfe compared to Remainco's $1.64 per Mcfe in the first quarter of 2006 primarily as a result of increased repairs and maintenance costs incurred on non-operated properties in Alaska partially offset by additional severance tax credits.
Forest's general and administrative expense decreased 23% to $13.0 million compared to Remainco's $16.8 million in the first quarter of 2006. The decrease resulted primarily from higher stock-based compensation expense of $6.1 million in 2006 of which $5.9 million was due to the Mariner transaction, offset by increased salary and wage expense.
Forest's per-unit depreciation and depletion expense increased 3% to $2.22 per Mcfe compared to Remainco's $2.16 per Mcfe in the first quarter of 2006. Total depreciation and depletion expense increased 9% to $60.5 million compared to Remainco's $55.4 million in the first quarter of 2006. The increase in depreciation and depletion expense resulted primarily from a 6% increase in sales volumes.
Forest's interest expense increased 77% to $24.4 million compared to Remainco's $13.8 million in the first quarter of 2006 primarily as a result of the increased interest rates associated with the non-recourse Alaska Term Loans that were put in place in December of 2006 that have a weighted average interest cost of approximately 9.8% as of March 31, 2007.
For the quarter ended March 31, 2007, Forest invested $155 million in exploration and development and acquisition activities. Canada's capital spending was accelerated in the quarter in advance of spring breakup.
Forest currently has derivatives in place for 2007 through 2010 covering the aggregate average daily volumes and weighted average prices shown below. During 2007 Forest has added 40 Bbtu/d of natural gas hedges for April 2007 through December 2007 and 40 Bbtu/d of natural gas hedges for fiscal 2008. Also during the quarter, Forest settled .75 MBbls/d of long-dated oil hedges.
OPERATIONAL PROJECT UPDATE
Upon closing of The Houston Exploration Company (Houston Exploration) acquisition, Forest's current Southern Business Unit will be renamed as the Eastern Business Unit, headquartered in Denver, and will include Forest and Houston Exploration assets in East Texas, the Arkoma Basin, Central Texas, the Barnett Shale and upper Gulf Coast in Louisiana. Our new Houston office will manage the "new" Southern Business Unit consisting of Forest and Houston Exploration properties along the lower Texas Gulf Coast and South Texas.
WESTERN BUSINESS UNIT
Buffalo Wallow Area - Texas Panhandle (66-100% WI) - During the first quarter of 2007, a record 16 wells were drilled with a 100% success rate. First quarter production averaged 38 MMcfe/d and was adversely affected by weather related downtime, third party plant maintenance and the refinery outage in the Texas Panhandle. However, during the quarter, Buffalo Wallow reached a new record rate of 41 MMcfe/d. First quarter drilling on recently leased undeveloped acreage south of Buffalo Wallow was successful with the first well testing at 7.5 MMcfe/d, our third best initial production rate for the entire area.
Greater Vermejo/Haley Area - West Texas (42-100% WI) - Forest continues to operate one drilling rig and resumed re-entry activity in the first quarter. The three re-entry projects completed in the first quarter yielded a combined rate of 7.9 MMcfe/d. A large 3-D seismic survey is expected to be processed by mid 2007.
Central Midland Basin - West Texas (100% WI) - During the first quarter, a total of 12 wells were drilled with a 100% success rate. Initial rates ranged from 68 to 321 Bbls/d. Activity was increased in our shallow program in the Permian Basin particularly in the Tex Mex and Martin Fields. Forest increased its working interest from 50% to 100% in the Martin Field in late 2006 through a property trade.
Rockies Area - Williston Basin (66% WI) - During the first quarter, Forest successfully delineated its oil discovery in the North Anvil Field in Montana with two wells which tested 220 Bbls/d and 254 Bbls/d. Additional efforts to define the limits of the field are underway using a recently acquired 3-D seismic survey. Two locations have already been staked and are being permitted.
SOUTHERN BUSINESS UNIT
East Texas Cotton Valley Area - Rusk, Harrison & Panola Counties, Texas (52-100% WI) - During the first quarter, seven wells were drilled with a 100% success rate. A two-rig program was utilized for most of the first quarter as one rig was relocated to our Barnett Shale program. However, the net production still reached another record at 22 MMcfe/d during the first quarter. Most of our properties are now producing into Forest's new low pressure gathering and processing facilities with all production expected to be tied in by the third quarter of 2007 as prior contractual obligations expire. Forest's first horizontal Cotton Valley test was spud in the second quarter of 2007.
Katy Field - Waller, Harris and Ft. Bend Counties, Texas (54% WI) - Gross production reached 22 MMcfe/d in the first quarter, a 69% increase since taking over operations in mid 2006. Our second middle Wilcox well was tested at 2.7 MMcfe/d gross with two additional Wilcox wells currently being completed. Re-entry and recompletion programs are underway in the field targeting exploitation of Yegua and Wilcox reservoirs.
Sabine Area - Calcasieu Parish, Louisiana (23-45% WI) - The recent discovery well, Abdalla #1, was flowing to sales at 7.7 MMcfe/d gross and 6,000 psi FTP. An offset location is expected to spud late in the second quarter of 2007. An additional 131 square mile 3-D seismic survey has been shot and should be processed by the fourth quarter of 2007.
Barnett Shale - Hill County, Texas (50% WI) - The second horizontal well in the JV program was drilled and cased and is now being fracture stimulated in four stages. Pipeline infrastructure is in place to begin production immediately after the well is stimulated. Forest and its partner will continue a one-rig program in the area and expect to drill six more wells in 2007. Forest and its partner may consider a two-rig program in 2008.
CANADA BUSINESS UNIT
Wild River Area (25-100% WI) - A total of eight wells were drilled in the first quarter with a 100% success rate. Despite inclement weather, net production reached another record at 39 MMcfe/d. A new Wild River gas processing plant, in which Forest has firm capacity, became fully operational during April 2007. This plant should improve natural gas liquid recoveries and reduce lease operating expense in the area.
Sundance/Ansell Area (50% WI) - Two exploratory wells were completed in the first quarter at rates of 5.0 MMcfe/d and 4.9 MMcfe/d. Two additional exploratory wells are currently being completed. Additional offset and exploratory drilling is planned for the remainder of 2007 using a one rig program. New gas processing facilities were constructed in the first quarter to handle the additional volumes.
Alberta Foothills Copton/Palliser/Narraway Areas (50% WI) - Two wells in the Copton/Palliser Area were completed at 2 MMcfe/d each. During the winter access period, the Narraway pipeline was completed which allowed 5 MMcfe/d to be connected to sales. Additionally, a new exploratory well at Narraway was completed at a rate of 4.5 MMcfe/d. Further exploratory drilling is planned for the fourth quarter of 2007.
Forest last updated its 2007 guidance on February 26, 2007. The Company intends to revise its guidance when it closes the acquisition of Houston Exploration and sells its Alaska properties. Guidance Update
Gas Differentials. Based on current market prices, we estimate that our second quarter 2007 gas price differential from NYMEX will be between $1.60 and $1.90 per Mcf.
Oil Differentials. Based on current market prices, we estimate that our second quarter 2007 oil price differential from NYMEX will be between $5.00 and $7.00 per Bbl.
Natural Gas Liquids Differentials. Based on current market prices, we estimate that our second quarter 2007 natural gas liquids price differential will be 50% of NYMEX oil.
- 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)