Forest Oil Posts Stable Net Sales Volumes, Increased Liquidity
Forest Oil has announced financial and operational results for the first quarter of 2009.
For the three months ended March 31, 2009, the Company reported the following highlights:
- Average net sales volumes increased 15% to 550 MMcfe/d compared to the first quarter of 2008
- Total cash costs per-unit decreased 10% to $2.19 per Mcfe compared to the first quarter of 2008
- Adjusted net earnings per share decreased 73% to $.29 per share compared to the first quarter of 2008
- Adjusted EBITDA decreased 34% to $193.1 million compared to the first quarter of 2008 · Adjusted discretionary cash flow decreased 41% to $156.5 million compared to the first quarter of 2008 · First operated Buffalo Wallow horizontal well was drilled with an initial production rate of 17 MMcfe/d
Due to a non-cash ceiling test write-down of oil and gas properties, Forest reported a net loss of $1.2 billion, or $(12.32) per basic share, for the three months ended March 31, 2009.
H. Craig Clark, President and CEO, stated, "We were once again pleased with the production performance and cost control from our asset base. After taking into account the Rockies divestiture in late 2008, our production was essentially flat from the fourth quarter of 2008 despite a significant decline in rig count. The progress shown in the first quarter is a good start to 2009, as the Company continues to cut costs from drill bit activities, production expense and G&A. Due to continued low commodity prices, we have reduced our current operated rig count to 8 rigs from 15 at the start of 2009. The quarter also kicked off our horizontal drilling programs in the Haynesville and Granite Wash. We are encouraged with the early success in both plays with our first wells exceeding our expectations. We now add the Granite Wash horizontal program to our list of high potential projects. We have a dominant position in the play and intend to transform this development program to focus on horizontal drilling."
FIRST QUARTER 2009 RESULTS
For the three months ended March 31, 2009, Forest reported a net loss of $1.2 billion or $(12.32) per basic share. This compares to Forest’s net loss of $4.7 million or $(.05) per basic share in the corresponding period in 2008. Net earnings for the three months ended March 31, 2009 were affected by the following items:
- The non-cash effect of a ceiling test write-down of oil and gas properties, totaling $1.576 billion ($1.244 billion net of tax, including the related valuation allowance recorded against deferred tax assets)
- The non-cash effect of net unrealized gains related to recording derivative instruments, totaling $67.5 million ($43.1 million net of tax)
- The non-cash effect of unrealized losses on other investments and unrealized foreign currency exchange losses, totaling $5.9 million ($4.5 million net of tax)
Without the effects of these items, Forest's adjusted net earnings were $27.9 million or $.29 per basic share. This is a decrease of 70% compared to Forest's adjusted net earnings of $92.7 million or $1.06 per basic share in the corresponding 2008 period.
Forest's adjusted EBITDA decreased 34% for the three months ended March 31, 2009 to $193.1 million, compared to adjusted EBITDA of $294.1 million in the corresponding 2008 period. Forest's adjusted discretionary cash flow decreased 41% for the three months ended March 31, 2009 to $156.5 million, compared to adjusted discretionary cash flow of $265.2 million in the corresponding 2008 period. The decrease in adjusted net earnings, EBITDA and discretionary cash flow was primarily due to significantly lower realized commodity prices for the three months ended March 31, 2009 compared to the corresponding 2008 period.
Exploration and Development Capital Expenditures
Forest invested $244.5 million in exploration and development activities (excluding capitalized interest, equity compensation and asset retirement obligations) for the three months ended March 31, 2009. This compares to a $242.7 million investment for the three months ended March 31, 2008. Capital expenditure activity was weighted toward the first quarter of 2009 due to the completion of significant work-in-progress at year-end and Canadian winter drilling activity.
In response to commodity price declines, Forest decreased its current operated rig count from 15 at the beginning of 2009 to 8 operated rigs currently. Forest intends to reallocate capital based on returns in each area along with the potential for well cost reductions. At the present time, the reallocation is weighted toward horizontal projects with oil, condensate and liquids exposure.
To increase its liquidity, Forest issued $600 million principal amount of 8.5% Senior Notes due 2014 in a private offering in February of 2009. The Company used the net proceeds from the offering to repay a portion of the outstanding borrowings under its bank credit facilities. At March 31, 2009, Forest had approximately $913 million outstanding under its bank credit facilities. Forest's current borrowing base totals $1.62 billion resulting in approximately $705 million of remaining borrowing capacity under its bank credit facilities at March 31, 2009.
OPERATIONAL PROJECT UPDATE
Greater Buffalo Wallow Area -- Texas Panhandle
As the most active company in the Greater Buffalo Wallow Area, Forest has extensive resource opportunities in the multiple pay horizons in this play, which it has pursued from both a vertical and most recently from a horizontal perspective. Forest completed its first operated horizontal well in April of 2009 that produced into the sales line at a rate of 17 MMcfe/d while still cleaning up fracture load. Forest has an 88% working interest in this well. Forest has participated in an additional eight horizontals that had an average initial production rate of 8 MMcfe/d. As announced in 2008, in conjunction with our latest acquisition, Forest intends to pursue horizontal development throughout our large acreage position. Forest’s leasehold of 120,000 gross acres (91,000 net) and extensive well database of over 400 vertical tests, in addition to the Company's past horizontal operational experience, should prove to be a competitive advantage. Forest currently has one 1500 hp Lantern operated horizontal drilling rig and two non-operated horizontal rigs active in the play.
East Texas/North Louisiana Area -- Haynesville/Bossier
Since the beginning of 2009, Forest has drilled four horizontal Haynesville/Bossier shale wells in the East Texas/North Louisiana corridor, three in Harrison County, Texas and one in Red River Parish, Louisiana. The three wells that have been completed had an average initial production rate of 8 MMcfe/d with the fourth well waiting on fracture stimulation. An additional well is drilling to test the Cotton Valley/Haynesville Lime in Sabine Parish. Forest has approximately 140,000 gross (127,000 net) acres in the Haynesville/Bossier play.
UPDATED 2009 GUIDANCE
The guidance below represents Forest's updated production expense, general and administrative (G&A) expense, and depreciation, depletion and amortization (DD&A) expense guidance for the full year 2009. Except as indicated below, all other guidance detailed in Forest’s press release dated February 3, 2009 has not changed.
As a result of cost cutting efforts employed by the Company during 2009 to lease operating expenses and lower expected production and property taxes, Forest has reduced the mid-point of its guidance 7% from $240 to $275 million or $1.30 to $1.40 per Mcfe to $225 to $255 million or $1.20 to $1.30 per Mcfe.
General and Administrative (G&A) Expense:
As a result of further cost cutting efforts employed by the Company during 2009 to G&A expense, Forest has reduced the mid-point of its guidance 4% from $57 to $63 million or $.30 to $.33 per Mcfe to $55 to $60 million or $.29 to $.32 per Mcfe.
Depreciation, Depletion and Amortization (DD&A) Expense:
As a result of a non-cash ceiling test write-down of oil and gas properties for the three months ended March 31, 2009, Forest has reduced the mid-point of its guidance 28% from $2.15 to $2.25 per Mcfe to $1.50 to $1.65 per Mcfe.
- 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)