Forest Oil Corp., Denver, (NYSE: FST)
has closed its acquisition of The Houston
Exploration Co., Houston, (NYSE: THX)
for $1.5 billion in cash and stock and will
assume net debt estimated at $100 million.
Forest paid 0.84 Forest share and
$26.25 in cash (a $60.02 value) per
Houston Exploration share, totaling some
23.6 million Forest shares and $750 million
in cash. Forest shareholders now own
73% of the combined company.
Forest funded the cash portion with a
$1.4-billion revolving credit facility underwritten
by JPMorgan Chase Bank NA.
Forest had the support of New Yorkbased
Jana Partners LLC, which held
14.7% of outstanding Houston Exploration shares. Jana has agreed to not propose any
extraordinary transactions with Forest or
seek to influence the management or control
of Forest for a year following the
deal’s closing.
The Houston Exploration assets are in
South Texas, East Texas, the Arkoma
Basin of Arkansas and Oklahoma, and the
Uinta and D-J basins in the Rockies.
Production is 205 million cubic feet of gas
equivalent per day, and proved reserves are
approximately 655 billion cubic feet
Forest now has estimated proved
reserves of approximately 2 trillion cubic
feet equivalent (approximately 69%
proved developed, approximately 70%
Forest president and chief executive H.
Craig Clark says, “We are undertaking this
significant acquisition to further strengthen
our onshore North American asset base
and to add drilling inventory for our
proven acquire-and-exploit strategy. This
strategy has provided us with superior riskweighted
returns over the last several
The deal will add more than 3,200 drillsites
to Forest’s inventory. The assets are
in tight-gas-sand basins in which Forest
has recently benefited from new technological
applications like horizontal drilling
and fracture stimulation.
Houston Exploration chairman, president
and chief executive William G.
Hargett says, “The transaction with Forest
not only provides immediate value to
Houston Exploration’s shareholders, but
also affords them the opportunity to participate
in the upside potential created by our
combination. I am confident that together
with Forest, we will have the financial and
operational strength needed to continue
capturing the opportunities in our industry.”
Jana managing partner Barry
Rosenstein says, “Given the current environment,
we believe this is a good deal and
we have confidence that Forest Oil is the
right company to maximize the value of
these assets. Forest Oil has a strong track
record of keeping F&D costs and operating
expenses low, and its disciplined management
team has maintained some of the
most favorable cost controls in the industry
during the inflationary period of the last
several years.”
Credit Suisse Securities (USA) LLC
was financial advisor to Forest, and
Lehman Brothers Inc. was financial advisor
to Houston Exploration.