Forest Oil Corp., Denver, (NYSE: FST) has closed its acquisition of producing assets in the Buffalo Wallow and East Texas/northern Louisiana areas from George Solich’s Denver-based Cordillera Energy Partners’ Cordillera Texas LP for approximately $529 million in cash and 7.25 million shares of stock for a total deal value of approximately $873 million.
Citing disruption in the credit markets, Cordillera and Forest amended the agreement to increase the stock component and decrease the cash consideration for the deal. The announced agreement involved $708 million in cash and 3.5 million shares of stock for a total deal value of approximately $892 million. The stock portion was based on Forest’s closing price on Sept. 29, lowering the total deal value.
Forest funded the acquisition from its existing credit facility which had approximately $1.21 billion available as of July 31 but plans to ultimately pay the debt by divesting noncore assets. Simultaneous to the Cordillera closing, Forest additionally reports it has entered into an agreement to sell properties in the Rockies, including its Niobrara, San Juan and other properties in Wyoming and Utah, for $258 million.
Forest president and chief executive Craig Clark says, “The first divestiture package sales agreement has been signed, and assuming completion of our divestiture program, we estimate our liquidity will be restored to over $1 billion, allowing us the ability to continue to execute on our acquisition strategy in 2009,” says Clark.
David H. Keyte, Forest chief financial officer, says, “The disruption in the credit markets is adversely affecting the timing of our divestiture program as counterparties are challenged to receive adequate financing. We believe increasing the equity component in this transaction was prudent to insure our liquidity remains strong and does not distract us from execution of our operational plan.”
With closed or pending sales of approximately $350 million, including the Rockies agreement, Keyte says, Forest is now targeting additional asset sales of $450 million to $750 million over the next six months. “Giving effect to the Cordillera acquisition and not considering proceeds from the announced sale of the Rockies assets, Forest estimates it has current liquidity from its credit facilities in excess of $500 million.”
The assets purchased from Cordillera include approximately 118,000 gross acres (85,000 net). Total estimated proved reserves are 350 billion cubic feet equivalent (36% proved developed) with additional net unrisked potential of 1.2 trillion equivalent. The properties produced an average of approximately 34 million cubic feet equivalent per day in first-half 2008. Upside includes approximately 1,500 additional vertical and horizontal drilling locations (1,194 unbooked).
The Granite Wash properties comprise 67,700 gross acres (54,000 net). Estimated proved reserves are 206 billion cubic feet equivalent. Production is focused primarily in the Granite Wash, Atoka and Morrow intervals.
The East Texas/North Louisiana properties comprise 50,300 gross acres (31,000 net). Estimated proved reserves are 142 billion equivalent. Production is from the Cotton Valley and Travis Peak intervals and includes rights to the James lime, Haynesville/Bossier shales and Pettet formations.
“As an organization, we are always looking to upgrade our properties to areas and rock-types where Forest has demonstrated excellent execution and growth. These transactions are in line with this strategy, allowing us to further our growth in our two largest core areas, the Greater Buffalo Wallow Area and East Texas/North Louisiana,” Clark says. He says Forest anticipates growing production on these acquired assets by more than 30% in 2009.
The effective date is July 1.
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