2011-01-14-2010-12-14

Transaction Type
Sellers
Buyers
Announce Date
Post Date
Estimated Price
MM
Description

To buy 1.1 million gross acres in Canada from parent in spin-off sale, gaining 76 MMcf/d, 322 Bcfe proved.

Lone Pine Resources Inc., a subsidiary of Denver-based Forest Oil Corp. (NYSE: FST), plans to raise up to US$375 million in an initial public offering on the New York Stock Exchange as "LPR." Lone Pine will be the new parent of Canadian Forest Oil Ltd., which owns all of Forest's Canadian assets. J.P. Morgan is lead book-running manager.

Lone Pine had roughly US$224 million of debt payable to Forest as of Sept. 30, according to the regulatory filing. Forest shares closed at US$34.71 on the New York Stock Exchange Dec. 10.

In connection with the IPO, Forest intends to contribute its ownership of Canadian Forest to Lone Pine. Lone Pine plans to sell up to 19.9% of its common stock in the IPO, which it expects to complete in the first half of 2011.

As of Sept. 30, Forest's Canadian assets included 322 billion cubic feet equivalent of proved reserves and 76 million cubic feet equivalent per day (net) of production across approximately 1.109 million gross (791,000) net acres.

Pro forma, Forest's fourth-quarter 2010 production is expected to be approximately 411 MMcfe/d, according to Wells Fargo senior analyst David Tameron. Of the company's production, Granite Wash/Texas panhandle accounts for 36%, or roughly 149 MMcfe/d; south Texas 25%, or 104 MMcfe/d; and east Texas/Louisiana for 21%, or roughly 85 MMcfe/d, he notes in a Dec. 13 research report.

Lone Pine will focus on growing its estimated proved reserves and production through its repeatable vertical and horizontal development inventory and shale positions with initial investment of capital in excess of cash flow. Forest will focus on growth through the continued application of horizontal drilling on its remaining liquids-rich development inventory, while maintaining capital levels consistent with expected cash flow.

"In theory, the transaction should unlock some value for shareholders, as it provides valuation visibility both for its Canadian assets and isolates the value of its Lower-48 portfolio, consisting of the Granite Wash, Eagle Ford, and Haynesville," Tameron says.

Wells Fargo has maintained its Outperform rating on Forest Oil, which is one of its top two picks for 2011 based on the idea that the company has remained undervalued, according to Tameron.