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Forest Oil of Denver buys Forcenergy Combination to produce one of 10 largest U.S. independents with plans to develop several Cook Inlet prospects in next few years Kristen Nelson PNA News Editor
Cook Inlet got a new player July 10 when Forcenergy Inc. and Forest Oil Corp. announced that the boards of both companies had unanimously approved a merger to create what company officers called “The new Forest Oil.”
Forcenergy Inc. properties in Cook Inlet and the Gulf of Mexico were two reasons Forest officials gave for the merger.
The new company will be called Forest Oil Corp. and will be headquartered in Denver. The companies said it would be one of the 10 largest independent oil and gas exploration companies in the United States, with total book capitalization of about $1.25 billion and approximately $600 million of equity. Shareholder and regulatory approval are expected to take 60 to 90 days.
Forcenergy common shareholders will receive 1.6 Forest common shares for each Forcenergy common share they hold. Forest shareholders will hold approximately 56 percent of the combined company and Forcenergy shareholders approximately 44 percent. Forest said it expects to effect a 2 to 1 reverse split concurrently with the completion of the merger to put the stock more in the range of comparable companies which are trading in the $30-range. Forest closed at $16 per share on July 7, Forcenergy closed at $21.19 per share. Officers named Robert S. Boswell will continue as chairman and chief executive officer of Forest. Richard G. ‘Gus’ Zepernick Jr., president and CEO of Forcenergy, will be president and chief operating officer of Forest. Two members of Forest’s board of directors will join the Forest board for a total of 12 directors.
“The combination meets Forest’s criteria of strategic fit,” Boswell said. “It places the company in one of North America’s highest potential frontier exploration areas in Alaska with an established platform for expansion. It significantly increases the company’s position in the Gulf of Mexico where Forest has historically achieved its highest rates of return and it will enable the company to capture additional opportunities as well as cost savings.”
Zepernick said: “The combined companies will have a much stronger balance sheet that will allow us to exploit a large inventory of lower risk exploitation and high impact exploration projects. The stronger prospect inventory, balance sheet and technical talent will enable the combined companies to deliver consistent shareholder return.” Gulf of Mexico, Alaska keys to merger Forest officials said they knew Forcenergy from the Gulf of Mexico and Alaska, had followed the bankruptcy proceedings and saw two strong factors: ability to capitalize on Forcenergy properties in the Gulf of Mexico and possibilities in Alaska, specifically using Cook Inlet at a platform to expand in Alaska.
In addition to Forcenergy’s exploration acreage in Alaska, Forest has exploration acreage in the Northwest Territories of Canada, the Canadian Beaufort Sea and offshore South Africa.
In the development area, the companies said, Forcenergy brings a significant asset base in the Gulf of Mexico with properties which were under exploited due to the company’s financial difficulties in 1998 and 1999.
The company estimates that its first quarter 2000 net daily production of 220 million cubic feet equivalent would be 490 million cubic feet equivalent for the merged companies. As of the end of 1999, Forest’s proved reserves were estimated to be 718 billion cubic feet equivalent, 73 percent gas and 27 percent oil. The estimate for the combined company is 1,408 billion cubic feet equivalent, 59 percent gas and 41 percent oil. Combined first quarter production broken out by areas was: Gulf of Mexico offshore 50 percent; Gulf Coast onshore 13 percent; Western United States 15 percent; Canada 12 percent; and Alaska 10 percent. Alaska plans Forest Oil officials said they would be looking for partners in both Alaska and foreign projects. In Alaska in 2000, $30-$40 million will be spent at Redoubt and on other wells, including those Unocal will be drilling.
If successful the Redoubt development could begin production at 5,000 barrels a day and rise to 20,000-30,000 barrels per day, effectively doubling overall current production from Cook Inlet, which in June averaged 29,302 barrels a day.
Forcenergy has a large inventory of undeveloped prospects, officials said, including the Sabre prospect in Cook Inlet, one of three to four 50-100 million barrel prospects which will be drilled over the next three to four years. The company has 3-D seismic over Sabre, but there are no wells drilled there yet. Forcenergy has a 70 percent interest at Sabre.
Officials said they also believe there is a lot of potential left in the Unocal-operated McArthur River field, in which Forcenergy is a partner. Forest said it was interested in other areas of Alaska, and planned to leverage off of Cook Inlet and move into other areas. Forcenergy was looking at other areas of Alaska, officials said.
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