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Rejuvenated Forest Oil scrutinizes rest of company
Petroleum News
Exploration and production independent Forest Oil began reaping the benefits of a new strategy built largely on acquisitions and controlling expenses, turning in record earnings in the 2003 third quarter and pledging to scrutinize its remaining business units.
“Please stay tuned,” Craig Clark, Forest’s chief executive officer, told analysts in a Nov. 5 conference call.
The Denver-based company reported a 2003 third-quarter profit of $26.5 million or 55 cents per share, up eight fold from the $2.9 million or 6 cents per share the company earned in last year’s third quarter. Moreover, the $88.6 million in net income Forest earned during the first nine months of this year was the second highest for any corresponding period in the company’s 87-year history.
Higher commodity prices certainly helped Forest in the third quarter, considering the company produced daily gas equivalent of 400.4 million cubic feet versus 402.9 million cubic feet a year earlier. However, Forest’s third-quarter natural gas volumes increased 6 percent over the prior quarter, due in large part to positive drilling results in the foothills of Canada and in South Texas. Acquisitions boosting production Forest is getting a boost from another source. Within a few weeks of disclosing its new game plan in early September, which included less emphasis on frontier drilling and more focus on acquiring producing properties, Forest stepped up to the plate and bought Unocal legacy assets in the Gulf of Mexico. The $211-million deal closed Oct. 31, giving Forest an additional 66 million cubic feet of gas equivalent per day and reserves of 138 billion cubic feet of equivalent. It was Forest’s single largest deal ever and the fourth since May.
“The balance sheet is in shape to support future transactions,” declared Dave Keyte, Forest’s chief financial officer.
A month prior to the announcement of Forest’s new strategy, the hard-charging Clark replaced chairman and CEO Robert Boswell, who resigned after 17 years with Forest. Clearly unhappy with the company’s under performing Redoubt Shoal oil field in Alaska’s Cook Inlet, management sent Alaska representative Gary Carlson packing. Carlson was replaced with Leonard Gurule, a former manager of ARCO Alaska’s Prudhoe Bay operations and construction activities.
In September, Clark announced a four-pronged strategy to improve Forest’s financial position. Among other things, he said the company would limit frontier spending to 5 to 10 percent of capital employed rather than the company’s traditional 20 percent.
Clark said in the conference call that he recently completed an exhaustive worldwide trip to meet with Forest employee groups to discuss another major component of the company’s new strategy, cutting costs in 2004.
“I can now turn my attention to the other business units,” Clark said.
Clark said that Forest’s oil and gas production expenses decreased 5 percent to $40.2 million during the 2003 third quarter and decreased 8 percent to $110 million for the first nine months of 2003.
However, general and administrative costs in the third quarter increased $2.4 million to $12 million and were up $3.1 million to $31 million for the first nine months of the year. Forest attributed the increases to severance costs, expenses incurred to terminate a Canadian defined benefit pension plan and increased insurance costs.
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