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Forest Oil jumps on Unocal Gulf properties Acquisition gives Denver independent 273,000 net acres, 128 offshore blocks Petroleum News
Forest Oil, after spending big bucks on exploring and developing a seriously under performing Redoubt Shoal oil field in Alaska's Cook Inlet, has wasted no time embarking on a new strategy of playing it safer when it comes to building reserves and production.
The Denver-based independent has turned to more familiar territory in the Gulf of Mexico, agreeing to pay about $260 million for Unocal “legacy” assets that give Forest an immediate 150 billion cubic feet of gas equivalent reserves and 80 million cubic feet per day of additional production.
“This acquisition plays to our strength in the Gulf region and makes us a stronger competitor in the Gulf of Mexico and onshore Gulf Coast,” Craig Clark, Forest's chief executive officer, said Sept. 22.
That makes four Lower 48 acquisitions totaling $311.3 million for Forest since May, providing the company with additional combined reserves of 200.1 bcf of gas equivalent and 96 million cubic feet per day of production. The Unocal deal, expected to close at the end of October, would boost Forest's daily production by 20 percent to nearly 400 million cubic feet of gas equivalent.
Forest clearly changed direction in late July after long-time chief executive officer Robert Boswell resigned and Clark took the helm. In the same second-quarter conference call that Clark expressed disappointment with Redoubt's performance, he unveiled a new company strategy that included decreasing Forest's exposure to frontier ventures to 5 to 10 percent of capital employed, versus the company's traditional 20 percent.
In the August call, Clark said that since Redoubt had come on stream in late December 2002 the field was producing about 4,000 barrels of oil per day, roughly half of the 7,000 to 8,000 barrels per day that had been expected. The company had hoped Redoubt eventually would produce about 15,000 barrels per day, a goal that now appears unachievable without better well performance. Clark also said the company likely would have to reduce current booked reserves of about 60 million barrels. Unocal assets proven In regard to the Unocal deal, Forest stuck closely to its current strategy of acquiring proven assets in and around properties the company already operates. The transaction specifically would give Forest 273,000 net acres in 128 blocks offshore and in three fields onshore south Louisiana. The onshore component represents about 42 percent of reserves and 24 percent of current production, Forest said.
Forest said it would operate 70 percent of the assets. The deal also would place Forest among the top six operators on the Gulf's continental shelf in terms of acreage and production.
The company said it would pay for the properties through a combination of cash, debt and equity.
The Unocal assets should generate about $100 million in annual cash flow, Forest said, adding that it would spend about $60 million on the properties over the next two years.
Under terms of the deal, Unocal would have the right to farm into deep-shelf prospects on 41 of the 128 acquired blocks.
If Unocal proposes to drill a prospect greater than 14,000 feet, Forest said it could elect to either participate for an interest equal to Unocal or receive an overriding royalty interest. l
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