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Forest Oil acquires Wiser Oil in $330 million deal Over last year, including Wiser, Forest has acquired roughly 515 bcf of gas equivalent reserves, 360,000 undeveloped acres Ray Tyson Petroleum News Houston Correspondent
Denver’s Forest Oil is staying true to its play-it-safer approach to growing the company, acquiring Dallas-based Wiser Oil in a $330-million merger that provides Forest with lots of additional proved reserves and production and little in the way of risky frontier exploration acreage.
That’s just fine with Craig Clark, Forest’s chief executive officer, who last year plotted a new course for the struggling independent, one focused both on reducing company operating costs and acquiring properties with good track records in Forest core producing areas.
Last year Forest said that in addition to property acquisitions it would consider a corporate merger. Including the Wiser merger, Forest has done property acquisitions in the past year totaling roughly $720 million, a sum that has provided the company with an additional 515 billion cubic feet of gas equivalent reserves, 175 million cubic feet of equivalent production per day, and 360,000 net undeveloped acres.
The Wiser assets alone provide Forest with proven reserves of 191 billion cubic feet of gas equivalent and daily production of around 64 million cubic feet of equivalent, plus 230,000 net acres. The properties are in areas where the company already operates: Canada and the U.S. Permian Basin and Gulf Coast.
“We could not ask for a better fit of these assets to our portfolio,” Clark told industry analysts in a May 24 conference call. “In fact, most are the same producing trends, same reservoirs and, as I like to say, the same neighborhood, because several of the fields are actually offset fields to Forest fields.” Wiser strong in Canada At year-end 2003, about 50 percent of Wiser’s production and 30 percent of its reserves were in Canada, while 20 percent of Wiser’s production and 45 percent of its reserves were in the Permian Basin. Also, about 85 percent of Wiser’s estimated proved reserves were classified as proved developed. Fifty-one percent of the reserves were natural gas.
In addition to strengthening Forest positions in the Permian and Gulf Coast, the Wiser properties fulfill another company goal established last year.
“First and foremost it adds the third leg of the stool by adding an acquisition in Canada to the other two target areas,” Clark said. “This was the last of the three (areas) to receive an acquisition. Our portfolio is now further balanced geographically, but also in terms of oil-gas mix.”
The Wiser acquisition is expected to increase Forest’s estimated proved reserves 35 percent and production 67 percent, while building on the company’s Canadian Plains operations. Clark said Forest now has 1.1 million acres in Canada.
“Most of the acreage is undeveloped in Canada, so we have exploration upside as well as in mature fields,” Clark said, adding that Wiser’s most notable exploration play is in the Wild River area of southern Alberta, where he said there are both shallow and deep prospects.
Wiser properties also will increase Forest’s estimated proved reserves in the Permian Basin 29 percent and production 26 percent. “All is operated by Wiser and located very near Forest’s Permian activities,” Clark said.
With the Wiser acquisition, Forest’s undeveloped onshore acreage position on the Gulf Coast in southern Texas and southern Louisiana now stands at over 120,000 acres, up dramatically from 3,000 acres just two years ago. Wiser alone provides about 90,000 acres of the total. Forest will finance with stock, borrowing and cash on hand The Wiser transaction calls for Forest to acquire all of the outstanding shares of Wiser for a cash consideration of $10.60 per share. The $330 million purchase price includes $160 million in Wiser debt. Forest said the deal would be immediately accretive to its shareholders on an earnings and cash flow basis.
Forest said it plans to finance the acquisition with a combination of stock, borrowing and cash on hand. Forest also announced plans to dispose of at least $100 million of “non-strategic assets” in the United States and Canada, primarily from its existing portfolio. The asset dispositions are expected to be completed by year-end.
“Some of the smaller properties need to be harvested to maintain efficiencies in our operations,” said David Keyte, Forest’s chief financial officer.
He said Forest intends to invest between $15 million and $25 million in the Wiser properties during the remainder of 2004, roughly the same as Wiser would have spent.
The boards of directors of both companies unanimously approved the transaction. Wiser shareholders owning about 41 percent of the common stock have agreed to tender their shares pursuant to the offer, Wiser said.
“This transaction represents the culmination of our strategic repositioning of Wiser that began four years ago,” said George Hickox, Wiser’s chief executive officer. “We believe that Forest is well positioned to exploit the projects and prospects we have assembled.”
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