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Forest slashes debt, expenses Eyes acquisitions, possible merger; boosts 2003 budgets for gulf, NWT Petroleum News Houston Staff
Exploration and production independent Forest Oil, coming off a strong 2003 first quarter, has turned its attention to acquisitions and possibly a corporate merger.
Like many of its peers who benefited from high oil and gas prices, Forest saw its first-quarter profit soar to $38.9 million or 81 cents per share from $9.3 million in the prior quarter and from a loss of $1.8 million for the same period last year.
The company also sailed against the tide on production during the first quarter, averaging 395,000 million cubic feet per day of gas equivalent, up 5 percent from 376,000 million cubic feet per day in the year-ago period.
However, factors other than robust commodity prices and production increases appear to be behind Forest’s pending drive into the merger and acquisition market, the company indicated in a May 9 conference call with analysts.
Rather, a Herculean effort to reduce debt and operating expenses over the past year has relieved pressure on Forest’s balance sheet, positioning the company to take advantage of the M&A market.
“We don’t believe our peers are doing the same to control year-over-year costs,” said David Keyte, Forest’s chief financial officer. “We expect our cash costs to continue decreasing.”
Production expenses down Production expenses in the first quarter fell 5 percent to $35.2 million compared to $37.2 million in the year-ago quarter, the company reported. And lease operating costs at year-end 2002 dropped 15 percent to $158.7 million versus $186.3 million at year-end 2001. Forest debt, currently 41 percent of capitalization, stood at $695 million in April, down from $715 million at the end of the first quarter and from $736 million at year-end. Debt should fall to 39 to 40 percent of capitalization by year-end, the company said.
“With most of the heavy lifting done, we can now turn to the drill bit and acquisitions,” said Craig Clark, Forest’s president and chief operating officer.
Options include increasing the company’s working interest in properties or buying new properties, as well as merging with another company, Forest said, adding that no matter what the deal it would be limited to the United States and Canada.
The company said it has roughly $485 million left on its $600-million credit facility for acquisitions. A merger likely would involve company stock. Capital spending up for GOM, NWT Forest said it also would be increasing 2003 capital spending by about $50 million to $350-to $400 million, with the increase going to projects in the Gulf of Mexico region and the Northwest Territories of Canada. The increase specifically would be used to complete successful wells and for step-out drilling on existing prospects, the company said.
Forest said “we have assumed” company production will average between 420,000 and 440,000 million cubic feet per day for full year 2003 and that production “is expected to be higher at year-end than in the beginning.” Specifically, liquids production is expected to average 25,000 to 29,000 barrels per day, while natural gas output is expected is average 260,000 to 290,000 million cubic feet per day.
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