Forest Oil Remains Evenly Poised - Analyst Blog
October 12 2011 - 2:00PM
Zacks
We maintain our long-term Neutral recommendation on
Forest
Oil Corporation (FST), an independent oil and gas company
engaged in the acquisition, exploration, production and development
of oil and gas properties in North America.
Forest Oil has significant acreage in oil rich areas of Eagle Ford,
Texas Panhandle, Alberta Nikanassin Sand and Wolfcamp. The line
upside from these regions and a focus on cost control position the
company well to weather the volatility in gas prices.
We believe Eagle Ford will soon become Forest’s most active area.
Forest Oil’s substantial Eagle Ford position is expected to
expedite the transition to liquids with the recent completion of an
extended 7,500 lateral well with an initial production rate of
approximately 1,000 barrels of oil equivalent per day (Boe/d).
Forest Oil also has a growing upstream presence in the emerging
basins of Texas, Canada and Mexico. The company’s effort to expand
its liquid production in order to maximize its margin is gaining
traction. We appreciate the company’s initiative to expand
operations in Eagle Ford Shale and start drilling activities in
Wolfcamp Shale.
Despite lower natural gas price realization and net sales volumes,
the company’s second quarter earnings beat the Zacks estimate,
thanks to higher oil and natural gas liquids prices. But the
quarter’s earnings failed to meet prior-year results.
However, the recent production results from Granite Wash represent
a negative scenario for the near future. With production rates from
Forest’s new wells declining persistently, the company is
refocusing on testing shallower liquid-rich zones, but results are
not expected anytime soon.
Moreover, we remain apprehensive about the company’s lowered
production guidance for 2011. Forest Oil expects its full-year
output to be 470 million cubic feet equivalent per day (MMcfe/d)
versus its prior expectation of 490 MMcfe/d.
We believe Forest Oil will continue to see limited production
growth in 2012 and higher-than-peer average financial leverage. As
a result, it will be challenging for the company to turn around
either operationally or financially. The company also faces threats
from
Cabot Oil & Gas Corporation (COG) and
Linn Energy LLC (LINE).
CABOT OIL & GAS (COG): Free Stock Analysis Report
FOREST OIL CORP (FST): Free Stock Analysis Report
LINN ENERGY LLC (LINE): Free Stock Analysis Report
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