Forest Oil, Schlumberger Shale Deal - Analyst Blog
15 Abril 2013 - 2:30PM
Zacks
Forest Oil Corporation (FST) signed a
definitive deal with Schlumberger Limited (SLB) to
develop Forest Oil’s Eagle Ford Shale land in Gonzales County,
TX.
The agreement stipulates that for Schlumberger to acquire a 50%
stake in Forest Oil's Eagle Ford Shale acreage position, it would
have to shell out $90 million drilling carry in the form of future
drilling and completion services and related development capital.
Following the completion of the phased contribution of the drilling
carry, Forest Oil and Schlumberger would participate in future
drilling on a 50/50 basis.
Per the agreement, Schlumberger would acquire stake in wells spud
on or subsequent to Nov 28, 2012, none of which had been placed on
production prior to Apr 1, 2013. However, Forest Oil would retain
all its interests in wells and production that have been spud prior
to Nov 28, 2012. Forest Oil would be the operator of the drilling
program and expects that the drilling carry would be fully realized
by the end of 2014.
Denver-based independent oil and gas company, Forest Oil’s efforts
to expand its liquid production in order to maximize margin is
gaining traction. The company added considerable acreage in the
Permian Basin in 2012, giving it access to the potential oil
resources in several oil-bearing pay zones, including the Wolfbone
and Wolfcamp Shale plays.
Forest Oil has a growing upstream presence in the emerging basins
of Texas, Canada and Mexico. Production growth from the Eagle Ford
Shale is a key component of the company’s overall annual upstream
growth plans over the next few years.
However, on the flip side, the company has a highly gas-weighted
reserves/production profile and exposure to the inherently cyclical
and volatile exploration and production sector. This is not helped
by its highly levered balance sheet.
The company nonetheless is intent on divesting its non-core
properties to boost financial strength and flexibility. We believe
this will eventually allow the company to aggressively pursue
growth opportunities in its plays and provide meaningful upside
potential for investors.
Forest Oil currently retains a Zacks Rank #3 (Hold), implying that
it is expected to perform in-line with the broader U.S. equity
market over the next one to three months. However, there are other
companies in the energy sector that are expected to significantly
outperform the equity markets in the next one to three months.
These include Zacks Rank #1 (Strong Buy) stocks like Range
Resources Corporation (RRC) and Stone Energy
Corporation (SGY).
FOREST OIL CORP (FST): Free Stock Analysis Report
RANGE RESOURCES (RRC): Free Stock Analysis Report
STONE ENERGY CP (SGY): Free Stock Analysis Report
SCHLUMBERGER LT (SLB): Free Stock Analysis Report
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