Transactions mark shift away from Permian Basin assets to tight-gas and shale plays
Forest Oil Corp. has entered into a definitive agreement to sell to SandRidge Exploration and Production LLC, a wholly owned subsidiary of SandRidge Energy Inc., the remainder of its Permian Basin properties in West Texas and New Mexico for roughly $800 million.
The Denver-based company announced in August that it had entered into two agreements to sell certain operated and non-operated properties in the same areas for $118 million.
The divested properties are currently producing 46 MMcfe/d and had estimated proved reserves of 321 Bcfe (67% proved developed) as of December 31, 2008.
In addition to the Permian Basin transaction, Forest entered into a definitive agreement in November 2009 to sell additional non-core, primarily non-operated assets, in the Deep Basin in Alberta, Canada for nearly $38 million. This transaction will bring Forest’s non-core Canadian property divestitures in 2009 to nearly $100 million for assets that produced 11 MMcfe/d and had 65 Bcfe of estimated proved reserves as of December 31, 2008. After the close, Forest will have accomplished roughly 50% of its non-core Canadian divestiture goal.
During 2009, Forest expects to have closed on the sale of 68 MMcfe/d of production and 456 Bcfe of estimated proved reserves as of December 31, 2008 for proceeds in excess of $1.0 billion.
Forest intends to complete the sale of the remainder of its non-core Canadian properties in early 2010 to streamline its portfolio and prepare for more active development of its core assets in 2010 and 2011.
H. Craig Clark, president and CEO, stated, “Proceeds from these divestitures will add to our strong existing liquidity position as we continue to ramp up our activity on our core development assets in the Granite Wash and Haynesville Shale in the US and our core Deep Basin assets in Canada. With future capital development plans focused on these high growth assets, Forest believes that it can grow more aggressively in 2010. Forest will achieve its de-leveraging goal and be able to focus on resource plays and SandRidge will add a high quality asset to its West Texas position.”
Use of proceeds
As of November 30, 2009, Forest had $294 million borrowed under its combined credit facilities. Forest intends to repay the remaining balance under its US credit facility with the proceeds from the Permian Basin divestiture and repay a significant portion of the remaining balance under its Canada credit facility with proceeds from its non-core Canadian divestitures.
Pro forma for these transactions, Forest anticipates that its total net principal debt would have been approximately $1.5 billion as of September 30, 2009, with no amounts borrowed under its US credit facility.
Forest further estimates that its combined borrowing base will exceed $1.2 billion pro forma for these transactions. The pro forma borrowing base, combined with the cash on its balance sheet, would result in total liquidity of roughly $1.7 billion.
Bank of America Merrill Lynch advised Forest in connection with the Permian Basin transaction.