Forest Oil Corporation

Forest Oil is expanding onshore production to take advantage of strong crude and natural gas prices. The company has beaten Wall Street estimates 4 consecutive quarters by an average of 15.22%. Forest Oil has a forward P/E of 9.70.

Company Description

Forest Oil Corporation (FST - Analyst Report) is a North American oil and natural gas exploration and production company. The company's main reserves and producing properties are located in Arkansas, Colorado, Louisiana, New Mexico, Oklahoma, Texas, Utah, Wyoming and in Canada in Alberta, British Columbia, and the Northwest Territories.

Forest Oil, a Zacks #1 Rank (Strong Buy), was founded in Northwestern Pennsylvania in 1916 and is now headquartered in Denver, Colo. The company has diversified away from offshore properties in the Gulf of Mexico to onshore properties in the United States and Canada.

FST Expands in Haynesville/Bossier Shale

On June 30, Forest Oil announced it had increased its acreage position in East Texas/North Louisiana to 143,000 gross acres through acquisitions and leasing. The company is bullish on exploration in the Haynesville/Bossier Shale.

"Forest intends to employ a vertical pilot program in 2008 which includes 10 - 15 wells to test the Haynesville/Bossier Shale in order to identify potential horizontal targets. We will then follow that up with a combined vertical and horizontal program to optimize the economics in the play," said H. Craig Clark, President and CEO.

Forest Oil Reports Record Earnings in the First Quarter

On May 5, Forest Oil reported first quarter earnings that beat Wall Street estimates by 17.78%, or 16 cents a share. Excluding a charge for recording derivative instruments of $152.1 million, adjusted net earnings surged to a record $92.7 million, or $1.06 per share compared to $38.4 million, or 62 cents per share, in the year ago period. Analysts expected 90 cents per share.

Production increased by 58% to 478 MMcfe/d compared to 302 MMcfe/d in the first quarter of 2007 due to the company's acquisitions and increased drilling activities.

Realized prices on natural gas were $7.25 per Mcf versus $5.96 per Mcf in the year-ago period. Realized prices for oil were $93.73 per Bbl from $53.72 per Bbl in the first quarter of 2007.

Consensus Estimates Rising for the Second Quarter and Full Year

With crude and natural gas still near record highs, analysts have been raising estimates over the last 30 days. 7 out of 15 covering analysts raised estimates for the second quarter on average of 10 cents to $1.42 from $1.32 per share. 2 analysts also lowered during the same period.

For the full year, 9 out of 15 analysts raised estimates in the last 30 days for the full year on average by 7.8% to $5.65 from $5.24 per share. One analyst also lowered.

Value Fundamentals

Like many of its energy peers, Forest Oil is trading with a low forward P/E of only 9.70. Its price-to-book is 2.09. The company has a five year average return on equity (ROE) of 10.01%.

Forest Oil reports second quarter earnings on Aug 5.

Read the full analyst report on FST