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Denver-based independent oil and gas company, Forest Oil Corporation (FST - Analyst Report) has entered into a definitive agreement with Templar Energy LLC to sell its oil and gas assets located in the Texas Panhandle Area. The transaction – valued at for $1.0 billion – is expected to close on or before Nov 25, 2013, with an effective date of Oct 1, 2013.

Forest intends to use the proceeds from the sale to reduce debt and enhance financial flexibility. This divestiture would enable the company to focus on its core Eagle Ford Shale assets, where oil production is projected to show notable growth over the next several years.

We like the initiatives undertaken by Forest Oil to increase its liquids production. The company’s focus on cost control and the upside from Granite Wash and the Missourian Wash interval position it well to weather the volatility in natural gas prices. In its attempt to expand liquids production, Forest Oil has already added considerable acreage in the Permian Basin, gaining access to potential oil resources in several oil-bearing pay zones, including the Wolfbone and Wolfcamp Shale plays. Production for the year is expected to average 220–230 million cubic feet equivalent per day (MMcfe/d). The forecast is mainly centered on oil, which should be favorable in light of weak gas prices with liquids comprising 40% of the total production.

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.

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 holds a Zacks Rank #2 (Buy). However, there are other stocks in the oil and gas sector such as Matador Resources Company (MTDR - Snapshot Report), Pioneer Energy Services Corp. (PES) and TransGlobe Energy Corp. (TGA - Snapshot Report) which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.


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