Forest Oil Gives Renewed Outlook

Denver-based Forest Oil Corporation (FST - Analyst Report) presented its revised guidance for net sales volumes and capital expenditures for the second half of 2012.

From July to December 2012, Forest Oil projects average net sales volumes to be in the range of 330 – 340 million cubic feet equivalent per day (MMcfe/d). As per the updated guidance, 66% would comprise of natural gas and the remaining 34% will be oil and natural gas liquids production.

The updated guidance is 3% higher from the prior-outlook level of 320 – 330 MMcfe/d, with a natural gas, and oil and natural gas liquids mix of 67% and 33%.

Forest Oil targets to put in approximately $240 million to $260 million on capital program, which is $50 million more than previously stated. The increased forecast highlights the company’s expectation for better drilling efficiencies and activities. At present, the company is working with five rigs within its core Texas Panhandle, Eagle Ford and East Texas acreages.

Forest Oil also presented its current hedge position for the balance of 2012 and full year 2013.

For July to December period, the company has hedged 155.0 billion British thermal unit per day (Bbtu/d) of natural gas production at a weighted average price of $4.63 per million British thermal unit (MMbtu) and approximately 160 Bbtu/d of expected 2013 natural gas production at an average price of $3.98 per MMbtu.

Forest Oil has hedged 2.0 thousand barrels per day (MBbls/d) of natural gas liquids production at a weighted average price of $45.22 per barrel (Bbl) for July to December period.

For the balance of 2012, Forest Oil has hedged 4.5 thousand barrels per day (MBbls/d) of oil output at a weighted average price of $97.26 per barrel (Bbl) and 4.0 MBbls/d of expected 2013 oil production at an average price of $95.53 per Bbl.

Forest Oil – which completed the spin-off of Lone Pine Resources Inc. (LPR - Snapshot Report) in 2011 – holds a Zacks #3 Rank, equivalent to a Hold rating for a period of one to three months. Furthermore, considering the fundamentals, we maintain our long-term Neutral recommendation on the stock.