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Forest Oil Beats EPS, Rev Falls

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Denver-based Forest Oil Corporation’s fourth-quarter 2012 earnings of 14 cents per share (excluding non-recurring items) beat the Zacks Consensus Estimate of 11 cents. However, the quarterly figure decreased approximately 22% from the year-earlier earnings of 18 cents. The lackluster performance was mainly due to lower natural gas sales volumes and revenues, which was partly offset by an increase in oil sales volumes.

Full year 2012 earnings of 41 cents per share decreased significantly (by almost 53%) from the year-earlier earnings of 87 cents.

Total revenue in the reported quarter decreased 12.3% from the year-ago level of $176.7 million to $154.9 million, and failed to meet the Zacks Consensus Estimate of $171.0 million. Full year 2012 revenue was $605.7 million, down 14% year over year.


For full year 2012, Forest reported average net sales volumes 330 million cubic feet equivalent per day (MMcfe/d), down 1.5% from 335 MMcfe/d in the prior year.

Net sales volume shrunk 9.5% year over year to 309 MMcfe/d in the reported quarter. It comprised 35% liquids compared to 30% in the year-ago quarter.

Notably, the company has been able to raise its oil net sales volume in the fourth quarter, which organically increased 47% from the year-ago period to 8.7 thousand barrels per day (MBbls/d). However, natural gas sales volume in the quarter was 202.0 MMcf/d, and comprised 65% of the total quarterly volume.

At the end of 2012, oil and gas proved reserves were 1,363 billion cubic feet equivalent (Bcfe) compared with 1,904 Bcfe at the end of 2011. Drill bit reserve replacement ratio excluding revisions was 194%. During 2012, the Corporation added 235 Bcfe to proved reserves.

Realized Prices

The average equivalent price per Mcf (including the effect of hedging) was $6.22, down 1.5% from the year-ago realization of $6.13. Natural gas was sold at $3.83 per Mcf, down 13.2% from the comparable prior-year quarter. However, natural gas liquids (NGLs) were sold at $33.96 per barrel, up nearly 9% from the year-ago quarter and average realized oil price was $96.25 per barrel, up 2.5% from the year-ago quarter.


The fourth quarter production expenses of $1.29 per Mcfe remained the same year over year. Unit general and administrative expenses increased 2.6% year over year to 39 cents per Mcfe from the year-ago level of 38 cents per Mcfe. Importantly, depreciation and depletion expenses per unit increased nearly 15% to $2.35 per Mcfe from $2.05 per Mcfe in the fourth quarter of 2011.


At quarter end, Forest had $1.1 million of cash and cash equivalents with $1,862.1 million of long-term debt (including current portion), representing a debt-to-capitalization ratio of 45.8% (up from 42.9% at the end of third quarter 2012).

Company Outlook

Forest’s 2013 capital budget is expected to be close to the estimated cash flow and provide sufficient financial liquidity. The company had 5 rigs deployed on oil and liquids prospects within their core development areas at the beginning of the year. The 2013 capital plan is secured by investments in their Panhandle Area and Eagle Ford Shale assets that form the foundation of Forest’s oil portfolio. The planned 2013 activity in these assets is likely to deliver 30% growth in the oil volumes. This is expected to result in higher equivalent volumes in the second half of 2013 than in the first half. The company has also put in place proper hedging to protect cash flows and the capital plan.

Zacks Rank

Forest Oil holds a Zacks Rank #3. However, there are other stocks in the oil and gas sector – NGL Energy Partners LP (NGL - Free Report) , Calumet Specialty Products Partners LP (CLMT - Free Report) and Lehigh Gas Partners LP – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.

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