Forest Oil Corporation has reported its financial and operational results for the first quarter of 2011.

The company reported the following highlights for the three months ended March 31, 2011:

  • Net sales volumes of 425 MMcfe/d organically increased 6% from the first quarter of 2010, pro forma for 2010 divestitures
  • Liquids net sales volumes of 16,500 Bbls/d organically increased 9% from the first quarter of 2010, pro forma for 2010 divestitures
  • Adjusted net earnings of $22 million decreased 54% from the corresponding 2010 period primarily due to lower average realized prices
  • Adjusted EBITDA of $149 million decreased 13% from the corresponding 2010 period primarily due to lower average realized prices
  • Adjusted discretionary cash flow of $113 million decreased 15% from the corresponding 2010 period primarily due to lower average realized prices

"The overall results from the first quarter of 2011 were as projected, taking into consideration the movement of rigs in the Texas Panhandle and downtime due to winter weather," said H. Craig Clark, president and chief executive officer. "We continue to utilize our asset portfolio approach, focusing on the highest margin projects. Our efforts to expand our liquids production, in order to maximize margin, are demonstrated in our liquids growth from this time last year. We intend to continue this approach with our capital being applied to the development of the Granite Wash, Eagle Ford Shale, Peace River Arch and new oil-rich opportunities where we have added 82,000 acres during the first quarter."

First Quarter 2011 Results

For the three months ended March 31, 2011, Forest reported a net loss of $3 million or $0.03 per diluted share. This compares to Forest’s net earnings of $109 million or $0.97 per diluted share in the corresponding 2010 period. Net earnings for the three months ended March 31, 2011, were affected by the following items:

  • The non-cash effect of net unrealized losses on derivative instruments totaling $50 million ($32 million net of tax)
  • The non-cash effect of unrealized foreign currency exchange gains totaling $8 million ($7 million net of tax)

Without the effects of these items, Forest’s adjusted net earnings for the three months ended March 31, 2011, were $22 million or $0.19 per diluted share. These are decreases of 54% and 55% compared to Forest’s adjusted net earnings of $47 million and $0.42 per diluted share in the corresponding 2010 period, respectively. Forest’s adjusted EBITDA for the three months ended March 31, 2011, decreased 13% to $149 million, compared to $171 million in the corresponding 2010 period. Forest’s adjusted discretionary cash flow for the three months ended March 31, 2011, decreased 15% to $113 million, compared to $133 million in the corresponding 2010 period.

Capital Expenditures

Forest’s total exploration and development expenditures for the three months ended March 31, 2011 were $208 million compared to $216 million in the corresponding 2010 period.

Operational Update

Texas Panhandle – Granite Wash Play

Forest holds approximately 165,000 gross and 101,000 net acres in the Granite Wash play. The area provides for excellent horizontal drilling opportunities targeting multiple liquids-rich Granite Wash intervals as well as other multi-pay objectives. In the first quarter of 2011, Forest completed nine horizontal wells in the Granite Wash play that had average 24-hour initial production rates of 12 MMcfe/d, including a liquids component of approximately 55% of total equivalent production, or over 400 Bbls/d of condensate and over 700 Bbls/d of natural gas liquids. These results bring Forest’s average 24-hour initial production rates from its horizontal Granite Wash program to 22 MMcfe/d.

During the quarter, in addition to development efforts, Forest tested two more intervals, establishing a total of ten intervals as prospective for horizontal development. Forest’s exploration program will focus on oil development opportunities throughout the remainder of the year, including oil prospects in other counties within the play. Forest currently has six operated rigs running in the area.

"During the quarter, we completed nine wells in the Granite Wash that had 24-hour average liquids production rates over 1,100 Bbls/d with total 24-hour average equivalent production of 12 MMcfe/d," said Clark. "The Texas Panhandle, as we have discussed, provides a multitude of pay opportunities with natural gas, natural gas liquids, and oil drilling opportunities. With the price of oil continuing to climb, we intend to focus our efforts on the most oil-rich drilling opportunities, contained both within known areas and offset areas where industry activity has demonstrated highly successful oil well completions."

Gonzales, Wilson, Lee, DeWitt Counties, Texas – Eagle Ford Shale Play

Forest holds approximately 118,000 gross and 109,000 net acres in the Eagle Ford Shale play as of March 31, 2011. Forest added approximately 4,000 gross and net acres in the first quarter of 2011. The acreage is concentrated in the oil-bearing section of the Eagle Ford and has yielded excellent results through the application of horizontal drilling and completion technologies.

Forest completed four Eagle Ford Shale oil wells in the first quarter that had average 24-hour initial production rates of 733 Bbls/d. The first operated well, in Wilson County, had a 24-hour initial production rate of 730 Bbls/d before the installation of artificial lift and 916 Bbls/d after the installation of a pumping unit. Two subsequent wells, drilled approximately 30 miles apart in Gonzales County, had 24-hour initial production rates of 709 Bbls/d and 661 Bbls/d, respectively, while flowing up casing. These wells are scheduled to be placed on artificial lift as needed. In addition, Forest has drilled two wells that are planned to be completed during May and has two wells currently drilling.

Forest’s initial non-operated well in the Eagle Ford Shale play, which had a 24-hour initial production rate as high as 830 Bbls/d (as previously reported), is currently producing 410 Bbls/d, after being on-line for 133 days, with total cumulative production of 50 MBbls.

With the success achieved in the field to date, Forest intends to move a third rig into the play and expects to commence drilling in July of 2011. Forest also is considering adding additional rigs to the play.

"Operationally, we are excited about our first four wells in the Eagle Ford Shale that achieved average 24-hour initial production rates of 733 Bbls/d," added Clark. "These results further our confidence in the play and have led us to increase our acreage position and expand our rig count to three rigs in July. We will consider adding even more rigs to the play as we review further results in the coming months."

Canadian Peace River Arch – Evi Light Oil Play

Forest holds approximately 48,000 gross and 41,000 net acres in the Evi Light Oil play in north central Alberta, Canada. This area provides for a significant development opportunity for premium-priced light oil through shallow horizontal development drilling opportunities.

During the first quarter of 2011, Forest resumed operations in the Evi area with a three-rig development program, drilling a total of 17 short lateral length horizontal wells, utilizing new pad drilling techniques, and increasing the number of fracture stimulation stages from an average of six to ten stages. As of March 31, 2011, 11 of these wells were in various stages of completion. Seven of the 11 wells have achieved average maximum initial production rates of 300 Bbls/d while the remaining four wells are cleaning up after fracture stimulation. The six uncompleted wells are expected to be completed after the conclusion of spring break-up.

Canadian Deep Basin – Nikanassin Resource Play

Forest holds approximately 214,000 gross and 127,000 net acres in the Nikanassin Resource play. The area provides access to a minimum of ten different stacked-pay producing intervals, many of which can be completed with production commingled in a single well bore.

During the quarter, Forest completed four vertical wells that had average initial 24-hour production rates of 9 MMcfe/d. The results from these four wells bring Forest’s average 24-hour initial production rates from its Nikanassin Resource program to 11 MMcfe/d. Through production log information relative to the stacked-pay intervals, Forest has identified specific zones for which it initiated a horizontal drilling program to isolate completions in the most productive intervals. Forest’s first horizontal test had a 24-hour initial production rate of 6.4 MMcfe/d from a single interval. This first horizontal well was drilled with a 2,200 foot lateral and completed with 7 fracture stimulation stages. The well was not drilled to planned specifications of a 4,000 foot lateral and 12 fracture stimulation stages due to slower than expected drilling rates and operational time constraints. Forest intends to evaluate and monitor the horizontal well performance with plans to conduct additional horizontal operations in the second half of 2011.

"Our portfolio approach in designing our asset base allows us the ability to allocate capital to the highest returns based on current market conditions," concluded Clark. "With our acreage in the Granite Wash, Eagle Ford Shale, Peace River Arch and other oil-rich areas, we believe we are in a position to grow oil production in 2011 and beyond."