Current FST Stock Info

This morning, Forest Oil Corp. (ticker: FST) announced the divestiture of 272 Bcfe of proved reserves for $325MM (after tax) to Hilcorp (private).

The transaction metrics were $1.19/Mcfe or approximately $4,924 per flowing Mcfe.  At the close of business on December 28, 2012, FST’s Enterprise Value per Reserves was $1.47/Mcfe and its EV to Trailing 12-Month production valuation was $8,298 Mcfe/d.  Forest Oil has generated a little more than $600MM from asset sales for roughly 88 MMcfe/d of production, or $6,818 per flowing Mcfe/d.

For the trailing twelve months ended September 30, 2012, Forest Oil production was 338 MMcfe/d, a decrease of 17% year-over-year.  Long-term debt at September 30, 2012, was $2.092 million, or 15% higher from the corresponding period in 2011.  The sold assets represent about 19% of the company’s Q3’12 production.

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The company has an undrawn line of credit of $1.5 billion.  However, unless there is a bolt-on acquisition that does not require the issuance of stock to close the deal, it would be a tough sell to the market to add further financial encumbrances as FST works to de-lever the balance sheet as management said in its Q3’12 conference call.

On December 28, 2012, FST was trading at an estimated 2013 P/CFPS ratio of 2.1 times.  Using our proprietary valuation methodology, when comparing to a 25-company small cap group (companies with market capitalizations that range between $1.0 billion and $500MM), the predicted 2013 P/CFPS ratio for FST is 1.9 times.  Were Forest to reduce its debt/market capitalization ratio from 277% to the small-cap median of 65%, the forward 2013 P/CFPS ratio would jump to 3.3 times.  Our analysis delivers an R-squared ratio of 68% and a 93% confidence interval.  See slide attached.

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