OT: Forest Oil Sells Texas Assets For More Than Company's Market Value
Forest Oil Corp. (FST) agreed to sell oil and natural gas assets in the Texas Panhandle to a business backed by private-equity firm First Reserve Corp. for $1 billion -- more than the selling company’s total market value.
The sale to Templar Energy LLC includes the equivalent of 517 billion cubic feet of gas in reserves and daily production of about 100 million cubic feet, Forest Oil said in a statement today. The company announced in July it was seeking a buyer for the assets after receiving unsolicited offers. The assets produce 50 percent gas, 30 percent natural gas liquids and 20 percent oil, Chief Executive Officer Patrick R. McDonald said in August.
Forest Oil, a Denver-based energy company founded 97 years ago, had a market value of $762.5 million at the close today.
The article is poorly written and misleading because it does not address leverage and remaining asset value. Let's say Forest owned assets worth $2.3B with debt of $1.6B. They market might say the equity is worth $700MM. If a primary asset is sold for $1B, and if the banks require a paydown of $600MM due to a sale of collateral, then Forest nets $400MM of cash. Now Forest owns $1.3B of assets, has $0.4B of cash, and has $1B of debt. The market probably still say they are worth around $700MM. And if the assets being sold were even a greater portion of Forest's borrowing base, then the picture could look even worse. The other issue is the market might not like the remaining Forest assets as much as they liked the assets being sold. All of those factors can result in a decrease in price per share, unlike what is implied by the article's title. Don't get me wrong - I'm very long Linn and think it's worth more than $26, but the person writing that story needs to do more analysis before they write a sensational headline like that.