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Forest Oil Corporation Message Board

  • steve.schar steve.schar May 3, 2013 2:15 PM Flag

    Real Leadership at the Top with McDonald

    I'm as disappointed as any investor in FST's performance, but I think there is a real light at the end of the tunnel. It looks to me like since Patrick McDonald has taken over, there has been nothing but positive actions taken. It hasn't shown up in the stock price, but he had a big hole to dig out of. Look at his accomplishments.

    1) He started with $1.95 billion in debt with $600 million due in 2014 and facing a potential covenant breach on the bank revolver by 12/31/12. He reduced debt to around $1.55 billion with the maturity now at 2019. The debt reduction puts them well in compliance with their bank revolver.

    2) He has sold conventional assets in South Texas and South Louisiana at attractive metrics generating total proceeds of approximately $550 million. These assets were non-core, had low upside, and received very little credit in the public markets. He also sold some ancillary non-core properties in East Texas, South Africa and elsewhere for another $72 million.

    3) After the previous management spent nearly two years marketing a JV opportunity in the Eagle Ford, they finally got one completed. While I am somewhat disappointed by the terms, there is no doubt that it is a net positive for FST. A valuation at $3,300 an acre that allows for ramped up development and the retention of additional acreage is a good thing. This also is an increase in the present value of their reserves.

    What he still needs to do:

    1) Something with the Permian acreage. I'm not expecting much, and I suspect this acreage is very much on the fringe, he needs to sell it or JV it. FST doesn't have the capital to develop it, and it was an idiotic move by the previous management team to pick it up. I want to see an announcement in the next 3-4 months.

    2) Start beating expectations for their Panhandle and Eagle Ford wells.

    Do this, and the market will take notice. This stock should be a $10 stock by year end if they can regain their lost credibility and continue to execute the plan.

    Sentiment: Strong Buy

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