Forest Oil '14 Budget and Guidance


Denver-based independent oil and gas company, Forest Oil Corporation (FST) has come out with its 2014 budget as well as average net sales volumes and cost guidance.

The board of Forest Oil has approved a total capital budget of $290 million to $310 million, of which $260 million to $270 million (excluding capitalized interest, capitalized stock-based compensation, and asset retirement obligations incurred) is allotted for drilling and completion.

The major portion of the capital will be targeted toward liquids-rich drilling prospects – with around 77% allocated to the Eagle Ford and the balance 23% to the Ark-La-Tex.

Net sales volumes are estimated in the range of 120 MMcfe/d to 130 MMcfe/d for 2014, up around 11% from 113 MMcfe/d estimated production volumes for 2013. Production growth will likely be driven by a 90% to 100% boost in oil volumes to around 6,800 barrels a day. The liquids component in the total forecasted production is anticipated to rise to around 42% from around 30% expected in 2013.

In 2014, the company’s yield from the Eagle Ford is forecasted to double from 2013 levels to touch around 6,250 Boe/d. The growing yield from the Eagle Ford will augment the liquids component in the total production and correspondingly improve EBITDA. The increase in total volumes will be partially offset by normal declines in natural gas volumes

Subsequent to the sale of the Texas Panhandle, the cash costs are expected to reduce significantly. General and administrative expenses are expected within $28 million to $30 million, down around 30% from 2013 estimated levels. As the majority of the net proceeds received from the Texas Panhandle sale were used to reduce outstanding debt, the interest expense in 2014 is expected to be 50% lower than 2013. Further, the effective income tax rate in 2014 is projected at 0% due to the valuation allowance placed against its net deferred tax assets.

Forest Oil holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the oil and gas sector include SM Energy Company (SM), Abraxas Petroleum Corp. (AXAS) and Western Gas Partners LP (WES). All these stocks hold a Zacks Rank #1 (Strong Buy).

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