Forest Oil Beats Earnings, Lags YoY

Zacks

Denver-based Forest Oil Corporation’s (FST) first-quarter 2013 earnings of 3 cents per share (excluding non-recurring items) beat the Zacks Consensus Estimate by a penny. However, the quarterly figure decreased approximately 73% from the year-earlier earnings of 11 cents.

The lackluster performance was mainly due to lower net sales volume due to the divestiture of the Louisiana property and lower natural gas sales volumes as the company has postponed capital investment on its natural gas properties to concentrate on higher-margin oil prospects. Lower natural gas liquids (NGLs) and oil prices also contributed to the decline.

Total revenue in the reported quarter decreased 25.6% from the year-ago level of $159.0 million to $118.2 million and missed the Zacks Consensus Estimate of $144.0 million.

Production

Net sales volume shrunk nearly 28% year over year to 243 million cubic feet equivalent per day (MMcfe/d) in the reported quarter. It comprised 34% liquids compared to 32% in the year-ago quarter.

Notably, the company has been able to raise its oil net sales volume in the first quarter, which organically increased 9% from the year-ago period to 5.8 thousand barrels per day (MBbls/d). However, natural gas sales volume in the quarter was 159.2 MMcf/d, and comprised 65.5% of the total quarterly volume.

Realized Prices

The average equivalent price per Mcf (including the effect of hedging) was $5.84, marginally down 0.5% from the year-ago realization of $5.87. Natural gas was sold at $3.62 per Mcf, up 4.3% from the comparable prior-year quarter. However, NGLs were sold at $30.69 per barrel, down nearly 13% from the year-ago quarter and average realized oil price was $97.30 per barrel, down 3.5% from the year-ago quarter.

Expenses

The first-quarter production expenses of $1.22 per Mcfe decreased 12% year over year. Unit general and administrative expenses increased 84.6% year over year to 72 cents per Mcfe from the year-ago level of 39 cents per Mcfe. Importantly, depreciation and depletion expenses per unit increased nearly 2% to $2.22 per Mcfe from $2.18 per Mcfe in the first quarter of 2012.

Financials

At quarter end, Forest had $1.2 million of cash and cash equivalents with $1,640.4 million of long-term debt (including current portion), representing a debt-to-capitalization ratio of 46.4% (up from 45.8% at the end of fourth-quarter 2012).

Company Outlook

Forest expects the net sales volumes in the second quarter of 2013 to be at about the same level as the first quarter of 2013, including the projected impact of the recently announced Eagle Ford shale development agreement. Further, Forest’s drilling activity is expected to receive a boost during 2013 with the expansion of the Eagle Ford development plan.

However, the company’s capital expenses are anticipated to be lower than the first quarter as the benefit of the drilling carry related with the Eagle Ford Shale development agreement is likely to be recognized in 2014. Therefore, net capital expenditure in the second quarter is forecasted to be $70 million - $80 million. The spending per quarter for the later half of 2013 is estimated to be maintained at this level.

Zacks Rank

Forest Oil holds a Zacks Rank #3 (Hold). However, there are other stocks in the oil and gas sector – InterOil Corporation (IOC), EPL Oil & Gas, Inc. (EPL) and CNOOC Ltd. (CEO) – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.
 

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