Sabine Oil & Gas Merger with Forest Oil Corporation

May 15, 2014 Kirk Eggleston

Forest Oil Eagle Ford Acreage Map Year-end 2013

Houston-based Sabine Oil and Gas and Denver-based Forest Oil Corp will merge in an all-stock transaction.

At closing, which is expected some time during the fourth quarter, Sabine investors will hold 73.5% of the combined company's stock. The announcement of the merger was revealed by both companies in early May of 2014.

“Forest’s asset portfolio is an excellent complement with Sabine’s asset portfolio and we have confidence that Sabine’s management team is equipped to deliver exceptional shareholder value through the enhanced opportunities that are embedded in Forest’s assets.”

— Forest CEO, Patrick McDonald

The combined company, which is expected to be listed on the NYSE as "SABO", will hold a 207,000 net acreage position in East Texas, and a 65,000 net acreage position in the Eagle Ford. Estimated proved reserves from the combined company's assets are 1.5 trillion cubic feet equivalent (71% gas) (as of December 31, 2013), and estimated daily production of 345 million cubic feet equivalent (65% gas) for 2014.

Forest Oil Was in Trouble

The merger comes on the heels of multiple asset divestitures by Forest over the past several years. In early January of 2013, the company sold some of its South Texas assets to pay down debt.

Recently, Forest Oil hit a snag in the Eagle Ford during the fourth quarter of 2013, after three gross (1.5 net) wells hit a fault line in the company’s southern acreage. 77% of the company’s $290-310 million capital budget was slated for the Eagle Ford in 2014, but new estimates were set at 36% after problems arose.

The new company's headquarters will be based in Houston, TX, and led by Sabine's current executive management. Prior to the merger, Sabine Oil and Gas was a privately held company.

Forest Oil Eagle Ford Drilling Shifting Gears in 2014 Due to Faulting

February 28, 2014 Kirk Eggleston

Forest Oil is shifting gears in the Eagle Ford, after three gross (1.5 net) wells hit a fault line in the company's southern acreage during the fourth-quarter.

In 2013, Forest reported results on 44 gross (22 net) wells, with a 30-day average gross production rate of 408 boe/d. By contrast, 17 gross (8.5 net) wells drilled during the fourth-quarter had a 30-day average gross production of 304 boe/d. That's about ~25% less for the fourth-quarter, compared to the full year. Both gross production rates included the results from three gross (1.5 net) wells impacted by faulting.

The company had plans for 2014 to more than double its oil production in the Eagle Ford; however, due to faulting's negative impact on production in the fourth-quarter, the company is pulling back the reins.

77% of the company's $290-310 million capital budget was slated for the Eagle Ford, but new estimates have been set at 36%. Forest is re-allocating its budget to liquids-rich opportunities in the Ark-La-Tex, where it has a high degree of confidence in the geology.

“We are electing to defer Eagle Ford drilling activity as we complete the reprocessing and interpretation of 3D seismic data and also evaluate the success of recent well completion designs. Importantly, we maintain a balanced portfolio of projects that provides attractive risk-adjusted rate-of-return opportunities. This will enable us to reallocate capital to our liquids-rich opportunities in the Ark-La-Tex to maintain a consistent level of drilling activity in 2014. This decision will result in lower oil growth for 2014; however, we believe this is a prudent capital allocation decision”

Forest Oil Eagle Ford Outlook 2014

While seismic is being reprocessed and optimal well design is being evaluated, Forest will reduce the pace of drilling in the Eagle Ford. The company plans to drill 48 gross (24 net) wells, and expects that the net capital allocated to the Eagle Ford for drilling and completion activities in 2014 will total $95 million.

Forest Oil Eagle Ford Highlights

Faulting in southern Eagle Ford acreage impacts Forest Oil's allocation of 2014 capital budget and production plans
Eagle Ford capital budget slashed from ~$220 million to $95 million in 2014
48 gross (24 net) wells to be drilled in the Eagle Ford in 2014
Forest shifting focus in 2014 from Eagle Ford to Ark-La-Tex
25% less 30-day average gross production in Q4 compared to full year 2013
Net sales volumes in Q4 2013 of 2,950 boe/d

Eagle Ford Rig Count 265 - Forest Plans to Double Eagle Ford Output in 2014 - Dec 6, 2013

December 6, 2013 R.T. Dukes

The Eagle Ford Shale rig count held flat at 265 rig running over the past week. The natural gas rig count rebounded from an Eagle Ford era low of 23 to 26 running this week and the oil rig count fell from it's all-time high of 241 to 238.

Forest Oil released its 2014 capital budget and provided production guidance this week. The company plans to spend 77% of its $290-310 million capital budget in the Eagle Ford and expects production from the play to double over the next 12 months.

Forest will operate three rigs in the region next year. Read more in the article: Forest Oil Will Double Oil Production in 2014 - Securing Eagle Ford Acreage

The U.S. rig count increased 12 rigs from 1,763 to 1,775 running over the past week. A total of 375 rigs are targeting natural gas (8 more than last week) and 1,397 (6 more than last week) are targeting oil in the U.S. The remainder are drilling service wells (e.g. disposal wells, injection wells, etc.). 842 or 47% of rigs active in the U.S. are running in Texas.

Baker Hughes rig count is quoted here. Baker Hughes also releases its own Eagle Ford Rig Count that covers the 14 core counties (226 rigs). The rig count published on EagleFordShale.com includes a 30 county area impacted by Eagle Ford development. A full list of the counties included can be found in the table near the bottom of this article.

Eagle Ford Oil & Gas Rigs

[ic-l]The natural gas rig count bounced off an Eagle Ford era low of 23 to 26 rigs running over the past week. At this time in 2012, there were more than 60 rigs and in 2011 there were more than 90 rigs targeting natural gas in the area. Natural gas prices were up again, about 10% over the past two weeks, trading around $4.10/mmbtu on Friday. With the current cold, prices could stay around $4 or higher until spring.

The oil rig count decreased three rigs from the all time high hit for the second time last week to settle at 238 rigs running. WTI oil prices were up ~5% and trading above $97/bbl at the end of the week. Eagle Ford light crude traded at $93.75/bbl on Dec. 5th.

A total of 231 rigs are drilling horizontal wells, 18 rigs are drilling directional wells, and 16 rigs are drilling true vertical wells. Karnes, DeWitt, La Salle, McMullen and Webb counties all have between 25 and 31 rigs running. See the full list of drilling by county below.

South Texas Oil & Gas News:

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Eagle Ford Shale Drilling by County

Eagle Ford Operated Rig Count By Company

SmithBits no longer reports its operated rig count, but we'll have updated number for you from a new source soon. Until then, you can reference our numbers from mid-April. There has not been a significant change in the overall rig count since this date:

What is the Rig Count?

The Eagle Ford Shale Rig Count is an index of the total number of oil & gas drilling rigs running across a 30 county area in South Texas. The South Texas rigs referred to in this article are for ALL drilling reported by Baker Hughes and not solely wells targeting the Eagle Ford formation. All land rigs and onshore rig data shown here are based upon industry estimates provided by the Baker Hughes Rig Count and/or Smith Service Co's (Schlumberger) Smith Rig Count.

Forest Oil Will Double Oil Production in 2014 - Securing Eagle Ford Acreage

December 3, 2013 R.T. Dukes

Forest Oil expects to grow company-wide production by 11% next year, with oil production growing 90-100%.

Sales volumes from the Eagle Ford will drive growth. The company expects production from South Texas to more than double to 6,250 boe/d in 2014.

Forest is planning to spend 77% of its $290-310 million capital budget in the Eagle Ford.

A budget of ~$230 million includes the drilling of 80 gross (40 net) Eagle Ford wells. Forest will operate three rigs in the Eagle Ford and one in the Ark-La-Tex Basin.

“Following the completion of the Texas Panhandle asset sale, we are focused on the development and expansion of our Eagle Ford operations along with attention to our asset positions in Ark-La-Tex and the Permian Basin.”

— Patrick R. McDonald, President and CEO

Well Costs Fall & Forest Looks To Add Acreage

Forest Oil Eagle Ford Pad Drilling Graphic

Well costs fell 10% in the third quarter to $5.75 million. The company expects additional savings through pad drilling, centralized production facilities, and continued optimization of completions.

Forest will transition to development drilling early next year once its acreage position is held-by-production.

Once acreage is held, Forest will focus on determining the optimal drilling density and well spacing for each area of the field.

Mr. McDonald further stated, “...We are presently seeking opportunities to add acreage to increase the scale of our Eagle Ford resource development opportunity.”

Read the full press release at forestoil.com

Forest Oil Sells Panhandle Assets to Focus Efforts in the Eagle Ford

October 4, 2013 R.T. Dukes

Forest - Schlumberger Eagle Ford Acreage

Forest Oil is selling assets in the Texas Panhandle for $1 billion to Templar Energy and will focus the company's efforts in the Eagle Ford. The Panhandle assets produced an average of 100 mmcfe/d during the first nine months of 2013.

In the past year, Forest has sold assets in South Texas, the Permian Basin, and the Panhandle to improve the company's balance sheet.

Even the Eagle Ford wasn't immune from the company's plans, Forest sold a 50% interest in the company's acreage to Schlumberger earlier in the year.

“This transaction comprises a major component of the strategic deleveraging program we instituted in mid-2012 and will allow us to significantly reduce long-term debt and greatly enhance our financial flexibility and liquidity. This divestiture sharpens our operational focus and enables us to maintain development efforts in our core Eagle Ford Shale asset, where oil production is projected to show notable growth over the next several years.”

— Patrick R. McDonald, CEO