"Q" - opportunity in FST...
9 millon or so shares sold in a secondary offereing back in August for $15+ - nothing has changed in the FST "story" - other than commodity prices are higher (VBG)!
I'll take the $9 vs. that $15 - especially given the bullish NG fundamentals and present pricing !
Q4 eps is estimated at .30 cents and year 2000 estimates run from .90 to $1.00ish. At $1 eps - FST is trading at a 9 Pe. Not the cfps multiple of say XTO - but FST has high upside exploration prospects in Canada & the GOM vs. XTO being a steady "exploitation" play. FST is still selling at only 3.28 x 2000 cfps estimates - which is still dirt cheap in this commodity price environment and the premium given it for their exploration upside.
As others have noted FST was a top 3 pick by Tom Petrie of Petrie Parkman along with Apache & Vastar - not bad company !
Also FST was mentioned in prior Barrons roundtable picks etc. Dain Rauscher, Stephens, Morgan Stanley etc all have strong analyst commentary on FST.
A good post commenting on RGO not selling off on the Ft. Liard rumor is on Yahoo's FST thread. That a major Institutional Holder was exiting totally and had been a steady seller for some time here reflected by the recent SEC filing should make this a falling knife that should be dove after imo.
I like the way this has behaved off of prior heavy selling pressure to the $9's the last 4 months. This is a cakewalk back to $12 and it happened within a week at the end of December...
FST spent an additional $30M in Q4 - a major increase from prior Qtrly avg Cap Ex Spending and have some strong Canadian production that will come online later in the year. There is a consortium led by Chevron building pipeline capacity directly into FST's NW Play - where their acreage position adjoins Chevron's high profile finds.
The Appeal to FST is what they have in the ground in addition to their nice turnaround to strong profitablity here of late. How many E&P's earned .30 cents in a qtr of late in FST's market cap size ?
Here is SSB's "BUY rating" report from Nov. & $17.50 price target is conservative given it hit $18 in Sept. - free online research at
smithbarneyresearch.com
Salomon Smith Barney
Monday, November 15, 1999
--------------------------------------------------------------------------------
--SUMMARY:--Forest Oil Corp.--Exploration & Production --We are lowering our 4Q99 production estimate to 22.6 Bcfe from 24.5 Bcfe. 3Q99 production was 22.3 Bcfe, below our 24.3 Bcfe estimate. The shortfall was due to lower output, primarily in the Gulf of Mexico and Gulf Coast. --Management has increased the 1999 capital budget to $120 million from $90 million to fund expanded 4Q drilling programs. --First production from several Canadian exploration/development plays in 2000 should contribute to volume growth. --Our revised estimates reflect lower production in 4Q99 and a slight decrease to our 2000 estimate offset by a reduction in expected tax liability. --We maintain our Buy (1H) rating on the shares. --EARNINGS PER SHARE-------------------------------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year Actual 12/98 EPS $(0.03)A $(0.11)A $(0.20)A $(0.10)A $(0.45)A Previous 12/99 EPS $0.01A $0.09A $0.11E $0.16E $0.39E Current 12/99 EPS $0.01A $0.09A $0.10A $0.30E $0.53E Previous 12/00 EPS $N/A $N/A $N/A $N/A $0.73E Current 12/00 EPS $N/A $N/A $N/A $N/A $0.93E Previous 12/01 EPS $N/A $N/A $N/A $N/A $N/A Current 12/01 EPS $N/A $N/A $N/A $N/A $N/A Footnotes: Full-year may not add due to rounding. --FUNDAMENTALS-------------------------------------------------------------- Current Rank........:1H Prior:No Change Price (11/12/99)....:$11.87 P/E Ratio 12/99.....:22.4x Target Price..:$17.50 Prior:No Change P/E Ratio 12/00.....:12.8x Proj.5yr EPS Grth...:0.0% Return on Eqty 98...:N/A% Book Value/Shr......:N/A LT Debt-to-Capital(a)55.4% Dividend............:$N/A Revenue (99)........:368.00 Yield...............:N/A% Shares Outstanding..:53.7mil Convertible.........:No Mkt. Capitalization.:637.4mil Hedge Clause(s).....:# Comments............:(a) Data as of the most recently reported quarter. Comments............: --OPINION:------------------------------------------------------------------ Estimate Update-- Forest Oil reported third quarter earnings and discretionary cash flow per share of $0.10 and $0.55, compared to our estimates of $0.11 and $0.66. The shortfall in cash flow was caused by lower-than-expected gas production, which was offset, for earnings purposes, by a $0.5 million income tax benefit. Production averaged 12.3 Mb/d of liquids and 168.3 MMcf/d of gas. Our gas production estimate was 190.8 MMcf/d. The shortfall was primarily due to lower output in the Gulf of Mexico and Gulf Coast regions. On the cost side, production expense averaged $0.47/Mcfe compared to our $0.48/Mcfe estimate. Total cash costs (production + general & administrative + interest) averaged $1.13/Mcfe versus our $1.08/Mcfe estimate. The unit cost difference was driven by the production decline. For the fourth quarter, we lowered our production estimates to 12.3 Mb/d of liquids and 172 MMcf/d of gas from 12.4 Mb/d and 192 MMcf/d. Our revised gas production estimate is nearly flat with the third quarter. We are raising our fourth quarter gas price realization to $2.58/Mcfe from a prior $2.29/Mcfe to reflect the current strength in gas prices. For the fourth quarter, management expects to record a $0.5 million current tax benefit resulting from the utilization of operating loss carryforwards. Previously, we had estimated a 35% corporate tax rate with 95% deferred. The increase in expected gas price and change in tax rate more than offset the decline in production for earnings. Our revised fourth quarter EPS estimate is $0.30 compared to our prior $0.16. As a result, our revised full year EPS estimate is $0.53 compared to a prior $0.39. However, the lower production estimate does serve to lower our discretionary cash flow estimate for the year to $2.15/share from $2.25/share. With first production from several Canadian gas projects expected in 2000, management expects production to be in the 95-105 Bcfe range. We are lowering our 2000 production estimate to 100 Bcfe from a previous 102.5 Bcfe to get closer to the mid point of the range. We would expect 2000 production to remain a moving target, depending on the timing of various projects. Our revised 2000 volume estimate represents a 10% year-over-year increase. Management estimates that the company's tax liability in 2000 will approximate $3 MM, all of which will be deferred. Our revised earnings and discretionary cash flow per share estimates are $0.93 and $2.75, compared to our earlier estimates of $0.73 and $2.95. The decrease in cash flow is primarily attributable to the lower p roduction estimate coupled with the revised tax position. Key Operating Highlights-- Canadian Foothills Play Testing is continuing in two wells at the Cutpick prospect in the Alberta Foothills where Forest owns working interests ranging from 40% to 57%. Currently, Forest is evaluating two discovery wells that have multiple gas bearing zones. Based on the results to date, management increased the company's land position in a recent sale and could bid on additional acreage in a January 2000 sale. Production from the discovery could be onstream toward the end of 2000 or early 2001. The timing will be impacted by the construction a 20-mile pipeline spur. Based on the present information, management believes the development could entail 20-30 wells over the next two to three years. Elsewhere in the Alberta Foothills, Forest is proceeding with a six-well development of shallow gas reservoirs at the Narraway prospect. A deeper, high-potential exploratory prospect at Narraway has not been tested yet. Forest is preparing to re-enter wells at both the Brule (55%) and Burmis (25%-100%) prospects that would set up additional drilling in 2000 if successful. Forest recently entered into a joint venture with PetroCanada in the British Columbia Foothills to participate in an 8,000-foot Mississippian test on the Federal prospect, which is scheduled to spud in December or January and should require 30-45 days to reach total depth. The prospect offsets a productive well in the target formation that tested around 30 MMcf/d of gas. Wells on similar structures in the play have tested as high as 50 MMcf/d. Results from this well could be available during the first quarter of 2000. Northwest Territories Forest and Chevron are seeking final approval to begin constructing a pipeline that will transport gas from the P-66A well in the Ft. Liard area. Construction is expected to begin in January 2000 with completion scheduled for April. Sales could commence from the P-66A early in the second quarter at an initial gross rate of 25-30 MMcf/d. To determine future plans for the the N-61 well, Forest is awaiting a 3-D seismic survey to help define the structure and bottom hole location of the well. Management plans to move a rig back on the location in late December or January to attempt a completion. In 2000, Forest may participate in an offset to Chevron's K-29 discovery and a couple of other exploratory/development wells in the area. Also in the Northwest Territories, Forest is preparing to spud a delineation well with Paramount, offsetting Paramount's F-36 Mattson discovery. Another three wells are planned for this winter with first production planned for mid 2000. Just over the border in Alberta, Forest is participating in a six-well Chinkeh development program. Gas production in Canada should grow throughout 2000 as new production is added from the various exploration/development projects that are underway. We believe that the Canadian exploration program could provide significant volume growth in the next several years. Obviously, timing will play a critical role in actual 2000 Canadian gas production. The full-year impact of upcoming activity will be more fully reflected in 2001 production. Lower 48 Production from two new wells in the Gulf of Mexico should provide a boost to volumes in early 2000. In December, management expects to begin producing the High Island 116 B-2 (55%) at an estimated gross rate of 20-30 MMcf/d. A well at West Cameron 615 (25%) is expected to come on at a gross rate of 15-25 MMcf/d in January. On a combined basis, Forest's net share of the initial production could approximate 15 MMcf/d. Capital Spending Plans for 2000 Capital spending should total around $120 million in 1999. For 2000, management has outlined a $150 million capital program. Canadian activity will account for 40-50% of projected outlays. Based on our $153 million estimate of discretionary cash flow in 2000, the company should be able to execute its program while maintaining a solid balance sheet.
=====================================================================
Drilling Projects Update:
Canada
The Foothills
-- Cutpick Forest Oil, with a 40% - 57% working interest, is actively evaluating two wells. The first well, 11-21, is currently being tested. The second, 11-25, was drilled to 14,144 feet in late September and is also being tested. Pursuant to the operating agreement, results of the testing are being held confidential pending future land sales in January 2000.
Based upon encouraging results to date, Forest participated in a land sale on October 20, 1999. As a result of that sale, Forest now has an interest in 44,160 acres (69 sections) surrounding this play.
-- Narraway At Narraway, the Company is earning a 50% - 55% working interest in 11,520 acres (18 sections) of land by drilling two Cretaceous wells. The first well was drilled and completed in the Cadotte at a production rate of 2.2 mmcf/d. A second well will spud this month targeting both the Cadotte and Dunvegan formations, with a third well to be drilled in the first quarter of 2000. A deep Permian gas play is developing offsetting Forest's acreage with the structural trend extending on to Forest's earned lands. It is anticipated production will initiate from a six well pool with pipeline construction expected in the first quarter of 2000.
-- Brule The Company is re-entering an existing well at Brule this month to earn a 55% working interest in 4,480 acres (7 sections) of land. A successful completion will trigger a new well to be drilled during the first half of 2000 with a planned tie in occurring in the third quarter of 2000.
-- Burmis At Burmis in the southern Alberta foothills, Canadian Forest has varied working interests of 25% - 100% in 12,800 acres (20 sections) of land. Based upon successful re-entry of an existing well, 2-D seismic data is currently being evaluated prior to shooting a 3-D program, which is expected to lead to the drilling of a deep test well during 2000.
-- Federal In the British Columbia Foothills, Canadian Forest has entered into a new joint venture with PetroCanada and is participating in an 8000 foot Mississippian test (40% working interest) to spud in December 1999 or January 2000. The joint venture covers 16,000 acres (25 sections) of land.
Northwest Territories
-- Flett Forest and Chevron (as pipeline operator) are seeking regulatory approvals for the P-66A pipeline at Flett in order to commence construction in January 2000. Both pipe and pipeline hardware have been ordered. P-66A is expected to have an initial production rate of 25-30 mmcf/d. Expected regulatory approval of the pipeline in December 1999 will result in the well being brought on-stream in April 2000.
The N-61 well is suspended awaiting the construction in December of an ice bridge. Forest is gearing up for completion operations, expected to commence during late December.
Canadian Forest is operating a 3-D seismic program in the Flett area which is nearing completion. This program extends from N-61 on the west to the Chevron K-29 discovery on the east, and could lead to an offset to the K-29 well on joint Forest/Ranger lands during 2000.
-- Mattson Play On the Mattson play, Canadian Forest (33-1/3% working interest) is participating with Paramount in drilling the I-46 well, an offset to Paramount's F-36 discovery. This well has been spudded and is currently drilling. Up to three joint wells are planned this winter with the operator scheduling first production mid-year 2000.
Gulf Offshore
-- High Island 116 Forest is currently completing its recently announced discovery well at High Island Block 116. After some completion difficulties, the B-2 well is now expected to be on-line to sales in December at an estimated rate of 20-30 mmcfe/d. Forest has a 55% working interest in this well.
-- Eugene Island 255 The previously announced discovery and completion of the A-4 well on Eugene Island Block 255, in which the Company has 100% working interest, is currently producing at 18 mmcfe/d following the planned natural gas production facility expansion. This well is still only producing from the lower 47 feet of an overall 165 foot thick sand.
-- West Cameron 615 Forest recently participated as a 25% working interest owner in a discovery on West Cameron Block 615. Upon drilling to a total depth of 8002 feet, the subject well logged 170 feet of TVD pay sand. Estimated production from 15 to 25 mmcfe/d is expected from this well in January 2000.
-- Eugene Island 292 Forest is currently participating in a two well program in the Eugene Island 292 field. The H-5 well is currently drilling and is to be followed by the H-15 well. Forest has a 20% working interest in these wells.
-- South Pelto 6 Forest plans to participate in a well located in South Pelto Block 6 as a 65% working interest owner. The South Pelto Block 6 well No. 1 has produced approximately 49 bcfe for Forest and its partner over the past seven years. Forest is targeting a similar play on this block.
Plans for the year 2000 are currently being finalized. At this time, Forest plans to drill twelve wells in the Gulf of Mexico. The blocks in which Forest plans to drill in 2000 are High Island 116, Eugene Island 53 and Eugene Island 292.
=====================================================================
Do the "DD" - buy, sell - hold - pass; it's your call; I love this as a trader here going into the OPEC meeting(which fundamentally impacts FST less - given their NG leverage) but the sentiment shift catalyst that OPEC will provide combined with the bullish NG supply numbers and present prices - makes this a hell of a play imho.
There has been and I still believe there still is; huge buying interest for FST at these levels - I loved the action of this stock over the last 4 mos on any selling pressure down to these levels. Once again - this ran from $9-$13+ in a week in late December and was one of "THE" posterchild breakout stocks in the Oilpatch run up last spring - now back to the same damn price levels...
We shall see if history repeats itself... regardless; one hell of a nice longterm hold at $9 and I will absolutely chase it , XTO, NBL, EOG as far down as the Street wants to take them here in this NG environment. |
