Forest Oil (FST) looked all set for a great day before the open after it announced that it would sell it’s assets in the Texas Panhandle. Those buyers have to be feeling like suckers right now, as shares of Forest Oil have plunged all morning.
REUTERS Part of the problem may be the price. While Forest Oil received $1 billion for the sale, it doesn’t appear they received a premium for the assets. Stifel’s Amir Arif and team explain:
ST is selling all of its Texas Panhandle assets located primarily in Wheeler and Hemphill Counties that are prospective for the Granite Wash and shallower oil zones such as the Cleveland, Tonkawa, and Hogshooter to a subsidiary of Templar Energy. The transaction was valued at $1.0 billion and included roughly 100 mmcfe/d of production (50% liquids), 86.2mmboe of proved reserves, and a T12M EBITDA of $180mm. In our view, the transaction was largely in line at 5.5x EV/T12M EBITDA versus the corporate average of 5.2x EV/2014 EBITDA or $60,000 per flowing barrel, which was in line with prior transactions…
Also problematic: After the sale, it’s not clear where growth will come from. Forest Oil may even have to pursue acquisitions, says Jefferies’ Biju Perincheril and Daniel Braziller:
With only about 28,000 net acres in the Eagle Ford and East Texas economics hampered by low gas prices, we think FST is likely to eventually pursue acquisitions to bolster its portfolio.
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On a day when other oil & gas companies are rallying, Forest Oil has dropped 5.8% to $5.98 at 11:08 a.m., after opening up 2.4%. QEP Resources (QEP), meanwhile, has gained 1.9% to $28.55, Continental Resources (CLR) has risen 1.7% to $113.36 and EOG Resources (EOG) has gained 1.1% to $173.71.
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