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FST - Forest Oil Corp


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I came across this idea on Sumzero.com - http://www.scribd.com/doc/225698055/Forest-Oil-Sabine-Merger-Presentation-FINAL


Valuing a E&P is outside of my core competence but the thesis seems to make sense -


-by merging with a larger entity, FST will have better access to the capital market, lower interest expense, and operational synergy

-the combined entity will not need to raise additional funds until 2015 so bankruptcy is unlikely in the near term

-the majority equity owner will be a private equity fund so it is in its own interest to maximize the equity's value

-Saba Capital increased its stake substantially

-the idea's author's other ideas performed reasonably well

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  • 1 month later...

At ValueX-Vail there was also a write-up by Chris Karlin (Aquitania Capital):



From the slides:



  • High conviction merger closes in 3-4 months
    Downside to $1.55 -$1.75 -22% to -33% in unlikely event deal does not occur
  • Market fails to recognize value for identifiable structural reasons
  • Valuation creates large margin of safety
    Most conservative estimate of value at $3.00/share +30%
  • Several near-term catalysts to close valuation gap with peers
    Probable value 6 months out at $4.00 -$5.00/share +74% -+117%
  • Long-term catalysts could result in substantial growth
    Potential for additional value creation in 2015 beyond $6.00/share +161%



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My questions  from reading these presentations are:


1) Is the Sabine valuation correct? While we are buying Forrest, the merged company will consist of 3/4 Sabine assets, so the valuation of the Sabine assets is more important than the Forrest valuation.


2) The combined entity will have a concentration in East Texas (Haynesville shale).  This is a gassy shale, not a liquid rich shale like the Eagle Ford, and it is more expensive (deeper) shale to drill in than say the Marcellus; hence activity in the Haynesville is not as active as other shale plays right now  Clearly there is plenty of gas there, but is it profitable to drill in these properties at $4/mcf? 

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We are not great at valuing these E&Ps, but trying to get our arms around this. Does anyone know where the Proven Undeveloped Reserves number of 998.1 of Bcfe on Slide 14 is coming from?


On Slide 15, we see 1,464 Bcfe of Proven Reserves, and then 880 Bcfe of Proven Developed Reserves... which would foot to 584 Bcfe Proven Undeveloped Reserves correct?

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