Denver-based Forest Oil Corp. (FST) – an independent oil and gas company – started production from its second horizontal Haynesville Shale well early today. Forest owns 100% stake in the Driver 13 – 1H well, located in Red River Parish, Louisiana. The initial production rate is 20.3 million cubic feet equivalent per day (MMcfe/d).
Forest Oil described this as a tremendous success as the initial production from this second well is significantly higher than the first well. Besides, the well was drilled and completed for a total cost of $9 million, which we believe is not too high a price to pay for such a prolific horizontal well.
Forest had announced its first horizontal Haynesville Shale well in February 2009. Located in the East Texas/North Louisiana region, the well had an initial production rate of 14 MMcfe/d only.
Though Forest wants to maintain a single-rig drilling program in 2009 in the Red River Parish area, it intends to allocate another rig in future to exploit its acreage position. The company holds nearly 11,050 net acres in the Louisiana prospective for the Haynesville Shale and has identified additional 110 potential horizontal locations on this acreage.
In addition, Forest also released its projected net sales volume for the second quarter. The company expects sales volume to be approximately 520 MMcfe/d in the quarter, up from 505 MMcfe/d in the year-ago period but down from 550 MMcfe/d sequentially. A significantly lower rig count was the main reason behind the quarter-over-quarter negative comparison.
Forest Oil shares have been the worst performers in our coverage universe in the current macro environment primarily due to the company’s relatively weak financial profile. It has the most debt-heavy balance sheet in our coverage, reflecting its debt-funded asset acquisitions in this cycle.
Moreover, organic production growth and drill-bit reserve growth continue to remain weak areas for the company, although recent numbers reflect some signs of improvement. However, we prefer to stay on the sidelines for now and keep our Hold recommendation unchanged.
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