Forest Oil's Eagle Ford Production Jumps 21% in the Second Quarter

Forest - Schlumberger Eagle Ford Acreage

Forest Oil agreed to a joint venture with Schlumberger in the Eagle Ford during the second quarter and it didn't take long for the company to increase its activity in the region. Forest Oil's operated Eagle Ford production grew 59% to 4,300 boe/d and net production grew 21% to 2,300 boe/d during the second quarter.

The company completed nine Eagle Ford wells at an average initial production rate of 529 boe/d and well costs have fallen from $7 million in 2012 to $6 million in the quarter.

The first seven wells completed with Schlumberger's HiWay flow channel technique were in various stages of completion at the end of the quarter. Watch for production results from these wells in the coming weeks.

“Our Eagle Ford Shale asset took a significant step forward during the quarter.... We recently ramped up our drilling activity further by adding a fourth drilling rig to the field. We are encouraged by recent well results as we implement ongoing technological refinements and enhancements to our drilling and completion process in an effort to optimize well results and costs.”

— Patrick R. McDonald, CEO

Eagle Ford production grew even though Forest Oil spent less in the Eagle Ford. That's the benefit of having costs carried by a partner. As a result of the financial terms of the Schlumberger deal,  Forest increased activity in the play while spending fell from $131 million in the first quarter to $74 million in the second quarter.

The companies are also expanding the use of micro-seismic and have subsurface data and reservoir studies ongoing.

In the quarterly release, Forest also announced plans to sell assets in the Panhandle to further improve the company's balance sheet. Read the full press release at forestoil.com

What To Watch For In The Eagle Ford - Video

Short overview, then commentary discussing what to watch for from public companies in the Eagle Ford.

Aimee discusses Forest Oil's recent deal with Schlumberger, Atlas Pipeline's acquisition of Teak Midstream, and Conoco's drilling costs.

Forest Oil - Schlumberger Eagle Ford Development Agreement Inked

Forest - Schlumberger Eagle Ford Acreage

Forest Oil and Schlumberger have signed an Eagle Ford development agreement in Gonzales County, TX. Schlumberger will pay $90 million in the form of future drilling and completion services, as well as related development capital in order to earn a 50% interest in Forest's Eagle Ford acreage position.

Once the $90 million has been contributed, Forest and Schlumberger will participate in future drilling on a 50/50 basis. Forest expects the drilling carry will contribute to development through 2014.

“We believe that our Eagle Ford position is a valuable oil asset and being aligned and working together cooperatively with a strategic partner such as Schlumberger will greatly enhance the value of this important asset.”

— Patrick R. McDonald, Forest’s CEO

Accelerating Eagle Ford Development

Forest Oil Schlumberger Eagle Ford Development Plan

With the drilling carry, Forest plans to accelerate development by moving to four rigs running in the play by the end of the third quarter. Forest has kept 1-2 rigs running through the past several months. Forest estimates the increased pace of drilling will improve the company's asset value by ~$250 million.

Forest's share of capital expenditures are estimated at $125 million in 2013 and $220 million in 2014. Production projections are flat in 2013 at 2,800 boe/d, but increase from an estimated 3,700 boe/d to 6,500 boe/d in 2014.

Forest now estimates it will hold an aggregate of 55,000 gross (27,500 net) acres in Gonzales County. That's a larger footprint, but a smaller net holding than the 40,000 gross (40,000 net) acres that would have been held under the company's previous development plan.

Based on 80-acre spacing, Forest has a total of 688 gross (344 net) drilling locations identified. Consider an estimated ultimate recovery of 300,000 boe and unrisked resource potential comes in at 100 million boe net to each company.

The agreement affects all wells spud on or after November 28, 2012.

“We are pleased to be part of this exciting opportunity, in which Forest and Schlumberger are fully aligned and committed to the development of Forest’s Eagle Ford unconventional resources.”

— Carl Trowell, President, Schlumberger Production Management

The deal reads well for Schlumberger because the company gets to utilize its expertise, while reinvesting its margin into high quality Eagle Ford assets. The deal values Forest's Gonzales County acreage at a little less than $3,300 per acre.

Read the full announcement at forestoil.com

Forest Oil Sells South Texas Assets - Keeps Eagle Ford

Forest Oil Eagle Ford Acreage Map

Forest Oil has entered an agreement to sell its South Texas oil & gas properties outside of the Eagle Ford Shale to Hilcorp. The deal will raise $325 million that will be used to pay down debt. The company has sold approximately $600 million in non-core assets in the past six months. This deal is estimated to cover 129,000 acres. Forest will retain all of its natural gas hedges and now has approximately 95% of its gas production hedged for 2013. The properties sold included production of 66 mmcfed (86% natural gas) and 272 Bcfe of proved reserves.

Patrick R. McDonald, CEO, stated, “We are pleased to announce further progress in our deleveraging plan with the sale of our non-core South Texas natural gas properties at metrics that are attractive to Forest shareholders .......The allocation of capital and resources towards our core oil and liquids assets in the Texas Panhandle and Eagle Ford,....on a pro forma basis, the liquids contribution of our production mix is approximately forty percent and will continue to increase due to our oil-focused drilling program.....”

Forest Oil Adds Walking Rig - Expects to Save 8-15%

Forest Oil Eagle Ford Core Acreage Map

Forest Oil added a rig walking system to one of its rigs in the Eagle Ford and plans to start multi-well pad drilling on its central fairway acreage. A four well pad site is expected to be drilled in 65 days compared to 85 days of drilling for four wells on separate pads. Costs savings are estimated at 8-15% depending on the lateral length and completion design. Currently, the company estimates cost at $5.5-6 million per well.

During the quarter, two wells were completed at unrestricted average rates of 638 boe/d and four wells were brought online in the company's restricted rate program at an average rate of 542 boe/d. 

Third quarter production volumes increased to 1,800 boe/d net to Forest. The company has 100,000 gross (91,000 net) acres in what the company characterizes as the "oil bearing" portion of the play. Current development plans will hold approximately 40,000 net acres in the coming years.