Forest Oil Corp FST
Q2 2011 Earnings Call Transcript

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Transcript Call Date 08/02/2011

Operator: Good afternoon. My name is Christen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Forest Oil Second Quarter 2011 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

At this time, I'd like to turn the call over to our host Mr. Patrick Redmond. Please go ahead.

Patrick J. Redmond - VP, Corporate Planning and IR: Good afternoon. I want to thank you for participating in our second quarter 2011 earnings conference call. I will note that the replay of this conference call will be available through August 16th, as described in our press release issued yesterday. We have joining us today Craig Clark, President and CEO; Michael Kennedy, Executive President and CFO; and J.C. Ridens, Executive Vice President and COO.

Some of the presenters today will reference certain non-GAAP financial measures regularly used by Forest in measuring its financial performance. Reconciliations of such non-GAAP financial measures with the most comparable financial measure calculated in accordance with GAAP are available on the website and can be viewed by clicking on the Investor Relations tab, then non-GAAP at www.forestoil.com.

In addition, I would like to caution you about our forward-looking statements. All statements other than statements of historical facts that address activities and outcomes that Forest expects, assumes, plans, believes, budgets, forecasts, projects, estimates, anticipates, etcetera, about what will, should, or may occur in the future are forward-looking statements. Please carefully review our cautionary language regarding forward-looking statements that is contained at the end of our press release.

I'll now turn the call over to Michael Kennedy. Thank you.

Michael N. Kennedy - EVP and CFO: Thanks, Pat, and thanks to everyone joining us today. My comments will pertain to the Q2 financial results, which contain items related to our Lone Pine transaction. On June 1, 2011, we completed the IPO the Lone Pine Resources, selling 18% of the Company for $183 million. We intend to spin off our remaining ownership to our shareholders at or around September 30, 2011.

I want to highlight that we consolidate Lone Pine's results into our financial as we own 82%. However, we also presented our financial results as the spin-off of Lone Pine had already occurred, which we describe as Forest Remainco. Results have few one-time items in our Q2 results that pertain to Lone Pine transaction. We have provided these as adjustments to our earnings, cash flow, and EBITDA. I will first provide a high level review of our consolidated results and then follow with a more detailed review of Forest Remainco results.

On a consolidated basis Forest produced 429 MMcfe per day with liquids comprising 26%. This represents 1% sequential growth from Q1 in total production and 14% sequential growth in liquids or 2,100 barrels per day. Adjusted earnings for the quarter were $41 million or $0.36 per share with adjusted EBITDA of $176 million and adjusted cash flow of $140 million.

Transcript Call Date 08/02/2011

Operator: Scott Hanold, RBC Capital Markets.

Scott Hanold - RBC Capital Markets: So it sounds like you definitely feel (that with) Eagle Ford in your – you have a bias to upside in activity and a couple things. One, are there any like logistical constraints if you ramped up activity in terms of getting some of the oil volumes out of there? Two, you continue to look to bolt-on additional acreage, what do you think you all can get up to in terms of sizing the Eagle Ford in around your acreage?

H. Craig Clark - President and CEO: Let me see if I can answer them in order. In terms of the rig count, we are not in the development phase as I would call it, because up to the point I think the closest wells are 20 miles apart, so as we ramp up it will be based on delineation success but also focused on lease capture, because as we show on the pie graph, I think, on our road shows, we need to get after it before 2013-'14 because that's when the bulk of the acreage expirations come. The logistical constraints specifically would be certain services, but in this case if you ask about, getting the oil or liquids out of there that has not been an issue, i.e. with the trucks. In fact that's one of the advantages with an oil well. We don't have to mess with high liquids gas, although we do sell some of it and burn it, but getting the (indiscernible) has not been an issue.

Scott Hanold - RBC Capital Markets: What about adding acreage to your existing position. I mean you have a pretty good size. (Do you think that's at a better rate now) or do you think you could add some more there?

H. Craig Clark - President and CEO: Not significant. J.C. may want to comment, but clearly we've been able to add some acreage, but acreage we added was pretty much filling the holes in our donut that in some cases Marathon now has, but we filled in the holes pretty well, so we can drill these longer laterals.

J.C. Ridens - EVP and COO: To that end, Scott, I'd say that we are always still on the hunt, but the amount of bolt-on acreage that abuts our position is limited at this point in time.

Scott Hanold - RBC Capital Markets: In terms of like production we are churning right now, what are you'll are producing like in the Eagle Ford and in the Granite Wash? Those obviously are two key areas for you going forward at least, definitely in the next six months. Where are you running there at now and where could those kind of get to by the end of the year?

H. Craig Clark - President and CEO: Scott, we don't provide guidance or results on a play specific, so we haven't disclosed that.

Operator: Pearce Hammond, Simmons & Company

Pearce Hammond - Simmons & Company: Just curious if you can provide an update on potential for an Eagle Ford JV?

J.C. Ridens - EVP and COO: At this point, Pearce, I would say that we would still consider a JV if somebody came in with the right price, but having concluded a transaction at $10,000 per acre with the sale of Wilson County, I think, that that's probably set some people back thinking about what price they'd be willing to pay because, as Craig said, we have marked our market. I think that with the results that we're seeing we are happy with the position we've got, and we would not be doing a joint venture other than for market cost.

H. Craig Clark - President and CEO: Also I'd add with $474 million of cash in the balance sheet and undrawn facility, we are not capital constrained, so we have the ability to develop it ourselves?

Executives

Michael N. Kennedy : EVP and CFO
Patrick J. Redmond : VP, Corporate Planning and IR
J.C. Ridens : EVP and COO
H. Craig Clark : President and CEO

Analysts

Joe Magner : Marquarie
Howard Flinker : Flinker & Company
Scott Hanold : RBC Capital Markets
Brian Singer : Goldman Sachs
Dan McSpirit : BMO Capital Markets
David Tameron : Wells Fargo
Pearce Hammond : Simmons & Company
Gil Yang : Bank of America Merrill Lynch
John Herrlin : Societe Generale
Biju Perincheril : Jefferies
Jeff Robertson : Barclays Capital

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Forest Oil Corp FSTQ2 2011 Earnings Call Transcript

Forest Oil Corp FST
Q2 2011 Earnings Call Transcript