This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

The Deal: Forest Oil Gets Serious About Debt Reduction

Forest's stock is down 30% this year on concerns about its debt load. Moody's Investors Service downgraded its credit rating in May citing the company's financial weakness and less production and reserves after divestitures to pay down more debt.

In the first quarter, Forest had a debt-to-capitalization ratio of 107%, up from 102% at the end of the fourth quarter.

Simmons said the transaction would enable Forest to deliver the company in one fell swoop, "thereby taking worries of breaking debt covenants off the table," and would likely be accretive to net asset value.

However, investors could perceive Forest to be selling its best asset and lead them to wonder how its remaining assets -- in the Eagle Ford, East Texas and the Permian -- will drive production growth and cash flows/returns going forward, Simmons said. Last week's announcement by SM Energy Co. (SM) that it also is selling its assets in the area might make for a crowded selling environment, the firm added.

Simmons estimates the assets have 530 billion cubic feet equivalent of proved reserve, 49% of its proved reserves last year, and 100 million cubic feet equivalent per day of production, 48% of its estimated second-quarter production.

Forest said in May it was open to fielding inquiries about the properties from potential partners. Earlier in the year the company also was thought to have its Permian assets on the block.

In April, Forest sold half of its Eagle Ford assets to Schlumberger Ltd. (SLM) to help develop them. In January it sold its non-Eagle Ford assets to Hilcorp Energy Corp. for $325 million and last year divested properties in Louisiana and South Africa for $330 million.

Written by Claire Poole

Stock quotes in this article: FST, LPI, SM, SLM 

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,262.56 +89.32 0.55%
S&P 500 1,842.98 +12.37 0.68%
NASDAQ 4,034.1610 +11.4670 0.29%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs