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

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