News out of Denver was not received well on the market, as Forest Oil (FST) gave its report on its oil shale program and provided plans and guidance for the second half of 2012 – and the news wasn’t positive, as early Tuesday returns had the stock dropping 6 percent on news that sales were expected to be down for the year and the company was scaling back some of its investment in order to improve itself financially.
That is not welcome news for several hedge funds, which had stepped up their investments in Forest during the first quarter of 2012. Jeffrey Altman’s Owl Creek Asset Management had $137 million invested at the end of March, and Michael Lowenstein’s Kensico Capital was in for $68 million, though those numbers were just more than 2 percent of their portfolios. Still, the news from Forest may put these funds on notice.
In its release, Forest reported that its Eagle Ford shale project is progressing well, though the company indicated it would not invest further than the wells already at work. The company stated it planned to pull about 3,000 barrels per day of oil out of the ground from the land by the end of 2012.
The stock, however, responded to other news in the release, which stated that Forest was going to lessen its footprint in the panhandle and east Texas, dropping from seven combined rigs down to three in order to free up some capital. Capital expenditures by the company were expected to be slashed in half from the first half of 2012 ($435 million down to $210 million), partly blamed on the current commodities market. In terms of guidance for the rest of the year, Forest stated that it was anticipating net sales volume to be 2 to 5 percent softer than in the first half; natural gas is expected to drop 4 to 6 percent, which would offset the 9- to 12-percent expected increase in crude sales.
Interim CEO Patrick R. McDonald said, “Adjusting the capital spending rate is the first step in improving the Company’s financial strength and flexibility. Over the coming months we will proceed with additional steps by identifying and selling non-reserve based and non-core assets. In our core areas where we have reduced capital spending, our acreage is held by production; therefore, we can return to those areas with a more aggressive development program in a more robust commodity price environment.”