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Forest Oil Corporation (NYSE:FST) (Forest or the Company) today
announced it has entered into a definitive agreement to acquire 100% of
the outstanding stock of The Houston Exploration Company (NYSE:THX)
(Houston Ex) in a stock and cash transaction totaling approximately $1.5
billion plus the assumption of net debt estimated to be $100 million at
December 31, 2006.
Forest Oil worked with JANA Partners LLC (JANA), the holder of 14.7% of
the outstanding shares of Houston Ex, with the result that JANA has
agreed today to vote in favor of the transaction. JANA has also agreed
not to propose any extraordinary transactions with Forest or to seek to
influence the management or control of Forest for a year following the
close of the transaction.
The transaction positions Forest as one of the top independent onshore
North American exploration and production companies. The acquisition
will also create a highly concentrated and complementary set of oil and
natural gas assets focused in all regions of Texas. On a pro forma basis
at December 31, 2005, the Company would have estimated proved reserves
of approximately 2.0 trillion cubic feet of natural gas equivalents
(Tcfe) of which approximately 69% would be classified as proved
developed and approximately 70% would be natural gas.
H. Craig Clark, Forest’s President and Chief
Executive Officer, stated, “We are undertaking
this significant acquisition to further strengthen our onshore North
American asset base and to add drilling inventory for our proven acquire
and exploit strategy. This strategy has provided us with superior risk
weighted returns over the last several years. This acquisition will add
in excess of 3,200 drillsites to our existing inventory. Furthermore,
these assets are located in tight gas sand basins in which we have
extensive experience and have recently benefited from new technological
applications like horizontal drilling and fracture stimulation. We
believe that our stated organic growth goals can be achieved in the
foreseeable future within our existing free-cash flow model. In order to
reduce our leverage and to further narrow our geographic focus, we will
seek to sell our Alaskan entity in 2007.”
William G. Hargett, Chairman, President and Chief Executive Officer of
Houston Ex, said, “Over the past year, we have
made significant progress in improving Houston Exploration’s
operations and creating a more focused asset portfolio. Our agreement
with Forest builds on this solid foundation and represents a successful
conclusion to the strategic review that our Board and management team
began last year to enhance shareholder value and develop an even
stronger future for our company. The transaction with Forest not only
provides immediate value to Houston Exploration’s
shareholders, but also affords them the opportunity to participate in
the upside potential created by our combination. I am confident that
together with Forest, we will have the financial and operational
strength needed to continue capturing the opportunities in our industry.”
Barry Rosenstein, JANA’s Managing Partner,
stated, “Given the current environment, we
believe this is a good deal and we have confidence that Forest Oil is
the right company to maximize the value of these assets. Forest Oil has
a strong track record of keeping F&D costs and operating expenses low,
and its disciplined management team has maintained some of the most
favorable cost controls in the industry during the inflationary period
of the last several years. In addition, we believe there are significant
synergies, particularly given Forest Oil’s
demonstrated expertise in analogous acquisitions and the direct
overlapping acreage positions in the combined portfolio."
TRANSACTION DETAILS
Under the terms of the agreement, Houston Ex shareholders will receive
total consideration equal to 0.84 shares of Forest common stock and
$26.25 in cash for each share of Houston Ex common stock outstanding, or
an estimated 23.6 million shares of Forest common stock and cash of $740
million. This represents $52.47 per share of consideration to be
received by the Houston Ex shareholders based on the closing price of
Forest shares on January 5, 2007. The exact amount of the total cash and
stock consideration to be received by each Houston Ex shareholder will
be determined by elections and an equalization formula. It is
anticipated that the transaction will be tax free to Houston Ex and the
stock portion of consideration will be received tax free by its
shareholders. The cash component of the acquisition is expected to be
financed with a new $1.4 billion revolving credit facility which has
been underwritten by JPMorgan Chase Bank, N.A.
The boards of directors of Forest and Houston Ex have each unanimously
approved the transaction. The transaction is subject to regulatory
approvals and other customary conditions, as well as both Forest and
Houston Ex shareholder approval.
Forest management and its board of directors will continue in their
current positions with Forest, and it is anticipated that Forest will
create a new business unit to be located in Houston.
Credit Suisse Securities (USA) LLC acted as the financial advisor and
Vinson & Elkins LLP acted as the legal advisor to Forest for this
transaction.
ACQUISITION RATIONALE AND PRO FORMA INFORMATION
Acquisition Rationale
Forest believes this merger will result in an outstanding investment for
both companies’ shareholders going forward
for the following key reasons:
-- Creates a leading independent onshore producer with, on a pro
forma basis, the following estimated attributes:
-- 2.0 Tcfe of estimated proved reserves
-- 6,000 + identified drilling opportunities
-- 520 MMcfe/d of production
-- Combined position in the South Texas and Greater Carthage Areas
(East Texas) represents two premier operated core tight gas assets
with significant exposure to recent horizontal drilling
opportunities.
-- Strong production base and acreage position in the Arkoma Basin
that is near the emerging Fayetteville Shale play.
-- Increases Forest's exposure to the Rockies with a significant
acreage position and approximately 1,900 identified drilling
locations in the Denver - Julesburg Niobrara.
-- Immediate accretion to Forest shareholders on a cash flow,
production and reserves per share basis.
-- Rationalization and prioritization of project inventory and
capital of combined entity is anticipated to result in estimated
organic production growth of 7% - 8% within Forest's free cash
flow model.
-- Operational and corporate synergies including the utilization of
Forest's Lantern drilling rigs are anticipated to result in an
estimated decrease of 10% - 15% in cash costs per unit, and
improved finding and development costs.
-- Significantly increased presence in major basins in Texas should
result in additional opportunities in the acquisition market.
Pro Forma Information
Pro forma statistics for Forest include:
Forest
HoustonEx
Total
Proved Reserves (Bcfe)
1,340
(a)
655
(b)
1,995
Proved Developed Reserves (Bcfe)
946
(a)
429
(b)
1,375
Proved Developed Reserve %
71
(a)
65
(b)
69
Production (MMcfe/d) (b)
313
204
517
Net Acreage (M) (12/31/05)
5,623
709
6,332
R/P Ratio (Years)
11.7
8.8
10.6
Fully Diluted Shares O/S (M)
63,484
(b)
23,638
(c)
87,122
(a) Includes estimated proved reserves at December 31, 2005 pro
forma for estimated proved reserves distributed in the Mariner
Energy, Inc. transaction, estimated proved reserves acquired in
the Cotton Valley transaction and independently prepared proved
reserve estimates for Forest Alaska Operating LLC.
(b) Composite statistics are for the quarter ended September 30,
2006.
(c) Outstanding shares multiplied by 0.84 per share exchange ratio.
PRO FORMA BUSINESS PLAN
Forest intends to decrease overall capital expenditures in the combined
company and to reallocate the capital expenditures being spent on the
Houston Ex assets. Under Forest’s pro forma
business plan, 2007 capital expenditures for the combined company would
be approximately $900 million and 2007 estimated production would be 540
MMcfe/d.
However, as the acquisition is not anticipated to occur until the second
quarter of 2007, Forest is unable to issue formal guidance for the
combined company at this time. Upon closing of the acquisition, Forest
intends to issue guidance for the remaining period in fiscal year 2007.
TELECONFERENCE CALL
Forest’s management will hold a
teleconference call on January 8, 2007 at 9:00 am ET to discuss the
items described in this press release. If you would like to participate
please call 1.800.399.6298 (for U.S./Canada) and 1.706.634.0924 (for
International) and request the Forest Oil teleconference (ID # 5889781).
A replay will be available from Monday, January 8 through January 15,
2007. You may access the replay by dialing toll free 1.800.642.1687 (for
U.S./Canada) and 1.706.645.9291 (for International), and request the
Forest Oil teleconference replay, conference ID # 5889781.
Forest Oil Corporation is engaged in the acquisition, exploration,
development, and production of natural gas and liquids in North America
and selected international locations. Forest's principal reserves and
producing properties are located in the United States in Texas,
Louisiana, Oklahoma, Utah, Wyoming and Alaska, and in Canada. Forest's
common stock trades on the New York Stock Exchange under the symbol FST.
For more information about Forest, please visit our website at www.forestoil.com.
FORWARD-LOOKING STATEMENTS
This news release includes forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. All statements, other than statements
of historical facts, that address activities that Forest assumes, plans,
expects, believes, projects, estimates or anticipates (and other similar
expressions) will, should or may occur in the future are forward-looking
statements. The forward-looking statements provided in this press
release are based on the current belief of management of Forest, as
applicable, based on currently available information, as to the outcome
and timing of future events. Forest cautions that their respective
future natural gas and liquids production, revenues and expenses and
other forward-looking statements are subject to all of the risks and
uncertainties normally incident to the exploration for and development
and production and sale of oil and gas. These risks include, but are not
limited to, price volatility, inflation or lack of availability of goods
and services, environmental risks, drilling and other operating risks,
regulatory changes, the uncertainty inherent in estimating future oil
and gas production or reserves, and other risks as described in Forest's
2005 Annual Report on Form 10-K as filed with the Securities and
Exchange Commission. Also, the financial results of Forest's foreign
operations are subject to currency exchange rate risks. Any of these
factors could cause actual results and plans of Forest to differ
materially from those in the forward-looking statements.
Forest and Houston Ex will file materials relating to the proposed
transaction with the SEC, including one or more registration
statement(s) that contain a joint proxy statement/prospectus. Investors
and security holders of Forest and Houston Ex are urged to read the
definitive joint proxy statement/prospectus (if and when they become
available) and any other relevant documents filed with the SEC, as well
as any amendments or supplements to those documents, because they will
contain important information about Forest, Houston Ex and the
acquisition. A definitive joint proxy statement/prospectus will be sent
to security holders of Forest and Houston Ex seeking their approval of
the acquisition. Investors and security holders may obtain these
documents free of charge at the SEC's website at www.sec.gov.
In addition, the documents filed with the SEC by Forest may be obtained
free of charge from Forest's website at www.forestoil.com
or by calling Forest’s investor relations
department at 303.812.1400. The documents filed with the SEC by Houston
Ex may be obtained free of charge from Houston Ex's website at www.houstonexploration.com
or by calling Houston Ex’s investor relations
department at 713.830.6800. Investors and security holders are urged to
read the joint proxy statement/prospectus and the other relevant
materials when they become available before making any voting or
investment decision with respect to the proposed acquisition.
Forest, Houston Ex and their respective directors, and executive
officers may be considered participants in the solicitation of proxies
in connection with the proposed transaction. Information about the
participants in the solicitation will be set forth in the joint proxy
statement/prospectus when it becomes available.