Denver-based independent oil and gas company, Forest Oil Corporation (FST) announced that its shareholders have approved, by majority vote, its business combination transaction with Sabine Oil & Gas LLC. The transaction is expected to close in Dec 2014.
Following the closure of the transaction, Sabine Oil & Gas will become a wholly owned subsidiary of Forest Oil. Also, Sabine Investor Entities will hold common and preferred shares representing an aggregate 73.5% interest in Forest Oil and the existing common shareholders of the latter will hold the remaining 26.5% interest in the company.
Further, the issuance of the preferred stock to Sabine will give it about 80% of the combined voting interest in Forest Oil. The transaction is anticipated to be tax-free for Forest Oil shareholders and Sabine Investor Entities. The headquarters of the combined entity will be in Houston, TX, and supervised by Sabine’s current executive management team.
Forest Oil has a growing upstream presence in the emerging basins of Texas, Canada and Mexico. Production growth from the Eagle Ford Shale is a key component of the company’s overall annual upstream growth plans for the next few years.
On the flip side, the company has a highly gas-weighted reserves/production profile and exposure to the inherently cyclical and volatile exploration and production sector. This does not get any help from its highly leveraged balance sheet.
The company nonetheless is intent on divesting its non-core properties to boost financial strength and enhance flexibility. We believe that this will eventually allow Forest Oil to aggressively pursue growth opportunities in its plays and provide a meaningful upside for investors.
At present, Forest Oil carries a Zacks Rank #3 (Hold). Better-ranked players in the energy sector include Cheniere Energy Partners LP. (CQP), Murphy USA Inc. (MUSA) and Sandridge Mississippian Trust II (SDR). All these stocks sport a Zacks Rank #1 (Strong Buy).
Read the Full Research Report on FSTRead the Full Research Report on MUSARead the Full Research Report on CQPRead the Full Research Report on SDRZacks Investment Research