Monday, oil and gas producer Forest Oil Corp. (FST), reported a sharp decline in the third-quarter profit, hurt by significantly on lower realized commodity prices during the quarter. Adjusted earnings plunged 62% coming in short of analysts' expectations, while quarterly revenues also plummeted, missing consensus estimate by a distance. Looking ahead, Forest Oil provided an update to its fiscal 2009 production guidance.
The Denver, Colorado-based company's net income for the third quarter plunged to $172.31 million or $1.53 per share from $429.01 million or $4.71 per share in the year-ago quarter.
Results for the quarter included unrealized losses on derivative instruments, net of tax of $50.6 million, unrealized foreign currency exchange gains, net of tax of $8.1 million, change in valuation allowance for deferred tax assets of $163.9 million and Rig stacking charges of $2.6 million net of tax.
Excluding items, the company's adjusted net income for the quarter dropped to $52.42 million or $0.48 per share from $110.79 million or $1.26 per share in the same quarter last year.
On average, 17 analysts polled by Thomson Reuters expected the company to earn $0.52 per share for the quarter. Analysts estimates typically exclude special items.
The company said that the lower adjusted net income was primarily due to significantly lower realized commodity prices for the three months ended September 30, 2009, compared to the corresponding 2008 period.
Total revenues for the quarter decreased to $177.14 million from $474.62 million in the prior-year quarter. Thirteen analysts had a revenue consensus of $252.10 million for the third quarter.
Oil and gas sales were $177.18 million, compared to $474.24 million last year. Interest and other revenues for the quarter were a negative of $0.04 million, compared to revenues of $0.38 million a year ago.
Revenues also includes realized gains on NYMEX derivatives of $88.28 million for the quarter.
Realized and unrealized losses on derivative instruments narrowed to $5.67 million from $449.34 million last year. Depreciation and depletion charges for the quarter dropped to $65.28 million from $136.73 million a year ago.
Average net sales volumes decreased 9% to 476 MMcfe/d compared to the third quarter of 2008, while total cash costs per-unit decreased 3% to $2.42 per Mcfe compared to the third quarter of 2008.
Average net sales for the quarter under review were negatively impacted by deferred production resulting from non-operated shut-ins and third party pipeline disruptions, Forest's divestiture activities, and lower capital expenditures in the third quarter compared to the third quarter budget.
Looking ahead fiscal 2009, the company has reduced the mid-point of its production expense guidance by an additional 8% to $215 million to $255 million or $1.15 to $1.20 per Mcfe from the prior forecast of $225 to $255 million or $1.20 to $1.30 per Mcfe.
Forest also cut the mid-point of its general and administrative expense guidance 4% to $55 to $60 million or $.29 to $.32 per Mcfe from $57 to $63 million or $.30 to $.33 per Mcfe.
Further, Forest now expects the mid-point of its depreciation, depletion and amortization expense guidance by an additional 17% to be in the range of $45 million - $50 million, or $0.24 to $0.26 per Mcfe from the prior forecast range of $55 million - $60 million, or about $0.29 to $0.32 per Mcfe.
Further, the company also revised its previously announced oil and gas net sales volumes guidance to the range of range or 182 - 192 Bcfe in 2009 to adjust for 3 Bcfe of net sales volumes related to Forest's divestiture activities and third-party pipeline or infrastructure shut-ins during the year.
The company anticipates that oil and gas net sales volumes will be in the lower end of the guided range. Net sales volumes are expected to comprise about 75% natural gas and 25% liquids.
During the quarter, Forest drilled and completed its second operated horizontal Granite Wash well that produced into the sales line at an initial 24-hour rate of 10.4 MMcf/d, 1,300 Bbls/d of oil and 2,000 Bbls/d of NGLs, for an equivalent rate of 30 MMcfe/d, in early October 2009. Forest has a 94% working interest in this well. Forest currently has three operated horizontal drilling rigs and three non-operated horizontal rigs active in the play and expects to drill and complete an additional two operated wells in the fourth quarter of 2009.
Further, Forest said it drilled and completed its third and fourth Haynesville Shale wells in Louisiana in September and October of 2009. These two wells produced into the sales line at an average initial 24-hour rate of 21 MMcfe/d and 15 MMcfe/d while still cleaning up fracture load. Forest has an average 81% working interest in these wells. Forest plans to maintain a one to two rig drilling program in Louisiana for the remainder of 2009.
Forest has commenced the expansion of its rig count, currently operating seven rigs, and anticipates further rig mobilizations in the fourth quarter of 2009.
FST closed Monday's regular trading at $19.50, down $0.10 or 0.51%, on a volume of 3.18 million shares. The stock has been trading in a broad range of $10.33 to $30.28, with a three-month average volume of 2.98 million shares.
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