Point of View: Forest Oil advances via leadership change, reorganization

April 4, 2005
Forest Oil Corp. announced an acquisition in early 2005 that would compliment a series of acquisitions and strategic direction that the company has been implemented since late 2003, when the Denver-based independent changed leadership and reorganized its departments.

Forest Oil Corp. announced an acquisition in early 2005 that would compliment a series of acquisitions and strategic direction that the company has been implemented since late 2003, when the Denver-based independent changed leadership and reorganized its departments.

"Strategy, the people, and the portfolio are the three biggest things that have changed in the company other than the stock price itself," which was at an 11-year high in March, said Forest Pres. and CEO H. Craig Clark.

On Feb. 28, Forest announced plans to purchase a private company whose primary asset is an operated average working interest of 83% in Buffalo Wallow natural gas field in the Texas Panhandle and 33,000 gross acres in the Texas counties of Hemphill and Wheeler.

Forest agreed to pay $200 million and assume $30 million of debt. Buffalo Wallow field has estimated proved reserves of 120 Bcfe.

"This is another step to increase the relative size and quality of our onshore North American asset base. It also represents another accretive acquisition at reasonable economics," Clark said. Forest has spent more than $1 billion in acquisitions since the 2003 introduction of a four-point plan.

The plan involves controlling costs, redirecting capital allocation away from frontier areas and into the US and Canada, making acquisitions, and improving Forest's free cash flow compared with its expenditures.

"The 2003-04 acquisition programs and the 2004 disposition program have streamlined the company's asset base and have allowed us to focus on the generation of drilling opportunities within our remaining property base," Clark said.

Forest's total net US and Canadian acreage as of Mar. 1 stood at 3 million acres, with 77% undeveloped. As of Dec. 31, 2004, the company had 1,100 development opportunities and 1,075 exploration opportunities.

"This represents a significant increase in not only the number of projects, but the quality of our project inventory from a year ago," Clark said.

Forest's portfolio

Forest has revamped its portfolio so that it is more balanced in terms of high risk vs. low risk and also is more balanced between oil and natural gas.

"We previously had a lot of frontier property expenditures that were high risk. What we have purchased and what we have developed in the past year is low risk," Clark said. "Most of our acquisitions have been oily. We are about 55% gas and 45% oil."

Currently, the company has no reserves and production outside the US and Canada although it has stakes in South Africa, Gabon, and Italy. With the exception of Italy and Romania, Forest has divested its European holdings.

"We had too much in international [acreage], too much diversity, so I simplified that tremendously," Clark said. " A company our size can't work in 15 counties, and I think at one point, Forest was in that many countries. Now, we're focused on just 2-3 international sites and North America in a big way."

Forest's capital allocation is 95% nonfrontier and 5% frontier. The company's frontier areas include Alaska, Canada's Northwest Territories, and other assets abroad.

The company's three business units taking the lead in growth for Forest during 2005 will be Canada, the US Western business unit, and Alaska gas.

"It's nice to have a portfolio, but all I really want is financial and capital allocation flexibility because not everybody on the team is going to be a star, but each business unit has a growth area," Clark said.

Operations update

Forest recently announced gas discoveries in Alaska and in the Rocky Mountains.

Regarding Alaska, Forest announced two successful wells onshore in the Cook Inlet area, where the company has more than 1.1 million net undeveloped acres. The 100% owned West Foreland 2 well was drilled upstructure to the West Foreland 1. The West Foreland 2 tested 15 MMcfed from two zones.

In a separate Alaska exploration test, the 30% owned Three Mile Creek Unit 1 exploration well flowed at a rate of 2 MMcfed on initial testing from shallow Beluga intervals. Additional testing was planned for the well 45 miles southwest of Anchorage. Aurora Gas LLC operates the well and owns 70% interest, and Forest owns 30% interest.

"We have substantially more acreage onshore than we do offshore. So it made sense for us to focus on the biggest spot," Clark said.


The biggest recent challenge for Forest was transforming the corporate culture to one of execution and discipline.

"We've changed almost entirely the leadership, probably more than any other company," Clark said.

The four-point plan was implemented so that everyone in the company was clear on the direction that the company planned to go and on its tool for getting there, he said.

"We did not spend a lot of time on a 5-year plan. Frankly, I don't believe in those because I think too many people talk about where they want to be, and they don't have the mechanism to get there," Craig said. So, we worried about what were the tools that we neededU. We've made tremendous progress in all metrics, including capital spending and debt payback."

Clark sees the biggest industry challenge as finding ways to grow its reserves and production in the US and Canada.

"We're a mature industry in North America. I think exploration worldwide is sometimes overrated. It's amazing that most of the fields that have been discovered around the world were around and in existing areas of hydrocarbons," Clark said. "People continue to find hydrocarbons in known basins."

Most new international discoveries are offshore, he noted. "That is the simple reason why you better be good at offshore before you go over to a new country. Forest is pretty good in offshore Gulf of Mexico, and that serves us well."

Career highlights

H. Craig Clark has served as president and CEO of Forest Oil Corp. since July 31, 2003.


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Clark joined Forest in September 2001 and has held the position of president and chief operating officer. Previously, he was with Apache Corp. serving in various positions, including executive vice-president, US operations. He joined Apache in 1989.


Clark has a petroleum engineering degree from Texas A&M University.