Founded: 1916
Incorporated: 1924
NAIC: 211111 Crude Petroleum and Natural Gas Extraction; 211112 Natural Gas Liquid Extraction
SIC: 1311 Crude Petroleum & Natural Gas; 1321 Natural Gas Liquids
A Denver-based producer of oil and natural gas in the United States and Canada, Forest Oil Corporation is credited with developing and implementing the secondary recovery of oil technique ("waterflooding") in the early 20th century, a revolutionary occurrence in the oil and gas industry at that time. The company acquires, explores, develops, and produces natural gas and liquids principally in Arkansas, Colorado, Louisiana, New Mexico, Oklahoma, Texas, Utah, Wyoming, and the Canadian provinces of Alberta and British Columbia. Forest Oil also has a modest presence overseas, with ventures in Italy, Gabon, and South Africa. Its proven reserves in mid-2007 amounted to the equivalent of approximately 1.8 trillion cubic feet of natural gas. In the early 21st century, by way of a series of acquisitions and divestitures, Forest Oil shifted from an emphasis on frontier properties in the Gulf of Mexico to a strategy of acquiring and exploiting an ongoing series of low-risk North American onshore fields.
The Early Years, 1916-39
Forest Dale Dorn and Clayton Glenville Dorn created Forest Oil Corporation in 1916 as an oilfield waterflooding company in northern Pennsylvania. The company's roots can be traced to an oilfield in Bradford, Pennsylvania, that was discovered in 1871. By 1916, oil production at the Bradford site had declined to just under 40 barrels a day, and the reserve was considered by many to be dry. On this "dry" site, Dorn tried out a new waterflooding technique to initiate secondary recovery of oil. The process involved the injection of fluid into the oil reservoir to create energy to produce additional oil. The success of Dorn's technique prompted him to create his own waterflooding company with his father and partner, Clayton Glenville Dorn.
Within five years, Forest Oil was widely recognized throughout the oil and gas industry as not only the innovator of waterflooding, but also the authority and leader in secondary oil recovery systems. The company was quickly contracted by other companies to recover oil through waterflooding techniques at drilling sites around Pennsylvania that were either in the process of being depleted or completely exhausted. Forest Oil's ideas were soon being applied throughout the industry, and were aiding in the extension of oil wells' lives by as much as ten years, in some cases.
Meanwhile, Forest Oil continued drilling wells at the Bradford site. In the late 1920s and early 1930s, the company drilled over 1,000 wells per year, and production increased from the 1916 low of under 40 barrels per day to over 9,300 barrels per day in 1939. Soon thereafter, the reserve at the Bradford site was finally exhausted, and Forest Oil moved on to new properties in Illinois and Oklahoma.
Postwar Diversification
After contributing resources to the World War II effort, Forest Oil changed its emphasis. The company began to focus more on its own exploration endeavors as well as on secondary recovery techniques. To these ends came further geographic expansion into Texas, New Mexico, Louisiana, and several areas in the Rocky Mountains. Then came the decision to seek not only the properties that were well-suited for implementation of secondary recovery techniques, but also properties that would yield oil and gas on their own. It was at this time that Forest Oil developed three guiding principles that would lead the company for years to come: (1) to explore only in areas of high potential, (2) to employ only the most-qualified personnel, and (3) to seek out and enter ventures and partnerships with others. Forest Oil began to deal more in the area of natural gas as well as in oil.
Forest Oil's expansion and diversification following the war enabled it to join the major oil and gas companies when the industry moved its operations offshore in the early 1950s. Forest Oil entered into its first offshore lease agreement in 1953, and was one of the first and only independent companies to drill offshore in the Gulf of Mexico.
Within five years, Forest Oil was comprised of operations in 15 states and four countries on three different continents, and its international holdings were increasing. The company successfully produced oil in the United States, Canada, Colombia, and Cyprus. These foreign ventures, as well as others, continued to prosper for the next decade. By 1969 Forest Oil had grown to be large enough that the company issued its first public offering of stock in the beginning of that year.
A Strong Reputation
Entering the 1970s, very few undeveloped areas existed in the United States any more. Companies began to battle for the exploration areas that required deep drilling, and Forest Oil proved that it was up to the task. It set up operations in the Deep Delaware Basin, which meant drilling wells at depths of more than 20,000 feet. The company soon built a solid reputation as a producer that could drill in deep and expensive territory with success, and continued its tradition of using its innovations to overcome technological problems in the industry.
The company's expensive exploration and problem-solving ventures were funded by the high gas and oil prices from which the industry benefited in the early 1970s. In 1974 Forest Oil sold the bulk of its oil properties to Sun Oil for over $114 million. The company then shifted the majority of its focus to the exploration for natural gas reserves, in the belief that natural gas would be the fuel of the future.
In the early 1980s, Forest Oil's annual revenues continued to climb. Throughout the middle of the decade, however, the prices for natural energy such as oil and gas began to decline. Take-or-pay contracts, which had been popular in the past, soon became undesirable for buyers, and Forest Oil was quickly subject to a lower earnings potential. As an independent, the small company had traditionally reinvested a good portion of its earnings into exploration and the development of new reserves. However, as its cash flow decreased, so did its ability to explore.
The company braced itself to weather the economic storm by continuing its exploration operations at a slightly less aggressive level, while also beginning to focus more of its money on the acquisition of other small oil and gas companies at a time when price tags were reasonable. In 1987 and 1988, Forest Oil discovered two large reserves at its exploratory wells in the Gulf of Mexico, and scheduled production to begin in the early 1990s. In 1989 Forest's revenues reached $131.6 million, but the company suffered a loss of $15 million for the year.
Turnaround
In early 1990, as Forest Oil made plans to begin production at its new reserves in the Gulf, the company earned approximately $58 million in a secondary offering of its stock. Furthermore, a corporate restructuring was planned to save the company approximately $10 million per year. The restructuring included the consolidation of management's operations to its Denver, Colorado, office, which subsequently led to the closing of its offices in Midland, Texas. It retained its office locations in Denver; Lafayette, Louisiana; Bradford, Pennsylvania; and Canada. In addition, the company had also reduced its staff by about 60 people since 1989.
By 1991, Forest Oil faced the lowest natural gas prices (adjusted for inflation) that it had seen in 15 years. This was problematic for the company, given that natural gas accounted for approximately 80 percent of the company's production output; crude oil was the source of Forest's remaining 20 percent of production. Once again, the company reduced its staff, this time by about 80 people. Forest Oil also explored new ways for the company to cut costs in order to stay afloat during the economic downturn. To these ends, Forest Oil entered into a nearly $48 million deal with Enron Corporation, owner of the largest pipeline system in the United States, in exchange for interest in its reserves and properties.
By early 1992, Forest Oil's corporate management believed that the industry had cycled to its lowest point, and that it would begin to rebound soon. Management remained optimistic, as was noted in the company's 1991 annual report, which stated: "Those independent producers who are able to expand quality reserve bases through exploration or acquisition at competitive prices in the face of this hostile industry environment will be positioned to reap the benefits as the cycle again turns upwards." Forest Oil made several acquisitions during that time period, purchasing Harbert Energy Corporation for $40.4 million and Transco Exploration and Production Company for $45 million, both in 1992, as well as the working rights to property owned by both Amoco and ORYX.
Two years later, Forest Oil continued to expand its reach. The company acquired a 50 percent interest in Eugene Island Block 235, and a nearly 67 percent interest in Ship Shoal Block 275. Sales for the year signified an upward trend; they topped off at $115.9 million, the highest yearly revenues since the 1991 low of $69.9 million. Still starved for capital, however, Forest Oil had not truly turned the corner until it secured additional investments. In 1995 Denver billionaire Philip Anschutz, through the Anschutz Corporation, his investment vehicle, infused $45 million into Forest Oil in exchange for a 40 percent stake in the company and a seat on the company board. Soon after this investment was made, Anschutz helped Forest overhaul its management, including the appointment of a new CEO, Robert S. Boswell, who had been the firm's CFO. Over the next few years, Anschutz further aided Forest Oil's turnaround by investing another $130 million in the company. Also bolstering Forest's finances was a 1996 deal whereby Joint Energy Development Investments, a Delaware limited partnership affiliated with Enron, exchanged high-yield Forest Oil debt for an equity stake in the company.
With its balance sheet on the mend, Forest Oil was able to concentrate on acquiring additional reserves in North America and increasing production from its existing fields. In late 1995 the company acquired majority control of Saxon Petroleum, Inc., a Calgary-based firm engaged in oil and gas exploration and production in western Canada, for $23 million. Forest Oil then acquired another Calgary firm, ATCOR Resources Ltd., in early 1996, for $135 million. Subsequently renamed Canadian Forest Oil Ltd., ATCOR had proven reserves that were the equivalent of approximately 151 billion cubic feet of gas. Through the ATCOR takeover, Forest also gained a gas marketing subsidiary, which it renamed Producers Marketing Ltd. (ProMark). These acquisitions immediately yielded positive results for the company, helping Forest achieve 1996 sales of $317.5 million. Also contributing to that almost 400 percent increase in revenue for the year was the solid performance of the company's properties in the Gulf of Mexico, which were churning out over 40 million cubic feet of gas per day. Forest Oil also returned to the black in 1996, posting profits of $3.3 million, the firm's first positive showing in four years.
Forest Oil continued to make acquisitions in 1998, including the purchase of 13 onshore oil and natural gas properties in southern Louisiana for $231 million in cash and stock. The properties acquired had reserves equivalent to 189 billion cubic feet of natural gas. That same year, Forest bought some of Anschutz's oil and natural gas assets in exchange for about $82 million in Forest stock. These assets included four producing fields in Utah and Wyoming with reserves equivalent to 90 billion cubic feet of natural gas, plus Anschutz's Canadian oil and gas assets and certain international assets. Forest also acquired the shares of Saxon it had not already owned, taking full control of Saxon and then merging it into the Canadian Forest Oil Ltd. subsidiary. In the meantime, the oil and gas industry went into another sharp downturn in 1998, as crude oil traded for as low as $14 per barrel late in the year, a huge dropoff from the $26 per barrel peak of 1997. Forest Oil was forced to write down the value of its reserves by $175 million, which led in large part to a $191.6 million net loss for the year on revenues of $321.8 million. The company returned to profitability in 1999 with a $19 million gain on revenues of $357.3 million. That year, Forest Oil's Canadian subsidiary and Anschutz formed a 50-50 joint venture to explore lands in the Yukon Territory and the Northwest Territories of Canada.
In December 2000 Forest Oil doubled in size and became one of the nation's largest independent oil and gas producers by acquiring Forcenergy Inc., a firm based in Miami, Florida, that Anschutz had gained control of out of bankruptcy. This deal, for $510 million in Forest Oil stock, increased Forest's proven reserves from approximately 775 billion cubic feet of natural gas to 1.38 trillion cubic feet. The addition of Forcenergy significantly expanded Forest's properties in the Gulf of Mexico and also provided an entry into Alaska, where Forcenergy had properties in Cook Inlet, one of the best producing gas regions in the state.
Over the next few years, Forest Oil spent several hundred million dollars exploring and developing its underperforming field in Cook Inlet. This risky strategy of frontier exploration led at least in part to the poor showing for 2002: net income of just $21.3 million on revenues of $475.7 million. In early 2003 Anschutz's direct involvement in the company came to an end when he sold half of his shares, reducing his stake to around 15 percent, and resigned from the company board. During his seven years on the board, Forest Oil grew its reserves fivefold. Another era ended later in the year when Boswell resigned abruptly. Craig Clark took over as CEO, having served as president and COO since September 2001.
2003 Forward: Shift to Low-Risk Exploitation of Existing Onshore Fields
Clark immediately shifted strategy away from frontier exploration, which he deemed too risky and costly for a company the size of Forest Oil. Instead, in a move harkening back to the company's earliest days as a specialist in the secondary recovery of oil, Forest was to focus on acquiring and exploiting existing fields, which entailed both lower risk and lower costs, concentrating on onshore fields in the United States and Canada. A wider cost-containment effort was implemented to free up capital for acquisitions, along with an effort to pay down debt. The first major acquisition of the Clark era occurred in October 2003 when Forest paid Unocal Corporation $207 million for 70 of its properties in the Gulf of Mexico and onshore Louisiana. Later in the year, Forest Oil spent around $100 million for a number of assets in the Permian Basin of western Texas and southeastern New Mexico, as well as five fields in south Texas.
Over the next three years, Forest Oil completed a series of acquisitions in keeping with the new strategy. In June 2004 the company acquired the Wiser Oil Company, a Dallas firm with oil and gas properties in the Gulf of Mexico, the Permian Basin, and Alberta, for $347 million. The Wiser properties had proven reserves equivalent to 186 billion cubic feet of natural gas. In April 2005 Forest acquired a private company that owned an 83 percent stake in the Buffalo Wallow field in the Texas Panhandle for $197 million in cash and the assumption of $35 million in debt. This field, which had more than 300 drilling locations, contained proven reserves equivalent to 120 billion cubic feet of natural gas. Next, Forest Oil in March 2006 paid six private companies approximately $255 million for natural gas producing assets in the Cotton Valley of eastern Texas that had proven reserves equivalent to 110 billion cubic feet of natural gas. In the meantime, Forest Oil sold its ProMark gas marketing subsidiary in Canada in 2004 and also whittled down its holdings outside North America to three areas: Gabon, South Africa, and Italy.
A key move in line with the shift from offshore to onshore properties was completed in March 2006, when Forest Oil spun off its Gulf of Mexico assets to its shareholders, and immediately merged the assets into Houston-based Mariner Energy, Inc. As part of the transaction, Forest received $197.8 million in cash, which went toward debt reduction. The new strategy implemented by Clark appeared to be well on its way to success as Forest Oil posted profits of $168.5 million in 2006 on net sales of $820 million.
Two major deals in 2007 moved Forest further along its new path. In June the company added significantly to its drilling inventory in support of its acquire-and-exploit strategy by purchasing the Houston Exploration Company for $1.5 billion in cash and stock plus $100 million in assumed debt. Forest gained 3,200 new drilling sites in eastern and southern Texas, eastern Colorado, and eastern Utah. This purchase increased Forest's natural gas production by 65 percent, to 517 million cubic feet per day, and boosted its oil and gas reserves by nearly 50 percent, to the equivalent of two trillion cubic feet of gas. To help pay for the deal, to narrow the geographic spread of its operations, and to further the shift away from offshore properties, Forest Oil in August 2007 sold its Alaskan assets to Pacific Energy Resources Ltd. for around $460 million plus ten million shares of Pacific common stock. With this key divestment, Forest Oil's interests were predominantly onshore properties in North America, largely completing the company's transformation. Nevertheless, the company planned to pursue further acquisitions as it sought to have replacement growth projects ready to be exploited as existing growth projects mature and are played out.
Principal Subsidiaries
Forest Oil Panhandle Resources L.P.; Forest Oil Permian Corporation; Canadian Forest Oil Ltd. (Canada).
Principal Competitors
Exxon Mobil Corporation; BP p.l.c.; Royal Dutch Shell plc; Chevron Corporation; ConocoPhillips; TOTAL S.A.; Hess Corporation; Murphy Oil Corporation; Anadarko Petroleum Corporation; Apache Corporation; Devon Energy Corporation; Chesapeake Energy Corporation; XTO Energy Inc.; El Paso Corporation.
Further Reading
Chakrabarty, Gargi, "Deal Gives Forest 83% of Texas Gas Field," Denver Rocky Mountain News, March 1, 2005, p. 2B.
------, "Forest Oil to Buy Houston Energy Firm," Denver Rocky Mountain News, January 9, 2007, p. 4B.
------, "Forest Oil to Buy Out Wiser," Denver Rocky Mountain News, May 25, 2004, p. 4B.
Cowin, Candice, "Boswell's Path Takes Him Out of the Forest," Upstream, August 15, 2003.
Darbonne, Nissa, and Don Lyle, "Forest Oil Stock Price Survives Reserve Revision," Oil and Gas Investor, March 2004, pp. 103-4.
Dittrick, Paula, "Forest Oil Advances via Leadership Change, Reorganization," Oil and Gas Journal, April 4, 2005, pp. 36-38.
Dowling, Mark, "Forest Prunes Operations As It Bids to Buy Big Houston Firm," Denver Business Journal, November 9, 1990, p. 7.
------, "Local Gas Companies Forced to Cut Payroll by Declining Prices," Denver Business Journal, July 19, 1991, p. 1.
Evans, Beth, "With Jana's Blessing, Forest Oil to Acquire Houston Exploration," Platt's Oilgram News, January 9, 2007, p. 1.
Forest Oil Corp. Corporate History, Denver: Forest Oil Corp., 1992.
"Forest to Buy THX, Divest Alaska Unit," Oil and Gas Investor, February 2007, p. 101.
Hubler, Eric, "Forest Oil, Others Restate Some Reserves," Denver Post, March 19, 2004, p. C1.
Klann, Susan, "Out of the Woods," Oil and Gas Investor, March 1997, pp. 39-41.
Liskey, Tom Darin, "Forest Oil Sheds Weight in Alaska," Upstream, June 1, 2007, p. 42.
------, "Houston Set to Fit Nicely with Forest," Upstream, January 12, 2007, p. 52.
McNamara, Victoria, "Gas Firms Sign New Long-Term Contracts to Control Prices," Houston Business Journal, June 10, 1991, p. 12.
Raabe, Steve, "Forest Deal Boosts Colo.: Purchase of Texas Firm Ends String of HQ Losses," Denver Post, January 9, 2007, p. C1.
------, "Forest Oil Buys E. Texas Drilling Site," Denver Post, February 14, 2006, p. C4.
------, "Forest Oil Sells Alaskan Energy Assets for $464 Million," Denver Post, May 30, 2007, p. C1.
------, "Forest Oil Unveils Major Find," Denver Post, November 16, 2000, p. C1.
------, "Gas Field off S. Africa a 'Huge' Find for Forest," Denver Post, August 28, 2003, p. C1.
Roche, Pat, "Forest Boss Blasts Past Strategy, Will Limit Frontier Spending," Daily Oil Bulletin, August 8, 2003.
Schwab, Robert, "Forest Oil Planning to Buy Rival Forcenergy," Denver Post, July 11, 2000, p. C1.
Smith, Jeff, "Forest Completes Acquisition: $510 Million Takeover of Forcenergy Complete," Denver Rocky Mountain News, December 8, 2000, p. 1B.
Taylor, Gary, "Forest Oil Acquires Wiser in $330-Mil Deal," Platt's Oilgram News, May 25, 2004, p. 3.
Toal, Brian A., "Forest Oil Management Change-up Under Way," Oil and Gas Investor, September 2003, p. 80.
------, "Out of the Woods," Oil and Gas Investor, September 2005, pp. 71-72.
------, "A Tale of Two Turnarounds," Oil and Gas Investor, May 1993, pp. 47+.
Tyson, Ray, "US' Forest Stakes Major Position on Gulf Shelf," Platt's Oilgram News, September 23, 2003, p. 1.
Wright, Blake, "Forcenergy Finds Refuge in Forest," Upstream, July 14, 2000.
------, "Forest Deal Spins Off U.S. Gulf Assets," Upstream, September 16, 2005, p. 66.
— Laura E. Whiteley; Updated by David E. Salamie
