Forest Oil to sell oil and gas assets in Texas for $325m

US-based Forest Oil has signed an agreement to divest all of its oil and gas properties in south Texas, excluding Eagle Ford Shale oil properties, for $325m.

During the third quarter of 2012 the properties produced 66 million cubic feet equivalent per day, of which 86% is natural gas.

As of 31 December 2011, the South Texas properties have estimated proved reserves of 272 billion cubic feet equivalent, of which 85% is natural gas, and generated about $60m of lease-level income during 2012.

The company plans to use the proceeds from the sale to pay off debts, as well as to retain its entire natural gas hedges.

Forest Oil president and CEO, Patrick R McDonald, said the divesture of non-core south Texas natural gas assets will be beneficial to Forest shareholders from the point of equity and debt perspective.

"The allocation of capital and resources towards our core oil and liquids assets in the Texas Panhandle and Eagle Ford, alongside the evident improvement in our financial position, is a material positive for us," added McDonald.

McDonald also said that the liquids contribution of the company’s production mix is about 40%, and will continue to increase with support from its oil-focused drilling programme.

The company will also maintain its strategic natural gas option within its significant acreage position in east Texas / north Louisiana, McDonald noted.

The deal is expected to be completed on or before 15 February 2013, subject to customary closing conditions and post-closing purchase price adjustments.

The Eagle Ford Shale formation in south Texas produces oil, natural gas and natural gas liquids at various depths from 4,000ft to 14,000ft.