Forest Oil Corp., a Denver-based oil and natural-gas producer, will spin off its offshore Gulf of Mexico operation to shareholders and then sell the newly formed company to Mariner Energy Inc.
In a transaction that will raise $200 million in cash, Forest shareholders will end up owning 58 percent of closely held Mariner, which will apply for listing on the New York Stock Exchange. Forest shareholders will get 0.8 share of Mariner Energy for each share of Forest.
Mariner is adding reserves worth as much as $1.12 billion to its Gulf of Mexico leases, based on rivals trading for $3 to $3.25 per million cubic feet, Calyon oil and gas analyst Brad Beago said in Houston. The spinoff will own offshore proved reserves equivalent to 344 billion cubic feet, the companies said. Gas futures on the New York Mercantile Exchange reached a record Aug. 31, driving up the value of leases.
“This makes a lot of sense,” said Beago, who doesn’t rate Forest’s stock and doesn’t own its shares. “Prices for reserves have gotten so high that in order to pay cash, Mariner would have had to take on a huge amount of debt.”
“If you’re going to get serious about the gulf in the long term, you need to get in to deep water,” Forest Oil chief executive H. Craig Clark said on a conference call with analysts and investors. “We chose to pair up with Mariner,” which has drilled wells in water 6,000 feet deep.
Mariner will have about $300 million in debt after the close of the transaction, including $200 million in borrowing by the spinoff that will be paid to Forest in cash, chief executive Scott Josey told investors. It intends to accelerate drilling on the Forest leases, although he wouldn’t give a figure.
Mariner will more than double its proved reserves to the equivalent of 615 billion cubic feet of natural gas with the transaction, Forest said. About 68 percent of those reserves are proved developed, Forest said. Mariner will assume liabilities of $50 million.
