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Executives

Larry C. Busnardo - Director of Investor Relations

Michael N. Kennedy - Chief Financial Officer and Executive Vice President

Patrick R. McDonald - Chief Executive Officer, President, Director and Member of Executive Committee

Analysts

Michael A. Hall - Robert W. Baird & Co. Incorporated, Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division

Pearce W. Hammond - Simmons & Company International, Research Division

Daniel Braziller - BNP Paribas, Research Division

David R. Tameron - Wells Fargo Securities, LLC, Research Division

Brian T. Velie - Capital One Southcoast, Inc., Research Division

Carney Hawks

Paul Grigel - Macquarie Research

Biju Z. Perincheril - Jefferies & Company, Inc., Research Division

Forest Oil (FST) Q4 2012 Earnings Call February 21, 2013 11:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Quarter Four 2012 Forest Oil Corporation Earnings Conference Call. My name is Kathy, and I will be your operator for today. [Operator Instructions] I shall remind you, this call is being recorded for replay purposes. I would like to turn the call over to Mr. Larry Busnardo, Director, Investor Relations. Please proceed, sir.

Larry C. Busnardo

Great. Thanks, Kathy. Good morning. I want to thank you for participating in our fourth quarter and year end 2012 earnings conference call. A replay of this call will be available through March 7 as described in our press release issued yesterday afternoon.

Joining me on the call today is Patrick McDonald, Forest President and CEO; and Michael Kennedy, Executive Vice President and CFO.

Some of the presenters today will reference certain non-GAAP financial measures regularly used by Forest in measuring its financial performance. Reconciliations of such non-GAAP financial measures with the most comparable financial measure calculated in accordance with GAAP will be available on our website and can be viewed by clicking on the Investor Relations tab, then Non-GAAP at forestoil.com. Forest's comments today will include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

These statements are subject to a number of risks and uncertainties that may cause the actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties are described in Forest's earnings release and in Forest's public filings made with the Securities and Exchange Commission.

I will now turn the call over to Michael.

Michael N. Kennedy

Thanks, Larry, and thanks to everyone joining us today. I'd like to first start out with a review of our fourth quarter production results, then move on to a discussion about our balance sheet and finish with a review of our 2013 guidance.

In the fourth quarter, average net sales volumes came in at $309 million per day, which was at the midpoint of our guidance range. Liquids made up 35% of the total volumes, which compares to 30% in the fourth quarter of 2011. The $309 million per day contained approximately $73 million per day of production for our South Louisiana and South Texas divestitures. Pro forma for these divestitures, fourth quarter production was at $236 million per day.

Our focus on oil and liquids projects is paying dividends. Our pro forma oil and liquids volumes increased 47% and 21%, respectively, during the fourth quarter of 2012 as compared to the fourth quarter of 2011. In addition, we posted oil volume growth of 67% and liquids volume growth up 33% for 2012. That's compared to 2011 on a pro forma basis.

These increases are a result of a continued focus on our higher-margin oil opportunities within the Panhandle Area and our development program in the Eagle Ford. I would also note that this growth was accomplished entirely on an organic basis, and I would expect that this upward trend on oil and liquids volumes to continue as Forest currently has 4 of its 5 rigs targeting higher-margin oil opportunities. A reconciliation of our 2012 and 2011 pro forma production volumes can be found on Page 4 of our earnings release.

We set out during the second half of 2012 to improve the company's financial condition and restore flexibility to our balance sheet, and we successfully accomplished this objective. This was primarily done through the sale of noncore assets, culminating in the sale of our South Texas properties that closed last week.

Since announcing a deleveraging plan in July of 2012, we completed just over $600 million of divestitures at accretive metrics to Forest. A portion of the sale proceeds, along with the $500 million senior notes offering we completed in September, were used to fund the redemption of our 2014 senior notes and pay off the outstanding balances on the credit facility, which pushed out our debt maturities. Pro forma for the South Texas divestiture, our total net debt at year end 2012 was approximately $1.5 billion, with an undrawn facility and a $900 million borrowing base.

During 2012, we also took significant steps to protect the balance sheet by aligning our drilling capital to be near our cash flow. Capital spending in the fourth quarter was $103 million, and cash flows came in at approximately $93 million. We will maintain this prudent approach to protect our balance sheet during 2013.

I would now like to touch on our 2013 guidance that was released yesterday afternoon. We have set a 2013 capital budget of $355 million to $375 million, which includes $315 million to $325 million of exploration and development capital and is designed to be near our expected cash flow. The budget calls for 2 rigs in the Panhandle Area, 1 to 2 rigs in the Eagle Ford and 1 rig in East Texas.

Based on current projections, we expect to average equivalent net sales volumes of $220 million to $230 million per day, with a 40% liquids component and to grow our oil volumes in excess of 30% in 2013 as compared to 2012 on a pro forma basis. Importantly, our liquids component of production is anticipated to increase to approximately 45% by the fourth quarter of 2013 from approximately 35% in the first quarter of 2013.

Our equivalent net sales volume should be relatively steady during the first half of the year as our focus on oil opportunities will allow oil volumes to begin to overtake the declines in our natural gas production, and we should see an uptick in our total volumes during the second half of the year. Our guidance also incorporates the impact that pad drilling in the Eagle Ford will have on our completion schedule during 2013.

We are currently fully hedged on the midpoint of guided natural gas volumes for 2013 at about $4. We also continue to selectively add to our hedge portfolio for our 2014 natural gas hedging program and now have approximately 80 million per day of swaps at $4.34. On the oil side, we have in place greater than 50% of midpoint guided volumes, attractively hedged at over $95 per barrel in 2013. A full summary of our hedge position can be found on Page 8 of the press release or in the 10-K.

To summarize, we made solid progress on increasing the company's financial flexibility with the noncore asset divestitures and our recent high-yield offering. We have set a capital budget that allows us to stay near cash flow while allowing us to show significant growth in our oil and liquids volumes. In addition, we expect to be back to growth in the second half of this year.

I will now turn the call over to Pat McDonald for comments.

Patrick R. McDonald

Thanks, Michael. Good report. Thank you.

During 2012, we had some challenges for the company, but we set a plan and we were executing on that plan. We feel we're ahead of our objectives, operational and financial strategy going forward, and now we'd like to turn our attention to getting the company back to growth. We're not complacent. While we've accomplished a great deal in a short period of time, we know there's more work to be done. I'd like to give everyone in this company credit for staying focused and working together to allow us to execute on the plan, and everyone here is engaged on a go-forward strategy.

Forest is fortunate to possess a balanced portfolio of drilling and opportunities, mainly oil-focused here as we move forward into 2013 and beyond. We've narrowed our operational focus in our portfolio to a core group of assets comprised of the Texas-Oklahoma Panhandle, the Eagle Ford shale position in Gonzales County, Texas, and our East Texas liquids-rich areas. All 3 of these areas offer black oil drilling opportunities, and that's what we'll be focused on going forward.

As Michael observed and noted, the focus on oil is paying off here as we have increased our net oil volumes by nearly 70%, and our oil reserves are up 26% year-over-year from 2011 to 2012. For 2013, we'll continue to execute on our oil development program, with specific attention to the Texas and Oklahoma Panhandle properties as well as our Eagle Ford shale position. All of these areas have generated good, predictable, consistent results for us in 2012, and we look forward to continued results in 2013.

In the Texas and Oklahoma Panhandle, we're focused on the oil opportunities, which include the Missourian Wash, Hogshooter formation, the Tonkawa, the Douglas and other oil zones. We have a large inventory of drilling locations, and we're starting at the top the highest return oil projects.

During the fourth quarter, we participated in 2 Hogshooter wells that had 30-day gross production rates of over 1,800 barrels a day. We've got another Hogshooter well that we operate. It's currently in the process of being completed, and we're pleased with the results so far and we look forward to replicating those results as we go forward into 2013.

Since our drilling program in late '11, 2011, in Hogshooter, we've drilled 8 wells that have had average 30-day rates of 1,800 barrels a day, nearly 70% crude oil, and 90-day rates of 1,200 barrels a day. So good results on that drilling in that formation. And the estimated ultimate recovery and cumulative production is holding up along with those initial rates.

In the Eagle Ford, we're focused on what we call our central fairway, approximately 40,000 acres. We've got good results, and we continue to increase our oil volumes. Q4 was up 30% over the third quarter, and our oil volumes from 2011-2012 have increased by 130%.

We're drilling -- in the central fairway, we've now drilled -- we've got 2 wells in the fourth quarter that had 30-day average gross production rates of over 500 barrels a day. In 2012, we drilled 14 wells that had average 30-day rates of close to 500 barrels a day and -- on 30-day rates, and 90-day rates over 350 barrels a day. They're consistent with our type curve and with our expectations going forward for -- as we move to a larger scale development program in the Eagle Ford.

We've -- we're focused in the Panhandle and in the Eagle Ford by enhancing our well productivity and dropping our well costs down. As part of that initiative in Eagle Ford, we've moved now to a pad drilling where we're drilling 4 wells off of a single pad using a rig walking system. That's allowed us to bring our well costs down significantly, and we've drilled here some recent wells here under $6 million per well.

So our Eagle Ford team, the engineers, geologists, land people that are working on that play have done an excellent job of prioritizing locations and enhancing our completion techniques, our frac-ing technology, and we're looking forward to continued improvement there in 2013, both in the Eagle Ford and also applying technology and a lower-cost initiative in the Texas and Oklahoma Panhandle.

We feel we set out a solid strategy for 2013 and beyond and that's capturing the value within these 3 core areas, focusing on the higher-margin oil opportunities. We'll continue to spend near projected cash flow to protect our balance sheet, but our attention will certainly be turning to growing our production volumes, cash flow, reserves here as we get into the middle of 2013 and beyond. The group here at Forest is focused on that plan, and we look forward to demonstrating to our shareholders and other constituents that we're capable of executing the strategy.

That concludes my remarks, and I'd like to open it up to questions from those of you on the phone.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from the line of Michael Hall from Baird.

Michael A. Hall - Robert W. Baird & Co. Incorporated, Research Division

I guess a couple questions on my end. I guess first on monetization plans. Can you just kind of realign what remains in that pipeline? And any update on color around the timing of those?

Patrick R. McDonald

Yes, thanks, Michael. We're -- it's -- we've been -- we're out in the public with our Permian package. There are 2 separate positions totaling about 110,000 acres. We showed those projects and opportunities again at the Prospect Expo in Houston a couple weeks ago. Industry activity, competitor activity seems to be coming our way. So we think we have good well results on our Wolfbone package, and that appears to be substantiated by competitor activity moving from the north down south toward our acreage blocks. So we're encouraged by the well results, and we're hoping that as the next time goes by here in early part of 2013, we'll be able to execute on either monetizing those assets in some way, shape or form, one extreme being a cash sale and at the other end, perhaps being some kind of co-development opportunity that might come our way. Other than that, we have no marketed assets. We're not out actively marketing any of the other assets of the company.

Michael A. Hall - Robert W. Baird & Co. Incorporated, Research Division

Okay. Is there -- I thought you had a stub [ph] of acres still in the Eagle Ford that might not be gotten to with the 2-rig program. Just curious, is there still a piece of acreage potentially up for sale in the Eagle Ford as well?

Patrick R. McDonald

Yes, there are bits and pieces outside of the core area that are being selectively shown to people that have demonstrated interest in and around there. They're smaller pieces. They're not nearly as contiguous or blocky as the rest of the position.

Michael A. Hall - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then I guess another on the monetization front. You got hedges above and beyond your gas production by my model at this point. Just curious on any central thoughts around monetizing the gains on those?

Michael N. Kennedy

Yes, right. We're evaluating that, Michael, right now. We're currently looking at maybe monetizing those and using those to trade out some of our oil swaptions into '14 and just converting those to swaps. But we'll be looking at that over the next month, and we'll do something like that.

Michael A. Hall - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then last on my end, just in the Panhandle, assuming the whole program in '13, as I understand, is focused on the Hogshooter or Missourian Wash. Just curious, if you did see a better gas environment or NGL environment in the back half of the year, might you consider redirecting any of that capital to Granite Wash, higher rig Granite Wash wells? Or are you fully dedicated to the Hogshooter program?

Patrick R. McDonald

I think we're focused on the rate of return of the various projects, Michael. So whatever rises to the top is what we plan to drill. One of the things we're doing in the Panhandle is focusing on a very narrow area of our position so we can try to get some economies of scale, cut down our rig mobilization costs and really just try to stay focused in a concentrated area from a geographical perspective, as well as in the Hogshooter zone. We -- obviously, you know from following the company, we have a vast inventory of natural gas and liquids-rich opportunities. But at the moment, they don't compete for capital with the oil projects.

Michael A. Hall - Robert W. Baird & Co. Incorporated, Research Division

Yes, that makes sense. And then finally I guess, the Hogshooter results to date, do you have kind of an EUR expectation that we should...

Michael N. Kennedy

Yes, I think in the past, Michael, we've said between 350,000 to 500,000 barrels, and that's where we're at today.

Patrick R. McDonald

Yes, we haven't seen any results which cause us to change that outlook.

Operator

Your next question comes from the line of Brian Singer of Goldman Sachs.

Brian Singer - Goldman Sachs Group Inc., Research Division

After narrowing the focus here over the last few quarters here, do you feel like you have the running room in acreage needed in your key areas? Or should we expect potential acquisitions to get bigger in the areas to which you've narrowed your focus? Or I guess other areas, but probably the ones you’ve narrowed your focus.

Patrick R. McDonald

Yes, thanks. No. I mean, we've got solid acreage positions, lots of development locations and we have no need to look over the fence to what's going -- what's happening outside those core areas. Plenty of runway out, 2, 3 years out in terms of locations and high rate of return opportunities.

Brian Singer - Goldman Sachs Group Inc., Research Division

Great. And then as we think about oil production starting to kind of re-ramp a little bit in the second half, can you just talk a little bit more regionally about what the push is and pulls are from an oil production perspective, what could surprise to the upside and where your main drivers of growth versus declines are that kind of get you to the forecast?

Patrick R. McDonald

Well, I think what we're doing right now from a science point of view is we're -- we've got a corporate technology group that's applying best practices and trying to maximize the productivity of our wells and our completion programs. So that's a focus that's going on here internally. So we hope to drive our cost -- through that effort, we'll drive our costs down and drive our well productivity up. And that effort is focused primarily on the Eagle Ford where we've demonstrated some success in enhancing our well productivity and driving our costs down. Now we've turned our attention to the Panhandle and plan to do the same thing on the Oklahoma and Texas oil opportunities. I'm not sure if I answered your question, Brian.

Brian Singer - Goldman Sachs Group Inc., Research Division

I guess as we look for oil to start to grow again, is that then based essentially on just better productivity from wells you've already drilled or improved frac techniques from new wells? Or -- you were looking to raise activity levels later in the year.

Patrick R. McDonald

Yes to both enhancing productivity rates of return through better completion practices, and as well as trying to get a higher-level of activity in the second half of the year.

Operator

Your next question comes from the line of Pearce Hammond of Simmons & Company.

Pearce W. Hammond - Simmons & Company International, Research Division

Pat and Michael, would you all ever consider monetizing your service assets, your drilling rigs and all?

Michael N. Kennedy

Pearce, we already have a sale leaseback on that, so there's not much equity left to be monetized, but we do evaluate those type of opportunities.

Pearce W. Hammond - Simmons & Company International, Research Division

Great. And then are you currently experiencing ethane rejection? And what's your view on that for the full year 2013?

Michael N. Kennedy

Yes, we're not experiencing it right now. It's basically a push in our Panhandle, and we have the election on a quarterly basis, so we didn't elect in this first quarter. We'll continue to monitor it. If it makes sense to reject, we will. But right now, we're not planning on it.

Pearce W. Hammond - Simmons & Company International, Research Division

And then last one for me, what was your PV-10 last year?

Michael N. Kennedy

I think we'll have that out in our 10-K on Friday, Pearce.

Operator

Your next question comes from the line of Daniel Braziller, BNP Paribas.

Daniel Braziller - BNP Paribas, Research Division

I'm just wondering, did South Louisiana close on November 16? Because if so, I'm calculating oil production of 6.9 thousand a day pro forma for 4Q. Is that about right?

Michael N. Kennedy

I don't know that number off the top of my head. You're right on the closing date, but we'll have to get back on that with the pro forma on the actual oil.

Daniel Braziller - BNP Paribas, Research Division

Okay. Because assuming it is 6.9, it's like a 9% growth rate to 7.5 a day for 2013, which is your guidance. I'm just wondering, given the great Hogshooter results and the rig in the Eagle Ford, if you could just walk through why there isn't sort of more black oil [indiscernible].

Michael N. Kennedy

There may be more. The South Texas was predominantly gas, but there was 10% oil. So I think there was like 1,000 barrels a day of oil in the South Texas package. So you'd have to take that out of your pro forma. So I don't know it'd be...

Daniel Braziller - BNP Paribas, Research Division

Well, the 6.9 should adjust for both asset sales?

Michael N. Kennedy

Yes, the 6.9 should, we did not adjust for it because South Texas was in the fourth quarter.

Patrick R. McDonald

It didn't close until last week.

Michael N. Kennedy

Yes, February 16.

Daniel Braziller - BNP Paribas, Research Division

Correct, correct. But so pro forma though would be 6 point -- if you took out the South Texas, it's not 6.9 for 4Q?

Michael N. Kennedy

No, I'll have to get [indiscernible]. Hold on, let me get it. Yes, it's lower than that. It's about 6.7.

Operator

Your next question comes from the line of David Tameron, Wells Fargo.

David R. Tameron - Wells Fargo Securities, LLC, Research Division

A couple or 3 or 4 questions. First, with the revolver paid off, if you were to do any additional transactions, where is that -- where do those proceeds go? Is it to accelerate CapEx?

Michael N. Kennedy

Well, it will initially go to pay down debt but then, hopefully, it will be redeployed into accelerating capital.

David R. Tameron - Wells Fargo Securities, LLC, Research Division

Okay. And like, I mean if your revolver is paid off, would you pay down the 19 or 20s? Or how would you...

Michael N. Kennedy

Yes, I mean, the 19s are callable. We don't have any intentions of doing it right now. But if we had further transactions, that would be an option for us. That's just to call some of those and then accelerate capital. And as that capital comes in, draw on the revolver a little bit to pay for it.

David R. Tameron - Wells Fargo Securities, LLC, Research Division

Okay. All right. And Pat, you talked about monetization. No one's asked about Granite Wash. There's been chatter out there of a potential Panhandle JV. Can you address that? Or I know it's an asset that's got a lot of industry interest.

Patrick R. McDonald

Well, there is a lot of interest in all of our assets actually. We feel we've got the right kind of properties and the right kind of people working on them, and the 2 -- the combination of those 2 should allow us to attract necessary capital. I can't comment specifically on any of those 3 assets in regard to possible partnerships, joint ventures, drilling opportunities, but those are things that we're actively engaged in.

David R. Tameron - Wells Fargo Securities, LLC, Research Division

All right. All right. I'll let that go for now. And then 20 -- and I realize you just gave us 2013, but you indicated second half over first half. How's -- any color around '14, '15? And how should we think about the trajectory and the way you guys are thinking about it right now?

Michael N. Kennedy

Well, obviously, it depends on commodity prices. But based on the capital spend we have, we think starting in the second half, we can grow in the low single-digits and have that growth be in oil. But that's on a 6-month basis obviously. But I think with a capital budget of $315 million to $325 million, that's probably what we can achieve.

David R. Tameron - Wells Fargo Securities, LLC, Research Division

Okay. Mike, is that overall corporate growth, low single-digits, that'd be in oil?

Michael N. Kennedy

Yes. That's overall corporate with the growth coming from the oil.

Operator

Your next question comes from the line of Brian Velie, Capital One Southcoast.

Brian T. Velie - Capital One Southcoast, Inc., Research Division

One quick question. You mentioned a little over 1/2 of your production for '14 on the gas side looks like it's already hedged. What kind of gas number would you be looking at where you'd be interested in adding additional hedges there?

Michael N. Kennedy

Yes, we -- right now we're full with our risk management policy at 80 million a day. So we're really not looking to add to that level. But when we were putting those on there, it was about $4.25 level and using various option instruments was able to obtain a slightly higher and 4.50 on the double up swaption. So it was really around the $4.25 level what we were targeting.

Brian T. Velie - Capital One Southcoast, Inc., Research Division

Okay. And does that $4.25 make you feel like you're a little bit more, I guess, insured on the side of doing a little bit more drilling in other pieces of the Granite Wash? Is that where you might go next? Or would that be -- would that go from there to...

Michael N. Kennedy

No, I mean, that really wouldn't change our capital allocation right now. Obviously, capturing the $90 oil, or $90-plus with our realizations, is much more attractive than $4 gas. So that was really just protecting well above where our internal price deck is, and it's also well above where the bank pricing is.

Operator

Your next question comes from the line of Carney Hawks, Brigade Capital.

Carney Hawks

I just had a question on the production guidance. I mean, there's obviously a lot of moving parts out there with the sales you've done, but it seems like a number of the analysts were at a higher level of 2013 production than you're at. Can you just talk a little bit about whether they were just too high and just where you're coming out is kind of in line with where you've been expecting? Or did something change over the last 3 or 4 months that caused your expectations for production to come down? And if so, what was that?

Michael N. Kennedy

Yes, no, nothing's changed, Carney. We thought their estimates were probably stale. Obviously, it's the first time we provided guidance. So this was updating them, and they didn't quite understand the South Texas divestiture and its effect on volumes. That's why I led off the comments with pro forma for those South Louisiana and South Texas divestitures. If you strip that out of the fourth quarter, we had 236 million per day. So this is consistent with what we've been telling people that we'd be flat to down, with the oil growing and gas declining at double digits. So...

Carney Hawks

But your expectation is to finish the year with growing production. So when will production -- what quarter do you expect to see your production...

Michael N. Kennedy

Third quarter.

Carney Hawks

Third quarter will be the trough.

Michael N. Kennedy

Yes.

Carney Hawks

And in terms of free cash...

Michael N. Kennedy

Second quarter is the trough.

Carney Hawks

Okay. Second quarter, trough. Third quarter will show the first sign of improvement?

Michael N. Kennedy

That's right.

Carney Hawks

And in terms of the cash flows, obviously it depends on pricing, but you've hedged to get them out. Assuming we don't have any dramatic changes in pricing, when you say you're going to be close to spending within your cash flow, what does that mean? Does that mean within $50 million, within $100 million? What sort of -- I guess, my concern is it seems like a lot of the things you've said you've parsed and then used negatively against you. So I just want to be crystal clear so that if you are slightly free cash flow negative that is expected?

Michael N. Kennedy

Right, it's the same level. Our E&D is $315 million to $325 million. We'll be within $25 million to $50 million of that from a cash flow perspective.

Carney Hawks

Got it. And what is -- your borrowing base has not been redone yet for the asset sales?

Michael N. Kennedy

No, it has been. It was set at $900 million.

Carney Hawks

$900 million. So your liquidity -- I'm sorry, you probably already said it, but your liquidity right now is?

Michael N. Kennedy

$900 million. We don't have anything drawn on it.

Carney Hawks

And then you have no cash. Okay.

Operator

Your next question comes from the line of Paul Grigel of Macquarie.

Paul Grigel - Macquarie Research

I was wondering if you guys could provide some timing on the potential for a resource inventory update across both the Panhandle as well as the other plays?

Patrick R. McDonald

We've got that internally. It's always going to be a work-in-progress as we learn more and develop more and understand more about the formations. But we feel we've got a pretty well built out assessment of the Texas and Oklahoma Panhandle opportunity that we feel confident that we've got several years' worth of high-quality locations ready to be drilled. And as we get through '13 and start to think about '14 and beyond, we'll start mapping those out more specifically. In our year end reserve study, it will address some of that resource potential, and that's -- we're not out with that yet. But it's an ongoing work-in-progress, the asset teams are fully aware of the need to prove out the full value of the Panhandle. And the ultimate goal is to get it reflected in the value of our stock. And the way we plan to do that is through consistent repeatable results and just start delivering the production reserves and cash flow that we think we can generate out of that asset base.

Paul Grigel - Macquarie Research

And is there any thoughts of sharing that externally?

Patrick R. McDonald

We've thought about that internally, and we think maybe as we get through '13 and have a story and some results to demonstrate, we would plan to show that to the outside.

Paul Grigel - Macquarie Research

Okay. And then turning to the Eagle Ford. Just as you guys move to pad drilling on the core acreage, how much of the 40,000 acres in the core is held by production now?

Patrick R. McDonald

I don't know that number exactly off the top of my head. It's somewhere around 15,000 acres, 16,000 acres.

Michael N. Kennedy

Yes, I think we're -- we've got 26 wells. Each one, when you think about it, Paul, is holding around 640 acres. So just do the math that way.

Paul Grigel - Macquarie Research

Okay. And in terms of timing of those expirations in the cores, when do those generally average?

Michael N. Kennedy

Yes, there's obviously some in '13 that we're not going to be able to hold, and the majority of it's in '14. So with this rig program, we put 20 wells out in '13, that'll obviously hold another 15,000. So you'll be up to 30,000 at year end '13, and then a similar program in '14 will get you to the 40,000 that we communicated.

Operator

[Operator Instructions] Your next question comes from the line of Biju Perincheril of Jefferies.

Biju Z. Perincheril - Jefferies & Company, Inc., Research Division

When you talk and look at legacy assets that's not getting capital these days, you still have substantial production coming out of Arkoma. Is that something that you can monetize? And if you do, what are the opportunities to accelerate development with that capital potentially going to Panhandle to further delineate and pull up that position?

Patrick R. McDonald

Yes, with additional capital we've got opportunities lined up that we can execute on. So I don't think it's a question of not having a place to invest that money with good rates of return.

Biju Z. Perincheril - Jefferies & Company, Inc., Research Division

Well, I mean, and if you do have -- and if there are further monetizations, is Panhandle -- if you look at the portfolio today, Eagle Ford, Panhandle, East Texas, would it be fair to say Panhandle would be where the incremental dollars would go?

Patrick R. McDonald

Right. Correct.

Biju Z. Perincheril - Jefferies & Company, Inc., Research Division

And then one question on the Eagle Ford. You talked about 40,000 acres within your central fairway. Is that -- how much of the total acreage do you think is productive? Or is it a capital constraint that you only want to HBP that much acre?

Patrick R. McDonald

Yes, and when we designed and created this phraseology of the central fairway of 40,000 acres, it was based on our capital resources and our ability to hold those acreage. The actual area of prospectivity is greater than 40,000 acres. So if there is additional capital or if we can reduce our costs significantly, we would be able to drill and hold more than the 40,000 acres. We think geologically and from a reservoir perspective, the area of oil is greater than 40,000 acres. I didn't quite say that very fluently, but if we had more in capital to put to work, we'd like to hold more of that Eagle Ford position.

Biju Z. Perincheril - Jefferies & Company, Inc., Research Division

So are you looking at potential joint venture partners there?

Patrick R. McDonald

Well as I said before, we are engaged in all of our key areas in those types of reviews and discussions.

Operator

I would now like to turn the call over to Larry Busnardo for closing remarks.

Larry C. Busnardo

Okay. This will conclude our conference call. I want to thank everyone for their interest and participation in the call. If you have any questions, feel free to contact us. Thank you.

Operator

Thank you for joining today's conference. This concludes the presentation. You may now disconnect. Good day.

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Source: Forest Oil Management Discusses Q4 2012 Results - Earnings Call Transcript
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