Forest Oil Corporation ("Forest") is an independent oil and gas company engaged in the acquisition, exploration, development, and production of oil, natural gas, and natural gas liquids primarily in North America. Forest was incorporated in New York in 1924, as the successor to a company formed in 1916, and has been a publicly held company since 1969. Forest's total estimated proved reserves as of December 31, 2009 were approximately 2,121 Bcfe. At December 31, 2009, approximately 83% of Forest's estimated proved oil and gas reserves were in the United States, approximately 15% were in Canada, and approximately 2% were in Italy.
Strategy
Over the last six years, we have pursued a strategy directed at transforming Forest from a predominantly offshore Gulf of Mexico oil and gas producer to a North American onshore company with a focus on unconventional resource plays having numerous lower risk opportunities for production and reserve growth. An integral part of this strategy has been the acquisition of properties in several core operational areas of focus while divesting our non-core assets outside of those areas. We also seek to maintain financial flexibility as part of our business strategy, which includes maintaining capital discipline and focusing on cost control.
Core Operational Areas
Forest's core operational areas, where the majority of its exploration and development activities are planned in 2010, are detailed below. Our 2010 budget provides for a significant increase in the level of drilling activity in these core areas compared to 2009. In addition to the core operational areas below, Forest owns and operates producing oil and gas properties throughout North America.
The Greater Buffalo Wallow Area
The Greater Buffalo Wallow area extends over a large area in the Texas Panhandle and Western Oklahoma. Forest holds approximately 94,000 net acres in the area primarily located in Hemphill, Lipscomb, Roberts, and Wheeler Counties in the Texas Panhandle. The area provides for excellent horizontal and vertical drilling opportunities targeting liquids-rich Granite Wash intervals as well as other multi-pay objectives such as the Atoka and Morrow formations. We drilled our first horizontal wells in the area in 2009, leveraging our database of over 400 wells in the area to determine attractive formations throughout our acreage position to initiate a horizontal drilling campaign. Based on the results of the first four operated horizontal wells drilled in the area, which had initial 24-hour production rates of approximately 30 MMcfe per day, we plan to significantly increase the number of horizontal wells drilled in 2010 by employing up to a four rig program, investing approximately $150 million for, among other projects, the drilling of 20 to 25 gross horizontal wells.
East Texas / North Louisiana Area
The East Texas / North Louisiana area includes our interests in approximately 154,000 net acres that are prospective for the Cotton Valley, Haynesville, Bossier and other formations. Since our entry into East Texas in 2006, we primarily targeted tight-gas sands in the Cotton Valley formation. In 2009, we expanded our drilling program in the region and drilled seven wells targeting the Haynesville formations, including four horizontal wells in Louisiana. These four wells had average initial 24-hour production rates of 18 MMcfe per day. In 2010, we plan to operate up to four rigs in the area and invest approximately $160 million for, among other projects, the drilling of 12 to 16 gross horizontal wells targeting the Haynesville Shale in North Louisiana and six to eight gross horizontal wells targeting the Cotton Valley Sands or Haynesville/Bossier formations in East Texas and North Louisiana
Canadian Deep Basin Area
The Canadian Deep Basin area is located in Alberta and British Columbia and primarily includes our interests in the Wild River, Narraway, Ojay, and Evi fields. As we did with our Greater Buffalo Wallow area development strategy, we plan to further delineate the Narraway, Ojay, and Wild River fields through the drilling of vertical wells to evaluate multiple objectives in these fields to potentially employ a horizontal drilling program in the future. Forest holds approximately 88,000 net acres in the basin and we plan to run up to a seven rig program during 2010. We intend to invest approximately $170 million in 2010 for, among other projects, the drilling of between 35 to 40 operated wells including horizontal wells in our oil-rich Evi field as well as vertical wells where multi-pay zones are being targeted in our Narraway, Ojay, and Wild River fields. The capital budget for the Deep Basin in 2010 was increased compared to prior years to take advantage of the current favorable royalty regime in place in Alberta.
Acquisition and Divestiture Activities
We pursue acquisitions that meet our criteria for investment returns and are consistent with our North American onshore low-risk development focus, and we pursue divestitures of non-core assets to upgrade our portfolio and further increase our operational efficiencies. Acquisitions in and around our existing core areas enable us to leverage our cost control abilities, technical expertise, and existing land and infrastructure positions. In general, our acquisition program has focused on acquisitions of properties that have substantial development drilling opportunities and undeveloped acreage. The following sets forth our significant acquisitions and divestures over the last several years.
Acquisitions
In September 2008, we acquired producing oil and natural gas properties located in our Greater Buffalo Wallow and East Texas / North Louisiana core areas from Cordillera Texas, L.P. for approximately $570 million in cash and 7.25 million shares of our common stock, valued at approximately $360 million based on a September 30, 2008 closing date. As of the closing date of the acquisition, the assets included approximately 350 Bcfe of estimated proved reserves and 85,000 net acres.
In May 2008, we acquired producing oil and natural gas properties located primarily in our East Texas / North Louisiana core area for approximately $284 million. As of the closing date of the acquisition, the assets included approximately 110 Bcfe of estimated proved reserves and 47,000 net acres.
In June 2007, we acquired The Houston Exploration Company ("Houston Exploration") in a cash and stock transaction totaling approximately $1.5 billion and the assumption of Houston Exploration's debt. Houston Exploration was an independent natural gas and oil producer engaged in the exploration, development, exploitation, and acquisition of natural gas and oil reserves in North
America. At the time of the acquisition, we estimated the Houston Exploration proved reserves to be 653 Bcfe. Pursuant to the terms and conditions of the agreement and plan of merger, Forest paid total merger consideration of $750 million in cash and issued approximately 24 million shares of our common stock, valued at $30.28 per share.
In March 2006, we acquired oil and natural gas properties located in our East Texas / North Louisiana core area for approximately $255 million in cash. As of the closing date of the acquisition, the assets included approximately 110 Bcfe of estimated proved reserves and approximately 26,000 net acres.
In April 2005, we acquired oil and natural gas properties in the Greater Buffalo Wallow core area for approximately $197 million in cash and the assumption of $35 million in debt. As of the closing date of the acquisition, the assets included approximately 120 Bcfe of estimated proved reserves and approximately 28,000 net acres.
Divestitures
During 2009, we sold all of our oil and gas properties located in Permian Basin in West Texas and New Mexico as well as other non-core oil and gas properties in the U.S. and Canada for approximately $1.1 billion in cash. We estimated the proved reserves associated with these properties were 628 Bcfe at the closings of the relevant transactions.
In November 2008, we sold the majority of our oil and gas properties located in the Rocky Mountains for approximately $198 million in cash. We estimated the proved reserves associated with these properties were 75 Bcfe at closing.
In August 2007, we sold all of our assets located in Alaska to Pacific Energy Resources Ltd. ("PERL") which were estimated to have proved reserves of 173 Bcfe at the time of closing. Total consideration received for the assets included $400 million in cash as well as 10 million shares of PERL common stock and a zero coupon senior subordinated note from PERL due 2014.
In March 2006, we completed the spin-off of our offshore Gulf of Mexico operations by means of a special dividend, which consisted of a pro rata spin-off (the "Spin-off") of all outstanding shares of a Forest subsidiary that held our offshore Gulf of Mexico assets to holders of record of Forest common stock as of the close of business on February 21, 2006. Immediately following the Spin-off, the Forest subsidiary was merged with a subsidiary of Mariner Energy, Inc. ("Mariner"), at which time the 50.6 million shares included in the Spin-off were exchanged for an equal number of Mariner common shares. Mariner's common stock commenced trading on the New York Stock Exchange ("NYSE") on March 3, 2006. We estimated the proved reserves associated with the Spin-off to be 313 Bcfe at the time of closing.
Reserves
The following table summarizes our estimated quantities of proved reserves as of December 31, 2009, based on the Henry Hub price of $3.87 per MMBtu for natural gas and the West Texas Intermediate price of $61.08 per barrel for oil, each of which represents the unweighted arithmetic average of the first-day-of-the-month prices during the twelve-month period prior to December 31, 2009.