Marcellus shale gas producers will benefit more than producers elsewhere in the U.S. because of several favorable circumstances - including large producing wells in the northeast U.S. conveniently located near major markets - even if prices were to decline to 2012 levels, according to a Moody’s report.
Anadarko Petroleum (APC), Southwestern Energy (SWN) and Chesapeake Energy (CHK) - all of which entered the play early during a weak natural gas price environment - especially have benefited, Moody's says.
An infrastructural overhaul is still needed as buyers move away from traditional production hubs such as the Haynesville and Barnett, the credit rating agency says; the transition already has caused a decline in credit quality for Exco Resources (XCO), Forest Oil (FST) and Quicksilver Resources (KWK).
The lenders agree to increase the amount of debt they allow FST to take on relative to its cash flow; the measure can now increase to as much as 5.75x the company’s EBITDA through Sept. 30, up from 5x.
FST had said in a regulatory filing in February that without amendments it had expected to breach the threshold as soon as this quarter.
Forest Oil (FST -2.9%) shares slump after Moody's downgrades the company's credit rating to BBB with a negative outlook, citing the reallocation of capital away from Eagle Ford drilling which will result in lower oil production than previously expected and thus lower cash flow and higher leverage.
Separately, Barclays cuts its FST target price to $1.50 due to weaker FY 2015 oil production estimates; FST revealed difficulties with several wells in the Eagle Ford shale in its Q4 results, causing it to lower its type curve assumptions and slow drilling activity until it further processed seismic data (Briefing.com).
Forest Oil (FST -38%) plunges after Q4 earnings and revenues came in below expectations and disappointing Eagle Ford results which further call into question FST's asset quality.
Q4 average net sales volume totaled 164.7M cfe, down 47% Y/Y; average realized prices for gas and oil, including realized derivative gains, were $3.59 and $90.16, respectively, vs. $3.83 and $96.25 in the year-ago period.
Year-end 2013 estimated proved reserves were 625B cfe vs. 1,363B cfe at the end of 2012, mostly the result of 800B cfe of asset sales.
Wells Fargo downgrades shares to Market Perform from Outperform following FST's move to defer 2014 Eagle Ford activity as the company reprocesses existing 3D seismic surveys: "Combined with weaker well results, not what we, nor the Street, wanted to see."
Goldman Sachs reiterates its Sell rating and cuts its price target to $2.50 from $4, citing heightened risk in FST's acreage position, which is "the key asset for the company."
It might seem tempting for energy investors to buy underperforming E&P companies such as Forest Oil (FST) and Newfield Exploration (NFX), but Stifel’s Amir Arif thinks it makes more sense to buy quality names that aren't reflecting proper value rather than trying to catch a year-end bounce in the worst performing names that might have been driven further down from tax-loss related selling.
Investors eyeing energy stocks for a tradeable bounce at the start of the new year don't fare so well, Stifel says; on average, the bottom quartile performers continued to underperform the group by 1.2%, 3.7%, and 2.4% over the coming 30, 60, and 90 days respectively.
Arif’s top picks include Anadarko (APC), Noble Energy (NBL) and EQT, though NFX could be enticing for investors seeking “value turnaround stories."
Forest Oil (FST -4.3%) is downgraded to Neutral from Outperform with a $4 price target, down from $7, at Robert W. Baird, due to concerns around returns and future growth.
Given FST's sub-par rates of return and creeping leverage, Baird believes it will be difficult for FST to achieve robust growth rates going forward; while acknowledging recent share underperformance, the firm doesn't see any significant upside catalysts.
Goldman says production guidance of 120M-130M cfe/day was in line with its expectations, 2014 capex of $290M-$310M was slightly higher than expected, and cash and non-cash operating costs were higher than expected.
The scope for resource improvement in the Eagle Ford to take growth and rates of return to a higher level is key for greater credit, but with capex slightly higher and cash costs higher than expected, the firm continues to see sub-par corporate return on cash invested and ongoing free cash deficits.
Forest Oil (FST -11.9%) is falling sharply after missing its Q3 earnings and revenue numbers, mainly due to lower net sales and natural gas sales volumes as it postponed capital investment in its natural gas properties to concentrate on higher-margin oil prospects; lower oil and gas prices also contributed to the decline.
Q3 net sales volume fell 38.4% Y/Y to 209M cfe/day; production expenses of $1.39/M cfe rose 13%.