We are posting ValueX Vail presentations, lots of great ideas and not all of them are up yet so make sure to check back (or even better sign up for our newsletter to ensure you do not miss any). Also see our prior coverage of ValueX Vail.

ValueX Vail 2014 – Forest Oil Corporation (FST)

Aquitania Capital Management, LLC’s Christopher Karlin presentation on Forest Oil Corporation (NYSE:FST) at ValueX Vail.

Who We Are?

  • Aquitania Capital Management is an opportunistic value investor with an event focus
  • Seeking dislocations where ourcounterparties are making uneconomic decisions
    • Asymmetric reward-to-risk situations with high conviction in a variant thesis
    • Securities that are either being accidentally overlooked or actively avoided by most investors

ValueX Vail: Opportunity in Forest Oil

  • Forest Oil Corporation (NYSE:FST) and Sabine Oil & Gas agreed to merge on 5/6/14
  • Merger creates value for both parties
  • Market fails to recognize value for identifiable structural reasons
  • FST trades at a substantial discount to intrinsic value
  • Margin of safety highlights gap between perceived risk and probable risk
  • Several near-term catalysts to close valuation gap with peers
  • Long-term catalysts could result in substantial growth
  • Primary risks are deal closure and energy pricing –primarily

ValueX Vail: Merger Rationale

Sabine:

  • Public listing –liquidity and capital access
  • Additional scale –reserves & production
  • Acquires reserves at a discount
  • Sabine management remains in place

Forest:

  • Improves balance sheet
  • Participates in upside

2015 synergies:

  • Eliminate 2/3 of Forest SG&A
  • Apply Sabine’s D&C talent and Forest’s cost control to improve returns on Forest reserves.

ValueX Vail: Forest Oil outlook

Forest Oil Corporation (NYSE:FST) is an asset-rich domestic E&P company with a weak balance sheet

  • Stock has significantly underperformed:
    • 2011: -50%
    • 2012: -53%
    • 2013: -46%
    • 2014 YTD (pre-merger announcement): -50%
    • 2014 YTD (6/17/14): -36%
  • Assets: Ark-La-Tex (gas), Eagle Ford (oil) & Permian (oil)
  • High indebtedness, large drilling program and weak drilling results pushed it to seek a partner

ValueX vail Forest oil Pro Forma Asset Profile

Full Presentation: 232173046-Forest-Oil-FST-ValueX-Vail-2014

Forest Oil FST ValueX Vail 2014