Denver-based Forest Oil Corporation (FST) reported breakeven results, faring better than the Zacks Consensus Estimate of a loss of 6 cents per share. In the prior-year quarter, the company had reported earnings of 6 cents per share.

Total revenue in the reported quarter decreased to $62.1 million from the year-ago level of $118.2 million. However, this came above the Zacks Consensus Estimate of $60.0 million.

Production

Net sales volume rose nearly 13% sequentially to 108.6 million cubic feet equivalent per day (MMcfe/d). It comprised 33% liquids compared with 31% in the prior quarter.

The company’s net oil sales volume in the third quarter increased nearly 13% from the sequential period to 3.6 thousand barrels per day (MBbls/d). Natural gas sales volume in the quarter was 72.5 million cubic feet per day (MMcf/d).

Realized Prices

The average equivalent price per million cubic feet (Mcf), including the effect of hedging, was $6.36. Natural gas was sold at $4.14 per Mcf. Natural gas liquids (NGLs) were sold at $28.55 per barrel and average realized oil price was $89.51 per barrel.

Expenses

In the reported quarter, exploration and development capital totaled $69 million compared to $45 million in the sequential period. The increase was primarily due to a higher number of wells that were drilled and completed in the reported quarter following the addition of a third drilling rig in East Texas.

Financials

At quarter end, Forest Oil had $823.0 million in cash and cash equivalents with $813.2 million of long-term debt (including current portion), representing a debt-to-capitalization ratio of 100.6% (down from 106.0% at the end of second-quarter 2014).

Sabine Oil & Gas Merger Update

Forest Oil has scheduled the special meeting of shareholders for its proposed merger with Sabine Oil & Gas LLC on Nov 20. Forest shareholders of record as of the close of business on Oct 3, will be entitled to vote at the special meeting. Both Forest and Sabine remain focused on completing the merger by year-end 2014.

According to the agreement, Sabine Investor Holdings, LLC, the owner of Sabine Oil & Gas, will contribute its interests in Sabine Oil & Gas to Forest Oil, in return for the issuance of common and preferred stock in Forest Oil.

Following the transaction, Sabine Oil & Gas will become a wholly owned subsidiary of Forest Oil, Sabine Investor Entities will hold common and preferred shares representing an aggregate 73.5% interest in Forest Oil and the existing common shareholders of Forest Oil will hold the remaining 26.5% interest in the company.

Further, with the issuance of preferred stock to Sabine, the latter will have about 80% of the combined voting interest in Forest Oil. The transaction is anticipated to be tax-free for Forest Oil shareholders and Sabine Investor Entities. The headquarters of the combined entity will be in Houston, TX, and will be supervised by Sabine’s current executive management team.

Zacks Rank

At present, Forest Oil has a Zacks Rank #5 (Strong Sell). One can, however, look at better-ranked players in the energy sector like Magellan Midstream Partners LP (MMP), Murphy USA Inc. (MUSA) and Sandridge Mississippian Trust II (SDR). All these stocks sport a Zacks Rank #1 (Strong Buy).