Sabine Oil, Forest To Merge In All-Stock Deal - Update

(RTTNews) - Sabine Oil & Gas LLC and Forest Oil Corp (FST) Tuesday agreed to combine their businesses in an all-stock deal, sending Forest shares surging 15 percent in morning trade on the New York Stock Exchange. The deal is expected to position the combined company as a key player in East Texas.

As per the terms, Sabine unit holders will own about 73.5 percent of the new combined entity and Forest shareholders will own around 26.5 percent.

Forest CEO Patrick McDonald said the company's stockholders will benefit, given the potential gained from a larger and better capitalized entity with strong portfolio.

The boards of both companies approved the deal, which is subject to approval by the Forest shareholders and customary conditions. The deal is expected to close in the third or fourth quarter of 2014 and is expected to be tax-free to Forest's shareholders.

Denver, Colorado-based Forest and Sabine believe that their complementary asset portfolios will create a leading East Texas player, with drilling program optimization and economies of scale.

The combined entity, named Sabine Oil & Gas Corp, will be a newly formed parent company expected to list on the New York Stock Exchange under the symbol "SABO." To be headquartered in Houston, Texas, the new company will be led by Sabine's current executive team.

The new company will have estimated proved reserves of 1.5 trillion cubic feet equivalent, and estimated daily production of 345 million cubic feet equivalent for 2014.

The combined company's size and scope is also expected to provide liquidity to fund its drilling program through 2015 without accessing equity markets.

As part of the terms, each share of Forest Oil common stock will be converted into 0.1 of a share of Sabine Oil & Gas common stock, designed to replicate a 10:1 reverse stock split.

Concurrent with the merger, Sabine's parent entity will contribute all of its equity interest in Sabine to Sabine Oil & Gas, in exchange for which it will receive approximately 33 million shares of Sabine Oil & Gas common stock.

Also today, Forest reported a net loss of $21 million or $0.18 per share, compared with a loss of $68 million or $0.59 per share a year ago. Adjusted loss was $2.6 million or $0.02 per share, compared with earnings of $3.4 million or $0.03 per share a year ago. Revenues slid to $65 million from $118 million. Analysts expected a loss of $0.02 per share on revenues of $65.2 million.

Forest stock is trading at $2.06, up $0.27 or 15.08%, on a volume of 22 million shares on the NYSE.