Forest Oil acquires Houston Exploration

By Lisa Kerner

Charlotte, N.C., June 6 - Forest Oil Corp. completed its acquisition of Houston Exploration Co. for approximately $750 million in cash and some 24 million issued shares.

"The acquisition of Houston Exploration will add highly focused gas assets to the Forest portfolio to which we believe we can add significant value by reallocating capital, generating free cash flow, and increasing our presence in areas like East and South Texas," Forest Oil president and chief executive officer H. Craig Clark said.

Forest Oil also reached an agreement with its commercial banks to amend and restate its credit facilities in connection with the Houston Exploration transaction.

As a result, the initial borrowing base under the credit facilities will be $1.4 billion, and the term of the facilities has been extended to June 6, 2012. Commitments for the global facility will consist of a U.S. facility of up to $850 million and a Canadian facility of up to $150 million for a total of $1 billion. Forest Oil had $167 million drawn on its global credit facility as of April 30, according to the news release.

Forest Oil also closed its private placement of $750 million of 7.25% senior motes due 2019, the proceeds from which will be used to finance part of the Houston Exploration cash consideration.

Preliminary results from the Forest Oil's offer show that the stock component of its merger deal is oversubscribed. Of the 28,559,499 shares of Houston Exploration common stock outstanding on June 5, 2,129,055 shares elected to receive cash and 22,911,988 shares elected to receive shares of Forest Oil common stock. The totals do not include elections made by guaranteed delivery.

As a result, Houston Exploration stockholders who elected to receive all of their merger consideration in shares of Forest Oil common stock will receive a combination of cash and stock. Stockholders who elected to receive all cash, or failed to make a valid election, will receive $60.0239 cash per share.

The agreement also calls for Forest Oil to grant a stock option to each Houston Exploration employee who has remained continuously employed by Forest Oil and its subsidiaries from the effective time of the merger to the date of the grant. Forest Oil will also grant a stock option to employees who held, immediately prior to the effective time of the merger, an unexercised Houston Exploration stock option with an exercise price equal to or greater than $54.18 per share.

Houston Exploration is an independent natural gas and crude oil producer based in Houston.

Denver-based Forest Oil is engaged in the acquisition, exploration, development and production of natural gas and liquids primarily in North America.

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