Exploration and production independent Forest Oil Corp., through the recently announced sale of its Alaska assets, has finally rid itself of a major offshore  disappointment -- the company’s ill-performing Redoubt Shoal oilfield in Alaska’s Cook Inlet. But first the deal. 
   For a total consideration of around $464 million, California based-Pacific Energy Resources Ltd. agreed to acquire Forest proved reserves totaling about 181 billion cubic feet of gas equivalent and daily production of roughly 38 million cubic feet equivalent. In addition, the assets to be sold to Pacific Energy include net undeveloped acreage of approximately one million acres and Forest’s interest in the Cook Inlet Pipe Line Co.
   Because payment is to include 5,500,000 shares of Pacific Energy valued at about $16 million, Forest will have a hand in future events.
   “Our equity ownership in Pacific indicates our confidence in their plan for further developing these assets based on their work in similar fields in the United States,” said Craig Clark, Forest’s president and chief executive officer.
   Actually, Forest’s real motives for selling its Alaska assets was part of a larger scheme to exit the offshore in favor of a more predictable land positions, recently witnessed by Forest’s acquisition of Houston Exploration. Houston Exploration’s onshore North American base consists of assets in South and East Texas, the Arkoma Basin, Eastern Colorado Niobrara and the Uinta Basin and will add a significant inventory of low-risk repeatable play drilling opportunities to Forest’s portfolio.
   For this, Forest paid approximately $750 million in cash and issued about 24 million of its 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 re-allocating capital, generating free cash flow,  and increasing our presence in areas like East and South Texas,” Forest’s Clark said.


   Forest’s big policy shift to the onshore and less risky plays occurred just prior to a shocking revelation about its offshore Redoubt Shoal field in Cook Inlet. Initially, the company had high hopes for the field, with estimated in-place reserves of 400- to 500 million barrels of oil, roughly 70 million barrels of which Forest had planned to book back in 2002. Production was expected to peak at about 15,000 barrels per day, a level that would have pushed overall Cook Inlet production by about 30% to roughly 30,000 b/d.
   On the decline since the late 1960s, Cook Inlet oil once produced 200,000 barrels per day, so Redoubt Shoal was seen by industry observers as a savior come to rejuvenate regional production.
   “You just don’t see this (potential) in the (US) Lower 48 and North America,” then Forest CEO Bob Boswell said in an August 2002 interview, adding that once Redoubt development was squared away and producing, the company  intended to begin exploring its Cook Inlet prospects with combined in-place reserve estimates of 768 million barrels of oil and 582 billion cubic feet of natural gas.
   Four of Forest’s seven Cook Inlet prospects -- Corsair, Raptor, Tutna and Valkyrie -- were 100% owned by the company. However, Forest was still unsure just how well Redoubt  would perform. The company had anticipated a 25% recovery rate with waterflooding. And the production platform was designed to process 20,000 barrels per day, 5,000 barrels per day more than the anticipated peak production rate. "We’re going to put it on production and watch its performance,” Boswell said. Ouch!


   One year later, in an August 2003 conference call, Forest’s new chief executive, Clark, disclosed that lower-than-expected production rates could force a reduction in Redoubt reserve estimates. “It's not going to be anything like half,” Clark said.
   In fact, Redoubt came on stream producing around 4,200 barrels per day. But rates slipped to 3,116 barrels per day even as new wells were being drilled and tested. But not being able to get incremental production from existing wells had been a disappointment, Clark said. He added that Redoubt was producing about 4,000 barrels per day less than originally expected at that time, suggesting that the field by then should have been producing around 7,000 to 8,000 barrels per day.
   But the reservoir was producing copious amounts of  water -- about 2,500 barrels per day, suggesting that the geology in the area was far more complicated than initially thought. “For a new field that’s a lot of water,” noted Bill Van Dyke, then 
petroleum manager for the Alaska Division of Oil and Gas.
   Because wells were not meeting expectations, Forest was forced to change Redoubt’s geologic and reservoir models, so they “appropriately reflect the apparent reservoir complexity and heterogeneity.” Fewer development wells were likely to be drilled at Redoubt and that would “lessen the oil in place” to recover, Clark cautioned.
   The Redoubt platform was constructed to handle 15 producers and 10 injectors. Earlier plans called for as many as 28 development wells, including 15 for oil, three for gas and 10 for water injection. The first  five or six wells were expected to each produce 2,500 barrels per day of oil.
   Clark, during the same conference call in which he broke the bad news on Redoubt, announced that Forest intended to reduce its exposure to frontier exploration and concentrate more on less risky ventures closer to home and reducing costs. “Returns have been hampered by large amounts of cash for frontier assets,” Clark added.
   Clark said Forest would limit frontier spending to 5% to 10% of capital employed rather than the company’s historic 20%. The exploration cutback involved Forest’s entire international portfolio, including Canada's Northwest Territories, and some areas of Alaska's Cook Inlet.

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