-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LhPdkopCK38rZAwhCGt8ocBKW9b3vQmXozaJnMvrEI6be4Hmk4i094m5ZE8FoHHV PdG9SXfqZsBxI+ekMpCs0A== 0001157523-07-010794.txt : 20071106 0001157523-07-010794.hdr.sgml : 20071106 20071106093019 ACCESSION NUMBER: 0001157523-07-010794 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20071105 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20071106 DATE AS OF CHANGE: 20071106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOREST OIL CORP CENTRAL INDEX KEY: 0000038079 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 250484900 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13515 FILM NUMBER: 071216129 BUSINESS ADDRESS: STREET 1: 707 SEVENTEENTH STREET STREET 2: SUITE 3600 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3038121400 MAIL ADDRESS: STREET 1: 707 SEVENTEENTH STREET STREET 2: SUITE 3600 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: Forest Oil CORP DATE OF NAME CHANGE: 20040819 FORMER COMPANY: FORMER CONFORMED NAME: FOREST OIL CORP DATE OF NAME CHANGE: 19920703 8-K 1 a5538139.txt FOREST OIL CORPORATION 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported): November 5, 2007 FOREST OIL CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New York - -------------------------------------------------------------------------------- (State or other jurisdiction of incorporation) 1-13515 25-0484900 - -------------------------------------------------------------------------------- (Commission File Number) (IRS Employer Identification No.) 707 17th Street, Suite 3600, Denver, Colorado 80202 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 303.812.1400 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 2.02. Results of Operations and Financial Condition. On November 5, 2007, we issued a press release announcing our third quarter 2007 financial and operational results. The press release contains certain non-GAAP financial information. The reconciliation of such information to GAAP financial measures is included in the release. Item 7.01. Regulation FD Disclosure. The information set forth under Item 2.02 of this Current Report on Form 8-K is hereby incorporated in Item 7.01 by reference. The information in this Current Report, including Exhibit 99.1, is being furnished pursuant to Items 2.02 and 7.01 of Form 8-K and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to liabilities of that section. Item 9.01. Financial Statements and Exhibits. (d) Exhibits. Exhibit Description ------- ----------- 99.1 Forest Oil Corporation press release dated November 5, 2007, entitled "Forest Oil Announces Record Quarter in Sales Volumes; Record Adjusted Net Earnings, EBITDA, and Discretionary Cash Flow; New Assets Outperforming Expectations". SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. FOREST OIL CORPORATION (Registrant) Dated: November 6, 2007 By /s/ CYRUS D. MARTER IV ------------------------------ Cyrus D. Marter IV Vice President, General Counsel and Secretary INDEX TO EXHIBITS FILED WITH THE CURRENT REPORT ON FORM 8-K - ----------------------------------------------------------- Exhibit Description - ------- ----------- 99.1 Forest Oil Corporation press release dated November 5, 2007, entitled "Forest Oil Announces Record Quarter in Sales Volumes; Record Adjusted Net Earnings, EBITDA, and Discretionary Cash Flow; New Assets Outperforming Expectations". EX-99.1 2 a5538139ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 Forest Oil Announces Record Quarter in Sales Volumes; Record Adjusted Net Earnings, EBITDA, and Discretionary Cash Flow; New Assets Outperforming Expectations Sales Volumes Increased 62% from 2006 to a Record 508 MMcfe/d (Ex-Alaska) with Record Sales Volumes in Its "Big 5" Assets Having a Combined Rate of 315 MMcfe/d, Accounting for 62% of the Company's Sales Volumes Adjusted Net Earnings Per Share Increased 75% from 2006 to $.84 Per Share Adjusted EBITDA Increased 93% from 2006 to a Record $256.3 Million Adjusted Discretionary Cash Flow Increased 103% from 2006 to a Record $226.9 Million Closed the Sale of All Alaska Assets and Entered into a Sale-Leaseback Transaction for Its Drilling Rigs, Reducing Net Debt by $463 Million, or 22%, to $1.67 Billion as of September 30, 2007 Business Editors/Energy Editors DENVER--(BUSINESS WIRE)--Nov. 5, 2007--Forest Oil Corporation (NYSE: FST) (Forest or the Company) today announced financial and operational results for the third quarter of 2007. The Company reported the following highlights excluding all operational results relating to Alaska for the quarter ended September 30, 2007: -- Record sales volumes of 508 MMcfe/d, an increase of 62% compared to the third quarter of 2006 -- Production expense of $1.28 per Mcfe, a decrease of 25% compared to the third quarter of 2006 -- Record adjusted net earnings of $73.0 million, or $.84 per share, an increase of 146% compared to the third quarter of 2006 -- Record adjusted EBITDA of $256.3 million, an increase of 93% compared to the third quarter of 2006 -- Record adjusted discretionary cash flow of $226.9 million, an increase of 103% compared to the third quarter of 2006 -- Completed the sale of all Alaska assets and entered into a sale-leaseback transaction for its drilling rigs, accomplishing the previously stated asset rationalization sales target of $500 to $600 million faster than anticipated -- Decreased net debt by $463 million to $1.67 billion H. Craig Clark, President and CEO, stated, "The third quarter was the first full quarter of operations of the Houston Exploration assets in the portfolio and reflected the disposition of Forest's Alaska assets. This completes the transformation of Forest to a cost efficient development company focused primarily on production optimization and cost control in North American onshore plays. During the quarter Forest was able to increase sales volumes to record levels while allocating capital to projects with attractive economic returns and focusing on margin capture. Forest is significantly ahead of schedule in reducing total cash costs related to its acquisition of Houston Exploration. We have reduced production expense to $1.28 per Mcfe and general and administrative expense per-unit back to levels that existed prior to the acquisition. The future of the Company will remain focused on tight-gas sand and oil development as well as optimizing value from existing legacy assets." THIRD QUARTER 2007 RESULTS For the quarter ended September 30, 2007, Forest reported net earnings of $58.0 million or $.67 per basic share. The net earnings for the quarter ended September 30, 2007 were affected by the following items: -- The non-cash effect of net unrealized losses relating to the mark to market valuation on derivative instruments and investments, and foreign currency exchange totaling $8.8 million ($4.7 million net of tax) -- Write-off of unamortized debt costs and prepayment premiums of $9.0 million ($5.8 million net of tax) related to Forest's repayment of the Forest Alaska term loan facilities -- The pro forma loss from the Alaska operations for the period from July 1, 2007 to August 27, 2007 of $7.2 million ($4.6 million net of tax) that was included in Forest's reported net earnings for the quarter ended September 30, 2007 Without the effects of these items, the Company's adjusted net earnings were $73.0 million or $.84 per basic share. This amount is an increase of 146% over Forest's adjusted net earnings of $29.7 million or $.48 per basic share in the corresponding 2006 period. In order to provide data comparable to Forest's ongoing operations and most recent published guidance, the following discussion relates solely to Forest's results excluding all operational results relating to Alaska for the three months ended September 30, 2007 as compared to reported results for the quarter ended September 30, 2006. (Please refer to the pro forma statement and non-GAAP disclosures below.) Forest's adjusted EBITDA increased 93% during the third quarter of 2007 to $256.3 million compared to adjusted EBITDA of $132.5 million in the third quarter of 2006. Forest's adjusted discretionary cash flow increased 103% during the third quarter of 2007 to $226.9 million in 2007 compared to adjusted discretionary cash flow of $111.5 million in the third quarter of 2006. The increases are a result of the acquisition of The Houston Exploration Company (Houston Exploration) on June 7, 2007. Forest's oil and gas sales volumes increased 62% during the third quarter of 2007 to 508 MMcfe/d compared to sales volumes of 313 MMcfe/d in the third quarter of 2006. The following table sets forth Forest's average net sales volumes for the quarters ended September 30, 2007 and 2006: Three Months Ended Three Months Ended September 30, 2007 September 30, 2006 ------------------- ------------------- DAILY VOLUMES Daily natural gas sales volumes (MMcf): United States 312.5 117.9 Canada 70.5 66.0 ------------------- ------------------- Total 383.0 183.9 =================== =================== Daily oil and condensate sales volumes (MBbls): United States 10.2 13.7 Canada 2.1 2.0 ------------------- ------------------- Total 12.3 15.7 =================== =================== Daily natural gas liquids sales volumes (MBbls): United States 7.8 4.7 Canada 0.7 1.1 ------------------- ------------------- Total 8.5 5.8 =================== =================== Daily equivalent sales volumes (MMcfe): United States 420.5 228.3 Canada 87.2 84.6 ------------------- ------------------- Total 507.7 312.9 =================== =================== Forest's differential to NYMEX prices for natural gas decreased 42% in the third quarter of 2007 to $.81 per Mcf compared to $1.39 per Mcf in the third quarter of 2006. The improved differential for natural gas was due to the acquisition of Houston Exploration and lower NYMEX prices. Forest's differential to NYMEX prices for oil and condensate and natural gas liquids was $4.35 per Bbl and $35.97 per Bbl (approximately 48% of NYMEX), respectively, in the third quarter of 2007 compared to $4.39 per Bbl and $33.88 per Bbl (approximately 48% of NYMEX), respectively, in the third quarter of 2006. Forest's per-unit oil and gas production expense decreased 25% during the third quarter of 2007 to $1.28 per Mcfe compared to $1.71 per Mcfe in the third quarter of 2006. The improved results were due to cost reduction measures being ahead of schedule on the Houston Exploration acquired assets, the inclusion of the lower cost Houston Exploration assets, and the divestiture of the Alaska assets. Forest's per-unit general and administrative expense, excluding stock compensation expense, decreased 6% during the third quarter of 2007 to $.29 per Mcfe compared to $.31 per Mcfe in the third quarter of 2006. The third quarter 2007 results reflect the faster than expected integration of the Houston Exploration assets and associated synergies. Forest's per-unit depreciation and depletion expense increased 15% during the third quarter of 2007 to $2.50 per Mcfe compared to $2.17 per Mcfe in the third quarter of 2006. The increase of $.33 per Mcfe was due to increased depletable costs due to purchase accounting for the Houston Exploration acquisition. Forest's interest expense increased 47% during the third quarter of 2007 to $28.1 million compared to $19.1 million in the third quarter of 2006. The increase resulted from higher average debt levels and increased average interest rates. Debt levels increased to fund the Houston Exploration acquisition. For the quarter ended September 30, 2007, Forest invested $230.2 million in exploration and development activities. Forest reduced its net debt by 22% to $1.67 billion at September 30, 2007, from $2.14 billion at June 30, 2007, which results in a reduction in its net debt to book capitalization ratio from 48% to 41%. Forest accomplished this significant debt reduction primarily through asset sales, including the sale of the Alaska assets and the drilling rig sale-leaseback transaction. NATURAL GAS AND OIL DERIVATIVES Forest currently has natural gas and oil derivatives in place for 2007 and 2008 covering the aggregate average daily volumes and weighted average prices shown below. The following is a summary for the remainder of 2007 and 2008 as of November 5, 2007: Remainder 2007 2008 --------- --------- Natural gas swaps: Contract volumes (Bbtu/d) 60.0 50.0(1) Weighted average price (per MMBtu) $7.88 8.38 Natural gas collars: Contract volumes (Bbtu/d) 145.0 116.6(1) Weighted average ceiling price (per MMBtu) $9.27 9.15 Weighted average floor price (per MMBtu) $7.42 7.50 Oil swaps: Contract volumes (MBbls/d) 7.0 6.5 Weighted average price (per Bbl) $70.03 69.72 Oil collars: Contract volumes (MBbls/d) 4.0 Weighted average ceiling price (per Bbl) $87.18 Weighted average floor price (per Bbl) $65.81 (1) 10.0 of the 50.0 Bbtu/d of natural gas swaps and 28.4 of the 116.6 Bbtu/d of natural gas collars are subject to a put of $6.00 per MMBtu. OPERATIONAL PROJECT UPDATE BUSINESS DEVELOPMENT Forest has previously stated a goal of maintaining financial leverage at 30-40% of book capitalization. In order to reduce leverage resulting from the purchase of Houston Exploration, Forest completed two asset sales in the third quarter bringing the total asset sales closed in 2007 to approximately $550 million: In August 2007, Forest closed its previously announced transaction to sell its Alaska assets. Under the terms of the agreement, Forest received the following consideration: -- Cash of $400 million, of which $269 million was used to repay the full balance of the associated term loans -- 10 million shares of Pacific Energy Resources Ltd. common stock, and -- A $60.75 million zero coupon senior subordinated note from Pacific due 2014 Forest also entered into a sale-leaseback transaction whereby Forest sold its drilling rigs for cash proceeds of approximately $63 million and simultaneously entered into a seven-year operating lease under which Forest will maintain full utilization of the drilling rigs. Primarily as a result of these asset sales, Forest reduced its net debt by $463 million and its financial leverage to 41% in the third quarter of 2007. FOREST'S "BIG FIVE" ASSETS The following assets constituted 62% of Forest's production and approximately 60% of capital expenditures for the third quarter of 2007. These assets are all tight-gas sand development projects in low-risk onshore North American plays. Forest will continue to devote a substantial portion of its capital to these assets that have over 2,100 identified non-proved drilling locations. Production in these assets in the third quarter of 2007 reached a record 315 MMcfe/d. Buffalo Wallow Area - Texas Panhandle (66 - 100% WI) - A total of 44 wells have been drilled year-to-date with a 100% success rate. A five rig program is currently being employed with two of the rigs operating in the deeper offset areas. Four of the wells completed in this quarter were in the offset areas and tested at rates ranging from 2.7 MMcfe/d to 8.0 MMcfe/d. In addition, subsequent to the quarter end, the Frye Ranch area south of the main Buffalo Wallow Field was approved by the Texas Railroad Commission for 40-acre spacing. Forest's gross acreage has increased to approximately 51,000 acres. East Texas Cotton Valley Area - Rusk, Harrison & Panola Counties, Texas (52-100% WI) - A total of 44 wells have been drilled year-to-date with a 100% success rate. Forest is currently utilizing a five rig program in East Texas with one rig devoted to horizontal activity. Initial rates on these shallow gas wells ranged from 1.2 to 4.1 MMcfe/d during the third quarter of 2007. The second horizontal Cotton Valley well is currently being drilled. Forest's gross acreage position has increased to approximately 90,000 acres. Arkoma Basin Area, Arkansas (50-100% WI) - A total of 57 wells have been drilled year-to-date with a 98% success rate. Forest currently has a four rig program including one horizontal project in progress. Compression and gathering facility upgrades are expected to be completed in the fourth quarter of 2007. Forest's gross acreage position has increased to approximately 71,000 gross acres. South Texas Wilcox/Vicksburg Program, Ft. Bend, Harris, Hildago, Starr, Waller, Webb and Zapata Counties (54-100% WI) - A total of 44 wells have been drilled year-to-date with an 86% success rate. Of the wells completed in this quarter, initial rates ranged from 2.0 MMcfe/d to 8.0 MMcfe/d. Rig activity was reduced from four to three rigs in this program as 3-D seismic is currently being interpreted targeting the Perdido and Lobo Wilcox zones. Increased activity is planned in late 2007 or early 2008 in the McAllen Ranch and Rincon Fields targeting Vicksburg objectives. At Katy, a deeping program was initiated in the third quarter as part of an existing wellbore reactivation program. A drilling rig has been moved back into that field following approval of six wells by Forest's partner. Deep Basin Area, Wild River, Sundance/Ansell and Hinton (25-100% WI) - A total of 36 wells have been drilled year-to-date with a 100% success rate. A three rig program is currently being used with another rig evaluating previously untested uphole intervals behind pipe in the Wild River Area where the first zone tested 1.1 MMcfe/d. This successful test could indicate significant uphole potential in existing wellbores. Forest will continue to assess this for an expanded program in 2008 and 2009. 2007 GUIDANCE Forest last updated its second half 2007 guidance on August 7, 2007. The following is made subject to all of the cautionary statements and limitations contained in Forest's August 7, 2007 press release. The guidance below represents Forest's updated guidance for the six months ended December 31, 2007 and does not reflect the operations of Forest's Alaska assets. Given those statements and limitations as well as the limitations discussed under the caption "Forward-Looking Statements" below, the second half 2007 guidance components are updated in the following respects: Guidance Update Production Expense: Forest has lowered its expected production expense (which includes lease operating expense, ad valorem taxes, production taxes and product processing, gathering and transportation) to $120 to $130 million or $1.30 to $1.40 per Mcfe. Depreciation, Depletion and Amortization (DD&A) Expense: Forest has lowered its expected DD&A rate to $2.40 - $2.60 per Mcfe. PRO FORMA The following unaudited pro forma statements of operations present the operating results of Forest's operations for the three months ended September 30, 2007 giving pro forma effect to the sale of the Alaska assets at the beginning of the period presented. These pro forma results are presented in order to provide information which is comparable to Forest's ongoing operations and previously issued guidance on August 7, 2007 and is reconciled to Forest's GAAP financial statements. The unaudited pro forma statements of operations presented do not purport to represent what the results of operations or financial position of Forest's continuing operations would actually have been had the transaction occurred at the beginning of each period presented, or to project the results of operations or financial position of Forest for any future periods. The adjustments to present the pro forma results of Forest's operations, giving pro forma effect to the sale of Forest's Alaska assets, are based on available information and certain assumptions that management believes are reasonable. FOREST OIL CORPORATION Pro Forma Statements of Operations (Unaudited) For the Three Months Ended September 30, 2007(1) --------------------------------- As Alaska Pro Forma Reported Operations --------- ----------- --------- (In thousands, except average net sales volumes and per share amounts) Average net sales volumes (MMcfe/d) 522 14 508 Revenue: Oil and gas sales $313,017 (a) 13,664 299,353 Marketing, processing, and other 8 - 8 --------- ----------- --------- Total revenue 313,025 13,664 299,361 Operating expenses: Production expense 70,145 (a) 10,497 59,648 General and administrative (b) (including stock-based compensation of $2,763, $55 and $2,708, respectively) 16,716 256 16,460 Depreciation and depletion 122,005 (c) 5,371 116,634 Accretion of asset retirement (d) obligations 1,980 248 1,732 --------- ----------- --------- Total operating expenses 210,846 16,372 194,474 --------- ----------- --------- Earnings from operations 102,179 (2,708) 104,887 --------- ----------- --------- Other income and expense: Interest expense 32,567 (e) 4,513 28,054 Unrealized losses on derivative instruments, net 12,415 - 12,415 Realized gains on derivative instruments, net (30,387) - (30,387) Other expense, net 549 - 549 --------- ----------- --------- Total other income and expense 15,144 4,513 10,631 --------- ----------- --------- Earnings before income taxes 87,035 (7,221) 94,256 Income tax expense 29,048 (f) (2,630) 31,678 --------- ----------- --------- Net earnings $57,987 (4,591) 62,578 ========= =========== ========= Weighted average number of common shares outstanding: Basic 86,802 86,802 ========= ========= Diluted 88,613 88,613 ========= ========= Basic earnings per common share $0.67 0.72 ========= ========= Diluted earnings per common share $0.65 0.71 ========= ========= (1) Forest's Alaska assets were sold on August 27, 2007. (a) To allocate revenue and production expense directly attributable to the oil and gas operations of Forest's continuing operations and Forest's Alaska assets. (b) To allocate salaries and other direct general and administrative expenses attributable to Forest's Alaska assets. Forest's Alaska assets allocation includes only general and administrative costs directly related to Forest's Alaska assets. Accordingly, no reductions were assumed for general corporate overhead costs, such as indirect personnel costs, professional services, cost of public ownership, insurance and accounting, which may occur subsequent to the sale of Forest's Alaska assets. (c) To allocate depreciation and depletion to give effect to the reduction in Forest's Alaska assets full cost pool and a reduction in production volumes. (d) To allocate accretion expense attributable to asset retirement obligations associated with assets specifically related to Forest's Alaska assets. (e) To allocate interest expense associated with the Alaska Term Loans. (f) To allocate income tax expense to Forest's Alaska assets based on Forest's effective deferred federal and state tax rates. NON-GAAP FINANCIAL MEASURES In addition to net income determined in accordance with generally accepted accounting principles (GAAP), Forest has provided net earnings adjusted for certain items, a non-GAAP financial measure, which facilitates comparisons to earnings forecasts prepared by stock analysts and other third parties. Such forecasts generally exclude the effects of items that are difficult to predict or to measure in advance and are not directly related to Forest's ongoing operations. A reconciliation between GAAP net earnings and net earnings adjusted for certain items are provided in the paragraphs on page two of this release in which the non-GAAP measure is presented. Net earnings excluding the effects of certain items should not be considered a substitute for net earnings as reported in accordance with GAAP. In addition to reporting net earnings as defined under GAAP, Forest also presents adjusted EBITDA, which consists of net earnings plus income tax expense, unrealized losses (gains) on derivative instruments, net, unrealized foreign currency exchange (gains) losses, unrealized gains on other investments, realized foreign currency exchange gains, interest expense, write-off of unamortized debt costs and prepayment premiums, accretion of asset retirement obligations, depreciation and depletion, and stock-based compensation. Forest further presents adjusted discretionary cash flow, which consists of adjusted EBITDA minus interest expense, write-off of unamortized debt costs and prepayment premiums, current income tax expense, and other non-cash items. Management uses adjusted EBITDA and adjusted discretionary cash flow as measures of operational performance. Adjusted EBITDA and adjusted discretionary cash flow should not be considered as alternatives to net earnings as reported under GAAP. The following is a reconciliation of net earnings to adjusted EBITDA to adjusted discretionary cash flow (in thousands): Three Months Ended Three Months Ended September 30, 2007 September 30, 2006 ----------------------------------------- As Pro Reported Forma(1) As Reported ---------- ---------- ------------------- Net earnings $57,987 62,578 76,934 Income tax expense 29,048 31,678 48,288 Unrealized losses (gains) on derivative instruments, net 12,415 12,415 (77,914) Unrealized foreign currency exchange (gains) losses (1,075) (1,075) 766 Unrealized gains on other investments (2,521) (2,521) - Realized foreign currency exchange gains (4,895) (4,895) - Interest expense 32,567 28,054 19,122 Write-off of unamortized debt costs and prepayment premiums 9,010 9,010 - Accretion of asset retirement obligations 1,980 1,732 1,226 Depreciation and depletion 122,005 116,634 62,505 Stock-based compensation 2,763 2,708 1,573 ---------- ---------- ------------------- Adjusted EBITDA 259,284 256,318 132,500 Interest expense (32,567) (28,054) (19,122) Write-off of unamortized debt costs and prepayment premiums (9,010) (9,010) - Current income tax expense (3,320) (1,106) 743 Other non-cash items 8,960 8,726 (2,613) ---------- ---------- ------------------- Adjusted discretionary cash flow $223,347 226,874 111,508 ========== ========== =================== - ---------------------------- (1) Pro forma for sale of our Alaska assets. In addition to total debt, Forest also presents net debt, which consists of principal amount of debt less cash and cash equivalents on hand at the end of the period. Management uses this measure to assess Forest's indebtedness, based on actual principal amounts owed and cash on hand which has not been applied to reduce amounts drawn on the credit facilities. The following table sets forth the components of net debt as of September 30, 2007 and December 31, 2006 (in millions): September 30, 2007 December 31, 2006 ------------------ ----------------- Principal Book(1) Principal Book(1) ---------- ------- --------- ------- Credit facilities $226 226 107 107 Term loan facilities - - 375 375 8% Senior notes due 2008 265 267 265 268 8% Senior notes due 2011 285 294 285 296 7% Senior subordinated notes due 2013 6 6 - - 7 3/4% Senior notes due 2014 150 160 150 161 7 1/4% Senior notes due 2019 750 750 - - ---------- ------- --------- ------- Total debt 1,682 1,703 1,182 1,207 Cash and cash equivalents 9 9 33 33 ---------- ------- --------- ------- Net debt $1,673 1,694 1,149 1,174 ========== ======= ========= ======= - --------------------------------- (1) Book amounts include the principal amount of debt adjusted for unamortized gains on interest rate swaps of $16.9 million and $20.6 million at September 30, 2007 and December 31, 2006, respectively, and unamortized net premiums on the issuance of certain Senior Notes of $3.7 million and $4.6 million at September 30, 2007 and December 31, 2006, respectively. TELECONFERENCE CALL Forest's management will hold a teleconference call on Tuesday, November 6, 2007, at 12:00 p.m. MT to discuss the items described in this press release. If you would like to participate please call 800-399-6298 (for U.S./Canada) and 706-634-0924 (for International) and request the Forest Oil teleconference (ID # 21928790). A Q&A period will follow. A replay will be available from Tuesday, November 6 through November 13, 2007. You may access the replay by dialing toll-free 800-642-1687 (for U.S./Canada) and 706-645-9291 (for International), conference ID # 21928790. FORWARD-LOOKING STATEMENTS This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, that address activities that Forest assumes, plans, expects, believes, projects, estimates or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements. The forward-looking statements provided in this press release are based on management's current belief, based on currently available information, as to the outcome and timing of future events. Forest cautions that its future natural gas and liquids production, revenues and expenses and other forward-looking statements are subject to all of the risks and uncertainties normally incident to the exploration for and development and production and sale of oil and gas. These risks include, but are not limited to, price volatility, inflation or lack of availability of goods and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating future oil and gas production or reserves, and other risks as described in reports that Forest files with the Securities and Exchange Commission (SEC), including its 2006 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. Also, the financial results of Forest's foreign operations are subject to currency exchange rate risks. Any of these factors could cause Forest's actual results and plans to differ materially from those in the forward-looking statements. Forest Oil Corporation is engaged in the acquisition, exploration, development, and production of natural gas and liquids in North America and selected international locations. Forest's principal reserves and producing properties are located in the United States in Arkansas, Colorado, Louisiana, New Mexico, Oklahoma, Texas, Utah, and Wyoming, and in Canada. Forest's common stock trades on the New York Stock Exchange under the symbol FST. For more information about Forest, please visit its website at www.forestoil.com. FOREST OIL CORPORATION Condensed Consolidated Balance Sheets (Unaudited) September 30, December 31, 2007 2006 -------------------------- ASSETS (In thousands) Current assets: Cash and cash equivalents $8,814 33,164 Accounts receivable 162,761 125,446 Derivative instruments 36,142 53,205 Other investments 41,408 - Other current assets 76,170 49,185 ------------- ------------ Total current assets 325,295 261,000 Net property and equipment 4,846,717 2,789,926 Derivative instruments 3,447 15,019 Goodwill 290,182 86,246 Other assets 50,789 36,881 ------------- ------------ $5,516,430 3,189,072 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $348,027 224,933 Accrued interest 36,370 6,235 Derivative instruments 33,325 1,294 Asset retirement obligations 1,151 2,694 Current portion of long-term debt 266,556 2,500 Deferred income taxes - 14,907 Other current liabilities 17,420 11,378 ------------- ------------ Total current liabilities 702,849 263,941 Long-term debt 1,436,378 1,204,709 Asset retirement obligations 95,531 61,408 Derivative instruments 15,159 811 Deferred income taxes 813,291 191,957 Other liabilities 79,946 32,240 ------------- ------------ Total liabilities 3,143,154 1,755,066 Shareholders' equity: Common stock 8,805 6,300 Capital surplus 1,958,060 1,215,660 Retained earnings 278,433 137,796 Accumulated other comprehensive income 127,978 74,250 ------------- ------------ Total shareholders' equity 2,373,276 1,434,006 ------------- ------------ $5,516,430 3,189,072 ============= ============ FOREST OIL CORPORATION Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended September 30, ------------------------- 2007 2006 ------------ ------------ (In thousands, except per share amounts) Revenue: Oil and gas sales: Natural gas $189,985 90,296 Oil, condensate, and natural gas liquids 123,032 110,624 ------------ ------------ Total oil and gas sales 313,017 200,920 Marketing, processing, and other 8 1,919 ------------ ------------ Total revenue 313,025 202,839 Operating expenses: Lease operating expenses 48,269 34,963 Production and property taxes 16,112 8,974 Transportation and processing costs 5,764 5,494 General and administrative (including stock- based compensation of $2,763 and $1,573, respectively) 16,716 10,548 Depreciation and depletion 122,005 62,505 Accretion of asset retirement obligations 1,980 1,226 ------------ ------------ Total operating expenses 210,846 123,710 ------------ ------------ Earnings from operations 102,179 79,129 ------------ ------------ Other income and expense: Interest expense 32,567 19,122 Unrealized losses (gains) on derivative instruments, net 12,415 (77,914) Realized (gains) losses on derivative instruments, net (30,387) 12,883 Other expense (income), net 549 (184) ------------ ------------ Total other income and expense 15,144 (46,093) ------------ ------------ Earnings before income taxes 87,035 125,222 Income tax expense: Current 3,320 (743) Deferred 25,728 49,031 ------------ ------------ Total income tax expense 29,048 48,288 ------------ ------------ Net earnings $57,987 76,934 ============ ============ Weighted average number of common shares outstanding: Basic 86,802 62,250 ============ ============ Diluted 88,613 63,484 ============ ============ Basic earnings per common share $0.67 1.24 ============ ============ Diluted earnings per common share $0.65 1.21 ============ ============ FOREST OIL CORPORATION Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended September 30, -------------------- 2007 2006 ---------- --------- (In thousands) Cash flows from operating activities: Net earnings $57,987 76,934 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and depletion 122,005 62,505 Accretion of asset retirement obligations 1,980 1,226 Unrealized losses (gains) on derivative instruments, net 12,415 (77,914) Unrealized gains on other investments (2,521) - Unrealized foreign currency exchange (gains) losses (1,075) 766 Realized foreign currency exchange gains (4,895) - Deferred income tax expense 25,728 49,031 Stock-based compensation 2,763 1,573 Other, net 8,960 (2,613) Changes in operating assets and liabilities, net of effects of acquisitions and divestitures: Accounts receivable 3,324 14,904 Other current assets (3,291) (4,133) Accounts payable (14,221) 18,101 Accrued interest and other current liabilities 17,959 9,084 ---------- --------- Net cash provided by operating activities 227,118 149,464 Cash flows from investing activities: Capital expenditures (211,577) (135,732) Proceeds from sales of assets 463,121 12 Other, net - 155 ---------- --------- Net cash provided (used) by invesing activities 251,544 (135,565) Cash flows from financing activities: Proceeds from bank borrowings, net of repayments (212,041) 10,710 Repayments of term loans (263,750) - Bank overdrafts (7,438) (20,105) Proceeds from the exercise of options and from employee stock purchase plan 1,069 1,471 Other, net (3,904) (22) ---------- --------- Net cash used by financing activities (486,064) (7,946) Effect of exchange rate changes on cash 486 (7) ---------- --------- Net (decrease) increase in cash and cash equivalents (6,916) 5,946 Cash and cash equivalents at beginning of period 15,730 5,456 ---------- --------- Cash and cash equivalents at end of period $8,814 11,402 ========== ========= CONTACT: Forest Oil Corporation Patrick J. Redmond, 303-812-1441 Director - Investor Relations -----END PRIVACY-ENHANCED MESSAGE-----