___________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission File Number 0-4597
FOREST OIL CORPORATION
(Exact name of registrant as specified in its charter)
New York 25-0484900
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Colorado National Building
950 - 17th Street
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 592-2400
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ( X ) No ( )
Number of Shares
Outstanding
Title of Class of Common Stock April 30, 1994
______________________________ _________________
Common Stock, Par Value $.10 Per Share 28,060,538
____________________________________________________________________
PART I. FINANCIAL INFORMATION
FOREST OIL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1994 1993
__________ ___________
(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 656 6,949
Accounts receivable 27,271 25,257
Other current assets 4,556 3,309
_________ _________
Total current assets 32,483 35,515
Property and equipment, at cost:
Oil and gas properties -
full cost accounting method 1,142,754 1,140,656
Buildings, transportation and other equipment 12,479 12,420
_________ _________
1,155,233 1,153,076
Less accumulated depreciation,
depletion and valuation allowance 805,029 787,380
_________ _________
Net property and equipment 350,204 365,696
Investment in and advances to affiliate 15,636 16,451
Other assets 10,014 9,093
_________ _________
$ 408,337 426,755
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 1,220 3,894
Current bank debt 4,000 -
Current portion of nonrecourse secured loan
and production payment obligation 5,359 4,371
Current portion of subordinated debentures - 7,171
Accounts payable 19,898 28,348
Retirement benefits payable to executives
and directors 553 553
Accrued expenses and other liabilities:
Interest 1,595 3,817
Other 2,505 1,857
_________ _________
Total current liabilities 35,130 50,011
Long-term bank debt 34,000 25,000
Nonrecourse secured loan and production
payment obligation 69,396 70,035
Subordinated debentures 99,283 99,272
Retirement benefits payable to executives
and directors 4,052 4,135
Other liabilities 23,060 22,918
Deferred revenue 57,121 67,228
Shareholders' equity:
Convertible preferred stock 15,845 15,845
Capital stock 2,826 2,825
Capital surplus 191,714 193,717
Accumulated deficit (118,551) (117,656)
Foreign currency translation (1,596) (785)
Treasury stock (3,943) (5,790)
_________ _________
Total shareholders' equity 86,295 88,156
_________ _________
$ 408,337 426,755
========= =========
See accompanying notes to condensed consolidated financial statements.
FOREST OIL CORPORATION
Condensed Consolidated Statements of Production and Operations
(Unaudited)
Three Months Ended
____________________
March 31, March 31,
1994 1993
_________ _________
(In Thousands Except Production
and Per Share Amounts)
PRODUCTION
Gas (mmcf) 12,636 9,132
====== ======
Oil and condensate (thousands of barrels) 383 401
====== ======
STATEMENTS OF CONSOLIDATED OPERATIONS
Revenue:
Oil and gas sales:
Gas $ 25,603 16,899
Oil and condensate 4,458 6,891
Products and other 122 -
______ ______
30,183 23,790
Miscellaneous, net 887 1,336
______ ______
Total revenue 31,070 25,126
Expenses:
Oil and gas production 5,328 4,677
General and administrative 2,087 2,164
Interest 6,647 6,645
Depreciation and depletion 17,903 13,558
______ ______
Total expenses 31,965 27,044
______ ______
Loss before income taxes and cumulative
effects of changes in
accounting principles (895) (1,918)
Income tax expense (benefit):
Current - 6
Deferred - (658)
______ ______
- (652)
______ ______
Loss before cumulative effects of
changes in accounting principles (895) (1,266)
Cumulative effects of changes in
accounting principles:
Postretirement benefits, net of
income tax benefit of $1,639,000 - (3,183)
Income taxes - 2,060
______ ______
- (1,123)
______ ______
Net loss $ (895) (2,389)
====== ======
Weighted average number of common shares
outstanding 28,008 14,828
====== ======
Net loss attributable to common stock $ (1,435) (2,976)
====== ======
Primary and fully diluted loss per
common share:
Loss before cumulative effects of
changes in accounting principles $ (.05) (.12)
====== ======
Net loss $ (.05) (.20)
====== ======
See accompanying notes to condensed consolidated financial statements.
FOREST OIL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
____________________
March 31, March 31,
1994 1993
_________ _________
(In Thousands)
Cash flows from operating activities:
Loss before cumulative effects of changes
in accounting principles $ (895) (1,266)
Adjustments to reconcile loss before
cumulative effects of changes in
accounting principles to net cash
provided by operating activities:
Depreciation and depletion 17,903 13,558
Deferred Federal income tax benefit - (658)
Other, net 2,322 1,153
______ ______
19,330 12,787
Net changes in current assets
and liabilities:
(Increase) decrease in accounts
receivable (2,014) 8,378
Increase in other current assets (1,247) (1,318)
Increase in note payable to bank 4,000 -
Decrease in accounts payable (12,450) (23,236)
Increase (decrease) in accrued
expenses and other liabilities 2,426 (1,271)
______ ______
Net cash provided (used) by
operating activities 10,045 (4,660)
Cash flows from investing activities:
Capital expenditures for property
and equipment (5,663) (1,860)
Proceeds from sales of property and equipment 3,186 2,336
(Increase) decrease in other assets, net (880) 29
______ ______
Net cash provided (used) by
investing activities (3,357) 505
Cash flows from financing activities:
Proceeds of long-term bank debt 9,000 -
Repayments of nonrecourse secured loan (378) -
Repayments of production payment (986) (2,677)
Redemptions and purchases of
subordinated debentures (7,171) (1,494)
Amortization of deferred revenue (10,107) (7,836)
Preferred stock dividends (540) -
Deferred debt costs (199) -
Increase (decrease) in cash overdraft (2,674) 2,335
Increase (decrease) in other liabilities, net 59 (343)
______ ______
Net cash used by financing activities (12,996) (10,015)
Effect of exchange rate changes on cash 15 (1)
______ ______
Net decrease in cash and cash equivalents (6,293) (14,171)
Cash and cash equivalents at beginning
of period 6,949 63,487
______ ______
Cash and cash equivalents at end of period $ 65 49,316
====== ======
Cash paid during the period for:
Interest $ 8,254 6,343
====== ======
Income taxes $ - 275
====== ======
See accompanying notes to condensed consolidated financial statements.
FOREST OIL CORPORATION
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 1994 and 1993
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements included herein
are unaudited. In the opinion of management, all
adjustments, consisting of normal recurring accruals,
have been made which are necessary for a fair
presentation of the financial position of the Company
at March 31, 1994 and the results of operations for the
three month periods ended March 31, 1994 and 1993.
Quarterly results are not necessarily indicative of
expected annual results because of the impact of
fluctuations in prices received for oil and natural gas
and other factors. For a more complete understanding
of the Company's operations and financial position,
reference is made to the consolidated financial
statements of the Company, and related notes thereto,
filed with the Company's annual report on Form 10-K for
the year ended December 31, 1993, previously filed with
the Securities and Exchange Commission.
(2) Earnings (Loss) Per Share
Primary earnings (loss) per share is computed by
dividing net earnings (loss) attributable to common
stock by the weighted average number of common shares
and common share equivalents outstanding during each
period, excluding treasury shares. Net earnings (loss)
attributable to common stock represents net earnings
(loss) less preferred stock dividend requirements.
Common share equivalents include, when applicable,
dilutive stock options using the treasury stock method
and warrants using the if converted method.
Fully diluted earnings (loss) per share assumes, in
addition to the above, (i) that convertible debentures
were converted at the beginning of each period or date
of issuance, if later, with earnings being increased
for interest expense, net of taxes, that would not have
been incurred had conversion taken place, (ii) that
convertible preferred stock was converted at the
beginning of each period or date of issuance, if later,
and (iii) any additional dilutive effect of stock
options and warrants. The assumed exercises and
conversions were antidilutive for the three months
ended March 31, 1994 and 1993.
(3) Acquisitions
The Company completed four property acquisitions in the
last three quarters of 1993. The results of operations
of the Company for the first quarter of 1994 include
the effects of those acquisitions.
(4) Subsequent Events
On May 11, 1994, the Company received a commitment from
the lenders under its Credit Facility to increase the
borrowing availability for working capital and general
corporate purposes from $17,500,000 to $32,500,000.
This will increase the total borrowing capacity of the
Company under the Credit Facility to $50,000,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the Company's Consolidated Financial Statements
and Notes thereto.
Results of Operations
Net Loss
The net loss for the first three months of 1994 was $895,000
or $.05 per common share compared to a net loss of $2,389,000 or
$.20 per common share in the first three months of 1993. The
improved results are due to increased natural gas volumes as a
result of acquisitions, and higher natural gas prices, offset by
lower oil prices, increased oil and gas production expense and
depreciation and depletion expense. The weighted average number
of common shares outstanding during the three months ended March
31, 1994 was approximately 28,008,000 compared to approximately
14,828,000 in the corresponding period of the prior year due
primarily to the issuance of 11,080,000 shares of Common Stock in
June, 1993.
Revenue
The Company's oil and gas sales revenue increased by 27% to
$30,183,000 in the first quarter of 1994 from $23,790,000 in the
first quarter of 1993. Natural gas production levels for the
1994 period increased over the 1993 period by 38% due primarily
to property acquisitions. Oil production levels for the 1994
period decreased slightly from the 1993 period. The average
sales price for natural gas in the first quarter of 1994 was
$2.03 per thousand cubic feet of natural gas (MCF), an increase
of $.18 per MCF or 10% over the average sales price in the first
quarter of the prior year. The average sales price for oil in
the first quarter of 1994 of $11.65 per barrel represented a
decrease of $5.53 per barrel or 32% compared to the average sales
price in the same period of the prior year.
The production volumes and weighted average sales prices
during the periods were as follows:
Three Months Ended
_________________________
March 31, March 31,
1994 1993
____ ____
(In Thousands)
Natural Gas
Production under long-term fixed price
contracts (MMCF) (1) 4,766 4,007
Average contract sales price (per MCF) (1) $ 1.77 1.52
Production sold on the spot market (MMCF) 7,870 5,125
Spot sales price received (per MCF) $ 2.25 2.11
Effects of energy swaps (per MCF) (2) (.07) .01
______ _____
Average spot sales price (per MCF) $ 2.18 2.12
Total production (MMCF) 12,636 9,132
Average sales price (per MCF) $ 2.03 1.85
Oil and condensate (3)
Total production (MBBLS) 383 401
Average sales price (per BBL) $ 11.65 17.18
(1) Production under long-term fixed price contracts includes
scheduled deliveries under volumetric production payments,
net of royalties. See "Volumetric Production Payments"
below.
(2) Energy swaps were entered into to hedge the price of spot
market volumes against price fluctuation.
(3) Oil and condensate production is sold primarily on the spot
market. An immaterial amount of production is covered by
long-term fixed price contracts, including scheduled
deliveries under volumetric production payments, net of
royalties.
Miscellaneous net revenue decreased to $887,000 in the first
quarter of 1994 from $1,336,000 in the comparable 1993 quarter.
The 1994 amount includes income from the sale of miscellaneous
pipeline systems and equipment. The 1993 amount included an
adjustment to reduce accrued severance taxes based on
communications with the applicable state taxing authority.
Expenses
Oil and gas production expense increased 14% to $5,328,000
in the first quarter of 1994 from $4,677,000 in the comparable
period of 1993. The increase was due to increased oil and gas
production. On an MCFE basis (MCFE means thousands of cubic feet
of natural gas equivalents, using a conversion ratio of one
barrel of oil to six MCF of natural gas), production expense
decreased 12% in the first quarter of 1994 to $.36 per MCFE from
$.41 per MCFE in the first quarter of 1993.
General and administrative expense was $2,087,000, a
decrease of 4% from $2,164,000 in the first quarter of 1993.
Total overhead costs (capitalized and expensed general and
administrative costs) of $4,073,000 in the first quarter of 1994
increased 19% from $3,422,000 in the comparable period in 1993.
The increase was due primarily to higher employee-related costs
and insurance costs as a result of the Company's larger asset
base. The Company's salaried workforce was 134 at March 31, 1994
and 130 at March 31, 1993.
The following table summarizes the total overhead costs
incurred during the periods.
Three Months Ended
_______________________________
March 31, March 31,
1994 1993
(In Thousands)
Overhead costs capitalized $1,986 1,258
General and administrative costs
expensed 2,087 2,164
_____ _____
Total overhead costs $4,073 3,422
===== =====
Interest expense of $6,647,000 in the first quarter of 1994
remained the same as in the comparable period in 1993. The
reduction in interest expense due to the redemptions or purchases
of the Company's subordinated debentures and 12 3/4% Senior
Secured Notes in 1993 was offset by the interest expense incurred
in connection with the Company's 11 1/4% Senior Subordinated
Notes and the nonrecourse secured loan.
Depreciation and depletion expense increased 32% to
$17,903,000 in the first quarter of 1994 from $13,558,000 in the
first quarter of 1993 due to increased production in the 1994
period as a result of property acquisitions. The depletion rate
per unit of production in the 1994 period was $1.20 per MCFE,
compared to $1.18 per MCFE in the prior year period. At March
31, 1994 the Company had undeveloped properties with a cost basis
of approximately $43,000,000 which were excluded from depletion,
compared to $18,300,000 at March 31, 1993. The increase is
attributable primarily to acquisition of undeveloped properties
in the Loma Vieja Field in December 1993.
The Company was not required to record a writedown of the
carrying value of its oil and gas properties in 1993 or in the
first three months of 1994. Writedowns of the full cost pool may
be required, however, if prices decrease, estimated proved
reserve volumes are revised downward or costs incurred in
exploration, development, or acquisition activities exceed the
discounted future net cash flows from the additional reserves, if
any.
As of December 31, 1993, there were no remaining deferred
tax liabilities. No tax benefits for operating loss
carryforwards have been recorded in the first quarter of 1994.
Changes in Accounting
Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," (SFAS No. 106) requires the Company to accrue expected
costs of providing postretirement benefits to employees and the
employees' beneficiaries and covered dependents. The Company
adopted the provisions of SFAS No. 106 in the first quarter of
1993. The accumulated postretirement benefit obligation as of
January 1, 1993 was approximately $4,822,000. This amount,
reduced by applicable income tax benefits, was charged to
operations in the first quarter of 1993 as the cumulative effect
of a change in accounting principle.
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," (SFAS No. 109), requires the
Company to adopt the liability method of accounting for income
taxes. The Company adopted such method on a prospective basis as
of January 1, 1993 and, as such, prior periods have not been
restated. The cumulative effect of adopting SFAS No. 109 as of
January 1, 1993 resulted in a reduction of the net amount of
deferred income taxes recorded as of December 31, 1992 of
approximately $2,060,000. This amount was credited to operations
in the first quarter of 1993 as the cumulative effect of a change
in accounting principle.
Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (SFAS No.
112), requires the Company to accrue the estimated cost of
certain postemployment benefits provided to former employees.
The Company adopted the provisions of SFAS No. 112 in the first
quarter of 1994. The accumulated postemployment benefit
obligation as of January 1, 1994 was not significant and, as
such, has been included in general and administrative expense for
the first quarter of 1994.
Capital Resources and Liquidity
Cash Flow
Historically, one of the Company's primary sources of
capital has been net cash provided by operating activities, which
has varied dramatically in prior periods, depending upon factors
such as natural gas contract settlements and price fluctuations,
which are difficult to predict.
The following summary table reflects comparative cash flows
for the Company for the periods ended March 31, 1994 and 1993:
Three Months Ended March 31,
_________________________________
1994 1993
____ ____
(In Thousands)
Funds provided by operations (A)(B) $ 19,330 12,787
Net cash provided (used) by operating
activities (B) 10,045 (4,660)
Net cash provided (used) by investing
activities (3,357) 505
Net cash used by financing activities (12,996) (10,015)
(A) Funds provided by operations is equal to net cash
provided by operating activities adjusted for the changes in
working capital items.
(B) Includes $8,231,000 and $6,287,000 of revenue associated
with the Company's volumetric production payments for the
three months ended March 31, 1994 and 1993, respectively.
Short-Term Liquidity and Working Capital Deficit
In December 1993, the Company entered into a secured master
credit facility (the Credit Facility) with The Chase Manhattan
Bank, NA. (Chase) as agent for a group of banks. Under the
Credit Facility, the Company may borrow up to $17,500,000 for
acquisition or development of proved oil and gas reserves, which
amount is subject to semi-annual redetermination, and up to
$17,500,000 for working capital and general corporate purposes.
The Company has received a commitment from the bank group to
increase the borrowing availability for working capital and
general corporate purposes from $17,500,000 to $32,500,000. This
will increase the total borrowing capacity of the Company under
the Credit Facility to $50,000,000. The Credit Facility is
secured by a lien on, and a security interest in, a majority of
the Company's proved oil and gas properties and related assets
(subject to prior security interests granted to holders of
volumetric production payment agreements), a pledge of accounts
receivable, material contracts and the stock of material
subsidiaries, and a negative pledge on remaining assets. The
Company will pledge additional oil and gas properties in
connection with the increase in borrowing availability.
Borrowings under the Credit Facility bear interest at the Chase
base rate plus 3/8 of 1% or 1,2,3 or 6 month LIBOR plus 1 and
5/8%, payable quarterly. In connection with the increase in
borrowing availability the interest rate will be increased for
borrowings over $40,000,000 but less than $45,000,000 to the
Chase Base Rate plus 3/4% of 1% or 1, 2, 3 or 6 month LIBOR plus
2%, and for borrowings of $45,000,000 or more to the Chase Base
Rate plus 1 and 1/4% or 1, 2, 3 or 6 month LIBOR plus 2 and 1/2%.
A commitment fee of 1/2 of 1% is charged on unused availability.
The maturity date of the Credit Facility is December 31, 1996.
Under the terms of the Credit Facility, the Company is subject to
certain covenants, including restrictions or requirements with
respect to working capital, net cash flow, additional debt, asset
sales, mergers, cash dividends on capital stock and reporting
responsibilities. At March 31, 1994 the outstanding balance
under this facility was $34,000,000.
Due to the significant capital requirements of acquisition
and development activities undertaken in December 1993, the
Company reported a working capital deficit of $14,496,000 at
December 31, 1993. The Company did not meet the test imposed by
the working capital covenant of the Credit Facility; compliance
with this covenant was waived by Chase at December 31, 1993. The
deficit was funded in the first quarter of 1994 primarily by
additional borrowings of $9,000,000 under the Credit Facility,
net proceeds of $2,600,000 from the sale of non-strategic oil
and gas properties, and a short-term loan from The Chase
Manhattan Bank, N.A. of $4,000,000, due June 1, 1994, secured by
a pledge of the Company's CanEagle securities. These cash
inflows, in addition to cash provided by operating activities,
enabled the Company to meet its obligations with respect to
principal and interest payments and other short-term obligations.
At March 31, 1994 the Company's working capital deficit was
reduced to $2,647,000. At such date, the Company was in
compliance with the working capital covenant of the Credit
Facility.
The Company continues to explore additional sources of
short-term liquidity to fund its working capital needs, including
sale of additional non-strategic properties and excess equipment,
monetization of its investment in and advances to CanEagle and
other measures.
Long-Term Liquidity
The Company has taken several significant steps to improve
its long-term liquidity. In 1993 the Company issued Common
Stock and subordinated debt, the proceeds of which were used in
part, together with available cash, to redeem the Company's long-
term notes and debentures. In February 1994, the Company
redeemed the remaining $7,171,000 principal amount of its 5 1/2%
Convertible Subordinated Debentures.
On December 30, 1993, the Company entered into a nonrecourse
secured loan agreement (the Enron loan) arranged by Enron Finance
Corp., an affiliate of Enron Gas Services. For a further
discussion of the Enron loan, see "Nonrecourse Secured Loan and
Dollar-Denominated Production Payment" below. This financing
provided acquisition capital, and capital to execute Forest's
exploitation strategy.
Many of the factors which may affect the Company's future
operating performance and long-term liquidity are beyond the
Company's control, including, but not limited to, oil and natural
gas prices, governmental actions and taxes, the availability and
attractiveness of properties for acquisition, the adequacy and
attractiveness of financing and operational results.
Volumetric Production Payments
As of March 31, 1994, deferred revenue relating to
production payments was $57,121,000. As of March 31, 1994, the
annual amortization of deferred revenue and the corresponding
delivery and net sales volumes are set forth below:
Net sales volumes
attributable to
Volumes required to be production payment
delivered to Enron deliveries (1)
______________________ ___________________
Natural Natural
Annual amortization Oil Gas Oil Gas
of deferred revenue (MBBLS) (MMCF) (MBBLS) (MMCF)
___________________ _______ ______ _______ ______
(In Thousands)
Remainder of 1994 $ 24,828 162 13,727 136 11,076
1995 19,797 174 10,425 146 8,412
1996 ,278 87 3,534 73 2,852
1997 2,390 - 1,361 - 1,098
Thereafter 2,828 - 1,551 - 1,252
______ ___ ______ ___ ______
$ 57,121 423 30,598 355 24,690
(1) Represents volumes required to be delivered to Enron net
of estimated royalty volumes.
Nonrecourse Secured Loan and Dollar-Denominated Production Payment
Under the terms of the Enron loan entered into in December
1993 and a dollar-denominated production payment sold to a bank
in February 1992, the Company is required to make payments based
on the net proceeds, as defined, from certain subject properties.
The Enron loan, which bears annual interest at the rate of
12.5%, was recorded at a discounted amount to reflect the
conveyance to the lender of a 20% interest in the net profits, as
defined, of the Loma Vieja properties. At March 31, 1994 the
recorded liability was $54,435,000. Under the terms of the Enron
loan, additional funds may be advanced to fund a portion of the
development projects which will be undertaken by the Company on
the properties pledged as security for the loan. Payments of
principal and interest under the Enron loan are due monthly and
are equal to 90% of total net operating income from the secured
properties, reduced by 80% of allowable capital expenditures, as
defined. The Company's current estimate is that the remaining
1994 payments will reduce the recorded liability by approximately
$598,000. Payments, if any, under the net profits conveyance
will commence upon repayment of the principal amount of the Enron
loan and will cease when the lender has received an internal rate
of return, as defined, of 18% (15.25% through December 31, 1995).
The original amount of the dollar-denominated production
payment was $37,550,000, which was recorded as a liability of
$28,805,000 after a discount to reflect a market rate of
interest. At March 31, 1994 the remaining recorded liability was
$20,320,000. Under the terms of the dollar-denominated
production payment, the Company must make a monthly cash payment
which is the greater of a base amount or 85% of the net proceeds
from the subject properties, as defined, except that the amount
required to be paid in any given month shall not exceed 100% of
the net proceeds from the subject properties. Forest retains a
management fee equal to 10% of sales from the properties, which
is deducted in the calculation of net proceeds. The Company's
current estimate is that the remaining 1994 payments will reduce
the recorded liability by approximately $1,954,000.
Hedging Program
In addition to the volumes of natural gas and oil dedicated
to volumetric production payments, the Company has also used
energy swaps and other financial agreements to hedge against the
effects of fluctuations in the sales prices for oil and natural
gas. In a typical swap agreement, the Company receives the
difference between a fixed price per unit of production and a
price based on an agreed upon third-party index if the index
price is lower. If the index price is higher, the Company pays
the difference. The Company's current swaps are settled on a
monthly basis. At March 31, 1994 the Company had natural gas
swaps for an aggregate of approximately 36 MMBTU per day of
natural gas during 1994 at fixed prices ranging from $1.90 to
$2.30 per MMBTU. At March 31, 1994 the Company had no oil swaps
in place.
Summary of Cash Flow Considerations and Exposure to Price and
Reserve Risk
As a result of volumetric production payments, energy swaps,
and fixed contracts, the Company currently estimates that
approximately 59% of its natural gas production and 25% of its
oil production will not be subject to price fluctuations from
April 1994 through December 1994. Existing hedge agreements
currently cover approximately 49% of the Company's natural gas
production and 28% of its oil production for the year ending
December 31, 1995. Currently, it is the Company's intention to
commit no more than 75% of its production to such arrangements at
any point in time. See "Hedging Program" above.
Capital Expenditures
The Company's expenditures for property acquisition,
exploration and development for the first three months of 1994
and 1993, including overhead related to these activities which
was capitalized, were as follows:
Three Months Ended March 31,
____________________________
1994 1993
____ ____
(In Thousands)
Property acquisition costs:
Proved properties $1,227 -
Undeveloped properties - -
_____ _____
1,227 -
Exploration costs:
Direct costs (132) (28)
Overhead capitalized 183 (65)
_____ _____
51 (93)
Development costs:
Direct costs 2,522 603
Overhead capitalized 1,803 1,322
_____ _____
4,325 1,925
_____ _____
$5,603 1,832
===== =====
It is currently anticipated that the Company's 1994
expenditures for exploration and development will be
approximately $3,900,000, and $27,300,000, respectively,
including capitalized overhead of $900,000 and $5,600,000,
respectively. Of this amount, approximately $9,100,000 relates
to direct costs for development of properties in the Loma Vieja
Field. Under the terms of the Enron loan, 80% of direct
development expenditures on the properties subject to the loan
reduce payments which would otherwise be due; however, planned
levels of capital expenditures may still be restricted if the
Company experiences lower than anticipated net cash provided by
operations or other liquidity problems.
During 1994, the Company intends to continue its strategy of
acquiring reserves; however, no assurance can be given that the
Company can locate or finance any property acquisitions. In
order to finance future acquisitions, the Company is exploring
many options including, but not limited to: a variety of debt
instruments; the issuance of net profits interests; sales of non-
strategic properties, prospects and technical information; joint
venture financing; the issuance of common or preferred equity of
the Company; sale of production payments and other nonrecourse
financing; as well as additional bank financing. Availability of
these sources of capital will depend upon a number of factors,
some of which are beyond the control of the Company.
Dividends
The Company was required to pay dividends on its $.75
Convertible Preferred Stock, when and if declared, in shares of
Common Stock through 1993. On February 1, 1994, a cash dividend
of $.1875 on its $.75 Convertible Preferred Stock was paid to
holders of record on January 14, 1994. On February 20, 1994 the
Board of Directors declared a cash dividend of $.1875 on the $.75
Convertible Preferred Stock, payable May 1, 1994 to holders of
record on April 8, 1994. The Indenture executed in connection
with the 11 1/4% Senior Subordinated Notes due 2003 and the
Credit Facility contain restrictive provisions governing dividend
payments.
Gas Balancing
It is customary in the industry for various working interest
partners to produce more or less than their entitlement share of
natural gas from time to time. The Company's net overproduced
position decreased in the first three months of 1994 to
approximately 9 BCF from approximately 10 BCF at December 31,
1993. The Company currently estimates that approximately 2 BCF
will be repaid in the remainder of 1994 and 2 BCF will be repaid
in 1995 under such agreements. In the absence of a gas balancing
agreement, the Company is unable to determine when its partners
may choose to make up their share of production. If and when the
Company's partners do make up their share of production, the
Company's deliverable natural gas volumes could decrease,
adversely affecting gas revenue and cash flow.
Item 6. Exhibits and Reports on Form 8-K
_______ _________________________________
(a) Exhibits
Exhibit 10.1 Description of Employee Overriding Royalty Bonuses,
incorporated herein by reference to Exhibit 10.1 to Form 10-K
for Forest Oil Corporation for the year ended December 31, 1990
(File No. 0-4597).
Exhibit 10.2 Description of Executive Life Insurance Plan,
incorporated herein by reference to Exhibit 10.2 to Form 10-K
for Forest Oil Corporation for the year ended December 31, 1991
(File No. 0-4597).
Exhibit 10.3 Form of non-qualified Deferred Compensation
Agreement, incorporated herein by reference to Exhibit 10.3 to
Form 10-K for Forest Oil Corporation for the year ended December
31, 1990 (File No. 0-4597).
Exhibit 10.4 Form of non-qualified Supplemental Executive
Retirement Plan, incorporated herein by reference to Exhibit
10.4 to Form 10-K for Forest Oil Corporation for the year ended
December 31, 1990 (File No. 0-4597).
Exhibit 10.5 Form of Executive Retirement Agreement,
incorporated herein by reference to Exhibit 10.5 to Form 10-K
for Forest Oil Corporation for the year ended December 31, 1990
(File No. 0-4597).
Exhibit 10.6 Forest Oil Corporation 1992 Stock Option Plan and
Option Agreement, incorporated herein by reference to Exhibit
10.7 to Form 10-K for Forest Oil Corporation for the year ended
December 31, 1991 (File No. 0-4597).
Exhibit 10.7 Letter Agreement with Richard B. Dorn relating to a
revision to Exhibit 10.5 hereof, incorporated herein by
reference to Exhibit 10.11 to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1991 (File No. 0-
4597).
Exhibit 10.8 Forest Oil Corporation Annual Incentive Plan
effective as of January 1, 1992, incorporated herein by
reference to Exhibit 10.8 to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1992 (File No. 0-
4597).
Exhibit 10.9 Form of Executive Severance Agreement, incorporated
herein by reference to Exhibit 10.9 to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1993 (File No. 0-
4597).
Exhibit 10.10 Form of Settlement Agreement and General Release
between John F. Dorn and Forest Oil Corporation dated March 7,
1994, incorporated herein by reference to Exhibit 10.10 to Form
10-K for Forest Oil Corporation for the year ended December 31,
1993 (File No. 0-4597).
*Exhibit 11 Forest Oil Corporation and Subsidiaries -
Calculation of Earnings per Share of Common Stock.
* Filed with this report.
(b) Reports on Form 8-K
___________________
Form 8-K/A (date of report December 30, 1993) was filed by
Forest on March 14, 1994 reporting Item 7 and the following
financial statements:
(a) Loma Vieja/Martinez Properties Historical Summaries
of Oil and Gas Revenue and Direct Operating Expenses.
(b) Pro forma financial information.
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 thereunto duly authorized.
FOREST OIL CORPORATION
(Registrant)
Date: May 13, 1994 /s/ Daniel L. McNamara
____________________________________
Daniel L. McNamara
Corporate Counsel and Secretary
(Signed on behalf of the registrant)
/s/ David H. Keyte
____________________________________
David H. Keyte
Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
FOREST OIL CORPORATION Exhibit 11
Calculation of Loss Per Share of Common Stock
(Unaudited)
Three Months Ended
________________________
March 31, March 31,
1994 1993
_________ _________
(In Thousands Except Per Share Amounts)
Primary loss per share:
Net loss $ (895) (2,389)
Less dividends payable on
Convertible Preferred Stock (540) (587)
_______ _______
Net loss attributable to common stock
for primary loss per share calculation $ (1,435) (2,976)
======= =======
Weighted average number of common
shares outstanding 28,008 14,828
======= =======
Primary loss per share $ (.05) (.20)
======= =======
Fully diluted loss per share:
Net loss attributable to common stock, as above $ (895) (2,389)
Add:
Interest expensed on 5-1/2% Convertible
Subordinated Debentures 0 103
Expenses related to the 5-1/2% Convertible
Subordinated Debentures 0 1
Less:
Additional Federal income taxes 0 35
_______ _______
Loss applicable to fully diluted calculation $ (895) (2,320)
======= =======
Common shares applicable to fully diluted calculation:
Weighted average number of common shares
outstanding, as above 28,008 14,828
Add:
Weighted average number of shares issuable
upon assumed conversion of 5-1/2% Convertible
Subordinated Debentures 0 474
Weighted average number of shares issuable
upon assumed conversion of Convertible
Preferred Stock 10,083 10,933
_______ _______
Common shares applicable to fully diluted calculation 38,091 26,235
======= =======
Fully diluted loss per share* $ (.02) (.09)
======= =======
*The fully diluted loss per share is not presented in the Company's financial
statements because the effects of assumed exercises and conversions were
anti-dilutive.
