<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 1995
REGISTRATION STATEMENT NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
FOREST OIL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 25-0484900
(State or other jurisdiction (I.R.S. Employer
of
incorporation or organization) Identification No.)
</TABLE>
1600 BROADWAY, SUITE 2200
DENVER, COLORADO 80202
(303) 812-1400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
DANIEL L. MCNAMARA
CORPORATE COUNSEL AND SECRETARY
FOREST OIL CORPORATION
1600 BROADWAY, SUITE 2200
DENVER, COLORADO 80202
(303) 812-1400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Alan P. Baden Jonathan I. Mark
Vinson & Elkins L.L.P. Cahill Gordon & Reindel
2300 First City Tower 80 Pine Street
1001 Fannin New York, New York 10005
Houston, Texas 77002
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock................................ 69,000,000 $2.69* $185,610,000* $64,004*
</TABLE>
* Estimated pursuant to Rule 457(c) solely for purposes of computing the
registration fee based upon the average of the high and low prices of the
Common Stock, as reported on the Nasdaq National Market, as of December 8,
1995.
--------------------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
The Company has submitted a proposal to its shareholders to effect a reverse
stock split of its outstanding Common Stock. The proposal would cause each share
of Common Stock to be converted into one fifth of a share of Common Stock. The
proposal is scheduled for consideration at a special meeting of shareholders to
be held in January 1996. The share information in this Registration Statement
and the prospectus included herein will be amended prior to the date on which
preliminary prospectuses are distributed to reflect the proposal when adopted.
<PAGE>
FOREST OIL CORPORATION
------------------------
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY FORM S-2
<TABLE>
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside front cover page
2. Inside Front and Outside Back Cover Pages Inside front cover page, outside back
of Prospectus............................ cover page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges....... Prospectus Summary, Risk Factors
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... Not Applicable
6. Dilution.................................. Not Applicable
7. Selling Security Holders.................. Principal and Selling Shareholders
8. Plan of Distribution...................... Outside front cover page, Underwriting
9. Description of Securities to be
Registered............................... Outside front cover page, Prospectus
Summary, Dividend Policy, Description of
Capital Stock
10. Interests of Named Experts and Counsel.... Legal Opinions, Experts
11. Information with Respect to Registrant.... Prospectus Summary, The Company,
Capitalization, Price Range of Common
Stock, Dividend Policy, Selected
Financial and Operating Data,
Management's Discussion and Analysis of
Financial Condition and Results of
Operations, Business and Properties, The
Anschutz and JEDI Transactions,
Description of Capital Stock,
Consolidated Financial Statements
12. Incorporation of Certain Information by
Reference................................ Inside front cover page
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION
DECEMBER 13, 1995
PROSPECTUS
60,000,000 SHARES
[LOGO]
FOREST OIL CORPORATION
COMMON STOCK
($.10 PAR VALUE)
Of the 60,000,000 shares of Common Stock, $.10 par value per share (the "Common
Stock"), of Forest Oil Corporation (the "Company") being offered hereby (this
"Offering"), 54,700,000 are being issued and sold by the Company and 5,300,000
shares are being sold by Saxon Petroleum, Inc., the Selling Shareholder (as
hereinafter defined), a Canadian corporation in which the Company holds a 56%
economic (49% voting) interest. See "Principal and Selling Shareholders."
The Common Stock is quoted on the Nasdaq National Market ("Nasdaq/NMS") under
the symbol "FOIL." On January , 1996, the last reported sale price of the
Common Stock was $ per share. See "Price Range of Common Stock" and
"Description of Capital Stock."
SEE "RISK FACTORS" ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT COMPANY(1) SHAREHOLDER(1)
Per Share........................ $ $ $ $
Total(2)......................... $ $ $ $
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $ .
(2) The Company has granted the Underwriters a 30-day option to purchase up to
shares of Common Stock at the Price to Public, less Underwriting
Discount, solely to cover over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discount and Proceeds to Selling Shareholder will be $ , $ , and
$ , respectively. See "Underwriting."
The Common Stock is offered subject to receipt and acceptance by the
Underwriters, to prior sales and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the certificates representing the Common Stock
will be made at the office of Salomon Brothers Inc, Seven World Trade Center,
New York, New York, or through the facilities of The Depository Trust Company,
on or about , 1996.
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
MORGAN STANLEY & CO.
INCORPORATED
CHASE SECURITIES, INC.
The date of this Prospectus is , 1996.
<PAGE>
[MAP TO COME]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ/NMS. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANYTIME.
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE. AS USED HEREIN, THE "COMPANY" OR "FOREST" MEANS FOREST OIL
CORPORATION AND ITS CONSOLIDATED SUBSIDIARIES UNLESS THE CONTEXT REQUIRES
OTHERWISE. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS
ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED. SEE
"CERTAIN DEFINITIONS" FOR DEFINITIONS OF CERTAIN OIL AND GAS INDUSTRY TERMS USED
IN THIS PROSPECTUS.
THE COMPANY
GENERAL
Forest is an independent natural gas and oil company focused on the
exploitation and development of its existing property base, primarily located
both onshore and offshore in the United States. The Company is also engaged in
the exploration for natural gas and oil primarily through internally generated
prospects promoted to industry partners and through farmouts. The Company, which
is a successor to a company founded in 1916, has extensive operating experience
in most of the major producing regions of the United States and Canada. From
January 1, 1992 through December 31, 1994, the Company acquired approximately
212 Bcfe of estimated proved oil and gas reserves with significant exploitation
and development potential which, due to the Company's capital constraints, has
not been fully realized. The Company's assets include an under-exploited
property base and a substantial geophysical and geological database including
2-D seismic surveys covering approximately 425,000 miles, 3-D seismic surveys
covering over 300,000 acres and approximately 380,000 well logs.
The Company is developing a new core area of operations in Western Canada.
While the Company currently has no significant operations in Canada, it has
operated in Canada for over 35 years. The Company recently entered into an
agreement (the "ATCOR Agreement") to acquire ATCOR Resources, Ltd. ("ATCOR"), a
Canadian corporation engaged in oil and gas exploration and production in
Western Canada and the marketing and processing of natural gas. In addition, the
Company recently acquired a controlling interest in Saxon Petroleum, Inc.
("Saxon"), an Alberta, Canada corporation primarily engaged in oil and gas
exploration and production in Western Canada. See "-- Recent Developments --
Canadian Acquisitions" below.
The Company's principal reserves and producing properties are currently
located in the Gulf of Mexico, Texas and Oklahoma. The Company operates 43
platforms in the Gulf of Mexico. At December 31, 1994, the Company's estimated
proved reserves of 292 Bcfe consisted of 247 Bcf of natural gas (approximately
85% of total estimated proved reserves on an Mcfe basis) and 7.5 MMbbls of oil
and condensate (including amounts attributable to volumetric production
payments). Approximately 81% of total estimated proved reserves were classified
as proved developed reserves. At December 31, 1994, the Company had interests in
616 gross wells and operated properties accounting for approximately 74% of its
daily production, which averaged 157 MMcfe/d for the twelve month period ended
December 31, 1994. The Company's present value of estimated future net cash
flows after income taxes from its estimated proved reserves (utilizing a 10%
discount rate) at December 31, 1994 was $230.1 million, approximately 62% of
which was attributable to estimated proved reserves located in the Gulf of
Mexico. On a pro forma basis including the ATCOR and Saxon acquisitions, the
Company had estimated proved reserves of 505.3 Bcfe at December 31, 1994
(approximately 26% oil, condensate and natural gas liquids) with an estimated
present value of future net cash flows after income taxes from its estimated
proved reserves (utilizing a 10% discount rate) of $340.4 million. See "--
Recent Developments -- Canadian Acquisitions" below.
On July 27, 1995, The Anschutz Corporation ("Anschutz") purchased equity
securities of the Company for $45.0 million, and the Company restructured $62.4
million of indebtedness to Joint Energy Development Investments Limited
Partnership ("JEDI"). As a result of these transactions,
3
<PAGE>
Anschutz currently owns approximately 40% of the outstanding Common Stock of the
Company, and the Company's liquidity has significantly improved. See "-- Recent
Developments -- Anschutz and JEDI Transactions" below.
BUSINESS STRATEGY
The Company's long term objective is to maximize its value through sustained
growth of its oil and gas reserves, production at reasonable costs and
achievement of high margins with respect to its production, while minimizing
operating and financial risk. The Company's strategy for achieving this
objective includes:
OPERATIONS STRATEGY
- EXPLOITATION AND DEVELOPMENT OF EXISTING PROPERTIES. The Company pursues
workovers, recompletions, secondary recovery operations and other
production optimization techniques on its properties to minimize normal
production declines. The Company has identified 41 exploitation projects
requiring approximately $25.5 million of capital. Further, the Company
has identified 80 development projects requiring approximately $23.3
million of capital (exclusive of $9 and $4 million of development
expenditures for ATCOR and Saxon, respectively) to bring a portion of the
Company's proved undeveloped reserves into production. Of the foregoing
amounts, the Company has budgeted $12.4 million and $10.4 million,
respectively in 1996.
- COST EFFECTIVE EXPLORATION. To augment its exploration program, the
Company began, in 1995, to generate exploratory prospects by establishing
small "franchise" teams of contract geologists and geophysicists with
substantial experience in a defined geographic area. These consultants
are provided office space and support services as well as access to the
Company's geological and geophysical databases and are compensated
primarily with pre-negotiated overriding royalty interests in prospects
generated. The Company currently has five franchise teams working on both
offshore and onshore prospects. To date, this approach has generated two
prospects that are scheduled for drilling over the next several months.
In this manner, Forest limits its overhead costs associated with
exploration and utilizes its extensive database to generate prospects and
increase its exploration activity level. The Company also conducts
exploration for oil and gas on its existing property base. In 1995,
Forest farmed out 14 prospects on which wells were drilled at a gross
cost of $31.4 million and at no net cost to the Company. The Company
estimates that it added a total of 3.6 Bcfe of proved reserves to its
reserve base from these wells. The Company's goal is to minimize the
capital committed to its undeveloped lease inventory by evaluating
properties as quickly as possible and maintaining an inventory that can
be evaluated in no more than a one to two year period.
- ACQUISITION OF PRODUCING PROPERTIES. After acquiring approximately 212
Bcfe of estimated proved oil and gas reserves in the United States from
1992 to 1994, the Company has recently shifted its focus to acquisitions
in Western Canada. The Company believes that the Canadian market
currently provides a more attractive environment for acquisitions of oil
and gas reserves than the U.S. market due to favorable Canadian asset
valuations and competitive conditions resulting in rising acquisition
prices in the U.S. The Company has recently entered into an agreement to
acquire ATCOR, a publicly held Canadian oil and gas company, for
approximately $135 million. Of this amount, approximately $110 million is
allocated to oil and gas properties. On a pro forma basis as of December
31, 1994, ATCOR would have added estimated proved reserves of 10.5 MMbbls
of oil, condensate and natural gas liquids and 106.1 Bcf of natural gas
to the Company's reserve base. The Company also recently acquired a
controlling interest in Saxon, a publicly traded Canadian oil and gas
company, which had estimated proved reserves of 4.2 MMbbls of oil and
condensate and 18.7 Bcf of natural gas at December 31, 1994. The Company
believes that the ATCOR and Saxon acquisitions enhance the Company's
ability to capitalize on future acquisition opportunities in Western
Canada.
4
<PAGE>
See "-- Recent Developments -- Canadian Acquisitions" below. In Canada
and throughout North America, Forest focuses on acquisitions of producing
properties that substantially meet its selection criteria, which include
(a) location in a core area of operations or establishment of a new core
area through the acquisition of a significant property base providing a
critical mass, (b) attractive purchase price, (c) significant potential
for increasing reserves and production through low risk exploitation and
development, and (d) opportunities for improved operating efficiencies.
In Canada, Forest also attempts to ensure that all gas properties have
sufficient owned plant capacity to provide adequate access to markets.
FINANCIAL STRATEGY
- REDUCING LEVERAGE. The Company's financial strategy focuses on reducing
financial risk principally through deleveraging its capital structure and
hedging oil and gas price risk. As of December 31, 1994, debt represented
97.8% of the Company's book capitalization. This percentage fell to 83.8%
as of September 30, 1995, following the closing of the Anschutz and JEDI
Transactions. See "-- Recent Developments -- Anschutz and JEDI
Transactions" below. While these transactions were important steps toward
deleveraging, the Company's long-term goal is to reduce debt to a level
below 50% of total capitalization. As a result of this offering and
following the ATCOR acquisition, debt as a percent of capitalization is
expected to be reduced to approximately 55% on a pro forma basis.
- HEDGING STRATEGY. The Company's hedging strategy encompasses both
defensive and strategic hedges. Defensive hedges are executed to
stabilize the Company's cash flow over the next 12 to 24 months in order
to facilitate financial planning and budgeting and allow a consistent
capital expenditure program. Strategic hedges are longer term and are
designed to protect the Company's profitability and return on assets and
to provide assurance of the repayment of nonrecourse debt. At current oil
and natural gas prices, the Company's hedging program is focused
primarily on defensive hedges. However, strategic hedges will be
considered as part of any future acquisition. As of December 31, 1995,
approximately 38.9 Bcfe of the Company's oil and gas reserves were
hedged. Of this total hedged volume, 18.4 Bcfe and 11.3 Bcfe are hedged
for 1996 and 1997, respectively.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company................................. shares (1)
Selling Shareholder......................... shares
Common Stock outstanding before this
offering..................................... shares (2)(3)
Common Stock outstanding after this
offering..................................... shares (1)(2)(3)
Use of proceeds............................... Substantially all of the proceeds will be
used to pay the costs and expenses of the
ATCOR acquisition, repay bank indebtedness
and for general corporate purposes
including working capital. Substantially
all of the proceeds to be received by
Saxon, the Selling Shareholder, will be
used to repay bank indebtedness. See "Use
of Proceeds."
Nasdaq/NMS symbol for Common Stock............ FOIL
</TABLE>
- ------------------------
(1) Does not include up to shares of Common Stock which may be sold by
the Company pursuant to the Underwriters' over-allotment option.
(2) In January 1996, the Company's shareholders adopted a proposal to effect a
reverse stock split of the Company's outstanding Common Stock. The proposal
caused each share of Common Stock to be converted into one fifth of a share
of Common Stock.
(3) Based on the number of shares of Common Stock outstanding at November 15,
1995. Does not include a total of 51,278,765 shares reserved for issuance
and represented by 3,059,000 shares issuable upon exercise of outstanding
stock options, 1,244,715 shares issuable upon exercise of the Company's
Public Warrants (as defined herein), 19,444,444 shares issuable upon the
exercise of the Company's A Warrants (as defined herein), 11,250,000 shares
issuable upon the exercise of the Company's B Warrants (as defined herein),
10,080,606 shares issuable upon conversion of the Company's $.75 Convertible
Preferred Stock (as defined herein) and 6,200,000 shares issuable upon
conversion of the Company's Second Series Preferred Stock (as defined
herein). See "Description of Capital Stock."
RECENT DEVELOPMENTS
CANADIAN ACQUISITIONS
ATCOR. The Company has entered into the ATCOR Agreement with ATCOR, and two
of the controlling stockholders of ATCOR who own collectively 45% of the common
stock of ATCOR and who have agreed to vote their shares in favor of the
acquisition. Pursuant to the ATCOR Agreement, the Company has agreed to acquire
all of the outstanding capital stock of ATCOR for an aggregate cash
consideration of approximately $186 million Cdn (or approximately $135 million
in U.S. dollars, assuming an exchange rate of $1.38 Cdn to $1.00 U.S.). The
closing of the acquisition is subject to certain conditions, including obtaining
certain Canadian regulatory approvals, the approval of the holders of both
classes of the outstanding capital stock of ATCOR and the completion of this
offering. A meeting of the shareholders of ATCOR to consider approval of the
acquisition is expected to occur on January , 1996. The Company will use
substantially all of the net proceeds of this offering to pay the costs and
expenses of the ATCOR acquisition, the closing of which is expected to occur
immediately following the closing of this offering. (See "Business and
Properties -- ATCOR Acquisition.")
ATCOR is engaged in oil and gas exploration and production and the marketing
and processing of natural gas. ATCOR's principal reserves and producing
properties are located in the Canadian provinces of Alberta, British Columbia
and Saskatchewan. At December 31, 1994, ATCOR's natural gas
6
<PAGE>
liquids and estimated proved reserves of 168.9 Bcfe consisted of 10.5 MMbbls of
oil, condensate and natural gas liquids and 106.1 Bcf of natural gas. See
"Business and Properties -- ATCOR Acquisition."
SAXON TRANSACTION. On December 20, 1995, the Company acquired a controlling
interest in Saxon, an oil and gas exploration and production company
headquartered in Calgary, Alberta, Canada, which commenced operations in March
1990. Saxon is focused on exploitation and step-out drilling primarily in
Alberta. Principal reserves and producing properties are located in three
project areas in western and northwestern Alberta in the Pembina, Bigoray and
Kaybob South fields. At December 31, 1994, Saxon's estimated proved reserves of
44.1 Bcfe consisted of 4.2 MMbbls of oil, condensate and natural gas liquids and
18.7 Bcf of natural gas.
In the transaction, Forest acquired common stock and warrants of Saxon,
consisting of an approximate 63% ownership of Saxon on a fully diluted basis in
exchange for a total of 5.3 million shares of Forest Common Stock, all of which
are being offered for sale hereby, and approximately $1.1 million.
It is Forest's present intention that ATCOR and Saxon will initially operate
as separate entities under separate Canadian management. Forest will operate
ATCOR as a wholly owned subsidiary and will be entitled to elect a majority of
the Saxon Board of Directors. Saxon will continue to be a public company.
ANSCHUTZ AND JEDI TRANSACTIONS.
On July 27, 1995, Anschutz purchased securities of the Company for $45.0
million and the Company restructured $62.4 million of indebtedness to JEDI.
Anschutz purchased 18,800,000 shares of Common Stock and shares of the Company's
Second Series Convertible Preferred Stock (the "Second Series Preferred Stock")
that are convertible into 6,200,000 additional shares of Common Stock for a
total consideration of $45 million, or $1.80 per share. The Anschutz investment
was made in two closings. In the first closing, Anschutz loaned the Company $9.9
million. At the second closing, Anschutz converted the loan into 5,500,000
shares of Common Stock and purchased an additional 13,300,000 shares of Common
Stock, the Second Series Preferred Stock and the A Warrants described below for
$35.1 million. At the second closing, Anschutz also received from JEDI an option
to purchase from JEDI up to 11,250,000 shares of common stock that JEDI may
acquire from the Company upon exercise of the B Warrants described below.
Anschutz acquired approximately 40% of the then outstanding Common Stock.
Subject to a 40% ownership limitation, and in any event after July 27, 2000,
Anschutz could acquire an additional 6,200,000 shares of Common Stock by
converting the Second Series Preferred Stock. In addition, subject to the 40%
limitation, Anschutz has the right to acquire an additional 30,694,444 shares of
Common Stock, 19,444,444 shares by the exercise of warrants at a price of $2.10
per share (the "A Warrants") and 11,250,000 shares by exercise of an option from
JEDI at an initial exercise price of $2.00 per share. The A Warrants expire
January 27, 1997, but such expiration may be extended to July 27, 1998 under
certain circumstances. In connection with the Anschutz transaction, Anschutz and
the Company entered into a shareholders agreement restricting the voting rights
of the Company's Common Stock acquired by Anschutz. See "The Anschutz and JEDI
Transactions."
As a part of the restructuring of the JEDI indebtedness, the JEDI loan was
divided into two tranches, a $40 million tranche, which bears interest at the
rate of 12.5% per annum and is due on December 31, 2000, and an approximately
$22 million tranche, which does not bear interest and matures on December 31,
2002. In the restructuring, JEDI relinquished the net profits interest that it
held in certain Forest properties and received the B Warrants described below.
As a result of the loan restructuring and the issuance of the B Warrants
described below, the Company reduced the recorded amount of the related
liability to approximately $45 million, extended maturities of certain JEDI
indebtedness and expects a reduction of interest expense of approximately $2.0
million per year. See "The Anschutz and JEDI Transactions."
7
<PAGE>
As part of the restructuring, JEDI received warrants to purchase 11,250,000
shares of the Common Stock with an exercise price of $2.00 per share (the "B
Warrants"). Until July 27, 1998, the B Warrants may be exercised only on the
dates and in the respective numbers of shares required to be delivered by JEDI
to Anschutz pursuant to the exercise of the option granted by JEDI to Anschutz.
The Company has agreed to use the proceeds from the exercise of the A Warrants
and the B Warrants to repay principal and interest on the JEDI loan. The B
Warrants expire on the earlier of December 31, 2002 or 36 months following
exercise of the Company's option to convey properties in satisfaction of the
JEDI indebtedness.
SUMMARY PRO FORMA OIL AND GAS RESERVE INFORMATION
The following table sets forth summary pro forma information with respect to
estimates of proved oil and gas reserves of the Company, ATCOR and Saxon and the
standardized measure of discounted future net cash flows (discounted at 10%) for
these reserves as of December 31, 1994. For additional information relating to
reserves, see "Risk Factors -- Ceiling Limitation Writedowns" and "-- Reliance
on Reserve Estimates", "Business and Properties -- Pro Forma Oil and Gas
Reserves" and Note 16 of Notes to Consolidated Financial Statements of the
Company.
<TABLE>
<CAPTION>
FOREST OIL ATCOR SAXON TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Proved Developed Reserves:
Natural Gas (MMcf)................................................ 179,574 106,071 17,346 302,991
Liquids (Mbbls) (1)............................................... 6,775 10,469 3,203 20,447
---------- ---------- ---------- ----------
Total (MMcfe) (2)............................................... 220,224 168,885 36,564 425,673
Proved Undeveloped Reserves:
Natural Gas (MMcf)................................................ 52,064 -- 1,389 53,453
Liquids (Mbbls) (1)............................................... 538 8 1,030 1,576
---------- ---------- ---------- ----------
Total (MMcfe) (2)............................................... 55,292 48 7,569 62,909
---------- ---------- ---------- ----------
Total Proved Reserves (MMcfe) (2)................................... 275,516 168,933 44,133 488,582
Proved reserves attributable to volumetric production payments, all
of which are proved developed:
Natural gas (MMcf)................................................ 15,358 -- -- 15,358
Liquids (Mbbls) (1)............................................... 219 -- -- 219
---------- ---------- ---------- ----------
Total proved reserves attributable to volumetric production payments
(MMcfe) (2)........................................................ 16,672 -- -- 16,672
---------- ---------- ---------- ----------
Total proved reserves including amounts attributable to volumetric
production payments (MMcfe) (2).................................... 292,188 168,933 44,133 505,254
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Standardized measure of discounted future net cash flows relating to
proved oil and gas reserves (in thousands)......................... $ 207,463 86,121 24,101 317,685
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Total discounted future net cash flows relating to proved oil and
gas reserves, including amounts attributable to volumetric
production payments (in thousands)................................. $ 230,149 86,121 24,101 340,371
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
- --------------------------
(1) Includes crude oil, condensate and natural gas liquids.
(2) Converted on the basis that one barrel of liquids is equivalent to 6 Mcf of
natural gas.
8
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The summary financial and operating data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company (including the Notes thereto).
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------------- ------------------------------------------
PRO FORMA PRO FORMA
1995 (1) 1995 1994 1994 (1) 1994 1993 1992 (2)
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND VOLUMES)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue........................................... $ 209,697 60,528 93,727 $ 302,178 115,947 105,148 113,186
Earnings (loss) before cumulative effects of
changes in accounting principles and
extraordinary item (3)........................... $ (7,788) (14,533) (32,902) (57,315) (67,853) (9,355) 7,298
Net earnings (loss)............................... $ (7,788) (14,533) (46,892) (71,305) (81,843) (21,213) 7,298
Weighted average number of common shares
outstanding...................................... 93,057 33,057 28,072 88,097 28,097 21,997 13,774
Net earnings (loss) attributable to common
stock............................................ $ (9,408) (16,153) (48,513) (73,466) (84,004) (23,463) 4,950
Primary earnings (loss) per share (4):
Earnings (loss) before cumulative effects of
changes in accounting principles and
extraordinary item............................. $ (.10) (.49) (1.23) (.68) (2.49) (.53) .36
Net earnings (loss)............................. $ (.10) (.49) (1.73) (.83) (2.99) (1.07) .36
BALANCE SHEET DATA (AT END OF PERIOD)
Total assets...................................... $ 534,619 304,743 351,724 324,832 426,755 378,532
Working capital (deficit)......................... (8,117) (8,759) (4,761) (22,100) (14,496) 36,589
Long-term obligations............................. 230,184 229,382 279,132 271,128 288,588 250,672
Shareholders' equity.............................. 199,384 44,387 40,230 6,086 88,156 59,881
OPERATING DATA
Production (5):
Gas (MMcf)...................................... 37,092 25,744 38,432 66,652 48,048 41,114 29,174
Liquids (Mbbls)................................. 2,165 926 1,152 3,583 1,543 1,493 1,450
Average price received (5):
Gas (per Mcf)................................... $ 1.62 1.75 1.93 1.70 1.90 1.88 1.70
Liquids (per Bbl)............................... 16.35 15.94 14.60 12.54 14.83 16.97 18.14
Production expense per Mcfe....................... .55 .53 .37 .40 .39 .39 .38
General and administrative expense per Mcfe....... .21 .18 .17 .19 .19 .24 .32
Capital expenditures.............................. 37,281 20,274 26,552 85,562 42,544 170,821 106,627
Overhead costs.................................... 15,566 10,130 13,076 25,730 18,719 19,561 18,760
</TABLE>
- ------------------------------
(1) The pro forma statement of operations and balance sheet data includes pro
forma adjustments to (i) give effect to the sale of the common stock offered
hereby and the use of a portion of the proceeds to fund the acquisition of
ATCOR, (ii) restate the historical financial statements of ATCOR to conform
to U.S. generally accepted accounting principles, (iii) reflect the
acquisition of ATCOR using the purchase method of accounting, (iv) reflect
the sale of certain assets to ATCOR's controlling shareholders and the use
of the proceeds therefrom to repay long-term debt of ATCOR, and (v) give
effect to the acquisition of the interest in Saxon.
(2) Results for the year ended December 31, 1992 include the effects of the
ONEOK settlement, which increased revenue by $37,542,000 and net earnings by
$24,043,000 or $1.75 per share. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
(3) The Company changed its method of accounting for oil and gas sales from the
sales method to the entitlements method effective January 1, 1994. The
Company adopted the provisions of Statements of Financial Accounting
Standards No. 106 and No. 109 effective January 1, 1993. These statements
required the Company to accrue the expected cost of postretirement benefits
and to adopt the liability method of accounting for income taxes,
respectively. In 1993, the Company realized a loss on extinguishment of debt
of $10,735,000 as a result of the redemption of its outstanding Senior
Secured Notes and long-term subordinated debentures. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Notes 1, 4, 6 and 10 of Notes to Consolidated Financial Statements of
Forest Oil Corporation.
(4) Fully diluted earnings (loss) per share was the same as primary earnings
(loss) per share in all periods except the year ended December 31, 1992. In
1992, fully diluted earnings per share was $.29.
(5) Includes amounts attributable to required deliveries under volumetric
production payments. See Notes 5 and 16 of Notes to Consolidated Financial
Statements of Forest Oil Corporation.
9
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMPANY'S COMMON STOCK SHOULD CAREFULLY
CONSIDER, TOGETHER WITH THE OTHER INFORMATION HEREIN, THE FOLLOWING FACTORS THAT
AFFECT THE COMPANY:
CONDITIONS IN OIL AND GAS INDUSTRY AFFECTING THE COMPANY
The Company's revenues, profitability and future rate of growth, if any, are
substantially dependent upon prevailing prices for oil and natural gas and the
ability of the Company to acquire proved reserves. Historically, the prices for
oil and natural gas have been quite volatile. The Company is impacted more by
natural gas prices than by oil prices, because the majority of its production
(84% in 1994 on an Mcfe basis) is natural gas. In addition, at December 31,
1994, 85% of the Company's estimated proved reserves were attributable to
natural gas on an Mcfe basis. The Company has entered into volumetric production
payments and energy swap agreements with respect to a portion of its current
production which reduce the Company's exposure to commodity price risk. However,
a significant portion of the Company's oil and gas production is subject to spot
market prices, which have historically been volatile. The volatility of the spot
market for natural gas is due to factors beyond the Company's control, including
seasonality of demand. Prices are also affected by actions of state and local
agencies, the United States and foreign governments, and international cartels.
These external factors and the volatile nature of the energy markets make it
difficult to estimate future prices of oil and natural gas. Any substantial or
extended decline in the price of oil or natural gas would have a material
adverse effect on the Company's financial condition and results of operations.
Following the acquisition of Saxon and ATCOR, a substantial portion of the
Company's operations will be located in Canada. The expenses of such operations
will be payable in Canadian dollars and certain of the revenues derived from
sales in the United States will be based upon U.S. dollar prices. The results of
such Canadian operations will therefore be subject to the risks of fluctuation
in the relative values of Canadian and U.S. dollars.
The marketability of the Company's production depends in part upon the
availability, proximity and capacity of gas gathering systems, pipelines and
processing facilities. Federal and state regulation of oil and gas production
and transportation, general economic conditions, and changes in supply and
demand all could adversely affect the Company's ability to produce and market
its oil and natural gas. If market factors were to change dramatically, the
financial impact on the Company could be substantial. The availability of
markets is beyond the control of the Company and thus represents a significant
risk. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
FINANCIAL CONDITION OF THE COMPANY
Net cash provided by operating activities has varied dramatically in the
last three years. Net cash provided (used) by operating activities was
($4,253,000) and $25,843,000 for the nine months ended September 30, 1995 and
1994, respectively and was $42,546,000, $41,722,000 and $97,241,000 for the
years ended December 31, 1994, 1993 and 1992, respectively. In 1992, the ONEOK
settlement accounted for $51,250,000 of the net cash provided by operating
activities. Such cash flow also included proceeds from the Company's volumetric
production payments, net of amortization of deferred revenues, of ($17,407,000)
and ($23,437,000) for the nine months ended September 30, 1995 and 1994,
respectively and ($31,320,000), $162,000 and $26,867,000 for the years ended
1994, 1993 and 1992, respectively. See Note 5 of the Notes to Consolidated
Financial Statements. The majority of the increases and decreases in net cash
provided by operating activities is generally attributable to increases and
decreases in net oil and gas revenue. Revenue from operations has varied
dramatically each year depending upon factors such as natural gas contract
settlements and price fluctuations which are difficult to predict.
While the Anschutz and JEDI transactions were successful in reducing annual
interest requirements, the Company's capital structure continues to be highly
leveraged. The Company's highly leveraged capital structure limits the Company's
ability to obtain outside capital or other financing. In
10
<PAGE>
addition, capital restraints have led to reduced investment in exploration and
development. In 1995, the Company experienced significant declines in production
from levels in previous years. Without substantial capital expenditures, the
Company would continue to experience such declines. Due to the uncertainty of
the Company's business, no assurance can be given that the Company will not
continue to experience liquidity problems in the future.
The Company financed its significant acquisitions and capital expenditures
in 1992 and 1993 primarily through volumetric and dollar-denominated nonrecourse
debt. The Company intends to finance future acquisitions and capital
expenditures through the issuance of Common Stock, similar production payments,
borrowings or other alternative financing. There can be no assurance that such
financing will be available at attractive terms or at all and as a result, the
Company may not have adequate long-term liquidity to replace or increase its
depleting asset base of oil and gas reserves or to fund its long-term
obligations including its existing debentures and notes.
In addition, the Company reported net losses of $81,843,000 and $21,213,000
in the years ended December 31, 1994 and 1993, respectively, and a net loss of
$14,533,000 in the first nine months of 1995. While the Company reported net
earnings of $7,298,000 in the year ended December 31, 1992, the results included
$24,043,000 of net earnings associated with the ONEOK settlement. The net losses
in the nine months ended September 30, 1995 and the years ended December 31,
1994 and 1993 were primarily the result of lower gas prices and the writedown of
the Company's oil and gas properties in 1994. See "-- Ceiling Limitation
Writedowns" below. The Company's results of operations for 1992 were also
adversely affected by lower gas prices.
Many of the factors which affect the Company's future operating performance
and long-term liquidity are beyond the Company's control, including, but not
limited to, oil and gas prices, governmental actions and taxes, the availability
and attractiveness of properties for acquisition, the adequacy and
attractiveness of financing and operational difficulties. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CEILING LIMITATION WRITEDOWNS
The Company reports its operations using the full cost method of accounting
for oil and gas properties. The Company capitalizes the cost to acquire, explore
for and develop oil and gas properties. Under full cost accounting rules, the
net capitalized costs of oil and gas properties may not exceed a "ceiling limit"
which is based upon the present value of estimated future net cash flows from
proved reserves, discounted at 10%, plus the lower of cost or fair market value
of unproved properties. See Note 1 of Notes to Consolidated Financial Statements
of the Company. If net capitalized costs of oil and gas properties exceed the
ceiling limit, the Company is subject to a ceiling limitation writedown to the
extent of such excess. A ceiling limitation writedown is a charge to earnings
which does not impact cash flow from operating activities. However, such
writedowns impact the amount of the Company's shareholders' equity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources." The risk that the Company will be
required to write down the carrying value of its oil and gas properties
increases when oil and gas prices are depressed or volatile. In addition,
writedowns may occur if the Company has substantial downward revisions in its
estimated proved reserves or if purchasers or the government cause an abrogation
of, or the Company voluntarily cancels, long-term contracts for its natural gas.
Although the Company did not have a writedown in 1992 or 1993, the Company had a
writedown of $58,000,000 in 1994. No assurance can be given that the Company
will not experience additional writedowns in the future.
GENERAL RISKS OF OIL AND GAS OPERATIONS
The nature of the oil and gas business involves a variety of risks,
including, but not limited to, the risks of operating hazards such as fires,
explosions, cratering, blow-outs, adverse weather conditions, pollution and
environmental risks, encountering formations with abnormal pressures, and, in
horizontal wellbores, the increased risk of mechanical failure and collapsed
holes, the occurrence of any of which could result in substantial losses to the
Company. The Company conducts a substantial portion of its operations offshore
in the Gulf of Mexico. Such operations are subject to certain risks including,
11
<PAGE>
but not limited to, collision, sinking and grounding of rigs and vessels. These
risks could result in substantial losses to the Company due to personal injury,
severe damage or destruction of property and equipment, environmental clean-up
costs and the suspension of operations. The Company maintains insurance against
some, but not all, of these risks in amounts that management believes to be
reasonable in accordance with customary oil and gas industry practices. The
occurrence of a significant event, however, that is not fully insured could have
a material adverse effect on the Company's financial condition and results of
operations.
GAS MARKETING
The Company's operations will include gas marketing as a result of the ATCOR
Acquisition. ATCOR's gas marketing operations consist of the marketing of its
own gas production, the purchase and direct sale of third parties' natural gas,
the handling of transportation and operations of such third party gas and the
spot purchasing and selling of natural gas. Such operations are subject to
significant price risk, particularly where the index or market for determining
the purchase price under a contract is different from the index or market for
determining the sales price under the corresponding contract. In addition,
because longer-term marketing contracts may permit some variation in the amount
the producer is obligated to purchase, matched contracts may result in an
imbalance of the natural gas volumes ATCOR is obligated to purchase and sell.
Although ATCOR's gas marketing division attempts to match its long-term purchase
obligations with long-term sales obligations, price risk and exposure resulting
from gas imbalances will not be eliminated in connection with the gas marketing
operations. The profitability of such natural gas marketing operations will
depend in large part on the ability of the Company to assess and respond to
changing market conditions in negotiating natural gas purchase and sale
agreements. The inability of the Company to respond appropriately to changing
market conditions, price risk and gas imbalances in connection with ATCOR's gas
marketing division could materially adversely affect the Company's results of
operations.
GAS PROCESSING
As a result of the ATCOR Acquisition, the Company's operations will include
processing of natural gas into various natural gas liquids. ATCOR's gas
processing operations primarily consist of a one third interest in an ethane
extraction plant located in Edmonton, Canada. In order to obtain from natural
gas suppliers volumes of committed natural gas reserves to maintain natural gas
throughput and committed reserve levels for the plant, the plant must
continually contract to process additional natural gas provided from new or
existing sources. Future natural gas supplies available for processing at the
plant will be affected by a number of factors that are not within the plant
owners' control, including the depletion rate of natural gas reserves currently
connected and the extent of exploration for, production and development of, and
demand for, natural gas in the areas in which the plant currently operates.
COMPETITION
The Company operates in a highly competitive environment. The Company
competes with major and independent oil and gas companies for the acquisition of
desirable oil and gas properties, as well as the equipment and labor required to
develop and operate such properties. The Company also competes with major and
independent oil and gas companies in the marketing and sale of oil and natural
gas to marketers and end-users. Many of these competitors have financial and
other resources substantially greater than those of the Company. See "Business
and Properties -- Competition."
REPLACEMENT OF RESERVES
In general, the volume of production from oil and gas properties declines as
reserves are depleted. The decline rates depend on reservoir characteristics and
vary from the steep decline rates characteristic of Gulf of Mexico reservoirs,
where the Company has a significant portion of its production, to the relatively
slow decline rates characteristic of long-lived fields in other regions. Except
to the extent the Company acquires properties containing proved reserves or
conducts successful development and exploration activities, or both, the proved
reserves of the Company will decline as reserves are
12
<PAGE>
produced. The Company's future natural gas and oil production is, therefore,
highly dependent upon its level of success in finding or acquiring additional
reserves. The business of exploring for, developing or acquiring reserves is
capital intensive. To the extent cash flow from operations is reduced and
external sources of capital become limited or unavailable, the Company's ability
to make the necessary capital investment to maintain or expand its asset base of
oil and gas reserves would be impaired. In addition, there can be no assurance
that the Company's future development, acquisition and exploration activities
will result in additional proved reserves or that the Company will be able to
drill productive wells at acceptable costs.
ACQUISITION RISKS
The Company's growth has been partly attributable to acquisitions of
producing properties. After this offering, the Company expects to continue to
evaluate and pursue acquisition opportunities on terms management considers
favorable to the Company. The successful acquisition of producing properties
requires an assessment of recoverable reserves, future oil and gas prices,
operating costs, potential environmental and other liabilities and other factors
beyond the Company's control. Such assessments are necessarily inexact and their
accuracy inherently uncertain. In connection with such an assessment, the
Company performs a review of the subject properties that it believes to be
generally consistent with industry practices. Such a review, however, will not
reveal all existing or potential problems nor will it permit a buyer to become
sufficiently familiar with the properties to fully assess their deficiencies and
capabilities. Inspections may not always be performed on every platform or well,
and structural and environmental problems are not necessarily observable even
when an inspection is undertaken. The Company is generally not entitled to
contractual indemnification for pre-closing liabilities, including environmental
liabilities, and generally acquires interests in the properties on an "as is"
basis.
LIMITED KNOWLEDGE OF ATCOR BUSINESS AND PROPERTIES
Forest must rely on information provided by ATCOR without being able to
fully verify all such information and without the benefit of knowing the history
of operations of ATCOR's properties or business, except to the extent it has
received audited financial statements with respect to such history. Therefore,
no assurances can be given as to the accuracy or completeness of such
information. The Company has conducted such due diligence on ATCOR as it
believes is prudent and normal in transactions of this nature. Forest will not,
however, be able to fully investigate all of ATCOR's business and properties.
Due diligence has been conducted only on those properties the Company believes
have the most significant value. The Company will receive certain
representations and warranties from ATCOR in connection with the acquisition.
These representations and warranties will not survive the closing, however, and
therefore the Company will have no recourse against any third party for breaches
of such representations and warranties, and, without any effective remedy for
such breaches, will only be able to rely on its due diligence with respect to
such matters.
RELIANCE ON RESERVE ESTIMATES
Information relating to the Company's, ATCOR's and Saxon's estimates of
proved reserves of oil and natural gas is based upon engineering estimates.
Petroleum engineering is not an exact science. Estimates of commercially
recoverable oil and gas reserves and of the future net cash flows therefrom are
based upon a number of variable factors and assumptions, such as historical
production from the subject properties, comparison with other producing
properties, the assumed effects of regulation by governmental agencies and
assumptions concerning future oil and gas prices and future operating costs,
severance and excise taxes, abandonment costs, development costs and workover
and remedial costs, all of which may in fact vary considerably from actual
results. All such estimates are to some degree speculative, and various
classifications of reserves are only attempts to define the degree of
speculation involved. For these reasons, estimates of the commercially
recoverable reserves of oil and natural gas attributable to any particular
property or group of properties, the classification, cost and risk of recovering
such reserves and estimates of the future net cash flows expected therefrom,
prepared by different engineers or by the same engineers at different times, may
vary substantially. The Company therefore emphasizes that the actual production,
revenues, severance and excise taxes,
13
<PAGE>
development expenditures, workover and remedial expenditures, abandonment
expenditures and operating expenditures with respect to its reserves will likely
vary from such estimates, and such variances may be material.
In addition, actual future net cash flows will be affected by factors such
as price, actual production, supply and demand for oil and natural gas,
curtailments or increases in consumption by natural gas purchasers, changes in
governmental regulations or taxation and the impact of inflation on costs. The
timing of actual future net revenue from proved reserves, and thus their actual
present value, can be affected by the timing of the incurrence of expenditures
in connection with development of oil and gas properties. The 10% discount
factor, which is required by the Securities and Exchange Commission (the
"Commission") to be used to calculate present value for reporting purposes, is
not necessarily the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with the oil and gas industry.
Discounted present value, no matter what discount rate is used, is materially
affected by assumptions as to the amount and timing of future production, which
may and often do prove to be inaccurate.
GOVERNMENT REGULATION, ENVIRONMENTAL RISKS AND TAXES
Various aspects of the Company's oil and natural gas operations are
regulated by administrative agencies under statutory provisions of the states
and provinces where such operations are conducted, by certain agencies of the
Federal government for operations on Federal leases and by the Canadian
Government. In the past, the Federal government has regulated the prices at
which oil and natural gas could be sold. While sales by producers of natural
gas, and all sales of crude oil, condensate and natural gas liquids can
currently be made at uncontrolled market prices, Congress could reenact price
controls in the future. See "Business and Properties -- Foreign Operations."
Extensive United States, state and local laws and Canadian laws govern oil
and gas operations regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment. Numerous governmental
departments issue rules and regulations to implement and enforce such laws which
are often difficult and costly to comply with and which carry substantial
penalties for failure to comply. These laws, rules and regulations may restrict
the rate of oil and gas production below the rate that would otherwise exist.
The regulatory burden on the oil and gas industry increases its cost of doing
business and consequently affects its profitability. These laws, rules and
regulations affect the operations of the Company. Compliance with environmental
requirements generally could have a material adverse effect upon the capital
expenditures, earnings or competitive position of Forest. Although Forest's
experience has been to the contrary, there is no assurance that this will
continue to be the case. See "Business and Properties -- Regulation" and "--
Operating Hazards and Environmental Matters".
OWNERSHIP POSITION OF ANSCHUTZ
Anschutz has a substantial ownership position in the Company and may
designate three of the Company's ten directors. Therefore, Anschutz has the
ability to exert substantial influence with respect to matters considered by the
Board of Directors. Anschutz owns approximately 40% of the outstanding Common
Stock. Anschutz may acquire additional shares to maintain its 40% position, but
its ability to exceed such percentage is limited by a five-year Shareholders
Agreement with the Company. Under certain circumstances Anschutz could have a
veto power over proposed transactions between the Company and third parties such
as a merger, which requires the approval of the holders of two-thirds of the
outstanding Common Stock. It is unlikely that control of the Company could be
transferred to a third party without Anschutz's consent and agreement. It is
also unlikely that a third party would offer to pay a premium to acquire the
Company without the prior agreement of Anschutz, even if the Board of Directors
should choose to attempt to sell the Company in the future. It will also be
unlikely that the Company will be able to enter into a transaction accounted for
as a pooling of interests in the next two years. Finally, the 40% ownership
limitation on Anschutz's ownership terminates after five years and earlier under
certain circumstances. Under these circumstances, based on the number of shares
outstanding on January , 1996, Anschutz has the ability to acquire up to
14
<PAGE>
approximately % of the Common Stock by converting its Second Series Preferred
Stock and exercising its option and warrants during their respective terms.
Therefore, upon termination of the 40% limitation, Anschutz may have effective
control over the Company. See "The Anschutz and JEDI Transactions --
Shareholders Agreement."
DILUTION DUE TO EXERCISE OF CONVERTIBLE PREFERRED STOCK, OPTIONS AND WARRANTS
The Company has reserved an aggregate of 51,278,765 shares for issuance upon
exercise of the following securities at the prices indicated: 10,080,606 shares
issuable upon conversion of the Company's $.75 Convertible Preferred Stock at a
conversion rate of 3.5 per share; 6,200,000 shares issuable upon conversion of
the Company's Second Series Preferred Stock; 3,059,000 shares issuable upon the
exercise of various options at prices ranging from $3.00 to $5.00 per share;
1,244,715 shares issuable upon exercise of the Company's Public Warrants (as
defined herein); 11,250,000 shares issuable upon the exercise of the Company's B
Warrants at an exercise price of $2.00 per share; and 19,444,444 shares issuable
upon the exercise of the Company's A Warrants at an exercise price of $2.10 per
share. In the event a significant number of such securities are converted or
exercised, the ownership position of existing shareholders would be subject to
substantial dilution.
ANTI-TAKEOVER PROVISIONS
Certain provisions in the Company's Restated Certificate of Incorporation,
By-laws, the shareholders' rights plan, and executive severance agreements may
make it more difficult to effect a change in control of the Company and replace
incumbent management. See "Description of Capital Stock -- Anti-Takeover
Provisions."
THE COMPANY
Forest is engaged in the exploitation and acquisition of, exploration for
and development and production of natural gas and crude oil. The Company was
incorporated in New York in 1924, the successor to a company formed in 1916, and
has been a publicly held company since 1969. The Company's principal reserves
and producing properties are located in the Gulf of Mexico, Western Canada,
Texas and Oklahoma. The Company operates from production offices located in
Lafayette, Louisiana and Denver, Colorado. Its administrative offices are
located in Denver, Colorado. The Company's executive offices are located at 1600
Broadway, Suite 2200, Denver, Colorado 80202 (telephone: (303) 812-1400).
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
$ ($ if the Underwriters' over-allotment option is exercised in
full), after deducting underwriting discounts and estimated offering expenses
payable by the Company. A substantial portion of the net proceeds from this
Offering will be used to pay the cost of acquiring the capital stock of ATCOR
and to pay expenses of such acquisition, which cost and expenses are currently
estimated to total approximately $ . The remainder of the net proceeds,
if any, from the offering will be used to repay bank indebtedness and for
general corporate purposes, including working capital. A portion of the net
proceeds may be used to repay, in part, the Company's secured credit facility
with The Chase Manhattan Bank (the "Credit Facility"). The Credit Facility, the
maturity date of which is July 1, 1998, provides for maximum borrowings of $40
million, which may be used for working capital and general corporate purposes.
The Credit Facility had an outstanding balance of $19.8 million as of September
30, 1995.
The net proceeds to Saxon from this offering are estimated to be $ ,
after deducting underwriting discounts and estimated offering expenses payable
by Saxon. A portion of these proceeds may be used to repay Saxon's two secured
loan facilities, an operating loan facility and a production loan facility.
Repayments are not required provided that borrowings are not in excess of the
borrowing base and that other existing covenants are complied with. The
operating and the production loan facilities provide for maximum borrowings of
$2 million and $22 million, respectively, and have outstanding balances of
approximately $1.6 million and $22 million, also respectively, as of September
30, 1995.
15
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of September 30, 1995, and (ii) the pro forma as adjusted capitalization of
the Company at September 30, 1995 giving effect to the ATCOR and Saxon
acquisitions, and the issuance and sale of the shares of Common Stock offered
hereby. See "Use of Proceeds" and "Prospectus Summary -- Recent Developments."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
-----------------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
------------- --------------
<S> <C> <C>
(IN THOUSANDS)
Short-term obligations (2)......................................................... $ 2,500 $ 8,861
Long-term obligations:
Bank debt........................................................................ 19,800 19,800
Nonrecourse secured loan (3)..................................................... 47,149 47,149
Production payment obligation (4)................................................ 15,657 15,657
11 1/4% Subordinated Debentures.................................................. 99,353 99,353
Other liabilities................................................................ 28,922 29,724
Deferred revenue (5)............................................................. 18,501 18,501
------------- --------------
Total long-term obligations...................................................... 229,382 230,184
Shareholders' equity:
$.75 Convertible Preferred Stock, 2,880,973 shares issued and outstanding........ 15,838 15,838
Second Series Preferred Stock, 620,000 shares issued and outstanding............. 8,518 8,518
Common Stock, par value $.10 per share, 47,748,107 shares issued and outstanding,
107,748,107 shares pro forma as adjusted (6).................................... 4,775 10,775
Capital surplus.................................................................. 230,756 379,753
Accumulated deficit.............................................................. (214,032) (214,032)
Foreign currency translation..................................................... (1,468) (1,468)
------------- --------------
Total shareholders' equity..................................................... 44,387 199,384
------------- --------------
Total capitalization............................................................... $ 276,269 $ 438,429
------------- --------------
------------- --------------
</TABLE>
- ------------------------
(1) Assumes no exercise of the Underwriters' over-allotment option to purchase
shares of Common Stock.
(2) Short-term obligations include cash overdraft and the current portions of
the dollar-denominated production payment obligation, the nonrecourse
secured loan, bank debt and retirement benefits payable to executives and
directors.
(3) Represents the nonrecourse secured loan payable to JEDI entered into in
connection with the acquisition of properties in 1993. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 4 of Notes to Consolidated Financial Statements of the Company.
(4) Represents the dollar-denominated production payment obligation sold in 1992
in connection with the Harbert Energy acquisition. The dollar denominated
production payment obligation had an original principal amount of
$37,550,000 and was recorded as a liability of $28,805,000 after a discount
to reflect a market rate of interest of 15.5%. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 4 of
Notes to Consolidated Financial Statements of the Company.
(5) Represents amounts received from the sale of volumetric production payments,
net of repayments. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 5 of Notes to Consolidated
Financial Statements of the Company.
(6) Based on the number of shares of Common Stock outstanding at September 30,
1995. Does not include a total of 51,278,765 shares reserved for issuance
and represented by 3,059,000 shares issuable upon exercise of outstanding
stock options, 1,244,715 shares issuable upon exercise of the Public
Warrants, 19,444,444 shares issuable upon exercise of the A Warrants,
11,250,000 shares issuable upon exercise of the B Warrants, 10,080,606
shares issuable upon conversion of the $.75 Convertible Preferred Stock and
6,200,000 shares issuable upon conversion of the Second Series Preferred
Stock. See "Description of Capital Stock".
16
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq/NMS, and high and low quotations
listed below are actual sales prices as quoted in the Nasdaq/NMS under the
symbol "FOIL". On January , 1996, the last reported sales price of the Common
Stock as quoted on the Nasdaq/NMS was $ per share.
<TABLE>
<CAPTION>
1993 High Low
- ---------------------------------------- --------- --------
<S> <C> <C>
First Quarter........................... $ 4 1/2 $ 2 7/8
Second Quarter.......................... 5 13/16 4
Third Quarter........................... 5 13/16 4 1/4
Fourth Quarter.......................... 5 7/16 3 5/16
<CAPTION>
1994
- ----------------------------------------
<S> <C> <C>
First Quarter........................... $ 4 3/4 $ 3 7/16
Second Quarter.......................... 4 9/16 3 7/16
Third Quarter........................... 4 7/16 3 5/16
Fourth Quarter.......................... 3 7/16 2 1/8
<CAPTION>
1995
- ----------------------------------------
<S> <C> <C>
First Quarter........................... $ 2 7/16 $ 1 3/8
Second Quarter.......................... 2 3/8 1 7/16
Third Quarter........................... 3 1/8 1 5/8
Fourth Quarter (through December 8)..... 2 15/16 2 1/8
</TABLE>
In January 1996, the Company's shareholders adopted a proposal to effect a
reverse stock split of the Company's outstanding Common Stock. The proposal
caused each share of Common Stock to be converted into one fifth of a share of
Common Stock.
DIVIDEND POLICY
Holders of Common Stock are entitled to cash dividends, when, as and if
declared by the Board of Directors. The Company does not intend to pay dividends
on the Common Stock for the foreseeable future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" for a description of certain limitations on the payment of
dividends on the Common Stock.
17
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected financial and operating data
regarding the Company as of and for each of the nine month periods ended
September 30, 1995 and 1994 and for each of the years in the five year period
ended December 31, 1994. This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Condensed Pro Forma Combined Financial Statements and the
Consolidated Financial Statements and Notes thereto of Forest and ATCOR.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------------------ -------------------------------------------------------
PRO FORMA PRO FORMA
1995 (1) 1995 1994 1994 (1) 1994 1993 1992 (2) 1991
----------- ------------ --------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND VOLUMES)
STATEMENT OF OPERATIONS DATA
Revenue........................... $ 209,697 60,528 93,727 302,178 115,947 105,148 113,186 69,897
Expenses:
Cost of gas sold................ 98,966 -- -- 78,242 -- -- -- --
Oil and gas production.......... 34,273 16,576 16,647 88,759 22,384 19,540 15,865 12,548
General and administrative...... 10,086 5,761 7,553 15,047 11,166 12,003 11,611 14,076
Interest........................ 20,044 19,100 20,077 28,393 26,773 23,729 27,800 23,306
Depreciation and depletion...... 49,439 33,631 52,323 82,292 65,468 60,581 46,624 38,229
Provision for impairment of oil
and gas properties............. -- -- 30,000 58,000 58,000 -- -- 34,000
Minority interest in earnings of
Saxon Petroleum, Inc........... 77 -- -- 426 -- -- -- --
----------- ------------ --------- ----------- --------- --------- --------- ---------
Total expenses................ 213,870 75,068 126,600 351,159 183,791 115,853 101,900 122,159
----------- ------------ --------- ----------- --------- --------- --------- ---------
Earnings (loss) before income
taxes, cumulative effects of
changes in accounting principles
and extraordinary item........... (3,188) (14,540) (32,873) (48,981) (67,844) (10,705) 11,286 (52,262)
Income tax expense (benefit)...... 4,600 (7) 29 8,334 9 (1,350) 3,988 (17,412)
----------- ------------ --------- ----------- --------- --------- --------- ---------
Earnings (loss) before cumulative
effects of changes in accounting
principles and extraordinary
item............................. (7,788) (14,533) (32,902) (57,315) (67,853) (9,355) 7,298 (34,850)
Cumulative effects of changes in
accounting principles for oil and
gas sales, postretirement
benefits and income taxes (3).... -- -- (13,990) (13,990) (13,990) (1,123) -- --
Extraordinary item-extinguishment
of debt (3)...................... -- -- -- -- (10,735) -- 9,502
----------- ------------ --------- ----------- --------- --------- --------- ---------
Net earnings (loss)............... $ (7,788) (14,533) (46,892) (71,305) (81,843) (21,213) 7,298 (25,348)
----------- ------------ --------- ----------- --------- --------- --------- ---------
----------- ------------ --------- ----------- --------- --------- --------- ---------
Weighted average number of common
shares outstanding............... 93,057 33,057 28,072 (88,097) 28,097 21,997 13,774 12,494
----------- ------------ --------- ----------- --------- --------- --------- ---------
----------- ------------ --------- ----------- --------- --------- --------- ---------
Net earnings (loss) attributable
to common stock.................. $ (9,408) (16,153) (48,513) (73,466) (84,004) (23,463) 4,950 (30,557)
----------- ------------ --------- ----------- --------- --------- --------- ---------
----------- ------------ --------- ----------- --------- --------- --------- ---------
Primary earnings (loss) per share
(4):
Earnings (loss) before
cumulative effects of changes
in accounting principles and
extraordinary item............. $ (.10 ) (.49 ) (1.23) (.68 ) (2.49) (.53) .36 (3.21)
----------- ------------ --------- ----------- --------- --------- --------- ---------
----------- ------------ --------- ----------- --------- --------- --------- ---------
Net earnings (loss)............. $ (.10 ) (.49 ) (1.73) (.83 ) (2.99) (1.07) .36 (2.45)
----------- ------------ --------- ----------- --------- --------- --------- ---------
----------- ------------ --------- ----------- --------- --------- --------- ---------
<CAPTION>
1990
---------
<S> <C>
STATEMENT OF OPERATIONS DATA
Revenue........................... 84,824
Expenses:
Cost of gas sold................ --
Oil and gas production.......... 13,606
General and administrative...... 23,774
Interest........................ 27,730
Depreciation and depletion...... 48,124
Provision for impairment of oil
and gas properties............. 85,237
Minority interest in earnings of
Saxon Petroleum, Inc........... --
---------
Total expenses................ 198,471
---------
Earnings (loss) before income
taxes, cumulative effects of
changes in accounting principles
and extraordinary item........... (113,647)
Income tax expense (benefit)...... (38,098)
---------
Earnings (loss) before cumulative
effects of changes in accounting
principles and extraordinary
item............................. (75,549)
Cumulative effects of changes in
accounting principles for oil and
gas sales, postretirement
benefits and income taxes (3).... --
Extraordinary item-extinguishment
of debt (3)...................... --
---------
Net earnings (loss)............... (75,549)
---------
---------
Weighted average number of common
shares outstanding............... 12,307
---------
---------
Net earnings (loss) attributable
to common stock.................. (85,395)
---------
---------
Primary earnings (loss) per share
(4):
Earnings (loss) before
cumulative effects of changes
in accounting principles and
extraordinary item............. (6.94)
---------
---------
Net earnings (loss)............. (6.94)
---------
---------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------------------ -------------------------------------------------------
PRO FORMA PRO FORMA
1995 (1) 1995 1994 1994 1994 1993 1992 (2) 1991
----------- ------------ --------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND VOLUMES)
BALANCE SHEET DATA (AT END OF PERIOD)
Total assets........................ $ 534,619 304,743 351,724 324,832 426,755 378,532 296,189
----------- ------------ --------- --------- --------- --------- ---------
----------- ------------ --------- --------- --------- --------- ---------
Working capital (deficit)........... $ (8,117) (8,759) (4,761) (22,100) (14,496) 36,589 12,829
----------- ------------ --------- --------- --------- --------- ---------
----------- ------------ --------- --------- --------- --------- ---------
Long term debt:
Bank debt......................... $ 19,800 19,800 27,000 33,000 25,000 -- --
Nonrecourse secured loan (5)...... 47,149 47,149 58,236 57,316 52,118 -- --
Production payment obligation
(6).............................. 15,657 15,657 16,370 17,422 17,917 22,823 --
Senior secured notes.............. -- -- -- -- -- 56,323 59,262
Subordinated debentures........... 99,353 99,353 99,305 99,316 99,272 89,175 90,387
----------- ------------ --------- --------- --------- --------- ---------
Total long-term debt............ 181,959 181,959 200,911 207,054 194,307 168,321 149,649
Other liabilities................... 29,724 28,922 34,430 28,166 27,053 15,285 13,288
Deferred revenue (7)................ 18,501 18,501 43,791 35,908 67,228 67,066 40,199
Redeemable preferred stock.......... -- -- -- -- -- -- --
----------- ------------ --------- --------- --------- --------- ---------
Total long-term obligations..... $ 230,184 229,382 279,132 271,128 288,588 250,672 203,136
----------- ------------ --------- --------- --------- --------- ---------
----------- ------------ --------- --------- --------- --------- ---------
Shareholders' equity................ $ 199,384 44,387 40,230 6,086 88,156 59,881 54,840
----------- ------------ --------- --------- --------- --------- ---------
----------- ------------ --------- --------- --------- --------- ---------
OPERATING DATA
Production (8):
Gas (MMcf)........................ 37,092 25,744 38,432 66,652 48,048 41,114 29,174 23,877
Oil (Mbbls)....................... 2,165 926 1,152 3,583 1,543 1,493 1,450 847
Average price received (8):
Gas (per Mcf)..................... $ 1.62 1.75 1.93 1.70 1.90 1.88 1.70 1.84
Oil (per Bbl)..................... 16.35 15.94 14.60 12.54 14.83 16.97 18.14 25.31
Production expense per Mcfe......... .55 .53 .37 .40 .39 .39 .38 .43
General and administrative expense
per Mcfe........................... .21 .18 .17 .19 .19 .24 .32 .33
Capital expenditures:
Property acquisitions............. $ 7,319 391 8,835 24,216 9,762 144,916 88,772 13,560
Exploration....................... 13,983 8,082 5,915 22,892 15,693 5,433 2,297 9,723
Development....................... 15,979 11,801 11,802 38,454 17,089 20,472 15,558 12,381
----------- ------------ --------- ----------- --------- --------- --------- ---------
Total capital expenditures...... $ 37,281 20,274 26,552 85,562 42,544 170,821 106,627 35,664
----------- ------------ --------- ----------- --------- --------- --------- ---------
----------- ------------ --------- ----------- --------- --------- --------- ---------
Overhead costs...................... $ 15,566 10,130 13,076 25,730 18,719 19,561 18,760 23,292
----------- ------------ --------- ----------- --------- --------- --------- ---------
----------- ------------ --------- ----------- --------- --------- --------- ---------
Proved Reserves (8):
Gas (MMcf)........................ 371,802 246,996 273,382 194,655 193,471
Oil (Mbbls)....................... 22,242 7,532 8,198 7,560 5,315
Standardized measure of discounted
future net cash flows relating to
proved oil and gas reserves........ $ 317,685 207,463 258,917 187,761 157,921
Total discounted future net cash
flows relating to proved oil and
gas reserves, including amounts
attributable to volumetric
production payments................ $ 340,371 230,149 299,053 227,009 188,069
Average spot price received at end
of year:
Gas (per Mcf)..................... $ 1.77 2.48 2.38 2.01
Oil (per Bbl)..................... $ 15.50 12.00 18.00 17.75
<CAPTION>
1990
---------
<S> <C>
BALANCE SHEET DATA (AT END OF PERIOD
Total assets........................ 339,676
---------
---------
Working capital (deficit)........... (10,565)
---------
---------
Long term debt:
Bank debt......................... 10,640
Nonrecourse secured loan (5)...... --
Production payment obligation
(6).............................. --
Senior secured notes.............. --
Subordinated debentures........... 152,975
---------
Total long-term debt............ 163,615
Other liabilities................... 18,533
Deferred revenue (7)................ --
Redeemable preferred stock.......... 35,000
---------
Total long-term obligations..... 217,148
---------
---------
Shareholders' equity................ 58,457
---------
---------
OPERATING DATA
Production (8):
Gas (MMcf)........................ 31,415
Oil (Mbbls)....................... 912
Average price received (8):
Gas (per Mcf)..................... 2.06
Oil (per Bbl)..................... 23.19
Production expense per Mcfe......... .37
General and administrative expense
per Mcfe........................... .37
Capital expenditures:
Property acquisitions............. 5,401
Exploration....................... 33,067
Development....................... 26,998
---------
Total capital expenditures...... 65,466
---------
---------
Overhead costs...................... 41,176
---------
---------
Proved Reserves (8):
Gas (MMcf)........................ 205,013
Oil (Mbbls)....................... 6,559
Standardized measure of discounted
future net cash flows relating to
proved oil and gas reserves........ 241,303
Total discounted future net cash
flows relating to proved oil and
gas reserves, including amounts
attributable to volumetric
production payments................ 241,303
Average spot price received at end
of year:
Gas (per Mcf)..................... 2.32
Oil (per Bbl)..................... 27.60
</TABLE>
19
<PAGE>
- ------------------------
(1) The pro forma statement of operations and balance sheet data includes pro
forma adjustments to (i) give effect to the sale of the Common Stock offered
hereby and the use of a portion of the proceeds to fund the acquisition of
ATCOR, (ii) restate the historical financial statements of ATCOR to conform
to U.S. generally accepted accounting principles, (iii) reflect the
acquisition of ATCOR using the purchase method of accounting, (iv) reflect
the sale of certain assets to ATCOR's controlling shareholders and the use
of the proceeds therefrom to repay long-term debt of ATCOR, and (v) give
effect to the acquisition of the interest in Saxon.
(2) Results for the year ended December 31, 1992 include the effects of the
ONEOK settlement, which increased total revenue by $37,542,000 and net
earnings by $24,043,000 or $1.75 per share. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
(3) The Company changed its method of accounting for oil and gas sales from the
sales method to the entitlements method effective January 1, 1994. The
Company adopted the provisions of Statements of Financial Accounting
Standards No. 106 and No. 109 effective January 1, 1993. These statements
required the Company to accrue the expected cost of postretirement benefits
and to adopt the liability method of accounting for income taxes,
respectively. In 1993, the Company realized a loss on extinguishment of debt
of $10,735,000 as a result of the redemption of its outstanding Senior
Secured Notes and long-term subordinated debentures. In 1991, the Company
realized an extraordinary gain on the retirement of debt of $9,502,000, net
of income taxes of $4,895,000, in connection with a recapitalization of its
debt and equity securities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Notes 1, 4, 6 and 10 of
Notes to Consolidated Financial Statements of the Company.
(4) Fully diluted earnings (loss) per share was the same as primary earnings
(loss) per share in all periods except the year ended December 31, 1992. In
1992, fully diluted earnings per share was $.29.
(5) Represents the nonrecourse secured loan payable to JEDI entered into in
connection with the acquisition of properties in 1993. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 4 of Notes to Consolidated Financial Statements of the Company.
(6) Represents the dollar-denominated production payment obligation sold in 1992
in connection with the Harbert Energy acquisition. The dollar denominated
production payment obligation had an original principal amount of
$37,550,000 and was recorded as a liability of $28,805,000 after a discount
to reflect a market rate of interest of 15.5%. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 4 of
Notes to Consolidated Financial Statements of the Company.
(7) Represents amounts received from the sale of volumetric production payments,
net of repayments. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 5 of Notes to Consolidated
Financial Statements of the Company.
(8) Includes amounts attributable to required deliveries under volumetric
production payments. See Notes 5 and 16 of Notes to Consolidated Financial
Statements of the Company.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the Company's financial
condition and results of operations and should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
NET LOSS
The net loss for the first nine months of 1995 was $14,533,000 or $.49 per
common share compared to a net loss of $46,892,000 or $1.73 per common share in
the first nine months of 1994. The 1994 loss included a $30,000,000 writedown of
the book value of the Company's oil and gas properties due to a ceiling test
limitation and a charge of $13,990,000 relating to the change in the method of
accounting for oil and gas sales from the sales method to the entitlements
method. See "Changes in Accounting." The 1995 loss was primarily due to
decreased oil and natural gas volumes and lower natural gas prices.
REVENUE
The Company's oil and gas sales revenue decreased by 34% to $60,154,000 in
the first nine months of 1995 from $91,428,000 in the same period of 1994.
Production volumes for natural gas and oil in the first nine months of 1995
decreased 33% and 20%, respectively, from the comparable 1994 period due
primarily to normal, anticipated production declines as well as decreased well
performance in certain fields. The average sales price for natural gas in the
first nine months of 1995 was $1.75 per Mcf, a decrease of $.18 per Mcf or 9%
compared to the average sales price in the first nine months of the previous
year. The average sales price for oil in the first nine months of 1995 of $15.94
per barrel represented an increase of $1.34 per barrel or 9% compared to the
average sales price in the same period of 1994.
Production volumes and weighted average sales prices during the periods were
as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
<S> <C> <C>
Natural Gas
Production under long-term fixed price contracts (MMcf)(1).............. 8,001 13,057
Average contract sales price (per Mcf) (1).............................. $ 1.77 1.78
Production sold on the spot market (MMcf)............................... 17,743 25,375
Spot sales price received (per Mcf)..................................... $ 1.54 1.99
Effects of energy swaps (per Mcf) (2)................................... .21 .02
------------- -------------
Average spot sales price (per Mcf)...................................... $ 1.75 2.01
Total production (MMcf)................................................. 25,744 38,432
Average sales price (per Mcf)........................................... $ 1.75 1.93
Oil and condensate (3)
Total production (Mbbls)................................................ 926 1,152
Average sales price (per Bbl)........................................... $ 15.94 14.60
</TABLE>
- ------------------------
(1) Production under long-term fixed price contracts includes scheduled
deliveries under volumetric production payments, net of royalties. See "--
Liquidity and Capital Resources -- Volumetric Production Payments" below.
(2) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuation. Hedged volumes were 7,562 MMcf and 8,840 MMcf for
the nine months ended September 30, 1995 and 1994, respectively.
21
<PAGE>
(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.
Miscellaneous net revenue decreased to $374,000 in the first nine months of
1995 from $2,299,000 in the comparable 1994 period. The 1994 amount includes
income from the sale of miscellaneous pipeline systems and equipment and the
reversal of an accounts receivable reserve.
EXPENSES
Oil and gas production expense decreased slightly to $16,576,000 in the
first nine months of 1995 from $16,647,000 in the comparable period of 1994. On
an Mcfe basis, production expense increased 43% in the first nine months of 1995
to $.53 per Mcfe from $.37 per Mcfe in the first nine months of 1994. The
increased cost per Mcfe is directly attributable to fixed components of oil and
gas production expense being allocated over a smaller production base.
General and administrative expense was $5,761,000 in the first nine months
of 1995, a decrease of 24% from $7,553,000 in the comparable period of 1994.
Total overhead costs (capitalized and expensed general and administrative costs)
of $10,130,000 in the first nine months of 1995 decreased 23% from $13,076,000
in the comparable period of 1994. The Company's salaried workforce was 116 at
September 30, 1995 and 142 at September 30, 1994. The decreases in total
overhead costs and personnel were due primarily to a reduction in the size of
the Company's workforce effective March 1, 1995.
The following table summarizes the total overhead costs incurred during the
periods:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Overhead costs capitalized................................................ $ 4,369 5,523
General and administrative costs expensed................................. 5,761 7,553
------------- -------------
Total overhead costs................................................ $ 10,130 13,076
------------- -------------
------------- -------------
</TABLE>
Interest expense of $19,100,000 in the first nine months of 1995 decreased
5% from $20,077,000 in 1994 due primarily to lower effective interest rates
related to the nonrecourse secured loan and the dollar denominated production
payment.
Depreciation and depletion expense decreased 36% to $33,631,000 in the first
nine months of 1995 from $52,323,000 in the first nine months of 1994 due to the
decrease in production, as well as a decrease in the depletion rate per unit of
production. The depletion rate decreased to $1.06 per Mcfe in the first nine
months of 1995 from $1.14 per Mcfe in the comparable 1994 period due to
writedowns of the Company's oil and gas properties taken in the third and fourth
quarters of 1994. At September 30, 1995, the Company had undeveloped properties
with a cost basis of approximately $31,981,000 which were excluded from
depletion, compared to $41,824,000 at September 30, 1994. The decrease is
attributable to exploration and development work, as well as lease expirations
and property sales.
The Company was not required to record a writedown of the carrying value of
its oil and gas properties in the first nine months of 1995. However, the
Company was required to record a $30,000,000 writedown of the carrying value of
its oil and gas properties in the first nine months of 1994. Writedowns of the
full cost pool may be required in the future 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
nine months of 1995 or 1994.
22
<PAGE>
CHANGES IN ACCOUNTING
The Company changed its method of accounting for oil and gas sales from the
sales method to the entitlements method effective January 1, 1994. Under the
sales method previously used by the Company, all proceeds from production
credited to the Company were recorded as revenue until such time as the Company
had produced its share of related reserves. Under the entitlements method,
revenue is recorded based upon the Company's share of volumes sold, regardless
of whether the Company has taken its proportionate share of volumes produced.
Under the entitlements method, the Company records a receivable or payable
to the extent it receives less or more than its proportionate share of the
related revenue. The Company believes that the entitlements method is preferable
because it allows for recognition of revenue based on the Company's actual share
of jointly owned production and provides a better matching of revenue and
related expenses.
The cumulative effect of the change for the periods through December 31,
1993, was a charge of $13,990,000. The effect of this change on the nine months
ended September 30, 1994 was an increase in earnings from operations of
$3,840,000 and an increase in production volumes of 1,804,000 Mcf of natural
gas. There were no related income tax effects in 1994. As the Company adopted
this change in the fourth quarter of 1994, previously reported 1994 information
has been restated to reflect the change effective January 1, 1994.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1994
NET EARNINGS (LOSS). The Company's net loss was $81,843,000 in 1994
compared to a net loss of $21,213,000 in 1993 and net earnings of $7,298,000 in
1992. There would have been a net loss of $16,745,000 in 1992 excluding the
effects of the settlement of gas contract litigation with ONEOK Inc. (the ONEOK
settlement). Earnings from operations (consisting of total revenue less oil and
gas production expense and expensed general and administrative costs) increased
in 1994 compared to 1993 as a result of increased natural gas production from
acquisitions made throughout 1993; however, this increase was more than offset
by a $58,000,000 writedown of the book value of the Company's oil and gas
properties due to a ceiling test limitation and a charge of $13,990,000 to
reflect the cumulative effects of a change in the Company's method of accounting
for oil and gas sales from the sales ("takes") method to the entitlements
method. Earnings from operations increased in 1993 compared to the 1992 results
(excluding the effects of the ONEOK settlement) as a result of the acquisition
of properties; however, this increase was more than offset by higher
depreciation and depletion expense, an extraordinary loss of $10,735,000 (net of
tax benefit of $4,652,000) recorded as a result of the redemption or purchase of
all of the Company's 12 3/4% Senior Secured Notes and long-term subordinated
debt and a charge of $1,123,000 to reflect the cumulative effects of changes in
accounting principles related to post-retirement benefits and income taxes.
The Company changed its method of accounting for oil and gas sales from the
sales method to the entitlements method effective January 1, 1994. As a result,
earnings from operations for 1994 increased by $3,584,000. Earnings from
operations for 1993 and 1992, on a pro forma basis, would have been higher by
$5,393,000 and $8,868,000, respectively, as a result of this change in
accounting method. The 1993 and 1992 amounts presented herein are not required
to be restated to show the effects of this change.
23
<PAGE>
The ONEOK settlement in 1992 had a significant impact on the Company's
reported revenue, expense and net earnings. A summary of the Company's income
and expenses for 1992, before and after the amounts recorded as a result of the
ONEOK settlement, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1992
YEAR ENDED EXCLUDING ONEOK
DECEMBER 31, 1992 SETTLEMENT
----------------- EFFECTS OF -----------------
ONEOK
SETTLEMENT
--------------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE:
Oil and gas sales........................................ $ 99,239 22,392 76,847
Miscellaneous, net....................................... 13,947 15,149 (1,202)
----------------- ------- --------
Total revenue.......................................... 113,186 37,541 75,645
EXPENSES:
Oil and gas production................................... 15,865 1,589 14,276
General and administrative............................... 11,611 (477) 12,088
Interest................................................. 27,800 -- 27,800
Depreciation and depletion............................... 46,624 -- 46,624
----------------- ------- --------
Total expenses......................................... 101,900 1,112 100,788
----------------- ------- --------
Earnings (loss) before income taxes........................ 11,286 36,429 (25,143)
Income tax expense
Current.................................................. 435 -- 435
Deferred expense (benefit)............................... 3,553 12,386 (8,833)
----------------- ------- --------
3,988 12,386 (8,398)
----------------- ------- --------
Net earnings............................................. $ 7,298 24,043 (16,745)
----------------- ------- --------
----------------- ------- --------
</TABLE>
The inclusion of the effects of the ONEOK settlement in a discussion of the
Company's results of operations distorts the trends which would otherwise be
reported. In the discussion which follows, results for 1992 exclude the effects
of the ONEOK settlement in order to more meaningfully compare and discuss the
Company's results of operations for 1994, 1993 and 1992.
REVENUE. Total revenue increased 10% to $115,947,000 in 1994 from
$105,148,000 in 1993, and increased 39% in 1993 from $75,645,000 in 1992.
Oil and gas sales increased to $114,541,000 from $102,883,000, or by
approximately 11%, in 1994 compared to 1993 due primarily to increased natural
gas production from properties acquired throughout 1993 and the effects of the
change in method of accounting for oil and gas sales, partially offset by normal
production declines. In 1994, natural gas production volumes were up 17%
compared to 1993 while oil production volumes were 3% higher. The increase in
revenue attributable to increased production was partially offset by a 13%
decrease in the average sales price for oil. The average sales price for natural
gas in 1994 did not differ significantly from the 1993 price.
Oil and gas sales increased to $102,883,000 from $76,847,000, or by
approximately 34%, in 1993 compared to 1992 due primarily to increased
production from newly-acquired properties and an 11% increase in the average
sales price for natural gas. In 1993, oil production volumes were up 3% and
natural gas production volumes were up 41% compared to 1992. The increase in
revenue attributable to the increased production was partially offset by a 6%
decrease in the average sales price for oil.
24
<PAGE>
The production volumes and average sales prices for the years ended December
31, 1994, 1993 and 1992 for Forest and its wholly-owned subsidiaries were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
NATURAL GAS
- -----------------------------------------------------------------------------------
Production under long-term fixed price contracts (MMcf)(1)......................... 16,656 19,065 9,689
Average contract sales price (per Mcf)............................................. $ 1.78 1.65 1.67
Production sold on the spot marked (MMcf).......................................... 31,392 22,049 19,485
Spot sales price received (per Mcf)(2)............................................. $ 1.90 2.21 1.78
Effects of energy swaps (per Mcf)(3)............................................... .06 (.13) (.07)
--------- --------- ---------
Average spot sales price (per Mcf)(2).............................................. $ 1.96 2.08 1.71
Total production (MMcf)............................................................ 48,048 41,114 29,174
Average sales price (per Mcf)...................................................... $ 1.90 1.88 1.70
OIL AND CONDENSATE(1)(4)
Total production (Mbbls)........................................................... 1,543 1,493 1,450
Average sales price (per Bbl)...................................................... $ 14.83 16.97 18.14
</TABLE>
- ------------------------
(1) Production under long-term fixed price contracts includes scheduled
deliveries under volumetric production payments, net of royalties. For
further information concerning volumes and prices recorded under volumetric
production payments, see "-- Liquidity and Capital Resources -- Volumetric
Production Payments" below and Notes 5 and 16 of Notes to Consolidated
Financial Statements of the Company.
(2) The 1992 amounts exclude $1.15 per Mcf attributable to the ONEOK settlement.
Including such amount, the spot sales price received and the average spot
sales price for natural gas were $2.93 and $2.86 per Mcf, respectively.
(3) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuation. Hedged volumes were 12,184 MMcf, 8,057 MMcf and
4,691 MMcf for the years ended December 31, 1994, 1993 and 1992,
respectively.
(4) 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.
Natural gas delivered pursuant to volumetric production payment agreements
and other long-term fixed price contracts represented approximately 35% of total
production in 1994 versus 46% in 1993 and 33% in 1992. In recent years, the
industry trend has been for more natural gas to be sold on the spot market as
long-term contracts expire. The overall increase experienced by Forest in
natural gas sold under long-term fixed price contracts over the three year
period presented herein was the result of the Company entering into volumetric
production payments.
Miscellaneous net revenue of $1,406,000 in 1994 included income from the
sale of miscellaneous pipeline systems and equipment and the reversal of an
accounts receivable reserve, partially offset by a reserve for settlement of a
royalty dispute and a payment of deferred maintenance costs of a real estate
complex used for general business purposes. Miscellaneous net revenue of
$2,265,000 in 1993 included $1,380,000 of interest income on short-term
investments and an adjustment to reduce accrued severance taxes based on
discussions with the applicable state taxing authorities. The net expense of
$1,202,000 in 1992 was primarily attributable to a $926,000 provision for future
rent payments on vacated office space.
OIL AND GAS PRODUCTION EXPENSE. Oil and gas production expense increased
15% to $22,384,000 in 1994 compared to $19,540,000 in 1993 due primarily to
increased natural gas production as a result
25
<PAGE>
of property acquisitions throughout 1993, partially offset by a decrease in
workover expenses and a general decrease in expenses due to the sale of
properties. Oil and gas production expense increased 37% to $19,540,000 in 1993
compared to $14,276,000 in 1992, due primarily to increased production from
newly acquired properties and increased workover expense. In 1994 and 1993,
production expense was approximately $.39 on an Mcfe basis compared to $.38 in
1992.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
decreased 7% to $11,166,000 in 1994 compared to $12,003,000 in 1993. Decreases
in salaries, wages and burden from the termination of executives and middle
level managers and increases in production operation credits were partially
offset by increases in insurance and office and storage rental expenses. General
and administrative expense for 1993 was $12,003,000 compared to $12,088,000 in
1992. Increases attributable to severance and employee relocation costs and the
effects of the postretirement medical benefit accrual in 1993 were more than
offset by lower office and storage rentals and lower professional services
expense. The capitalization rate remained relatively constant from 1992 to 1994.
Total overhead costs, including amounts related to exploration and
development activities, were $18,719,000 in 1994, $19,561,000 in 1993 and
$19,237,000 in 1992. Excluding the severance and employee relocation costs in
1993 described below, total overhead costs were approximately 8% higher in 1994
than in 1993. This increase is primarily due to an increase in storage rentals
and higher insurance expense attributable to a larger asset base, partially
offset by a decrease in salaries, wages and burden from the termination of
executives and middle level managers as described below. The increase in 1993
from 1992 was only 2% despite charges amounting to $2,300,000 for severance and
employee relocation costs and $480,000 for postretirement medical benefits;
without these charges, total overhead costs would have decreased by
approximately 13% in 1993 compared to 1992. Severance and employee relocation
costs of approximately $2,300,000 in 1993 resulted from the termination of 10
executives and middle level managers and a loss incurred on an employee's former
residence in accordance with the Company's relocation policy. The following
table summarizes the total overhead costs incurred during the periods:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Overhead costs capitalized................................ $ 7,553 7,558 7,149
General and administrative costs expensed................. 11,166 12,003 12,088
--------- --------- ---------
Total overhead costs.................................. $ 18,719(1) 19,561(2) 19,237
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Includes $510,000 for post-retirement medical benefits.
(2) Includes approximately $2.3 million of severance and employee relocation
costs and $483,000 for postretirement medical benefits.
RETIREMENT BENEFITS FOR EXECUTIVES AND DIRECTORS. In December 1990, the
Company entered into retirement agreements with seven executives and directors
("Retirees") pursuant to which the Retirees will receive supplemental retirement
payments totaling approximately $1,127,700 per year through 1996, $1,087,400 in
1997, $938,400 in 1998 and approximately $740,400 per year in 1999 and 2000. The
liability to the Retirees was recorded in 1990 and 1991.
INTEREST EXPENSE. Interest expense of $26,773,000 increased $3,044,000 or
13% compared to 1993 due to higher loan balances as a result of capital
spending. Interest expense of $23,729,000 in 1993 decreased $4,071,000 or 15%
compared to 1992, primarily due to redemptions or purchases of certain of the
Company's subordinated debentures and 12 3/4% Senior Secured Notes in 1993,
partially offset by the interest expense incurred in connection with the
Company's new 11 1/4% Senior Subordinated Notes.
DEPRECIATION AND DEPLETION EXPENSE. Depreciation and depletion expense
increased 8% to $65,468,000 in 1994 from $60,581,000 in 1993 due to increased
production in the 1994 period as a
26
<PAGE>
result of property acquisitions. Depreciation and depletion expense increased
30% to $60,581,000 in 1993 from $46,624,000 in 1992 due to increased production
in the 1993 period as a result of property acquisitions and workovers. The
depletion rate was $1.13 per Mcfe for U.S. production in 1994 compared to
corresponding rates of $1.19 for U.S. production in 1993 and $1.21 for U.S.
production and $1.19 for Canadian production in 1992.
IMPAIRMENT OF OIL AND GAS PROPERTIES. The Company recorded a writedown of
its oil and gas properties of $58,000,000 in 1994 due primarily to a decrease in
spot market prices for natural gas. The Company could have chosen to lessen or
completely eliminate the need for a writedown by entering into financial
derivatives (swaps) and locking in future natural gas prices. The Company would
have had to contract a significant portion of its natural gas reserve base to
avoid the entire writedown. Company management decided not to enter into such
contracts because it believed the natural gas market was at a cyclical low, and
such arrangements would ultimately be detrimental to the Company's shareholders.
In addition, the Company considered but chose not to adopt successful efforts
accounting. It is management's belief that full cost accounting remains the most
appropriate method of accounting for the Company's current mix of operations,
despite the quarterly ceiling test requirement.
Additional writedowns of the full cost pool may be required if prices
decrease, undeveloped property values 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.
The average Gulf Coast spot price received by the Company for natural gas
declined from $1.77 per Mcf at December 31, 1994 to $1.59 per Mcf at April 1,
1995. The West Texas Intermediate price for crude oil increased from $15.50 per
Bbl at December 31, 1994 to $17.25 per Bbl at April 1, 1995. Based on April 1,
1995 prices the standardized measure of discounted future net cash flows,
exclusive of amounts attributable to volumetric production payments, would have
been approximately $193,600,000 at December 31, 1994.
CHANGES IN ACCOUNTING
The Company changed its method of accounting for oil and gas sales from the
sales method to the entitlements method effective January 1, 1994. Under the
sales method previously used by the Company, all proceeds from production
credited to the Company were recorded as revenue until such time as the Company
had produced its share of related reserves. Under the entitlements method,
revenue is recorded based upon the Company's share of volumes sold, regardless
of whether the Company has taken its proportionate share of volumes produced.
Under the entitlements method, the Company records a receivable or payable
to the extent it receives less or more than its proportionate share of the
related revenue. The Company believes that the entitlements method is preferable
because it allows for recognition of revenue based on the Company's actual share
of jointly owned production and provides a better matching of revenue and
related expenses.
The cumulative effect of the change for the periods through December 31,
1993, was a charge of $13,990,000. The effect of this change on 1994 was an
increase in earnings from operations of $3,584,000 and an increase in production
volumes of 1,555,000 Mcf. There were no related income tax effects in 1994. As
the Company adopted this change in the fourth quarter of 1994, previously
reported 1994 quarterly information has been restated to reflect the change
effective January 1, 1994. See Note 15 for restated selected quarterly financial
data.
Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," (SFAS No. 106) required 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
estimated 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
27
<PAGE>
first quarter of 1993 as the cumulative effect of a change in accounting
principle. The annual net postretirement benefit cost (included in total
overhead costs) was approximately $510,000 for 1994 and $483,000 for 1993.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," (SFAS No. 109), required 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.
LIQUIDITY AND CAPITAL RESOURCES
RECENT DEVELOPMENTS
During the second and third quarters of 1995, following receipt of
shareholder approval, the Company consummated transactions with Anschutz and
with JEDI, a Delaware limited partnership the general partner of which is an
affiliate of Enron Corp., in each case as described below.
ANSCHUTZ TRANSACTION:
Pursuant to the Anschutz Agreement, Anschutz purchased 18,800,000 shares of
the Company's Common Stock and shares of a new series of preferred stock that
are convertible into 6,200,000 additional shares of common stock for a total
consideration of $45,000,000, or $1.80 per share. The preferred stock has
liquidation preference and receives dividends ratably with the Common Stock. In
addition, Anschutz received the A Warrants, which entitle it to purchase
19,444,444 shares of the Company's common stock for $2.10 per share. The A
Warrants are exercisable during the first 18 months after the second closing,
subject to extension in certain circumstances to 36 months.
The Anschutz investment was made in two closings. In the first closing,
which occurred on May 19, 1995, Anschutz loaned the Company $9,900,000. The loan
carried interest at 8% per annum. The loan was nonrecourse to the Company and
was secured by oil and gas properties owned by the Company, the preferred stock
of Archean Energy Ltd. and a cash collateral account with an initial balance of
$2,000,000. At the second closing, which occurred in July 1995 Anschutz
converted the loan into 5,500,000 shares of Common Stock and purchased an
additional 13,300,000 shares of common stock, the convertible preferred stock
and the A warrants described above for $35,100,000. At the second closing,
Anschutz also received from JEDI an option to purchase from JEDI up to
11,250,000 shares of common stock that JEDI may acquire from the Company upon
exercise of the B Warrants referred to below. This option will terminate 36
months after the second closing, or earlier upon the conveyance by the Company
of certain property to JEDI in satisfaction of the restructured JEDI loan, as
described below.
Pursuant to the Anschutz Agreement, Anschutz agreed to certain voting,
acquisition, and transfer limitations regarding shares of Common Stock for five
years after the second closing, including (a) a limit on voting, subject to
certain exceptions, that would require Anschutz to vote all equity securities of
the Company owned by Anschutz having voting power in excess of an amount equal
to 19.99% of the aggregate voting power of the equity securities of the Company
then outstanding in the same proportion as all other equity securities of the
Company voted with respect to the matter (other than equity securities owned by
Anschutz) are voted, (b) the number of persons associated with Anschutz that may
at any time be elected as directors of the Company is limited to three, and (c)
a limit on the acquisition of additional shares of common stock by Anschutz
(whether pursuant to the conversion of the new preferred stock, the exercise of
the A Warrants or the option received from JEDI, or otherwise), subject to
certain exceptions, that would prohibit any acquisition by Anschutz that would
result in Anschutz owning 40% or more of the shares of common stock then issued
and outstanding. While the foregoing limitations are in effect, Anschutz will be
entitled to a minority representation on the board of directors.
28
<PAGE>
JEDI TRANSACTION
At the second closing, Forest and JEDI restructured JEDI's existing loan
which had a principal balance on July 27, 1995 of approximately $62,368,000
before unamortized discount of $4,984,000. JEDI relinquished the net profits
interest that it held in certain Forest properties and reduced the interest rate
relating to the loan. In consideration, JEDI received the B Warrants, which
entitle it to purchase 11,250,000 shares of the Company's common stock for $2.00
per share. The B Warrants will expire on the earlier of December 31, 2002 or 36
months following exercise of the Company's option to convey properties in
satisfaction of the JEDI loan (the Conveyance Option). Also at the second
closing, JEDI granted a 36 month option to Anschutz to purchase from JEDI up to
11,250,000 shares at a purchase price per share of $2.00 plus an amount equal to
the lesser of (a) 18% per annum from the second closing date to the date of
exercise of the option, or (b) $3.10. JEDI will satisfy its obligations under
the option to Anschutz by exercising the B Warrants. Provided the Conveyance
Option has not been exercised, the Company may terminate the B Warrants at any
time beginning 36 months after the second closing if the average closing price
of the common stock for both the 90 day and 15 day periods immediately preceding
the termination is in excess of $2.50 per share.
As a result of the loan restructuring and the issuance of the B Warrants,
the Company reduced the recorded amount of the related liability to
approximately $45,493,000 and annual interest expense by approximately
$2,000,000. Subject to certain conditions, the Company may satisfy the
restructured JEDI loan by conveying to JEDI the properties securing the loan
during a 30-day period beginning 18 months after the second closing or, if the A
Warrants have been extended, during a 30-day period beginning 36 months after
the second closing. Any such conveyance during the first 36 months after the
second closing must be approved by Anschutz, if the option from JEDI has not
then been exercised or terminated. Prior to the exercise or termination of the
JEDI option, JEDI has agreed that it will not assign all or any portion of the
JEDI loan or the B Warrants to an unaffiliated person without the approval of
the Company. The Company has agreed to not give such approval without the
consent of Anschutz.
The Company has agreed to use the proceeds from the exercise of the A
Warrants and the B Warrants to repay principal and interest on the JEDI loan.
The Company's short-term and long-term liquidity have been significantly
improved by the conclusion of the transactions described above.
SHORT-TERM LIQUIDITY
During 1994 and the first nine months of 1995, the Company's operating cash
flows and working capital were adversely affected by a severe industry-wide
decline in the price of natural gas and a significant decline in production. The
prices the Company receives for its future oil and natural gas production will
significantly impact future operating cash flows. No prediction can be made as
to the prices the Company will receive for its future oil and gas production.
The Company has a secured credit facility (the "Credit Facility") with The
Chase Manhattan Bank, N.A. ("Chase") as agent for a group of banks. Under the
Credit Facility as amended, the Company may borrow up to $40,000,000 for working
capital and/or general corporate purposes, subject to semi-annual
redetermination at the banks' discretion.
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. The maturity date of the Credit Facility is July
1, 1998. Under the terms of the Credit Facility, the Company is subject to
certain covenants and financial tests (which may from time to time restrict the
Company's activities), 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. As of September 30,
1995 the outstanding balance under the Credit Facility was $19,800,000, which
reflects the application of proceeds received from the
29
<PAGE>
Anschutz transaction offsetting additional borrowings to fund capital
expenditures and working capital. The Company has also used the facility for a
$1,500,000 letter of credit, leaving an available borrowing capacity of
$18,700,000. At September 30, 1995, the Company was in compliance with the
covenants of its bank debt.
Since December 31, 1994, the Company has taken steps and committed to
certain actions to address its short-term liquidity needs, including the
Anschutz and JEDI transactions described above. In addition to the Anschutz and
JEDI transactions, the Company has taken or committed to other key short-term
actions as set forth below.
The Company has reduced its budgeted general and administrative expenditures
for 1995 principally through a workforce reduction effective March 1, 1995. As a
result, total overhead for 1995 is expected to decrease by approximately
$4,700,000 compared to 1994 or by approximately 25%.
In response to market conditions, the Company reduced its budgeted capital
expenditures during the first six months of 1995 to those required to maintain
its producing oil and gas properties as well as certain essential development,
drilling and other activities. Using the capital provided by the Anschutz
investment, however, the Company's capital expenditures in the third quarter of
1995 and the projected capital expenditures in the fourth quarter of 1995 are
expected to be greater than in the first six months of the year. The Company's
1995 budgeted expenditures for exploration and development for the fourth
quarter of 1995 are approximately $5,348,000 and $3,246,000, respectively,
including capitalized overhead of $1,224,000 and $194,000, respectively. The
Company's 1996 budgeted capital expenditures for exploration and development are
approximately $12,100,000 and $22,800,000, respectively. There can be no
assurance that the Company will have access to sufficient capital to meet its
capital requirements. The planned levels of capital expenditures could be
reduced if the Company experiences lower than anticipated net cash provided by
operations or other liquidity needs or could be increased if the Company
experiences increased cash flow.
Based on the Company's actions taken to date and its plans, including the
recent developments described above, management believes the Company will have
adequate sources of short-term liquidity to meet its working capital needs, fund
capital expenditures at the levels described above, and meet its current debt
service obligations.
CASH FLOW
Historically, one of the Company's primary sources of capital has been funds
provided by operations, 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 September 30, 1995 and 1994:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Funds provided by operations (1)................................ $ 21,694 52,651
Net cash provided (used) by operating activities................ (4,253) 25,843
Net cash used by investing activities........................... (17,235) (15,398)
Net cash provided (used) by financing activities................ 22,037 (15,531)
</TABLE>
- ------------------------
(1) Funds provided by operations consists of net cash provided (used) by
operating activities exclusive of adjustments for working capital items,
proceeds from volumetric production payments and amortization of deferred
revenue. This information is being presented in accordance with industry
practice and is not intended to be a substitute for cash provided by
operating activities, a measure of performance prepared in accordance with
generally accepted accounting principles, and should not be relied upon as
such.
30
<PAGE>
As discussed previously under "-- Results of Operations for the Nine Months
Ended September 30, 1995 and 1994," the Company's production volumes decreased
significantly in the first nine months of 1995 compared to the prior year. Lower
production volumes coupled with decreased prices for natural gas resulted in a
59% decrease in funds provided by operations to $21,694,000 in the first nine
months of 1995 from $52,651,000 in the first nine months of 1994. The Company
experienced a net use of cash for operating activities of $4,253,000 in the
first nine months of 1995 compared to $25,843,000 of net cash provided by
operating activities in the corresponding prior year period; this decrease is
attributable to lower production volumes and decreased prices discussed above.
The Company used $17,235,000 for investing activities in the 1995 period
compared to $15,398,000 in the prior year period due to higher direct
expenditures and lower proceeds from property sales. The increase in cash due to
financing activities of $22,037,000 in the 1995 period was the result of the net
proceeds from the issuance of stock and warrants to Anschutz and the proceeds
from the sale of the participation interest in the bankruptcy claim which were
partially offset by repayments of the Company's Credit Facility. In the first
nine months of 1994, the Company had a net use of cash for financing activities
of $15,531,000, primarily consisting of the redemption of subordinated
debentures and a decrease in other liabilities.
LONG-TERM LIQUIDITY
The Company has historically addressed its long-term liquidity needs through
the use of nonrecourse production-based financing and through issuance of debt
and common stock when market conditions permit.
On December 30, 1993, the Company entered into a nonrecourse secured loan
agreement with JEDI (the "JEDI Loan"). The terms of the JEDI Loan have been
restructured based on the terms of certain agreements described in "-- Recent
Developments." For a further discussion of the JEDI Loan, see "-- Non-recourse
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. The Company continues
to examine alternative sources of long-term liquidity, including public and
private issuances of equity, refinancing debt with equity and sales of
non-strategic assets.
VOLUMETRIC PRODUCTION PAYMENTS
As of September 30, 1995, deferred revenue relating to production payments
was $18,501,000 and the annual amortization of deferred revenue and the
corresponding delivery and net sales volumes were as set forth below:
<TABLE>
<CAPTION>
VOLUMES REQUIRED TO BE NET SALES VOLUMES
ATTRIBUTABLE TO PRODUCTION
DELIVERED TO ENRON CORP. PAYMENT DELIVERIES (1)
-------------------------- --------------------------
OIL NATURAL GAS OIL NATURAL GAS
(MBLS) (MMCF) (MBLS) (MMCF)
ANNUAL ----------- ------------- ----------- -------------
AMORTIZATION
OF DEFERRED
REVENUE
-----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Remainder of 1995...................... $ 3,365 41 1,653 34 1,375
1996................................... 7,545 87 3,721 73 3,095
1997................................... 2,439 -- 1,410 -- 1,173
1998................................... 1,592 -- 892 -- 742
Thereafter............................. 3,560 -- 1,994 -- 1,658
-------- --- ----- --- -----
$ 18,501 128 9,670 107 8,043
-------- --- ----- --- -----
-------- --- ----- --- -----
</TABLE>
- ------------------------
(1) Represents volumes required to be delivered to Enron Corp. net of estimated
royalty volumes.
31
<PAGE>
NON-RECOURSE SECURED LOAN AND DOLLAR-DENOMINATED PRODUCTION PAYMENT
Under the terms of the JEDI Loan and the dollar-denominated production
payment, the Company is required to make payments based on the net proceeds, as
defined, from certain subject properties. The terms of the JEDI Loan have been
restructured based on the terms of certain agreements described in "-- Recent
Developments."
The JEDI Loan was initially recorded at a discounted amount to reflect the
conveyance to the lender of a 20% interest in the net profits, as defined, of
properties located in south Texas. Before restructuring, the JEDI Loan bore
annual interest at the rate of 12.5%. At September 30, 1995, the principal
amount of the loan was $62,684,000 and the recorded liability was $46,069,000.
Under the terms of the JEDI 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 JEDI 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.
Pursuant to the restructuring of the JEDI Loan described above the net
profits interest has been eliminated and the required interest payments reduced.
Under the restructured loan, the Company is required to pay interest at 12.5%
per annum on $40,316,000 of the loan balance. All principal payments will be
applied to reduce this balance, as will the proceeds, if any, from the exercise
of the A Warrants. The remaining loan balance, which was $22,368,000 as of
September 30, 1995, is non-interest bearing and will be reduced by principal
payments made after full repayment of the $40,316,000 balance as well as by the
proceeds, if any, from the exercise of the B Warrants. The recorded amount of
the liability was $45,493,000 as of the date of the restructuring. The Company's
current estimate under the restructured agreement, based on expected production
and prices, budgeted capital expenditure levels and expected discount
amortization, is that the recorded liability will increase by approximately
$618,000 during the fourth quarter of 1995. The increase in the liability is due
to projected cash flows that do not cover projected interest requirements as a
result of declining production on the existing wells. New drilling and
recompletions should reverse this trend in 1996.
The dollar-denominated production payment was entered into in 1992 to
finance property acquisitions. 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 September
30, 1995 the remaining principal amount was $21,155,000 and the recorded
liability was $16,826,000. Under the terms of this 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, based on expected production and
prices, budgeted capital expenditure levels and expected discount amortization,
is that the payments in the fourth quarter of 1995 will reduce the recorded
liability by approximately $559,000.
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 September 30, 1995, the Company had natural gas swaps and
collars for an aggregate of approximately 29.2 Bbtu (billion British Thermal
Units) per day of natural gas during the remainder of 1995 at fixed prices and
floors (NYMEX basis) ranging from $1.90 to $2.41 per MMbtu (million British
Thermal Units) and an aggregate of approximately 17.5 Bbtu per day of natural
gas during 1996 at fixed prices and floors
32
<PAGE>
ranging from $1.90 to $2.48 per MMbtu. At September 30, 1995, the Company had
oil swaps for an aggregate of approximately 1,300 Bbls per day of oil during the
remainder of 1995 at fixed prices ranging from $16.70 to $17.75 (NYMEX basis)
and an aggregate of approximately 600 Bbls per day of oil during 1996 at fixed
prices ranging from $16.70 to $17.75 per barrel.
In the third quarter of 1995, the Company sold a call at $2.00 per MMbtu on
10,000 MMbtu per day to Enron Corp. for the period from January 1, 1996 to
December 31, 1997 for a price of $.086 per MMbtu. Enron Corp. will pay the $.086
per MMbtu price every month. The Company will pay Enron Corp. only in the event
that the average of the last three days NYMEX price exceeds $2.00 per MMbtu for
any month.
SUMMARY OF CASH FLOW CONSIDERATIONS AND EXPOSURE TO PRICE AND RESERVE RISK
Pursuant to certain of the Company's financing arrangements, significant
amounts of production are contractually dedicated to production payments and the
repayment of nonrecourse debt over the next five years (dedicated volumes). The
dedicated volumes decrease over the next five years and also decrease as a
percentage of the Company's total production estimated for this period. The
estimated production volumes not contractually dedicated to repayment of
nonrecourse debt (undedicated volumes) are relatively stable but increase as a
percentage of the Company's total production over the next five years. This
relative stability of undedicated volumes is due to the fact that the decrease
in dedicated volumes corresponds generally to the Company's estimates of the
decrease in its total production. In the Company's opinion, the relative
stability of undedicated volumes should provide a more constant level of cash
flow available for corporate purposes other than debt repayment.
As a result of volumetric production payments, energy swaps, and fixed
contracts, the Company currently estimates that approximately 57% of its natural
gas production and 58% of its oil production will not be subject to price
fluctuations from October 1995 through December 1995. It is estimated that
existing volumetric production payments, energy swaps, fixed contracts and other
hedging instruments currently cover approximately 56% of the Company's natural
gas production and 23% of its oil production for the year ending December 31,
1996. Currently, it is the Company's intention to commit no more than 75% of its
anticipated total production and no more than 85% of its anticipated undedicated
production to such arrangements at any point in time. See "-- Hedging Program"
above.
EFFECTS OF ATCOR ACQUISITION
The completion of the acquisition of ATCOR is anticipated to provide several
benefits to the Company including:
DELEVERAGING. The acquisition of ATCOR, utilizing primarily the proceeds
from this offering, is expected to reduce debt as a percent of total book
capitalization from 84% as of September 30, 1995 to 55% on a pro forma basis,
which is consistent with the Company's long-term capitalization objectives.
GROWTH OF ASSET BASE. The addition of 213.1 Bcfe of proved reserves
represents a 73% increase in the Company's estimated proved reserves on a pro
forma basis as of December 31, 1994 and is approximately 500% of the Company's
estimated 1995 production. Including other assets acquired in the transaction,
the Company's total assets will increase by approximately 75% on a pro forma
basis.
PRODUCTION. For the first nine months of 1995, the Company's production
would increase by 60% from 31.3 Bcfe to 50.1 Bcfe on a pro forma basis.
LIQUIDITY. The ATCOR acquisition will give the Company flexibility to
implement its 1996 capital expenditure program for which the Company has
budgeted $36 million. Before committing to this program, the Company believes it
must raise approximately $30 million of additional financing. A portion of this
financing may be provided by proceeds raised from this offering in excess of the
amount needed to acquire ATCOR. The Company expects to be able to meet its
remaining 1996 capital expenditure financing requirements by borrowing against
ATCOR's reserves.
33
<PAGE>
CAPITAL EXPENDITURES
The Company's expenditures for property acquisition, exploration and
development for the first nine months of 1995 and 1994, including overhead
related to these activities which was capitalized, were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Property acquisition costs:
Proved properties........................................... $ 199 8,835
Undeveloped properties...................................... 192 --
--------- ---------
391 8,835
Exploration costs:
Direct costs................................................ 7,482 5,501
Overhead capitalized........................................ 600 414
--------- ---------
8,082 5,915
Development costs:
Direct costs................................................ 8,032 6,693
Overhead capitalized........................................ 3,769 5,109
--------- ---------
11,801 11,802
--------- ---------
$ 20,274 26,552
--------- ---------
--------- ---------
</TABLE>
In response to market conditions, the Company reduced its budgeted capital
expenditures for the first six months of 1995 to those required to maintain its
producing oil and gas properties as well as certain essential development,
drilling and other activities. Due to the liquidity provided by the Anschutz
investment, however, the Company's capital expenditures increased in the third
quarter of 1995 and the projected capital expenditures in the fourth quarter of
1995 are expected to be greater than in the first six months of the year. The
Company's 1995 estimated expenditures for exploration and development for the
fourth quarter of 1995 are approximately $5,348,000 and $3,246,000,
respectively, including capitalized overhead of $1,224,000 and $194,000,
respectively. The planned levels of capital expenditures could be further
reduced if the Company experiences lower than anticipated net cash provided by
operations or other liquidity needs or could be increased if the Company
experiences increased cash flow.
The Company intends to continue its strategy of acquiring reserves that meet
its investment criteria; 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; sale of production payments or other
nonrecourse financing; the sale of equity; the issuance of net profits
interests; sales of non-strategic properties, prospects and technical
information; or joint venture financing. Availability of these sources of
capital and, therefore, the Company's ability to execute its operating strategy
will depend upon a number of factors, some of which are beyond the control of
the Company. If adequate sources of financing are not available to the Company,
the amount invested in exploration, development and reserve acquisitions will be
required to be reduced significantly.
DIVIDENDS
On February 1, 1995, a cash dividend of $.1875 on its $.75 Convertible
Preferred Stock was paid to holders of record on January 10, 1995. On May 1,
1995 a stock dividend of 0.094693 shares of Common Stock was paid on each share
of its outstanding $.75 Convertible Preferred Stock to holders of record on
April 10, 1995. On August 1, 1995 a stock dividend of 0.112045 shares of Common
Stock was paid on each share of its outstanding $.75 Convertible Preferred Stock
to holders of record on July 10, 1995. On November 1, 1995 a stock dividend of
.074898 shares of Common Stock was paid on each share of
34
<PAGE>
its outstanding $.75 Convertible Preferred Stock to holders of record on October
10, 1995. Effective as of March 31, 1995 the Company was prohibited from paying
cash dividends on its $.75 Convertible Preferred Stock due to restrictions
contained in the Credit Agreement with its lending banks. 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.
On November 15, 1995, the Board of Directors declared a dividend payable in
shares of Common Stock on February 1, 1996 to holders of record of the $.75
Convertible Preferred Stock on January 10, 1996. The number of shares of Common
Stock to be issued per share of the $.75 Convertible Preferred Stock will be
announced prior to the payment date in accordance with the formula for
determining dividends payable with respect to the $.75 Convertible Preferred
Stock.
OTHER MATTERS
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 nine months of 1995 to approximately 6.7 Bcf from approximately 8.4 Bcf at
December 31, 1994. At September 30, 1995 the undiscounted value of this
imbalance is approximately $10,926,000, of which $5,000,000 is reflected on the
balance sheet as a short-term liability and the remaining $5,926,000 is
reflected on the balance sheet as a long-term liability. 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 cash flow.
UNFUNDED PENSION LIABILITIES. In 1994, in response to market conditions,
the Company increased from 7.5% to 9% the discount rate used in determining the
actuarial present value of the projected benefit obligations under its qualified
defined benefit trusteed pension plan and its supplemental executive retirement
plan. As a result of the change in the discount rate, the Company reduced the
liability representing the unfunded liabilities of these plans by approximately
$1,570,000 with a corresponding increase in capital surplus. The Company does
not expect the change in discount rate to have a significant impact on future
expense due to a pension plan curtailment effected May 31, 1991. The Company
currently is not required to make a contribution to the pension plan under the
minimum funding requirements of ERISA, but may choose to do so or may be
required to do so in the future.
NATURAL GAS SALES CONTRACTS. The Company had two natural gas sales
contracts with Columbia Gas Transmission Corp. ("Transmission"), a subsidiary of
Columbia Gas System ("CGS"), which were rejected when CGS and Transmission filed
Chapter 11 bankruptcy petitions. The Company sold a participation interest in
its claim against CGS to a bank. Consideration received from the bank consisted
of a $4,000,000 nonrecourse loan, in exchange for which the bank was to receive,
solely from the proceeds of the bankruptcy claim, an amount equal to the loan
principal plus accrued interest at 23.5% per annum. In November 1995, CGS's
proposed plan of reorganization was approved by the bankruptcy court and the
Company received net proceeds of approximately $2,270,000 for its claim against
CGS, after repayments of the loan and other expenses.
NET OPERATING LOSS AND TAX CREDIT CARRYFORWARDS. At December 31, 1994, the
Company has consolidated net operating loss carryforwards of $62,789,000,
depletion carryforwards of approximately $19,879,000 and investment tax credit
carryforwards of approximately $3,674,000 for United States federal income tax
purposes. The availability of these tax attributes to reduce current and future
taxable income of the Company is subject to various limitations under the
Internal Revenue Code. In particular, the Company's ability to utilize such tax
attributes is restricted due to the occurrence of an "ownership change" within
the meaning of Section 382 of the Internal Revenue Code resulting from the
Company's transaction with Anschutz in 1995.
35
<PAGE>
Even though the Company is limited in its ability to use net operating loss
carryforwards under the general provisions of Section 382, it may be entitled to
use its net operating loss carryforwards to offset (a) gains recognized in the
five years following the ownership change on the disposition of certain assets,
to the extent that the value of the assets disposed of exceeds its tax basis on
the date of the ownership change or (b) any item of income which is properly
taken into account in the five years following the ownership change but which is
attributable to periods before the ownership change ("built-in gains"). The
ability of the Company to use net operating loss carryforwards to offset
built-in gains first requires that the Company have total built-in gains at the
time of the ownership change which are greater than a threshold amount. In
addition, the use of the net operating loss carryforwards to offset built-in
gains cannot exceed the amount of the total built-in gains.
The Company has not finalized its calculation of the amount of built-in
gains at the date of the ownership change, but estimates that its ability to
fully utilize its net operating loss carryforwards may be limited by the
provisions of Section 382. Under these provisions, the Company's net operating
loss carryforwards will be subject to an annual limitation as to their use of
approximately $5,700,000, exclusive of gains recognized or taken into account in
the five year period following the ownership change. Due to limitations in the
Internal Revenue Code other than the Section 382 limitations discussed above,
the Company believes it is unlikely that it will use a significant portion of
its investment tax credit carryforwards.
36
<PAGE>
BUSINESS AND PROPERTIES
GENERAL
Forest is an independent natural gas and oil company focused on the
exploitation and development of its existing property base, primarily located
both onshore and offshore in the United States. The Company is also engaged in
the exploration for natural gas and oil primarily through internally generated
prospects promoted to industry partners and through farmouts. The Company, which
is a successor to a company founded in 1916, has extensive operating experience
in most of the major producing regions of the United States and Canada. From
January 1, 1992 through December 31, 1994, the Company acquired approximately
212 Bcfe of estimated proved oil and gas reserves with significant exploitation
and development potential which, due to the Company's capital constraints, has
not been fully realized. The Company's assets include an under-exploited
property base and a substantial geophysical and geological database including
2-D seismic surveys covering approximately 425,000 miles, 3-D seismic surveys
covering over 300,000 acres and approximately 380,000 well logs.
The Company is developing a new core area of operations in Western Canada.
While the Company currently has no significant operations in Canada, it has
operated in Canada for over 35 years. The Company recently entered into the
ATCOR Agreement to acquire ATCOR, a Canadian corporation engaged in oil and gas
exploration and production in Western Canada and the marketing and processing of
natural gas. In addition, the Company recently acquired a controlling interest
in Saxon, an Alberta, Canada corporation primarily engaged in oil and gas
exploration and production in Western Canada. See "ATCOR Acquisition" below.
The Company's principal reserves and producing properties are currently
located in the Gulf of Mexico, Texas and Oklahoma. The Company operates 43
platforms in the Gulf of Mexico. At December 31, 1994, the Company's estimated
proved reserves of 292 Bcfe consisted of 247 Bcf of natural gas (approximately
85% of total estimated proved reserves on an Mcfe basis) and 7.5 MMbbls of oil
and condensate (including amounts attributable to volumetric production
payments). Approximately 81% of total estimated proved reserves were classified
as proved developed reserves. At December 31, 1994, the Company had interests in
616 gross wells and operated properties accounting for approximately 74% of its
daily production, which averaged 157 MMcfe/d for the twelve month period ended
December 31, 1994. The Company's present value of estimated future net cash
flows after income taxes from its estimated proved reserves (utilizing a 10%
discount rate) at December 31, 1994 was $230.1 million, approximately 62% of
which was attributable to estimated proved reserves located in the Gulf of
Mexico. On a pro forma basis including the ATCOR and Saxon acquisitions, the
Company had estimated proved reserves of 505.3 Bcfe at December 31, 1994
(approximately 26% oil, condensate and natural gas liquids) with an estimated
present value of future net cash flows after income taxes from its estimated
proved reserves (utilizing a 10% discount rate) of $340.4 million. See "-- ATCOR
Acquisition" below.
BUSINESS STRATEGY
The Company's long term objective is to maximize its value through sustained
growth of its oil and gas reserves, production at reasonable costs and
achievement of high margins with respect to its production, while minimizing
operating and financial risk. The Company's strategy for achieving this
objective includes:
OPERATIONS STRATEGY
- EXPLOITATION AND DEVELOPMENT OF EXISTING PROPERTIES. The Company pursues
workovers, recompletions, secondary recovery operations and other
production optimization techniques on its properties to minimize normal
production declines. The Company has identified 41 exploitation projects
requiring approximately $25.5 million of capital. Further, the Company
has identified 80 development projects requiring approximately $23.3
million of capital (exclusive of $9 million and $4 million of development
expenditures for ATCOR and Saxon,
37
<PAGE>
respectively) to bring a portion of the Company's proved undeveloped
reserves into production. Of the foregoing amounts, the Company has
budgeted $12.4 million and $10.4 million, respectively in 1996.
- COST EFFECTIVE EXPLORATION. To augment its exploration program, the
Company began, in 1995, to generate exploratory prospects by establishing
small "franchise" teams of contract geologists and geophysicists with
substantial experience in a defined geographic area. These consultants
are provided office space and support services as well as access to the
Company's geological and geophysical databases and are compensated
primarily with pre-negotiated overriding royalty interests in prospects
generated. The Company currently has five franchise teams working on both
offshore and onshore prospects. To date, this approach has generated two
prospects that are scheduled for drilling over the next several months.
In this manner, Forest limits its overhead costs associated with
exploration and utilizes its extensive database to generate prospects and
increase its exploration activity level. The Company also conducts
exploration for oil and gas on its existing property base. In 1995,
Forest farmed out 14 prospects on which wells were drilled at a gross
cost of $31.4 million and at no net cost to the Company. The Company
estimates that it added a total of 3.6 Bcfe of proved reserves to its
reserve base from these wells. The Company's goal is to minimize the
capital committed to its undeveloped lease inventory by evaluating
properties as quickly as possible and maintaining an inventory that can
be evaluated in no more than a one to two year period.
- ACQUISITION OF PRODUCING PROPERTIES. After acquiring approximately 212
Bcfe of estimated proved oil and gas reserves in the United States from
1992 to 1994, the Company has recently shifted its focus to acquisitions
in Western Canada. The Company believes that the Canadian market
currently provides a more attractive environment for acquisitions of oil
and gas reserves than the U.S. market due to favorable Canadian asset
valuations and competitive conditions resulting in rising acquisition
prices in the U.S. The Company has recently entered into an agreement to
acquire ATCOR, a publicly held Canadian oil and gas company, for
approximately $135 million. Of this amount, approximately $110 million is
allocated to oil and gas properties. On a pro forma basis as of December
31, 1994, ATCOR would have added estimated proved reserves of 10.5 MMbbls
of oil, condensate and natural gas liquids and 106.1 Bcf of natural gas
to the Company's reserve base. The Company also recently acquired a
controlling interest in Saxon, a publicly traded Canadian oil and gas
company, which had estimated proved reserves of 4.2 MMbbls of oil and
condensate and 18.7 Bcf of natural gas at December 31, 1994. The Company
believes that the ATCOR and Saxon acquisitions enhance the Company's
ability to capitalize on future acquisition opportunities in Western
Canada. See "-- ATCOR Acquisition" below. In Canada and throughout North
America, Forest focuses on acquisitions of producing properties that
substantially meet its selection criteria, which include (a) location in
a core area of operations or establishment of a new core area through the
acquisition of a significant property base providing a critical mass, (b)
attractive purchase price, (c) significant potential for increasing
reserves and production through low risk exploitation and development,
and (d) opportunities for improved operating efficiencies. In Canada,
Forest also attempts to ensure that all gas properties have sufficient
owned plant capacity to provide adequate access to markets.
FINANCIAL STRATEGY
- REDUCING LEVERAGE. The Company's financial strategy focuses on reducing
financial risk principally through deleveraging its capital structure and
hedging oil and gas price risk. As of December 31, 1994, debt represented
97.8% of the Company's book capitalization. This percentage fell to 83.8%
as of September 30, 1995, following the closing of the Anschutz and JEDI
Transactions. See "The Anschutz and JEDI Transactions". While these
transactions were important steps toward deleveraging, the Company's
long-term goal is to reduce debt to
38
<PAGE>
a level below 50% of total capitalization. As a result of this offering
and following the ATCOR acquisition, debt as a percent of capitalization
is expected to be reduced to approximately 55% on a pro forma basis.
- HEDGING STRATEGY. The Company's hedging strategy encompasses both
defensive and strategic hedges. Defensive hedges are executed to
stabilize the Company's cash flow over the next 12 to 24 months in order
to facilitate financial planning and budgeting and allow a consistent
capital expenditure program. Strategic hedges are longer term and are
designed to protect the Company's profitability and return on assets and
to provide assurance of the repayment of nonrecourse debt. At current oil
and natural gas prices, the Company's hedging program is focused
primarily on defensive hedges. However, strategic hedges will be
considered as part of any future acquisition. As of December 31, 1995,
approximately 38.9 Bcfe of the Company's oil and gas reserves were
hedged. Of this total hedged volume, 18.4 Bcfe and 11.3 Bcfe are hedged
for 1996 and 1997, respectively.
PRO FORMA OIL AND GAS RESERVES
The following table sets forth summary pro forma information with respect to
estimates of proved oil and gas reserves of the Company, ATCOR and Saxon and the
standardized measure of discounted future net cash flows (discounted at 10%) for
these reserves as of December 31, 1994. For additional information relating to
reserves, see "Risk Factors -- Ceiling Limitation Writedowns",
"-- Reliance on Reserve Estimates," "Business and Properties -- Oil and Gas
Reserves" and Note 16 of Notes to Consolidated Financial Statements of the
Company.
<TABLE>
<CAPTION>
FOREST OIL ATCOR SAXON TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Proved Developed
Natural Gas (MMcf).......................................... 179,574 106,071 17,346 302,991
Liquids (Mbbls) (1)......................................... 6,775 10,469 3,203 20,447
----------- ----------- ----------- -----------
Total (MMcfe) (2)......................................... 220,224 168,885 36,564 425,673
Proved Undeveloped
Natural Gas (MMcf).......................................... 52,064 -- 1,389 53,453
Liquids (Mbbls) (1)......................................... 538 8 1,030 1,576
----------- ----------- ----------- -----------
Total (MMcfe) (2)......................................... 55,292 48 7,569 62,909
Total Proved (MMcfe) (2)...................................... 275,516 168,933 44,133 488,582
Proved reserves attributable to volumetric production
payments, all of which are proved developed:
Natural gas (MMcf).......................................... 15,358 -- -- 15,358
Liquids (Mbbls) (1)......................................... 219 -- -- 219
----------- ----------- ----------- -----------
Total proved reserves attributable to volumetric production
payments (MMcfe) (2)......................................... 16,672 -- -- 16,672
----------- ----------- ----------- -----------
Total proved reserves including amounts attributable to
volumetric production payments (MMcfe) (2)................... 292,188 168,933 44,133 505,254
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves (in thousands)....... $ 207,463 86,121 24,101 317,685
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Total discounted future net cash flows relating to proved oil
and gas reserves, including amounts attributable to
volumetric production payments (in thousands)................ $ 230,149 86,121 24,101 340,371
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
- ------------------------
(1) Includes crude oil, condensate and natural gas liquids.
(2) Converted on the basis that one barrel of liquids is equivalent to 6 Mcf of
natural gas.
39
<PAGE>
RESERVES DERIVED FROM ACQUISITIONS
The following table summarizes the proved reserves at acquisition date
associated with the Company's acquisitions from 1991 to 1994.
<TABLE>
<CAPTION>
ESTIMATED PROVED ACQUISITION
NUMBER OF MAJOR RESERVES ACQUIRED COST ACQUISITION COST
ACQUISITIONS BCFE (MILLIONS) PER MCFE
--------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
1991................................................. 1 25.8 $ 13.5 $ .52
1992................................................. 4 98.1 88.8 .90
1993................................................. 4 104.9 144.9 1.38
1994................................................. 1 8.3 9.8 1.17
--
----- ----------- -----
Total............................................ 10 237.1 $ 257.0 $ 1.08
--
--
----- ----------- -----
----- ----------- -----
</TABLE>
ATCOR ACQUISITION
The Company has entered into an agreement (the "ATCOR Agreement") with ATCOR
Resources Ltd., a Canadian corporation ("ATCOR"), and three of the controlling
stockholders of ATCOR, who own collectively 45% of the common stock of ATCOR and
who have agreed to vote their shares in favor of the acquisition. Pursuant to
the ATCOR Agreement, the Company has agreed to acquire all of the outstanding
capital stock of ATCOR for an aggregate cash consideration of $186 million Cdn
(or approximately $135 million U.S. assuming an exchange rate of $1.38 Cdn to
$1.00 U.S.). The closing of the acquisition is subject to certain conditions,
including obtaining certain Canadian regulatory approvals, the approval of the
holders of both classes of the outstanding capital stock of ATCOR and the
completion of this offering. A meeting of the shareholders of ATCOR to consider
the approval of the acquisition is expected to occur on January , 1996. The
Company will use substantially all of the net proceeds of this offering to pay
the costs and expenses of the ATCOR acquisition. The closing of the acquisition
is expected to occur immediately following the closing of this offering.
The information included in this Prospectus regarding ATCOR has been
provided by ATCOR. No assurance can be given by the Company as to the accuracy
or completeness of such information. Due diligence has been conducted by the
Company only on those properties and other asset of ATCOR that the Company
believes have the most significant value. The Company will receive certain
representations and warranties from ATCOR in connection with the acquisition.
These representations and warranties will not survive the closing, however, and
therefore the Company will have no recourse against any third party for breaches
of such representations and warranties and will only be able to rely on its due
diligence with respect to such matters. See "Risk Factors -- Limited Knowledge
of ATCOR Business and Properties."
40
<PAGE>
As part of the acquisition, Forest has agreed to sell certain assets of
ATCOR to ATCOR's controlling shareholders for an aggregate consideration of
approximately $21.5 million Cdn (or approximately $15.6 million U.S.). These
assets include a one-half interest in certain frontier lands (see "Frontier
Exploration" below), an 18% interest in an ethane extraction plant in Edmonton,
Alberta and certain marketable securities held by ATCOR.
ATCOR is engaged in oil and gas exploration and production and the marketing
and processing of natural gas. ATCOR's principal reserves and producing
properties are located in the Canadian provinces of Alberta, British Columbia
and Saskatchewan. ATCOR held a total of 265,774 net acres of undeveloped oil and
natural gas rights at December 31, 1994. ATCOR owns interests in processing and
gathering facilities in each of its major fields. ATCOR has invested more than
$70 million Cdn in these facilities. Additionally, ATCOR is one of the largest
marketers of natural gas in Canada and the Company believes that ATCOR's
marketing capabilities provide ATCOR with access to markets that afford it a
competitive advantage compared to Canadian companies having only exploration and
production operations. The average wellhead price received by ATCOR during this
period was $1.45 Cdn per Mcf versus $1.14 Cdn per MMbtu as the average spot
market price quoted at AECO C Hub near Calgary, Alberta. ATCOR's voting and
non-voting common stock are listed on the Toronto Stock Exchange under the
symbols "AKR.A" and "AKR.B".
SIGNIFICANT PROPERTIES. The following is a description of ATCOR's principal
oil and gas properties. All stated production data is net to ATCOR's working
interest.
CAROLINE, ALBERTA
ATCOR has a 2.963% working interest in the Caroline Swan Hills Gas Unit #1.
The natural gas in the Caroline gas field contains high concentration of sulphur
and natural gas liquids ("NGLs"). ATCOR's share of production for the nine
months ended September 30, 1995 averaged 2.4 MMcf/d of natural gas, 1,324 Bbl/d
of condensate and NGLs and 121 long tons per day of sulphur ("LT/D"). A major
plant turnaround in August/September increased plant capability to 105% of
design capacity.
THORNBURY/WINEFRED, ALBERTA
Located near Fort McMurray in northeastern Alberta is the Thornbury/Winefred
property in which ATCOR has an approximate 50% working interest in 35,000 acres
of land and interests in 42 wells. ATCOR's share of production averaged 5.1
MMcf/d for the nine months ended September 30, 1995.
SURMONT/NEWBY, ALBERTA
ATCOR holds an average 50% working interest in 42,000 acres of land and 26
wells in the Surmont/Newby area located near Fort McMurray in northeastern
Alberta. ATCOR's share of production for the nine months ended September 30,
1995 averaged 7.2 MMcf/d of natural gas.
HERRONTON, ALBERTA
ATCOR holds an average 92% working interest in 11,000 acres of land and
interests in 11 wells in this property. ATCOR's share of production from the
property averaged 293 Bbl/d of crude oil and NGLs and 2.7 MMcf/d of natural gas
for the nine months ended September 30, 1995.
BITTERN LAKE, ALBERTA
During the first nine months of 1995, ATCOR's share of production in this
property averaged 2.9 MMcf/d of natural gas from four wells in which ATCOR holds
interests ranging from 70% to 100%.
CHAUVIN, ALBERTA
ATCOR holds interests ranging from 31% to 80% in 15 oil wells. This property
is under waterflood and unitization is proceeding. ATCOR's share of production
averaged 250 Bbl/d of crude oil for the nine months ended September 30, 1995.
41
<PAGE>
MAPLE GLEN, ALBERTA
ATCOR's share of production from this property averaged 2.5 MMcf/d of
natural gas for the nine months ended September 30, 1995 from varying interests
held by ATCOR in 40 producing gas wells.
DRUMHELLER, ALBERTA
ATCOR has an approximately 75% working interest in eight wells in the
Drumheller property. ATCOR's share of production averaged 205 Bbl/d of crude oil
for the nine months ended September 30, 1995.
RIGEL/DOIG, BRITISH COLUMBIA
ATCOR has interests ranging from 46% to 100% in 18 wells in this area near
Fort St. John, British Columbia. ATCOR drilled four wells during 1995 and
production for the nine months ended September 30, 1995 averaged 6.3 MMcf/d of
natural gas and 69 Bbl/d of crude oil and NGLs.
UTIKUMA, ALBERTA
ATCOR holds an average 33.5% interest in two wells in the Utikuma property.
A waterflood has been initiated by the operator and injection will commence in
early 1996. ATCOR's share of production for the nine months ended September 30,
1995 averaged 200 Bbl/d of crude oil.
FRONTIER EXPLORATION. ATCOR owns varying interests in 22 significant
discovery areas on which wells have been drilled and oil and/or gas have been
discovered. In connection with the acquisition by Forest, a one-half
participation interest in these frontier lands will be sold to the controlling
shareholders of ATCOR for $8,000,000 Cdn. Twenty-one of these discovery areas
are located within the Beaufort Sea - Mackenzie Delta area of northern Canada.
The remaining discovery area is situated off the coast of Nova Scotia near Sable
Island. None of the reserves underlying these discoveries is included in the
published reserve information under "Pro Forma Oil and Gas Reserves" above.
Virtually all of ATCOR's interests in these discovery areas are retained by
Significant Discovery Licenses. ATCOR, its Canadian partners and the Canadian
government have expended a total of approximately $200 million Cdn in the
exploration and delineation of oil and gas reservoirs in the Amauligak area.
Mobil Oil Canada and Shell Canada, Ltd., as operators of the Sable Island
gas field announced in October 1995, plan to file a development plan application
that will target placing Sable Island production on-line by January 1, 2000. The
operators indicated that a final decision on whether to proceed with the project
is expected for mid-1997.
Financial requirements to retain these interests in good standing are not
significant and are part of ATCOR's annual capital budget. Development through
to production will be a significant investment and will require separate
financing.
NATURAL GAS MARKETING. ATCOR has been involved in natural gas marketing
since 1981. Activities consist of the marketing of ATCOR's own gas production,
the purchase and direct sale of other parties' natural gas, the handling of
transportation and operations of customers' gas, the operation of the ATCOR
Netback Pool and the spot purchasing and selling of natural gas. ATCOR marketed
an average volume of 671 MMcf/d during the nine months ended September 30, 1995
and over 800 MMcf/d for the quarter then ended. ATCOR operates the ATCOR Netback
Pool that matches major end users with providers of gas supply through arranged
transportation channels and uses a netback pricing mechanism to establish the
wellhead price paid to producers. Sales of natural gas to petrochemical,
fertilizer and cement plants, electrical cogeneration facilities, refineries,
straddle plants and utilities are made within Canada and the United States.
ATCOR serves customers on short term and long term contracts in Alberta,
Saskatchewan, Ontario, Quebec and the United States and participates in the
daily trading of gas. Gas supplied to these markets is partially supplied from
ATCOR wells, and the remainder is obtained from other producing and marketing
companies. In 1994, ATCOR marketed, on behalf of itself and others, 125 Bcf or
approximately 342 MMcf/d.
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<PAGE>
Sales in the northeastern United States to Alberta Northeast Gas Limited, a
consortium of 16 gas and electric utilities located in New York, New Jersey,
Connecticut, Massachusetts, New Hampshire and Rhode Island (the ANE Project)
were at full contract volumes of 37.3 million cubic feet per day during 1995.
This contract, which expires in 2006, has a variable pricing formula not tied to
any single index or factor.
ATCOR commenced sales of approximately 18 million cubic feet per day to the
Selkirk II Congeneration Project in New York State on November 1, 1994 through
the Netback Pool. This cogeneration plant generates 277 megawatts of electricity
for sale to the Consolidated Edison Company of New York and sells steam under a
long term contract to a plastics facility owned by General Electric. This
project, which has a contract term of 15 years, also utilizes the Iroquois Gas
Transmission System pipeline for gas transportation.
The average price paid to producers in the ATCOR Netback Pool, which
includes the above mentioned contracts, was $1.36 Cdn per Mcf for the nine
months ended September 30, 1995.
NATURAL GAS LIQUIDS AND SULPHUR MARKETING. ATCOR owns interests in two
plants which are producing natural gas liquids. ATCOR owns a one-third interest
in an ethane extraction plant in Edmonton, Alberta. ATCOR's share of natural gas
liquids production from the Edmonton plant accounted for approximately 1,330
Bbls/d during 1994. In connection with the acquisition by Forest, an 18%
interest in the Edmonton plant will be sold to the controlling shareholders of
ATCOR for $10 million Cdn. The natural gas liquids produced at the Edmonton
plant are sold under a long-term contract at Sarnia, Ontario. ATCOR also owns an
interest in a processing plant in the Caroline gas field. ATCOR's share of
natural gas liquids production from the Caroline plant accounted for
approximately 598 Bbls/d during 1994. ATCOR currently markets its natural gas
liquids from Caroline to a major oil and gas producer for use in a miscible
flood, under a short-term arrangement.
The Caroline plant also produces sulphur, and ATCOR's share of the sulphur
production was 75 LT/D during 1994. ATCOR's share of the sulphur production is
marketed to offshore markets through the Prism Marketing Consortium.
PROCESSING. ATCOR has a one third interest in an ethane extraction plant
located in south Edmonton. The plant extracts ethane and natural gas liquids
from gas streams flowing into south Edmonton. The ethane is sold under a
long-term contract to an Alberta ethylene producer. Natural gas liquids are also
sold under a long-term contract at Sarnia, Ontario market prices. In addition to
liquids extracted, the plant processes natural gas for a large resource company
under a long-term toll processing contract. The present plant configuration has
a maximum design capacity to remove 12,000-14,000 Bbls/d of ethane and 8,500
Bbls/d of natural gas liquids from an inlet natural gas volume of 315 MMcf/d.
For the nine months ended September 30, 1995, the plant processed an average
of 249 MMcf/d of which 36 MMcf/d was processed under the 1984 Agreement to
process all of the Leduc Woodbend gas. The Leduc Woodbend gas processed in 1996
and future years, will be substantially less as this supply becomes depleted and
the remaining reserves are limited.
The plant owners will continue to negotiate alternate contracts for third
party processing as well as determining methods to increase the portion of the
Edmonton gas supply requirement which can be processed at the Plant prior to
consumption in the City.
CANADIAN REGULATION.
For a description of certain Canadian regulatory matters, see "-- Foreign
Operations" below.
EMPLOYEES
At September 30, 1995, ATCOR had 76 full-time employees including eight
field employees. None of ATCOR's employees are represented by a labor union or
collective bargaining agreement. Management believes that its relations with its
employees are good.
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<PAGE>
SIGNIFICANT PROPERTIES
Set forth below are brief descriptions of the Company's 10 most significant
offshore and onshore properties. References in the description to wells are to
gross wells and all production rates are gross production rates.
SIGNIFICANT OFFSHORE PROPERTIES
EUGENE ISLAND 53 FIELD. The Eugene Island 53 Field is located approximately
32 miles offshore St. Mary Parish, Louisiana. The Company operates this field
with a 50.0% working interest. There are 2 wells currently producing from the
Company's platform. In September 1995, average daily production was 5,650 Mcf of
natural gas and 50 Bbls of condensate.
EUGENE ISLAND 255 FIELD. The Eugene Island 255 Field is located
approximately 60 miles offshore, south of St. Mary Parish, Louisiana. This
property was purchased in April 1992. Forest operates the property with a 50%
working interest. There are 3 wells currently producing from the Company's
platform. The platform went onstream in September 1992, at a daily rate of
production of 2,000 Bbls of oil and condensate. In September 1995, average daily
production was 1,350 Bbls of oil and condensate and 700 Mcf of natural gas.
EUGENE ISLAND 292 FIELD. The Eugene Island 292 Field is located
approximately 80 miles offshore St. Mary Parish, Louisiana. The Company operates
this field with a 20.0% working interest. This field was discovered in the early
1960's by Forest. There are 8 wells currently producing from the Company's
platform. In September 1995, average daily production was 20,700 Mcf and 40 Bbls
of condensate.
SOUTH TIMBALIER 245 FIELD. The South Timbalier 245 Field is located 60
miles offshore Terrebonne Parish, Louisiana, in the Gulf of Mexico. In May 1993,
Forest acquired a 100% working interest in South Timbalier Field 245. There are
2 wells currently producing from the Company's platform. In September 1995,
average daily production was 2.8 MMcf of natural gas and 80 Bbls of oil and
condensate.
EUGENE ISLAND 325 FIELD. The Eugene Island 325 Field is located
approximately 90 miles offshore St. Mary Parish, Louisiana. The Company operates
this field with a 66.67% working interest. The field was discovered and
developed by Forest. There are 7 wells currently producing from the Company's
platform. A recompletion program in 1992 increased the daily production by 12
MMcf of natural gas and 700 Bbls of oil and condensate. In September 1995, the
average daily production rate was 29.2 MMcf of natural gas and 415 Bbls of oil
and condensate.
SHIP SHOAL 277 FIELD. The Ship Shoal 277 Field is located approximately 90
miles offshore Terrebonne Parish, Louisiana. The Company operates this field
with a 66.67% working interest. The field was discovered and developed by Forest
and has a total of six wells producing from the Company's platform. In September
1995, average daily production was 1.6 MMcf of natural gas and 860 Bbls of oil
and condensate.
SOUTH PELTO FIELD. The South Pelto Field is operated by a third party and
is located approximately 15 miles offshore Terrebonne Parish, Louisiana. Forest
acquired a 100% working interest in the field in 1992. The Company farmed out
the South Pelto Field discovery well which was drilled in February 1993 by a
third party. Forest held a 10% overriding royalty interest in the well until
payout and subsequently converted to a 35% working interest. In September 1995,
average daily production was 30.5 MMcf of natural gas and 330 Bbls of oil and
condensate.
SIGNIFICANT ONSHORE PROPERTIES
VERMEJO FIELD. The Vermejo Field is located in Loving County, Texas. Forest
has an average 47% working interest in eight wells in the field, of which it
operates seven. In September 1995, the average daily production rate was 3.2
MMcf of natural gas.
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<PAGE>
LOMA VIEJA FIELD. The Loma Vieja Field is operated by a third party and is
located in Zapata County, Texas. Forest acquired a 35.64% working interest in
1993. There are six wells currently producing. In September 1995, average daily
production was 15.4 MMcf of natural gas.
KATY FIELD. The Katy Field is operated by Exxon and is located in Waller
County, Texas. Forest originally acquired an average 12.8% working interest in
1993, and has acquired additional working interests that bring Forest's current
total average working interest to 18.33%. There are 107 wells currently
producing. In September 1995, average daily production wass 31 MMcf of natural
gas.
PRODUCTION
The following table shows net oil and natural gas production for Forest and
its wholly owned subsidiaries for the nine months ended September 30, 1995 and
the three years ended December 31, 1994:
<TABLE>
<CAPTION>
NET OIL AND
NATURAL GAS PRODUCTION
------------------------------------------------------------------------------
PRO FORMA
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, PRO FORMA
1995 1995 1994 1994 1993 1992
------------- ------------- --------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
United States:
Natural Gas (MMcf)... 25,744 25,744 48,048 48,048 41,114 27,814
Oil (Mbbls).......... 926 926 1,543 1,543 1,493 1,308
Canada:
Natural Gas (MMcf)... 11,348 -- 18,604 -- -- 1,360
Oil (Mbbls).......... 1,239 -- 2,040 -- -- 142
</TABLE>
PRODUCTIVE WELLS
The following summarizes the Company's total gross and net productive wells
at December 31, 1994, all of which are in the United States:
<TABLE>
<CAPTION>
PRODUCTIVE WELLS (1)
--------------------------
GROSS (2) NET (3)
------------- -----------
<S> <C> <C>
Oil................................................................ 200 133.8
Natural Gas........................................................ 416 137.9
--- -----
Totals (4)..................................................... 616 271.7
--- -----
--- -----
</TABLE>
- ------------------------
(1) Productive wells are producing wells and wells capable of production,
including wells that are shut-in.
(2) A gross well is a well in which a working interest is owned. The number of
gross wells is the total number of wells in which a working interest is
owned.
(3) A net well is deemed to exist when the sum of fractional ownership working
interests in gross wells equals one. The number of net wells is the sum of
the fractional working interests owned in gross wells expressed as whole
numbers and fractions thereof.
(4) Includes 60 dual completions. Dual completions are counted as one well. If
one completion is an oil completion, the well is classified as an oil well.
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<PAGE>
DEVELOPED AND UNDEVELOPED ACREAGE
Forest held acreage as set forth below at December 31, 1994 and 1993. A
majority of the developed acreage is subject to a mortgage lien securing either
the Company's bank indebtedness or its nonrecourse secured debt. A portion of
the developed acreage is also subject to production payments. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Notes 4 and 5 of Notes to Consolidated Financial Statements of the Company.
<TABLE>
<CAPTION>
DEVELOPED ACREAGE UNDEVELOPED ACREAGE
(1) (2)
-------------------- --------------------
GROSS (3) NET (4) GROSS (3) NET (4)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Louisiana Offshore........................................... 180,108 72,689 108,174 69,028
Oklahoma..................................................... 63,779 22,891 5,976 1,321
Texas Onshore................................................ 126,330 59,502 26,991 19,210
Texas Offshore............................................... 51,142 31,175 47,298 42,078
Wyoming...................................................... 12,803 8,797 24,676 20,334
Other........................................................ 30,883 9,017 6,615 3,592
--------- --------- --------- ---------
Total Acreage at December 31, 1994........................... 465,045 204,071 219,730 155,563
--------- --------- --------- ---------
--------- --------- --------- ---------
Total Acreage at December 31, 1993........................... 427,139 180,735 338,387 230,858
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Developed acres are those acres which are spaced or assigned to productive
wells.
(2) Undeveloped acres are considered to be those acres on which wells have not
been drilled or completed to a point that would permit the production of
commercial quantities of oil or natural gas, regardless of whether such
acreage contains proved reserves. It should not be confused with undrilled
acreage held by production under the terms of a lease.
(3) A gross acre is an acre in which a working interest is owned. The number of
gross acres is the total number of acres in which a working interest is
owned.
(4) A net acre is deemed to exist when the sum of the fractional ownership
working interests in gross acres equals one. The number of net acres is the
sum of the fractional working interests owned in gross acres expressed as
whole numbers and fractions thereof.
During 1994, the Company's gross developed acreage increased approximately
9% and net developed acreage increased 13%, primarily as a result of producing
property acquisitions. The Company's gross and net undeveloped acreage decreased
35% and 33% respectively, primarily due to reductions in acreage as a result of
reclassifications to developed acreage, lease expirations and the Company's
decision not to renew certain leases which were located primarily offshore
Louisiana and in Texas.
Approximately 49% of the Company's total net undeveloped acreage is under
leases that have terms expiring in 1995, if not held by production, and another
approximately 9% of net undeveloped acreage will expire in 1996 if not also held
by production.
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<PAGE>
DRILLING ACTIVITY
Forest owned interests in net exploratory and net developments wells for the
years ended December 31, 1994, 1993 and 1992 as set forth below. This
information does not include wells drilled under farmout agreements.
<TABLE>
<CAPTION>
UNITED STATES
-------------------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Net Exploratory Wells: (1)
Dry (2)...................................................... 2.0 1.2 1.0
Productive (3)............................................... 1.3 .3 --
-- -- --
3.3 1.5 1.0
-- -- --
-- -- --
Net Development Wells: (1)
Dry (2)...................................................... -- -- --
Productive (3)............................................... 2.1 3.0 1.6
-- -- --
2.1 3.0 1.6
-- -- --
-- -- --
</TABLE>
- ------------------------
(1) A net well is deemed to exist when the sum of fractional ownership working
interests in gross wells equals one. The number of net wells is the sum of
the functional working interests owned in gross wells expressed as whole
numbers and fractions thereof.
(2) A dry well (hole) is a well found to be incapable of producing either oil or
natural gas in sufficient quantities to justify completion as an oil or
natural gas well.
(3) Productive wells are producing wells and wells capable of production,
including wells that are shut-in.
A net development well drilled in Canada in 1992 was completed prior to the
September 30, 1992 sale of Canadian operations to CanEagle. This well, in which
the Company's ownership interest was 20%, was included in the properties sold.
COMPETITION
The oil and natural gas industry is intensely competitive. Competition is
particularly intense in the acquisition of prospective oil and natural gas
properties and oil and gas reserves. Forest's competitive position depends on
its geological, geophysical and engineering expertise, on its financial
resources, its ability to develop its properties and its ability to select,
acquire and develop proved reserves. Forest competes with a substantial number
of other companies having larger technical staffs and greater financial and
operational resources. Many such companies not only engage in the acquisition,
exploration, development and production of oil and natural gas reserves, but
also carry on refining operations, generate electricity and market refined
products. The Company also competes with major and independent oil and gas
companies in the marketing and sale of oil and gas to transporters, distributors
and end users. There is also competition between the oil and natural gas
industry and other industries supplying energy and fuel to industrial,
commercial and individual consumers. Forest also competes with other oil and
natural gas companies in attempting to secure drilling rigs and other equipment
necessary for drilling and completion of wells. Such equipment may be in short
supply from time to time, although there is no current shortage of such
equipment. Finally, companies not previously investing in oil and natural gas
may choose to acquire reserves to establish a firm supply or simply as an
investment. Such companies will also provide competition for Forest. Forest's
business is affected not only by such competition, but also by general economic
developments, governmental regulations and other factors that affect its ability
to market its oil and natural gas production. The prices of oil and natural gas
realized by Forest are both highly volatile and generally dependent on world
supply and demand. Declines in crude oil prices or natural gas prices adversely
impact Forest's activities. The Company's financial position and resources may
also adversely affect the Company's competitive position. Lack of available
funds or financing alternatives will prevent the
47
<PAGE>
Company from executing its operating strategy and from deriving the expected
benefits therefrom. For further information concerning the Company's financial
position, see Management's Discussion and Analysis of Financial Condition and
Results of Operations.
REGULATION
Various aspects of the Company's oil and natural gas operations are
regulated by administrative agencies under statutory provisions of the states
where such operations are conducted and by certain agencies of the Federal
government for operations on Federal leases. The Federal Energy Regulatory
Commission "FERC" regulates the transportation and sale for resale of natural
gas in interstate commerce pursuant to the Natural Gas Act of 1938 "NGA" and the
Natural Gas Policy Act of 1978 "NGPA." In the past, the Federal government has
regulated the prices at which oil and gas could be sold. While sales by
producers of natural gas, and all sales of crude oil, condensate and natural gas
liquids can currently be made at uncontrolled market prices, Congress could
reenact price controls in the future. Deregulation of wellhead sales in the
natural gas industry began with the enactment of the NGPA in 1978. In 1989,
Congress enacted the Natural Gas Wellhead Decontrol Act "the Decontrol Act". The
Decontrol Act removed all NGA and NGPA price and nonprice controls affecting
wellhead sales of natural gas effective January 1, 1993.
Commencing in April 1992, the FERC issued Order Nos. 636, 636-A, and 636-B
"Order No. 636," which require interstate pipelines to provide transportation
separate, or "unbundled", from the pipelines' sales of gas. Also, Order No. 636
requires pipelines to provide open-access transportation on a basis that is
equal for all gas supplies. Although Order No. 636 does not directly regulate
the Company's activities, the FERC has stated that it intends for Order No. 636
to foster increased competition within all phases of the natural gas industry.
It is unclear what impact, if any, increased competition within the natural gas
industry under Order No. 636 will have on the Company's activities. Although
Order No. 636, assuming it is upheld in its entirety, could provide the Company
with additional market access and more fairly applied transportation service
rates, Order No. 636 could also subject the Company to more restrictive pipeline
imbalance tolerances and greater penalties for violation of those tolerances.
As of early 1995, the FERC had issued final orders accepting most pipelines'
Order No. 636 compliance filings, and had commenced a series of one year reviews
of individual pipeline implementations of Order No. 636. Numerous parties have
filed petitions for review of Order No. 636, as well as orders in individual
pipeline restructuring proceedings. Upon such judicial review, these orders may
be remanded or reversed in whole or in part. With Order No. 636 subject to court
review, and pending ongoing FERC reviews of individual pipeline restructurings,
it is difficult to predict with precision its ultimate effects.
The FERC has recently announced its intention to re-examine certain of its
transportation-related policies, including the appropriate manner in which
interstate pipelines release transportation capacity under Order No. 636, and
the use of market-based rates for interstate gas transmission. While any
resulting FERC action would affect the Company only indirectly, these inquiries
are intended to further enhance competition in natural gas markets.
Commencing in October 1993, the FERC issued a series of rules (Order Nos.
561 and 561-A) establishing an indexing system under which oil pipelines will be
able to change their transportation rates, subject to prescribed ceiling levels.
The indexing system, which allows pipelines to make rate changes to track
changes in the Producer Price Index for Finished Goods, minus one percent,
became effective January 1, 1995. The FERC's decision in this matter is
currently the subject of various petitions for judicial review. The Company is
not able at this time to predict the effects of Order Nos. 561 and 561-A, if
any, on the transportation costs associated with oil production from the
Company's oil producing operations.
The Outer Continental Shelf Lands Act "OCSLA" requires that all pipelines
operating on or across the Outer Continental Shelf (the "OCS") provide
open-access, non-discriminatory service. Although the FERC has opted not to
impose the regulations of Order No. 509, in which the FERC implemented the
OCSLA, on gatherers and other non-jurisdictional entities, the FERC has retained
48
<PAGE>
the authority to exercise jurisdiction over those entities if necessary to
permit non-discriminatory access to service on the OCS. If the FERC were to
apply Order No. 509 to gatherers in the OCS, eliminate the exemption of
gathering lines, and redefine its jurisdiction over gathering lines, then these
acts could result in a reduction of available pipeline capacity for existing
shippers in the Gulf of Mexico, such as the Company.
In December 1992, the FERC issued Order No. 547, governing the issuance of
blanket marketer sales certificates to all natural gas sellers other than
interstate pipelines. The order eliminates the need for natural gas producers
and marketers to seek specific authorization under Section 7 of the NGA from the
FERC to make sales of natural gas for resale. The FERC intends Order No. 547, in
tandem with Order No. 636, to foster a competitive market for natural gas by
giving natural gas purchasers access to multiple supply sources at market-driven
prices. Order No. 547 may increase competition in markets in which the Company's
natural gas is sold.
Certain operations the Company conducts are on federal oil and gas leases,
which the Minerals Management Service "MMS" administers. The MMS issues such
leases through competitive bidding. These leases contain relatively standardized
terms and require compliance with detailed MMS regulations and orders pursuant
to the OCSLA (which are subject to change by the MMS). For offshore operations,
lessees must obtain MMS approval for exploration plans and development and
production plans prior to the commencement of such operations. In addition to
permits required from other agencies (such as the Coast Guard, the Army Corps of
Engineers and the Environmental Protection Agency), lessees must obtain a permit
from the MMS prior to the commencement of drilling. The MMS has promulgated
regulations requiring offshore production facilities located on the OCS to meet
stringent engineering and construction specifications, and has recently proposed
additional safety-related regulations concerning the design and operating
procedures for OCS production platforms and pipelines. The MMS also has
regulations restricting the flaring or venting of natural gas, and has recently
proposed to amend such regulations to prohibit the flaring of liquid
hydrocarbons and oil without prior authorization. Similarly, the MMS has
promulgated other regulations governing the plugging and abandonment of wells
located offshore and the removal of all production facilities. To cover the
various obligations of lessees on the OCS, the MMS generally requires that
lessees post substantial bonds or other acceptable assurances that such
obligations will be met. The cost of such bonds or other surety can be
substantial and there is no assurance that the Company can continue to obtain
bonds or other surety in all cases.
In addition, the MMS is conducting an inquiry into certain contract
agreements from which producers on MMS leases have received settlement proceeds
that are royalty bearing and the extent to which producers have paid the
appropriate royalties on those proceeds. The Company believes that this inquiry
will not have a material impact on its financial condition, liquidity or results
of operations.
Additional proposals and proceedings that might affect the oil and gas
industry are pending before the FERC and the courts. The Company cannot predict
when or whether any such proposals may become effective. In the past, the
natural gas industry has been heavily regulated. There is no assurance that the
regulatory approach currently pursued by the FERC will continue indefinitely.
Notwithstanding the foregoing, the Company does not anticipate that compliance
with existing federal, state and local laws, rules and regulations will have a
material or significantly adverse effect upon the capital expenditures, earnings
or competitive position of the Company or its subsidiaries. No material portion
of Forest's business is subject to renegotiation of profits or termination of
contracts or subcontracts at the election of the Federal government.
OIL SPILL FINANCIAL RESPONSIBILITY REQUIREMENTS
In August 1993, the MMS published an advance notice of its intention to
adopt a rule under the Oil Pollution Act of 1990 "OPA 90" that would require
owners and operators of oil and gas facilities located on or adjacent to waters
of the United States to establish $150 million in financial responsibility to
cover oil spill related liabilities. Compliance with the proposed rule could be
financially burdensome for many small oil and gas companies, and in June 1995,
The U.S. House of Representatives
49
<PAGE>
approved a bill that would amend OPA 90 to reduce the level of financial
responsibility to $35 million. The Clinton Administration has expressed its
support for the pending legislation, but the U.S. Senate has not yet taken any
action on the bill approved by the House of Representatives. The Company cannot
predict whether Congress will reduce the level of financial responsibility
required under OPA 90 nor can it predict the final form of any financial
responsibility rule that might be adopted, but any such action has the potential
to result in the imposition of substantial additional annual costs on the
Company or otherwise materially adversely affect the Company. The impact of the
rule should not be any more adverse to the Company than it will be to other
similarly situated or less capitalized owners or operators in the Gulf of Mexico
and other affected regions. The MMS has indicated that it will not move forward
with the adoption of the rule until the United States Congress has had an
opportunity to act on the pending amendments to OPA 90.
OPERATING HAZARDS AND ENVIRONMENTAL MATTERS
The oil and gas business involves a variety of operating risks, including
the risk of fire, explosions, blow-outs, pipe failure, casing collapse,
abnormally pressured formations and environmental hazards such as oil spills,
gas leaks, ruptures and discharges of toxic gases, the occurrence of any of
which could result in substantial losses to the Company due to injury or loss of
life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, clean-up responsibilities,
regulatory investigation and penalties and suspension of operations. In
addition, the Company currently operates offshore and is subject to the
additional hazards of marine operations, such as capsizing, collision and
adverse weather and sea conditions. Such hazards may hinder or delay drilling,
development and on-line production operations.
Extensive federal, state and local laws govern oil and natural gas
operations regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment. Numerous governmental
departments issue rules and regulations to implement and enforce such laws which
are often difficult and costly to comply with and which carry substantial
penalties for failure to comply. Some laws, rules and regulations relating to
protection of the environment may, in certain circumstances, impose "strict
liability" for environmental contamination, rendering a person liable for
environmental damages and cleanup costs without regard to negligence or fault on
the part of such person. Other laws, rules and regulations may restrict the rate
of oil and natural gas production below the rate that would otherwise exist. The
regulatory burden on the oil and natural gas industry increases its cost of
doing business and consequently affects its profitability. These laws, rules and
regulations affect the operations of the Company. Compliance with environmental
requirements generally could have a material adverse effect upon the capital
expenditures, earnings or competitive position of Forest and its subsidiaries.
The Company believes that it is in substantial compliance with current
applicable environmental laws and regulations and that continued compliance with
existing requirements will not have a material adverse impact on the Company.
Nevertheless, changes in environmental law have the potential to adversely
affect the Company's operations. For instance, at least two separate courts have
recently ruled that certain wastes associated with the production of crude oil
may be classified as hazardous substances under the Comprehensive Environmental
Response, Compensation, and Liability Act (commonly called "Superfund") and thus
the Company could become subject to the burdensome cleanup and liability
standards established under the federal Superfund program if significant
concentrations of such wastes were determined to be present at the Company's
properties or to have been produced as a result of the Company's operations.
Alternately, pending amendments to Superfund presently under consideration by
the U.S. Congress could relax many of the burdensome cleanup and liability
standards established under the statute.
The Company has established guidelines to be followed to comply with
environmental laws, rules and regulations. The Company has designated a
compliance officer whose responsibility is to monitor regulatory requirements
and their impacts on the Company and to implement appropriate compliance
procedures. The Company also employs an environmental manager whose
responsibilities include causing Forest's operations to be carried out in
accordance with applicable environmental guidelines and implementing adequate
safety precautions.
50
<PAGE>
Although the Company maintains insurance against some, but not all, of the
risks described above, including insuring the costs of clean-up operations,
public liability and physical damage, there is no assurance that such insurance
will be adequate to cover all such costs or that such insurance will continue to
be available in the future or that such insurance will be available at premium
levels that justify its purchase. The occurrence of a significant event not
fully insured or indemnified against could have a material adverse effect on the
Company's financial condition and operations.
The Company has established guidelines to be followed to comply with
environmental laws, rules and regulations. The Company has designated a
compliance officer whose responsibility is to monitor regulatory requirements
and their impacts on the Company and to implement appropriate compliance
procedures. The Company also employs an environmental manager whose
responsibilities include causing Forest's operations to be carried out in
accordance with applicable environmental guidelines and implementing adequate
safety precautions. Although the Company maintains pollution insurance against
the costs of clean-up operations, public liability and physical damage, there is
no assurance that such insurance will be adequate to cover all such costs or
that such insurance will continue to be available in the future.
FOREIGN OPERATIONS
Forest has entered into an agreement to acquire ATCOR and has acquired a
controlling interest in Saxon. See "-- ATCOR Acquisition." In 1992, the Company
sold substantially all of its Canadian operations to CanEagle Resources
Corporation ("CanEagle"). In June 1994, CanEagle sold a significant portion of
its oil and gas properties in Canada to a third party. In conjunction with this
transaction, the Company exchanged its investment in CanEagle for preferred
shares of a newly formed entity, Archean Energy, Ltd. "Archean." In connection
with the Saxon transaction, the Company exchanged its Archean preferred stock
for Saxon preferred stock.
In Canada, the petroleum industry operates under federal, provincial and
municipal legislation and regulations governing taxes, land tenure, royalties,
production rates, pricing, environmental protection, exports and other matters.
Prices of oil and natural gas in Canada have been deregulated and are determined
by market conditions and negotiations between buyers and sellers.
Various matters relating to the transportation and distribution of natural
gas are the subject of hearings before various regulatory tribunals. In
addition, although the price of natural gas exported from Canada is subject to
negotiation between buyers and sellers, the National Energy Board, which
regulates exports of natural gas, requires that natural gas export contracts
meet certain criteria as a condition of approving such exports. These criteria,
including price considerations, are designed to demonstrate that the export is
in the Canadian public interest.
Several provincial governments have introduced a number of programs to
encourage and assist the oil and natural gas industry, including incentive
payments, royalty holidays and royalty tax credits.
Canadian governmental regulations may have a material effect on the economic
parameters for engaging in oil and gas activities in Canada and may have a
material effect on the advisability of investments in Canadian oil and gas
drilling activities.
Forest considers, from time to time, certain oil and gas opportunities in
other foreign countries. Foreign oil and natural gas operations are subject to
certain risks, such as nationalization, confiscation, terrorism, renegotiation
of existing contracts and currency fluctuations. Forest monitors the political,
regulatory and economic developments in any foreign countries in which it
operates.
LEGAL PROCEEDINGS
The Company, in the ordinary course of business, is a party to various legal
actions. In the opinion of management, none of these actions, including those
discussed above, either individually or in the aggregate, will have a material
adverse effect on the Company's financial condition, liquidity or results of
operations.
51
<PAGE>
THE ANSCHUTZ AND JEDI TRANSACTIONS
On July 27, 1995, the Company consummated the transactions contemplated by
the Purchase Agreement between the Company and Anschutz dated May 17, 1995 (the
"Anschutz Agreement") and the Restructure Agreement between the Company and JEDI
(a Delaware limited partnership, whose general partner is Enron Capital Corp.,
an affiliate of Enron Corp.) dated May 17, 1995 (the "JEDI Agreement").
Pursuant to the Anschutz Agreement, for a total consideration of $45 million
Anschutz purchased an aggregate of 18,800,000 shares of Common Stock and 620,000
shares of Second Series Preferred Stock that are convertible into an aggregate
of 6,200,000 additional shares of Common Stock. The Anschutz investment was made
in two closings. In the first closing, which occurred on May 19, 1995, Anschutz
loaned the Company $9,900,000. At the second closing, which occurred on July 27,
1995, Anschutz converted the loan into 5,500,000 shares of Common Stock and
purchased from the Company, for an additional payment of $35,100,000, 13,300,000
shares of Common Stock, the Second Series Preferred Stock and the A Warrants to
purchase 19,444,444 shares of Common Stock and acquired from JEDI an option to
acquire up to an additional 11,250,000 shares of Common Stock, subject to
certain restrictions. The A Warrants are exercisable during the first 18 months
after the second closing, subject to extension in certain circumstances to 36
months after the second closing. See "Description of Capital Stock -- Warrants."
At the second closing Anschutz agreed pursuant to a Shareholders Agreement
with the Company (the "Shareholders Agreement") to certain voting, acquisition,
transfer and certain other limitations regarding all its shares of Common Stock
for five years after the second closing, including (a) a limit on voting,
subject to certain exceptions, that required Anschutz to vote all equity
securities of the Company owned by Anschutz having voting power in excess of an
amount equal to 19.99% of the aggregate voting power of the equity securities of
the Company then outstanding in the same proportion as all other equity
securities of the Company voted with respect to the matter (other than equity
securities owned by Anschutz) are voted, (b) limiting to three the number of
persons associated with Anschutz that may at any time be elected as directors of
the Company and limit the total number of directors to 10 and (c) a limit on the
acquisition of additional shares of Common Stock by Anschutz (whether pursuant
to the conversion of the Second Series Preferred Stock, the exercise of the
warrants or the option received from JEDI, each as described below, or
otherwise), subject to certain exceptions, that prohibits any acquisition by
Anschutz that would result in Anschutz beneficially owning 40% or more of the
shares of Common Stock then issued and outstanding. While the foregoing
limitations are in effect, Anschutz will have a minority representation on the
Board of Directors. See "-- Shareholders Agreement" below.
At the first closing the Company and Anschutz also entered into a
Registration Rights Agreement (the "Anschutz Registration Rights Agreement")
pursuant to which the Company has agreed to register pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), any Common Stock acquired by
Anschutz in connection with the Anschutz Agreement. Anschutz has the right to
demand such registration on four separate occasions and will have certain
"piggy-back" registration rights with respect to Company registrations. The
Company will bear the cost of any registration pursuant to the Anschutz
Registration Rights Agreement. At the second closing the Company also entered
into a registration rights agreement with JEDI on terms substantially similar to
the Anschutz Registration Rights Agreement, including two demand registration
rights.
At the second closing, Forest and JEDI restructured JEDI's existing loan
which had a principal balance of approximately $62,100,000 at May 15, 1995. As a
part of the restructuring, the existing JEDI Loan balance was divided into two
tranches: Tranche A in the original principal amount of $40 million, which bears
interest at the rate of 12.5% per annum and will be due and payable in full on
December 31, 2000, and Tranche B in the original principal amount of
approximately $22,100,000, which does not bear interest and will be due and
payable in full on December 31, 2002. In addition to the elimination of interest
on the Tranche B loan amount, JEDI relinquished the net profits interest
52
<PAGE>
that it held in certain Forest properties and received B Warrants. Subject to
certain conditions, the Company may satisfy the JEDI Loan by conveying to JEDI
the properties securing the loan during a 30-day period beginning January 27,
1997 or, if the A Warrants have been extended, during a 30-day period beginning
July 27, 1998. The conditions include the expiration or full exercise of the A
Warrants, the absence of a default under the JEDI Loan agreement, the accuracy
of certain representations and warranties under the JEDI Loan agreement and the
absence of material liens or litigation affecting the JEDI properties. Any such
conveyance during the first 36 months after the second closing must be approved
by Anschutz, if the option from JEDI has not then been exercised or terminated.
The Company believes that the option to convey the properties to JEDI affords
the Company greater flexibility in managing its capital structure. Although the
Company has no current plans regarding the possible exercise of such option, the
Company would likely do so if at the time the option became exercisable the
outstanding balance of the JEDI Loan was significantly greater than the value of
the properties securing the JEDI Loan. Prior to the exercise or termination of
the JEDI option, JEDI has agreed that it will not assign all or any portion of
the JEDI Loan or the B Warrants to an unaffiliated person without the approval
of the Company. The Company has agreed to not give such approval without the
consent of Anschutz.
At the second closing, JEDI received the B Warrants to purchase 11,250,000
shares of the Common Stock. Until July 27, 1998, the B Warrants may be exercised
only on the dates and in the respective numbers of shares required to be
delivered by JEDI to Anschutz pursuant to the exercise of the option granted by
JEDI to Anschutz, as described below. At the second closing, JEDI granted to
Anschutz an option on the 11,250,000 shares of Common Stock issuable upon the
exercise of the B Warrants until July 27, 1998. The Company has agreed to use
the proceeds from the exercise of the B Warrants and the A Warrants to repay
principal and interest on the JEDI Loan.
The Anschutz Agreement required the Company to amend the Rights Agreement
dated as of October 14, 1993 between the Company and Mellon Securities Trust
Company, as Rights Agent, (the "Rights Agreement") with respect to the
transactions contemplated by the Anschutz Agreement and the JEDI Agreement. The
amendment of the Rights Agreement exempted from the provisions of the Rights
Agreement shares of Common Stock acquired by Anschutz and JEDI pursuant to the
Anschutz Agreement (including shares later acquired pursuant to the conversion
of the Second Series Preferred Stock or the exercise of the A Warrants or the
option received from JEDI) and JEDI Agreement, respectively. The amendment to
Rights Agreement did not exempt other shares of Common Stock acquired by
Anschutz or JEDI from the provisions of the Rights Agreement. In the Anschutz
Agreement, the Company agreed to waive the provisions of the Rights Agreement
with respect to Anschutz if, and to the same extent, it waives such provisions
with respect to any other person. See "Description of Capital Stock --
Anti-Takeover Provisions."
SHAREHOLDERS AGREEMENT
In connection with the issuance to Anschutz, Anschutz entered into the
Shareholders Agreement providing for certain voting and other limitations
regarding its shares of Common Stock for the lesser of (i) five years after the
second closing and (ii) the first day on which the sum of the number of shares
of Common Stock owned by Anschutz and its affiliates and any shares of Common
Stock subject to acquisition by Anschutz and its affiliates (regardless of any
conditions or restrictions on such rights) is less than 20% of the total of all
shares of Common Stock issued and outstanding and subject to issuance
(regardless of any conditions or restrictions on such rights). The Shareholders
Agreement requires the Company to, among other things, except as otherwise
approved by the Board of Directors, including a majority of the Independent
Directors (as defined below), or by vote of the holders of two-thirds of the
shares of Common Stock then issued and outstanding (in which Anschutz Excess
Securities (as defined below) are voted in accordance with the restrictions
contained in the Shareholders Agreement) (a) fix the number of directors of the
Company at ten, who are to be three persons selected by Anschutz (the "Anschutz
Designees"), two persons who are officers of the Company and five persons
unaffiliated with Anschutz who are not and have not been at any time during the
preceding two years an officer or employee of the Company or a director, officer
or employee of a
53
<PAGE>
beneficial owner of 5% or more of the shares of Common Stock then issued and
outstanding or an affiliate of such beneficial owner ("Independent Directors"),
(b) appoint an Anschutz Designee chosen by Anschutz to each of the Executive
Committee, the Compensation Committee and the Audit Committee (or committees
having similar functions) of the Board of Directors, (c) appoint a Nominating
Committee composed of three directors, one of whom shall be an Anschutz
Designee, one of whom shall be an officer of the Company and one of whom shall
be an Independent Director, (d) require that nominees to the Board of Directors
other than the Anschutz Designees be selected by a vote of at least two members
of the Nominating Committee, of whom one shall be an Independent Director, (e)
if any Anschutz Designee shall cease to be a director for any reason, fill the
vacancy resulting thereby with an Anschutz Designee and (f) call meetings of the
Board of Directors and committees thereof upon the written request of any
Anschutz Designee who is a director.
The Shareholders Agreement also contains a limit on voting that would
require Anschutz to vote all equity securities of the Company having voting
power in excess of an amount equal to 19.99% of the aggregate voting power of
the equity securities of the Company then outstanding (the "Anschutz Excess
Securities") in the same proportion as all other equity securities of the
Company voted with respect to the matter (other than equity securities held by
Anschutz) are voted, except that Anschutz may vote the Anschutz Excess
Securities without restriction (a) for the election of the permitted number of
Anschutz Designees, (b) with respect to all matters with respect to which
Anschutz may have liability under Section 16(b) of the Exchange Act (unless the
Company has obtained a final judgment to the effect that Anschutz will have no
such liability) and (c) with respect to other matters as approved by the Board
of Directors, including a majority of Independent Directors.
The exception with respect to Section 16(b) of the Exchange Act could have
the effect of permitting Anschutz to vote the Anschutz Excess Securities without
restriction in connection with a proposed merger of the Company with a third
party, which merger had been approved by the Board of Directors (regardless of
how the directors appointed by Anschutz might vote on such merger). Depending
upon its percentage ownership, if permitted to vote the Anschutz Excess
Securities, Anschutz could have a veto power over certain transactions between
the Company and third parties such as a merger, which requires the approval of
the holders of two-thirds of the outstanding Common Stock.
The Shareholders Agreement also contains an agreement on the part of
Anschutz not to transfer the beneficial ownership of any of its shares of Common
Stock and Preferred Stock (including shares later acquired pursuant to the
conversion of the Second Series Preferred Stock or the exercise of the A
Warrants or the option received from JEDI), except (a) in a public offering of
Common Stock pursuant to a registration statement effective under the Securities
Act, (b) to a person or Group (as defined in Section 13(d)(3) of the Exchange
Act) who represents that it will then beneficially own 9.9% or less of the total
number of shares of Common Stock then issued and outstanding and those subject
to issuance (even if then subject to conditions or restrictions), (c) to a
person or Group who will then beneficially own more than 9.9% but less than 20%
of the total number of shares of Common Stock issued and outstanding and those
subject to issuance (even if then subject to conditions or restrictions) if such
person or Group assumes by written instrument satisfactory to both Anschutz and
the Company the transfer restrictions previously applicable to Anschutz, (d) any
transfer approved by the Board of Directors, including a majority of the
Independent Directors, which approval shall not be unreasonably withheld with
respect to a transfer to any person or Group who represents that it will then
beneficially own more than 9.9% and less than 20% of the total number of shares
of Common Stock issued and outstanding and those subject to issuance (even if
then subject to conditions or restrictions), (e) a transfer in connection with
certain business combination transactions or tender or exchange offers, upon the
liquidation or dissolution of the Company or as effected by operation of law and
(f) the pledge or grant of a security interest in certain cases.
The Shareholders Agreement also provides that Anschutz will neither alone,
nor through or with its affiliates, acquire shares of Common Stock which, when
combined with shares of Common Stock then owned by Anschutz and its affiliates,
would result in Anschutz beneficially owning 40% or more of the shares of Common
Stock then issued and outstanding (provided that shares of Common Stock
54
<PAGE>
which may be acquired pursuant to the conversion of the Second Series Preferred
Stock or the exercise of the A Warrants or the option received from JEDI that
have not been issued shall not be included in such determination), except that
such restriction shall not apply to (i) acquisitions following a business
combination transaction that (A) has been approved by the Board of Directors
(including a majority of the Independent Directors) or by the holders of
two-thirds of the shares of Common Stock voted with respect to such transaction
in which Anschutz Excess Securities are voted in accordance with the
Shareholders Agreement) and (B) results in the beneficial ownership by any
person or Group of 20% or more of the shares of Common Stock then issued and
outstanding (or if all or any part of the shares of Common Stock are changed
into or exchanged for shares of capital stock of any other person, 20% of such
issued and outstanding shares), (ii) acquisitions following the commencement of
a tender or exchange offer made by any person or Group (other than and not
including Anschutz or an affiliate of, or any person acting in concert with,
Anschutz) to acquire beneficial ownership of 40% or more of the shares of Common
Stock then issued and outstanding, (iii) acquisitions after any person or Group
(other than and not including an affiliate of Anschutz) shall own beneficially
shares of Common Stock which exceed the sum of the number of shares of Common
Stock then owned by Anschutz and its affiliates plus the number then subject to
acquisition upon the conversion, exercise or exchange by Anschutz and its
affiliates of equity securities of the Company or other rights then owned
(whether or not subject to restrictions or conditions) and (iv) acquisitions
approved by the Board of Directors, including a majority of Independent
Directors. If Anschutz's percentage ownership were diluted by future increases
in the outstanding Common Stock, the 40% restriction on Anschutz's ownership
would not preclude Anschutz from acquiring shares of Common Stock in the open
market up to the 40% level, regardless of Anschutz's ability to exercise
warrants or options or to convert the Second Series Preferred Stock.
The Shareholders Agreement also provides that the Company will not take or
recommend to its shareholders any action which would impose on Anschutz or its
affiliates any limitations on their legal rights, other than those imposed by
the express terms of the Shareholders Agreement, and that the Company will not
take any action that will or may, directly or indirectly, result in Anschutz or
any affiliate having liability under Section 16(b) of the Exchange Act with
respect to securities acquired pursuant to the Anschutz Agreement (including
shares acquired upon the conversion of the Second Series Preferred Stock or the
exercise of the A Warrants or the option received from JEDI). The Company has
the right to seek a declaratory judgment as to whether any action described in
the preceding sentence or the provisions with respect to the limitations on the
voting of the Anschutz Excess Securities on a matter shall be effective and in
doing so whether Anschutz will have Section 16(b) liability with respect to such
matters. The Shareholders Agreement also provides that the voting restrictions
on the Anschutz Excess Securities, and the transfer restrictions and the cap on
purchases of Common Stock by Anschutz in excess of 40%, shall no longer apply if
any of the Anschutz Designees are not elected to the Board of Directors (and
Anschutz and its affiliates voted all the shares of Common Stock owned by them
in favor of such election) or one or more directors who are Anschutz Designees
are not appointed to the Committees as provided in the Shareholders' Agreement
(and the directors who are Anschutz Designees voted in favor of such
appointment).
55
<PAGE>
MANAGEMENT
The executive officers and directors of the Company and their respective
positions and ages are set forth below.
<TABLE>
<CAPTION>
AGE AND YEARS PRINCIPAL OCCUPATION,
OF SERVICE POSITIONS WITH COMPANY AND BUSINESS EXPERIENCE
NAME WITH COMPANY DURING LAST FIVE YEARS
- -------------------------------- --------------- ---------------------------------------------------------------
<S> <C> <C>
William L. Dorn................. 47-24 Chairman of the Board and Chairman of the Executive Committee
since July 1991 and Chief Executive Officer from February
1990 until December 1995. Chairman of the Nominating
Committee since July 1995. Director since 1982. Member of the
Executive Committee since August 1988. President from
February 1990 until November 1993. Executive Vice President
from August 1989 until February 1990.
Robert S. Boswell............... 46-10 President since November 1993 and Chief Executive Officer since
December 1995. Director since 1985. Vice President from May
1991 until November 1993. Chief Financial Officer since May
1991. Financial Vice President from September 1989 until May
1991. Member of the Executive Committee since July 1991.
Director of Franklin Supply Company Ltd.
V. Bruce Thompson............... 48-1 Vice President and General Counsel since August 1994. Vice
President -- Legal of Mid-America Dairymen, Inc. from
November 1993 to August 1994. Chief of Staff for Oklahoma
Congressman James M. Inhofe from February 1990 to November
1993.
Bulent A. Berilgen.............. 47-11 Vice President of Operations since December 1993. Prior thereto
Vice President -- Engineering and Development since January
1992. Prior thereto Regional Reservoir Engineer.
Kenton M. Scroggs............... 43-12 Vice President since December 1993 and Treasurer since May
1988. Member of the Company's Employee Benefits Committee,
which assumed the duties of the Trustees of the Pension Trust
and of the Administrative Committee of the Retirement Savings
Plan in August 1994.
Forest D. Dorn.................. 41-18 Vice President since February 1991 and General Business Manager
since December 1993. Prior thereto General Manager --
Operations since January 1992. Prior thereto Assistant
Division Manager of the Southern Division.
David H. Keyte.................. 39-8 Vice President and Chief Financial Officer since December 1995.
Vice President and Chief Accounting Officer from December
1993 until December 1995. Prior thereto Corporate Controller
since January 1989. Chairman of the Company's Employee
Benefits Committee, which assumed the duties of the Trustees
of the Pension Trust and of the Administrative Committee of
the Retirement Savings Plan in August 1994. Director of
Archean Energy, Ltd.
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
AGE AND YEARS PRINCIPAL OCCUPATION,
OF SERVICE POSITIONS WITH COMPANY AND BUSINESS EXPERIENCE
NAME WITH COMPANY DURING LAST FIVE YEARS
- -------------------------------- --------------- ---------------------------------------------------------------
Daniel L. McNamara.............. 50-24 Secretary and Corporate Counsel since January 1991. Prior
thereto Assistant Secretary and Associate Corporate Counsel.
Member of the Company's Employee Benefits Committee, which
assumed the duties of the Trustees of the Pension Trust and
of the Administrative Committee of the Retirement Savings
Plan in August 1994.
<S> <C> <C>
Joan C. Sonnen.................. 42-6 Controller since December 1993. Prior thereto Director of
Financial Accounting and Reporting since April 1991 and
Manager of Financial Systems and Reporting since July 1989.
Donald H. Anderson.............. 47-2 Director since 1993. President, Chief Executive Officer and
Director of Associated Natural Gas Corporation, a
wholly-owned subsidiary of Panhandle Eastern Corporation,
since September 1989 and January 1989, respectively and Chief
Operating Officer and Chairman of Associated Natural Gas,
Inc., a wholly owned subsidiary of Panhandle Eastern
Corporation, since December 1994. Chairman of the Audit
Committee since July 1995.
Philip F. Anschutz.............. 56-0 Director since 1995. Director, Chairman of the Board and
President of Anschutz for more than the past five years, and
a Director, Chairman of the Board and President of Anschutz
Company, the corporate parent of Anschutz, since the
formation of Anschutz Company in August 1991. Director of
Southern Pacific Rail Corporation ("SPRC") since June 1988
and Chairman of SPRC since October 1988. Served as President
and Chief Executive Officer of SPRC from October 1988 until
July 1993. Member of the Nominating Committee since July
1995.
Richard J. Callahan............. 54-2 Director since 1993. Executive Vice President of U S WEST, Inc.
since January 1988 and President of U S WEST International
and Business Development Group since October 1991. Member of
the Compensation Committee.
Dale F. Dorn.................... 53-29 Director since 1977. Resigned as a Vice President in September
1989; currently engaged in private investments.
James H. Lee.................... 47-4 Director since 1991. Managing Partner, Lee, Hite & Wisda Ltd.
Member of the Executive Committee since February 1994. Member
of the Royalty Bonus Committee and Audit Committee since July
1995.
Craig D. Slater................. 38-0 Director since 1995. Vice President of Anschutz since 1995.
Director of Finance of Anschutz from 1992 to 1995 and
Corporate Secretary of Anschutz since 1991. Held other
positions with Anschutz from 1988 to 1992. Member of the
Executive Committee and Audit Committee since July 1995.
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
AGE AND YEARS PRINCIPAL OCCUPATION,
OF SERVICE POSITIONS WITH COMPANY AND BUSINESS EXPERIENCE
NAME WITH COMPANY DURING LAST FIVE YEARS
- -------------------------------- --------------- ---------------------------------------------------------------
Drake S. Tempest................ 42-0 Director since 1995. Partner in the law firm of O'Melveny &
Myers since February 1991 and was Special Counsel to such
firm from 1988 to February 1991. Member of the Compensation
Committee since July 1995.
<S> <C> <C>
Michael B. Yanney............... 62-3 Director since 1992. Chairman and Chief Executive Officer of
the American First Companies, L.L.C. and a director of
Burlington Northern Inc., Lozier Corporation, MFS
Communications Company, Inc. and America First REITs Inc.
Chairman of the Compensation Committee. Member of the
Nominating Committee since July 1995.
</TABLE>
William L. Dorn, Philip F. Anschutz and James H. Lee are Class I directors
whose terms expire at the Annual Shareholders' Meeting in 1999. Dale F. Dorn,
Drake S. Tempest and Robert S. Boswell are Class II directors whose terms expire
at the Annual Shareholders' Meeting in 1996. Donald H. Anderson and Michael B.
Yanney are Class III directors whose terms expire at the Annual Shareholders'
Meeting in 1997. Richard J. Callahan and Craig D. Slater are Class IV directors
whose terms expire at the Annual Shareholders' Meeting in 1998.
The Board of Directors is divided into four classes as nearly equal in
number as possible, with each class having not less than two members, whose
terms expire at different times in annual succession.
58
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table describes certain information as of November 15, 1995
with respect to the ownership of the Company's Common Stock by (i) each person
known by the Company to own beneficially more than five percent of its Common
Stock (including any "group" as that term is used in Section 13(d)(3) of the
1934 Act), (ii) each director of the Company, (iii) the chief executive officer
and the other four executive officers of the Company named in the compensation
table above, (iv) all executive officers and directors as a group and (v) the
Selling Shareholders. Unless otherwise indicated, to the Company's knowledge,
all such shares are owned beneficially and of record by the person indicated and
each such person has sole voting and investment power with respect to such
shares.
<TABLE>
<CAPTION>
SHARES OWNED SHARES TO BE OWNED
BEFORE OFFERING(1) SHARES AFTER OFFERING(1)
--------------------------------- TO BE SOLD -----------------------
NAME AND ADDRESS NUMBER PERCENT IN OFFERING NUMBER PERCENT
- ---------------------------------------------- ----------------------- ------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C>
The Anschutz Corporation...................... 55,694,444(3)(5) 65.0% -- 55,694,444 38.2%
2400 Anaconda Tower
555 17th Street
Denver, Colorado 80202
R. B. Haave Associates, Inc................... 3,701,650(4)(5) 7.4 -- 3,701,650(2) 3.4%
270 Madison Avenue
New York, NY 10016
Saxon Petroleum Inc........................... 5,300,000 10.9 5,300,000 -- --
1700, 736 6th Avenue SW
Calgary, Alberta T2P 3T7
Canada
Donald H. Anderson............................ 10,000 * -- 10,000 *
Philip F. Anshutz............................. 55,694,444(3)(5)(6) 65.0 -- 55,694,444 38.2%
Bulent A. Berilgen............................ 143,774(7) * -- 143,774 *
Robert S. Boswell............................. 287,178(7)(12) 287,178 *
Richard J. Callahan........................... 2,000 * -- 2,000 *
Dale F. Dorn.................................. 92,005(8) * -- 92,005 *
Forest D. Dorn................................ 252,365(7)(9) * -- 252,365 *
William L. Dorn............................... 486,819(7)(10) 1.0 -- 486,819 *
David H. Keyte................................ 159,455(7)(11) * -- 159,455 *
James H. Lee.................................. 1,000 * -- 1,000 *
Craig D. Slater............................... -- -- -- -- --
Drake S. Tempest.............................. -- -- -- -- --
Michael B. Yanney............................. 15,000 * -- 15,000 *
All Officers and Directors.................... 57,480,195 66.1 -- 57,480,195 39.1%
</TABLE>
- ------------------------
* The percentage of shares beneficially owned does not exceed one percent of
the outstanding shares of the class.
(1) Assumes that the Underwriters' over-allotment option covering
additional shares will not be exercised and that the respective beneficial
owners listed in the table will not purchase any shares in this Offering.
(2) Amounts reported also include shares held for the benefit of certain
directors and executive officers by the trustee of the Company's Retirement
Savings Plan Trust as of September 30, 1995.
(3) The shares indicated as beneficially owned by The Anschutz Corporation and
Mr. Philip F. Anschutz include (a) 6,200,000 shares issuable upon conversion
of 620,000 shares of the Company's Second Series Preferred Stock and (b)
30,694,444 shares issuable pursuant to warrants exercisable within 60 days.
59
<PAGE>
(4) The shares indicated as beneficially owned by R.B. Haave Associates, Inc.
include 1,150,450 shares issuable upon conversion of 328,700 shares of the
Company's Convertible Preferred Stock.
(5) Based on Schedules 13D and 13G and amendments thereto filed with the SEC
and the Company by the reporting person through June 1, 1995 and the amount
of Common Stock outstanding on November 15, 1995.
(6) The shares indicated as owned by Philip F. Anschutz are owned of record by
The Anschutz Corporation, of which Mr. Anshutz is the Chairman of the Board,
President and a director. Mr. Anshutz may be deemed to beneficially own such
shares based on his affiliation with The Anschutz Corporation.
(7) The shares indicated as owned by Messrs. Berilgen, Boswell, Forest D. Dorn,
William L. Dorn and Keyte include 140,000, 245,000, 140,000, 245,000 and
140,000 shares, respectively, which such party has the right to acquire
within 60 days upon the exercise of stock options.
(8) Of the 92,005 shares indicated as owned by Mr. Dale F. Dorn, 3,437 shares
are held by Mr. Dorn as trustee of a trust for the benefit of his immediate
family, and of which shares Mr. Dorn has disclaimed beneficial ownership,
and 12,250 shares are shares, which Mr. Dorn as trustee, has the right to
acquire upon conversion of 3,500 shares of the Company's $.75 Convertible
Preferred Stock.
(9) Of the 252,365 shares indicated as owned by Mr. Forest D. Dorn, 25,800
shares are shares held of record by Mr. Dorn as co-trustee of a trust for
the benefit of his mother and of which shares Mr. Dorn disclaims beneficial
ownership. This amount excludes 8,628 shares held by Forest D. Dorn's wife
and 25,967 shares held by his children, of which shares Mr. Dorn disclaims
beneficial ownership.
(10) Of the 486,819 shares indicated as beneficially owned by William L. Dorn,
25,800 shares are held of record by William L. Dorn, as co-trustee of a
trust for the benefit of his mother and 74,223 shares are held of record by
William L. Dorn as trustee of trusts for the benefit of related parties, of
which shares Mr. Dorn disclaims beneficial ownership. Amount does not
include 14,990 shares held by William L. Dorn's wife or 35,997 shares held
by his children, of which shares Mr. Dorn disclaims beneficial ownership.
(11) Of the 159,455 shares indicated as owned by David H. Keyte, 7,000 shares
are issuable upon conversion of 2,000 shares of the Company's $.75
Convertible Preferred Stock.
(12) Such amount excludes 225 shares held by Mr. Boswell's wife and 830 shares
held by Mr. Boswell's children of which Mr. Boswell disclaims beneficial
ownership.
The shares of Common Stock offered hereby are being registered by the
Company pursuant to the "piggyback" registration rights contained in a
Registration Rights Agreement between the Company and Saxon, dated October 25,
1995 (the "Registration Rights Agreement"). Pursuant to the Registration Rights
Agreement, the Company is required to bear the expenses of the registration of
the shares of Common Stock offered hereby, other than underwriting discounts and
commissions, the fees and expenses of counsel to Saxon and all other
out-of-pocket expenses of Saxon. The expenses to be paid by the Company for the
registration of the shares of Common Stock offered hereby are estimated at
$ . The Company has agreed to indemnify Saxon against certain liabilities,
including liabilities under the Securities Act.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following statements are brief summaries of certain provisions relating
to the capital stock of the Company and are qualified in their entirety by the
provisions of the Company's Restated Certificate of Incorporation, as amended,
and By-Laws and the subsequent Certificates of Amendment to the Restated
Certificate of Incorporation adopted by the Board of Directors of the Company,
which are included as exhibits to the Registration Statement of which this
Prospectus is a part.
The Company is authorized to issue 210 million shares of capital stock,
consisting of 200 million shares of Common Stock, par value $.10 per share, and
10 million shares of preferred stock, par value $.01 per share. As of November
15, 1995, 48,767,521 shares of Common Stock were held by 2,035 recordholders,
1,244,715 Public Warrants to purchase 1,244,715 shares of Common Stock were held
by 78 recordholders, A Warrants to purchase 19,444,444 shares of Common Stock
were held by one recordholder, B Warrants to purchase 11,250,000 shares of
Common Stock were held by one recordholder, and 2,880,173 shares of $.75
Convertible Preferred Stock were held by 83 recordholders. On November 15, 1995,
10,080,606 shares of Common Stock were reserved for issuance upon conversion of
the $.75 Convertible Preferred Stock, 6,200,000 shares of Common Stock were
reserved for issuance upon conversion of the Second Series Preferred Stock and
3,059,000 shares of Common Stock were reserved for issuance upon the exercise of
stock options. Holders of the Common Stock, the $.75 Convertible Preferred Stock
and the Second Series Preferred Stock are not entitled to any preemptive rights
with respect to issuances of capital stock of the Company.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the common shareholders of the Company. In
addition, such holders are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefor, subject to the payment of preferential dividends
with respect to (i) the $.75 Convertible Preferred Stock and the Second Series
Preferred Stock as set forth below and (ii) any other preferred stock of the
Company that from time to time may be outstanding. The Company does not intend
to pay dividends on the Common Stock for the foreseeable future. See "Dividend
Policy" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Capital Resources and Liquidity" for a description of
certain limitations on the payment of dividends on the Common Stock.
In the event of dissolution, liquidation or winding-up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of all liabilities of the Company and subject to the prior
distribution rights of the holders of (i) the $.75 Convertible Preferred Stock
and the Second Series Preferred Stock as set forth below and (ii) any other
preferred stock of the Company that may be outstanding at that time. The holders
of Common Stock do not have cumulative voting rights or preemptive or other
rights to acquire or subscribe for additional, unissued or treasury shares. All
outstanding shares of Common Stock are, and when issued, the shares of Common
Stock offered hereby will be, fully paid and nonassessable.
The transfer agent and registrar for the Common Stock is Chemical Mellon
Shareholder Services.
See "Price Range of Common Stock" for the high and low sales prices of the
Common Stock for each quarter of 1993, 1994 and 1995.
PREFERRED STOCK
The Board of Directors is authorized to provide for the issuance from time
to time of one or more series of preferred stock. Shares of preferred stock
could have rights that are superior to the Common Stock with respect to voting,
dividends and liquidation or that could adversely affect the holders of Common
Stock or discourage or make more difficult an attempt to effect a change in
control of the Company.
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<PAGE>
The Company has two classes of preferred stock outstanding, the $.75
Convertible Preferred Stock and the Second Series Preferred Stock. Each share of
the $.75 Convertible Preferred Stock is convertible into 3.5 shares of Common
Stock, subject to adjustment upon certain events. Holders of shares of $.75
Convertible Preferred Stock are entitled to cumulative preferential cash
dividends at the annual rate of $.75 per share prior to the payment of any
dividends (except for dividends paid in shares of Common Stock) or other
distributions on (or certain repurchases of) Common Stock and on liquidation,
dissolution or winding up of the Company to preferential payment of $10 per
share plus accumulated and unpaid dividends before any distribution is made with
respect to Common Stock. Dividends on the $.75 Convertible Preferred Stock may
be paid in cash or, at the Company's election, in shares of Common Stock or in a
combination of cash and Common Stock. Common Stock is valued for dividend
payment purposes at between 75% and 90%, based upon trading volume, of the
average last reported sales price of the Common Stock for the 10 consecutive
trading days ending on the tenth calendar day prior to the date for determining
record holders entitled to the dividend payment.
Whenever dividends on the $.75 Convertible Preferred Stock have not been
paid, the amount of the deficiency, plus an amount equal to the accumulated
dividend for the then current quarterly dividend period, must be fully paid, or
declared and set apart for payment, before any dividend may be declared and paid
or set apart for payment upon the Common Stock, except for dividends paid in
shares of Common Stock.
Whenever $.75 Convertible Preferred Stock dividends are in arrears in an
amount equivalent to six full quarterly dividends, the holders of the $.75
Convertible Preferred Stock, voting separately as a class and with one vote per
share, will have the right to elect two directors. If two consecutive dividend
payments are in arrears, the holder of each share of $.75 Convertible Preferred
Stock will be entitled to a penalty conversion right enabling such holder to
convert each such share, plus accumulated dividends, into a share of Common
Stock during a two-day period 30 days after the second dividend payment date at
a conversion price of 75% of the average of the last reported sales prices of
the Common Stock during the period from such second dividend payment date to
five trading days prior to the conversion date.
Each share of Second Series Preferred Stock (1) has the right to receive
dividends on the dates and in the form that dividends shall be payable on the
Common Stock, in each case in an amount equal to the amount of such dividend
payable on the number of shares of Common Stock into which such share of Second
Series Preferred Stock shall be convertible immediately preceding the record
date for the determination of the shareholders entitled to receive such
dividend, (2) has no right to vote, (3) has the right, upon any liquidation,
dissolution or winding up of the Company, before any distribution is made on any
shares of Common Stock, to be paid the amount of $18.00 and, after there shall
have been paid to each share of Common Stock the amount of $1.80, has the right
to receive distributions on the dates and in the form that distributions shall
be payable on the Common Stock, in each case in an amount equal to the amount of
such distributions payable on the number of shares of Common Stock into which
such share of Second Series Preferred Stock is convertible (assuming for such
purpose that such conversion were possible) immediately preceding the record
date for the determination of the shareholders entitled to receive such
distribution and (4) is convertible into 10 shares of Common Stock, which
conversion may be made from time to time on or before the July 27, 2000, but
which in any event shall be made on July 27, 2000. The rights of the holders of
the Second Series Preferred Stock to receive dividends are junior and
subordinate to the rights of the holders of the Company's $.75 Convertible
Preferred Stock to the same extent that the rights of the holders of the Common
Stock are subordinate in right to receive dividends to the rights of the holders
of $.75 Convertible Preferred Stock to receive dividends, and the rights of the
holders of the Second Series Preferred Stock will rank pari passu with the
Company's $.75 Convertible Preferred Stock as to liquidation preference.
62
<PAGE>
WARRANTS
The Company has outstanding Public Warrants to purchase shares of its Common
Stock. Each Public Warrant (the "Public Warrants") entitles the holder to
purchase one share of Common Stock at
a price of $3.00, is non-callable and expires on October 1, 1996.
The Company has A Warrants outstanding that are held by Anschutz. The A
Warrants expire January 27, 1997 or July 27,1998, if the Shareholders Agreement
with Anschutz would limit such exercise or the Company shall have previously
sold in excess of $60 million of equity securities in a transaction in which
Anschutz has agreed not to sell shares for a period of nine months.
The Company has outstanding B Warrants that are held by JEDI and expire on
the earlier of December 31, 2002 or 36 months following exercise of the
Company's option to convey properties in satisfaction of the JEDI Loan (the
"Conveyance Option"). JEDI has granted an option to Anschutz to purchase from
JEDI up to 11,250,000 shares at a purchase price per share of $2.00 plus an
amount equal to the lesser of (a) 18% per annum from July 27, 1995 to the date
of exercise of the option, or (b) $3.10. The option expires on July 27, 1998.
JEDI will satisfy its obligations under the option to Anschutz by exercising the
B Warrants. Provided the Conveyance Option has not been exercised, the Company
may terminate the B Warrants at any time beginning July 27, 1998 if the average
closing price of the Common Stock for the 90 days and 15 days preceding the
termination is in excess of $2.50 per share.
ANTI-TAKEOVER PROVISIONS
Certain provisions in the Company's Restated Certificate of Incorporation
and By-laws, the Company's shareholders' rights plan, executive severance
agreements and the ownership position of Anschutz may have the effect of
encouraging persons considering unsolicited tender offers or other unilateral
takeover proposals to negotiate with the Board of Directors rather than pursue
nonnegotiated takeover attempts.
CLASSIFIED BOARD OF DIRECTORS. The Company's By-laws provide that the Board
of Directors is divided into four classes as nearly equal in number as possible,
with each class having not less than three members, whose four year terms of
office expire at different times in annual succession. Presently the number of
directors is fixed at 10. A staggered board makes it more difficult for
shareholders to change the majority of the directors and instead promotes a
continuity of existing management.
BLANK CHECK PREFERRED STOCK. The Company's Restated Certificate of
Incorporation authorizes the issuance of blank check preferred stock. The Board
of Directors can set the voting rights, redemption rights, conversion rights and
other rights relating to such preferred stock and could issue such stock in
either private or public transactions. In some circumstances, the blank check
preferred stock could be issued and have the effect of preventing a merger,
tender offer or other takeover attempt which the Board of Directors opposes.
SHAREHOLDERS' RIGHTS PLAN. In October 1993, the Board of Directors adopted
a shareholders' rights plan (the "Plan") and entered into the Rights Agreement.
The Company issued a dividend of a preferred stock purchase right (the "Rights")
on each outstanding share of Common Stock of the Company, which, after the
Rights become exercisable, entitles the holder to purchase 1/100th of a share of
a newly issued series of the Company's preferred stock at a purchase price of
$30 per 1/100th of a preferred share, subject to adjustment. The Rights expire
on October 29, 2003 unless extended or redeemed earlier. The Rights will become
exercisable (unless previously redeemed or the expiration date of the rights has
occurred) following a public announcement that a person or group (an "Acquiring
Person") has acquired 20% or more of the Common Stock or has commenced (or
announced an intention to make) a tender offer or exchange offer for 20% or more
of the Common Stock. In certain circumstances each holder of Rights (other than
an Acquiring Person) would have the right to receive, upon exercise (i) shares
of Common Stock having a value significantly in excess of the exercise price of
the Rights, or (ii) shares of Common Stock of an acquiring company having a
value significantly in
63
<PAGE>
excess of the exercise price of the Rights. In connection with the Anschutz
transaction, the Company amended the Rights Agreement to exempt from the
provisions of the Rights Agreement shares of Common Stock acquired by Anschutz
and JEDI in the Anschutz and JEDI transactions (including shares later acquired
pursuant to the conversion of the Second Series Preferred Stock or the exercise
of the A Warrants or the option received by Anschutz from JEDI). The amendment
to Rights Agreement did not exempt other shares of Common Stock acquired by
Anschutz or JEDI from the provisions of the Rights Agreement. In the Anschutz
transaction, the Company agreed to waive the provisions of the Rights Agreement
with respect to Anschutz if, and to the same extent, it waives such provisions
with respect to any other person.
EXECUTIVE SEVERANCE AGREEMENTS. The Company has entered into executive
severance agreements (the "Executive Severance Agreements") with certain
executive officers, including the persons listed under "Management." The
Executive Severance Agreements provide for severance benefits for termination
without cause and for termination following a "change of control" of the
Company. In March 1995, the Compensation Committee renewed the Executive
Severance Agreements and extended their term to December 1997. In addition, the
definition of "change of control" was modified. Under the Executive Severance
Agreements, a "change of control" of the Company would be deemed to occur if, as
modified in March 1995, (i) the Company is not the surviving entity in any
merger, consolidation or other reorganization (or survives only as a subsidiary
of an entity other than a previously wholly-owned subsidiary of the Company);
(ii) the Company sells, leases or exchanges all or substantially all of its
assets to any other person or entity (other than a wholly-owned subsidiary of
the Company); (iii) the Company is dissolved and liquidated; (iv) any person or
entity, including a "group" as contemplated by Section 13(d)(3) of the
Securities Exchange Act of more than 40% of the outstanding shares of the
Company's voting stock (based upon voting power); or (v) as a result of or in
connection with a contested election of directors, the persons who were
directors of the Company before such election cease to constitute a majority of
the Board of Directors.
The executive officers who had entered into Executive Severance Agreements
were required, as a condition to the closings of the Anschutz and JEDI
transactions, to waive the obligations of the Company pursuant to such
agreements with respect to a "change of control." See "The Anschutz and JEDI
Transactions."
OWNERSHIP POSITION OF ANSCHUTZ. Anschutz has a substantial ownership
position in the Company and may designate three of the Company's ten directors.
Therefore, Anschutz has the ability to exert substantial influence with respect
to matters considered by the Board of Directors. Anschutz owns approximately 40%
of the outstanding Common Stock. Anschutz may acquire additional shares to
maintain its 40% position, but its ability to exceed such percentage is limited
by a five-year Shareholders Agreement with the Company. Under certain
circumstances, Anschutz could have veto power over proposed transactions between
the Company and third parties such as a merger, which requires the approval of
the holders of two-thirds of the outstanding Common Stock. It is unlikely that
control of the Company could be transferred to a third party without Anschutz's
consent and agreement. It is also unlikely that a third party would offer to pay
a premium to acquire the Company without the prior agreement of Anschutz, even
if the Board of Directors should choose to attempt to sell the Company in the
future. It will also be unlikely that the Company will be able to enter into a
transaction accounted for as a pooling of interests in the next two years.
Finally, the 40% ownership limitation on Anschutz's ownership terminates after
five years and earlier under certain circumstances. Under these circumstances,
based on the number of shares outstanding on January , 1996, Anschutz has the
ability to acquire up to approximately % of the Common Stock by converting its
Second Series Preferred Stock and exercising its option and warrants during
their respective terms. Therefore, upon termination of the 40% limitation,
Anschutz may have effective control over the Company. See "The Anschutz and JEDI
Transactions -- Shareholders Agreement."
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
among the Company, the Selling Shareholder and Salomon Brothers Inc, Dillon,
Read & Co. Inc., Morgan Stanley & Co. Incorporated and Chase Securities, Inc.
(together, the "Underwriters"), the Company and the Selling Shareholder have
agreed to sell to the Underwriters, and each of the Underwriters has severally
agreed to purchase from the Company and the Selling Shareholder, the aggregate
number of shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- -------------------------------------------------------------------- --------------
<S> <C>
Salomon Brothers Inc................................................
Dillon, Read & Co. Inc..............................................
Morgan Stanley & Co. Incorporated...................................
Chase Securities, Inc...............................................
--------------
Total......................................................... 60,000,000
--------------
--------------
</TABLE>
The Underwriting Agreement provides that the several Underwriters will be
obligated to purchase all the shares of Common Stock being offered (other than
the shares covered by the over-allotment option described below), if any are
purchased. The Managing Underwriters are Salomon Brothers Inc, Dillon, Read &
Co. Inc., Morgan Stanley & Co. Incorporated, and Chase Securities, Inc.
The Underwriters have advised the Company that they propose initially to
offer the Common Stock directly to the public at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share on
sales to certain other dealers. After the initial offering, the price to public,
and concessions to dealers may be changed.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase an additional shares of
Common Stock at the price to public less the underwriting discount set forth on
the cover page of this Prospectus. The Underwriters may exercise this option
solely for the purpose of covering over-allotments, if any, incurred in the sale
of shares of Common Stock being offered hereby. To the extent the Underwriters
exercise such option, each of the Underwriters will be obligated, subject to
certain conditions, to purchase the same proportion of such additional shares as
the number of shares set forth opposite such Underwriter's name in the preceding
table bears to the total number of shares of Common Stock offered by the
Underwriters hereby.
For a period of 120 days after the date of this Prospectus, the Company, the
Selling Shareholder, and each director and executive officer of the Company have
agreed not to offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock, any other capital stock of the Company or any security
convertible into or exercisable or exchangeable for Common Stock or any such
other capital stock without the prior written consent of Salomon Brothers Inc,
except (a) the Company may register the Common Stock and the Company and the
Selling Shareholder may sell the shares of Common Stock offered in this Offering
and (b) the Company may issue securities pursuant to the Company's stock option
or other benefit or incentive plans maintained for its officers, directors or
employees.
No action has been taken or will be taken in any jursidiction by the Company
or the Underwriters that would permit a public offering of the shares offered
hereby in any jurisdiction where action for that purpose is required, other than
the United States. Persons who come into possession of this
65
<PAGE>
Prospectus are required by the Company and the Underwriters to inform themselves
about and to observe any restrictions as to the offering of the shares offered
hereby and the distribution of this Prospectus.
Dillon, Read & Co. Inc. has performed various investment banking services
for the Company in the past 12 months, for which it has received customary fees.
Chase, an affiliate of Chase Securities, Inc., acts as a lender and the agent
for a group of banks pursuant to the Company's Credit Facility. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Short-Term
Liquidity."
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain civil liabilities, including certain liabilities
under the Securities Act of 1933, as amended (the "Securities Act"), or
contribute to payments the Underwriters may be required to make in respect
thereof.
LEGAL OPINIONS
The legality of the Common Stock offered hereby will be passed upon for the
Company by Vinson & Elkins L.L.P., Houston, Texas, and certain legal matters
will be passed upon for the Underwriters by Cahill Gordon & Reindel, a
partnership including a professional corporation, New York, New York.
EXPERTS
The consolidated financial statements of Forest Oil Corporation as of
December 31, 1994 and 1993 and for each of the years in the three-year period
ended December 31, 1994 have been incorporated by reference and included herein
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference and appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of ATCOR Resources, Ltd. as at
December 31, 1994 and 1993 and for each of the years in the three-year period
ended December 31, 1994 have been included herein in reliance upon the report of
Price Waterhouse, independent auditors, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
CERTAIN DEFINITIONS
Unless otherwise indicated in this Prospectus, natural gas volumes are
stated at the legal pressure base of the state or area in which the reserves are
located at 60 Fahrenheit. Natural gas equivalents are determined using the ratio
of six Mcf of natural gas to one barrel of crude oil, condensate or natural gas
liquids so that one barrel of oil is referred to as six Mcf of natural gas
equivalent or "Mcfe".
As used in this Prospectus, the following terms have the following specific
meanings: "Mcf" means thousand cubic feet, "MMcf" means million cubic feet,
"Bcf" means billion cubic feet, "Bbl" means barrel, "Mcfe" means thousand cubic
feet equivalent, "MMcfe" means million cubic feet equivalent, "Bcfe" means
billion cubic feet equivalent and "MMbtu" means million British thermal units.
"Mcf/d" means thousand cubic feet per day, "MMcf/d" means million cubic feet per
day and "MMcfe/d" means million cubic feet equivalent per day.
"Bbls" means barrels, "Mbbls" means thousand barrels and "MMbbls" means
million barrels. "Bbls/d" means barrels per day.
The term "spot market" as used herein refers to natural gas sold under
contracts with a term of six months or less or contracts which call for a
redetermination of sales prices every six months or earlier.
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<PAGE>
With respect to information concerning the Company's working interests in
wells or drilling locations, "gross" oil and gas wells or "gross" acres is the
number of wells or acres in which the Company has an interest, and "net" oil and
gas wells or "net" acres are determined by multiplying "gross" wells or acres by
the Company's working interest in those wells or acres. A working interest in an
oil and gas lease is an interest that gives the owner the right to drill,
produce, and conduct operating activities on the property and to receive a share
of production of any hydrocarbons covered by the lease. A working interest in an
oil and gas lease also entitles its owner to a proportionate interest in any
well located on the lands covered by the lease, subject to all royalties,
overriding royalties and other burdens, to all costs and expenses of
exploration, development and operation of any well located on the lease, and to
all risks in connection therewith.
"Capital expenditures" means costs associated with exploratory and
development drilling (including exploratory dry holes); leasehold acquisitions;
seismic data acquisitions; geological, geophysical and land related overhead
expenditures; delay rentals; producing property acquisitions; and other
miscellaneous capital expenditures.
A "development well" is a well drilled as an additional well to the same
horizon or horizons as other producing wells on a prospect, or a well drilled on
a spacing unit adjacent to a spacing unit with an existing well capable of
commercial production and which is intended to extend the proven limits of a
prospect. An "exploratory well" is a well drilled to find commercially
productive hydrocarbons in a unproved area, or to extend significantly a known
prospect.
A "farmout" is an assignment to another party of an interest in a drilling
location and related acreage conditional upon performing future exploratory
efforts including the drilling of a well on that location.
"Reserves" means natural gas and crude oil, condensate and natural gas
liquids on a net revenue interest basis, found to be commercially recoverable.
"Proved developed reserves" includes proved developed producing reserves.
"Proved developed producing reserves" includes only those reserves expected to
be recovered from existing completion intervals in existing wells. "Proved
undeveloped reserves" includes those reserves expected to be recovered from new
wells on proved undrilled acreage or from existing wells where a relatively
major expenditure is required for recompletion.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-2 (the "Registration Statement", which term encompasses all amendments,
exhibits, annexes and schedules thereto) under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement, to
which reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement and the exhibits
thereto, reference is hereby made to the exhibit for a more complete description
of the matter involved, and each statement made herein shall be deemed qualified
in its entirety by such reference.
The Company is subject to the informational and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and in
accordance therewith files periodic reports, proxy and information statements
and other information with the Commission. The Registration Statement filed by
the Company with the Commission, as well as such reports, proxy and information
statements and other information filed by the Company with the Commission, may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048, and the Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material, when filed, may also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Common Stock
67
<PAGE>
is quoted on the Nasdaq/NMS and such reports, proxy and information statements
and other information concerning the Company are available at the offices of the
Nasdaq/NMS located at 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated by reference in this Prospectus is (i) the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, (ii) the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995
and (iii) the Company's Current Report on Form 8-K dated October 11, 1995, all
filed previously with the SEC pursuant to Section 13 of the 1934 Act. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of Common Stock, to whom a copy of this Prospectus has been
delivered, on the written or oral request of such person, a copy of any or all
of the foregoing documents incorporated by reference in this Prospectus, other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to
Daniel L. McNamara, Corporate Counsel and Secretary, Forest Oil Corporation,
1600 Broadway, Suite 2200, Denver, Colorado 80202 (telephone: (303) 812-1400).
68
<PAGE>
FOREST OIL CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Condensed Pro Forma Combined Financial Statements of Forest Oil Corporation
Condensed Pro Forma Combined Balance Sheet, September 30, 1995 (Unaudited)................................ F-3
Condensed Pro Forma Combined Statement of Operations, Nine Months ended September 30, 1995 (Unaudited).... F-4
Condensed Pro Forma Combined Statement of Operations, Year ended December 31, 1994 (Unaudited)............ F-5
Notes to Condensed Pro Forma Combined Financial Statements (Unaudited).................................... F-6
Condensed Consolidated Financial Statements of Forest Oil Corporation
Condensed Consolidated Balance Sheets, September 30, 1995 and December 31, 1994 (Unaudited)............... F-12
Condensed Consolidated Statements of Production and Operations, Nine Months ended September 30, 1995 and
1994 (Unaudited)......................................................................................... F-13
Condensed Consolidated Statements of Cash Flows, Nine Months ended September 30, 1995 and 1994
(Unaudited).............................................................................................. F-14
Notes to Condensed Consolidated Financial Statements (Unaudited).......................................... F-15
Consolidated Financial Statements of Forest Oil Corporation
Independent Auditors' Report.............................................................................. F-19
Consolidated Balance Sheets, December 31, 1994 and 1993................................................... F-20
Consolidated Statements of Operations, Years ended December 31, 1994, 1993 and 1992....................... F-21
Consolidated Statements of Shareholders' Equity, Years ended December 31, 1994, 1993 and 1992............. F-23
Consolidated Statements of Cash Flows, Years ended December 31, 1994, 1993 and 1992....................... F-24
Notes to Consolidated Financial Statements, December 31, 1994, 1993 and 1992.............................. F-25
Consolidated Financial Statements of ATCOR Resources Ltd.
Auditors' Report.......................................................................................... F-53
Consolidated Balance Sheets, September 30, 1995 and 1994 (Unaudited), December 31, 1994, 1993 and 1992.... F-54
Consolidated Statements of Earnings and Retained Earnings, Nine Months ended September 30, 1995 and 1994
(Unaudited), Years ended December 31, 1994, 1993 and 1992................................................ F-55
Consolidated Statements of Changes in Financial Position, Nine Months ended September 30, 1995 and 1994
(Unaudited), Years ended December 31, 1994, 1993 and 1992................................................ F-56
Notes to Consolidated Financial Statements (Unaudited).................................................... F-57
</TABLE>
F-1
<PAGE>
FOREST OIL CORPORATION
CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
On December , 1995, Forest Oil Corporation ("Forest") entered into an
agreement with ATCOR Resources, Ltd., a Canadian corporation ("ATCOR"), and two
of the controlling stockholders of ATCOR, pursuant to which the Company has
agreed to acquire all of the outstanding Captial stock of ATCOR for an aggregate
cash consideration of $186 million Cdn (or approximately $135 million in U.S.
dollars, assuming a current exchange rate of $1.38 Cdn to $1.00 U.S.). The
closing of the acquisition is subject to certain conditions, including obtaining
certain U.S. and Canadian regulatory approvals and the completion of an offering
of Forest's common stock. The Company will use a portion of the net proceeds of
this offering to fund the ATCOR acquisition and related expenses. The closing of
the acquisition is expected to occur as soon as practicable after the closing of
this offering.
On October 11, 1995, Forest and Saxon Petroleum Inc. ("Saxon"), a Canadian
Corporation, entered into an agreement pursuant to which Forest will contribute
capital in exchange for a majority interest in Saxon. The agreement is subject
to satisfaction of several conditions including approval of Saxon's
shareholders. Such approval is expected to be granted at a meeting of Saxon's
shareholders to be held December 18, 1995. At the completion of the transaction,
which is expected to occur as soon as practicable after approval by Saxon's
shareholders, Forest would own approximately 56% of the outstanding common
shares of Saxon, including slightly less than 50% of the voting shares.
The following unaudited condensed pro forma combined balance sheet assumes
that the acquisitions of ATCOR and the Saxon interest occurred on September 30,
1995 and reflects the September 30, 1995 historical consolidated balance sheet
of Forest giving pro forma effect to the ATCOR and Saxon transactions. The
unaudited condensed pro forma combined balance sheet should be read in
conjunction with the historical statements and related notes of Forest and
ATCOR.
The following unaudited condensed pro forma combined statements of
operations for the nine months ended September 30, 1995 and for the year ended
December 31, 1994 assume that the ATCOR and Saxon transactions occurred as of
January 1, 1994. The pro forma results of operations are not necessarily
indicative of the results of operations that would actually have been attained
if the transactions had occurred as of January 1, 1994. These statements should
be read in conjunction with the historical statements and related notes of
Forest and ATCOR.
The historical financial statements of ATCOR and Saxon have been translated
assuming an historical exchange rate of approximately $1.35 Cdn to $1.00 U.S.
F-2
<PAGE>
FOREST OIL CORPORATION
CONDENSED PRO FORMA COMBINED BALANCE SHEET (NOTE A)
SEPTEMBER 30, 1995
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
ATCOR COMBINED SAXON PRO FORMA
FOREST ATCOR ADJUSTMENTS FOREST AND SAXON ADJUSTMENTS COMBINED
HISTORICAL HISTORICAL (NOTE B) ATCOR HISTORICAL (NOTE C) FOREST
---------- ---------- ------------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........ $ 3,417 -- 141,453(1) 10,111 223 10,334
(134,759)(3)
Accounts receivable.............. 15,299 20,715 (622)(3) 35,392 2,583 37,975
Other current assets............. 3,499 2,618 6,117 428 6,545
---------- ---------- ------------- ---------- ---------- ------------ ----------
Total current assets........... 22,215 23,333 6,072 51,620 3,234 54,854
Property and equipment, at cost:
Oil and gas properties -- full
cost accounting method.......... 1,189,665 332,699 (194,510)(3) 1,322,057 33,533 (7,798)(1) 1,347,792
(5,797)(4)
Buildings, transportation and
other equipment................. 12,782 22,039 (1,212)(3) 26,362 -- 26,362
(7,247)(4)
---------- ---------- ------------- ---------- ---------- ------------ ----------
1,202,447 354,738 (208,766) 1,348,419 33,533 (7,798) 1,374,154
Less accumulated depreciation,
depletion and valuation
allowance....................... 941,701 172,943 (38,303)(2) 941,701 7,545 (7,545)(1) 941,701
211,246(3)
---------- ---------- ------------- ---------- ---------- ------------ ----------
Net property and equipment..... 260,746 181,795 (35,823) 406,718 25,988 (253) 432,453
Investment in and advances to
affiliates........................ 11,452 -- 11,452 -- 11,452
Other assets....................... 10,330 3,689 23,963(3) 35,446 414 35,860
(2,536)(4)
---------- ---------- ------------- ---------- ---------- ------------ ----------
$ 304,743 208,817 (8,324) 505,236 29,636 (253) 534,619
---------- ---------- ------------- ---------- ---------- ------------ ----------
---------- ---------- ------------- ---------- ---------- ------------ ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft................... $ 1,739 -- 1,739 -- 1,739
Current portion of long-term
debt............................ 89 3,700 (1,386)(4) 2,403 5,314 (1,267)(2) 6,450
Current portion of gas balancing
liability....................... 5,000 -- 5,000 -- 5,000
Accounts payable................. 20,396 19,814 1,850(3) 2,344
1,628(4) 43,688 46,032
Retirement benefits payable to
executives and directors........ 672 -- 672 -- 672
Accrued expenses and other
liabilities..................... 3,078 -- 3,078 -- 3,078
---------- ---------- ------------- ---------- ---------- ------------ ----------
Total current liabilities...... 30,974 23,514 2,092 56,580 7,658 (1,267) 62,971
Long-term debt..................... 181,959 14,194 (14,194)(4) 181,959 12,277 (12,277)(2) 181,959
Gas balancing liabilities.......... 5,926 -- 5,926 -- 5,926
Retirement benefits payable to
executives and directors.......... 2,951 -- 2,951 -- 2,951
Other liabilities.................. 20,045 2,584 (1,963)(3) 20,666 181 20,847
Deferred revenue................... 18,501 -- 18,501 -- 18,501
Deferred taxes..................... -- 38,297 (6,730)(2) 32,813 739 33,552
2,874(3)
(1,628)(4)
Minority interest in Saxon
Petroleum, Inc.................... -- -- -- -- 8,528(1) 8,528
Shareholders' equity:
Preferred stock.................. 24,356 -- 24,356 -- 24,356
Common stock..................... 4,775 100,482 5,470(1) 10,245 7,677 (7,677)(1) 10,775
(100,482)(3) 530(2)
Capital surplus.................. 230,756 -- 135,983(1) 366,739 -- 9,540(1) 379,753
3,474(2)
Retained earnings (deficit)...... (214,032) 29,746 (31,573)(2) (214,032) 1,104 (1,104)(1) (214,032)
1,827(3)
Foreign currency translation..... (1,468) -- (1,468) -- (1,468)
Treasury stock................... -- -- -- -- (9,540)(1) --
9,540(2)
---------- ---------- ------------- ---------- ---------- ------------ ----------
Total shareholders' equity..... 44,387 130,228 11,225 185,840 8,781 4,763 199,384
---------- ---------- ------------- ---------- ---------- ------------ ----------
$ 304,743 208,817 (8,324) 505,236 29,636 (253) 534,619
---------- ---------- ------------- ---------- ---------- ------------ ----------
---------- ---------- ------------- ---------- ---------- ------------ ----------
</TABLE>
See accompanying notes to condensed pro forma combined financial statements.
F-3
<PAGE>
FOREST OIL CORPORATION
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS (NOTE A)
NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
ATCOR FOREST SAXON PRO FORMA
FOREST ATCOR ADJUSTMENTS AND SAXON ADJUSTMENTS COMBINED
HISTORICAL HISTORICAL (NOTE B) ATCOR HISTORICAL (NOTE C) FOREST
---------- -------- ----------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Oil and gas sales........................... $ 60,154 141,501 201,655 6,700 208,355
Miscellaneous, net.......................... 374 90 (172)(5) 292 1,050 1,342
---------- -------- ----------- -------- ---------- ----- ---------
Total revenue........................... 60,528 141,591 (172) 201,947 7,750 209,697
Expenses:
Cost of gas................................. -- 98,966 98,966 -- 98,966
Oil and gas production...................... 16,576 14,384 30,960 3,313 34,273
General and administrative.................. 5,761 4,043 (333)(6) 9,471 615 10,086
Interest.................................... 19,100 1,923 (1,100)(7) 19,923 370 (249)(3) 20,044
Depreciation and depletion.................. 33,631 19,095 (4,514)(2) 46,358 3,081 49,439
(1,854)(8)
Provision for impairment of oil and gas
properties................................. -- -- 10,777(2) -- -- --
(10,777) (9)
Minority interest in earnings of Saxon
Petroleum, Inc............................. -- -- -- -- 77(4) 77
---------- -------- ----------- -------- ---------- ----- ---------
Total expenses.......................... 75,068 138,411 (7,801) 205,678 7,379 (172) 212,885
---------- -------- ----------- -------- ---------- ----- ---------
Earnings (loss) before income taxes........... (14,540) 3,180 7,629 (3,731) 371 172 (3,188)
Income tax expense (benefit).................. (7) 1,761 (3,832)(2) 4,155 335 110(5) 4,600
4,779(9)
1,454(10)
---------- -------- ----------- -------- ---------- ----- ---------
Net earnings (loss)........................... $ (14,533) 1,419 5,228 (7,886) 36 62 (7,788)
---------- -------- ----------- -------- ---------- ----- ---------
---------- -------- ----------- -------- ---------- ----- ---------
Weighted average number of common shares
outstanding.................................. 33,057 93,057
---------- ---------
---------- ---------
Net loss attributable to common stock......... $ (16,153) $ (9,408)
---------- ---------
---------- ---------
Primary and fully diluted earnings loss per
share........................................ $ (.49) $ (.10)
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to condensed pro forma combined financial statements.
F-4
<PAGE>
FOREST OIL CORPORATION
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS (NOTE A)
YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
ATCOR COMBINED SAXON PRO FORMA
FOREST ATCOR ADJUSTMENTS FOREST AND SAXON ADJUSTMENTS COMBINED
HISTORICAL HISTORICAL (NOTE B) ATCOR HISTORICAL (NOTE C) FOREST
---------- ---------- ------------ ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Oil and gas sales........... $ 114,541 174,354 -- 288,895 8,028 296,923
Miscellaneous, net.......... 1,406 3,924 (75)(5) 5,255 -- 5,255
---------- ---------- ------------ ---------- ---------- ----------- ---------
Total revenue........... 115,947 178,278 (75) 294,150 8,028 302,178
Expenses:
Cost of gas sold............ -- 78,242 78,242 -- 78,242
Oil and gas production...... 22,384 63,308 85,692 3,067 88,759
General and
administrative............. 11,166 3,510 (444)(6) 14,232 815 15,047
Interest.................... 26,773 2,967 (1,467)(7) 28,273 359 (239)(3) 28,393
Depreciation and
depletion.................. 65,468 20,821 (3,221)(2) 79,453 2,839 82,292
(3,615)(8)
Provision for impairment of
oil and gas properties..... 58,000 -- 19,726(2) 58,000 -- 58,000
(19,726)(9)
Minority interest in
earnings of Saxon
Petroleum, Inc............. -- -- -- -- 426(4) 426
---------- ---------- ------------ ---------- ---------- ----------- ---------
Total expenses.......... 183,791 168,848 (8,747) 343,892 7,080 187 351,159
---------- ---------- ------------ ---------- ---------- ----------- ---------
Earnings (loss) before income
taxes and cumulative effects
of change in accounting
principle.................... (67,844) 9,430 8,672 (49,742) 948 (187) (48,981)
Income tax expense
(benefit).................... 9 5,170 (8,253)(2) 8,117 112 105(5) 8,334
8,746(9)
2,445(10)
---------- ---------- ------------ ---------- ---------- ----------- ---------
Earnings (loss) before
cumulative effects of change
in accounting principle...... (67,853) 4,260 5,734 (57,859) 836 (292) (57,315)
Cumulative effects of change
in accounting principle for
oil and gas sales............ (13,990) -- (13,990) -- (13,990)
---------- ---------- ------------ ---------- ---------- ----------- ---------
Net earnings (loss)........... $ (81,843) 4,260 5,734 (71,849) 836 (292) (71,305)
---------- ---------- ------------ ---------- ---------- ----------- ---------
---------- ---------- ------------ ---------- ---------- ----------- ---------
Weighted average number of
common shares outstanding.... 28,097 88,097
---------- ---------
---------- ---------
Net loss attributable to
common stock................. $ (84,004) $ (73,466)
---------- ---------
---------- ---------
Primary and fully diluted loss
per share.................... $ (2.99) $ (.83)
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to condensed pro forma combined financial statements.
F-5
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
A. BASIS OF PRESENTATION
On December 12, 1995, the Company entered into an agreement with ATCOR
Resources, Ltd, a Canadian corporation, and two of the controlling stockholders
of ATCOR, pursuant to which the Company has agreed to acquire all of the
outstanding capital stock of ATCOR for an aggregate cash consideration of
approximately $186 million Cdn (or approximately $135 million U.S., assuming an
exchange rate of $1.38 Cdn to $1.00 U.S.). The closing of the acquisition is
subject to certain conditions, including obtaining certain U.S. and Canadian
regulatory approvals and the completion of an offering of Forest's common stock.
Forest will use a portion of the net proceeds of this offering to pay the costs
of the ATCOR acquisition and related expenses. The closing of the acquisition is
expected to occur as soon as practicable after the closing of this offering.
ATCOR is engaged in oil and gas exploration and production and the marketing
and processing of natural gas. ATCOR's principal reserves and producing
properties are located in the Canadian provinces of Alberta, British Columbia
and Saskatchewan.
As part of the acquisition, Forest has agreed to sell certain assets of
ATCOR to its controlling shareholders for an aggregate consideration of $21.5
million Cdn (or approximately $15.6 million U.S., assuming an exchange rate of
$1.38 Cdn to $1.00 U.S.) These assets include a one-half interest in certain
frontier lands, an interest in an ethane extraction plant in Edmonton, Alberta,
and certain marketable securities held by ATCOR in Trilon Financial Corporation.
The accompanying condensed pro forma combined balance sheet includes pro
forma adjustments to give effect to the sale of the common stock offered hereby
and the use of a portion of the proceeds to fund the acquisition of ATCOR. The
accompanying condensed pro forma combined financial statements also include pro
forma adjustments to give effect to (i) the restatement of the historical
financial statements of ATCOR to conform to U.S. generally accepted accounting
principles, (ii) the acquisition of ATCOR, and (iii) the sale of certain assets
to ATCOR's controlling shareholders and the use of the proceeds therefrom to
repay long-term debt of ATCOR
On October 11, 1995, Forest and Saxon Petroleum Inc. (Saxon) of Calgary,
Alberta, entered into an agreement pursuant to which Forest contributed capital
to Saxon in exchange for a majority interest in Saxon. The agreement is subject
to satisfaction of several conditions including approval of Saxon's
shareholders. Such approval is expected to be granted at a meeting of Saxon's
shareholders scheduled to be held December 18, 1995.
Under the terms of the agreement, Forest would receive from Saxon, in two
closings, an aggregate of 53,100,000 common shares, warrants to purchase
5,300,000 common shares, and $15,500,000 Cdn of convertible preferred shares due
November 15, 1998. Saxon would receive $1,500,000 Cdn in cash, 5,300,000 common
shares of Forest (subject to possible adjustment for change in the market value
of Forest common stock) and all of the preferred shares owned by Forest in
Archean Energy, Ltd., a privately held oil and gas company based in Calgary.
At the completion of the transaction, Forest would own approximately 56% of
the outstanding common shares of Saxon, including slightly less than 50% of the
voting shares, and would hold warrants and conversion rights for shares which,
if fully exercised, would constitute approximately 63% of Saxon's outstanding
common stock. Pursuant to the terms of the agreement with Saxon, Forest would
have the right to name four of seven directors to a newly-constituted board. In
addition, Forest would have the right to participate in any future equity issues
undertaken by Saxon.
F-6
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
A. BASIS OF PRESENTATION (CONTINUED)
In the first closing, which occurred on October 26, 1995, Forest acquired
8,800,000 shares of Saxon common stock in exchange for 790,000 shares of Forest
Common stock. Forest also purchased a newly issued preferred stock for
$3,000,000 Cdn which will be redeemable at the earlier of April 25, 1996 or at
the second closing, which is currently scheduled for December 20, 1995.
At the second closing, the following transactions would take place: 1) the
preferred stock of Saxon issued at the first closing would be redeemed for
$1,500,000 Cdn of cash and $1,500,000 Cdn of common shares of Saxon; 2) Saxon
would issue 44,300,000 common shares and 5,300,000 warrants to Forest in
exchange for, subject to adjustment, 4,510,000 common shares of Forest; and 3)
Saxon would issue $15,500,000 Cdn of new convertible preferred stock to Forest
in exchange for the preferred shares of Archean Energy Ltd. owned by Forest.
The accompanying condensed pro forma combined balance sheet includes pro
forma adjustments to give effect to the acquisition of the interest in Saxon as
of September 30, 1995. The condensed pro forma combined statements of operations
include the results of operations of Saxon for the respective periods presented
and adjustments for the pro forma effects of the Saxon transaction.
B. PRO FORMA ADJUSTMENTS FOR THE ATCOR ACQUISITION
The following pro forma adjustments have been made to the historical balance
sheet of Forest at September 30, 1995 and to the statements of operations for
the nine months ended September 30, 1995 and the year ended December 31, 1994:
1. To record the issuance of 54,700,000 shares of common stock by
Forest at an assumed offering price of $2.75 per share, less estimated
underwriting discounts and commissions and expenses of $8,972,000.
2. To record the adjustments necessary to restate the historical
financial statements of ATCOR to conform to U.S. generally accepted
accounting principles, including recording provisions for impairment of oil
and gas properties under the U.S. ceiling test and providing for income
taxes under the liability method.
3. To record the purchase of ATCOR by Forest.
4. To record the sale of certain assets to the controlling shareholders
of ATCOR for $21,500,000 Cdn and the use of the proceeds therefrom to repay
long-term debt of ATCOR. No gain or loss was recognized on the sale.
5. To eliminate dividend income on the investment in Trilon Financial
Corporation to be sold to the controlling shareholders of ATCOR.
6. To adjust general and administrative expense of ATCOR to reflect the
elimination of administration and financial management fees charged by a
controlling shareholder of ATCOR.
7. To adjust interest expense of ATCOR to reflect the payment of
outstanding long-term debt using proceeds of the sale of certain assets to
the controlling shareholders of ATCOR.
8. To adjust depletion and depreciation expense of ATCOR to reflect
Forest's basis in the properties acquired.
9. To reverse the provision for impairment of ATCOR's oil and gas
properties recorded under U.S. generally accepted accounting principles,
since Forest's basis in the properties is less than the ceiling limit.
10. To record the income tax effects of the pro forma adjustments for
the ATCOR acquisition.
F-7
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
C. PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF THE SAXON INTEREST
The following pro forma adjustments have been made to the balance sheet of
Forest at September 30, 1995 and to the statements of operations for the nine
months ended September 30, 1995 and the year ended December 31, 1994:
1. To record the transactions related to the purchase of the interest
in Saxon by Forest in the first and second closings.
2. To reflect the sale of 5,300,000 shares of common stock of Forest
owned by Saxon at an assumed offering price of $2.75 per share, less
underwriting discounts and commissions of $729,000, and the use of the net
proceeds therefrom to repay long-term debt of Saxon.
3. To adjust interest expense of Saxon to reflect the payment of
outstanding long-term debt using proceeds of the sale of the Forest shares
owned by Saxon offered hereby.
4. To recognize the minority interest in the earnings of Saxon.
5. To record the income tax effects of the pro forma adjustments for
the Saxon transaction.
D. PRO FORMA SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED)
ESTIMATED PROVED OIL AND GAS RESERVES -- The Company's estimate of its pro
forma proved and proved developed future net recoverable oil and gas reserves at
December 31, 1994 follows. Such estimates are inherently imprecise and may be
subject to substantial revisions.
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions; i.e., prices
and costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangement, including
energy swap agreements, but not on escalations based on future conditions.
Proved developed oil and gas reserves are reserves that can be expected to
be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the application
of fluid injection or other improved mechanisms of primary recovery are included
as "proved developed reserves" only after testing by a pilot project or after
the operation of an installed program has confirmed through production response
that increased recovery will be achieved.
The Company's presentations of its estimated pro forma proved and proved
developed oil and gas reserves exclude those quantities attributable to future
deliveries required under volumetric production payments. In order to calculate
such amounts, the Company has assumed that deliveries under volumetric
production payments are made as scheduled at expected BTU factors, and that
delivery commitments are satisfied through delivery of actual volumes as opposed
to cash settlements.
The Company has also presented, as additional information, its estimated pro
forma proved and proved developed oil and gas reserves including quantities
attributable to future deliveries required under volumetric production payments.
The Company believes that this information is informative to readers of its
financial statements as the related oil and gas property costs and deferred
revenue are
F-8
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
D. PRO FORMA SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)
included on the Company's pro forma balance sheets. This additional information
is not presented in accordance with SFAS No. 69; however, the Company believes
this additional information is useful in assessing its reserve acquisitions and
financial position on a comprehensive basis.
<TABLE>
<CAPTION>
LIQUIDS (1) NATURAL GAS
------------------------------- -------------------------------
UNITED UNITED
STATES CANADA TOTAL STATES CANADA TOTAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(THOUSANDS OF BARRELS) (MMCF)
Proved reserves at December 31, 1994:
Forest Oil Corporation......................... 7,313 -- 7,313 231,638 -- 231,638
ATCOR Resources Ltd............................ -- 10,477 10,477 -- 106,071 106,071
Saxon Petroleum Inc............................ -- 4,233 4,233 -- 18,735 18,735
--------- --------- --------- --------- --------- ---------
Pro forma combined proved reserves............. 7,313 14,710 22,023 231,638 124,806 356,444
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Proved developed reserves at December 31, 1994:
Forest Oil Corporation......................... 6,775 -- 6,775 179,574 -- 179,574
ATCOR Resources Ltd............................ -- 10,469 10,469 -- 106,071 106,071
Saxon Petroleum Inc............................ -- 3,203 3,203 -- 17,346 17,346
--------- --------- --------- --------- --------- ---------
Pro forma combined proved reserves............. 6,775 13,672 20,447 179,574 123,417 302,991
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Proved reserves at December 31, 1994, including
amounts attributable to volumetric production
payments:
Forest Oil Corporation......................... 7,532 -- 7,532 246,996 -- 246,996
ATCOR Resources Ltd............................ -- 10,477 10,477 -- 106,071 106,071
Saxon Petroleum Inc............................ -- 4,233 4,233 -- 18,735 18,735
--------- --------- --------- --------- --------- ---------
Pro forma combined proved reserves............. 7,532 14,710 22,242 246,996 124,806 371,802
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Proved developed reserves at December 31, 1994,
including amounts attributable to volumetric
production payments:
Forest Oil Corporation......................... 6,994 -- 6,994 194,932 -- 194,932
ATCOR Resources Ltd............................ -- 10,469 10,469 -- 106,071 106,071
Saxon Petroleum Inc............................ -- 3,203 3,203 -- 17,346 17,346
--------- --------- --------- --------- --------- ---------
Pro forma combined proved reserves............. 6,994 13,672 20,666 194,932 123,417 318,349
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Includes crude oil, condensate and natural gas liquids.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS -- The standardized
measure of discounted net cash flows at December 31, 1994 is calculated in
accordance with the provisions of Statement of Financial Accounting Standard No.
69.
Future oil and gas sales and production and development costs have been
estimated using prices and costs in effect at the end of the years indicated,
except in those instances where the sale of oil and natural gas is covered by
contracts, energy swap agreements or volumetric production payments. In
F-9
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
D. PRO FORMA SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)
the case of contracts, the applicable contract prices, including fixed and
determinable escalations, were used for the duration of the contract.
Thereafter, the current spot price was used. Future oil and gas sales include
the estimated effects of existing energy swap agreements and the volumetric
production payments.
Future income tax expenses are estimated using the statutory tax rate of 35%
in the U.S. and 44% in Canada. Estimates for future general and administrative
and interest expenses have not been considered, except to the extent that
general and administrative expenses have been taken into account in the
estimation of the Canadian Resource Allowance.
Changes in the demand for oil and natural gas, inflation and other factors
make such estimates inherently imprecise and subject to substantial revision.
This table should not be construed to be an estimate of the current market value
of proved reserves. Management does not rely upon the information that follows
in making investment decisions.
The Company's presentation of the pro forma standardized measure of
discounted future net cash flows exclude amounts attributable to future
deliveries required under volumetric production payments. In order to calculate
such amounts, the Company has assumed that deliveries under volumetric
production payments are made as scheduled, that production costs corresponding
to the volumes delivered are incurred by the Company at average rates for the
properties subject to the production payments, and that delivery commitments are
satisfied through delivery of actual volumes as opposed to cash settlements.
The Company has also presented, as additional information, the pro forma
standardized measure of discounted future net cash flows, including amounts
attributable to future deliveries required under volumetric production payments.
The Company believes that this information is informative to readers of its
financial statements because the related oil and gas property costs and deferred
revenue are shown on the Company's balance sheets. This additional information
is not required to be presented in accordance with SFAS No. 69; however, the
Company believes this additional information is useful in assessing its reserve
acquisitions and financial position on a comprehensive basis.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
--------------------
<S> <C>
(IN THOUSANDS)
Forest Oil Corporation:
Future oil and gas sales........................................................ $ 502,186
Future production and development costs......................................... (193,376)
----------
Future net revenue.............................................................. 308,810
10% annual discount for estimated timing of cash flows.......................... (100,480)
----------
Present value of future net cash flows before income taxes...................... 208,330
Present value of future income tax expense...................................... (867)
----------
Standardized measure of discounted future net cash flows........................ 207,463
Additional disclosure:
Amounts attributable to volumetric production payments.......................... 22,686
----------
Total discounted future net cash flows, including amounts attributable to
volumetric production payments................................................. $ 230,149
----------
----------
</TABLE>
F-10
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
D. PRO FORMA SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
--------------------
(IN THOUSANDS)
<S> <C>
ATCOR Resources Ltd.:
Future oil and gas sales........................................................ $ 286,779
Future production and development costs......................................... (112,929)
----------
Future net revenue.............................................................. 173,850
10% annual discount for estimated timing of cash flows.......................... (62,709)
----------
Present value of future net cash flows before income taxes...................... 111,141
Present value of future income tax expense...................................... (25,020)
----------
Standardized measure of discounted future net cash flows........................ $ 86,121
----------
----------
Saxon Petroleum Ltd.
Future oil and gas sales........................................................ $ 79,682
Future production and development costs......................................... (39,582)
----------
Future net revenue.............................................................. 40,100
10% annual discount for estimated timing of cash flows.......................... (13,254)
----------
Present value of future net cash flows before income taxes...................... 26,846
Present value of future income tax expense...................................... (2,745)
----------
Standardized measure of discounted future net cash flows........................ $ 24,101
----------
----------
Pro Forma Combined Forest Oil Corporation:
Future oil and gas sales........................................................ $ 868,647
Future production and development costs......................................... (345,887)
----------
Future net revenue.............................................................. 522,760
10% annual discount for estimated timing of cash flows.......................... (176,443)
----------
Present value of future net cash flows before income taxes...................... 346,317
Present value of future income tax expense...................................... (28,632)
----------
Pro forma combined standardized measure of discounted future net cash flows..... 317,685
Additional disclosure:
Amounts attributable to volumetric production payments.......................... 22,686
----------
Pro forma combined discounted future net cash flows, including amounts
attributable to volumetric production payments................................. $ 340,371
----------
----------
</TABLE>
F-11
<PAGE>
FOREST OIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................................... $ 3,417 2,869
Accounts receivable............................................................... 15,299 20,418
Other current assets.............................................................. 3,499 2,231
------------- ------------
Total current assets............................................................ 22,215 25,518
Property and equipment, at cost:
Oil and gas properties -- full cost accounting method............................. 1,189,665 1,171,887
Buildings, transportation and other equipment..................................... 12,782 12,649
------------- ------------
1,202,447 1,184,536
Less accumulated depreciation, depletion and valuation allowance.................. 941,701 907,927
------------- ------------
Net property and equipment...................................................... 260,746 276,609
Investment in and advances to affiliate............................................. 11,452 11,652
Other assets........................................................................ 10,330 11,053
------------- ------------
$ 304,743 324,832
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft.................................................................... $ 1,739 4,445
Current portion of long-term debt................................................. 89 1,636
Current portion of gas balancing liability........................................ 5,000 5,735
Accounts payable.................................................................. 20,396 26,557
Retirement benefits payable to executives and directors........................... 672 630
Accrued expenses and other liabilities:
Interest........................................................................ 1,970 4,318
Other........................................................................... 1,108 4,297
------------- ------------
Total current liabilities....................................................... 30,974 47,618
Long-term debt...................................................................... 181,959 207,054
Gas balancing liability............................................................. 5,926 8,525
Retirement benefits payable to executives and directors............................. 2,951 3,505
Other liabilities................................................................... 20,045 16,136
Deferred revenue.................................................................... 18,501 35,908
Shareholders' equity:
Preferred stock................................................................... 24,356 15,845
Common stock...................................................................... 4,775 2,829
Capital surplus................................................................... 230,756 190,074
Accumulated deficit............................................................... (214,032) (199,499)
Foreign currency translation...................................................... (1,468) (1,337)
Treasury stock, at cost........................................................... -- (1,826)
------------- ------------
Total shareholders' equity...................................................... 44,387 6,086
------------- ------------
$ 304,743 324,832
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-12
<PAGE>
FOREST OIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF PRODUCTION AND OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
(IN THOUSANDS EXCEPT PRODUCTION AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
PRODUCTION
Gas (MMCF)......................................... 7,807 11,957 25,744 38,432
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Oil and condensate (thousand barrels).............. 275 365 926 1,152
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue:
Oil and gas sales:
Gas.............................................. $ 13,139 21,874 45,141 74,323
Oil and condensate............................... 4,236 5,830 14,764 16,825
Products and other............................... 81 66 249 280
------------- ------------- ------------- -------------
17,456 27,770 60,154 91,428
Miscellaneous, net................................. 161 437 374 2,299
------------- ------------- ------------- -------------
Total revenue.................................. 17,617 28,207 60,528 93,727
Expenses:
Oil and gas production............................. 5,379 5,419 16,576 16,647
General and administrative......................... 1,900 2,964 5,761 7,553
Interest........................................... 6,679 6,602 19,100 20,077
Depreciation and depletion......................... 10,233 16,150 33,631 52,323
Provision for impairment of oil and gas
properties........................................ -- 30,000 -- 30,000
------------- ------------- ------------- -------------
Total expenses................................. 24,191 61,135 75,068 126,600
------------- ------------- ------------- -------------
Loss before income taxes and cumulative effect of
change in accounting principle...................... (6,574) (32,928) (14,540) (32,873)
Income tax expense (benefit):
Current............................................ -- (55) (7) 29
------------- ------------- ------------- -------------
Loss before cumulative effect of change in accounting
principle........................................... (6,574) (32,873) (14,533) (32,902)
Cumulative effect of change in method of accounting
for oil and gas sales............................... -- -- -- (13,990)
------------- ------------- ------------- -------------
Net loss............................................. $ (6,574) (32,873) (14,533) (46,892)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of common shares
outstanding......................................... 42,312 28,135 33,057 28,072
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net loss attributable to common stock................ $ (7,114) (33,414) (16,153) (48,513)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Primary and fully diluted loss per share:
Loss before cumulative effect of change in
accounting principle.............................. $ (.17 ) (1.19 ) (.49 ) (1.23 )
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net loss........................................... $ (.17 ) (1.19 ) (.49 ) (1.73 )
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-13
<PAGE>
FOREST OIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Loss before cumulative effect of change in accounting principle................... $ (14,533) (32,902)
Adjustments to reconcile loss before cumulative effect of change in accounting
principle to net cash provided (used) by operating activities:
Depreciation and depletion...................................................... 33,631 52,323
Provision for impairment of oil and gas properties.............................. -- 30,000
Other, net...................................................................... 2,596 3,230
Decrease in accounts receivable................................................. 5,119 2,339
Decrease (increase) in other current assets..................................... (1,268) 653
Decrease in accounts payable.................................................... (6,854) (6,788)
Increase (decrease) in accrued expenses and other liabilities................... (5,537) 425
Proceeds from volumetric production payments.................................... -- 4,353
Amortization of deferred revenue................................................ (17,407) (27,790)
------------- -------------
Net cash provided (used) by operating activities.............................. (4,253) 25,843
Cash flows from investing activities:
Capital expenditures for property and equipment................................... (20,405) (26,706)
Proceeds from sales of property and equipment..................................... 2,706 13,203
Decrease (increase) in other assets, net.......................................... 464 (1,895)
------------- -------------
Net cash used by investing activities......................................... (17,235) (15,398)
Cash flows from financing activities:
Proceeds of bank debt............................................................. 61,200 12,500
Repayments of bank debt........................................................... (74,400) (10,500)
Proceeds of stock and warrants issued, net of costs............................... 41,060 --
Proceeds of nonrecourse secured loan.............................................. -- 1,400
Repayments of nonrecourse secured loan............................................ (1,143) --
Repayments of production payment.................................................. (1,708) (2,394)
Redemptions and purchases of subordinated debentures.............................. -- (7,171)
Payment of preferred stock dividends.............................................. (540) (1,621)
Deferred debt costs............................................................... (482) (702)
Decrease in cash overdraft........................................................ (2,706) (430)
Increase (decrease) in other liabilities, net..................................... 756 (6,613)
------------- -------------
Net cash provided (used) by financing activities.............................. 22,037 (15,531)
Effect of exchange rate changes on cash............................................. (1) 164
------------- -------------
Net increase (decrease) in cash and cash equivalents................................ 548 (4,922)
Cash and cash equivalents at beginning of period.................................... 2,869 6,949
------------- -------------
Cash and cash equivalents at end of period.......................................... $ 3,417 2,027
------------- -------------
------------- -------------
Cash paid during the period for:
Interest.......................................................................... $ 19,002 20,543
------------- -------------
------------- -------------
Income taxes...................................................................... $ -- 6
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-14
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(1) BASIS OF PRESENTATION:
The condensed 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 September 30, 1995 and the results
of operations for the nine month periods ended September 30, 1995 and 1994.
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, 1994, previously
filed with the Securities and Exchange Commission.
(2) LONG-TERM DEBT:
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Bank debt....................................................... $ 19,800 33,000
Nonrecourse secured loan........................................ 46,069 57,840
Production payment obligation................................... 16,826 18,534
11 1/4% Subordinated debentures................................. 99,353 99,316
------------- ------------
182,048 208,690
Less current portion............................................ (89) (1,636)
------------- ------------
Long-term debt.................................................. $ 181,959 207,054
------------- ------------
------------- ------------
</TABLE>
On August 11, 1995 the Company and the banks executed an amendment to the
Company's credit facility pursuant to which the ratios required by the tests
were amended. At September 30, 1995 the Company was in compliance with the
covenants of its bank debt.
(3) 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 nine month periods ended September 30, 1995 and 1994.
(4) CHANGE IN ACCOUNTING FOR OIL AND GAS SALES:
The Company changed its method of accounting for oil and gas sales from the
sales method to the entitlements method effective January 1, 1994. Under the
sales method previously used by the
F-15
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(4) CHANGE IN ACCOUNTING FOR OIL AND GAS SALES: (CONTINUED)
Company, all proceeds from production credited to the Company were recorded as
revenue until such time as the Company had produced its share of the related
reserves. Under the entitlements method, revenue is recorded based upon the
Company's share of volumes sold, regardless of whether the Company has taken its
proportionate share of volumes produced.
Under the entitlements method, the Company records a receivable or payable
to the extent it receives less or more than its proportionate share of the
related revenue. The Company believes that the entitlements method is preferable
because it allows for recognition of revenue based on the Company's actual share
of jointly owned production and provides a better matching of revenue and
related expenses.
The cumulative effect of the change for the periods through December 31,
1993 was a charge of $13,990,000 recorded in the first quarter of 1994. As the
Company adopted this change in the fourth quarter of 1994, previously reported
1994 information has been restated to reflect the change effective January 1,
1994.
(5) ANSCHUTZ AND JEDI TRANSACTIONS:
During the second and third quarters of 1995, following receipt of
shareholder approval, the Company consummated transactions with The Anschutz
Corporation (Anschutz) and with Joint Energy Development Investments Limited
Partnership (JEDI), a Delaware limited partnership the general partner of which
is an affiliate of Enron Corp., in each case as described below.
ANSCHUTZ TRANSACTION:
Pursuant to the Anschutz agreements, Anschutz purchased 18,800,000 shares of
the Company's common stock and shares of a new series of preferred stock that
are convertible into 6,200,000 additional shares of common stock for a total
consideration of $45,000,000, or $1.80 per share. The preferred stock has
liquidation preference and receives dividends ratably with the common stock. In
addition, Anschutz received warrants to purchase 19,444,444 shares of the
Company's common stock for $2.10 per share. The $2.10 warrants are exercisable
during the first 18 months after the second closing, subject to extension in
certain circumstances to 36 months.
The Anschutz investment was made in two closings. In the first closing,
which occurred on May 19, 1995, Anschutz loaned the Company $9,900,000. The loan
carried interest at 8% per annum. The loan was nonrecourse to the Company and
was secured by oil and gas properties owned by the Company, the preferred stock
of Archean Energy Ltd. and a cash collateral account with an initial balance of
$2,000,000. At the second closing, which occurred on July 27, 1995, the loan was
converted into 5,500,000 shares of Forest's common stock. Also at the second
closing, Anschutz purchased an additional 13,300,000 shares of common stock, the
convertible preferred stock and the $2.10 warrants described above for
$35,100,000. At the second closing, Anschutz also received from JEDI an option
to purchase from JEDI up to 11,250,000 shares of common stock that JEDI may
acquire from the Company upon exercise of the $2.00 warrants referred to below.
This option will terminate 36 months after the second closing, or earlier upon
the conveyance by the Company of certain property to JEDI in satisfaction of the
restructured JEDI loan, as described below.
Pursuant to the Anschutz agreements, Anschutz agreed to certain voting,
acquisition, and transfer limitations regarding shares of common stock for five
years after the second closing, including (a) a limit on voting, subject to
certain exceptions, that would require Anschutz to vote all equity securities of
the Company owned by Anschutz having voting power in excess of an amount equal
to 19.99% of the
F-16
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(5) ANSCHUTZ AND JEDI TRANSACTIONS: (CONTINUED)
aggregate voting power of the equity securities of the Company then outstanding
in the same proportion as all other equity securities of the Company voted with
respect to the matter (other than equity securities owned by Anschutz) are
voted, (b) the number of persons associated with Anschutz that may at any time
be elected as directors of the Company is limited to three, and (c) a limit on
the acquisition of additional shares of common stock by Anschutz (whether
pursuant to the conversion of the new preferred stock, the exercise of the $2.10
warrants or the option received from JEDI, or otherwise), subject to certain
exceptions, that would prohibit any acquisition by Anschutz that would result in
Anschutz owning 40% or more of the shares of common stock then issued and
outstanding. While the foregoing limitations are in effect, Anschutz will be
entitled to a minority representation on the board of directors.
JEDI TRANSACTION:
At the second closing, Forest and JEDI restructured JEDI's existing loan
which had a principal balance on July 27, 1995 of approximately $62,368,000
before unamortized discount of $4,984,000. JEDI relinquished the net profits
interest that it held in certain Forest properties and reduced the interest rate
relating to the loan. In consideration, JEDI received warrants to purchase
11,250,000 shares of the Company's common stock for $2.00 per share. The $2.00
warrants will expire on the earlier of December 31, 2002 or 36 months following
exercise of the Company's option to convey properties in satisfaction of the
JEDI loan (the Conveyance Option). Also at the second closing, JEDI granted a 36
month option to Anschutz to purchase from JEDI up to 11,250,000 shares at a
purchase price per share of $2.00 plus an amount equal to the lesser of (a) 18%
per annum from the second closing date to the date of exercise of the option, or
(b) $3.10. JEDI will satisfy its obligations under the option to Anschutz by
exercising the $2.00 warrants. Provided the Conveyance Option has not been
exercised, the Company may terminate the $2.00 warrants at any time beginning 36
months after the second closing if the average closing price of the common stock
for both the 90 day and 15 day periods immediately preceding the termination is
in excess of $2.50 per share.
As a result of the loan restructuring and the issuance of the warrants
described below, the Company recorded a reduction of the amount of the related
liability to approximately $45,493,000 and anticipates a reduction of annual
interest expense of approximately $2,000,000. Subject to certain conditions, the
Company may satisfy the restructured JEDI loan by conveying to JEDI the
properties securing the loan during a 30-day period beginning 18 months after
the second closing or, if the $2.10 warrants have been extended, during a 30-day
period beginning 36 months after the second closing. Any such conveyance during
the first 36 months after the second closing must be approved by Anschutz, if
the option from JEDI has not then been exercised or terminated. Prior to the
exercise or termination of the JEDI option, JEDI has agreed that it will not
assign all or any portion of the JEDI loan or the $2.00 warrants to an
unaffiliated person without the approval of the Company. The Company has agreed
to not give such approval without the consent of Anschutz.
The Company has agreed to use the proceeds from the exercise of the $2.00
warrants and the $2.10 warrants to repay principal and interest on the JEDI
loan.
(6) SUBSEQUENT EVENTS:
On October 11, 1995, Forest and Saxon Petroleum, Inc. (Saxon) of Calgary,
Alberta entered into an agreement pursuant to which Forest contributed capital
to Saxon in exchange for a majority interest in Saxon. The agreement is subject
to satisfaction of several conditions including approval of Saxon's
shareholders.
F-17
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(6) SUBSEQUENT EVENTS: (CONTINUED)
Under the terms of the agreement, Forest would receive from Saxon, in two
closings, an aggregate of 53,100,000 common shares, 5,300,000 warrants and
$15,500,000 CDN of convertible preferred shares due November 15, 1998. Saxon
would receive $1,500,000 CDN cash, 5,300,000 common shares of Forest (subject to
possible adjustment for change in the market value of Forest stock) and all of
the preferred shares owned by Forest in Archean Energy, Ltd., a privately held
oil and gas company based in Calgary.
At the completion of the transaction, Forest would own approximately 56% of
the outstanding common shares of Saxon, including slightly less than 50% of the
voting shares, and would hold warrants and conversion rights for shares which,
if fully exercised, would increase Forest's ownership to approximately 63% of
Saxon's outstanding common stock. Pursuant to the terms of the agreement, Forest
would have the right to name four of seven directors to a newly-constituted
board. In addition, Forest would have the right to participate in any future
equity issues undertaken by Saxon.
In the first closing, which occurred on October 26, 1995, Forest acquired
8,800,000 shares of Saxon common stock in exchange for 790,000 shares of Forest
common stock. Forest also purchased a newly issued preferred stock for
$3,000,000 CDN which will be redeemable at the earlier of April 25, 1996, or at
the second closing, which is currently scheduled for December 20, 1995.
A special meeting of Saxon's shareholders has been scheduled for December
18, 1995. At the second closing the following transactions would take place: 1)
the preferred stock of Saxon issued at the first closing would be redeemed for
$1,500,000 CDN of cash and $1,500,000 CDN of common shares of Saxon; 2) Saxon
would issue 44,300,000 common shares and 5,300,000 warrants to Forest in
exchange for, subject to adjustment, 4,510,000 common shares of Forest; and 3)
Saxon would issue $15,500,000 CDN of new convertible preferred stock to Forest
in exchange for the Archean Energy Ltd. preferred stock owned by Forest.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Forest Oil Corporation:
We have audited the accompanying consolidated balance sheets of Forest Oil
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Forest Oil
Corporation and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for oil and gas sales from the sales method to
the entitlements method effective January 1, 1994.
As discussed in Notes 6 and 10 of Notes to Consolidated Financial
Statements, the Company adopted the provisions of Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" and Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1993.
KPMG Peat Marwick LLP
Denver, Colorado
March 30, 1995, except as to Note 17
which is as of April 17, 1995
F-19
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1993
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................................... $ 2,869 6,949
Accounts receivable............................................................... 20,418 25,257
Other current assets.............................................................. 2,231 3,309
Total current assets.......................................................... 25,518 35,515
Property and equipment, at cost:
Oil and gas properties -- full cost accounting method (Note 2).................... 1,171,887 1,140,656
Buildings, transportation and other equipment..................................... 12,649 12,420
------------- -------------
1,184,536 1,153,076
Less accumulated depreciation, depletion and valuation allowance.................. 907,927 787,380
Net property and equipment...................................................... 276,609 365,696
Investment in and advances to affiliate (Note 3).................................... 11,652 16,451
Other assets........................................................................ 11,053 9,093
------------- -------------
$ 324,832 426,755
------------- -------------
------------- -------------
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Cash overdraft................................................... $ 4,445 3,894
Current portion of long-term debt (Notes 4 and 17)............... 1,636 11,542
Current portion of gas balancing liability....................... 5,735 --
Accounts payable................................................. 26,557 28,348
Retirement benefits payable to executives and directors (Note
10)............................................................. 630 553
Accrued expenses and other liabilities:
Interest....................................................... 4,318 3,817
Other.......................................................... 4,297 1,857
---------- ----------
Total current liabilities.................................... 47,618 50,011
Commitments and contingencies (Notes 10 and 12)
Long-term debt (Notes 4 and 17).................................... 207,054 194,307
Retirement benefits payable to executives and directors (Note
10)............................................................... 3,505 4,135
Gas balancing liability............................................ 8,525 --
Other liabilities.................................................. 16,136 22,918
Deferred revenue (Note 5).......................................... 35,908 67,228
Shareholders' equity (Notes 4, 7, 8 and 17):
Preferred stock.................................................. 15,845 15,845
Common stock..................................................... 2,829 2,825
Capital surplus.................................................. 190,074 193,717
Accumulated deficit.............................................. (199,499) (117,656)
Foreign currency translation..................................... (1,337) (785)
Treasury stock, at cost.......................................... (1,826) (5,790)
---------- ----------
Total shareholders' equity................................... 6,086 88,156
---------- ----------
$ 324,832 426,755
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-20
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenue:
Oil and gas sales:
Gas.................................................................... $ 91,309 77,249 72,011
Oil and condensate..................................................... 22,874 25,341 26,299
Products and other..................................................... 358 293 929
----------- ----------- -----------
114,541 102,883 99,239
Miscellaneous, net....................................................... 1,406 2,265 13,947
----------- ----------- -----------
Total revenue.......................................................... 115,947 105,148 113,186
Expenses:
Oil and gas production................................................... 22,384 19,540 15,865
General and administrative............................................... 11,166 12,003 11,611
Interest................................................................. 26,773 23,729 27,800
Depreciation and depletion............................................... 65,468 60,581 46,624
Provision for impairment of oil and gas properties....................... 58,000 -- --
----------- ----------- -----------
Total expenses......................................................... 183,791 115,853 101,900
----------- ----------- -----------
Earnings (loss) before income taxes, cumulative effects of changes in
accounting principles and extraordinary item.............................. (67,844) (10,705) 11,286
Income tax expense (benefit) (Note 6):
Current.................................................................. 9 254 435
Deferred................................................................. -- (1,604) 3,553
----------- ----------- -----------
9 (1,350) 3,988
----------- ----------- -----------
Earnings (loss) before cumulative effects of changes in accounting
principles and extraordinary item......................................... (67,853) (9,355) 7,298
Cumulative effects of changes in accounting principles:
Oil and gas sales (Note 1)............................................... (13,990) -- --
Postretirement benefits, net of income tax benefit of $1,639,000 (Note
10)..................................................................... -- (3,183) --
Income taxes (Note 6).................................................... -- 2,060 --
----------- ----------- -----------
(13,990) (1,123) --
Earnings (loss) before extraordinary item.................................. (81,843) (10,478) 7,298
Extraordinary item -- extinguishment of debt, net of income tax benefit of
$4,652,000 in 1993 (Note 4)............................................... -- (10,735) --
----------- ----------- -----------
Net earnings (loss)........................................................ $ (81,843) (21,213) 7,298
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of common shares outstanding....................... 28,097 21,997 13,774
----------- ----------- -----------
----------- ----------- -----------
Net earnings (loss) attributable to common stock........................... $ (84,004) (23,463) 4,950
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-21
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Pro forma amounts assuming the change in accounting for oil and gas sales
is applied retroactively:
Earnings (loss) before cumulative effects of changes in accounting
principles and extraordinary item....................................... $ (3,962) 13,151
----------- -----------
----------- -----------
Net earnings (loss)...................................................... (15,820) 13,151
----------- -----------
----------- -----------
Primary earnings (loss) per common share (1):
Earnings (loss) before cumulative effects of changes in accounting
principles and extraordinary item....................................... $ (2.49) (.53) .36
Cumulative effects of changes in accounting principles................... (.50) (.05) --
----------- ----------- -----------
Earnings (loss) before extraordinary item................................ (2.99) (.58) .36
Extraordinary item -- extinguishment of debt............................. -- (.49) --
----------- ----------- -----------
Net earnings (loss) attributable to common stock......................... $ (2.99) (1.07) .36
----------- ----------- -----------
----------- ----------- -----------
Pro forma amounts assuming the change in accounting for oil and gas sales
is applied retroactively:
Primary earnings (loss) per common share:
Earnings (loss) before cumulative effects of changes in accounting
principles and extraordinary item..................................... (.28) .78
----------- -----------
----------- -----------
Net earnings (loss) attributable to common stock....................... (.82) .78
----------- -----------
----------- -----------
Fully diluted earnings (loss) per common share:
Earnings (loss) before cumulative effects of changes in accounting
principles and extraordinary item..................................... (.28) .51
----------- -----------
----------- -----------
Net earnings (loss) attributable to common stock....................... (.82) .51
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) Fully diluted earnings (loss) per share was the same as primary earnings
(loss) per share in all years except 1992. In 1992, fully diluted earnings
per share was $.29.
See accompanying Notes to Consolidated Financial Statements.
F-22
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
$.75
CONVERTIBLE FOREIGN
PREFERRED COMMON CLASS B CAPITAL ACCUMULATED CURRENCY TREASURY
STOCK STOCK STOCK SURPLUS DEFICIT TRANSLATION STOCK
----------- ----------- ----------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance December 31, 1991............ $ 17,280 951 375 149,069 (103,741) 2,476 (11,570)
Net earnings....................... -- -- -- -- 7,298 -- --
$.75 Convertible Preferred Stock
dividends paid in Common Stock
(Note 7).......................... -- 153 -- (153) -- -- --
Conversions of $.75 Convertible
Preferred Stock to Common Stock... (66) 4 -- 62 -- -- --
Issuance of Common Stock in payment
of executive retirement liability
(Note 10)......................... -- 16 -- 173 -- -- --
Treasury stock contributed to the
Retirement Savings Plan and
other............................. -- 10 (10) (3,758) -- -- 4,215
Foreign currency translation....... -- -- -- -- -- (2,903) --
----------- ----------- --- --------- ------------ ----------- ---------
Balance December 31, 1992............ 17,214 1,134 365 145,393 (96,443) (427) (7,355)
Net loss........................... -- -- -- -- (21,213) --
Common Stock issued, net of
offering costs (Note 8)........... -- 1,108 -- 50,398 -- -- --
$.75 Convertible Preferred Stock
dividends paid in Common Stock
(Note 7).......................... -- 64 -- (64) -- -- --
Conversions of $.75 Convertible
Preferred Stock to Common Stock... (1,369) 87 -- 1,282 -- -- --
Reclassification of Class B to
Common Stock (Note 8)............. -- 396 (360) (36) -- -- --
Exercise of employee stock options
(Note 8).......................... -- 13 -- 383 -- -- --
Stock issued to the Retirement
Savings Plan for profit sharing
contributions (Note 10)........... -- 18 -- 597 -- -- --
Unfunded pension liability (Note
10)............................... -- -- -- (3,038) --
Treasury stock contributed to the
Retirement Savings Plan and
other............................. -- 5 (5) (1,198) -- -- 1,565
Foreign currency translation....... -- -- -- -- -- (358) --
----------- ----------- --- --------- ------------ ----------- ---------
Balance December 31, 1993............ 15,845 2,825 -- 193,717 (117,656) (785) (5,790)
Net loss........................... -- -- -- -- (81,843) -- --
Exercise of employee stock options
(Note 8).......................... -- 3 -- 102 -- -- --
$.75 Convertible Preferred Stock
dividends paid in cash (Note 7)... -- -- -- (2,161) -- -- --
Treasury stock issued to the
Retirement Savings Plan for profit
sharing contributions (Note 10)... -- -- -- (824) -- -- 1,035
Treasury stock contributed to the
Retirement Savings Plan and
other............................. -- 1 -- (760) -- -- 2,929
Foreign currency translation....... -- -- -- -- -- (552) --
----------- ----------- --- --------- ------------ ----------- ---------
Balance December 31, 1994............ $ 15,845 2,829 -- 190,074 (199,499) (1,337) (1,826)
----------- ----------- --- --------- ------------ ----------- ---------
----------- ----------- --- --------- ------------ ----------- ---------
</TABLE>
F-23
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
--------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings (loss) before cumulative effects of changes in accounting
principles and extraordinary item.......................................... $ (67,853) (9,355) 7,298
Adjustments to reconcile earnings (loss) before cumulative effects of
changes in accounting principles and extraordinary item to net cash
provided by operating activities:
Depreciation and depletion................................................ 65,468 60,581 46,624
Provision for impairment of oil and gas properties........................ 58,000 -- --
Deferred Federal income tax expense (benefit)............................. -- (1,604) 3,553
Other, net................................................................ 5,372 3,045 3,387
--------- ----------- ---------
60,987 52,667 60,862
Net changes in other operating assets and liabilities:
(Increase) decrease in accounts receivable.............................. 4,839 2,264 (3,447)
(Increase) decrease in other current assets............................. 1,078 375 (1,903)
Increase (decrease) in accounts payable................................. 4,021 (12,668) 13,090
Increase (decrease) in accrued expenses and other liabilities........... 2,941 (1,078) 1,772
Proceeds from volumetric production payments............................ 4,353 40,468 45,057
Amortization of deferred revenue........................................ (35,673) (40,306) (18,190)
--------- ----------- ---------
Net cash provided by operating activities............................. 42,546 41,722 97,241
Cash flows from investing activities:
Capital expenditures for property and equipment............................. (42,780) (171,166) (107,425)
Proceeds of sales of property and equipment, net............................ 12,941 2,997 25,730
Increase in other assets, net............................................... (2,468) (1,965) (1,659)
--------- ----------- ---------
Net cash used by investing activities................................. (32,307) (170,134) (83,354)
Cash flows from financing activities:
Proceeds of long-term bank debt............................................. 31,500 25,000 9,623
Repayments of long-term bank debt........................................... (23,500) -- (9,623)
Proceeds of nonrecourse secured loan........................................ 1,400 57,400 --
Proceeds of production payment.............................................. -- -- 28,805
Repayments of production payment............................................ (2,771) (5,980) (1,520)
Proceeds of common stock offering, net of offering costs.................... -- 51,506 --
Issuance of senior subordinated notes, net of offering costs................ -- 95,827 --
Redemptions and repurchases of subordinated debentures and secured notes.... (7,171) (148,918) (1,115)
Payment of preferred stock dividends........................................ (2,161) -- --
Deferred debt and exchange offer costs...................................... (772) (1,336) (285)
Increase (decrease) in cash overdraft....................................... 551 (1,347) 2,963
Increase (decrease) in other liabilities, net............................... (11,307) (266) 1,998
--------- ----------- ---------
Net cash provided (used) by financing activities...................... (14,231) 71,886 30,846
Effect of exchange rate changes on cash....................................... (88) (12) (110)
--------- ----------- ---------
Net increase (decrease) in cash and cash equivalents.......................... (4,080) (56,538) 44,623
Cash and cash equivalents at beginning of year................................ 6,949 63,487 18,864
--------- ----------- ---------
Cash and cash equivalents at end of year...................................... $ 2,869 6,949 63,487
--------- ----------- ---------
--------- ----------- ---------
Cash paid during the year for:
Interest...................................................................... $ 23,989 23,123 26,079
--------- ----------- ---------
--------- ----------- ---------
Income taxes.................................................................. $ 9 452 177
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-24
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION -- The consolidated financial statements include the
accounts of Forest Oil Corporation (the Company) and its wholly-owned
subsidiaries. Significant intercompany balances and transactions are eliminated.
CASH EQUIVALENTS -- For purposes of the statements of cash flows, the
Company considers all debt instruments with original maturities of three months
or less to be cash equivalents.
PROPERTY AND EQUIPMENT -- The Company uses the full cost method of
accounting for oil and gas properties. Presently, the Company's operations are
conducted in the United States. All costs incurred in the acquisition,
exploration and development of properties (including costs of surrendered and
abandoned leaseholds, delay lease rentals, dry holes and overhead related to
exploration and development activities) are capitalized. Capitalized costs are
depleted using the units of production method. A reserve is provided for
estimated future costs of site restoration, dismantlement and abandonment
activities as a component of depletion. Unusually significant investments in
unproved properties, including related capitalized interest costs, are not
depleted pending the determination of the existence of proved reserves. As of
December 31, 1994, 1993 and 1992, there were undeveloped property costs of
$30,441,000, $41,216,000 and $18,306,000, respectively, in the United States
which were not being depleted.
Depletion per unit of production was determined based on conversion to
common units of measure using one barrel of oil as an equivalent to six MCF of
natural gas. Depletion per unit of production (MCFE) for each of the Company's
cost centers was as follows:
<TABLE>
<CAPTION>
UNITED STATES CANADA
------------- -----------
<S> <C> <C>
1994.............................................. $ 1.13 $ --
1993.............................................. 1.19 --
1992.............................................. 1.21 1.19
</TABLE>
Capitalized costs less related accumulated depletion and deferred income
taxes may not exceed the sum of (1) the present value of future net revenue from
estimated production of proved oil and gas reserves; plus (2) the cost of
properties not being amortized, if any; plus (3) the lower of cost or estimated
fair value of unproved properties included in the costs being amortized, if any;
less (4) income tax effects related to differences in the book and tax basis of
oil and gas properties. As a result of this limitation on capitalized costs, the
accompanying financial statements include a provision for impairment of oil and
gas property costs of $58,000,000 in 1994. There was no impairment of oil and
gas property costs in 1993 or 1992.
Gain or loss is recognized only on the sale of oil and gas properties
involving significant reserves.
Buildings, transportation and other equipment are depreciated on the
straight-line method based upon estimated useful lives of the assets ranging
from five to forty-five years.
OIL AND GAS SALES -- The Company changed its method of accounting for oil
and gas sales from the sales method to the entitlements method effective January
1, 1994. Under the sales method previously used by the Company, all proceeds
from production credited to the Company were recorded as revenue until such time
as the Company had produced its share of related reserves. Under the
entitlements method, revenue is recorded based upon the Company's share of
volumes sold, regardless of whether the Company has taken its proportionate
share of volumes produced.
Under the entitlements method, the Company records a receivable or payable
to the extent it receives less or more than its proportionate share of the
related revenue. The Company believes that
F-25
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the entitlements method is preferable because it allows for recognition of
revenue based on the Company's actual share of jointly owned production and
provides a better matching of revenue and related expenses.
The cumulative effect of the change for the periods through December 31,
1993 was a charge of $13,990,000. The effect of this change on 1994 was an
increase in earnings from operations of $3,584,000 and an increase in production
volumes of 1,555,000 MCF. There were no related income tax effects in 1994. As
the Company adopted this change in the fourth quarter of 1994, previously
reported 1994 quarterly information has been restated to reflect the change
effective January 1, 1994. See Note 15 for restated selected quarterly financial
data. The pro forma amounts shown on the consolidated statements of operations
have been adjusted for the effect of the retroactive application of the change
and related income taxes.
As of December 31, 1994 the Company had produced approximately 8.4 BCF more
than its entitled share of production. The estimated value of this imbalance is
approximately $14,260,000, which is reflected on the accompanying balance sheet
as a short-term liability of $5,735,000 and a long-term liability of $8,525,000.
HEDGING TRANSACTIONS -- In order to minimize exposure to fluctuations in oil
and natural gas prices, the Company hedges the price of future oil and natural
gas production by entering into certain contracts and financial arrangements.
Gains and losses related to these hedging transactions are recognized as
adjustments to revenue recorded for the related production. Costs associated
with the purchase of certain hedge instruments are deferred and amortized
against revenue related to hedged production.
INCOME TAXES -- The adoption of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS No. 109), effective January 1, 1993
changed the Company's method of accounting for income taxes from the deferred
method to an asset and liability method. Previously, the Company deferred the
tax effects of timing differences between financial reporting and taxable
income. The asset and liability method requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between financial accounting bases and tax bases of assets and
liabilities.
FOREIGN CURRENCY TRANSLATION -- Assets and liabilities related to Canadian
investments are generally translated at current exchange rates, and related
translation adjustments are reported as a component of shareholders' equity.
Income statement accounts are translated at the average rates during the period.
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 of $2,161,000 in 1994, $2,250,000 in 1993 and $2,348,000 in 1992.
Common share equivalents include, when applicable, dilutive stock options using
the treasury stock method and warrants using the if converted method.
Fully diluted earnings per share is computed assuming, 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
F-26
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
period or date of issuance, if later, and (iii) any additional dilutive effect
of stock options and warrants. The effects of these assumptions were
anti-dilutive in 1994 and 1993. The weighted average number of shares
outstanding on a fully-diluted basis was 26,515,000 for the year ended December
31, 1992.
RECLASSIFICATIONS -- Certain amounts in the 1993 and 1992 financial
statements have been reclassified to conform to the 1994 financial statement
presentation.
(2) ACQUISITIONS:
During 1994, the Company completed acquisitions totaling $9,762,000,
including additional interests in properties acquired in 1993. In order to
finance one of the acquisitions, the Company sold a volumetric production
payment for approximately $4,353,000 (net of fees).
In May and December, 1993, the Company purchased interests in properties
from Atlantic Richfield Company (ARCO) for approximately $60,862,000. In
conjunction with the ARCO acquisitions, the Company sold volumetric production
payments from certain of the ARCO properties for approximately $40,468,000 (net
of fees). In December 1993, the Company purchased interests in offshore
properties for approximately $24,050,000 and interests in properties in south
Texas for approximately $59,458,000. In conjunction with these acquisitions, the
Company entered into a nonrecourse secured loan agreement for $51,600,000.
In February 1992, Forest I Development Company, a wholly-owned subsidiary of
the Company, purchased substantially all of the assets of Harbert Energy
Corporation and its associated entities in an acquisition accounted for as a
purchase. The purchase price of $40,400,000 was funded primarily through the
sale of a dollar-denominated production payment which was recorded at its
present value of $28,805,000. In July 1992, the Company purchased Transco
Exploration and Production Company (TEPCO) for approximately $45,000,000. In
conjunction with the acquisition, the Company sold a volumetric production
payment from certain of the TEPCO properties for approximately $38,500,000 (net
of fees).
The Company's results of operations for the year ended December 31, 1993
include the effects of the first ARCO acquisition since May 1, 1993 and the
offshore properties and the second ARCO acquisition since December 1, 1993. The
Company's results of operations for the year ended December 31, 1992 include the
effects of the Harbert and TEPCO acquisitions since February 1, 1992 and August
1, 1992, respectively.
(3) INVESTMENT IN AND ADVANCES TO AFFILIATE:
In May 1992, the Company transferred substantially all of its Canadian oil
and gas properties to a wholly-owned Canadian subsidiary, Forest Canada I
Development Ltd. (FCID). In September 1992, FCID sold its Canadian assets and
related operations to CanEagle Resources Corporation (CanEagle) for
approximately $51,250,000 in Canadian funds ($41,000,000 U.S.). CanEagle was
formed for the purpose of acquiring the assets and related operations of FCID.
In the transaction, FCID received cash of approximately $28,000,000 CDN
($22,400,000 U.S.), net of expenses, and provided financing in the aggregate
principal amount of $22,000,000 CDN ($17,600,000 U.S.). On June 24, 1994,
CanEagle sold a significant portion of its oil and gas properties in Canada to a
third party. In conjunction with this transaction, the Company received payment
of $6,124,000 CDN ($4,400,000 U.S.) representing principal and unpaid interest
on a CanEagle subordinated debenture held by the Company. In addition, the
Company exchanged its remaining investment in CanEagle for preferred shares of a
newly formed entity, Archean Energy, Ltd. (Archean).
F-27
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(3) INVESTMENT IN AND ADVANCES TO AFFILIATE: (CONTINUED)
The Company has accounted for the proceeds from the aforementioned
transactions as reductions in the carrying value of its investment in and
advances to its Canadian affiliates. The Company accounts for its investment in
Canadian affiliates in a manner analagous to equity accounting. Losses will be
recognized to the extent that the Canadian affiliates' losses are attributable
to the Company's interest. Earnings will be recognized only if realization is
assured. No earnings or losses attributable to the investment in Canadian
affiliates have been recognized in 1994, 1993 or 1992.
(4) LONG-TERM DEBT:
Long-term debt at December 31, 1994 and 1993 consists of the following:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Bank debt..................................................................... $ 33,000 $ 25,000
Nonrecourse secured loan...................................................... 57,840 53,101
Production payment obligation................................................. 18,534 21,305
11 1/4% Subordinated debentures............................................... 99,316 99,272
5 1/2% Subordinated debentures................................................ -- 7,171
----------- -----------
208,690 205,849
Less current portion.......................................................... (1,636) (11,542)
----------- -----------
Long-term debt................................................................ $ 207,054 $ 194,307
----------- -----------
----------- -----------
</TABLE>
BANK DEBT:
The Company has a secured 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, and up to $32,500,000 for working
capital and general corporate purposes, subject to semi-annual redemption at the
banks' discretion. The total borrowing capacity of the Company under the Credit
Facility is $50,000,000. In March, 1995, the banks completed their most recent
semi-annual redetermination of the Credit Facility and advised the Company that
the maximum borrowing capacity would be maintained at $50,000,000. However, the
amount of the maximum borrowings under the Credit Facility is at the discretion
of the banks and is subject to change at any time.
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
maturity date of the Credit Facility is December 31, 1996. Under the terms of
the Credit Facility, the Company is subject to certain covenants and financial
tests (which may from time to time restrict the Company's activities), 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 December 31, 1994 the outstanding balance under
the Credit Facility was $33,000,000 at interest rates ranging from 7.255% to
8.875% and the Company was in compliance with the covenants of the Credit
Facility. The Company currently anticipates that it may not meet the working
capital and/or interest coverage ratio tests during 1995. Management believes,
however, that any instances of noncompliance can be cured within the period of
time permitted or that waivers can be obtained from the banks.
F-28
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(4) LONG-TERM DEBT: (CONTINUED)
NONRECOURSE SECURED LOAN:
On December 30, 1993, the Company entered into a nonrecourse secured loan
agreement arranged by Enron Finance Corp., an affiliate of Enron Gas Services
(the Enron loan). Advances under the loan agreement bear annual interest at the
rate of 12.5%. Approximately $51,600,000 was advanced on December 30, 1993 to
provide financing for acquisitions. Another $5,800,000 of the available balance
was advanced on December 30, 1993 to fund a portion of the development projects
which will be undertaken by the Company on the properties pledged as security
for the loan. Under the terms of the Enron loan, additional funds may be
advanced to fund additional development projects which will be undertaken by the
Company on the properties pledged as security for the loan.
The loan was recorded at a discount to reflect conveyance to the lender of a
20% interest in the net profits, as defined, of properties located in south
Texas. This discount of $4,299,000 is being amortized over the life of the loan
using the effective interest method. At December 31, 1994 the principal amount
of the loan was $61,717,000 and the recorded liability was $57,840,000.
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, based on expected production and prices, budgeted capital
expenditure levels and expected discount amortization, is that 1995 payments
will reduce the recorded liability by approximately $524,000. This amount is
included in current liabilities. Estimated liability reductions, including
required principal payments, for 1996 through 1999, under the same production,
pricing, capital expenditure and discount scenario, are approximately
$11,280,000, $18,741,000, $15,119,000 and $9,113,000, respectively. 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 Company has signed a letter of intent to restructure the loan as
described in Note 17.
PRODUCTION PAYMENT OBLIGATION:
The original principal 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 of 15.5%. At December 31, 1994 the
remaining principal amount was $23,373,000 and the recorded liability was
$18,534,000. Under the terms of this production payment, the Company must make a
monthly cash payment which is the greater of a base amount or 85% of 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. The Company 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, based on expected production and
prices, budgeted capital expenditure levels and expected discount amortization,
is that 1995 payments will reduce the recorded liability by approximately
$1,112,000; this amount is included in current liabilities. Estimated liability
reductions for 1996 through 1999, under the same production, pricing, capital
expenditure and discount scenario, are $811,000, $1,177,000, $2,988,000 and
$4,220,000, respectively.
11 1/4% SUBORDINATED DEBENTURES:
On September 8, 1993 the Company completed a public offering of $100,000,000
aggregate principal amount of 11 1/4% Senior Subordinated Notes due September 1,
2003. The Senior Subordinated Notes were issued at a price of 99.259% yielding
11.375% to the holders. The Company used the net proceeds from the sale of the
Senior Subordinated Notes of approximately $95,827,000, together
F-29
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(4) LONG-TERM DEBT: (CONTINUED)
with approximately $19,400,000 of available cash, to redeem all of its
outstanding Senior Secured Notes and long-term subordinated debentures. The
redemptions resulted in a net loss of $15,387,000 which was recorded as an
extraordinary loss of $10,735,000 (net of income tax benefit of $4,652,000).
The Senior Subordinated Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after September 1, 1998 initially at a
redemption price of 105.688%, plus accrued interest to the date of redemption,
declining at the rate of 1.896% per year to September 9, 2000 and at 100%
thereafter. In addition, the Company may, at its option, redeem prior to
September 1, 1996 up to 30% of the initially outstanding principal amount of the
Notes at 110% of the principal amount thereof, plus accrued interest to the date
of redemption, with the net proceeds of any future public offering of its Common
Stock.
Under the terms of the Senior Subordinated Notes, the Company must meet
certain tests before it is able to pay cash dividends (other than dividends on
the Company's $.75 Convertible Preferred Stock) or make other restricted
payments, incur additional indebtedness, engage in transactions with its
affiliates, incur liens and engage in certain sale and leaseback arrangements.
The terms of the Senior Secured Notes also limit the Company's ability to
undertake a consolidation, merger or transfer of all or substantially all of its
assets. In addition, the Company is, subject to certain conditions, obligated to
offer to repurchase Senior Subordinated Notes at par value plus accrued and
unpaid interest to the date of repurchase, with the net cash proceeds of certain
sales or dispositions of assets. Upon a change of control, as defined, the
Company will be required to make an offer to purchase the Senior Subordinated
Notes at 101% of the principal amount thereof, plus accrued interest to the date
of purchase.
5 1/2% SUBORDINATED DEBENTURES:
At December 31, 1993 the 5 1/2% Convertible Subordinated Debentures had a
remaining balance of $7,171,000 which was paid in full on the February 1, 1994
due date.
(5) DEFERRED REVENUE:
From April 1991 through May 1993, the Company entered into four volumetric
production payments with entities associated with Enron Corp. (Enron) for net
proceeds of $121,498,000. Under the terms of these production payments, the
Company was required to deliver 70.1 BCF of natural gas and 770,000 barrels of
oil over periods ranging from three to six years.
Effective November 1, 1993, the four separate volumetric payment financings
described above between the Company and Enron were consolidated into one
production payment. The delivery schedules from the previously separate
production payments were not adjusted; however, delivery shortfalls on any
property can now be made up from excess production from any other property which
is dedicated to the production payment obligation. The consolidation also
provided that certain acreage previously committed to the production payments
was released and can be developed by the Company unburdened by the delivery
obligations of the production payment.
In connection with the purchase of interests in properties from ARCO in
December 1993, a volumetric production payment from certain of the ARCO
properties was sold to Enron for net proceeds of $13,207,000. This production
payment covered approximately 7.3 BCF of natural gas to be delivered over 8
years.
F-30
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(5) DEFERRED REVENUE: (CONTINUED)
In July 1994, the Company purchased additional interests in the properties
acquired from ARCO in December 1993. In connection with this transaction, a
volumetric production payment was sold to Enron for net proceeds of $4,353,000.
This production payment covered approximately 2.7 BCF of natural gas to be
delivered over 8 years.
The Company is required to deliver the scheduled volumes from the subject
properties or to make a cash payment for volumes produced but not delivered, in
combination not to exceed a specified percentage of monthly production. If
production levels are not sufficient to meet scheduled delivery commitments, the
Company must account for and make up such shortages, at market-based prices,
from future production.
The Company is responsible for royalties and for production costs associated
with operating the properties subject to the production payment agreements. The
Company may grant liens on properties subject to the production payment
agreements, but it must notify prospective lienholders that their rights are
subject to the prior rights of the production payment owner.
Amounts received were recorded as deferred revenue. Volumes associated with
amortization of deferred revenue for the years ended December 31, 1994, 1993 and
1992 were as follows:
<TABLE>
<CAPTION>
NET SALES VOLUME
ATTRIBUTABLE TO PRODUCTION
VOLUMES DELIVERED (1) PAYMENT DELIVERIES (2)
-------------------------- --------------------------
NATURAL GAS NATURAL GAS
OIL (MBBLS) (MMCF) OIL (MBBLS) (MMCF)
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
1994........................................................ 218 19,985 182 16,005
1993........................................................ 221 23,392 185 18,731
1992........................................................ 70 11,689 59 9,117
<FN>
- ------------------------
(1) Amounts settled in cash in lieu of volumes were $1,611,381, $3,138,628 and
$7,965,945, for the years ended December 31, 1994, 1993 and 1992,
respectively.
(2) Represents volumes required to be delivered to Enron net of estimated
royalty volumes.
</TABLE>
Future amortization of deferred revenue, based on the scheduled deliveries
under the production payment agreements, is as follows:
<TABLE>
<CAPTION>
NET SALES VOLUMES
VOLUMES REQUIRED TO BE ATTRIBUTABLE TO PRODUCTION
DELIVERED TO ENRON PAYMENT DELIVERIES (1)
-------------------------- --------------------------
NATURAL GAS NATURAL GAS
(MMCF) OIL (MBBLS) (MMCF) OIL (MBBLS)
ANNUAL ----------- ------------- ----------- -------------
AMORTIZATION
--------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1995................................. $ 20,770 11,045 174 8,899 145
1996................................. 7,546 3,721 87 2,998 74
1997................................. 2,439 1,410 -- 1,136 --
1998................................. 1,593 892 -- 719 --
Thereafter........................... 3,560 1,994 -- 1,606 --
-------------- ----------- --- ----------- ---
$ 35,908 19,062 261 15,358 219
-------------- ----------- --- ----------- ---
-------------- ----------- --- ----------- ---
<FN>
- ------------------------
(1) Represents volumes required to be delivered to Enron net of estimated
royalty volumes.
</TABLE>
F-31
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
(6) INCOME TAXES:
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," (SFAS No. 109) on a prospective basis effective
January 1, 1993. The cumulative effect of this change in accounting for income
taxes of $2,060,000 was determined as of January 1, 1993 and was reported
separately in the Consolidated Statement of Operations for the year ended
December 31, 1993.
The income tax expense (benefit) is different from amounts computed by
applying the statutory Federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
1994 1993 1992
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax expense (benefit) at 35% (34% for 1992) of earnings (loss) before
income taxes, cumulative effects of changes in accounting principles
and extraordinary item............................................... $ (23,749) (3,747) 3,837
Change in the balance of the valuation allowance for deferred tax
assets attributable to loss before income taxes, cumulative effects
of changes in accounting principles and extraordinary item........... 23,220 2,034 --
Expiration of tax carryforwards....................................... 455 318 --
Other................................................................. 83 45 151
---------- --------- ---------
Total income tax expense (benefit)................................ $ 9 (1,350) 3,988
---------- --------- ---------
---------- --------- ---------
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 increased the Federal
corporate tax rate from 34% to 35% retroactively to January 1, 1993. As a result
of this tax increase, the tax benefits at December 31, 1994 and December 31,
1993, respectively, on the losses from continuing operations were approximately
$677,000 and $167,000 less than such amounts would have been without such
increase in the tax rate. However, due to limitations on the recognition of
deferred tax assets, the total tax benefit at December 31, 1994 and December 31,
1993, including the tax benefit on the cumulative effect of the change in
accounting method in 1994 and on the extraordinary loss on extinguishment of
debt in 1993, is unaffected by the tax rate increase. The impact of the tax rate
increase will be recognized when future taxable income allows the unrecognized
deferred tax asset to be realized.
Deferred income taxes generally result from recognizing income and expenses
at different times for financial and tax reporting. These differences result
from recording proceeds from the sale of properties in the full cost pool,
capitalization of certain development, exploration and other costs under the
full cost method of accounting and the provision for impairment of oil and gas
properties for financial accounting purposes.
F-32
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(6) INCOME TAXES: (CONTINUED)
The components of the net deferred tax liability, computed in accordance
with SFAS No. 109 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1994 1994
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts................ $ 289 468
Current and long term liabilities due to accrual for retirement benefits... 1,475 1,641
Current and long term liabilities due to accrual for medical benefits...... 2,040 1,857
Current and long term liabilities due to accrual for sales recorded on the
entitlements method....................................................... 3,642 --
Net operating loss carryforward............................................ 19,965 13,990
Depletion carryforward..................................................... 6,958 6,958
Contribution carryforward.................................................. 106 348
Investment tax credit carryforward......................................... 3,674 3,885
Alternative minimum tax credit carryforward................................ 2,206 2,206
Other...................................................................... 94 96
------------ -----------
Total gross deferred tax assets.......................................... 40,449 31,449
Less valuation allowance................................................. (36,258) (8,142)
------------ -----------
Net deferred tax assets.................................................. 4,191 23,307
Deferred tax liabilities:
Full cost pool, due principally to capitalized expenditures................ (4,191) (23,307)
------------ -----------
Net deferred tax liability............................................... $ -- --
------------ -----------
------------ -----------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1994 was
$8,142,000. The net change in the total valuation allowance for the tax year
ended December 31, 1994 was an increase of $28,116,000. The total increase in
the valuation allowance includes $4,896,000 resulting from the cumulative effect
of the change in accounting for oil and gas sales from the sales method to the
entitlements method.
The Alternative Minimum Tax (AMT) credit carryforward available to reduce
future Federal regular taxes aggregated $2,206,000 at December 31, 1994. This
amount may be carried forward indefinitely. Regular and AMT net operating loss
carryforwards at December 31, 1994 were $57,044,000 and $55,387,000,
respectively, and will expire in the years indicated below:
<TABLE>
<CAPTION>
REGULAR AMT
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
2000............................................................................. $ 2,665 4,143
2005............................................................................. 8,307 --
2008............................................................................. 28,999 31,800
2009............................................................................. 17,073 19,444
--------- ---------
$ 57,044 55,387
--------- ---------
--------- ---------
</TABLE>
AMT net operating loss carryforwards can be used to offset 90% of AMT income
in future years.
F-33
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(6) INCOME TAXES: (CONTINUED)
Investment tax credit carryforwards available to reduce future Federal
income taxes aggregated $3,674,000 at December 31, 1994 and expire at various
dates through the year 2001. Percentage depletion carryforwards available to
reduce future Federal taxable income aggregated $19,879,000 at December 31,
1994. This amount may be carried forward indefinitely. The net operating loss
and investment tax credit carryforwards have been recognized as a deferred tax
asset, subject to a valuation allowance.
The availability of some of these tax attributes to reduce current and
future taxable income of the Company is subject to various limitations under the
Internal Revenue Code. In particular, the Company's ability to utilize such tax
attributes could be severely restricted due to the occurrence of an "ownership
change" within the meaning of Section 382 of the Internal Revenue Code resulting
from the Company's 1991 recapitalization. At December 31, 1994, the Company
estimated that net operating loss and investment tax credit carryforwards would
be limited to offset current taxable income to the extent described below.
The net operating loss carryforwards which expire in 2008 and 2009 are not
subject to the provisions of Section 382 as they were generated subsequent to
the ownership change. Even though the Company is limited in its ability to use
the remaining net operating loss carryovers under the general provisions of
Section 382, it may be entitled to use these net operating loss carryovers to
offset (a) gains recognized in the five years following the ownership change on
the disposition of certain assets, to the extent that the value of the assets
disposed of exceeds its tax basis on the date of the ownership change or (b) any
item of income which is properly taken into account in the five years following
the ownership change but which is attributable to periods before the ownership
change ("built-in gain"). The ability of the Company to use these net operating
loss carryovers to offset built-in gain first requires that the Company have
total built-in gains at the time of the ownership change which are greater than
a threshold amount. In addition, the use of these net operating loss
carryforwards to offset built-in gain cannot exceed the amount of the total
built-in gain.
The Company believes that due to the amount of built-in gain as of the date
of ownership change, and the recognition of such gain through December 31, 1994,
there is no significant limitation on the Company's ability to use these net
operating loss carryforwards or investment tax credit carryforwards.
(7) PREFERRED STOCK:
The Company has 10,000,000 shares of $.75 Convertible Preferred Stock
authorized, par value $.01 per share, of which there were 2,880,973 shares
outstanding at December 31, 1994 and 1993, with an aggregate liquidation
preference of $28,809,730 at December 31, 1994 and 1993. This stock is
convertible at any time, at the option of the holder, at the rate of 3.5 shares
of Common Stock for each share of $.75 Convertible Preferred Stock, subject to
adjustment upon occurrence of certain events. During 1994, no shares of $.75
Convertible Preferred Stock were converted into shares of Common Stock. The $.75
Convertible Preferred Stock is redeemable, in whole or in part, at the option of
the Company, at any time after the earlier of (i) July 1, 1996 or (ii) the date
on which the last reported sales price of the Common Stock will have been $7.50
or higher for at least 20 of the prior 30 trading days, at a redemption price of
$10.33 per share during the twelve-month period which began July 1, 1994 and
declining ratably to $10.00 per share at July 1, 1996 and thereafter, including
accumulated and unpaid dividends. Cumulative annual dividends of $.75 per share
are payable quarterly, in arrears, on the first day of February, May, August and
November, when and as declared. Until December 31, 1993, the Company paid such
dividends in shares of Common Stock. After such date, dividends may be paid in
cash or, at the Company's election, in shares of Common Stock or in a
combination of cash and
F-34
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(7) PREFERRED STOCK: (CONTINUED)
Common Stock. However, the Company is prohibited from paying cash dividends on
its $.75 Convertible Preferred Stock after the February 1, 1995 dividend due to
restrictions contained in the Credit Agreement with its lending banks. Common
Stock delivered in payment of dividend will be valued for dividend payment
purposes at between 75% and 90%, based on trading volume, of the average last
reported sales price of the Common Stock during a specified period prior to the
record date for the dividend payment.
During any period in which dividends on preferred stock are in arrears, no
dividends or distributions, except for dividends paid in shares of Common Stock,
may be paid or declared on the Common Stock, nor may any shares of Common Stock
be acquired by the Company.
(8) COMMON STOCK:
The Company has 112,000,000 shares of Common Stock authorized, par value
$.10 per share, of which there were 28,295,209 and 28,250,445 shares issued at
December 31, 1994 and 1993, respectively, with 105,940 and 335,813 shares held
by the Company at December 31, 1994 and 1993, respectively. The Common Stock is
entitled to one vote per share. Prior to May 1993 the Company also had Class B
stock which had superior voting rights to the Company's Common Stock, had
limited transferability and was not traded in any public market but was
convertible at any time into shares of Common Stock on a share-for-share basis.
At the Company's Annual Meeting of Shareholders on May 12, 1993, the
shareholders adopted amendments to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock to
112,000,000 and to reclassify each share of Class B Stock into 1.1 shares of
Common Stock.
On June 15, 1993, the Company issued 11,080,000 shares of Common Stock for
$5.00 per share in a public offering. The net proceeds from the issuance of the
shares totalled approximately $51,506,000 after deducting issuance costs and
underwriting fees.
On October 29, 1993 the Company paid a dividend distribution of one
Preferred Share Purchase Right on each outstanding share of the Company's Common
Stock. The Rights are exercisable only if a person or group acquires 20% or more
of the Company's Common Stock or announces a tender offer which would result in
ownership by a person or group of 20% or more of the Common Stock. Each Right
initially entitles each shareholder to buy 1/100th of a share of a new series of
Preferred Stock at an exercise price of $30.00, subject to adjustment upon
certain occurrences. Each 1/100th of a share of such new Preferred Stock that
can be purchased upon exercise of a Right has economic terms designed to
approximate the value of one share of Common Stock. The Rights will expire on
October 29, 2003, unless extended or terminated earlier.
The Company has Warrants outstanding which permit holders thereof to
purchase 1,244,715 shares of Common Stock at an exercise price of $3.00 per
share. The Warrants are noncallable by the Company and expire on October 1,
1996. The exercise price is payable in cash.
In March 1992, the Company adopted the 1992 Stock Option Plan under which
non-qualified stock options may be granted to key employees and non-employee
directors. The aggregate number of shares of Common Stock which the Company may
issue under options granted pursuant to this plan may not exceed 10% of the
total number of shares outstanding or issuable at the date of grant pursuant to
outstanding rights, warrants, convertible or exchangeable securities or other
options. The exercise price of an option may not be less than 85% of the fair
market value of one share of the Company's Common Stock on the date of grant.
The options vest 20% on the date of grant and an
F-35
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(8) COMMON STOCK: (CONTINUED)
additional 20% on each grant anniversary date thereafter. The Company may, in
its discretion, grant each optionee a cash bonus upon the exercise of each
granted option. A summary of stock option activity related to the Plan is as
follows:
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
------------- ------------
<S> <C> <C>
Options granted during 1992 and outstanding at December 31, 1992.......... 1,740,000 $ 3.00
Granted................................................................. 1,525,000 5.00
Exercised............................................................... (132,000) 3.00
Cancelled or surrendered................................................ (79,000) 3.00
------------- ------------
Options outstanding at December 31, 1993.................................. 3,054,000 3.00-5.00
Granted................................................................. 310,000 5.00
Exercised............................................................... (35,000) 3.00
Cancelled or surrendered................................................ (35,000) 5.00
------------- ------------
Options outstanding at December 31, 1994.................................. 3,294,000 $ 3.00-5.00
------------- ------------
------------- ------------
Options exercisable at December 31, 1994.................................. 1,860,400 $ 3.00-5.00
------------- ------------
------------- ------------
</TABLE>
(9) GAS PURCHASE CONTRACT SETTLEMENT:
On December 17, 1992, the Company and ONEOK, Inc. (ONEOK) agreed to settle
the case styled Forest Oil Corporation v. ONEOK, Inc. (Number 71,582) and its
companion case styled Forest Oil Corporation v. ONEOK, Inc. (Case No. C-89-53).
The cases involved take-or-pay damages relating to a natural gas purchase
contract between the Company and ONEOK. The settlement encompassed all disputed
contracts, claims and future claims. The cash proceeds of $51,250,000 were
received by the Company on December 24, 1992. Proceeds after deducting related
royalties and production taxes were approximately $36,429,000. The ONEOK
settlement increased the Company's net earnings for 1992 by approximately
$24,043,000 or $1.75 per share.
(10) EMPLOYEE BENEFITS:
PENSION PLANS:
The Company has a qualified defined benefit pension plan (Pension Plan). The
Company has effected a curtailment of the Pension Plan pursuant to which all
benefit accruals were suspended effective May 31, 1991.
F-36
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(10) EMPLOYEE BENEFITS: (CONTINUED)
The benefits under the Pension Plan are based on years of service and the
employee's average compensation during the highest consecutive sixty-month
period in the fifteen years prior to retirement. No contribution was made in
1994, 1993 or 1992. The following table sets forth the Pension Plan's funded
status and amounts recognized in the Company's consolidated financial statements
at December 31:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $23,953,000 in
1994 and $28,484,000 in 1993................................................ $ (23,953) (28,484)
---------- ----------
---------- ----------
Projected benefit obligation for service rendered to date...................... $ (23,953) (28,484)
Plan assets at fair market value, consisting primarily of listed stocks, bonds
and other fixed income obligations............................................ 23,443 25,576
---------- ----------
Plan assets in excess of projected benefit obligation (unfunded pension
liability).................................................................... (510) (2,908)
Unrecognized net loss from past experience different from that assumed and
effects of changes in assumptions............................................. 1,468 3,642
---------- ----------
Pension asset recognized in the balance sheet.................................. $ 958 734
---------- ----------
---------- ----------
</TABLE>
For 1994 the discount rate used in determining the actuarial present value
of the projected benefit obligation was 9% and the expected long-term rate of
return on assets was 9%. For 1993, the discount rate used in determining the
actuarial present value of the projected benefit obligation was 7.5% and the
expected long-term rate of return on assets was 9%. For 1992, the discount rate
used in determining the actuarial present value of the projected benefit
obligation was 9% and the expected long-term rate of return on assets was 9%.
The components of net pension expense (benefit) for the years ended December
31, 1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net pension expense (benefit) included the following components:
Interest cost on projected benefit obligation....................... $ 1,976 2,039 2,074
Actual return on plan assets........................................ (245) (3,534) (1,890)
Net amortization and deferral....................................... (1,955) 1,441 (240)
--------- --------- ---------
Net pension expense (benefit)......................................... $ (224) (54) (56)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company has a non-qualified unfunded supplementary retirement plan that
provides certain officers with defined retirement benefits in excess of
qualified plan limits imposed by Federal tax law. Benefit accruals under this
plan were suspended effective May 31, 1991 in connection with suspension of
benefit accruals under the Company's Pension Plan. At December 31, 1994 the
projected benefit obligation under this plan totaled $480,000, which is included
in other liabilities in the accompanying balance sheet. The projected benefit
obligation is determined using the same discount rate as is used for
calculations for the Pension Plan.
F-37
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(10) EMPLOYEE BENEFITS: (CONTINUED)
In 1993 as a result of the change in the discount rate for the Pension Plan
and the supplementary retirement plan, the Company recorded a liability of
$3,038,000 representing the unfunded pension liability and a corresponding
decrease in capital surplus. As a result of the increase in the discount rate
for the Pension Plan and the supplementary retirement plan in 1994, the Company
reduced the liability representing the unfunded pension liability by
approximately $1,570,000 with a corresponding increase in capital surplus.
RETIREMENT SAVINGS PLAN:
The Company sponsors a qualified tax deferred savings plan in accordance
with the provisions of Section 401(k) of the Internal Revenue Code. Employees
may defer up to 10% of their compensation, subject to certain limitations. The
Company matches the employee contributions up to 5% of employee compensation. In
1994, 1993 and 1992, Company contributions were made using treasury stock. The
expense associated with the Company's contribution was $516,000 in 1994,
$367,000 in 1993 and $454,000 in 1992.
Effective January 1, 1992 the plan was amended to include profit-sharing
contributions by the Company. In 1994, the Company did not make any profit
sharing contributions. The Company's profit-sharing contributions were made
using Company stock valued at $276,000 and $465,000 for 1993 and 1992,
respectively.
ANNUAL INCENTIVE PLAN:
The Forest Oil Corporation Annual Incentive Plan (the Incentive Plan), which
became effective January 1, 1992, permits participating employees to earn annual
bonus awards payable in cash or in shares of the Company's Common Stock,
generally based in part upon the Company attaining certain levels of
performance. In 1994, no bonuses were awarded. In 1993 and 1992, the Company
accrued bonuses of $426,000 and $930,000, respectively, under the Incentive
Plan. Amounts awarded will be disbursed in equal annual installments over the
succeeding three-year period.
EXECUTIVE RETIREMENT AGREEMENTS:
The Company entered into Agreements in December 1990 (the Agreements) with
certain executives and directors (the Retirees) whereby each executive retired
from the employ of the Company as of December 28, 1990. Pursuant to the terms of
the Agreements, the Retirees are entitled to receive supplemental retirement
payments from the Company in addition to the amounts to which they are entitled
under the Company's retirement plan. In addition, the Retirees and their spouses
are entitled to lifetime coverage under the Company's group medical and dental
plans, tax and other financial services, and payments by the Company in
connection with certain club membership dues. The Retirees will also continue to
participate in the Company's royalty bonus program until December 31, 1995. The
Company has also agreed to maintain certain life insurance policies in effect at
December 1990, for the benefit of each of the Retirees.
Six of the Retirees have subsequently resigned as directors. One of the
Retirees continues to serve as a director and will be paid the customary
non-employee director's fee. Pursuant to the terms of the retirement agreements,
the former directors and any other Retiree who ceases to be a director (or his
spouse) will be paid $2,500 a month until December 2000.
The Company's obligation to one retiree under a revised retirement agreement
is payable in Common Stock or cash, at the Company's option, in May of each year
from 1993 through 1996 at approximately $190,000 per year with the balance of
$149,000 payable in May 1997. The retirement
F-38
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(10) EMPLOYEE BENEFITS: (CONTINUED)
agreements for the other six Retirees, one of whom received in 1991 the payments
scheduled to be made in 1999 and 2000, provide for supplemental retirement
payments totalling approximately $938,400 per year through 1998 and
approximately $740,400 per year in 1999 and 2000.
The present value of the amounts due under the agreements, discounted at
13%, has been recorded as retirement benefits payable to executives and
directors.
LIFE INSURANCE:
The Company provides life insurance benefits for certain key employees and
retirees under split dollar life insurance plans. The premiums paid for the life
insurance policies were $916,000, $861,000, and $995,000 in 1994, 1993 and 1992,
respectively, including $831,000, $766,000 and $765,000 paid for policies for
retired executives. Under the life insurance plans, the Company is assigned a
portion of the benefits which is designed to recover the premiums paid.
HEALTH AND DENTAL INSURANCE:
The Company provides health and dental insurance to all of its employees,
eligible retirees and eligible dependents. The Company provides these benefits
at nominal cost to employees and retirees who are required to contribute an
estimated 50% of the cost of dependent coverage. In 1994, 1993 and 1992 the
costs of providing these benefits for both active and retired employees totalled
$1,714,000, $1,350,000 and $1,359,000, respectively. The 1994 cost includes
$1,384,000 related to 191 participating active employees and 4 employees on
long-term disability and $330,000 related to 115 eligible retirees. The 1993
cost includes $993,000 related to 184 participating active employees and 4
employees on long-term disability and $357,000 related to 125 eligible retirees.
The 1992 cost includes $1,011,000 related to 183 participating active employees
and $348,000 related to 119 eligible retirees.
POSTRETIREMENT BENEFITS:
The Company accrues expected costs of providing postretirement benefits to
employees, their beneficiaries and covered dependents in accordance with
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," (SFAS No. 106). The Company
adopted the provisions of SFAS No. 106 in the first quarter of 1993. The
estimated 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. The annual net
postretirement benefit cost was approximately $510,000 for 1994 and $483,000 in
1993.
At December 31, 1994, December 31, 1993 and January 1, 1993 the discount
rates used in determining the actuarial present value of the accumulated
postretirement benefit obligation were 9%, 7.5% and 8.5%, respectively.
(11) RELATED PARTY TRANSACTIONS:
During 1994, the Company used a real estate complex (the Complex) owned
directly or indirectly by certain stockholders and members of the Board of
Directors for Company-sponsored seminars, the accommodation of business guests,
the housing of personnel attending corporate meetings and for other general
business purposes. In 1994, in connection with the Company's termination of
usage, the Company paid $662,000 on account of the business use of such
property, and an additional $300,000 as a partial reimbursement of deferred
maintenance costs. The Company incurred expenses for its use of the Complex of
$635,000 in 1993 and $611,000 in 1992.
John F. Dorn resigned as an executive officer and director of the Company in
1993. The Company agreed to pay John F. Dorn his salary at time of resignation
through September 30, 1996. In addition,
F-39
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(11) RELATED PARTY TRANSACTIONS: (CONTINUED)
the Company provided certain other benefits and services to Mr. Dorn. The
present value of the severance package was estimated at $500,000, which amount
was recorded as an expense and a liability at December 31, 1993.
In March 1994, the Company sold certain non-strategic oil and gas properties
to an entity controlled by John F. Dorn and another former executive officer of
the Company for net proceeds, after costs of sale and purchase price
adjustments, of $3,661,000. The Company established the sales price based upon
an opinion from an independent third party. The purchasers financed 100% of the
purchase price with a loan bearing interest at the rate of prime plus 1%. The
loan was secured by a mortgage on the properties and personal guarantees of the
purchasers. The Company participated as a lender in the loan in the amount of
approximately $800,000. In addition, the Company agreed to subordinate to the
other lender its right of payment of principal on default. The purchasers have
separately agreed with the Company that certain options to purchase company
stock will be cancelled to the extent that the Company's participation in the
loan is not repaid in full. Collectively, the purchasers have options to
purchase 275,000 shares of the Company's Common Stock at $3.00 per share and
275,000 shares at $5.00 per share.
(12) COMMITMENTS AND CONTINGENCIES:
Future rental payments for office facilities and equipment under the
remaining terms of noncancelable leases are $1,619,000, $1,138,000, $961,000,
$969,000 and $1,002,000 for the years ending December 31, 1995 through 1999,
respectively.
Net rental payments applicable to exploration and development activities and
capitalized in the oil and gas property accounts aggregated $851,000 in 1994,
$688,000 in 1993 and $874,000 in 1992. Net rental payments charged to expense
amounted to $3,512,000 in 1994, $3,098,000 in 1993 and $3,112,000 in 1992.
Rental payments include the short-term lease of vehicles. None of the leases are
accounted for as capital leases.
The Company, in the ordinary course of business, is a party to various legal
actions. In the opinion of management, none of these actions, either
individually or in the aggregate, will have a material adverse effect on the
Company's financial condition, liquidity or results of operations.
(13) FINANCIAL INSTRUMENTS:
The Company is exposed to off-balance-sheet risks associated with energy
swap agreements arising from movements in the prices of oil and natural gas and
from the unlikely event of non-performance by the counterparty to the swap
agreements.
In order to hedge against the effects of declines in oil and natural gas
prices, the Company enters into energy swap agreements with third parties and
accounts for the agreements as hedges based on analogy to the criteria set forth
in Statement of Financial Accounting Standards No. 80, "Accounting for Futures
Contracts". 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. For the years ended December 31, 1994, 1993 and 1992, the Company
incurred swap gains (losses) of $1,810,000, $(2,050,000) and $(1,642,000),
respectively.
F-40
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(13) FINANCIAL INSTRUMENTS: (CONTINUED)
The following table indicates outstanding energy swaps of the Company which
were in place at December 31, 1994:
<TABLE>
<CAPTION>
PRODUCT VOLUME FIXED PRICE DURATION
- --------------- ------------------------------------ --------------- ------------
<S> <C> <C> <C>
Natural Gas 5,000 MMBTU/day $1.90-$2.38 1/95-12/95
Natural Gas 194 to 16,275 MMBTU/day $2.06-$2.535 1/95-12/99
Natural Gas 10,000 MMBTU/day $2.00-$2.37 1/95-12/97
Natural Gas 10 to 350 MMBTU/day $2.12-$3.003 1/95-12/02
Natural Gas 5,000 MMBTU/day $2.25 1/95-2/95
Natural Gas 850 to 1,377 MMBTU/day $2.255 1/95-9/95
Oil 657 BBLS/day $16.70 1/95-4/96
Oil 657 BBLS/day $17.75 1/95-6/96
</TABLE>
OPTION AGREEMENT. -- In 1993, under another agreement (the Option
Agreement), the Company paid a premium of $516,000 in conjunction with the
closing of the Enron loan agreement. The payment of this premium gave Forest the
right to set a floor price of $1.70 per MMBTU on a total of 18,400 BBTU of
natural gas over a five year period commencing January 1, 1995. In order to
exercise this right to set a floor, the Company must pay an additional premium
of 10 per MMBTU, effectively setting the floor at $1.60 per MMBTU. The option
agreement is broken into five calendar year periods with the option for each
calendar year expiring four trading days prior to the last trading day for the
January NYMEX contract for that year. The premium of $516,000 related to the
Option Agreement was recorded as a long-term asset and will be amortized as a
reduction to oil and gas income beginning in 1995 based on the volumes involved.
Set forth below is the estimated fair value of certain on and off-balance
sheet financial instruments, along with the methods and assumptions used to
estimate such fair values as of December 31, 1994:
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLES AND ACCOUNTS PAYABLE:
The carrying amount of these instruments approximates fair value due to
their short maturity.
NONRECOURSE SECURED LOAN:
The fair value of the Company's nonrecourse secured loan has been estimated
as approximately $58,684,000 by discounting the projected future cash payments
required under the agreement by 14.45%.
PRODUCTION PAYMENT OBLIGATION:
The fair value of the Company's production payment obligation has been
estimated as approximately $17,405,000 by discounting the projected future cash
payments required under the agreement by 12.5%.
SENIOR SUBORDINATED NOTES:
The fair value of the Company's 11 1/4% Subordinated Notes was approximately
$91,000,000, based upon quoted market prices for the same or similar issues.
ENERGY SWAP AGREEMENTS:
The fair value of the Company's energy swap agreements was approximately
$7,673,000, based upon the estimated net amount the Company would receive to
terminate the agreements.
F-41
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
(14) MAJOR CUSTOMERS:
The Company's sales of oil and natural gas to individual customers which
exceeded 10% of the Company's total sales (exclusive of the effects of energy
swaps and hedges) were:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Enron Affiliates (A)................................................. $ 58,805 63,075 12,646
Chevron USA Production Company....................................... 12,829 -- --
ONEOK Exploration Company (B)........................................ -- -- 22,392
</TABLE>
- ------------------------
(A) The amount shown for Enron Affiliates includes oil and natural gas sales to
Enron Gas Marketing Inc., Enron Oil & Gas Company, EOTT Energy Corporation,
Cactus Funding Corporation, Cactus Hydrocarbon III Limited Partnership,
Enron Gas Services Corporation and Enron Reserve Acquisition. Approximately
$29,046,000, $32,702,000 and $14,081,000 represent sales recorded for
deliveries under volumetric production payments in the years ended December
31, 1994, 1993 and 1992, respectively.
(B) The amount shown for ONEOK Exploration Company represents the amount
recorded as a result of the gas purchase contract settlement described in
Note 9.
(15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- --------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1994 (A)
Revenue......................................................... $ 32,543 32,977 28,207 22,220
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Earnings from operations........................................ $ 24,241 23,600 19,387 13,763
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Income (loss) before cumulative effects of changes in accounting
principles and extraordinary item.............................. $ 236 (265) (32,873) (34,951)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Net loss........................................................ $ (13,754) (265) (32,873) (34,951)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Net loss attributable to common stock........................... $ (14,294) (805) (33,414) (35,491)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Primary and fully diluted loss per share before cumulative
effects of changes in accounting principles and extraordinary
item........................................................... $ (.01) (.03) (1.19) (1.26)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Primary and fully diluted loss per share........................ $ (.51) (.03) (1.19) (1.26)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
F-42
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- --------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1993
<S> <C> <C> <C> <C>
Revenue......................................................... $ 25,126 27,975 26,214 25,833
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Earnings from operations........................................ $ 16,949 21,029 18,275 15,087
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Loss before cumulative effects of changes in changes in
accounting principles and extraordinary item................... $ (1,266) (938) (2,353) (4,798)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Net loss........................................................ $ (2,389) (938) (13,102) (4,784)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Net loss attributable to common stock........................... $ (2,976) (1,508) (13,653) (5,326)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Primary and fully diluted loss per share before cumulative
effects of changes in accounting principles and extraordinary
item........................................................... $ (.12) (.09) (.11) (.19)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Primary and fully diluted loss per share........................ $ (.20) (.09) (.50) (.19)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
- ------------------------
(A) Amounts have been restated to give retroactive effect to the change in
accounting for oil and gas sales as discussed in Note 1. Restated amounts
for the first quarter reflect increases of $1,473,000 in Revenue and in
Earnings from operations and $1,131,000 in Income (loss) before cumulative
effects of changes in accounting principles and extraordinary item; an
increase of $12,859,000 in Net loss and in Net loss attributable to common
stock; a decrease of $.04 in Primary and fully diluted loss per share before
cumulative effects of changes in accounting principles and extraordinary
item; and an increase of $.46 in Primary and fully diluted loss per share.
Restated amounts for the second quarter reflect increases of $1,220,000 in
Revenue and in Earnings from operations; decreases of $993,000 in Loss
before cumulative effects of changes in accounting principles and
extraordinary item, Net loss and Net loss attributable to common stock; and
decreases of $.03 in the per share losses presented. Restated amounts for
the third quarter reflect increases of $1,147,000 in Revenue and in Earnings
from operations; decreases of $866,000 in Loss before cumulative effects of
changes in accounting principles and extraordinary item, Net loss and Net
loss attributable to common stock; and decreases of $.03 in the per share
losses presented.
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED):
The following information is presented in accordance with Statement of
Financial Accounting Standards No. 69, "Disclosure about Oil and Gas
Producing Activities," (SFAS No. 69), except as noted.
F-43
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED): (CONTINUED)
(A) COSTS INCURRED IN OIL AND GAS EXPLORATION AND DEVELOPMENT
ACTIVITIES -- The following costs were incurred in oil and gas exploration and
development activities during the years ended December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
UNITED
STATES CANADA TOTAL
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
1994
Property acquisition costs (undeveloped leases and proved
properties)...................................................... $ 9,762 -- 9,762
Exploration costs................................................. 15,693 -- 15,693
Development costs................................................. 17,089 -- 17,089
----------- ----- -----------
Total........................................................... $ 42,544 -- 42,544
----------- ----- -----------
----------- ----- -----------
1993
Property acquisition costs (undeveloped leases and proved
properties)...................................................... $ 144,916 -- 144,916
Exploration costs................................................. 5,433 -- 5,433
Development costs................................................. 20,472 -- 20,472
----------- ----- -----------
Total........................................................... $ 170,821 -- 170,821
----------- ----- -----------
----------- ----- -----------
1992
Property acquisition costs (undeveloped leases and proved
properties)...................................................... $ 88,770 2 88,772
Exploration costs................................................. 2,171 126 2,297
Development costs................................................. 14,828 730 15,558
----------- ----- -----------
Total........................................................... $ 105,769 858 106,627
----------- ----- -----------
----------- ----- -----------
</TABLE>
(B) AGGREGATE CAPITALIZED COSTS -- The aggregate capitalized costs relating
to oil and gas activities were incurred as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1994 1993 1992
------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Costs related to proved properties........................... $ 1,109,158 1,079,164 928,890
Costs related to unproved properties:
Costs subject to depletion (including wells in progress)... 32,288 20,276 24,785
Costs not subject to depletion............................... 30,441 41,216 18,306
------------- ------------- -----------
1,171,887 1,140,656 971,981
------------- ------------- -----------
Less accumulated depletion and valuation allowance........... 895,335 778,226 717,444
------------- ------------- -----------
$ 276,552 362,430 254,537
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
F-44
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED): (CONTINUED)
(C) RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES -- Results of operations
from producing activities for 1994, 1993 and 1992 are presented below. Income
taxes are different from income taxes shown in the Consolidated Statements of
Operations because this table excludes general and administrative and interest
expense.
<TABLE>
<CAPTION>
UNITED STATES CANADA TOTAL
-------------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
1994
Oil and gas sales................................................... $ 114,541 -- 114,541
Production expense.................................................. 22,384 -- 22,384
Depletion expense................................................... 64,883 -- 64,883
Provision for impairment of oil and gas properties.................. 58,000 -- 58,000
Income tax benefit (A).............................................. -- -- --
-------------- --------- --------------
145,267 -- 145,267
-------------- --------- --------------
Results of operations from producing activities................... $ (30,726) -- (30,726)
-------------- --------- --------------
-------------- --------- --------------
1993
Oil and gas sales................................................... $ 102,883 -- 102,883
Production expense.................................................. 19,540 -- 19,540
Depletion expense................................................... 59,759 -- 59,759
Income tax expense (B).............................................. -- -- --
-------------- --------- --------------
79,299 -- 79,299
-------------- --------- --------------
Results of operations from producing activities................... $ 23,584 -- 23,584
-------------- --------- --------------
-------------- --------- --------------
1992
Oil and gas sales................................................... $ 94,289(C) 4,950 99,239(C)
Production expense.................................................. 14,516(D) 1,349 15,865(D)
Depletion expense................................................... 43,052 2,625 45,677
Income tax expense.................................................. 12,615 332 12,947
-------------- --------- --------------
70,183 4,306 74,489
-------------- --------- --------------
Results of operations from producing activities................... $ 24,106 644 24,750
-------------- --------- --------------
-------------- --------- --------------
</TABLE>
- ------------------------
(A) No income tax benefit has been recognized as it has not been realized by the
Company.
(B) No income tax expense was reflected in results of operations from producing
activities in 1993 because of the availability of tax loss, percentage
depletion and credit carryforwards.
(C) Includes $22,392,000 attributable to the ONEOK settlement.
(D) Includes $1,589,000 attributable to the ONEOK settlement.
(D) ESTIMATED PROVED OIL AND GAS RESERVES -- The Company's estimate of its
proved and proved developed future net recoverable oil and gas reserves and
changes for 1992, 1993 and 1994 follows. Such estimates are inherently imprecise
and may be subject to substantial revisions.
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions; i.e.,
F-45
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED): (CONTINUED)
prices and costs as of the date the estimate is made. Prices include
consideration of changes in existing prices provided only by contractual
arrangement, including energy swap agreements (see Note 13), but not on
escalations based on future conditions.
Proved developed oil and gas reserves are reserves that can be expected to
be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the application
of fluid injection or other improved mechanisms of primary recovery are included
as "proved developed reserves" only after testing by a pilot project or after
the operation of an installed program has confirmed through production response
that increased recovery will be achieved.
The Company's presentation of estimated proved oil and gas reserves has been
restated to exclude, for each of the years presented, those quantities
attributable to future deliveries required under volumetric production payments.
In order to calculate such amounts, the Company has assumed that deliveries
under volumetric production payments are made as scheduled at expected BTU
factors, and that delivery commitments are satisfied through delivery of actual
volumes as opposed to cash settlements. This restatement was made following
discussion with the Staff of the Securities and Exchange Commission.
The Company has also presented, as additional information, proved oil and
gas reserves including quantities attributable to future deliveries required
under volumetric production payments. The Company believes that this information
is informative to readers of its financial statements as the related oil and gas
property costs and deferred revenue are included on the Company's balance sheets
F-46
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED): (CONTINUED)
for each of the years presented. This additional information is not presented in
accordance with SFAS No. 69; however, the Company believes this additional
information is useful in assessing its reserve acquisitions and financial
position on a comprehensive basis.
<TABLE>
<CAPTION>
OIL AND CONDENSATE
-------------------------------
GAS
(MBBLS) -------------------------------
------------------------------- (MMCF)
UNITED UNITED --------------------
STATES CANADA TOTAL STATES CANADA TOTAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991..................... 3,131 2,184 5,315 148,758 23,752 172,510
Revisions of previous estimates................ (139) 33 (106) (9,837) (219) (10,056)
Extensions and discoveries..................... 9 -- 9 1,127 -- 1,127
Production..................................... (1,249) (142) (1,391) (18,697) (1,360) (20,057)
Sales of reserves in place..................... (646) (2,075) (2,721) (20,273) (22,173) (42,446)
Purchases of reserves in place................. 5,867 -- 5,867 63,343 -- 63,343
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1992..................... 6,973 -- 6,973 164,421 -- 164,421
Additional disclosures:
Volumes attributable to volumetric production
payments...................................... 587 -- 587 30,234 -- 30,234
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1992, including volumes
attributable to volumetric production
payments...................................... 7,560 -- 7,560 194,655 -- 194,655
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1992..................... 6,973 -- 6,973 164,421 -- 164,421
Revisions of previous estimates................ 507 -- 507 17,874 -- 17,874
Extensions and discoveries..................... 201 -- 201 8,395 -- 8,395
Production..................................... (1,308) -- (1,308) (22,383) -- (22,383)
Sales of reserves in place..................... (280) -- (280) (18,941) -- (18,941)
Purchases of reserves in place................. 1,704 -- 1,704 94,730 -- 94,730
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1993..................... 7,797 -- 7,797 244,096 -- 244,096
Additional disclosures:
Volumes attributable to volumetric production
payments...................................... 401 -- 401 29,286 -- 29,286
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1993, including volumes
attributable to volumetric production
payments...................................... 8,198 -- 8,198 273,382 -- 273,382
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1993..................... 7,797 -- 7,797 244,096 -- 244,096
Revisions of previous estimates................ 989 -- 989 7,848 -- 7,848
Extensions and discoveries..................... 41 -- 41 9,894 -- 9,894
Production..................................... (1,361) -- (1,361) (32,043) -- (32,043)
Sales of reserves in place..................... (170) -- (170) (6,377) -- (6,377)
Purchases of reserves in place................. 17 -- 17 8,220 -- 8,220
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1994..................... 7,313 -- 7,313 231,638 -- 231,638
Additional disclosures:
Volumes attributable to volumetric production
payments...................................... 219 -- 219 15,358 -- 15,358
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1994, including volumes
attributable to volumetric production
payments...................................... 7,532 -- 7,532 246,996 -- 246,996
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
F-47
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED): (CONTINUED)
Purchases of reserves in place represent volumes recorded on the closing
dates of the acquisitions for financial accounting purposes. The revisions of
previous estimates for natural gas in 1994 include 5,833 MMCF for an adjustment
related to the change in accounting for oil and gas sales from the sales method
to the entitlements method.
<TABLE>
<CAPTION>
OIL AND CONDENSATE GAS
--------------------------------- -------------------------------
(MBBLS) (MMCF)
--------------------------------- -------------------------------
UNITED UNITED
STATES CANADA TOTAL STATES CANADA TOTAL
--------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Proved developed reserves at:
December 31, 1991................................. 2,903 1,824 4,727 132,434 20,807 153,241
December 31, 1992................................. 5,831 -- 5,831 146,048 -- 146,048
December 31, 1993................................. 6,377 -- 6,377 187,534 -- 187,534
December 31, 1994................................. 6,775 -- 6,775 179,574 -- 179,574
</TABLE>
The Company's proved developed reserves, including amounts attributable to
volumetric production payments, are shown below. This disclosure is presented as
additional information and is not intended to represent required disclosure
pursuant to SFAS No. 69.
<TABLE>
<CAPTION>
OIL AND CONDENSATE GAS
--------------------------------- -------------------------------
(MBBLS) (MMCF)
--------------------------------- -------------------------------
UNITED UNITED
STATES CANADA TOTAL STATES CANADA TOTAL
--------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Proved developed reserves, including amounts
attributable to volumetric production payments at:
December 31, 1991................................. 2,903 1,824 4,727 153,395 20,807 174,202
December 31, 1992................................. 6,418 -- 6,418 176,282 -- 176,282
December 31, 1993................................. 6,778 -- 6,778 216,820 -- 216,820
December 31, 1994................................. 6,994 -- 6,994 194,932 -- 194,932
</TABLE>
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS -- Future oil
and gas sales and production and development costs have been estimated using
prices and costs in effect at the end of the years indicated, except in those
instances where the sale of oil and natural gas is covered by contracts, energy
swap agreements or volumetric production payments. In the case of contracts, the
applicable contract prices, including fixed and determinable escalations, were
used for the duration of the contract. Thereafter, the current spot price was
used. Prior to December 31, 1993 the contracts included natural gas sales
contracts with a company which is involved in Chapter 11 bankruptcy proceedings.
Subsequent to December 31, 1993 the volumes applicable to this contract were
priced at spot prices. Future oil and gas sales include the estimated effects of
existing energy swap agreements as discussed in Note 13.
Future income tax expenses are estimated using the statutory tax rate of
35%. Estimates for future general and administrative and interest expenses have
not been considered.
Changes in the demand for oil and natural gas, inflation and other factors
make such estimates inherently imprecise and subject to substantial revision.
This table should not be construed to be an estimate of the current market value
of the Company's proved reserves. Management does not rely upon the information
that follows in making investment decisions.
F-48
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED): (CONTINUED)
The Company's presentation of the standardized measure of discounted future
net cash flows and changes therein has been restated to exclude, for each of the
years presented, amounts attributable to future deliveries required under
volumetric production payments. In order to calculate such amounts, the Company
has assumed that deliveries under volumetric production payments are made as
scheduled, that production costs corresponding to the volumes delivered are
incurred by the Company at average rates for the properties subject to the
production payments, and that delivery commitments are satisfied through
delivery of actual volumes as opposed to cash settlements. This restatement was
made following discussions with the Staff of the Securities and Exchange
Commission.
The Company has also presented, as additional information, the standardized
measure of discounted future net cash flows and changes therein including
amounts attributable to future deliveries required under volumetric production
payments. The Company believes that this information is informative to readers
of its financial statements because the related oil and gas property costs and
deferred revenue are shown on the Company's balance sheets for each of the years
presented. This additional information is not required to be presented in
accordance with SFAS No. 69; however, the Company believes this additional
information is useful in assessing its reserve acquisitions and financial
position on a comprehensive basis.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1994 1993 1992
----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Future oil and gas sales................................................. $ 502,186 662,265 497,567
Future production and development costs.................................. (193,376) (240,145) (187,604)
----------- ------------ ------------
Future net revenue....................................................... 308,810 422,120 309,963
10% annual discount for estimated timing of cash flows................... (100,480) (138,917) (103,636)
----------- ------------ ------------
Present value of future net cash flows before income taxes............... 208,330 283,203 206,327
Present value of future income tax expense............................... (867) (24,286) (18,566)
----------- ------------ ------------
Standardized measure of discounted future net cash flows................. $ 207,463 258,917 187,761
Additional disclosures:
Amounts attributable to volumetric production payments................. 22,686 40,136 39,248
----------- ------------ ------------
Total discounted future net cash flows, including amounts attributable
to volumetric production payments..................................... $ 230,149 299,053 227,009
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
Undiscounted future income tax expense was $1,348,000 at December 31, 1994,
$35,028,000 at December 31, 1993 and $32,718,000 at December 31, 1992.
F-49
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(16) SUPPLEMENTAL FINANCIAL DATA -- OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED): (CONTINUED)
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES -- An analysis of the changes in the
standardized measure of discounted future net cash flows during each of the last
three years is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure of discounted future net cash flows relating to proved
oil and gas reserves, at beginning of year................................ $ 258,917 187,761 164,651
Changes resulting from:
Sales of oil and gas, net of production costs............................ (69,607) (59,572) (52,090)
Net changes in prices and future production costs........................ (80,526) (22,010) 14,287
Net changes in future development costs.................................. 7,432 (18,724) (2,444)
Extensions, discoveries and improved recovery............................ 10,817 15,322 2,122
Previously estimated development costs incurred during the period........ 10,000 13,424 9,315
Revisions of previous quantity estimates................................. 16,840 25,262 (11,450)
Sales of reserves in place............................................... (10,630) (28,802) (67,877)
Purchases of reserves in place........................................... 8,467 127,418 113,567
Accretion of discount on reserves at beginning of year before income
taxes................................................................... 32,334 24,558 20,392
Net change in income taxes............................................... 23,419 (5,720) (2,712)
----------- ----------- -----------
Standardized measure of discounted future net cash flows relating to proved
oil and gas reserves, at end of year...................................... $ 207,463 258,917 187,761
Additional disclosures:
Amounts attributable to volumetric production payments................... 22,686 40,136 39,248
----------- ----------- -----------
Total discounted future net cash flows relating to proved oil and gas
reserves, including amounts attributable to volumetric production
payments, at end of year................................................ $ 230,149 299,053 227,009
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
As of April 1, 1995 the Company was receiving an average price of $1.59 per
MCF and $17.25 per barrel. Based on these prices the standardized measure of
discounted future net cash flows, exclusive of amounts attributable to
volumetric production payments, would have been approximately $193,600,000 at
December 31, 1994.
(17) SUBSEQUENT EVENTS:
On April 13, 1995 the Company sold to a bank a participation interest in the
Company's claim in a bankruptcy proceeding. Consideration received consisted of
a $4,000,000 nonrecourse loan, in exchange for which the bank will receive,
solely from the proceeds of the bankruptcy claim, an amount equal to the loan
principal plus accrued interest at 16.5% per annum plus 25% of the excess, if
any, of the proceeds over the loan principal and interest. The Company may,
under certain conditions, limit the overall cost of financing to 23.5% per annum
by exercising its option to repurchase the bank's interest in the bankruptcy
claim prior to receipt of any proceeds of the claim.
On April 17, 1995, the Company signed letters of intent with The Anschutz
Corporation (Anschutz) and with Joint Energy Development Investments Limited
Partnership (JEDI), an affiliate of Enron Corp., in each case as described
below.
F-50
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(17) SUBSEQUENT EVENTS: (CONTINUED)
The Anschutz letter of intent contemplates that Anschutz will purchase
18,800,000 shares of the Company's common stock and shares of newly-issued
preferred stock that are convertible into 6,200,000 additional shares of common
stock for a total consideration of $45,000,000, or $1.80 per share. The
preferred stock will have a liquidation preference and will receive dividends
ratably with the common stock. The investment will be made in two closings. In
the first closing, expected to occur in early May 1995, Anschutz will loan the
Company $9,900,000 for a term of 9 months. The loan will bear interest at 8% per
annum for 16 weeks and at 12.5% per annum thereafter. The loan will be secured
by oil and gas properties owned by the Company, the preferred stock of Archean
Energy Ltd. and certain other assets acceptable to Anschutz. The loan may be
converted into 5,500,000 shares of Forest's common stock at Anschutz's election,
but the loan must be so converted at the second closing. At the second closing,
expected to occur by July 1995 following receipt of shareholder approval of the
transactions contemplated by the letter of intent, Anschutz will purchase
13,300,000 shares of common stock and the convertible preferred stock. In
connection with this purchase, Anschutz will agree to certain voting,
acquisition, and transfer limitations regarding shares of common stock for five
years after the second closing, including (a) a limit on voting, subject to
certain exceptions, that would require Anschutz to vote all shares of common
stock acquired by Anschutz in the transaction in excess of an amount equal to
19.99% of the shares of common stock then outstanding in the same proportion as
all other shares of common stock are voted, (b) a limit on the number of persons
associated with Anschutz that may at any time be elected as directors of the
Company and (c) a limit on the acquisition of additional shares of common stock
by Anschutz (whether pursuant to the exercise of the $2.10 warrants or the
option received from JEDI, each as described below, or otherwise), subject to
certain exceptions, that would prohibit any acquisition by Anschutz that would
result in Anschutz owning 40% or more of the shares of common stock then issued
and outstanding. While the foregoing limitations are in effect, Anschutz will
have a minority representation on the board of directors.
The JEDI letter of intent contemplates that, at the second closing referred
to above, Forest and JEDI will restructure JEDI's existing loan currently having
a principal balance of approximately $62,100,000. In exchange for certain
warrants referred to below, JEDI will relinquish the net profits interest that
it holds in certain Forest properties and will reduce the interest rate relating
to the loan. As a result of the loan restructuring and the issuance of the
warrants, the Company anticipates a reduction of the recorded amount of the
related liability to approximately $45,000,000 and a reduction of interest
expense of approximately $2,100,000 per annum. In addition, beginning 18 months
after the second closing, the Company may prepay the loan at any time and may
tender its interest in the underlying properties in full satisfaction of the
loan.
The JEDI letter of intent also contemplates that, at the second closing,
JEDI will receive warrants to purchase 11,250,000 shares of the Company's common
stock for $2.00 per share and warrants to purchase 19,444,444 shares of common
stock at $2.10 per share. The $2.00 warrants expire on December 31, 2002, except
that, in certain circumstances, the Company may terminate the warrants at any
time beginning 36 months after the second closing if the average closing price
of the common stock for both the 90 day and 15 day periods immediately preceding
the termination is in excess of $2.50 per share. For the first 36 months after
the second closing, the $2.00 warrants may be exercised only on the dates and in
the respective numbers of shares required to be delivered by JEDI to Anschutz
pursuant to the exercise of the option granted by JEDI to Anschutz, as described
below. The $2.10 warrants are exercisable during the first 18 months after the
second closing, subject to extension in certain circumstances to 36 months after
the second closing. The letters of intent also
F-51
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(17) SUBSEQUENT EVENTS: (CONTINUED)
contemplate that, at the second closing, JEDI will assign to Anschutz the $2.10
warrants and will grant to Anschutz an option to purchase up to 11,250,000
shares of common stock during the first 36 months after the second closing.
The letters of intent require the Company to pay Anschutz and JEDI certain
fees and expenses in connection with the letters of intent and the transactions
contemplated thereby in certain circumstances. The Anschutz letter of intent
requires the Company to pay to Anschutz a fee (called a subsequent event fee) of
up to $2,500,000 upon the occurrence of certain events prior to the second
closing (or, if the second closing does not occur, April 17, 1996), such as a
merger, consolidation or other business combination between the Company and a
person other than Anschutz. In the Anschutz letter of intent, the Company has
agreed not to solicit proposals for transactions that would require the Company
to pay a subsequent event fee and to keep Anschutz generally informed regarding
the receipt and disposition by the Company of proposals regarding such
transactions made by other persons.
The transactions contemplated by the letters of intent are subject to, among
other things, the preparation and execution of definitive documentation
satisfactory to the parties and to the approval of Forest's board of directors
and certain of its creditors. The purchase by Anschutz of common stock at the
second closing, the restructure of JEDI's existing loan and the transactions
between Anschutz and JEDI described above are also subject to, among other
things, the prior approval of Forest's shareholders and Hart-Scott-Rodino
clearance. The Company believes that short-term and long-term liquidity would be
significantly improved by the conclusion of the transactions described above.
Although the Company believes that the conditions to the closing of the
transactions can be satisfied, there can be no assurance that the transactions
will close on the terms and on the dates referred to above, or at all.
F-52
<PAGE>
February 1, 1995
AUDITORS' REPORT
To the Directors of
ATCOR Resources Ltd.
We have audited the consolidated balance sheets of ATCOR Resources Ltd. as
at December 31, 1994 and 1993, and the consolidated statements of earnings and
retained earnings and changes in financial position for each of the years in the
three year period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1994 and 1993
and the results of its operations and the changes in its financial position for
each of the years in the three year period ended December 31, 1994 in accordance
with Canadian generally accepted accounting principles.
PRICE WATERHOUSE
Chartered Accountants
Calgary, Alberta
F-53
<PAGE>
ATCOR RESOURCES LTD.
CONSOLIDATED BALANCE SHEET
(STATED IN 000'S OF CANADIAN DOLLARS)
ASSETS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
------------------------ ------------------------
1995 1994 1994 1993
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current Assets
Accounts receivable......................................... $ 27,993 $ 23,548 $ 31,142 $ 28,747
Inventories................................................. 2,600 1,845 1,502 864
Prepaid expenses............................................ 938 1,099 1,786 2,076
Amount receivable relating to sale of asset................. -- -- -- 10,350
----------- ----------- ----------- -----------
31,531 26,492 34,430 42,037
Investment in Securities (Note 8)............................. 4,985 4,985 4,985 4,985
Property, Plant and Equipment (Note 9)........................ 245,669 257,837 258,014 259,180
----------- ----------- ----------- -----------
$ 282,185 $ 289,314 $ 297,429 $ 306,202
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Due to bank (Note 10)....................................... $ 5,000 $ 5,000 $ 5,000 $ 15,250
Accounts payable and accrued liabilities.................... 26,776 24,013 30,855 25,955
----------- ----------- ----------- -----------
31,776 29,013 35,855 41,205
Other Liabilities............................................. 3,492 3,009 3,084 2,679
Due to Bank (Note 10)......................................... 19,181 37,616 34,005 46,251
Deferred Income Taxes......................................... 51,753 48,893 50,421 47,759
Shareholders' Equity
Class A and Class B shares (Note 11)........................ 135,787 135,787 135,787 135,787
Retained earnings........................................... 40,196 34,996 38,277 32,521
----------- ----------- ----------- -----------
175,983 170,783 174,064 168,308
Commitments and Contingencies (Note 15)
----------- ----------- ----------- -----------
$ 282,185 $ 289,314 $ 297,429 $ 306,202
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-54
<PAGE>
ATCOR RESOURCES LTD.
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
(STATED IN 000'S OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
------------------------ -------------------------------------
1995 1994 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Sales......................................... $ 197,389 $ 129,340 $ 191,007 $ 124,344 $ 104,110
Investment and other income................... 122 377 504 258 506
Settlement fee (Note 4)....................... -- -- 3,178 -- --
----------- ----------- ----------- ----------- -----------
197,511 129,717 194,689 124,602 104,616
Expenses
Cost of gas................................... 133,738 65,940 105,732 41,695 40,074
Operating and gas transportation.............. 21,311 22,825 30,827 31,953 27,483
Royalties..................................... 6,171 7,870 10,119 8,972 5,869
Alberta Royalty Tax Credit.................... (1,102) (1,215) (1,621) (1,580) (1,530)
General and administrative (Note 9(c))........ 3,590 3,506 4,743 4,385 4,269
Depletion and depreciation (Note 9(a) and
(b))......................................... 25,804 20,724 28,137 22,990 14,927
Gain on sale of interest in ethane extraction
plant (Note 3(a))............................ -- -- -- (7,326) --
Interest (Note 9(d)).......................... 2,598 3,058 4,009 2,767 144
Recovery of loss in value of securities....... -- -- -- (83) --
----------- ----------- ----------- ----------- -----------
192,110 122,708 181,946 103,773 91,236
Earnings before income taxes.................... 5,401 7,009 12,743 20,829 13,380
Income taxes (Note 6)
Current....................................... 2,150 3,400 4,325 1,969 1,859
Deferred...................................... 1,332 1,134 2,662 8,622 4,048
----------- ----------- ----------- ----------- -----------
3,482 4,534 6,987 10,591 5,907
Net earnings.................................... 1,919 2,475 5,756 10,238 7,473
Dividends on Preferred shares................... -- -- -- 591 747
----------- ----------- ----------- ----------- -----------
Net earnings attributable to Class A and Class B
shares (Note 7)................................ 1,919 2,475 5,756 9,647 6,726
Retained earnings, beginning of year............ 38,277 32,521 32,521 22,874 16,148
----------- ----------- ----------- ----------- -----------
Retained earnings, end of year.................. $ 40,196 $ 34,996 $ 38,277 $ 32,521 $ 22,874
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
F-55
<PAGE>
ATCOR RESOURCES LTD.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(STATED IN 000'S OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
--------------------- --------------------------------
1995 1994 1994 1993 1992
---------- --------- --------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash provided from (used in) operating activities
Net earnings....................................... $ 1,919 $ 2,475 $ 5,756 $ 10,238 $ 7,473
Depletion and depreciation......................... 25,804 20,724 28,137 22,990 14,927
Deferred income taxes.............................. 1,332 1,134 2,662 8,622 4,048
Gain on sale of asset.............................. -- -- -- (7,326) --
Recovery of loss in value of securities............ -- -- -- (83) --
---------- --------- --------- ---------- ---------
Cash flow from operating activities.................. 29,055 24,333 36,555 34,441 26,448
(Increase) decrease in working capital other than
cash.............................................. (1,182) 13,604 12,507 (16,739) 1,202
Other.............................................. -- -- (409) (56) (695)
---------- --------- --------- ---------- ---------
27,873 37,937 48,653 17,646 26,955
Cash provided from (used in) financing activities
Long-term borrowing/(repaid)....................... (14,824) (8,635) (12,246) (5,446) 15,676
Issue of shares to acquire Altex Resources Ltd..... -- -- -- 22,202 --
Issue of shares net of costs....................... -- -- -- 9,623 --
Proceeds from sale of investments.................. -- -- -- 618 --
Dividends on preferred shares...................... -- -- -- (591) (747)
Redemption of preferred shares..................... -- -- -- (12,000) (2,000)
(Decrease) in other liabilities.................... (283) (272) -- -- --
---------- --------- --------- ---------- ---------
Cash available for investing activities............ 12,766 29,030 36,407 32,052 39,884
Investment
Acquisition of Altex Resources Ltd., net of working
capital deficiency of $4,822...................... -- -- -- 27,387 --
Capital expenditures, net of oil and gas
dispositions...................................... 16,337 26,162 26,164 24,023 40,192
Net proceeds from sale of non-oil and gas fixed
assets............................................ (3,571) (7,382) (7) (10,255) --
---------- --------- --------- ---------- ---------
12,766 18,780 26,157 41,155 40,192
---------- --------- --------- ---------- ---------
Increase (decrease) in cash*......................... $ -- $ 10,250 $ 10,250 $ (9,103) $ (308)
---------- --------- --------- ---------- ---------
---------- --------- --------- ---------- ---------
</TABLE>
* For the purposes of this statement, cash represents the current portion of
the amount due to the bank.
F-56
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements have been prepared by management in
accordance with Canadian generally accepted accounting principles. Certain
amounts have been reclassified to conform to the current presentation.
PROPERTY, PLANT AND EQUIPMENT
(A) PETROLEUM AND NATURAL GAS PROPERTIES
The Company follows the full cost method of accounting, as prescribed by
the guideline issued by The Canadian Institute of Chartered Accountants,
whereby all costs related to the exploration for and development of
petroleum and natural gas are capitalized. Such costs, including tangible
equipment and directly related general and administrative expenses, are
accumulated in one cost centre for each country. Interest costs are
capitalized on major development projects.
Costs of petroleum and natural gas properties (except for those relating
to significant unproved properties and major development projects) are
depleted by the unit of production method based on gross (before royalties)
proved reserves and production. Oil and natural gas liquids reserves and
production are converted to natural gas equivalents using the relative
energy content of 6.5 thousand cubic feet of gas equalling one barrel of
oil. Sulphur reserves and production are converted to natural gas
equivalents at one long ton to 15 thousand cubic feet of gas.
The net book value, less related deferred income taxes and accrued
future removal and site restoration costs, is limited to a ceiling amount
which represents the aggregate of (a) proved reserves at current prices and
costs and (b) the cost less impairment of significant unproved properties
and major development projects, less (c) future estimated general and
administrative expenses, financing costs and income taxes.
Proceeds of disposals are credited to cost and no gains or losses are
recognized unless such treatment alters the depletion rate by more than 20
percent.
Substantially all of the Company's exploration and production activities
are conducted jointly with others and the consolidated financial statements
reflect only the Company's proportionate interest in such activities.
(B) ETHANE EXTRACTION PLANT
The Company has a working interest in a joint venture which owns and
operates a plant to extract ethane and other natural gas liquids from
natural gas. The consolidated financial statements reflect the Company's
proportionate interest in this joint venture.
The Company's investment in this plant is depreciated on a straight-line
basis over the estimated useful life of the plant.
F-57
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(C) FUTURE REMOVAL AND SITE RESTORATION COSTS
Provision for estimated future removal and site restoration costs is
made by the unit of production method. The related charge is included with
depletion and depreciation and is reflected in other liabilities.
INVENTORIES
Inventories, consisting of natural gas and equipment, are valued at the
lower of cost or net realizable value.
INVESTMENT IN SECURITIES
Investment in securities is carried at cost less any permanent impairment in
value.
INCOME TAXES
The Company provides for deferred income taxes, which principally arise from
the excess of capital cost allowance and exploration and development costs
claimed for tax purposes over related depletion and depreciation.
PER SHARE INFORMATION
Earnings per share are calculated using the weighted average number of Class
A and Class B shares outstanding.
PENSIONS
The Company's employees are members of a non-contributory defined benefit
plan. The cost of pension benefits is determined using the accrued benefit
actuarial cost method and reflects managements's best estimates of investment
returns, wage and salary increases, mortality rates, terminations and age at
retirement. Adjustments resulting from plan enhancements, experience gains and
losses and changes in assumptions are amortized over the estimated average
remaining service life of employees.
(2) ACQUISITION OF ALTEX RESOURCES LTD.:
On January 1, 1993, the Company acquired all of the Common Shares of Altex
Resources Ltd. ("Altex"), an oil and gas exploration and development company. As
consideration, the Company issued 6,343,400 Class A Non-Voting shares.
F-58
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(2) ACQUISITION OF ALTEX RESOURCES LTD.: (CONTINUED)
The acquisition was recorded January 1, 1993 at $3.50 per share, using the
purchase method, and the allocation of the purchase price and related costs of
$363,000 was as follows:
<TABLE>
<S> <C>
ASSETS
Current......................................................... $ 2,400
Property, plant and equipment................................... 29,941
---------
32,341
---------
LIABILITIES
Due to bank..................................................... $ 4,070
Other current................................................... 3,151
Other liabilities............................................... 204
Deferred income taxes........................................... 2,351
---------
9,776
---------
$ 22,565
---------
---------
</TABLE>
(3) SALE OF INTEREST IN ETHANE EXTRACTION PLANT:
(a) Effective December 1, 1993 (the transaction closed on January 17, 1994),
the Company sold a 16.67 percent working interest (leaving the Company with a
remaining interest of 33.33 percent) in the plant to CU Gas Limited, a
subsidiary of Canadian Utilities Limited. Proceeds of the sale, after related
costs, were $10,250,000 and a before tax gain of $7,326,000 was recorded. The
estimated after tax gain was $3,683,000. The effect of the gain was to increase
earnings by $0.10 per share.
(b) Effective December 1, 1993, the estimated useful life of the plant was
extended from 1998 to 2013. The impact of this change together with the sale of
one-third of the Corporation's interest in the plant is estimated to reduce
depreciation expense by $1,872,000 in 1994 and increase earnings attributable to
Class A Non-Voting and Class B Common Shares by $1,123,000.
(4) SETTLEMENT FEE:
During the year ended December 31, 1994, a company which had contracted to
purchase gas from the Company and other suppliers paid these companies to
suspend deliveries under the contracts until 2001. In the interim period, the
Company is selling the related gas into other markets.
(5) HEDGING:
The Company enters into contracts from time to time to lock in prices for
future oil production. Gains or losses from these contracts are included in
income when the related production is sold.
During the period, the Company made hedging gains and losses as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
-------------------- -----------------------------------
SEPTEMBER 30 DECEMBER 31
1995 1994 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Gains/(losses)..................................................... $ 296 $ (110) $ (110) $ 507 $ 32
</TABLE>
F-59
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(5) HEDGING: (CONTINUED)
The Company enters into forward exchange contracts from time to time to fix
the exchange rate of the Canadian dollar against the U.S. dollar.
At September 30, 1995, December 31, 1994, December 31, 1993, and December
31, 1991, no such contracts were outstanding. At December 31, 1992, the Company
had sold forward 60,000 barrels of 1993 production at approximately U.S. $21.70
per barrel.
(6) INCOME TAXES:
The actual income tax provision differs from that which would be expected as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
------------------------ -------------------------------
1995 1994 1994 1993 1992
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes.................... $ 5,401 $ 7,009 $ 12,743 $ 20,829 $ 13,380
----------- ----------- --------- --------- ---------
Income taxes at the statutory rates............. 2,408 3,108 5,650 9,236 5,933
Crown payments (net of Alberta Royalty Tax
Credit)........................................ 1,767 2,296 2,885 2,479 1,600
Resource allowance.............................. (2,316) (2,501) (3,182) (2,909) (1,841)
Depletion of assets with no tax value........... 1,704 1,506 2,045 1,393 204
Large corporation tax........................... 375 285 539 530 412
Manufacturing and processing credit............. (440) (588) (1,006) (1,110) (366)
Dividend income................................. (107) (67) (102) (122) (212)
Amortization of deferred tax benefits........... 236 236 315 1,316 --
Other........................................... (145) 259 (157) (222) 177
----------- ----------- --------- --------- ---------
$ 3,482 $ 4,534 $ 6,987 $ 10,591 $ 5,907
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
</TABLE>
Deferred tax benefits relating to certain earnings under a cost of service
contract were previously recognized. The related benefits of $1,258,000 at
December 31, 1994 (1993 -- $1,573,000; 1992 -- $2,889,000) are being amortized
over the life of a related contract.
Assets with a net book value of $39,212,000 (1993 -- $43,387,000; 1992 --
$46,011,000) have no tax base and related depletion results in an increased tax
rate. Of these assets $40,766,000 were not depleted during 1992.
(7) EARNINGS PER SHARE:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30 DECEMBER 31
-------------------- -------------------------------
1995 1994 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings per share.............................................. $ 0.05 $ 0.06 $ 0.15 $ 0.26 $ 0.23
</TABLE>
The average number of shares used in the above calculations were 38,107,952;
38,107,952; 38,107,952; 36,774,618; 29,764,552 for the nine months ended
September 30, 1995 and 1994 and for the years ended December 31, 1994, 1993 and
1992, respectively. The above per share amounts, in 1993 and 1992, are
calculated after deducting dividends on the Floating Rate Cumulative Redeemable
Preferred Shares, Series A.
F-60
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(8) INVESTMENT IN SECURITIES:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-------------------- -------------------------------
1995 1994 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Book value............................................... $ 4,985 $ 4,985 $ 4,985 $ 4,985 $ 5,520
Quoted value............................................. 3,425 2,700 2,700 2,500 2,831
Face value............................................... 5,000 5,000 5,000 5,000 9,000
</TABLE>
The investment consists of 200,000 Class I, Series A, preferred shares of
Trilon Corporation. In the opinion of management, the excess of book over quoted
value does not represent a permanent impairment.
(9) PROPERTY PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
------------------------ -------------------------------------
1995 1994 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cost
Petroleum and natural gas properties...... $ 449,592 $ 429,965 $ 437,215 $ 412,464 $ 359,229
Ethane extraction plant and other related
processing equipment..................... 23,366 23,324 23,324 23,186 33,925
Administrative assets..................... 6,417 6,006 6,133 4,882 4,040
----------- ----------- ----------- ----------- -----------
$ 479,375 $ 459,295 $ 466,672 $ 440,532 $ 397,194
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Accumulated depletion and depreciation
Petroleum and natural gas properties...... $ 211,362 $ 180,031 $ 186,955 $ 160,609 $ 140,757
Ethane extraction plant and other related
processing equipment..................... 17,889 17,590 17,666 17,366 23,126
Administrative assets..................... 4,455 3,837 4,037 3,377 2,955
----------- ----------- ----------- ----------- -----------
233,706 201,458 208,658 181,352 166,838
----------- ----------- ----------- ----------- -----------
Net property plant and equipment.......... $ 245,669 $ 257,837 $ 258,014 $ 259,180 $ 230,356
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
(a) As explained in Note 1, the Company applies a ceiling test to the net book
value of its petroleum and natural gas assets. In applying this ceiling
test, the Company used the following approximate product prices:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30 DECEMBER 31
-------------------- -------------------------------
1995 1994 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Oil (per barrel)......................................... $ 21.06 $ 19.00 $ 19.40 $ 13.17 $ 19.00
Natural gas (per Mcf).................................... 1.44 1.82 1.60 2.35 1.76
</TABLE>
No write-down was required as a result of this ceiling test (see Note
15(c)).
F-61
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(9) PROPERTY PLANT AND EQUIPMENT: (CONTINUED)
(b) Significant volumes of recoverable oil and gas reserves have been
established in the Beaufort-Mackenzie Delta area, but they have not been
categorized as proved reserves at this time due to current economic
conditions. Effective October 1, 1993 the cost of these properties of
$36,032,000 (at December 31, 1992 -- $35,963,000) commenced being depleted.
This was a result of a planned well being deferred indefinitely. The effect
of this change was to increase depletion expense in 1993 by $795,000 and by
an estimated $3,727,000 in 1994. This reduced earnings attributable to Class
A Non-Voting and Class B Common Shares by approximately $450,000 in 1993
(estimated $2,100,000 in 1994). Costs of $77,222,000 relating to a major
development project (Caroline) were not depleted in 1992; the Corporation
commenced depletion of these costs effective April 1993. Costs of $4,000,000
relating to other unproved properties were not subject to depletion in any
of the periods presented.
(c) General and administrative ("G&A") details are described in the following
table:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
-------------------- -------------------------------
1995 1994 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
G&A net of recoveries................................ $ 6,285 $ 6,126 $ 8,278 $ 8,411 $ 7,964
Less:
Allocated as marketing-processing operating
expense........................................... (1,873) (1,809) (2,434) (2,927) (2,620)
Capitalized........................................ (822) (811) (1,101) (1,099) (1,075)
--------- --------- --------- --------- ---------
Net G&A.............................................. $ 3,590 $ 3,506 $ 4,743 $ 4,385 $ 4,269
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
(d) Interest expense is described in the following table:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30 DECEMBER 31
-------------------- -------------------------------
1995 1994 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest expensed........................................ $ 2,598 $ 3,058 $ 4,009 $ 2,767 $ 144
Interest capitalized..................................... -- -- -- 1,825 4,928
--------- --------- --------- --------- ---------
Total interest expense................................. $ 2,598 $ 3,058 $ 4,009 $ 4,592 $ 5,072
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
(10) DUE TO BANK:
Amounts due to bank at December 31, 1994 represent amounts outstanding under
the Revolving Credit Facility ($15,255,000) and the Caroline Term Loan
($23,750,000). These amounts were $4,181,000 and $20,000,000, respectively, at
September 30, 1995. The Company has fixed the interest rate at approximately
10.3 percent on $30 million of debt by entering into three interest rate swap
agreements of $10 million each to 1998. The remaining amounts bear interest at
approximately the prime rate.
Management has the option to June 30, 1995 (to June 30, 1996 as of September
30, 1995), which can be extended subject to an annual review by the bank, to
convert the indebtedness under the Revolving Credit Facility (maximum facility
$30,000,000 -- $25,000,000 at September 30, 1995) to a
F-62
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(10) DUE TO BANK: (CONTINUED)
term loan repayable in equal annual instalments over five years. Management's
intention in 1995 is to make no principal repayments of this facility, and
accordingly, all of this indebtedness has been classified as long term.
The Caroline Term Loan is repayable in equal quarterly instalments amounting
to $5 million per year.
A first floating charge debenture of $90,000,000 (removed in June 1995) over
the assets of the Company and a general security agreement has been granted to
the bank. As further security, the Company's interest in the Caroline property,
its other hydrocarbon properties, and its interest in the Ethane Extraction Plan
will be pledged at the request of the bank.
(11) CLASS A AND CLASS B SHARES:
<TABLE>
<S> <C>
Authorized
An unlimited number of Class A Non-Voting Shares
An unlimited number of Class B Common Shares
Issued:
</TABLE>
<TABLE>
<CAPTION>
CLASS A NON-VOTING SHARES CLASS B COMMON SHARES
TOTAL -------------------------- --------------------------
AMOUNT NUMBER AMOUNT NUMBER AMOUNT
----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991................ $ 103,752 17,886,390 $ 62,348 11,878,162 $ 41,404
Conversions................................. -- 293,222 1,022 (293,222) (1,022)
----------- ------------- ----------- ------------- -----------
Balance at December 31, 1992................ 103,752 18,179,612 63,370 11,584,940 40,382
Acquisition of Altex Resources Ltd. (Note
2)......................................... 22,202 6,343,400 22,202 -- --
Issue (net of costs and related tax
benefit)................................... 9,833 2,000,000 9,833 -- --
Conversions................................. -- 497,162 1,778 (497,162) (1,778)
----------- ------------- ----------- ------------- -----------
Balance at December 31, 1993................ 135,787 27,020,174 97,183 11,087,778 38,604
Conversions................................. -- 23,150 83 (23,150) (83)
----------- ------------- ----------- ------------- -----------
Balance at December 31, 1994................ $ 135,787 27,043,324 $ 97,266 11,064,628 $ 38,521
----------- ------------- ----------- ------------- -----------
----------- ------------- ----------- ------------- -----------
</TABLE>
SHAREHOLDER RIGHTS
The holders of the Class A Non-Voting Shares are entitled to share equally,
on a share for share basis, with the holders of the Class B Common Shares, in
all dividends declared by the Company on Common Shares as well as in the
remaining property of the Company upon dissolution. The holders of the Class B
Common Shares are entitled to vote and to exchange each Class B Common Share
held for one Class A Non-Voting Share.
If a take-over bid is made for the Class B Common Shares, holders of Class A
Non-Voting Shares are entitled in certain circumstances, for the duration of the
bid, to exchange each Class A Non-Voting Share for one Class B Common Share, and
to tender such Class B Common Shares pursuant to the terms of the take-over bid.
Such right of exchange is conditional upon the completion of the take-over bid
giving rise to the right of exchange, and if the take-over bid is not completed,
then the right of exchange shall be deemed to never to have existed.
F-63
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(11) CLASS A AND CLASS B SHARES: (CONTINUED)
DIVIDENDS
The Company currently has no intention of paying dividends on either the
Class A Non-voting Shares or the Class B Common Shares in the near future.
STOCK OPTION PLAN
On November 19, 1990, a resolution to establish a stock option plan
(relating to the Class A Non-Voting Shares) was approved on such terms and
conditions as the Directors may determine. As at December 31, 1994 and September
30, 1995 no options have been granted.
(12) RELATED PARTY TRANSACTIONS:
The following transactions were carried out between the Company and
corporations (including Canadian Utilities Limited) controlled by the same
shareholder who controls the Company.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
-------------------- -------------------------------
1995 1994 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cost of administration and financial management.......... $ 469 $ 646 $ 974 $ 848 $ 826
Sale of natural gas...................................... 12,523 15,036 20,043 9,285 6,916
Cost of transportation................................... 8,245 6,429 8,370 8,880 9,517
Sale of interest in the Ethane Extraction Plant.......... -- -- -- 10,350 --
Sale of undeveloped petroleum rights..................... 1,277 -- -- -- --
Cost of storage.......................................... -- -- 51 95 101
Costs of drilling of wells and related services.......... 295 478 761 1,308 683
Cost of power............................................ 250 245 352 433 12
Payment of processing fees for facilities................ 222 229 313 254 235
Revenue related to processing fees....................... 332 -- 453 -- --
Cost of rental and leasehold improvements................ 7 7 8 16 14
Accounts payable at period ended......................... 41 51 47 64 51
</TABLE>
These related party transactions are considered by management to be in the
normal course of business and at market value.
(13) PENSIONS:
Pension costs for the year amounted to $102,961 (1993 -- $358,826). The
following table shows the present value of the accrued pension benefits based on
an actuarial appraisal dated December 31, 1993 and projected to December 31,
1994 and the net assets available to provide for these benefits, measured on a
basis adjusted to market over three years.
<TABLE>
<CAPTION>
AT DECEMBER 31
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Estimated market related value of assets....................... $ 5,836 $ 5,533 $ 4,397
Estimated accrued pension benefits............................. 5,318 4,851 4,157
--------- --------- ---------
Surplus...................................................... $ 518 $ 682 $ 240
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-64
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For each of the years in the three year period ended
December 31, 1994 and for the nine months ended September 30, 1995 and 1994
(Information with respect to the nine month periods is unaudited)
(Tabular amounts are in thousands of Canadian dollars except where indicated)
(14) SEGMENTED INFORMATION:
The oil and gas segment includes exploration, development and production of
oil and natural gas while the natural gas marketing and processing segment
includes the operations of the natural gas marketing business and of the Ethane
Extraction Plant.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------
NATURAL GAS
OIL & GAS MARKETING &
PRODUCTION PROCESSING CORPORATE TOTAL
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 58,807 $ 132,200 $ -- $ 191,007
----------- ------------ ----------- -----------
Cost of gas................................................... -- 105,732 -- 105,732
Operating and gas transportation.............................. 12,863 17,964 -- 30,827
Royalties..................................................... 10,119 -- -- 10,119
Alberta Royalty Tax Credit.................................... (1,621) -- -- (1,621)
Depletion and depreciation.................................... 27,160 300 677 28,137
----------- ------------ ----------- -----------
48,521 123,996 677 173,194
----------- ------------ ----------- -----------
$ 10,286 $ 8,204 $ (677) 17,813
----------- ------------ -----------
----------- ------------ -----------
Investment income............................................. 504
Settlement fee................................................ 3,178
General and administrative.................................... (4,743)
Interest...................................................... (4,009)
Income taxes.................................................. (6,987)
-----------
Net earnings.................................................. $ 5,756
-----------
-----------
Identifiable assets........................................... $ 259,554 $ 30,650 $ 7,225 $ 297,429
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Capital expenditures.......................................... $ 32,307 $ 138 $ 1,276 $ 33,721
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
Included in revenues relating to the natural gas marketing and processing
segment are sales to customers in the United States of $30,362,000 in 1994; 1993
- -- $31,805,000 and 1992 -- $31,352,000.
F-65
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(14) SEGMENTED INFORMATION: (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
---------------------------------------------------
NATURAL GAS
OIL & GAS MARKETING &
PRODUCTION PROCESSING CORPORATE TOTAL
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 51,528 $ 72,816 $ -- $ 124,344
----------- ------------ ----------- -----------
Cost of gas................................................... -- 41,695 -- 41,695
Operating and gas transportation.............................. 13,331 18,622 -- 31,953
Royalties..................................................... 8,972 -- -- 8,972
Alberta Royalty Tax Credit.................................... (1,580) -- -- (1,580)
Depletion and depreciation.................................... 20,629 1,915 446 22,990
----------- ------------ ----------- -----------
41,352 62,232 446 104,030
----------- ------------ ----------- -----------
$ 10,176 $ 10,584 $ (446) 20,314
----------- ------------ -----------
----------- ------------ -----------
Investment income............................................. 258
General and administrative.................................... (4,385)
Gain on sale of interest Ethane Extraction Plant.............. 7,326
Recovery of loss in value of securities....................... 83
Interest...................................................... (2,767)
Income taxes.................................................. (10,591)
-----------
Net earnings.................................................. $ 10,238
-----------
-----------
Identifiable assets........................................... $ 262,127 $ 37,476 $ 6,599 $ 306,202
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Capital expenditures.......................................... $ 24,706 $ (140) $ 828 $ 25,394
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
F-66
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(14) SEGMENTED INFORMATION: (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
---------------------------------------------------
NATURAL GAS
OIL & GAS MARKETING &
PRODUCTION PROCESSING CORPORATE TOTAL
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 31,199 $ 72,911 $ -- $ 104,110
----------- ------------ ----------- -----------
Cost of gas................................................... -- 40,074 -- 40,074
Operating and gas transportation.............................. 8,676 18,807 -- 27,483
Royalties..................................................... 5,869 -- -- 5,869
Alberta Royalty Tax Credit.................................... (1,530) -- -- (1,530)
Depletion and depreciation.................................... 12,447 2,118 362 14,927
----------- ------------ ----------- -----------
25,462 60,999 362 86,823
----------- ------------ ----------- -----------
$ 5,737 $ 11,912 $ (362) 17,287
----------- ------------ -----------
----------- ------------ -----------
Investment income............................................. 506
General and administrative.................................... (4,269)
Interest...................................................... (144)
Income taxes.................................................. (5,907)
-----------
Net earnings.................................................. $ 7,473
-----------
-----------
Identifiable assets........................................... $ 224,577 $ 24,691 $ 6,941 $ 256,209
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Capital expenditures.......................................... $ 40,538 $ 226 $ 227 $ 40,991
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
(15) COMMITMENTS AND CONTINGENCIES:
(a) ATCOR has various commitments including those to buy, sell and transport
natural gas. These commitments are considered to be in the normal course of
business and, in the opinion of management, no material losses are anticipated
in fulfilling such commitments.
(b) The Company has been advised by the operator of the Edmonton Ethane
Extraction Plant that a joint venture audit has identified potential errors in
the processing fees charged and in the allocations of product volumes for the
period 1989 through 1993. It is estimated that the cost to the Company could be
up to $1.6 million pre-tax. Since the amount has not yet been agreed, no charge
has been recorded in the financial statements. It is anticipated that this
charge will be finalized during 1995 (during 1996 as of September 30, 1995) and
will be accounted for as a prior period adjustment.
(c) As outlined in Note 1, the net book value of oil and natural gas
properties is limited to a ceiling amount. At December 31, 1994, there was a
small surplus of the ceiling amount over the related net book value based, in
part, on the assumption that costs related to the Beaufort-Mackenzie Delta area
(Note 9(b)) were unimpaired. The ceiling test at September 30, 1995 was prepared
using average prices; if period end prices had been used, a write-down would
have been necessary. After the issue of the financial statements as at September
30, 1995, revisions were made to the estimated reserves at that date to reflect
possible reductions in such reserves. If the ceiling test at September 30, 1995
had been prepared using period end, rather than average prices, and if the
revised reserve estimates had been used, an after-tax write-down of
approximately $12,000,000 would have been required.
F-67
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(15) COMMITMENTS AND CONTINGENCIES: (CONTINUED)
During December 1995, the principal shareholders of the Company (the
"Shareholders") agreed to sell their shares in the Company to an unrelated U.S.
based company which is to make a similar offer to the other shareholders of the
Company and arrange the necessary financing. If these transactions are
completed, the Company's investment in 50% of its properties in the
Beaufort-Mackenzie Delta area are to be sold to these Shareholders for prices
which are less than the carried costs of such properties. This would, in the
absence of other changes to reserves and prices, result in a further ceiling
test write-down of approximately $11,000,000 after tax. Certain other assets are
also to be sold to the Shareholders for prices which would result in a gain.
The ceiling test status at December 31, 1995 will depend on reserve
quantities and prices at that date and completion of the above proposed sales to
the Shareholders.
(16) RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These principles
differ from United States GAAP; the principal differences are as follow:
(a) Under U.S. GAAP the carrying value of petroleum and natural gas
properties, net of deferred income taxes, is limited to the 10% present value of
after-tax future net revenue from proved reserves (based on prices and costs at
the balance sheet date) and the unimpaired cost of unproved properties (the
"U.S. ceiling test"). Under Canadian GAAP, future net revenue is not discounted
but project financing costs are deducted; this is the principal reason for the
ceiling test writedown under U.S. GAAP.
(b) U.S. GAAP requires that deferred tax assets or liabilities be computed
on the difference between financial statement and income tax bases of assets and
liabilities. Deferred tax provisions are based on the change during the period
in the related deferred tax asset or liability accounts (Financial Accounting
Standard 109 ("FAS 109")). FAS 109 effects are shown from December 31, 1991.
(c) The Ethane Extraction Plant was sold to a related party. Under U.S.
GAAP, the gain would be credited to contributed capital in the year the sale
closed--1994.
(d) Under U.S. GAAP, the excess of book value over quoted or fair value of
investments would be written off if the impairment is other than temporary.
(e) Under U.S. GAAP, the possible charge, referred to in Note 15(b), will be
accounted for as a charge against earnings in the year the amount is resolved
rather than as a prior period adjustment. Some $800,000 of the possible charge
was determined probable in 1994 and the after tax effect is reflected below.
F-68
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(16) RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES: (CONTINUED)
The effect of the differences between Canadian and U.S. GAAP on the
consolidated statement of earnings are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
--------------------- --------------------------------
1995 1994 1994 1993 1992
--------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income as reported...................................... $ 1,919 $ 2,475 $ 5,756 $ 10,238 $ 7,473
(Increase) decrease in depletion (a)........................ (4,711) 1,817 (12,414) (5,579) 2,191
Income taxes -- liability method (b)........................ 1,425 (1,857) 1,264 936 (978)
--------- ---------- ---------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1994 1993 1992
--------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Elimination of gain on sale of interest in Ethane Extraction
Plant, net of tax (c)...................................... -- -- -- (3,683) --
Write-down of investment in securities (d).................. -- -- -- -- (2,689)
Probable charge related to correction of a prior period
error, net of tax (e)...................................... -- -- (448) -- --
--------- ---------- ---------- --------- ---------
Net (loss) income under U.S. GAAP........................... $ (1,367) $ 2,435 $ (5,842) $ 1,912 $ 5,997
--------- ---------- ---------- --------- ---------
--------- ---------- ---------- --------- ---------
(Loss) earnings per share under U.S. GAAP................... $ (0.04) $ 0.06 $ (0.15) $ 0.04 $ 0.18
--------- ---------- ---------- --------- ---------
--------- ---------- ---------- --------- ---------
</TABLE>
As outlined in Note 15(c), the estimated oil and gas reserves of the Company
were revised to reflect possible reductions in reserve quantities after the
Canadian GAAP financial statements for the nine months ended September 30, 1995
were issued. The U.S. GAAP financial statements have been prepared reflecting
the effect of this possible reduction in oil and gas reserves.
The reported cash flows in the consolidated statement of changes in
financial condition under U.S. GAAP are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
---------------------- ----------------------------------
1995 1994 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating activities.................................... $ 28,205 $ 27,251 $ 37,021 $ 27,388 $ 27,500
Financing activities.................................... (14,824) (8,635) (11,798) 14,406 12,929
Investing activities.................................... (13,381) (8,366) (14,973) (50,897) (40,737)
</TABLE>
- ------------------------
F-69
<PAGE>
ATCOR RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE NINE MONTH PERIODS IS UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE INDICATED)
(16) RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES: (CONTINUED)
The effect of U.S. GAAP on retained earnings is as follows:
<TABLE>
<S> <C>
Retained earnings under Canadian GAAP, December 31, 1991................. $ 16,148
Charge on adoption for FAS 109........................................... (2,851)
Write-down of oil and gas assets required under U.S. ceiling test at
December 31, 1991....................................................... (31,055)
---------
Deficit at December 31, 1991 restated under U.S. GAAP................ (17,758)
Net income (loss) under U.S. GAAP for the years ended
December 31, 1992...................................................... 5,997
December 31, 1993...................................................... 1,912
December 31, 1994...................................................... (5,842)
---------
(15,691)
Dividends declared during the years ended
December 31, 1992...................................................... (747)
December 31, 1993...................................................... (591)
December 31, 1994...................................................... --
---------
(1,338)
---------
Deficit at December 31, 1994 under U.S. GAAP......................... (17,029)
---------
Net loss for the nine month period ended September 30, 1995 under U.S.
GAAP (unaudited)........................................................ (1,367)
---------
Deficit at September 30, 1995 under U.S. GAAP (unaudited)................ $ (18,396)
---------
---------
</TABLE>
F-70
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDERS OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH QUALIFIED SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 10
The Company.................................... 15
Use of Proceeds................................ 15
Capitalization................................. 16
Price Range of Common Stock.................... 17
Dividend Policy................................ 17
Selected Financial and Operating
Data......................................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 21
Business and Properties........................ 37
The Anschutz and JEDI Transactions............. 52
Management..................................... 56
Principal and Selling Shareholders............. 59
Description of Capital Stock................... 61
Underwriting................................... 65
Legal Opinions................................. 66
Experts........................................ 66
Certain Definitions............................ 66
Available Information.......................... 67
Incorporation of Certain Documents by
Reference.................................... 68
Index to Consolidated Financial Statements..... F-1
</TABLE>
60,000,000 SHARES
FOREST OIL
CORPORATION
COMMON STOCK
($.10 PAR VALUE)
[LOGO]
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
MORGAN STANLEY & CO.
INCORPORATED
CHASE SECURITIES, INC.
PROSPECTUS
DATED , 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 64,004
NASD fee......................................................... 19,061
Printing and engraving expenses.................................. *
Accounting fees.................................................. *
Legal fees....................................................... *
Blue Sky fees and expenses....................................... *
Transfer Agent and Registrar fee................................. *
Miscellaneous.................................................... *
---------
Total........................................................ $
---------
---------
</TABLE>
* To be filed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 721 through 725 of the Business Corporation Law of the State of New
York (the "BCL"), in which Forest Oil Corporation is incorporated, permit New
York corporations, acting through their boards of directors, to extend broad
protection to their directors, officers and other employees by way of indemnity
and advancement of expenses. These sections (1) provide that the statutory
indemnification provisions of the BCL are not exclusive, provided that no
indemnification may be made to or on behalf of any director or officer if a
judgment or other final adjudication adverse to the director or officer
establishes that his acts were committed in bad faith or were the result of
active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not entitled, (2) establish procedures for
indemnification and advancement of expenses that may be contained in the
certificate of incorporation or by-laws, or, when authorized by either of the
foregoing, set forth in a resolution of the shareholders or directors or an
agreement providing for indemnification and advancement of expenses, (3) apply a
single standard for statutory indemnification for third-party and derivative
suits by providing that indemnification is available if the director or officer
acted, in good faith, for a purpose which he reasonably believed to be in the
best interests of the corporation, and, in criminal actions, had no reasonable
cause to believe that his conduct was unlawful, (4) eliminate the requirement
for mandatory statutory indemnification that the indemnified party be "wholly"
successful and (5) provide for the advancement of litigation expenses upon
receipt of an undertaking to repay such advance if the director or officer is
ultimately determined not to be entitled to indemnification. Section 726 of the
BCL permits the purchase of insurance to indemnify a corporation or its officers
and directors to the extent permitted. Essentially, the amended BCL allows
corporations to provide for indemnification of directors, officers and employees
except in those cases where a judgment or other final adjudication adverse to
the indemnified party establishes that the acts were committed in bad faith or
were the result of active and deliberate dishonesty or that the indemnified
party personally gained a financial profit or other advantage to which he was
not legally entitled.
Article IX of the By-laws of Forest Oil Corporation contains very broad
indemnification provisions which permit the corporation to avail itself of the
amended BCL to extend broad protection to its directors, officers and employees
by way of indemnity and advancement of expenses. It sets out the standard under
which the Company will indemnify directors and officers, provides for
reimbursement in such instances, for the advancement or reimbursement for
expenses reasonably incurred in defending an action, and for the extension of
indemnity to persons other than directors and officers. It also establishes the
manner of handling indemnification when a lawsuit is settled. It is not intended
that this By-law is an exclusive method of indemnification.
II-1
<PAGE>
Article IX of the By-laws may only be amended prospectively. In addition,
the Company cannot, except by elimination or amendment of such section of the
By- laws, limit the rights of any indemnified person to indemnity or advancement
of expenses provided in accordance with this By-law. It also permits the
indemnify person to sue the Company for indemnification, shifting the burden of
proof to the Company to prove that the indemnified person has not met the
standards of conduct required for indemnification and requires the Company to
pay the costs of such suit if the indemnified person is successful.
The Restated Certificate of Incorporation of the Company limits the personal
liability of the Company's directors to the fullest extent permitted under the
BCL.
Additionally, the BCL was amended in 1987 to allow New York corporations to
limit or eliminate director's liability for certain breaches of duty. The
Restated Certificate of Incorporation provides that a director of the Company
shall not be liable to the Company or its shareholders for damages for any
breach of duty in such a capacity unless a judgment or other final adjudication
adverse to the director establishes that:
(a) the director's acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law; or
(b) the director personally gained in fact a financial profit or other
advantage to which the director was not legally entitled; or
(c) the director's acts violated Section 719 of the BCL.
A director's liability for any act or omission prior to the adoption of the
amendment to the BCL to eliminate director's liability for certain breaches of
duty shall not be eliminated or limited by virtue thereof and any repeal or
modification of the foregoing provisions of, or the adoption of any provision
of, the Restated Certificate of Incorporation inconsistent with the BCL shall
not adversely affect any right, immunity or protection of director existing
thereunder with respect to any act or omission occurring prior to or at the time
of such repeal or modification or the adoption of such inconsistent provision.
If the BCL is subsequently amended to permit the further elimination or
limitation of the personal liability of a director, then the liability of the
director shall be eliminated or limited to the fullest extent permitted by the
BCL as so amended.
The Company has insurance coverage which protects directors and officers of
Forest Oil Corporation and its subsidiaries against judgments, settlements and
legal costs incurred because of actual or alleged errors or omissions in
connection with their activities as directors or Officers of Forests Oil
Corporation and its subsidiaries. One of the policies is a Directors and
Officers Liability and Corporation Reimbursement Policy, which covers the period
July 25, 1995 to July 25, 1996. Where Forest Oil Corporation or its subsidiaries
indemnifies covered directors and officers, Forest Oil Corporation is
responsible for a $500,000 deductible per loss. The maximum annual cumulative
policy limit is $20 million.
The Company also has Pension Trust Liability Coverage as respects Forest Oil
Corporation Pension Trust and the Retirement Savings Plan. It covers legal
liability and defense of Plan sponsors and fiduciaries for certain claims based
upon actual or alleged Breach of Fiduciary Duty (as defined in the policy) as
respects the covered benefit plans. The coverage limit is $10 million (annual
cumulative policy limit) and is subject to a deductible of $100,000 for each
loss when indemnifiable by Forest Oil Corporation and its subsidiaries.
These policies contain exclusions commonly found in such insurance policies
including, but not limited to, exclusions for claims based on fines and
penalties imposed by law or other matters deemed uninsurable by law, claims
brought by one insured against another insured, claims based upon or
attributable to an officer or director gaining any personal profit or advantage
to which he or she is not legally entitled, adjudicated acts of active or
deliberate dishonesty, and claims based upon attempts
II-2
<PAGE>
(whether alleged or actual, successful or unsuccessful) by persons to acquire
securities of the Company against the opposition of the Company's Board of
Directors and in connection with which the Company acquires its securities from
such persons at a price not available to all other shareholders or gives
consideration to such persons to terminate such attempts. Also excluded are
those attempts (whether alleged or actual, successful or unsuccessful) by the
Company to acquire its securities at a premium over the then existing market
price other than pursuant to an offer to all of the holders of that class.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person thereof in connection with the
securities being registered (and the Securities and Exchange Commission is still
of the same opinion), the company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S> <C>
** Exhibit 1.1 Form of Underwriting Agreement.
Exhibit 3(i) Restated Certificate of Incorporation of Forest Oil Corporation dated
October 14, 1993, incorporated herein by reference to Exhibit 3(i) to
Form 10-Q for Forest Oil Corporation for the quarter ended September
30, 1993 (File No. 0-4597).
Exhibit 3(i)(a) Certificate of Amendment of the Restated Certificate of Incorporation
dated as of July 20, 1995, incorporated herein by reference to Exhibit
3(i)(a) to Form 10-Q for Forest Oil Corporation for the quarter ended
June 30, 1995 (File No. 0-4597).
Exhibit 3(i)(b) Certificate of Amendment of the Certificate of Incorporation dated as
of July 26, 1995, incorporated herein by reference to Exhibit 3(i)(b)
to Form 10-Q for Forest Oil Corporation for the quarter ended June 30,
1995 (File No. 0-4597).
Exhibit 3(ii) Restated By-Laws of Forest Oil Corporation as of May 9, 1990, Amendment
No. 1 to By-Laws dated as of April 2, 1991, Amendment No. 2 to By-Laws
dated as of May 8, 1991, Amendment No. 3 to By-Laws dated as of July
30, 1991, Amendment No. 4 to By-Laws dated as of January 17, 1992,
Amendment No. 5 to By-Laws dated as of March 18, 1993 and Amendment No.
6 to By-Laws dated as of September 14, 1993, incorporated herein by
reference to Exhibit 3(ii) to Form 10-Q for Forest Oil Corporation for
the quarter ended September 30, 1993 (File No. 0-4597).
Exhibit Amendment No. 7 to By-Laws dated as of December 3, 1993, incorporated
3(ii)(a) herein by reference to Exhibit 3(ii)(a) to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1993 (File No. 0-4597).
Exhibit Amendment No. 8 to By-Laws dated as of February 24, 1994, incorporated
3(ii)(b) herein by reference to Exhibit 3(ii)(b) to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1993 (File No. 0-4597).
Exhibit Amendment No. 9 to By-Laws dated as of May 15, 1995, incorporated
3(ii)(c) herein by reference to Exhibit 3(ii)(c) to Form 10-Q for Forest Oil
Corporation for the quarter ended June 30, 1995 (File No. 0-4597).
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S> <C>
Exhibit Amendment No. 10 to By-Laws dated as of July 27, 1995, incorporated
3(ii)(d) herein by reference to Exhibit 3(ii)(d) to Form 10-Q for Forest Oil
Corporation for the quarter ended June 30, 1995 (File No. 0-4597).
Exhibit 4.1 Indenture dated as of September 8, 1993 between Forest Oil Corporation
and Shawmut Bank, Connecticut, (National Association), incorporated
herein by reference to Exhibit 4.1 to Form 10-Q for Forest Oil
Corporation for the quarter ended September 30, 1993 (File No. 0-4597).
Exhibit 4.2 Loan Agreement between Forest Oil Corporation and Joint Energy
Development Investments Limited Partnership dated as of December 28,
1993, incorporated herein by reference to Exhibit 4.1 to Form 8-K for
Forest Oil Corporation dated December 30, 1993 (File No. 0-4597).
Exhibit 4.3 Second Amendment effective as of July 27, 1995 to Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement,
incorporated herein by reference to Exhibit 4.2 to Form 8-K for Forest
Oil Corporation dated October 11, 1995 (File No. 0-4597).
Exhibit 4.4 Amended and Restated Credit Agreement dated as of August 31, 1995
between Forest Oil Corporation and Subsidiaries, Borrower and
Subsidiary Guarantors and The Chase Manhattan Bank (National
Association), as agent, incorporated herein by reference to Exhibit 4.1
to Form 10-Q for Forest Oil Corporation for the quarter ended September
30, 1995 (File No. 0-4597).
Exhibit 4.5 First Amendment dated as of December 28, 1993 relating to Exhibit 4.2
hereof, incorporated herein by reference to Exhibit 4.3 to Form 10-Q
for Forest Oil Corporation for the quarter ended June 30, 1994 (File
No. 0-4597).
Exhibit 4.6 Second Amendment dated as of July 27, 1995 relating to Exhibit 4.2
hereof, incorporated by reference to Exhibit 4.1.
Exhibit 4.7 Deed of Trust, Assignment of Production, Security Agreement and
Financing Statement dated as of December 28, 1993 by and between Forest
Oil Corporation and Joint Energy Development Investments Limited
Partnership, incorporated herein by reference to Exhibit 4.2 to Form
8-K for Forest Oil Corporation dated December 30, 1993 (File No.
0-4597).
Exhibit 4.8 First Amendment dated as of June 15, 1994 relating to Exhibit 4.7
hereof, incorporated herein by reference to Exhibit 4.4 to Form 10-Q
for Forest Oil Corporation for the quarter ended June 30, 1994 (File
No. 0-4597).
* Exhibit 4.9 Specimen of Common Stock Certificate.
Exhibit 4.10 Act of Mortgage, Assignment of Production, Security Agreement and
Financing Statement dated as of December 28, 1993 between Forest Oil
Corporation and Joint Energy Development Investments Limited
Partnership, incorporated herein by reference to Exhibit 4.3 to Form
8-K for Forest Oil Corporation dated December 30, 1993 (File No.
0-4597).
Exhibit 4.11 Warrant Agreement dated as of December 3, 1991 between Forest Oil
Corporation and The Chase Manhattan Bank (National Association), as
Warrant Agent (including Form of Warrant), incorporated herein by
reference to Exhibit 4.7 to Form 10-K for Forest Oil Corporation for
the year ended December 31, 1991 (File No. 0-4597).
Exhibit 4.12 Rights Agreement between Forest Oil Corporation and Mellon Securities
Trust Company, as Rights Agent dated as of October 14, 1993,
incorporated herein by reference to Exhibit 4.3 to Form 10-Q for Forest
Oil Corporation for the quarter ended September 30, 1993 (File No.
0-4597).
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
** Exhibit 4.13 Acquisition Agreement among Forest Oil Corporation, ATCOR Resources
Ltd., ATCO Ltd., Canadian Utilities Limited and CanUtilities Holdings
Ltd. dated December 12, 1995.
** Exhibit 5. Opinion of Vinson & Elkins L.L.P., relating to the legality of the
Common Stock, par value $.10 per share, of Forest Oil Corporation
registered pursuant hereto.
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 Executive Deferred Compensation Plan,
incorporated herein by reference to Exhibit 10.3 to Form 10-Q for
Forest Oil Corporation for the quarter ended June 30, 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. 0-597).
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.
** Exhibit 23.1 Consent of Vinson & Elkins L.L.P. (included in Exhibit 5 hereto).
* Exhibit 23.2 Consent of KPMG Peat Marwick LLP.
* Exhibit 23.3 Consent of Price Waterhouse.
* Exhibit 24 Powers of Attorney of the following Officers and Directors: Donald H.
Anderson, Philip F. Anschutz, Robert S. Boswell, Richard J. Callahan,
Dale F. Dorn, William L. Dorn, David H. Keyte, James H. Lee, Daniel L.
McNamara, Craig D. Slater, Joan C. Sonnen, Drake S. Tempest and Michael
B. Yanney.
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Denver, State of Colorado, on December 12, 1995.
FOREST OIL CORPORATION
By: ______/s/_DANIEL L. MCNAMARA______
Daniel L. McNamara
CORPORATE COUNSEL AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<C> <S> <C>
President and Chief Executive
ROBERT S. BOSWELL* Officer (Principal Executive December 12, 1995
(Robert S. Boswell) Officer)
Vice President and Chief
DAVID H. KEYTE* Financial Officer (Principal December 12, 1995
(David H. Keyte) Financial Officer)
JOAN C. SONNEN* Controller (Principal Accounting
(Joan C. Sonnen) Officer) December 12, 1995
PHILIP F. ANSCHUTZ*
(Philip F. Anschutz)
DONALD H. ANDERSON*
(Donald H. Anderson)
ROBERT S. BOSWELL*
(Robert S. Boswell) Directors of the Registrant December 12, 1995
RICHARD J. CALLAHAN*
(Richard J. Callahan)
DALE F. DORN*
(Dale F. Dorn)
WILLIAM L. DORN*
(William L. Dorn)
JAMES H. LEE*
(James H. Lee)
CRAIG D. SLATER*
(Craig D. Slater)
DRAKE S. TEMPEST*
(Drake S. Tempest)
MICHAEL B. YANNEY*
(Michael B. Yanney)
*By: /s/Daniel L. McNamara
Daniel L. McNamara
(AS ATTORNEY-IN-FACT FOR
EACH OF THE PERSONS INDICATED)
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO. DESCRIPTION NO.
-------------------- -------------------------------------------------------------------------------- ---------
<C> <S> <C> <C>
** Exhibit 1.1 Form of Underwriting Agreement.
Exhibit 3(i) Restated Certificate of Incorporation of Forest Oil Corporation dated October
14, 1993, incorporated herein by reference to Exhibit 3(i) to Form 10-Q for
Forest Oil Corporation for the quarter ended September 30, 1993 (File No.
0-4597).
Exhibit 3(i)(a) Certificate of Amendment of the Restated Certificate of Incorporation dated as
of July 20, 1995, incorporated herein by reference to Exhibit 3(i)(a) to Form
10-Q for Forest Oil Corporation for the quarter ended June 30, 1995 (File No.
0-4597).
Exhibit 3(i)(b) Certificate of Amendment of the Certificate of Incorporation dated as of July
26, 1995, incorporated herein by reference to Exhibit 3(i)(b) to Form 10-Q for
Forest Oil Corporation for the quarter ended June 30, 1995 (File No. 0-4597).
Exhibit 3(ii) Restated By-Laws of Forest Oil Corporation as of May 9, 1990, Amendment No. 1 to
By-Laws dated as of April 2, 1991, Amendment No. 2 to By-Laws dated as of May 8,
1991, Amendment No. 3 to By-Laws dated as of July 30, 1991, Amendment No. 4 to
By-Laws dated as of January 17, 1992, Amendment No. 5 to By-Laws dated as of
March 18, 1993 and Amendment No. 6 to By-Laws dated as of September 14, 1993,
incorporated herein by reference to Exhibit 3(ii) to Form 10-Q for Forest Oil
Corporation for the quarter ended September 30, 1993 (File No. 0-4597).
Exhibit 3(ii)(a) Amendment No. 7 to By-Laws dated as of December 3, 1993, incorporated herein by
reference to Exhibit 3(ii)(a) to Form 10-K for Forest Oil Corporation for the
year ended December 31, 1993 (File No. 0-4597).
Exhibit 3(ii)(b) Amendment No. 8 to By-Laws dated as of February 24, 1994, incorporated herein by
reference to Exhibit 3(ii)(b) to Form 10-K for Forest Oil Corporation for the
year ended December 31, 1993 (File No. 0-4597).
Exhibit 3(ii)(c) Amendment No. 9 to By-Laws dated as of May 15, 1995, incorporated herein by
reference to Exhibit 3(ii)(c) to Form 10-Q for Forest Oil Corporation for the
quarter ended June 30, 1995 (File No. 0-4597).
Exhibit 3(ii)(d) Amendment No. 10 to By-Laws dated as of July 27, 1995, incorporated herein by
reference to Exhibit 3(ii)(d) to Form 10-Q for Forest Oil Corporation for the
quarter ended June 30, 1995 (File No. 0-4597).
Exhibit 4.1 Indenture dated as of September 8, 1993 between Forest Oil Corporation and
Shawmut Bank, Connecticut, (National Association), incorporated herein by
reference to Exhibit 4.1 to Form 10-Q for Forest Oil Corporation for the quarter
ended September 30, 1993 (File No. 0-4597).
Exhibit 4.2 Loan Agreement between Forest Oil Corporation and Joint Energy Development
Investments Limited Partnership dated as of December 28, 1993, incorporated
herein by reference to Exhibit 4.1 to Form 8-K for Forest Oil Corporation dated
December 30, 1993 (File No. 0-4597).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO. DESCRIPTION NO.
-------------------- -------------------------------------------------------------------------------- ---------
Exhibit 4.3 Second Amendment effective as of July 27, 1995 to Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement, incorporated herein by
reference to Exhibit 4.2 to Form 8-K for Forest Oil Corporation dated October11,
1995 (File No. 0-4597).
<C> <S> <C> <C>
Exhibit 4.4 Amended and Restated Credit Agreement dated as of August 31, 1995 between Forest
Oil Corporation and Subsidiaries, Borrower and Subsidiary Guarantors and The
Chase Manhattan Bank (National Association), as agent, incorporated herein by
reference to Exhibit 4.1 to Form 10-Q for Forest Oil Corporation for the quarter
ended September 30, 1995 (File No. 0-4597).
Exhibit 4.5 First Amendment dated as of December 28, 1993 relating to Exhibit 4.2 hereof,
incorporated herein by reference to Exhibit 4.3 to Form 10-Q for Forest Oil
Corporation for the quarter ended June 30, 1994 (File No. 0-4597).
Exhibit 4.6 Second Amendment dated as of July 27, 1995 relating to Exhibit 4.2 hereof,
incorporated by reference to Exhibit 4.1.
Exhibit 4.7 Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of December 28, 1993 by and between Forest Oil Corporation
and Joint Energy Development Investments Limited Partnership, incorporated
herein by reference to Exhibit 4.2 to Form 8-K for Forest Oil Corporation dated
December 30, 1993 (File No. 0-4597).
Exhibit 4.8 First Amendment dated as of June 15, 1994 relating to Exhibit 4.7 hereof,
incorporated herein by reference to Exhibit 4.4 to Form 10-Q for Forest Oil
Corporation for the quarter ended June 30, 1994 (File No. 0-4597).
* Exhibit 4.9 Specimen of Common Stock Certificate.
Exhibit 4.10 Act of Mortgage, Assignment of Production, Security Agreement and Financing
Statement dated as of December 28, 1993 between Forest Oil Corporation and Joint
Energy Development Investments Limited Partnership, incorporated herein by
reference to Exhibit 4.3 to Form 8-K for Forest Oil Corporation dated December
30, 1993 (File No. 0-4597).
Exhibit 4.11 Warrant Agreement dated as of December 3, 1991 between Forest Oil Corporation
and The Chase Manhattan Bank (National Association), as Warrant Agent (including
Form of Warrant), incorporated herein by reference to Exhibit 4.7 to Form 10-K
for Forest Oil Corporation for the year ended December 31, 1991 (File No.
0-4597).
Exhibit 4.12 Rights Agreement between Forest Oil Corporation and Mellon Securities Trust
Company, as Rights Agent dated as of October 14, 1993, incorporated herein by
reference to Exhibit 4.3 to Form 10-Q for Forest Oil Corporation for the quarter
ended September 30, 1993 (File No. 0-4597).
** Exhibit 4.13 Acquisition Agreement among Forest Oil Corporation, ATCOR Resources Ltd., ATCO
Ltd., Canadian Utilities Limited and CanUtilities Holdings Ltd. dated December
12, 1995.
** Exhibit 5. Opinion of Vinson & Elkins L.L.P., relating to the legality of the Common Stock,
par value $.10 per share, of Forest Oil Corporation registered pursuant hereto.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO. DESCRIPTION NO.
-------------------- -------------------------------------------------------------------------------- ---------
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).
<C> <S> <C> <C>
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 Executive Deferred Compensation Plan, incorporated herein
by reference to Exhibit 10.3 to Form 10-Q for Forest Oil Corporation for the
quarter ended June 30, 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. 0-597).
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.
** Exhibit 23.1 Consent of Vinson & Elkins L.L.P. (included in Exhibit 5 hereto).
* Exhibit 23.2 Consent of KPMG Peat Marwick LLP.
* Exhibit 23.3 Consent of Price Waterhouse.
* Exhibit 24 Powers of Attorney of the following Officers and Directors: Donald H. Anderson,
Philip F. Anschutz, Robert S. Boswell, Richard J. Callahan, Dale F. Dorn,
William L. Dorn, David H. Keyte, James H. Lee, Daniel L. McNamara, Craig D.
Slater, Joan C. Sonnen, Drake S. Tempest and Michael B. Yanney.
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
<PAGE>
EXHIBIT 4.9
No U _________ Shares
FOREST OIL CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, N.Y. OR IN CALGARY, ALBERTA
THIS IS TO CERTIFY THAT
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 346091 10 1
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
OF THE PAR VALUE OF TEN CENTS ($.10) PER SHARE, OF
============================= FOREST OIL CORPORATION =======================
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the seal of the Corporation and the signatures of its duly
authorized Officers.
Dated
/s/ DANIEL L. McNAMARA /s/ WILLIAM L. DORN
- ------------------------------ [SEAL] ------------------------------
Daniel L. McNamara William L. Dorn
SECRETARY PRESIDENT
Countersigned and Registered by
MELLON SECURITIES TRUST COMPANY
(NEW YORK)
Transfer Agent and Registrar
By
Authorized Signature
<PAGE>
FOREST OIL CORPORATION
The Corporation will furnish to any shareholder upon request and without
charge a full statement of the designations, relative rights, preferences and
limitations of the shares of each class authorized to be issued and, if the
Corporation is at the time authorized to issue any class of preferred shares
in series, the designations, relative rights, preferences and limitations of
each such series so far as the same have been fixed and the authority of the
Board of Directors to designate and fix the relative rights, preferences and
limitations of other series. Such request may be made to the transfer agent
or the Secretary of the Corporation.
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between Forest Oil
Corporation and Mellon Securities Trust Company, dated as of October 14, 1993
(the "Rights Agreement"), the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the principal executive
offices of Forest Oil Corporation. Under certain circumstances, as set forth
in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. Forest Oil
Corporation will mail to the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor. As
described in the Rights Agreement, Rights issued to or acquired by any
Acquiring Person (as defined in the Rights Agreement) shall, under certain
circumstances, become null and void.
_____________________________
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM =as tenants in common UNIF GIFT MIN ACT--......Custodian.......
TEN ENT =as tenants by the entireties (Cust) (Minor)
JT TEN =as joint tenants with right under Uniform Gifts to
of survivorship and not as Minors Act............
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
_____________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_____________________________________________________________________________
_____________________________________________________________________________
______________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
____________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated _____________________________
_____________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Forest Oil Corporation:
We consent to the use of our report dated March 30, 1995 relating to the
consolidated financial statements of Forest Oil Corporation as of December 31,
1994 and 1993 and for each of the years in the three-year period ended December
31, 1994 incorporated by reference and included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Denver, Colorado
December 11, 1995
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 1, 1995 relating to the
consolidated financial statements of ATCOR Resources Ltd. as at December 31,
1994 and 1993 and for each of the years in the three-year period ended December
31, 1994 included herein and to the reference to our firm under the heading
"Experts" in the Prospectus.
Price Waterhouse
Calgary, Alberta
December 11, 1995
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with the authority
to act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable: (i)
to enable the Company to comply with the Securities Act of 1933, as amended,
and any rules, regulations, and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under the
said Securities Act of the offering, sale and delivery of equity and debt
securities (the "Securities"), including specifically, but without limiting
the generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as officer or director,
or both, of the Company to a Registration Statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect of the
Securities, and to any instrument or document filed as a part of, as an
exhibit to or in connection with said Registration Statement or amendment;
and (ii) to register or qualify the Securities for sale and to register or
license the Company as a broker or dealer in the Securities under the
securities or Blue Sky Laws of all such States as may be necessary or
appropriate to permit therein the offering and sale of the Securities as
contemplated by said Registration Statement, including specifically, without
limitation, the power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of
the Company to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any exhibit
filed as part thereof or in connection therewith, which is required to be
signed by the undersigned and to be filed with the public authority or
authorities administering said securities or Blue Sky Laws for the purpose of
so registering or qualifying the Securities or registering or licensing the
Company, and the undersigned does hereby ratify and confirm as his own act
and deed all that said attorneys and agents shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of December, 1995.
/s/ PHILIP F. ANSCHUTZ
--------------------------------------
Philip F. Anschutz
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with the authority
to act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable: (i)
to enable the Company to comply with the Securities Act of 1933, as amended,
and any rules, regulations, and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under the
said Securities Act of the offering, sale and delivery of equity and debt
securities (the "Securities"), including specifically, but without limiting
the generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as officer or director,
or both, of the Company to a Registration Statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect of the
Securities, and to any instrument or document filed as a part of, as an
exhibit to or in connection with said Registration Statement or amendment;
and (ii) to register or qualify the Securities for sale and to register or
license the Company as a broker or dealer in the Securities under the
securities or Blue Sky Laws of all such States as may be necessary or
appropriate to permit therein the offering and sale of the Securities as
contemplated by said Registration Statement, including specifically, without
limitation, the power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of
the Company to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any exhibit
filed as part thereof or in connection therewith, which is required to be
signed by the undersigned and to be filed with the public authority or
authorities administering said securities or Blue Sky Laws for the purpose of
so registering or qualifying the Securities or registering or licensing the
Company, and the undersigned does hereby ratify and confirm as his own act
and deed all that said attorneys and agents shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of December, 1995.
/s/ DONALD H. ANDERSON
--------------------------------------
Donald H. Anderson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with the authority
to act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable: (i)
to enable the Company to comply with the Securities Act of 1933, as amended,
and any rules, regulations, and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under the
said Securities Act of the offering, sale and delivery of equity and debt
securities (the "Securities"), including specifically, but without limiting
the generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as officer or director,
or both, of the Company to a Registration Statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect of the
Securities, and to any instrument or document filed as a part of, as an
exhibit to or in connection with said Registration Statement or amendment;
and (ii) to register or qualify the Securities for sale and to register or
license the Company as a broker or dealer in the Securities under the
securities or Blue Sky Laws of all such States as may be necessary or
appropriate to permit therein the offering and sale of the Securities as
contemplated by said Registration Statement, including specifically, without
limitation, the power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of
the Company to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any exhibit
filed as part thereof or in connection therewith, which is required to be
signed by the undersigned and to be filed with the public authority or
authorities administering said securities or Blue Sky Laws for the purpose of
so registering or qualifying the Securities or registering or licensing the
Company, and the undersigned does hereby ratify and confirm as his own act
and deed all that said attorneys and agents shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of December, 1995.
/s/ ROBERT S. BOSWELL
--------------------------------------
Robert S. Boswell
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with the authority
to act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable: (i)
to enable the Company to comply with the Securities Act of 1933, as amended,
and any rules, regulations, and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under the
said Securities Act of the offering, sale and delivery of equity and debt
securities (the "Securities"), including specifically, but without limiting
the generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as officer or director,
or both, of the Company to a Registration Statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect of the
Securities, and to any instrument or document filed as a part of, as an
exhibit to or in connection with said Registration Statement or amendment;
and (ii) to register or qualify the Securities for sale and to register or
license the Company as a broker or dealer in the Securities under the
securities or Blue Sky Laws of all such States as may be necessary or
appropriate to permit therein the offering and sale of the Securities as
contemplated by said Registration Statement, including specifically, without
limitation, the power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of
the Company to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any exhibit
filed as part thereof or in connection therewith, which is required to be
signed by the undersigned and to be filed with the public authority or
authorities administering said securities or Blue Sky Laws for the purpose of
so registering or qualifying the Securities or registering or licensing the
Company, and the undersigned does hereby ratify and confirm as his own act
and deed all that said attorneys and agents shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of December, 1995.
/s/ RICHARD J. CALLAHAN
--------------------------------------
Richard J. Callahan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with the authority
to act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable: (i)
to enable the Company to comply with the Securities Act of 1933, as amended,
and any rules, regulations, and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under the
said Securities Act of the offering, sale and delivery of equity and debt
securities (the "Securities"), including specifically, but without limiting
the generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as officer or director,
or both, of the Company to a Registration Statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect of the
Securities, and to any instrument or document filed as a part of, as an
exhibit to or in connection with said Registration Statement or amendment;
and (ii) to register or qualify the Securities for sale and to register or
license the Company as a broker or dealer in the Securities under the
securities or Blue Sky Laws of all such States as may be necessary or
appropriate to permit therein the offering and sale of the Securities as
contemplated by said Registration Statement, including specifically, without
limitation, the power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of
the Company to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any exhibit
filed as part thereof or in connection therewith, which is required to be
signed by the undersigned and to be filed with the public authority or
authorities administering said securities or Blue Sky Laws for the purpose of
so registering or qualifying the Securities or registering or licensing the
Company, and the undersigned does hereby ratify and confirm as his own act
and deed all that said attorneys and agents shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of December, 1995.
/s/ DALE F. DORN
--------------------------------------
Dale F. Dorn
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with the authority
to act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable: (i)
to enable the Company to comply with the Securities Act of 1933, as amended,
and any rules, regulations, and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under the
said Securities Act of the offering, sale and delivery of equity and debt
securities (the "Securities"), including specifically, but without limiting
the generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as officer or director,
or both, of the Company to a Registration Statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect of the
Securities, and to any instrument or document filed as a part of, as an
exhibit to or in connection with said Registration Statement or amendment;
and (ii) to register or qualify the Securities for sale and to register or
license the Company as a broker or dealer in the Securities under the
securities or Blue Sky Laws of all such States as may be necessary or
appropriate to permit therein the offering and sale of the Securities as
contemplated by said Registration Statement, including specifically, without
limitation, the power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of
the Company to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any exhibit
filed as part thereof or in connection therewith, which is required to be
signed by the undersigned and to be filed with the public authority or
authorities administering said securities or Blue Sky Laws for the purpose of
so registering or qualifying the Securities or registering or licensing the
Company, and the undersigned does hereby ratify and confirm as his own act
and deed all that said attorneys and agents shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of December, 1995.
/s/ WILLIAM L. DORN
--------------------------------------
William L. Dorn
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with the authority
to act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable: (i)
to enable the Company to comply with the Securities Act of 1933, as amended,
and any rules, regulations, and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under the
said Securities Act of the offering, sale and delivery of equity and debt
securities (the "Securities"), including specifically, but without limiting
the generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as officer or director,
or both, of the Company to a Registration Statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect of the
Securities, and to any instrument or document filed as a part of, as an
exhibit to or in connection with said Registration Statement or amendment;
and (ii) to register or qualify the Securities for sale and to register or
license the Company as a broker or dealer in the Securities under the
securities or Blue Sky Laws of all such States as may be necessary or
appropriate to permit therein the offering and sale of the Securities as
contemplated by said Registration Statement, including specifically, without
limitation, the power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of
the Company to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any exhibit
filed as part thereof or in connection therewith, which is required to be
signed by the undersigned and to be filed with the public authority or
authorities administering said securities or Blue Sky Laws for the purpose of
so registering or qualifying the Securities or registering or licensing the
Company, and the undersigned does hereby ratify and confirm as his own act
and deed all that said attorneys and agents shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of December, 1995.
/s/ DAVID H. KEYTE
--------------------------------------
David H. Keyte
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with the authority
to act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable: (i)
to enable the Company to comply with the Securities Act of 1933, as amended,
and any rules, regulations, and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under the
said Securities Act of the offering, sale and delivery of equity and debt
securities (the "Securities"), including specifically, but without limiting
the generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as officer or director,
or both, of the Company to a Registration Statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect of the
Securities, and to any instrument or document filed as a part of, as an
exhibit to or in connection with said Registration Statement or amendment;
and (ii) to register or qualify the Securities for sale and to register or
license the Company as a broker or dealer in the Securities under the
securities or Blue Sky Laws of all such States as may be necessary or
appropriate to permit therein the offering and sale of the Securities as
contemplated by said Registration Statement, including specifically, without
limitation, the power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of
the Company to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any exhibit
filed as part thereof or in connection therewith, which is required to be
signed by the undersigned and to be filed with the public authority or
authorities administering said securities or Blue Sky Laws for the purpose of
so registering or qualifying the Securities or registering or licensing the
Company, and the undersigned does hereby ratify and confirm as his own act
and deed all that said attorneys and agents shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of December, 1995.
/s/ JAMES H. LEE
--------------------------------------
James H. Lee
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Alan P. Baden and Barbara E.
Chesebro his true and lawful attorneys and agents (each with the authority to
act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable: (i)
to enable the Company to comply with the Securities Act of 1933, as amended,
and any rules, regulations, and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under the
said Securities Act of the offering, sale and delivery of equity and debt
securities (the "Securities"), including specifically, but without limiting
the generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as officer or director,
or both, of the Company to a Registration Statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect of the
Securities, and to any instrument or document filed as a part of, as an
exhibit to or in connection with said Registration Statement or amendment;
and (ii) to register or qualify the Securities for sale and to register or
license the Company as a broker or dealer in the Securities under the
securities or Blue Sky Laws of all such States as may be necessary or
appropriate to permit therein the offering and sale of the Securities as
contemplated by said Registration Statement, including specifically, without
limitation, the power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of
the Company to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any exhibit
filed as part thereof or in connection therewith, which is required to be
signed by the undersigned and to be filed with the public authority or
authorities administering said securities or Blue Sky Laws for the purpose of
so registering or qualifying the Securities or registering or licensing the
Company, and the undersigned does hereby ratify and confirm as his own act
and deed all that said attorneys and agents shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of December, 1995.
/s/ DANIEL L. McNAMARA
--------------------------------------
Daniel L. McNamara
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with the authority
to act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable: (i)
to enable the Company to comply with the Securities Act of 1933, as amended,
and any rules, regulations, and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under the
said Securities Act of the offering, sale and delivery of equity and debt
securities (the "Securities"), including specifically, but without limiting
the generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as officer or director,
or both, of the Company to a Registration Statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect of the
Securities, and to any instrument or document filed as a part of, as an
exhibit to or in connection with said Registration Statement or amendment;
and (ii) to register or qualify the Securities for sale and to register or
license the Company as a broker or dealer in the Securities under the
securities or Blue Sky Laws of all such States as may be necessary or
appropriate to permit therein the offering and sale of the Securities as
contemplated by said Registration Statement, including specifically, without
limitation, the power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of
the Company to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any exhibit
filed as part thereof or in connection therewith, which is required to be
signed by the undersigned and to be filed with the public authority or
authorities administering said securities or Blue Sky Laws for the purpose of
so registering or qualifying the Securities or registering or licensing the
Company, and the undersigned does hereby ratify and confirm as his own act
and deed all that said attorneys and agents shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of December, 1995.
/s/ CRAIG D. SLATER
--------------------------------------
Craig D. Slater
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with the authority
to act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable: (i)
to enable the Company to comply with the Securities Act of 1933, as amended,
and any rules, regulations, and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under the
said Securities Act of the offering, sale and delivery of equity and debt
securities (the "Securities"), including specifically, but without limiting
the generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as officer or director,
or both, of the Company to a Registration Statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect of the
Securities, and to any instrument or document filed as a part of, as an
exhibit to or in connection with said Registration Statement or amendment;
and (ii) to register or qualify the Securities for sale and to register or
license the Company as a broker or dealer in the Securities under the
securities or Blue Sky Laws of all such States as may be necessary or
appropriate to permit therein the offering and sale of the Securities as
contemplated by said Registration Statement, including specifically, without
limitation, the power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of
the Company to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any exhibit
filed as part thereof or in connection therewith, which is required to be
signed by the undersigned and to be filed with the public authority or
authorities administering said securities or Blue Sky Laws for the purpose of
so registering or qualifying the Securities or registering or licensing the
Company, and the undersigned does hereby ratify and confirm as his own act
and deed all that said attorneys and agents shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of December, 1995.
/s/ JOAN C. SONNEN
--------------------------------------
Joan C. Sonnen
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with the authority
to act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable: (i)
to enable the Company to comply with the Securities Act of 1933, as amended,
and any rules, regulations, and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under the
said Securities Act of the offering, sale and delivery of equity and debt
securities (the "Securities"), including specifically, but without limiting
the generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as officer or director,
or both, of the Company to a Registration Statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect of the
Securities, and to any instrument or document filed as a part of, as an
exhibit to or in connection with said Registration Statement or amendment;
and (ii) to register or qualify the Securities for sale and to register or
license the Company as a broker or dealer in the Securities under the
securities or Blue Sky Laws of all such States as may be necessary or
appropriate to permit therein the offering and sale of the Securities as
contemplated by said Registration Statement, including specifically, without
limitation, the power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of
the Company to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any exhibit
filed as part thereof or in connection therewith, which is required to be
signed by the undersigned and to be filed with the public authority or
authorities administering said securities or Blue Sky Laws for the purpose of
so registering or qualifying the Securities or registering or licensing the
Company, and the undersigned does hereby ratify and confirm as his own act
and deed all that said attorneys and agents shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of December, 1995.
/s/ DRAKE S. TEMPEST
--------------------------------------
Drake S. Tempest
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director, or both, of FOREST OIL CORPORATION, a New York corporation (the
"Company"), does hereby constitute and appoint Daniel L. McNamara and Barbara
E. Chesebro his true and lawful attorneys and agents (each with the authority
to act alone), to do any and all acts and things and to execute any and all
instruments which said attorneys and agents deem necessary or advisable: (i)
to enable the Company to comply with the Securities Act of 1933, as amended,
and any rules, regulations, and requirements of the Securities and Exchange
Commission in respect thereof, in connection with the registration under the
said Securities Act of the offering, sale and delivery of equity and debt
securities (the "Securities"), including specifically, but without limiting
the generality of the foregoing, the power and authority to sign for and on
behalf of the undersigned the name of the undersigned as officer or director,
or both, of the Company to a Registration Statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect of the
Securities, and to any instrument or document filed as a part of, as an
exhibit to or in connection with said Registration Statement or amendment;
and (ii) to register or qualify the Securities for sale and to register or
license the Company as a broker or dealer in the Securities under the
securities or Blue Sky Laws of all such States as may be necessary or
appropriate to permit therein the offering and sale of the Securities as
contemplated by said Registration Statement, including specifically, without
limitation, the power and authority to sign for and on behalf of the
undersigned the name of the undersigned as officer or director, or both, of
the Company to any application, statement, petition, prospectus, notice or
other instrument or document, or to any amendment thereto, or to any exhibit
filed as part thereof or in connection therewith, which is required to be
signed by the undersigned and to be filed with the public authority or
authorities administering said securities or Blue Sky Laws for the purpose of
so registering or qualifying the Securities or registering or licensing the
Company, and the undersigned does hereby ratify and confirm as his own act
and deed all that said attorneys and agents shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of December, 1995.
/s/ MICHAEL B. YANNEY
--------------------------------------
Michael B. Yanney
