<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from N/A to N/A
Commission File Number 0-4597
FOREST OIL CORPORATION
(Exact name of registrant as specified in its charter)
New York 25-0484900
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 Broadway
Suite 2200
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 812-1400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
NUMBER OF SHARES
OUTSTANDING
TITLE OF CLASS OF COMMON STOCK APRIL 30, 1996
- ------------------------------ ----------------
Common Stock, Par Value $.10 Per Share 24,533,614
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FOREST OIL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION> PRO FORMA
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995
--------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,437 3,287 3,287
Accounts receivable 45,867 35,763 17,395
Other current assets 3,740 4,612 2,557
--------- --------- ---------
Total current assets 55,044 43,662 23,239
Net property and equipment, at cost 416,635 429,584 277,599
Investment in affiliate 11,499 11,301 11,301
Goodwill and other intangible assets, net 31,234 24,539 -
Other assets 8,826 8,904 8,904
--------- --------- --------
$ 523,238 517,990 321,043
--------- --------- --------
--------- ------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 3,389 2,055 2,055
Current portion of long-term debt 1,820 2,263 2,263
Current portion of gas balancing liability 4,000 4,700 4,700
Accounts payable 45,810 37,561 17,456
Accrued interest 1,974 4,219 4,029
Other current liabilities 3,332 1,917 1,917
--------- --------- --------
Total current liabilities 60,325 52,715 32,420
Long-term debt 198,306 192,848 193,879
Gas balancing liability 4,127 3,841 3,841
Other liabilities 24,268 25,824 23,298
Deferred revenue 12,211 15,137 15,137
Deferred income taxes 33,476 38,502 -
Minority interest 8,247 8,882 8,171
Shareholders' equity:
Preferred stock 24,345 24,359 24,359
Common stock 2,453 2,280 1,066
Capital surplus 373,067 366,431 241,241
Common shares to be issued in debt restructuring - 6,073 6,073
Accumulated deficit (217,881) (217,495) (217,495)
Foreign currency translation 294 (1,407) (1,407)
Treasury stock, at cost - - (9,540)
--------- -------- ---------
Total shareholders' equity 182,278 180,241 44,297
--------- --------- ---------
$ 523,238 517,990 321,043
--------- --------- --------
--------- --------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-1-
<PAGE>
FOREST OIL CORPORATION
Condensed Consolidated Statements of Production and Operations
(Unaudited)
<TABLE>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
1996 1995
--------- ---------
(IN THOUSANDS EXCEPT PRODUCTION
AND PER SHARE AMOUNTS)
<S> <C> <C>
PRODUCTION
Gas, including deliveries under volumetric production
payments (mmcf) 9,242 9,297
------- -------
------- -------
Oil, condensate and natural gas liquids (thousands of barrels) 623 349
------- -------
------- -------
STATEMENTS OF CONSOLIDATED OPERATIONS
Revenue:
Marketing and processing $32,747 70
Oil and gas sales:
Gas 17,934 16,735
Oil, condensate and natural gas liquids 9,725 5,504
------- -------
Total oil and gas sales 27,659 22,239
Miscellaneous, net 464 52
------- -------
Total revenue 60,870 22,361
Expenses:
Marketing and processing 30,179 -
Oil and gas production 7,487 5,309
General and administrative 2,730 2,100
Interest 5,797 5,794
Depreciation and depletion 12,938 12,309
------- -------
Total expenses 59,131 25,512
------- -------
Income (loss) before income taxes 1,739 (3,151)
Income tax expense (benefit):
Current 1,114 (7)
Deferred 966 -
------- -------
2,080 (7)
Minority interest in earnings of subsidiary 45 -
Net loss $ (386) (3,144)
------- -------
------- -------
Weighted average number of common shares outstanding 20,628 5,647
------- -------
------- -------
Net loss attributable to common stock $ (926) (3,684)
------- -------
------- -------
Primary and fully diluted net loss per common share $ (.04) (.65)
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-2-
<PAGE>
FOREST OIL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (386) (3,144)
Adjustments to reconcile net loss to net cash provided (used) by operating
activities:
Depreciation and depletion 12,938 12,309
Deferred tax expense 966 -
Minority interest in earnings of subsidiary 45 -
Other, net 830 771
(Increase) decrease in accounts receivable (7,433) 5,254
(Increase) decrease in other current assets 392 (995)
Increase (decrease) in accounts payable 4,781 (7,323)
Decrease in accrued interest and other current liabilities (1,551) (2,495)
Amortization of deferred revenue (2,926) (6,620)
--------- --------
Net cash provided (used) by operating activities 7,656 (2,243)
Cash flows from investing activities:
Capital expenditures for property and equipment (11,004) (7,064)
Proceeds of sales of property and equipment 1,633 28
Cash paid for acquisition of subsidiary:
Property and equipment (113,972) -
Goodwill and other intangible assets (24,684) -
Noncash working capital 1,258 -
Long-term assets and liabilities, net 1,212 -
Increase in other assets, net (437) (181)
--------- --------
Net cash used by investing activities (145,994) (7,217)
Cash flows from financing activities:
Proceeds from bank borrowings 59,299 23,500
Repayments of bank borrowings (55,682) (11,500)
Proceeds from common stock offering, net of costs 136,590 -
Repayments of nonrecourse secured loan - (624)
Repayments of production payment obligation (1,119) (630)
Payment of preferred stock dividends - (540)
Increase (decrease) in cash overdraft 1,334 (1,864)
Increase (decrease) in other liabilities, net 24 (76)
--------- --------
Net cash provided by financing activities 140,446 8,266
Effect of exchange rate changes on cash 42 1
--------- --------
Net increase (decrease) in cash and cash equivalents 2,150 (1,193)
Cash and cash equivalents at beginning of period 3,287 2,869
--------- --------
Cash and cash equivalents at end of period $ 5,437 1,676
--------- --------
--------- --------
Cash paid during the period for:
Interest $ 8,201 8,185
--------- --------
--------- --------
Income taxes $ 809 -
--------- --------
--------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
FOREST OIL CORPORATION
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 1996 and 1995
(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 March 31, 1996 and
the results of operations for the three month periods ended March 31, 1996
and 1995. Quarterly results are not necessarily indicative of expected
annual results because of the impact of fluctuations in prices received for
liquids 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, 1995, previously filed with the Securities
and Exchange Commission.
(2) Acquisitions
On December 20, 1995 the Company purchased a 56% economic (49% voting)
interest in Saxon Petroleum Inc. (Saxon) for approximately $23,700,000. In
the transaction, Forest received from Saxon 32,000,000 voting common
shares, 12,300,000 nonvoting common shares, 15,500,000 convertible
preferred shares and warrants to purchase 5,300,000 common shares. In
exchange, Forest transferred to Saxon its preferred shares of Archean
Energy Ltd., issued to Saxon 1,060,000 common shares of Forest and paid
Saxon $1,500,000 CDN.
The Forest common shares held by Saxon were recorded as treasury stock on
Forest's consolidated balance sheet at December 31, 1995. In January 1996,
Saxon sold these shares in a public offering of Forest common stock (the
1996 Public Offering) and used the proceeds to reduce its bank debt.
On January 31, 1996 the Company acquired ATCOR Resources Ltd. of Calgary,
Alberta for approximately $136,000,000 including acquisition costs of
approximately $1,000,000. The purchase was funded by the net proceeds of
the 1996 Public Offering and approximately $8,300,000 drawn under the
Company's bank credit facility. The exploration and production business of
ATCOR was renamed Canadian Forest Oil Ltd. (Canadian Forest).
As part of the Canadian Forest acquisition, Forest also acquired ATCOR's
natural gas marketing business, which was renamed Producers Marketing Ltd.
(ProMark).
The consolidated balance sheet of Forest includes the accounts of
Saxon at December 31, 1995. The pro forma consolidated balance sheet
at December 31, 1995 gives effect to the 1996 Public Offering and the
Canadian Forest acquistion as if both had occurred on that date.
The consolidated statement of operations includes the results of
operations of Saxon effective January 1, 1996 and the results of
operations of Canadian Forest effective February 1, 1996. The
following pro forma consolidated statement of operations information
assumes that the common stock offering and the acquisitions of Saxon
and Canadian Forest occurred as of January 1, 1995:
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS ENDED
------------------------
MARCH 31, MARCH 31,
1996 1995
---------- ----------
(IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenue:
Marketing and processing $47,247 35,372
Oil and gas sales 31,336 34,399
Miscellaneous, net 431 272
------- ------
Total revenue $79,014 70,043
------- ------
------- ------
Net loss $ (6) (2,630)
------- ------
------- ------
Primary and fully diluted loss per share $ (.02) (.15)
------- ------
------- ------
</TABLE>
-4-
<PAGE>
(3) Common Stock Offering
On January 31, 1996, 13,200,000 shares of common stock were sold for $11.00
per share in the 1996 Public Offering. Of this amount 1,060,000 shares
were sold by Saxon and 12,140,000 shares were sold by Forest. The net
proceeds to Forest and Saxon from the issuance of shares totalled
approximately $136,590,000 after deducting issuance costs and underwriting
fees.
(4) Net Property and Equipment
The components of net property and equipment are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Oil and gas properties $1,367,684 1,216,027
Buildings, transportation and
other equipment 10,497 10,502
---------- ----------
1,378,181 1,226,529
Less accumulated depreciation,
depletion and valuation allowance 961,546 948,930
---------- ----------
$ 416,635 277,599
---------- ----------
---------- ----------
</TABLE>
(5) Long-term Debt
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Credit Facility $ 500 23,800
Canadian Credit Facility 38,206 -
Saxon Credit Facility 6,163 16,437
Nonrecourse secured loan 40,779 40,322
Production payment obligation 15,099 16,218
11-1/4% Subordinated debentures 99,379 99,365
-------- --------
200,126 196,142
Less current portion (1,820) (2,263)
-------- --------
Long-term debt $198,306 193,879
-------- --------
-------- --------
</TABLE>
(6) 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 and warrants using the treasury stock method.
Fully diluted earnings (loss) per share assumes, in addition to the above,
(i) that convertible debentures were converted at the beginning of each
period or date of issuance, if later, with earnings being increased for
interest expense, net of taxes, that would not have been incurred had
conversion taken place, (ii) that convertible preferred stock was converted
at the beginning of each period or date of issuance, if later, and
(iii) any additional dilutive effect of stock options and warrants. The
assumed exercises and conversions were antidilutive for the three months
ended March 31, 1996 and 1995.
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
NET LOSS
The net loss for the first three months of 1996 was $386,000 or $.04 per
common share compared to a net loss of $3,144,000 or $.65 per common share in
the first three months of 1995. The improved results for the first three
months of 1996 were attributable primarily to higher prices received for
natural gas, increased liquids production as a result of the acquisitions of
Saxon Petroleum Inc. (Saxon) and Canadian Forest Oil Ltd. (Canadian Forest)
which were completed in December 1995 and January 1996, respectively, and the
contribution made by Forest's Canadian marketing and processing subsidiary
(ProMark) that was also acquired in January 1996. Decreased oil and natural
gas volumes and lower natural gas prices in the first three months of 1995
contributed to the 1995 loss.
REVENUE
In the first quarter of 1996, the Company recorded $32,747,000 of marketing
and processing revenue, which relates primarily to the marketing activities of
ProMark subsequent to its purchase on January 31, 1996.
The Company's oil and gas sales revenue increased by 24% to $27,659,000 in
the first quarter of 1996 from $22,239,000 in the first quarter of 1995.
Production volumes for natural gas were approximately the same in the first
three months of 1996 and 1995 because anticipated production declines in the
United States were offset by production increases associated with the
newly-acquired Canadian properties. Oil and gas sales revenue includes the
results for Canadian Forest for only the months of February and March 1996. The
average sales price received for natural gas in the first quarter of 1996
increased 8% compared to the average sales price received in the corresponding
1995 period. Production volumes for liquids (consisting of oil, condensate and
natural gas liquids) were 79% higher in the first quarter of 1996 than in the
first quarter of 1995 because anticipated production declines in the United
States were more than offset by production increases attributable to the
Canadian properties. The average sales price received by the Company for its
liquids production during the first three months of 1996 was approximately the
same as the price received during the comparable 1995 period.
-6-
<PAGE>
Production volumes and weighted average sales prices during the periods
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, MARCH 31,
1996 1995
---------------------------------- -------------
UNITED STATES CANADA TOTAL UNITED STATES
------------- ------ ----- -------------
<S> <C> <C> <C> <C>
NATURAL GAS
Total production (MMCF) (1) 6,425 2,817 9,242 9,297
Sales price received (per MCF) $ 2.36 1.69 2.16 1.61
Effects of energy swaps (per MCF) (2) (.31) - (.22) .19
------ ----- ----- -----
Average sales price (per MCF) $ 2.05 1.69 1.94 1.80
LIQUIDS
Oil and condensate:
Total production (MBBLS) (3) 236 298 534 334
Sales price received (per BBL) $17.12 17.60 17.38 16.21
Effects of energy swaps (per BBL) (2) (1.19) (.41) (.75) (.41)
------ ----- ----- -----
Average sales price (per BBL) $15.93 17.19 16.63 15.80
Natural gas liquids:
Total production (MBBLS) 17 72 89 15
Average sales price (per BBL) $ 9.06 9.58 9.48 15.50
Total liquids production (MBBLS) 253 370 623 349
Average sales price (per BBL) $15.46 15.71 15.61 15.79
</TABLE>
(1) Total natural gas production includes scheduled deliveries under volumetric
production payments, net of royalties, of 1,214 MMCF and 2,955 MMCF in 1996
and 1995, respectively. Natural gas delivered pursuant to volumetric
production payment agreements represented approximately 13% and 32% of
total natural gas production in 1996 and 1995, respectively.
(2) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuation. Hedged natural gas volumes were 2,453 MMCF and
3,948 MMCF for 1996 and 1995, respectively. Hedged oil and condensate
volumes were 240,000 barrels and 120,000 barrels for 1996 and 1995,
respectively.
(3) An immaterial amount of oil production is covered by scheduled deliveries
under volumetric production payments.
EXPENSES
In the first quarter of 1996 the Company recorded $30,179,000 of
marketing and processing expense, which relates primarily to the marketing
activities of ProMark subsequent to its purchase on January 31, 1996.
Oil and gas production expense of $7,487,000 in the first quarter of
1996 increased 41% from $5,309,000 in the comparable period of 1995 due
primarily to production expenses associated with newly-acquired Canadian
properties. On an MCFE basis (MCFE means thousands of cubic feet of natural
gas equivalents, using a conversion ratio of one barrel of oil to six MCF of
natural gas), production expense increased approximately 23% in the first
quarter of 1996 to $.58 per MCFE from $.47 per MCFE in the first quarter of
1995. The increase is due to higher per-unit costs in the United States
where fixed costs are being allocated over a lower production base. In
addition, there are several fields where operating costs are being incurred
in order to hold leases pending completion of capital projects; recording
these production costs concurrently with disproportionately low production
volumes caused reported production costs to increase by approximately $.03
per MCFE.
General and administrative expense was $2,730,000 in the first quarter
of 1996, an increase of 30% from $2,100,000 in the comparable period of 1995.
Total overhead costs (capitalized and expensed
-7-
<PAGE>
general and administrative costs) of $4,544,000 in the first quarter of 1996
increased 21% from $3,743,000 in the comparable period of 1995. The increase
is due to the addition of Canadian operations, which increased Forest's
salaried workforce to 184 at March 31, 1996 compared to 115 at December 31,
1995.
The following table summarizes the total overhead costs incurred during
the periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Overhead costs capitalized $1,814 1,643
General and administrative costs
expensed 2,730 2,100
------ -----
Total overhead costs $4,544 3,743
------ -----
------ -----
</TABLE>
Interest expense was $5,797,000 and $5,794,000 in the first quarter of
1996 and 1995, respectively.
Depreciation and depletion expense increased 5% to $12,938,000 in the
first quarter of 1996 from $12,309,000 in the first quarter of 1995. On a
per-unit basis, depletion expense was approximately $.96 per MCFE in the
first three months of 1996 compared to $1.07 per MCFE in the corresponding
1995 period. The decrease in per unit depletion expense is the result of
first quarter discoveries of oil and gas in the United States and the lower
than average cost of reserves acquired in Canada. At March 31, 1996, the
Company had undeveloped properties with a cost basis of approximately
$46,000,000 which were excluded from depletion, compared to $26,000,000 at
March 31, 1995. The increase is due primarily to the acquisition of undeveloped
properties in the Canadian Forest purchase.
The Company was not required to record a writedown of the carrying value
of its United States or Canadian oil and gas properties in the first three
months of 1996 or 1995. Writedowns of the full cost pools in the United
States and Canada may be required, however, if prices decrease, estimated
proved reserve volumes are revised downward or costs incurred in exploration,
development, or acquisition activities in the respective full cost pools
exceed the discounted future net cash flows from the additional reserves, if
any, attributable to each of the cost pools.
CHANGES IN ACCOUNTING
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of" (SFAS No. 121). Oil and
gas properties accounted for under the full cost method of accounting are
excluded from the scope of SFAS No. 121, but will continue to be subject to
the ceiling test limitation. SFAS No. 121 requires that impairment losses be
recorded on other long-lived assets used in operations when indicators of
impairment are present and either the undiscounted future cash flows
estimated to be generated by those assets or the fair market value are less
than the assets' carrying amount. SFAS No. 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Company
adopted SFAS No. 121 effective January 1, 1996. The effect of such adoption
was not material.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" (SFAS No. 123), was issued by the Financial
Accounting Standards Board in October 1995. SFAS No. 123 establishes
financial accounting and reporting standards for stock-based employee
compensation plans as well as transactions in which an entity issues its
equity instruments to acquire goods or services from non-employees. The
Company adopted SFAS No. 123 effective January 1, 1996, and will continue to
use the measurement method prescribed by APB Opinion 25, as permitted under
SFAS No. 123. The Company will include the pro forma disclosures required by
SFAS No. 123 in the notes to future financial statements.
LIQUIDITY AND CAPITAL RESOURCES
During 1995, the Company took various steps and committed to various
actions to improve its liquidity and capital resources. In early 1995, in
response to market conditions, the Company reduced its general and
administrative expenditures through a workforce reduction effective March 1,
1995.
-8-
<PAGE>
In addition, the Company reduced its capital expenditures during the first
six months of 1995. In July 1995, the Company received $45,000,000 of equity
capital from The Anschutz Corporation (Anschutz) and restructured $62,400,000
of indebtedness to Joint Energy Development Investments Limited Partnership
(JEDI), a Delaware limited partnership the general partner of which is an
affiliate of Enron Corp. (Enron).
In December 1995 and January 1996, the Company completed the
acquisitions of Saxon and Canadian Forest. For a description of these
transactions, see Note 2 of Notes to Condensed Consolidated Financial
Statements.
The Company has historically addressed its long-term liquidity needs
through the issuance of debt and equity securities, when market conditions
permit, and through the use of nonrecourse production-based financing. On
January 31, 1996, the Company issued 13,200,000 shares of Common Stock for
$11.00 per share in a public offering. Of this amount, 1,060,000 shares were
sold by Saxon and 12,140,000 shares were sold by Forest. The net proceeds to
Forest from the issuance of the shares totalled approximately $125,600,000
after deducting issuance costs and underwriting fees and were used, along
with an additional approximately $8,300,000 drawn from the Company's Credit
Facility, to complete the purchase of Canadian Forest. The net proceeds to
Saxon of approximately $11,046,000 were used to reduce its bank debt.
The pro forma effect of the acquisitions and the public offering was to
increase total assets to $517,990,000 compared to $321,043,000 at December
31, 1995; to increase shareholders' equity to $180,241,000 compared to
$44,297,000 at December 31, 1995; and to reduce the Company's
debt-to-capitalization ratio to 53% compared to 98% at December 31, 1994.
As a result of the above, Forest's financial position and liquidity have
improved considerably. The Company expects to be able to meet its 1996
capital expenditure financing requirements using cash flows generated by
operations and borrowings under existing lines of credit. However, 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. 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.
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
capital, including bank borrowings or the issuance of debt instruments, the
sale of production payments or other nonrecourse financing, the sale of
Common Stock, preferred stock or other equity securities of the Company, 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.
-9-
<PAGE>
CASH FLOW
Historically, one of the Company's primary sources of capital has been
funds provided by operations.
The following summary table reflects comparative cash flows for the
Company for the periods ended March 31, 1996 and 1995. 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.
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Funds provided by operations $ 14,393 9,936
Net cash provided (used) by operating activities 7,656 (2,243)
Net cash used by investing activities (145,994) (7,217)
Net cash provided by financing activities 140,446 8,266
</TABLE>
Higher prices received for natural gas, increased liquids production as
a result of the Saxon and Canadian Forest acquisitions and the contribution
made by ProMark resulted in a 45% increase in funds provided by operations to
$14,393,000 in the first quarter of 1996 from $9,936,000 in the first quarter
of 1995. Net cash provided by operating activities increased to $7,656,000
in the first quarter of 1996 compared to a net use of cash for operating
activities of $2,243,000 in the first quarter of 1995, also due to the higher
natural gas prices, increased liquid production and ProMark's marketing and
processing income. The Company used $145,994,000 for investing activities in
the first quarter of 1996 compared to $7,217,000 in the comparable period of
the prior year. The increase is due primarily to the Canadian Forest
acquisition. Cash provided by financing activities was $140,446,000 in the
first quarter of 1996 compared to $8,266,000 in the comparable period of the
prior year. The increase is due primarily to the net proceeds received from
the 1996 Public Offering.
HEDGING PROGRAM
In addition to the volumes of natural gas and oil dedicated to
volumetric production payments, the Company has also used energy swaps and
other financial agreements to hedge against the effects of fluctuations in
the sales prices for oil and natural gas. In a typical swap agreement, the
Company receives the difference between a fixed price per unit of production
and a price based on an agreed upon third-party index if the index price is
lower. If the index price is higher, the Company pays the difference. The
Company's current swaps are settled on a monthly basis. At March 31, 1996,
the Company had natural gas swaps and collars for an aggregate of
approximately 35 BBTU (billion British Thermal Units) per day of natural gas
during the remainder of 1996 at fixed prices ranging from $1.14 per MMBTU
(million British Thermal Units) on an Alberta Energy Company "C" (AECO "C" )
basis to $2.37 per MMBTU on a New York Mercantile Exchange (NYMEX) basis and
an aggregate of approximately 17 BBTU per day of natural gas during 1997 at
fixed prices ranging from $1.14 (AECO "C" basis) to $2.54 (NYMEX basis) per
MMBTU. At March 31, 1996 the Company had oil swaps for an aggregate of 2,186
barrels per day of oil during the remainder of 1996 at fixed prices ranging
from $16.60 to $19.14 (NYMEX basis). The Company currently has no material
oil swaps in place for 1997.
-10-
<PAGE>
CAPITAL EXPENDITURES
The Company's expenditures for property acquisition, exploration and
development for the first three months of 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
MARCH 31, MARCH 31,
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Property acquisition costs:
Proved properties $ 382 51
Undeveloped properties - -
------- -----
382 51
Exploration costs:
Direct costs 4,887 3,254
Overhead capitalized 454 98
------- -----
5,341 3,352
Development costs:
Direct costs 3,820 2,084
Overhead capitalized 1,360 1,545
------- -----
5,180 3,629
------- -----
$10,903 7,032
------- -----
------- -----
</TABLE>
The Company's 1996 budgeted expenditures for exploration and development
are approximately $19,500,000 and $33,700,000, respectively, including
capitalized overhead of approximately $7,000,000.
During 1996, the Company intends to continue a 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. If
adequate sources of capital are not available to the Company in 1996, the
amount invested in exploration, development and reserve acquisitions will be
required to be reduced significantly.
BANK CREDIT FACILITIES
CREDIT FACILITY. 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 as amended, the Company may borrow up to
$40,000,000 for working capital and/or general corporate purposes. The
borrowing base is subject to formal redeterminations semi-annually, but may
be changed at the banks' discretion 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. 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, including
restrictions or requirements with respect to working capital, cash flow,
additional debt, liens, asset sales, investments, mergers, cash dividends and
reporting responsibilities. At March 31, 1996 the outstanding balance under
this facility was $500,000 after use of proceeds from the Canadian Credit
Facility (described below) to reduce the principal balance outstanding under
the Credit Facility. The Company has also used the facility for a $1,500,000
letter of credit.
CANADIAN CREDIT FACILITY. On February 8, 1996 a newly-formed Canadian
subsidiary of Forest entered into a credit agreement (the Canadian Credit
Facility) with The Chase Manhattan Bank of Canada for the benefit of Canadian
Forest and ProMark. The initial borrowing base under the Canadian Credit
-11-
<PAGE>
Facility is $60,000,000 CDN. The borrowing base is subject to formal
redeterminations semi-annually, but may be changed by the bank at its
discretion at any time. The Canadian Credit Facility has a three-year term
and is indirectly secured by substantially all the assets of Canadian Forest.
Funds drawn under the Canadian Credit Facility can be used for general
corporate purposes. Under the terms of the Canadian Credit Facility, the
three Canadian subsidiaries are subject to certain covenants and financial
tests, including restrictions or requirements with respect to working
capital, cash flow, additional debt, liens, asset sales, investments,
mergers, cash dividends and reporting responsibilities. At March 31, 1996,
the outstanding balance under this facility was $51,651,000 CDN. The Company
has also used this facility for a $3,081,000 CDN letter of credit.
SAXON LOAN. Saxon has a demand revolving credit facility with a
borrowing base of $22,000,000 CDN. The loan is subject to semi-annual review
and has demand features; however, repayments are not required provided that
borrowings are not in excess of the borrowing base and Saxon complies with
other existing covenants. At March 31, 1996 the outstanding balance under
this facility was $8,850,000 CDN.
OTHER FINANCING
VOLUMETRIC PRODUCTION PAYMENTS. Under the terms of volumetric
production payments, 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. Amounts received
for volumetric production payments are recorded as deferred revenue, which is
amortized as sales are recorded based upon the scheduled deliveries under the
production payment agreements. As of March 31, 1996, the volumes remaining
to be delivered were approximately 5 BCF of natural gas and 53,000 barrels of
oil, and the related deferred revenue was $12,211,000.
NONRECOURSE SECURED LOAN. Under the terms of a nonrecourse secured loan
from JEDI, the Company is required to make payments based on the net
proceeds, as defined, from certain subject properties. The outstanding loan
balance as of March 31, 1996 was $40,779,000. Properties to which
approximately 12% of the Company's estimated proved reserves are
attributable, on an MCFE equivalent basis, are dedicated to repayment of the
nonrecourse secured loan.
PRODUCTION PAYMENT. Under the terms of a production payment obligation,
the Company must make a monthly cash payment based on net proceeds from the
subject properties. This obligation has been recorded at a discount to
reflect a market rate of interest. At March 31, 1996 the remaining principal
amount was $19,671,000 and the recorded liability was $15,099,000.
Properties to which approximately 3% of the Company's estimated proved
reserves are attributable, on an MCFE basis, are dedicated to this production
payment financing.
-12-
<PAGE>
DIVIDENDS
On February 1, 1996, a stock dividend of .013605 shares of Common Stock
on each share of its $.75 Convertible Preferred Stock was paid to holders of
record on January 10, 1996. On February 22, 1996 the Board of Directors
declared a dividend of 0.017863 shares of Common Stock on each share of its
outstanding $.75 Convertible Preferred Stock, payable May 1, 1996 to holders
of record on April 10, 1996. The Indenture executed in connection with the
11 1/4% Senior Subordinated Notes due 2003 and the Credit Facility contain
restrictive provisions governing dividend payments.
GAS BALANCING
It is customary in the industry for various working interest partners to
produce more or less than their entitlement share of natural gas from time to
time. The Company's net overproduced position decreased in the first three
months of 1996 to approximately 4.6 BCF from approximately 5 BCF at December
31, 1995. At March 31, 1996 the undiscounted value of this imbalance is
approximately $8,127,000, of which $4,000,000 is reflected on the balance
sheet as a short-term liability and the remaining $4,127,000 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.
-13-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Special Meeting held on January 5, 1996, the
shareholders of the Company approved an amendment to the Company's Restated
Certificate of Incorporation to effect a reverse stock split that resulted in
the reclassification of each five (5) shares of Common Stock held into one
(1) share, and authorized a reduction in the stated capital of the Company.
The shareholders voted 29,126,658 shares in favor of the amendment of
the Restated Certificate of Incorporation to effect the reverse stock split
and authorized a reduction in the stated capital of the Company. 1,889,271
votes were cast against the amendment and 22,506 votes abstained. There were
no broker non-votes.
Under New York law and the Company's Bylaws, abstentions and broker
non-votes have no effect on the outcome of the vote on any of the matters
considered at the Special Meeting. A broker non-vote occurs if a broker or
other nominee did not have discretionary authority and did not receive
instructions with respect to a particular item.
-14-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 4.2 First Supplemental Indenture dated as of February 8, 1996 among
Forest Oil Corporation, 611852 Saskatchewan Ltd. and Fleet National Bank of
Connecticut (formerly known as Shawmut Bank, Connecticut, National
Association, which was formerly known as The Connecticut Bank), incorporated
herein by reference to Exhibit 4.2 to Form 10-K for the year ended December
31, 1995 (File No. 0-4597).
Exhibit 4.6 Third Amendment dated January 24, 1996 to the Loan Agreement
between Forest Oil Corporation and Joint Energy Development Investments
Limited Partnership, incorporated herein by reference to Exhibit 4.6 to Form
10-K for the year ended December 31, 1995 (File No. 0-4597).
-15-
<PAGE>
Exhibit 10.12 Shareholders Agreement dated as of January 24, 1996 between
Forest Oil Corporation and Joint Energy Development Investments Limited
Partnership, incorporated herein by reference to Exhibit 10.12 to Form 10-K
for the year ended December 21, 1995 (File No. 0-4597).
Exhibit 10.14 Assumption of Option dated January 24, 1996 between Forest Oil
Corporation and The Anschutz Corporation, incorporated herein by reference to
Exhibit 10.14 to Form 10-K for the year ended December 31, 1995 (File No.
0-4597).
*Exhibit 11 Forest Oil Corporation and Subsidiaries - Calculation of
Earnings per Share of Common Stock.
*Exhibit 27 Financial Data Schedule.
* Filed with this report.
-16-
<PAGE>
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by Forest during the first
quarter of 1996:
<TABLE>
<CAPTION>
DATE OF REPORT ITEM REPORTED FINANCIAL STATEMENTS FILED
-------------- ------------- --------------------------
<S> <C> <C>
January 24, 1996 Item 5 None
January 31, 1996 Item 5 None
</TABLE>
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOREST OIL CORPORATION
(Registrant)
Date: May 13, 1996 /s/ DANIEL L. MCNAMARA
------------------------------------
Daniel L. McNamara
Corporate Counsel and Secretary
(Signed on behalf of the registrant)
/s/ DAVID H. KEYTE
------------------------------------
David H. Keyte
Vice President and Chief
Financial Officer
(Principal Financial Officer)
-18-
<PAGE>
FOREST OIL CORPORATION Exhibit 11
Calculation of Loss Per Share of Common Stock
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
1996 1995
--------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
PRIMARY LOSS PER SHARE:
Net loss $ (386) (3,144)
Less dividend requirements on:
$.75 Convertible Preferred Stock (540) (540)
------- -------
Net loss attributable to common stock
for primary loss per share calculation $ (926) (3,684)
------- -------
------- -------
Weighted average number of common
shares outstanding 20,628 5,647
------- -------
------- -------
Primary loss per share of common stock $ (.04) (.65)
------- -------
------- -------
FULLY DILUTED LOSS PER SHARE:
Net loss attributable to common stock, as above $ (926) (3,684)
Add:
Dividend requirements on:
$.75 Convertible Preferred Stock 540 540
------- -------
Loss applicable to fully diluted calculation $ (386) (3,144)
------- -------
------- -------
Common shares applicable to fully diluted calculation:
Weighted average number of common shares
outstanding, as above 20,628 5,647
Add:
Weighted average number of shares issuable
upon assumed conversion of Convertible
Preferred Stock 2,037 2,017
------- -------
Common shares applicable to fully diluted calculation 22,665 7,664
------- -------
------- -------
Fully diluted loss per share* $ (.02) (.41)
------- -------
------- -------
</TABLE>
*The fully diluted loss per share is not presented in the Company's financial
statements because the effects of assumed exercises and conversions were
anti-dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheets and condensed consolidated statements of
income and notes to condensed consolidated financial statements on pages 1
through 5 of the Company's Form 10-Q for the quarterly period ending March 31,
1996, and is qualified in its entirety by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,437
<SECURITIES> 0
<RECEIVABLES> 45,867
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 55,044
<PP&E> 1,378,181
<DEPRECIATION> 961,546
<TOTAL-ASSETS> 523,238
<CURRENT-LIABILITIES> 60,325
<BONDS> 198,306
0
24,345
<COMMON> 2,453
<OTHER-SE> 155,480
<TOTAL-LIABILITY-AND-EQUITY> 523,238
<SALES> 60,406
<TOTAL-REVENUES> 60,870
<CGS> 37,666
<TOTAL-COSTS> 40,396
<OTHER-EXPENSES> 12,938
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,797
<INCOME-PRETAX> 1,739
<INCOME-TAX> 2,080
<INCOME-CONTINUING> (386)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (386)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
