<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, 1997
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, 1997
- ------------------------------ ----------------
Common Stock, Par Value $.10 Per Share 32,689,840
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<PAGE>
PART I. FINANCIAL INFORMATION
FOREST OIL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1997 1996
--------- --------
(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 6,580 8,626
Accounts receivable 43,710 55,462
Other current assets 5,417 4,996
--------- --------
Total current assets 55,707 69,084
Net property and equipment, at cost 481,196 458,242
Goodwill and other intangible assets, net 28,630 29,439
Other assets 6,510 6,693
--------- --------
$ 572,043 563,458
--------- --------
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 358 4,682
Current portion of long-term debt 974 2,091
Accounts payable 54,438 64,811
Accrued interest 2,029 4,584
Other current liabilities 5,115 5,565
--------- --------
Total current liabilities 62,914 81,733
Long-term debt 194,252 168,859
Other liabilities 18,434 19,844
Deferred revenue 6,687 7,591
Deferred income taxes 33,957 33,716
Minority interest 11,668 9,272
Shareholders' equity:
Preferred stock - 15,827
Common stock 3,269 3,053
Capital surplus 455,250 438,556
Accumulated deficit (209,662) (214,190)
Foreign currency translation (2,885) (803)
Treasury stock at cost (1,841) -
--------- --------
Total shareholders' equity 244,131 242,443
--------- --------
$ 572,043 563,458
--------- --------
--------- --------
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,
1997 1996
--------- ---------
(In Thousands Except Production
and Per Share Amounts)
<S> <C> <C>
PRODUCTION
Natural gas (mmcf) 11,815 9,242
------- -------
------- -------
Oil, condensate and natural gas liquids (thousands
of barrels) 689 623
------- -------
------- -------
STATEMENTS OF CONSOLIDATED OPERATIONS
Revenue:
Marketing and processing $53,462 32,747
Oil and gas sales:
Gas 26,046 17,934
Oil, condensate and natural gas liquids 13,555 9,725
------- -------
Total oil and gas sales 39,601 27,659
Miscellaneous, net 843 464
------- -------
Total revenue 93,906 60,870
Expenses:
Marketing and processing 50,908 30,179
Oil and gas production 9,645 7,487
General and administrative 3,466 2,730
Interest 4,774 5,797
Depreciation and depletion 18,437 12,938
Minority interest in earnings of subsidiary 102 45
------- -------
Total expenses 87,332 59,176
------- -------
Earnings before income taxes 6,574 1,694
Income tax expense:
Current 1,365 1,114
Deferred 687 966
------- -------
2,052 2,080
------- -------
Net earnings (loss) $ 4,522 (386)
------- -------
------- -------
Weighted average number of common shares outstanding 33,176 20,628
------- -------
------- -------
Earnings (loss) attributable to common stock $ 4,333 (926)
------- -------
------- -------
Primary and fully diluted earnings (loss) per common share $ .13 (.04)
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
FOREST OIL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
---------------------
March 31, March 31,
1997 1996
--------- --------
(In Thousands)
Cash flows from operating activities:
Net earnings (loss) $ 4,522 (386)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and depletion 18,437 12,938
Amortization of deferred debt costs 181 134
Deferred income tax expense 687 966
Interest added to principal - 457
Minority interest in earnings of subsidiary 102 45
Other, net 4 239
(Increase) decrease in accounts receivable 11,484 (7,433)
(Increase) decrease in other current assets (457) 392
Increase (decrease) in accounts payable (7,922) 4,781
Decrease in accrued interest
and other current liabilities (4,535) (1,551)
Amortization of deferred revenue (904) (2,926)
--------- --------
Net cash provided by operating
activities 21,599 7,656
Cash flows from investing activities:
Acquisition of subsidiaries:
Current assets - (22,304)
Property and equipment - (144,099)
Goodwill and other intangible assets - (31,163)
Current liabilities - 23,562
Long-term debt - 701
Other liabilities - 1,542
Deferred taxes - 35,575
--------- --------
Cash paid for acquisitions of subsidiaries - (136,186)
Capital expenditures for property and equipment (43,038) (11,004)
Proceeds from sales of assets 1,476 1,633
Increase (decrease) in other assets, net 250 (434)
--------- --------
Net cash used by investing activities (41,312) (145,991)
Cash flows from financing activities:
Proceeds from bank borrowings 57,381 59,299
Repayments of bank borrowings (31,584) (55,682)
Repayments of production payment obligation (1,272) (1,119)
Proceeds from common stock offering, net of
offering costs - 136,590
Proceeds from issuance of common stock under
standby purchase agreement 943 -
Proceeds from the exercise of options 1,219 -
Redemption of preferred stock (943) -
Costs of preferred stock conversion (800) -
Deferred debt costs (276) (3)
Payment of preferred stock dividends (540) -
Increase (decrease) in cash overdraft (4,324) 1,334
Increase (decrease) in other liabilities, net (2,110) 24
--------- --------
Net cash provided by financing activities 17,694 140,443
Effect of exchange rate changes on cash (27) 42
--------- --------
Net increase (decrease) in cash and cash equivalents (2,046) 2,150
Cash and cash equivalents at beginning of period 8,626 3,287
--------- --------
Cash and cash equivalents at end of period $ 6,580 5,437
--------- --------
--------- --------
Cash paid during the period for:
Interest $ 7,193 8,201
--------- --------
--------- --------
Income taxes $ 3,685 809
--------- --------
--------- --------
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
FOREST OIL CORPORATION
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 1997 and 1996
(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, 1997
and the results of operations for the three month periods ended March
31, 1997 and 1996. 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, 1996, 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 $22,000,000.
Saxon is a Canadian exploration and production company with headquarters
in Calgary, Alberta and operations concentrated in western Alberta. In
the transaction, Forest received from Saxon 40,800,000 voting common
shares, 12,300,000 nonvoting common shares which are convertible to
voting common shares at any time, 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 preferred shares of Archean Energy, Ltd. were
recorded at their historical carrying value of $11,301,000. The Forest
common shares issued to Saxon were recorded at their estimated fair
value determined by reference to the quoted market price of the shares
immediately preceding the announcement of the acquisition. In January
1996, Saxon sold these shares in a public offering of Forest Common
Stock and used the proceeds to reduce its bank debt.
Since Forest has majority voting control over Saxon as a result of the
voting common shares that it owns and proxies that it holds, it has
accounted for Saxon as a consolidated subsidiary from the date of its
acquisition.
In September 1996, the preferred shares of Archean were redeemed for
cash at their approximate carrying value.
On January 21, 1997 Forest converted its preferred shares of Saxon into
27,192,983 nonvoting common shares. On March 13, 1997 Forest acquired
3,158,142 voting common shares and 2,380,608 nonvoting common shares of
Saxon in exchange for 131,489 common shares of Forest pursuant to an
equity participation agreement. These transactions increased Forest's
economic interest in Saxon to 66%.
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 a Common Stock 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).
-4-
<PAGE>
The consolidated balance sheet of Forest includes the accounts of Saxon
and Canadian Forest at December 31, 1996 and March 31, 1997. The
consolidated statements of operations include 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 for the three months
ended March 31, 1996 assumes that the Common Stock offering and the
acquisition of Canadian Forest occurred as of January 1, 1996.
Three Months Ended
March 31, 1996
-----------------------
Pro Forma
(In Thousands, Except
Per Share Amounts)
Revenue:
Marketing and processing 47,247
Oil and gas sales 31,336
Miscellaneous, net 431
------
Total revenue 79,014
------
------
Net loss (6)
------
------
Primary and fully diluted loss per share (.02)
------
------
(3) Common Stock
On January 31, 1996, 13,200,000 shares of Common Stock were sold 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 and Saxon from the issuance of shares totaled
approximately $136,000,000 after deducting issuance costs and
underwriting fees.
On August 1, 1996 The Anschutz Corporation (Anschutz) exercised its
option to purchase 2,250,000 shares of Forest's Common Stock for
$26,200,000 or approximately $11.64 per share.
On November 5, 1996 the Company exchanged 2,000,000 shares of Common
Stock plus approximately $13,500,000 in cash to extinguish approximately
$43,000,000 of nonrecourse secured debt owed to Joint Energy Development
Investments Limited Partnership (JEDI), a Delaware limited partnership
whose general partner is an affiliate of Enron. In connection with this
transaction, Anschutz acquired 1,628,888 shares of Common Stock by
exercising warrants to purchase 388,888 shares of Common Stock at $10.50
per share and by converting 620,000 shares of Forest's Second Series
Preferred Stock into 1,240,000 shares of Common Stock.
-5-
<PAGE>
(3) Common Stock (continued)
On November 14, 1996 the Company filed a shelf registration with the
Securities and Exchange Commission to issue up to $250,000,000 in one or
more forms of debt or equity securities. Except as otherwise provided
in an applicable prospectus supplement, the net proceeds from the sale
of the securities will be used for the acquisition of oil and gas
properties, capital expenditures, the repayment of subordinated
debentures or other debt, repayments of borrowings under revolving
credit agreements, or for other general corporate purposes.
On February 7, 1997 the Company called for redemption all 2,877,673
shares of its $.75 Convertible Preferred Stock. This conversion
eliminated all outstanding preferred stock from Forest's capital
structure. In response to its call for redemption, 2,783,945 shares or
96.7% of the shares outstanding were tendered for conversion into Common
Stock on or before the February 21, 1996 deadline. The remaining 93,728
preferred shares were redeemed by the Company at the redemption price of
$10.06 per share (at a total cost of $942,904) on February 28, 1997.
Lehman Brothers Inc. purchased 65,616 shares of Common Stock to fund the
cash requirement of the redemption in accordance with the terms of its
standby purchase agreement with Forest. Redemption of the $.75
Convertible Preferred Stock eliminated approximately $2,200,000 of annual
preferred dividend payments.
(4) Net Property and Equipment
The components of net property and equipment are as follows:
March 31, December 31,
1997 1996
---------- ---------
(In Thousands)
Oil and gas properties $1,498,850 1,457,212
Buildings, transportation and
other equipment 9,852 10,993
---------- ---------
1,508,702 1,468,205
Less accumulated depreciation,
depletion and valuation allowance 1,027,506 1,009,963
---------- ---------
$ 481,196 458,242
---------- ---------
---------- ---------
(5) Goodwill and Other Intangible Assets
Goodwill and other intangible assets recorded in the acquisition of
ProMark consist of the following:
March 31, December 31,
1997 1996
------- ------
(In Thousands)
Goodwill $16,556 16,728
Gas marketing contracts 14,444 14,594
------- ------
31,000 31,322
Less accumulated amortization 2,370 1,883
------- ------
$28,630 29,439
------- ------
------- ------
-6-
<PAGE>
(5) Goodwill and Other Intangible Assets (continued)
Goodwill is being amortized on a straight line basis over twenty years.
The amount attributed to the value of gas marketing contracts acquired
is being amortized on a straight line basis over the average life of
such contracts of twelve years.
(6) Long-term Debt
The components of long-term debt are as follows:
March 31, December 31,
1997 1996
-------- -------
(In Thousands)
Credit Facility $38,000 26,400
Canadian Credit Facility 33,605 32,500
Saxon Credit Facility 12,861 -
Production payment obligation 11,324 12,596
11-1/4% Subordinated debentures 99,436 99,421
-------- -------
195,226 170,917
Less current portion 974 2,058
-------- -------
Long-term debt $194,252 168,859
-------- -------
-------- -------
(7) 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 preferred stock was converted at the
beginning of each period or date of issuance, if later, and (ii) any
additional dilutive effect of stock options and warrants. The assumed
exercises and conversions were antidilutive for the three months ended
March 31, 1997 and 1996.
-7-
<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.
FORWARD-LOOKING STATEMENTS
Certain of the statements set forth in this Form 10-Q, such as the
statements regarding planned capital expenditures and the availability of
capital resources to fund capital expenditures are forward-looking and are
based upon the Company's current belief as to the outcome and timing of such
future events. There are numerous risks and uncertainties that can affect
the outcome and timing of such events, including many factors which are
beyond the control of the Company. Should one or more of these risks or
uncertainties occur, or should underlying assumptions prove incorrect, the
Company's actual results and plans for 1997 and beyond could differ
materially from those expressed in the forward-looking statements. For a
description of risks affecting the Company's business, see "Item-1
- --Business--Forward--Looking Statements and Risk Factors" in the
Company's 1996 Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Net earnings for the first three months of 1997 were $4,522,000 or $.13
per common share compared to a net loss of $386,000 or $.04 per common share
in the first three months of 1996. The improved results for the first three
months of 1997 were attributable primarily to increased production as well as
higher natural gas and liquids prices.
The Company's marketing and processing revenue increased by 63% to
53,462,000 in the first quarter of 1997 from $32,747,000 in the first quarter
of 1996 and the related marketing and processing expense increased by 69% to
$50,908,000 in the 1997 quarter from $30,179,000 in the previous year. The
gross margin reported for marketing and processing activities of $2,554,0000
in the first quarter of 1997 was slightly lower than the gross margin of
$2,568,000 in the first quarter of 1996 because the 1996 period included a
non-recurring income item of approximately $350,000 and also included higher
margins on short-term trading activities. The increase in 1997 revenue and
expense is due primarily to recording three months of activity for ProMark in
1997 compared to only two months in the 1996 period.
The Company's oil and gas sales revenue increased by 43% to $39,601,000
in the first quarter of 1997 compared to $27,659,000 in the first quarter of
1996. The increase in 1997 is due primarily to recording three months of
activity for Canadian Forest in the first quarter of 1997 compared to only
two months in the first quarter of 1996. Production volumes for natural gas
in the first quarter of 1997 increased 28% from the comparable 1996 period as
a result of the Canadian Forest acquisition as well as new production from
Gulf of Mexico properties. The average sales price received for natural gas
in the first quarter of 1997 increased 13% compared to the average sales
price received in the corresponding 1996 period. Production volumes for
liquids (consisting of oil, condensate and natural gas liquids) were 11%
higher in the first quarter of 1997 than in the first quarter of 1996, due
primarily to the acquisition of Canadian Forest. The average sales price
received by the Company for its liquids production during the first quarter
of 1997 increased 26% compared to the average sales price received during the
comparable 1996 period.
-8-
<PAGE>
Production volumes and weighted average sales prices during the periods
were as follows:
<TABLE>
Three Months Ended
----------------------------------------------------------
March 31, March 31,
1997 1996
-------------------------- --------------------------
United United
States Canada Total States Canada Total
------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Natural Gas
- -----------
Total production (MMCF) (1) 8,498 3,317 11,815 6,425 2,817 9,242
Sales price received (per MCF) $ 2.70 1.93 2.47 2.36 1.69 2.16
Effects of energy swaps (per MCF) (2) (.37) (.04) (.27) (.31) - (.22)
------ ----- ----- ----- ----- -----
Average sales price (per MCF) $ 2.33 1.89 2.20 2.05 1.69 1.94
Liquids
- -------
Oil and condensate:
Total production (MBBLS) (3) 249 336 585 236 298 534
Sales price received (per BBL) $21.30 20.99 21.13 17.12 17.60 17.38
Effects of energy swaps (per BBL) (2) (1.25) (.79) (.99) (1.19) (.41) (.75)
------ ----- ----- ----- ----- -----
Average sales price (per BBL) $20.05 20.20 20.14 15.93 17.19 16.63
Natural gas liquids:
Total production (MBBLS) 13 91 104 17 72 89
Average sales price (per BBL) $14.00 17.52 17.08 9.06 9.58 9.48
Total liquids production (MBBLS) 262 427 689 253 370 623
Average sales price (per BBL) $19.75 19.63 19.67 15.46 15.71 15.61
(1) Total natural gas production includes scheduled deliveries under volumetric production payments, net of
royalties, of 474 MMCF and 1,214 MMCF in 1997 and 1996, respectively. Natural gas delivered pursuant to
volumetric production payment agreements represented approximately 4% and 13% of total natural gas
production in 1997 and 1996, respectively.
(2) Energy swaps were entered into to hedge the price of spot market volumes against price fluctuations. Hedged
natural gas volumes were 2,809 MMCF and 2,453 MMCF for 1997 and 1996, respectively. Hedged oil and
condensate volumes were 204,000 barrels and 240,000 barrels for 1997 and 1996, respectively. Aggregate
losses under energy swap agreements were $3,801,000 and $2,453,000 in 1997 and 1996, respectively.
(3) An immaterial amount of oil production is covered by scheduled deliveries under volumetric production
payments.
</TABLE>
-9-
<PAGE>
Oil and gas production expense of $9,645,000 in the first quarter of
1997 increased 29% from $7,487,000 in the comparable period of 1996 due
primarily to increased production and to recording three months of activity
for Canadian Forest in the first quarter of 1997 compared to only two months
in the first quarter of 1996. 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
3% in the first quarter of 1997 to $.60 per MCFE from $.58 per MCFE in the
first quarter of 1996. The increase in per-unit costs was due to Canadian
operations, primarily in the Bigoray field, which is in the production startup
phase.
General and administrative expense was $3,466,000 in the first quarter
of 1997, an increase of 27% from $2,730,000 in the comparable period of 1996.
Total overhead costs (capitalized and expensed general and administrative
costs) of $5,650,000 in the first quarter of 1997 increased 24% from
$4,544,000 in the comparable period of 1996. The increase is the result of a
larger number of employees following the acquisition of Canadian Forest and
ProMark.
The following table summarizes the total overhead costs incurred during
the periods:
Three Months Ended
-----------------------
March 31, March 31,
1997 1996
--------- ---------
(In Thousands)
Overhead costs capitalized $2,184 1,814
General and administrative costs
expensed (1) 3,466 2,730
------ -----
Total overhead costs $5,650 4,544
------ -----
------ -----
(1) Includes $711,000 and $553,000 related to marketing and processing
operations for the three month periods ended March 31, 1997 and 1996.
Interest expense decreased 18% to $4,774,000 in the first quarter of
1997 compared to $5,797,000 in the corresponding 1996 period. Increased
interest charges due to higher outstanding balances under bank credit
facilities were more than offset by lower interest resulting from
extinguishment of the nonrecourse secured loan with JEDI in the fourth
quarter of 1996.
Depreciation and depletion expense increased 18% to $18,437,000 in the
first quarter of 1997 from $12,938,000 in the first quarter of 1996 due to
higher production and higher per-unit expense. On a per-unit basis,
depletion expense was approximately $1.09 per MCFE in the first quarter of
1997 compared to $.96 per MCFE in the corresponding 1996 period. The
increase in per-unit depletion results primarily from higher estimated future
development costs in the U.S. due to expected increased costs for services.
At March 31, 1997 the Company had undeveloped properties with a cost basis of
approximately $48,000,000 which were excluded from depletion, compared to
$46,000,000 at March 31, 1996.
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 1997 or 1996. Writedowns of the full cost pools in the United
States and Canada may be required, however, if prices decline, undeveloped
property values 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.
-10-
<PAGE>
CHANGES IN ACCOUNTING. In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, "Earnings Per Share" (SFAS No.
128), which revises the calculation and presentation provisions of Accounting
Principles Board Opinion 15 and related interpretations. SFAS No. 128 is
effective for the Company's fiscal year ending December 31, 1997. Retroactive
application will be required. The Company believes the adoption of SFAS No.
128 will not have a significant effect on its reported earnings per share.
LIQUIDITY AND CAPITAL RESOURCES
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.
In 1996, the Company completed several transactions that improved its
financial position considerably. On January 31, 1996 the Company and Saxon
sold 13,200,000 shares of Common Stock for $11.00 per share in a public
offering (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 from the issuance of the shares totaled approximately $125,000,000
after deducting issuance costs and underwriting fees, and were used, along
with an additional approximately $8,300,000 drawn under the Company's Credit
Facility, to complete the purchase of Canadian Forest and ProMark. The net
proceeds to Saxon of approximately $11,000,000 were used to reduce its bank
debt.
On August 1, 1996 Anschutz exercised an option to purchase 2,250,000
shares of Common Stock for $26,200,000 or approximately $11.64 per share.
Proceeds received by Forest were used primarily to fund a portion of 1996
capital expenditures.
On November 5, 1996 the Company exchanged 2,000,000 shares of Common
Stock plus approximately $13,500,000 in cash to extinguish approximately
$43,000,000 of nonrecourse secured debt owed to JEDI. In connection with
this transaction, Anschutz acquired 1,628,888 shares of Common Stock by
exercising warrants to purchase 388,888 shares of Common Stock at $10.50 per
share and by converting 620,000 shares of Forest's Second Series Preferred
Stock into 1,240,000 shares of Common Stock.
On November 14, 1996 the Company filed a shelf registration with the
Securities and Exchange Commission to issue up to $250,000,000 in one or more
forms of debt or equity securities. Except as otherwise provided in an
applicable prospectus supplement, the net proceeds from the sale of the
securities will be used for the acquisition of oil and gas properties,
capital expenditures, the repayment of subordinated debentures or other debt,
repayments of borrowings under revolving credit agreements, or for other
general corporate purposes.
-11-
<PAGE>
On February 7, 1997 the Company called for redemption all 2,877,673
shares of its $.75 Convertible Preferred Stock. This conversion eliminated
all outstanding preferred stock from Forest's capital structure. In response
to its call for redemption, 2,783,945 shares or 96.7% of the shares
outstanding were tendered for conversion into Common Stock on or before the
February 21, 1996 deadline. The remaining 93,728 preferred shares were
redeemed by the Company at the redemption price of $10.06 per share (at a
total cost of $942,904) on February 28, 1997. Lehman Brothers Inc. purchased
65,616 shares of Common Stock to fund the cash requirement of the redemption
in accordance with the terms of its standby purchase agreement with Forest.
Redemption of the $.75 Convertible Preferred Stock eliminates approximately
$2,200,000 of annual preferred dividend payments.
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, the issuance of debt instruments, the
sale of common stock, preferred stock or other equity securities of the
Company, the issuance of net profits interests, sales of non-strategic
assets, 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.
CASH FLOW. Historically, one of the Company's primary sources of
capital has been net cash provided by operating activities (operating cash
flow). The following summary table reflects comparative cash flow data for
the Company for the periods ended March 31, 1997 and 1996.
Three Months Ended
----------------------
March 31, March 31,
1997 1996
-------- --------
(In Thousands)
Net cash provided by operating activities $ 21,599 7,656
Net cash used by investing activities (41,312) (145,991)
Net cash provided by financing activities 17,694 140,443
Net cash provided by operating activities increased to $21,599,000 in 1997
compared $7,656,000 in 1996, due primarily to increased production as well as
higher natural gas and liquids prices The Company used $41,312,000 for
investing activities in 1997 compared to $145,991,000 in 1996. The decrease
is due primarily to the Canadian Forest acquisition in 1996. Cash provided
by financing activities was $17,694,000 in 1997 compared to $140,443,000 in
1996. The decrease is due primarily to the net proceeds received in 1996
from a public offering of common stock.
-12-
<PAGE>
CAPITAL EXPENDITURES. The Company's expenditures for property
acquisition, exploration and development for the first three months of 1997
and 1996 were as follows:
Three Months Ended
------------------------------
March 31, March 31,
1997 1996
-------- -------
(In Thousands)
Property acquisition costs (1):
Proved properties $ 2,050 119,165
Undeveloped properties 2,363 17,808
-------- -------
4,413 136,973
Exploration costs:
Direct costs 19,582 4,887
Overhead capitalized 928 454
-------- -------
20,510 5,341
Development costs:
Direct costs 17,933 3,820
Overhead capitalized 1,256 1,360
-------- -------
19,189 5,180
-------- -------
$ 44,112 147,494
-------- -------
-------- -------
(1) 1996 amounts consist primarily of the allocation of purchase price to
the oil and gas properties acquired in the purchase of Canadian Forest.
The Company's 1997 budgeted direct expenditures for exploration and
development are approximately $64,000,000 and $61,000,000, respectively.
Capitalized overhead in 1997 is expected to be approximately $8,000,000. The
Company expects to be able to meet its 1997 capital expenditure financing
requirements using cash flows generated by operations, sales of non-strategic
assets 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 or accesses additional sources of
capital. 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.
In addition, while the Company intends to continue a strategy of
acquiring reserves that meet its investment criteria, no assurance can be
given that the Company can locate or finance any property acquisitions.
BANK CREDIT FACILITIES. Under the Company's Credit Facility with The
Chase Manhattan Bank (the Credit Facility), the Company may borrow up to
$60,000,000 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
U.S. proved oil and gas properties and related assets (subject to prior
security interests granted to holders of volumetric production payment
agreements) and a pledge of accounts receivable. The maturity date of the
Credit Facility is January 31, 2000. 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,
-13-
<PAGE>
cash dividends and reporting responsibilities. At April 30, 1997 the
outstanding balance under this facility was $40,500,000. The Company has
also used the facility for a $1,500,000 letter of credit.
A Canadian subsidiary of Forest has a credit agreement (the Canadian
Credit Facility) with The Chase Manhattan Bank of Canada for the benefit of
Canadian Forest and ProMark. The borrowing base under the Canadian Credit
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 maturity date of the Canadian Credit Facility is
February 7, 1999. The Canadian Credit Facility 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 April 30, 1997 the outstanding balance under this
facility was $46,642,000 CDN ($34,000,000 US). The Company has also used this
facility for a letter of credit in the amount of $3,022,000 CDN.
In addition to the credit facilities described above, Saxon has a
revolving credit facility (the Saxon Credit Facility) with a borrowing base
of $20,000,000 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 April 30, 1997 the outstanding balance under this facility was
$17,700,000 CDN.
WORKING CAPITAL. The Company had a working capital deficit of
approximately $7,207,000 at March 31, 1997 compared to a deficit of
approximately $12,649,000 at December 31, 1996. The decrease in the deficit
is attributable primarily to cash provided by operating activities in the
first quarter of 1997 as a result of higher production and product sales
prices.
The Company generally reports a working capital deficit at the end of a
period. The working capital deficit is principally the result of accounts
payable for capitalized exploration and development costs. Settlement of
these payables is funded by cash flow from the Company's operations or, if
necessary, by drawdowns on the Company's long-term bank credit facilities.
For cash management purposes, drawdowns on the credit facilities are not made
until the due dates of the payables.
At March 31, 1997 the Company had available borrowing capacity of
approximately $29,500,000 under its bank credit facilities. The Company's
available credit at March 31, 1997 was adequate to fund the working capital
deficit at that date.
LONG-TERM SALES CONTRACTS. A significant portion of Canadian Forest's
natural gas production is sold through the ProMark Netback Pool. At March
31, 1997 the ProMark Netback Pool had entered into fixed price contracts to
sell approximately 7.4 BCF of natural gas through the remainder of 1997 at an
average price of $1.61 CDN per MCF and approximately 5.4 BCF of natural gas
in 1998 at an average price of approximately $1.88 CDN per MCF. Canadian
Forest is obligated to deliver approximately 25% of the volumes of natural
gas subject to these contracts.
HEDGING PROGRAM. In addition to the volumes of natural gas and oil sold
under long-term sales contracts and dedicated to volumetric production
payments, the Company also uses energy swaps and other financial agreements
to hedge against the effects of fluctuations in the sales prices for oil and
natural gas produced. 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, 1997 the Company had
natural gas swaps and collars for an aggregate of approximately 29.8 BBTU
(billion British Thermal Units) per day of natural gas during the remainder of
1997 at fixed prices ranging from $1.16 per MMBTU (million British Thermal
Units) on an Alberta Energy Company "C" (AECO "C") basis to $2.54 per MMBTU on
a New York Mercantile Exchange (NYMEX) basis and an aggregate of approximately
3.2 BBTU per day of natural gas during 1998 at fixed prices ranging from $1.16
(AECO "C" basis) to $2.62 (NYMEX basis) per MMBTU. The weighted average hedged
price for natural gas under such agreements is $2.09 and $2.18 per MMBTU in
1997 and 1998, respectively. At March 31, 1997 the Company had oil swaps for
an aggregate of 1,998 barrels per day of oil during the remainder of 1997 at
fixed prices ranging from $17.90 to $23.67 (NYMEX basis) and an aggregate of
547 barrels per day during
-14-
<PAGE>
1998 at fixed prices of $20.00 and $20.52 (NYMEX basis). The weighted
average hedged price for oil under such agreements is $20.00 and $20.29 per
barrel in 1997 and 1998, respectively.
Subsequent to March 31, 1997, the Company entered into two additional
swaps. The first swap hedges 5,000 MMBTU of natural gas per day from June
1997 to September 1997 at a fixed price of $2.36 per MMBTU (NYMEX basis).
The second swap hedges 5,000 MMBTU of natural gas per day from June 1997
through September 1997 at a fixed price of $2.35 per MMBTU (NYMEX basis).
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 1997 to approximately 2.4 BCF from
approximately 2.6 BCF at December 31, 1996. At March 31, 1997 the
undiscounted value of this imbalance is approximately $4,909,000, of which
$1,500,000 is recorded as a short-term liability and the remaining $3,409,000
is included in other long-term liabilities. 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.
-15-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
*Exhibit 11 Forest Oil Corporation and Subsidiaries - Calculation
of Earnings per Share of Common Stock.
*Exhibit 27 Financial Data Schedule.
* Filed with this report.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by Forest during the first
quarter of 1997:
<TABLE>
Date of Report Item Reported Financial Statements Filed
-------------- ------------- --------------------------
<S> <C> <C>
January 28, 1997 Item 5, 7 ATCOR Resources Ltd. at December 31, 1995
and for each of the years in the three year
period ended December 31, 1995. Condensed
pro forma combined financial statements of
Forest Oil Corporation at September 30, 1996
and for the nine months ended September 30,
1996 and the year ended December 31, 1995.
February 5, 1997* Item 5, 7 ATCOR Resources Ltd. at December 31, 1995
and for each of the years in the three year
period ended December 31, 1995. Condensed
pro forma combined financial statements of
Forest Oil Corporation at September 30, 1996
and for the nine months ended September 30,
1996 and the year ended December 31, 1995.
February 11, 1997 Item 5, 7 None
March 19, 1997 Item 5, 7 and 9 None
</TABLE>
*Form 8-K/A
-16-
<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 15, 1997 /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)
-17-
<PAGE>
Exhibit 11
FOREST OIL CORPORATION AND CONSOLIDATED SUBSIDIARIES
CALCULATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
(Unaudited)
<TABLE>
Three Months Ended
---------------------
March 31, March 31,
1997 1996
------- ------
(In Thousands Except
Per Share Amounts)
<S> <C> <C>
Primary earnings (loss) per share:
Net earnings (loss) $ 4,522 (386)
Less dividend requirements on $.75 Convertible
Preferred Stock (189) (540)
------- ------
Net earnings (loss) attributable to common stock
for primary earnings (loss) per share calculation $ 4,333 (926)
------- ------
------- ------
Weighted average number of common
shares outstanding 31,756 20,628
Dilutive effect of:
Anschutz Warrants 1,165 -
Employee stock options 255 -
------- ------
Weighted average number of common
shares outstanding, as adjusted 33,176 20,628
------- ------
------- ------
Primary earnings (loss) per share of common stock $ .13 (.04)
------- ------
------- ------
Fully diluted earnings (loss) per share:
Net earnings (loss) attributable to common stock, as above $ 4,333 (926)
Add dividend requirements on $.75 Convertible Preferred Stock 189 540
------- ------
Net earnings (loss) attributable to common stock for
fully diluted earnings (loss) per share calculation $ 4,522 (386)
------- ------
------- ------
Weighted average number of common shares
outstanding 31,756 20,628
Dilutive effect of:
Anschutz Warrants 1,165 -
Employee stock options 255 -
$.75 Convertible Preferred Stock 1,249 2,037
------- ------
Weighted average number of common shares
outstanding, as adjusted 34,425 22,665
------- ------
------- ------
* Fully diluted earnings (loss) per share of common stock $ .13 (.02)
------- ------
------- ------
</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 7 of the Company's Form 10-Q for the quarterly period ending March 31,
1997, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,580
<SECURITIES> 0
<RECEIVABLES> 43,710
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,417
<PP&E> 1,508,702
<DEPRECIATION> 1,027,506
<TOTAL-ASSETS> 572,043
<CURRENT-LIABILITIES> 62,914
<BONDS> 194,252
0
0
<COMMON> 3,269
<OTHER-SE> 240,862
<TOTAL-LIABILITY-AND-EQUITY> 572,043
<SALES> 93,063
<TOTAL-REVENUES> 93,906
<CGS> 60,553
<TOTAL-COSTS> 64,019
<OTHER-EXPENSES> 18,539
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,774
<INCOME-PRETAX> 6,574
<INCOME-TAX> 2,052
<INCOME-CONTINUING> 4,522
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,522
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
