<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 June 30, 1999
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 1-13515
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 July 23, 1999
- ------------------------------ ----------------
Common Stock, Par Value $.10 Per Share 44,700,378
- -------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
FOREST OIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,413 3,415
Accounts receivable 53,754 55,587
Other current assets 4,299 2,374
------- -------
Total current assets 60,466 61,376
Net property and equipment, at cost 666,480 663,310
Goodwill and other intangible assets, net 22,617 22,689
Other assets 9,397 12,361
------- -------
$ 758,960 759,736
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,044 49,389
Accrued interest 9,240 9,970
Other current liabilities 4,784 1,669
------- -------
Total current liabilities 62,068 61,028
Long-term debt 502,671 505,450
Other liabilities 14,375 16,181
Deferred income taxes 7,587 8,086
Shareholders' equity:
Common stock 4,465 4,465
Capital surplus 590,010 589,972
Accumulated deficit (410,557) (415,050)
Accumulated other comprehensive loss (11,210) (9,948)
Treasury stock, at cost (449) (448)
------- -------
Total shareholders' equity 172,259 168,991
------- -------
$ 758,960 759,736
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-1-
<PAGE>
FOREST OIL CORPORATION
Condensed Consolidated Statements of Production and Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ -----------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
(In Thousands Except Production and Per Share Amounts)
<S> <C> <C> <C> <C>
PRODUCTION
Natural gas (mmcf) 15,751 14,297 32,745 27,962
------ ------ ------ ------
------ ------ ------ ------
Oil, condensate and natural gas
liquids (thousands of barrels) 1,118 1,026 2,174 2,001
------ ------ ------ ------
------ ------ ------ ------
STATEMENTS OF CONSOLIDATED OPERATIONS
Revenue:
Marketing and processing $ 40,514 33,839 88,020 68,842
Oil and gas sales:
Gas 32,291 28,900 65,253 56,507
Oil, condensate and natural gas liquids 14,782 12,434 24,666 25,320
------ ------ ------ ------
Total oil and gas sales 47,073 41,334 89,919 81,827
------ ------ ------ ------
Total revenue 87,587 75,173 177,939 150,669
Operating expenses:
Marketing and processing 39,664 32,096 83,851 65,264
Oil and gas production 12,438 9,362 23,703 18,204
General and administrative 3,883 4,922 7,981 9,177
Depreciation and depletion 21,767 23,862 44,366 47,195
------ ------ ------ ------
Total operating expenses 77,752 70,242 159,901 139,840
------ ------ ------ ------
Earnings from operations 9,835 4,931 18,038 10,829
Other income and expense:
Other (income) expense, net 683 (6,704) (97) (6,782)
Interest expense 10,407 9,755 21,064 18,261
Translation (gain) loss on subordinated debt (4,301) 4,186 (6,517) 3,162
------ ------ ------ ------
Total other income and expense 6,789 7,237 14,450 14,641
------ ------ ------ ------
Earnings (loss) before income taxes and
extraordinary item 3,046 (2,306) 3,588 (3,812)
Income tax expense (benefit):
Current 78 603 (81) 949
Deferred (1,075) 1,495 (824) 646
------ ------ ------ ------
(997) 2,098 (905) 1,595
------ ------ ------ ------
Earnings (loss) before extraordinary item 4,043 (4,404) 4,493 (5,407)
Extraordinary item - gain on extinguishment of debt - 6,196 - 6,196
------ ------ ------ ------
Net earnings $ 4,043 1,792 4,493 789
------ ------ ------ ------
------ ------ ------ ------
Weighted average number of common shares
outstanding 44,655 37,721 44,651 37,350
------ ------ ------ ------
------ ------ ------ ------
Basic and diluted earnings (loss) per common share:
Earnings (loss) attributable to common stock
before extraordinary item $ .09 (.11) .10 (.14)
Extraordinary item - gain on extinguishment
of debt - .16 - .16
------ ------ ------ ------
Earnings attributable to common stock $ .09 .05 .10 .02
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
See acompanying notes to condensed consolidated financial statements.
-2-
<PAGE>
FOREST OIL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1999 1998
--------- -------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) before extraordinary item $ 4,493 (5,407)
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Depreciation and depletion 44,366 47,195
Translation (gain) loss on subordinated debt (6,517) 3,162
Amortization of deferred debt costs 610 420
Deferred income tax expense (benefit) (824) 646
Other, net (3,210) 232
Decrease in accounts receivable 3,087 9,593
Increase in other current assets (2,093) (5,513)
Increase (decrease) in accounts payable (381) 1,370
Increase in accrued interest and other current liabilities 291 5,381
------ ------
Net cash provided by operating activities 39,822 57,079
Cash flows from investing activities:
Capital expenditures for property and equipment (48,656) (389,422)
Less stock issued for acquisition - 81,784
------ ------
(48,656) (307,638)
Proceeds from sales of assets 14,781 4,411
Increase in other assets, net (976) (1,554)
------ ------
Net cash used by investing activities (34,851) (304,781)
Cash flows from financing activities:
Proceeds from bank borrowings 66,151 380,504
Repayments of bank borrowings (168,780) (211,652)
Issuance of 10 1/2% senior subordinated notes, net of issuance costs 98,825 -
Issuance of 8 3/4% senior subordinated notes, net of issuance costs - 74,620
Redemption of 11 1/2% senior subordinated notes (45) -
Decrease in other liabilities, net (2,081) (552)
------ ------
Net cash provided (used) by financing activities (5,930) 242,920
Effect of exchange rate changes on cash (43) 19
------ ------
Net decrease in cash and cash equivalents (1,002) (4,763)
Cash and cash equivalents at beginning of period 3,415 18,191
------ ------
Cash and cash equivalents at end of period $2,413 13,428
------ ------
------ ------
Cash paid during the period for:
Interest $23,286 12,051
------ ------
------ ------
Income taxes $470 1,312
------ ------
------ ------
</TABLE>
See acompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
(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 Forest at June 30, 1999 and the
results of operations for the three and six month periods ended June 30, 1999
and 1998. Quarterly results are not necessarily indicative of expected annual
results because of the impact of fluctuations in prices received for liquids
(oil, condensate and natural gas liquids) and natural gas and other factors.
For a more complete understanding of Forest's operations and financial
position, reference is made to the consolidated financial statements, and
related notes thereto, filed with Forest's annual report on Form 10-K for the
year ended December 31, 1998, previously filed with the Securities and
Exchange Commission.
The components of total comprehensive income (loss) for the periods
consist of net earnings (loss), foreign currency translation and changes in
the unfunded pension liability and are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Net earnings $4,043 1,792 4,493 789
Other comprehensive
loss (881) (1,239) (1,262) (1,003)
----- ----- ----- -----
Total comprehensive
loss $3,162 553 3,231 (214)
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
(2) ACQUISITIONS
In February 1998, Forest purchased interests in oil and natural gas
properties in 13 fields located onshore Louisiana (the Louisiana Acquisition)
from a private company for total consideration of approximately $230,776,000.
The consideration consisted of approximately $216,557,000 of cash, funded
primarily from the bank credit facility, and the issuance of $75,000,000
principal amount of 8 3/4% subordinated notes (see Note 6) and 1,000,000
shares of Common Stock. Estimated proved reserves acquired in the Louisiana
Acquisition were approximately 189 BCFE at the time of purchase.
In June 1998, Forest issued 5,950,000 shares of common stock to The
Anschutz Corporation (Anschutz) in exchange for certain oil and gas assets
(the Anschutz Acquisition). The oil and gas assets acquired included an
interest in The Anschutz Ranch East Field located in Utah and Wyoming.
Forest's interest in this field had net proved developed producing reserves
estimated at approximately 72 BCFE at the date of acquisition. Forest
acquired all of Anschutz's Canadian oil and gas assets, comprised primarily
of approximately 170,000 net acres of undeveloped land, as well as 5.2 BCFE
of estimated proved reserves. The acquisition also included certain of
Anschutz's international oil and gas assets comprised of 13 international
projects encompassing approximately 18 million net acres of undeveloped land.
(3) SUBSIDIARIES
SAXON PETROLEUM INC. In December 1995, Forest purchased a 56%
economic (49% voting) interest in Saxon Petroleum Inc. (Saxon) for
approximately $22,000,000. Saxon was a Canadian exploration and production
company with headquarters in Calgary, Alberta and operations concentrated in
western Alberta. Since Forest had majority voting control over Saxon as a
result of the voting common shares owned and proxies that it held, it
accounted for Saxon as a consolidated subsidiary from the date of its
acquisition. During 1997 Forest converted
-4-
<PAGE>
(3) SUBSIDIARIES, CONTINUED
preferred shares of Saxon into common shares and acquired additional common
shares of Saxon pursuant to an equity participation agreement. These
transactions increased Forest's ownership in Saxon to a 65% economic (49%
voting) interest. In August 1998, Forest acquired all of the outstanding
common shares of Saxon not previously owned by Forest in exchange for
1,081,256 shares of Forest Common Stock. A former officer of Saxon returned
9,922 shares of Forest Common Stock to Saxon in exchange for extinguishment
of a loan. These shares held by Saxon have been recorded as treasury stock at
June 30, 1999.
In October 1998 ownership of Saxon was transferred from Forest to
its wholly owned subsidiary, Canadian Forest Oil Ltd. In June 1999 Saxon was
liquidated into Canadian Forest.
CANADIAN FOREST OIL LTD. In January 1996, Forest 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).
Canadian Forest's principal reserves and producing properties are located in
Alberta and British Columbia, Canada. As part of the Canadian Forest
acquisition, Forest also acquired ATCOR's natural gas marketing business,
which was renamed Producers Marketing Ltd. (ProMark).
Canadian Forest is the issuer of the 8 3/4% Senior Subordinated
Notes (the 8 3/4% Notes) (see Note 6). Forest has not presented separate
financial statements and other disclosures concerning Canadian Forest because
management has determined that such information is not material to holders of
the 8 3/4% Notes; however, the following summarized consolidated financial
information is being provided for Canadian Forest as of June 30, 1999 and
December 31, 1998 and for the six months ended June 30, 1999 and 1998. These
amounts include the effects of the transfer of the investment in Saxon to
Canadian Forest effective October 1998.
-5-
<PAGE>
(3) SUBSIDIARIES, CONTINUED
<TABLE>
<CAPTION>
June 30, December 31,
CANADIAN FOREST OIL LTD. 1999 1998
-------- -----------
(In Thousands)
<S> <C> <C>
Summarized Consolidated Balance Sheet Information:
ASSETS
Current assets $ 21,622 22,240
Net property and equipment 143,186 132,081
Goodwill and other intangible assets, net 22,617 22,689
Investment in affiliate 18,477 95
Note receivable from parent 8,887 42,266
Other assets 3,315 3,384
-------- --------
$ 218,104 222,755
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities $ 27,767 27,646
Long-term debt 30,181 35,398
8 3/4% Senior Subordinated Notes 199,977 199,976
Other liabilities 329 345
Deferred income taxes 8,979 9,656
Shareholder's equity (deficit) (49,129) (50,266)
-------- --------
$ 218,104 222,755
-------- --------
-------- --------
Six Months Ended June 30,
-------------------------
1999 1998
---- ----
(In Thousands)
Summarized Consolidated Statements of Operations Information:
Revenue $ 102,051 78,179
-------- --------
-------- --------
Income (loss) before income taxes $ 1,919 (5,815)
-------- --------
-------- --------
Net income (loss) $ 3,063 (5,529)
-------- --------
-------- --------
</TABLE>
(4) NET PROPERTY AND EQUIPMENT
Components of net property and equipment are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
(In Thousands)
<S> <C> <C>
Oil and gas properties $ 2,078,925 2,029,352
Buildings, transportation and
other equipment 13,271 12,356
--------- ---------
2,092,196 2,041,708
Less accumulated depreciation,
depletion and valuation allowance 1,425,716 1,378,398
-------- --------
$ 666,480 663,310
-------- --------
-------- --------
</TABLE>
-6-
<PAGE>
(5) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets recorded by Forest's gas
marketing subsidiary consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
(In Thousands)
<S> <C> <C>
Goodwill $ 15,562 14,980
Gas marketing contracts 13,578 13,070
------ ------
29,140 28,050
Less accumulated amortization (6,523) (5,361)
------ ------
$ 22,617 22,689
------ ------
------ ------
</TABLE>
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 12 years.
(6) LONG-TERM DEBT
Components of long-term debt are as follows:
<TABLE>
June 30, December 31,
1999 1998
-------- ------------
(In Thousands)
<S> <C> <C>
Global Credit Facility:
U.S. borrowings $ 165,000 261,400
Canadian borrowings 30,181 10,456
Saxon Credit Facility - 24,942
8 3/4% Senior Subordinated Notes 199,977 199,976
10 1/2% Senior Subordinated Notes 98,882 -
11 1/4% Senior Subordinated Notes 8,631 8,676
------- -------
$ 502,671 505,450
------- -------
------- -------
</TABLE>
In February 1998, Canadian Forest issued $75,000,000 principal
amount of 8 3/4% subordinated notes which were sold at 100.375%. Net proceeds
were used to provide funds for the Louisiana Acquisition. The notes issued in
1998 were subsequently exchanged for notes of the same series of 8 3/4% Notes
issued in September 1997.
Forest is required to recognize foreign currency translation gains
or losses related to the 8 3/4% Notes because the debt is denominated in U.S.
dollars and the functional currency of Canadian Forest is the Canadian
dollar. As a result of the increase in the value of the Canadian dollar
relative to the U.S. dollar during the second quarter and first six months of
1999, Forest reported translation gains of approximately $4,301,000 and
$6,517,000, respectively, compared to translation losses of $4,186,000 and
$3,162,000 in the second quarter and first six months of 1998, respectively.
-7-
<PAGE>
(6) LONG-TERM DEBT, CONTINUED
In June 1998, Forest settled its remaining nonrecourse production
payment obligation for 271,214 shares of Common Stock. The stock was valued at
$3,750,000 based upon the weighted average trading price for the 10 day trading
period preceding the closing date. The obligation, which originated in May 1992,
had a remaining book value of approximately $9,966,000. As a result of this
settlement, Forest recorded an extraordinary gain on extinguishment of debt of
$6,196,000 (net of related expenses) in the second quarter of 1998.
In February 1999 Forest completed a public offering, at 98.811% of
par, of $100,000,000 principal amount of 10 1/2% Senior Subordinated Notes
due 2006.
(7) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net earnings
(loss) attributable to common stock by the weighted average number of common
shares outstanding during each period, excluding treasury shares.
Diluted earnings (loss) per share is computed by adjusting the
average number of common shares outstanding for the dilutive effect, if any,
of stock options. The effect of potentially dilutive securities is based on
earnings (loss) before extraordinary items.
The following sets forth the calculation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
1999(1) 1998(2) 1999(1) 1998(2)
-------- -------- -------- --------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
Income (loss) before extraordinary item $ 4,043 (4,404) 4,493 (5,407)
Weighted average common shares outstanding
during the period 44,655 37,721 44,651 37,350
Add dilutive effects of employee stock
options 348 - 96 -
-------- -------- -------- --------
Weighted average common shares outstanding
including the effects of dilutive securities 45,003 37,721 44,747 37,350
-------- -------- -------- --------
-------- -------- -------- --------
Basic earnings (loss) per share before
extraordinary item $ .09 (.11) .10 (.14)
-------- -------- -------- --------
-------- -------- -------- --------
Diluted earnings (loss) per share before
extraordinary item $ .09 (.11) .10 (.14)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
(1) At June 30, 1999, options to purchase 1,758,000 shares of common stock at
prices ranging from $11.25 to $25.00 per share were outstanding, but were
not included in the computation of diluted earnings per share because the
exercise prices of these options were greater than the average market price
of the common stock during the periods. These options expire at various
dates from 2003 through 2008.
(2) At June 30, 1998, options to purchase 1,915,000 shares of common stock at
prices ranging from $11.25 to $25.00 per share were outstanding, but were
not included in the computation of diluted earnings per share because the
effect of the assumed exercise of these stock options was antidilutive.
These options expire at various dates from 2003 through 2007.
-8-
<PAGE>
(8) BUSINESS AND GEOGRAPHICAL SEGMENTS
Segment information has been prepared in accordance with Statement of Financial
Accounting Standards No. 131, Disclosures About Segments of an Enterprise and
Related Information (Statement No. 131). Forest has five reportable segments:
oil and gas operations in the Gulf Coast Offshore Region, Gulf Coast Onshore
Region, Western Region and in Canada, and marketing and processing operations in
Canada. The segments were determined based upon the type of operations in each
segment and the geographical location of each segment. The segment data
presented below was prepared on the same basis as Forest's consolidated
financial statements.
<TABLE>
<CAPTION>
Three months ended June 30, 1999
- --------------------------------
Oil and Gas Operations
--------------------------------------------------------- Marketing
Gulf Coast Region and
----------------- Western Total Procesing Total
Offshore Onshore Region U.S. Canada Total Canada Company
-------- ------- ------- ------- -------- ------- -------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 19,576 10,445 7,004 37,025 10,133 47,158 40,429 87,587
Marketing and processing expense - - - - - - 39,664 39,664
Oil and gas production expense 3,810 4,227 1,172 9,209 3,229 12,438 - 12,438
General and administrative expense 1,090 830 625 2,545 685 3,230 653 3,883
Depreciation and depletion expense 10,510 4,446 2,236 17,192 3,833 21,025 480 21,505
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from operations $ 4,166 942 2,971 8,079 2,386 10,465 (368) 10,097
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Capital expenditures $ 5,446 9,141 1,222 15,809 7,496 23,305 - 23,305
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Property and equipment, net $112,300 266,985 100,053 479,338 161,355 640,693 - 640,693
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
Information for Forest's reportable segments relates to the three months ended
June 30, 1999 consolidated totals as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
EARNINGS BEFORE INCOME TAXES:
Earnings from operations for reportable segments $ 10,097
Administrative asset depreciation (262)
Other income, net (683)
Interest expense (10,407)
Translation gain on subordinated debt 4,301
--------
Earnings before income taxes $ 3,046
--------
--------
CAPITAL EXPENDITURES:
Reportable segments $ 23,305
International interests 4,563
Administrative assets and other 827
--------
Total capital expenditures $ 28,695
--------
--------
PROPERTY AND EQUIPMENT, NET:
Reportable segments $ 640,693
International interests 19,175
Administrative assets, net and other 6,612
--------
Total property and equipment, net $ 666,480
--------
--------
</TABLE>
-9-
<PAGE>
(8) BUSINESS AND GEOGRAPHICAL SEGMENTS, CONTINUED
<TABLE>
<CAPTION>
Three months ended June 30, 1998
- --------------------------------
Oil and Gas Operations
--------------------------------------------------------- Marketing
Gulf Coast Region and
----------------- Western Total Procesing Total
Offshore Onshore Region U.S. Canada Total Canada Company
-------- ------- ------- ------- -------- ------- -------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 16,248 11,812 4,036 32,096 9,361 41,457 33,716 75,173
Marketing and processing expense - - - - - - 32,096 32,096
Oil and gas production expense 3,052 2,505 1,020 6,577 2,785 9,362 - 9,362
General and administrative expense 1,423 1,047 430 2,900 1,328 4,228 694 4,922
Depreciation and depletion expense 10,933 5,532 1,176 17,641 5,414 23,055 504 23,559
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from operations $ 840 2,728 1,410 4,978 (166) 4,812 422 5,234
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Capital expenditures $ 25,500 19,574 67,089 112,163 16,223 128,386 (10) 128,376
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Property and equipment, net $180,307 320,218 142,265 642,790 201,883 844,673 5,014 849,687
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
Information for Forest's reportable segments relates to the three months ended
June 30, 1998 consolidated totals as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
LOSS BEFORE INCOME TAXES:
Earnings from operations for reportable segments $ 5,234
Administrative asset depreciation (303)
Other income, net 6,704
Interest expense (9,755)
Translation loss on subordinated debt (4,186)
--------
Loss before income taxes $ (2,306)
--------
--------
CAPITAL EXPENDITURES:
Reportable segments $ 128,376
Administrative assets and other 418
--------
Total capital expenditures $ 128,794
--------
--------
PROPERTY AND EQUIPMENT, NET:
Reportable segments $ 849,687
Administrative assets, net and other 5,276
--------
Total property and equipment, net $ 854,963
--------
--------
</TABLE>
-10-
<PAGE>
(8) BUSINESS AND GEOGRAPHICAL SEGMENTS, CONTINUED
<TABLE>
<CAPTION>
Six months ended June 30, 1999
- ------------------------------
Oil and Gas Operations
--------------------------------------------------- Marketing
Gulf Coast Region and
----------------- Western Total Procesing Total
Offshore Onshore Region U.S. Canada Total Canada Company
-------- ------- ------- ------- -------- ------- -------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 39,838 17,880 13,931 71,649 18,464 90,113 87,826 177,939
Marketing and processing expense - - - - - - 83,851 83,851
Oil and gas production expense 6,894 8,595 2,593 18,082 5,621 23,703 - 23,703
General and administrative expense 2,361 1,705 1,196 5,262 1,414 6,676 1,305 7,981
Depreciation and depletion expense 22,650 8,174 4,335 35,159 7,730 42,889 945 43,834
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from operations $ 7,933 (594) 5,807 13,146 3,699 16,845 1,725 18,570
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Capital expenditures $ 7,813 15,092 2,386 25,291 17,289 42,580 - 42,580
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Property and equipment, net $112,300 266,985 100,053 479,338 161,355 640,693 - 640,693
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
Information for Forest's reportable segments relates to the six months ended
June 30, 1999 consolidated totals as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
EARNINGS BEFORE INCOME TAXES:
Earnings from operations for reportable segments $ 18,570
Administrative asset depreciation (532)
Other income, net 97
Interest expense (21,064)
Translation gain on subordinated debt 6,517
--------
Earnings before income taxes $ 3,588
--------
--------
CAPITAL EXPENDITURES:
Reportable segments $ 42,580
International interests 4,771
Administrative assets and other 1,305
--------
Total capital expenditures $ 48,656
--------
--------
PROPERTY AND EQUIPMENT, NET:
Reportable segments $ 640,693
International interests 19,175
Administrative assets, net and other 6,612
--------
Total property and equipment, net $ 666,480
--------
--------
</TABLE>
-11-
<PAGE>
(8) BUSINESS AND GEOGRAPHICAL SEGMENTS, CONTINUED
<TABLE>
<CAPTION>
Six months ended June 30, 1998
- ------------------------------
Oil and Gas Operations
--------------------------------------------------- Marketing
Gulf Coast Region and
----------------- Western Total Procesing Total
Offshore Onshore Region U.S. Canada Total Canada Company
-------- ------- ------- ------- -------- ------- -------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 34,778 20,069 6,353 61,200 20,904 82,104 68,565 150,669
Marketing and processing expense - - - - - - 65,264 65,264
Oil and gas production expense 6,196 4,364 1,889 12,449 5,755 18,204 - 18,204
General and administrative expense 2,217 2,172 689 5,078 2,658 7,736 1,441 9,177
Depreciation and depletion expense 23,128 9,279 1,334 33,741 11,831 45,572 975 46,547
------- ------- ------- ------- ------- ------- ------- -------
Earnings from operations $ 3,237 4,254 2,441 9,932 660 10,592 885 11,477
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Capital expenditures $ 37,022 251,621 72,692 361,335 27,403 388,738 (10) 388,728
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Property and equipment, net $180,307 320,218 142,265 642,790 201,883 844,673 5,014 849,687
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
Information for Forest's reportable segments relates to the six months ended
June 30, 1998 consolidated totals as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
LOSS BEFORE INCOME TAXES:
Earnings from operations for reportable segments $ 11,477
Administrative asset depreciation (648)
Other income, net 6,782
Interest expense (18,261)
Translation loss on subordinated debt (3,162)
--------
Loss before income taxes $ (3,812)
--------
--------
CAPITAL EXPENDITURES:
Reportable segments $ 388,728
Administrative assets and other 694
--------
Total capital expenditures $ 389,422
--------
--------
PROPERTY AND EQUIPMENT, NET:
Reportable segments $ 849,687
Administrative assets, net and other 5,276
--------
Total property and equipment, net $ 854,963
--------
--------
</TABLE>
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with Forest'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 on our 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 our control.
Should one or more of these risks or uncertainties occur, or should underlying
assumptions prove incorrect, the actual results and plans for 1999 and beyond
could differ materially from those expressed in the forward-looking statements.
For a description of risks affecting Forest's business, see "Item 1 - Business -
Forward-Looking Statements and Risk Factors" in the 1998 Annual Report on Form
10-K.
RESULTS OF OPERATIONS FOR THE SECOND QUARTER OF 1999
Net earnings for the second quarter of 1999 were $4,043,000 or $.09 per
basic and diluted common share compared to $1,792,000 or $.05 per basic and
diluted common share in the corresponding period of 1998. The 1999 period
includes a gain on foreign currency translation of $4,301,000 related to
subordinated debt issued by a Canadian subsidiary. The 1998 period included a
$4,186,000 foreign currency translation loss, $6,603,000 of income related to
settlement of a Canadian gas contract and an extraordinary gain on
extinguishment of debt of $6,196,000.
Marketing and processing revenue increased by 20% to $40,514,000 in the
second quarter of 1999 from $33,839,000 in the second quarter of 1998 and the
related marketing and processing expense increased by 24% to $39,664,000 in the
second quarter of 1999 from $32,096,000 in the same period of the previous year.
The gross margin reported for marketing and processing activities decreased to
$850,000 in the second quarter of 1999 from $1,743,000 in the second quarter of
1998. The decrease resulted primarily from the effects of a more competitive
market which caused trading margins to tighten.
Oil and gas sales revenue increased by 14% to $47,073,000 in the second
quarter of 1999 from $41,334,000 in the second quarter of 1998 due primarily to
higher production and higher oil prices. Production volumes for natural gas and
liquids (consisting of oil, condensate and natural gas liquids) in the second
quarter of 1999 increased 10% from the comparable 1998 period, due primarily to
discoveries in the Gulf of Mexico being brought on line as well as production
attributable to property acquisitions in June 1998. The average sales price
received for natural gas in the second quarter of 1999 increased slightly
compared to the average sales price received in the corresponding 1998 period.
The average sales price received for liquids production during the second
quarter of 1999 increased 9% compared to the average sales price received during
the comparable 1998 period.
Oil and gas production expense of $12,438,000 in the second quarter
of 1999 increased 33% from $9,362,000 in the comparable period of 1998
primarily as a result of increased workover expense in the Onshore Gulf Coast
area as well as additional production expense related to acquired properties.
On an MCFE basis (MCFE means thousands of cubic feet of natural gas
equivalents, using conversion ratio of one barrel of oil to six MCF of
natural gas), production expense increased approximately 20% in the second
quarter of 1999 to $.55 per MCFE from $.46 MCFE in the second quarter of 1998.
-13-
<PAGE>
The following tables set forth production volumes, weighted average
sales prices and production expenses during the periods as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
--------------------------------------------------------------------
Offshore Onshore
Gulf of Gulf Total Total
Mexico Coast Western U.S. Canada Company
-------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
NATURAL GAS
Production (MMCF) 7,258 2,777 2,634 12,669 3,082 15,751
Sales price received (per MCF) $ 2.23 2.24 1.91 2.17 1.52 2.04
Effects of energy swaps (per MCF)(1) .02 .06 .03 .03 (.08) .01
------ ------ ------ ------ ------ ------
Average sales price (per MCF) $ 2.25 2.30 1.94 2.20 1.44 2.05
LIQUIDS
Oil and condensate:
Production (MBBLS) 211 233 49 493 318 811
Sales price received (per BBL) $ 15.50 16.59 17.20 16.18 15.19 15.79
Effects of energy swaps (per BBL)(1) - (2.51) - (1.18) (.35) (.86)
------ ------ ------ ------ ------ ------
Average sales price (per BBL) $ 15.50 14.08 17.20 15.00 14.84 14.93
Natural gas liquids:
Production (MBBLS) 4 51 146 201 106 307
Average sales price (per BBL) $ 6.75 7.53 8.81 8.44 9.19 8.70
Total liquids production (MBBLS) 215 284 195 694 424 1,118
Average liquids sales price (per BBL) $ 15.33 12.90 10.92 13.10 13.42 13.22
TOTAL PRODUCTION:
Production volumes (MMCFE) 8,548 4,481 3,804 16,833 5,626 22,459
Average sales price (per MCFE) $ 2.30 2.24 1.91 2.20 1.80 2.09
Operating expense (per MCFE) .45 .94 .31 .55 .57 .55
------ ------ ------ ------ ------ ------
Netback (per MCFE) $ 1.85 1.30 1.60 1.65 1.23 1.54
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
(1) Energy swaps were entered into to hedge the price of spot market
volumes against price fluctuations. Hedged natural gas volumes were
8,724 MMCF in the three months ended June 30, 1999. Hedged oil and
condensate volumes were 608,000 barrels in the three months ended June
30, 1999. The aggregate net loss under energy swap agreements was
$526,000 for the period and was accounted for as a decrease to oil and
gas sales.
-14-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
--------------------------------------------------------------------
Offshore Onshore
Gulf of Gulf Total Total
Mexico Coast Western U.S. Canada Company
-------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
NATURAL GAS
Production (MMCF) 5,972 3,566 1,352 10,890 3,407 14,297
Sales price received (per MCF) $ 2.24 2.29 2.22 2.26 1.24 2.01
Effects of energy swaps (per MCF)(1) (.02) .08 - .01 (.01) .01
------ ------ ------ ------ ------ ------
Average sales price (per MCF) $ 2.22 2.37 2.22 2.27 1.23 2.02
LIQUIDS
Oil and condensate:
Production (MBBLS) 225 227 50 502 346 848
Sales price received (per BBL) $ 11.88 13.12 13.30 12.59 11.28 12.06
Effects of energy swaps (per BBL)(1) 1.15 - - .51 1.66 .98
------ ------ ------ ------ ------ ------
Average sales price (per BBL) $ 13.03 13.12 13.30 13.10 12.94 13.04
Natural gas liquids:
Production (MBBLS) - 33 53 86 92 178
Average sales price (per BBL) $ - 8.73 7.06 7.70 7.80 7.75
Total liquids production (MBBLS) 225 260 103 588 438 1,026
Average liquids sales price (per BBL) $ 13.03 12.57 10.09 12.31 11.86 12.12
TOTAL PRODUCTION
Production volumes (MMCFE) 7,322 5,126 1,970 14,418 6,035 20,453
Average sales price (per MCFE) $ 2.22 2.29 2.05 2.22 1.55 2.02
Operating expense (per MCFE) .42 .49 .52 .46 .46 .46
------ ------ ------ ------ ------ ------
Netback (per MCFE) $ 1.80 1.80 1.53 1.76 1.09 1.56
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
(1) Energy swaps were entered into to hedge the price of spot market
volumes against price fluctuations. Hedged natural gas volumes were
7,430 MMCF in the three months ended June 30, 1998. Hedged oil and
condensate volumes were 136,000 barrels in the three months ended June
30, 1998. The aggregate net gain under energy swap agreements was
$939,000 for the period and was accounted for as an increase to oil and
gas sales.
General and administrative expense decreased to $3,883,000 in the
second quarter of 1999 compared to $4,922,000 in the comparable period of 1998.
Total overhead costs (capitalized and expensed general and administrative costs)
were $5,748,000 in the second quarter of 1999 compared to $7,023,000 in the
comparable period of 1998. The 1998 period included non-recurring expenses of
Saxon as a result of its decision to investigate strategic alternatives,
whereas the 1999 period reflects the efficiencies achieved by combining
Saxon's operations with those of Canadian Forest.
-15-
<PAGE>
Depreciation and depletion expense decreased 9% to $21,767,000 in the
second quarter of 1999 from $23,862,000 in the second quarter of 1998. On a
per-unit basis, depletion expense was approximately $.94 per MCFE in the second
quarter of 1999 compared to $1.13 per MCFE in the corresponding 1998 period. The
decline in the depletion rate during 1999 is attributable to favorable per-unit
costs associated with 1998 acquisitions and Gulf of Mexico discoveries, as well
as to the writedowns of oil and gas properties in the third and fourth quarters
of 1998.
Other income was $6,704,000 in the second quarter of 1998. This amount
includes $6,603,000 of income related to settlement of a Canadian gas contract.
Interest expense increased 7% to $10,407,000 in the second quarter of
1999 compared to $9,755,000 in the corresponding 1998 period, due primarily to
higher debt levels.
The foreign currency translation gain was $4,301,000 in the second
quarter of 1999, compared to a loss of $4,186,000 in the second quarter of
1998. Foreign currency translation gains and losses relate to translation of
the 8 3/4% Notes issued by Canadian Forest, and are attributable to the
increases and decreases in the value of the Canadian dollar relative to the
U.S. dollar during the period. The value of the Canadian dollar was $.6789 at
June 30, 1999 compared to $.6628 at March 31, 1999. Forest is required to
recognize the noncash foreign currency translation gains or losses related to
the 8 3/4% Notes because the debt is denominated in U.S. dollars and the
functional currency of Canadian Forest is the Canadian dollar.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
Net earnings for the first six months of 1999 were $4,493,000 or $.10
per basic and diluted common share compared to $789,000 or $.02 per basic and
diluted common share in the first six months of 1998. The 1999 period includes a
gain on foreign currency translation of $6,517,000. The 1998 period included a
$3,162,000 loss on foreign currency translation, $6,603,000 of income related to
settlement of a Canadian gas contract and an extraordinary gain on
extinguishment of debt of $6,196,000.
Marketing and processing revenue increased 28% to $88,020,000 in the
first six months of 1999 from $68,842,000 in the first six months of 1998.
The related marketing and processing expense also increased by 28% to
$83,851,000 in the 1999 period from $65,264,000 in the previous year. The
gross margin reported for marketing and processing activities of $4,169,000
in the first six months of 1999 was higher than the gross margin of
$3,578,000 in the first six months of 1998. The increase in the gross margin
resulted primarily from a gain of $3,238,000 on sale of processing facilities
in the first quarter of 1999, offset to some extent by the effects of a more
competitive market which caused trading margins to tighten.
Oil and gas sales revenue increased by 10% to $89,919,000 in the first
six months of 1999 compared to $81,827,000 in the first six months of 1998.
Production volumes for natural gas and liquids in the first six months of 1999
increased 17% and 9%, respectively, from the comparable 1998 period. The
increases in production are due primarily to discoveries in the Gulf of Mexico
being brought on production, as well as production attributable to property
acquisitions in February and June of 1998. The average sales price received for
natural gas in the first six months of 1999 decreased slightly compared to the
corresponding 1998 period. The average sales price received for liquids during
the first six months of 1999 decreased 10% compared to the average sales price
received during the comparable 1998 period.
Oil and gas production expense of $23,703,000 in the first six
months of 1999 increased 30% from $18,204,000 in the comparable period of
1998, primarily as a result of increased workover expense in the Onshore Gulf
Coast area as well as additional production expense related to acquired
properties. On an MCFE basis, production expense increased approximately 13%
in the first six months of 1999 to $.52 per MCFE from $.46 per MCFE in the
first six months of 1998.
-16-
<PAGE>
The following tables set forth production volumes, weighted average
sales prices and production expenses during the periods as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
--------------------------------------------------------------------
Offshore Onshore
Gulf of Gulf Total Total
Mexico Coast Western U.S. Canada Company
-------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
NATURAL GAS
Production (MMCF) 15,530 5,398 5,352 26,280 6,465 32,745
Sales price received (per MCF) $ 2.01 1.97 1.81 1.97 1.40 1.85
Effects of energy swaps (per MCF) (1) .18 .24 .16 .18 (.05) .14
------ ------ ------ ------ ------ ------
Average sales price (per MCF) $ 2.19 2.21 1.97 2.15 1.35 1.99
LIQUIDS
Oil and condensate:
Production (MBBLS) 466 404 110 980 623 1,603
Sales price received (per BBL) $ 11.87 14.26 14.46 13.14 12.96 13.06
Effects of energy swaps (per BBL)(1) - (1.22) - (.50) (.18) (.37)
------ ------ ------ ------ ------ ------
Average sales price (per BBL) $ 11.87 13.04 14.46 12.64 12.78 12.69
Natural gas liquids:
Production (MBBLS) 5 90 258 353 218 571
Average sales price (per BBL) $ 7.40 7.39 7.05 7.14 8.23 7.56
Total liquids production (MBBLS) 471 494 368 1,333 841 2,174
Average liquids sales price (per BBL) $ 11.82 12.01 9.27 11.19 11.60 11.35
TOTAL PRODUCTION:
Production volumes (MMCFE) 18,356 8,362 7,560 34,278 11,511 45,789
Average sales price (per MCFE) $ 2.16 2.14 1.84 2.09 1.61 1.96
Operating expense (per MCFE) .38 1.03 .34 .53 .49 .52
------ ------ ------ ------ ------ ------
Netback (per MCFE) $ 1.78 1.11 1.50 1.56 1.12 1.44
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
(1) Energy swaps were entered into to hedge the price of spot market
volumes against price fluctuations. Hedged natural gas volumes were
17,212 MMCF in the six months ended June 30, 1999. Hedged oil and
condensate volumes were 678,000 barrels in the six months ended June
30, 1999. The aggregate net gain under energy swap agreements was
$3,946,000 for the period and was accounted for as an increase to oil
and gas sales.
-17-
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
--------------------------------------------------------------------
Offshore Onshore
Gulf of Gulf Total Total
Mexico Coast Western U.S. Canada Company
-------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
NATURAL GAS
Production (MMCF) 12,182 6,252 2,274 20,708 7,254 27,962
Sales price received (per MCF) $ 2.24 2.25 2.15 2.23 1.24 1.97
Effects of energy swaps (per MCF) (1) .08 .06 - .07 - .05
------ ------ ------ ------ ------ ------
Average sales price (per MCF) $ 2.32 2.31 2.15 2.30 1.24 2.02
LIQUIDS
Oil and condensate:
Production (MBBLS) 469 374 78 921 731 1,652
Sales price received (per BBL) $ 12.40 13.56 13.63 12.98 12.46 12.74
Effects of energy swaps (per BBL)(1) .99 - - .50 1.37 .89
------ ------ ------ ------ ------ ------
Average sales price (per BBL) $ 13.39 13.56 13.63 13.48 13.83 13.63
Natural gas liquids:
Production (MBBLS) - 72 56 128 221 349
Average sales price (per BBL) $ - 8.08 7.09 7.65 8.24 8.02
Total liquids production (MBBLS) 469 446 134 1,049 952 2,001
Average liquids sales price (per BBL) $ 13.39 12.68 10.90 12.77 12.53 12.65
TOTAL PRODUCTION:
Production volumes (MMCFE) 14,996 8,928 3,078 27,002 12,966 39,968
Average sales price (per MCFE) $ 2.30 2.25 2.06 2.26 1.61 2.05
Operating expense (per MCFE) .41 .49 .61 .46 .44 .46
------ ------ ------ ------ ------ ------
Netback (per MCFE) $ 1.89 1.76 1.45 1.80 1.17 1.59
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
(1) Energy swaps were entered into to hedge the price of spot market
volumes against price fluctuations. Hedged natural gas volumes were
11,799 MMCF in the six months ended June 30, 1998. Hedged oil and
condensate volumes were 316,000 barrels in the six months ended June
30, 1998. The aggregate net gain under energy swap agreements was
$2,851,000 for the period and was accounted for as an increase to oil
and gas sales.
-18-
<PAGE>
General and administrative expense was $7,981,000 in the first six
months of 1999 compared to $9,177,000 in the comparable period of 1998. Total
overhead costs (capitalized and expensed general and administrative costs) were
$12,043,000 in the first six months of 1999 compared to $13,187,000 in the
comparable period of 1998. The 1998 period included non-recurring expenses of
Saxon as a result of its decision to investigate strategic alternatives, whereas
the 1999 period reflects the efficiencies achieved by combining Saxon's
operations with those of Canadian Forest.
The following table summarizes the total overhead costs incurred during
the periods:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C>
Overhead costs capitalized $1,865 2,101 4,062 4,010
General and administrative costs
expensed (1) 3,883 4,922 7,981 9,177
----- ----- ------ ------
Total overhead costs $5,748 7,023 12,043 13,187
----- ----- ------ ------
----- ----- ------ ------
</TABLE>
(1) Includes $653,000 and $694,000 related to marketing and processing
operations for the three month periods ended June 30, 1999 and 1998,
respectively, and $1,305,000 and $1,441,000 for the six month periods
ended June 30, 1999 and 1998, respectively.
Depreciation and depletion expense decreased 6% to $44,366,000 in the
first six months of 1999 from $47,195,000 in the first six months of 1998. On a
per-unit basis, depletion expense was approximately $.94 per MCFE in the first
six months of 1999 compared to $1.14 per MCFE in the corresponding 1998 period.
The decline in the depletion rate during 1999 is attributable to favorable
per-unit costs associated with 1998 acquisitions and Gulf of Mexico discoveries,
as well as to the writedowns of oil and gas properties in the third and fourth
quarters of 1998. At June 30, 1999 Forest had undeveloped properties with a cost
basis of approximately $56,841,000 in the U.S. and $33,841,000 in Canada which
were not subject to depletion, compared to approximately $66,860,000 in the U.S.
and $19,280,000 in Canada at June 30, 1998. The decrease in the U.S. is
attributable primarily to impairment of undeveloped properties. The increase in
Canada is attributable primarily to the purchase of undeveloped acreage. At June
30, 1999 Forest also had approximately $19,175,000 of costs related to
international interests. These costs are not being depleted pending the
establishment of proved reserves.
Other income was $97,000 in the first six months of 1999 and was
$6,782,000 in the first six months of 1998. The 1998 period includes $6,603,000
of income related to settlement of a Canadian gas purchase contract.
Interest expense increased 15% to $21,064,000 in the first six months
of 1999 compared to $18,261,000 in the corresponding 1998 period, due primarily
to higher debt levels.
The foreign currency translation gain was $6,517,000 in the first six
months of 1999, compared to a loss of $3,162,000 in the first six months of
1998. Foreign currency translation gains and losses relate to translation of the
8 3/4% Notes issued by Canadian Forest, and are attributable to the increases
and decreases in the value of the Canadian dollar relative to the U.S. dollar
during the period. The value of the Canadian dollar was $.6789 at June 30,
1999 compared to $.6535 at December 31, 1998. Forest is required to
recognize the noncash foreign currency translation gains or losses related to
the 8 3/4% Notes because the debt is denominated in U.S. dollars and the
functional currency of Canadian Forest is the Canadian dollar.
The extraordinary gain on extinguishment of debt in the first six
months of 1998 resulted from settlement of the Company's remaining nonrecourse
production payment obligation in exchange for 271,214 shares of Common Stock
valued at $3,750,000. The obligation had a remaining book value of
approximately $9,966,000. As a result of this settlement, the Company
recorded an extraordinary gain on extinguishment of debt of $6,196,000 (net
of related expenses).
-19-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Forest 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 bank credit facilities and cash provided by operating
activities. In 1998 and early 1999, we completed several transactions that
improved our financial position:
- In February 1998 Canadian Forest issued $75,000,000 principal amount of
8 3/4% Notes, an add-on to the issue of 8 3/4% Notes completed in
September 1997. The net proceeds funded a portion of our purchase of
interests in oil and natural gas properties in 13 fields located
onshore Louisiana from a private company for total consideration of
approximately $230,776,000. The consideration consisted of
approximately $216,557,000 in cash and 1,000,000 shares of Common
Stock.
- In June 1998 Forest issued 5,950,000 shares of common stock to Anschutz
in exchange for certain oil and gas assets located in the United States
and Canada, as well as 13 international projects.
- In June 1998 we settled our only remaining nonrecourse production
payment loan by issuing 271,214 shares of common stock to the lender.
The loan, which originated in May 1992, had a remaining principal
amount of approximately $14,600,000 and a book value of approximately
$9,966,000. The loan was secured primarily by certain oil and gas
properties in Oklahoma and the Gulf of Mexico. As a result of the
settlement, we recorded an extraordinary gain of $6,196,000 in 1998.
- In February 1999 we issued, at 98.811% of par, $100,000,000 of 10 1/2%
Senior Subordinated Notes (the 10 1/2% Notes) due 2006.
We continue 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 Forest, the issuance of net
profits interests, sales of non-strategic assets, prospects and technical
information, and joint venture financing. Availability of these sources of
capital and, therefore, our ability to execute our operating strategy will
depend upon a number of factors, some of which are beyond Forest's control.
In addition, the prices we receive for future oil and natural gas
production and the level of production will significantly impact future
operating cash flows. At current production and borrowing levels, Forest's
sensitivity to price declines is significantly increased compared to prior
periods. No prediction can be made as to the prices we will receive for our
future oil and gas production. Additionally, we have four offshore Gulf of
Mexico wells whose combined production currently represents approximately 25% of
our consolidated daily deliverability. Our production, revenue and cash flow
could be adversely affected if production from these properties decreases
significantly.
BANK CREDIT FACILITIES. Forest and its subsidiaries, Canadian Forest
and ProMark, have a $300,000,000 global credit facility which currently
provides for a global borrowing base of $250,000,000 through a syndicate of
banks led by The Chase Manhattan Bank and The Chase Manhattan Bank of Canada.
At July 23, 1999 the maximum credit facility allocations in the United States
and Canada are $200,000,000 and $50,000,000, respectively. The borrowing base
is subject to semi-annual redeterminations. Funds borrowed under the global
credit facility can be used for general corporate purposes. Under the terms
of the global credit facility, Forest, Canadian Forest and ProMark are
subject to certain covenants and financial tests, including restrictions or
requirements with respect to cash dividends, including cash dividends on
preferred stock, working capital, cash flow, additional debt, liens, asset
sales, investments, mergers and reporting responsibilities.
The global credit facility is secured by a lien on, and a security
interest in, a portion of our U.S. proved oil and gas properties, related
assets, pledges of accounts receivable, and a pledge of 66% of the capital stock
of Canadian Forest. The global credit facility is also indirectly secured by
substantially all of the assets of Canadian Forest. We may increase the number
of properties that are pledged under the facility.
At June 30, 1999, the outstanding borrowings under the global credit
facility were $165,000,000 in the U.S. and $30,181,000 in Canada. At July 23,
1999, the outstanding borrowings were $174,700,000 in the U.S. and $30,044,000
in Canada, with an average effective interest rate of 6.74%. At July 23, 1999
Forest had also used the global credit facility for letters of credit in the
amount of $233,000 in the United States and $1,144,000 CDN in Canada.
-20-
<PAGE>
WORKING CAPITAL. Forest had a working capital deficit of approximately
$1,602,000 at June 30, 1999 compared to a surplus of approximately $348,000 at
December 31, 1998. Forest periodically reports working capital deficits at the
end of a period. Such working capital deficits are principally the result of
accounts payable for capitalized exploration and development costs. Settlement
of these payables is funded by cash flow from operations or, if necessary, by
drawdowns on long-term bank credit facilities. For cash management purposes,
drawdowns on the credit facilities are not made until the due dates of the
payables.
CASH FLOW. Historically, one of Forest's primary sources of capital
has been net cash provided by operating activities. Net cash provided by
operating activities decreased to $39,822,000 in 1999 compared to $57,079,000
in 1998. The 1999 period included working capital changes of $904,000,
whereas such changes amounted to $10,831,000 in 1998. We used $34,851,000 for
investing activities in 1999 compared to $304,781,000 in 1998. The 1998
period included the purchase of properties in the Louisiana Acquisition for
approximately $230,776,000. The 1999 capital expenditures were primarily for
exploration and development activities. Net cash used by financing activities
in 1999 was $5,930,000 compared to net cash provided of $242,920,000 in 1998.
The 1999 period included net repayments of bank borrowings of $102,629,000
and net proceeds of $98,825,000 from the issuance of the 10 1/2% Notes. The
1998 period included net bank borrowings of $168,852,000 and net proceeds of
$74,620,000 from the issuance of the 8 3/4% Notes.
CAPITAL EXPENDITURES. Expenditures for property acquisition,
exploration and development for the first six months of 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------
June 30, 1999 June 30, 1998
------------- -------------
(In Thousands)
<S> <C> <C>
Property acquisition costs:
Proved properties $ (1,169) 276,165
Undeveloped properties 79 43,933
--------- --------
(1,090) 320,098
Exploration costs:
Direct costs 27,813 34,419
Overhead capitalized 1,539 1,814
--------- --------
29,352 36,233
Development costs:
Direct costs 16,582 30,201
Overhead capitalized 2,523 2,196
--------- --------
19,105 32,397
--------- --------
$ 47,367 388,728
--------- --------
--------- --------
</TABLE>
-21-
<PAGE>
Forest's anticipated 1999 direct expenditures for exploration and
development are approximately $90,000,000. We intend to meet our 1999 capital
expenditure financing requirements using cash flows generated by operations,
sales of non-strategic assets and borrowings under existing lines of credit.
There can be no assurance, however, that we will have access to sufficient
capital to meet these capital requirements. The planned levels of capital
expenditures could be reduced if we experience lower than anticipated net cash
provided by operations or other liquidity needs or could be increased if we
experience increased cash flow or access additional sources of capital.
In addition, while Forest intends to continue a strategy of acquiring
reserves that meet our investment criteria, no assurance can be given that we
can locate or finance any property acquisitions.
LONG-TERM SALES CONTRACTS. A significant portion of Canadian Forest's
natural gas production is sold through the ProMark Netback Pool. At June 30,
1999 the ProMark Netback Pool had entered into fixed price contracts to sell
approximately 1.2 BCF of natural gas through the remainder of 1999 at an average
price of $2.69 CDN per MCF and approximately 5.4 BCF of natural gas in 2000 at
an average price of approximately $2.24 CDN per MCF. Canadian Forest, as one of
the producers in the ProMark Netback Pool, is obligated to deliver a portion of
this gas. In 1998 Canadian Forest supplied 27% of the gas for the Netback Pool.
HEDGING PROGRAM. In a typical swap agreement, Forest 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, Forest pays the difference. Our current swaps are settled on a monthly
basis. As of July 23, 1999 Forest had the following swaps in place:
<TABLE>
<CAPTION>
Natural Gas Oil
------------------------- --------------------------
Average Average
BBTU's Hedged Price Barrels Hedged Price
per Day per MMBTU per Day per BBL
------- ------------ ------- ------------
<S> <C> <C> <C> <C>
July through September 1999 89.7 $ 2.20 8,505 $ 16.80
October through December 1999 69.6 $ 2.29 5,679 $ 16.28
2000 30.9 $ 2.39 166 $ 19.44
2001 21.7 $ 2.45 - $ -
2002 16.7 $ 2.48 - $ -
</TABLE>
YEAR 2000 ISSUES. The Year 2000 issue results from computer programs
being written using two digits (rather than four) to define the applicable year.
As a result, certain of Forest's computer applications that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This situation could result in system failure, miscalculations and
disruption of operations including, among other things, a temporary inability to
process transactions, operate equipment with date-sensitive computer controls or
communicate electronically with other parties.
Forest has instituted a Year 2000 Project that addresses the effects
the Year 2000 will have on software applications and analyzes upgrades and
purchases that may be required. In addition, the Year 2000 Project assesses the
potential impact on Forest in the event that other parties with whom we do
business do not implement systems which are Year 2000 compliant.
We commenced our Year 2000 Project in 1996, in conjunction with a
review of the functionality of the hardware and software in certain existing
systems. Replacement of the lease and land system with Year 2000 compliant
software was completed in early 1997. Review of systems solutions for our
primary business applications, including those used for accounting, production
reporting and oil and gas reserve reporting, was completed during 1997 and early
1998. Possible solutions explored by Forest included modification of existing
systems to make them Year 2000 compliant, replacement of existing systems with
new systems which were Year 2000 compliant and/or provided greater functionality
and, in certain areas, replacement of systems by outsourcing processes to a
third party.
-22-
<PAGE>
Forest completed its review of accounting systems in early 1998,
deciding to replace its U.S. accounting system with a new system that will be
Year 2000 compliant and also provide greater functionality. The identification
of necessary enhancements to the base product was completed in mid-1998, after
which the programming and data conversion processes commenced. In Canada, we
plan to upgrade to a newer release of our existing oil and gas accounting
software in order to be Year 2000 compliant. We expect to be fully operational
on our new accounting systems in the U.S. and Canada in the third quarter of
1999.
We are also installing an updated version of our U.S. production
accounting software. The new version is Year 2000 compliant and also provides
greater functionality. Installation of this software commenced in mid-1998.
Completion of this project, which also requires updated interface programming to
the accounting and reserve systems, was substantially completed in the second
quarter of 1999. The Company does not use an automated production reporting
system in Canada.
Forest's U.S. oil and gas reserve software will also be updated to a
version that is Year 2000 compliant. This upgrade, which requires some revision
to interface programming, is expected to be complete by the third quarter of
1999. In Canada, we installed new oil and gas reserve software that is Year 2000
compliant.
The new systems described above are expected to make Forest's business
computer systems Year 2000 compliant in all material respects during the third
quarter of 1999. Remaining business systems have also been reviewed for Year
2000 compliance. To date, no significant instances of noncompliance have been
noted.
During the course of the projects described above, there have been and
will continue to be significant time requirements placed on Forest's managers
and staff in the affected areas. Wherever possible, we have contracted
additional personnel to supplement programming efforts and to "backfill"
critical positions so that normal workflow is not adversely affected. However,
the ability of Forest's information technology staff to respond to new issues is
expected to be hampered during the remainder of the year due to the difficulty
encountered in attracting and retaining qualified personnel.
A Year 2000 Steering Committee was formed in early 1998 consisting of
representatives from the Finance, Accounting, Legal, Operations and Information
Systems disciplines. Based on the Committee's recommendations, Forest entered
into contracts with several consultants to provide additional support to our
efforts to ensure Year 2000 compliance. In the U.S., a national consulting firm
was engaged to assist in the identification, classification and itemization of
Year 2000 issues not previously identified. This effort encompassed a review of
all field operations (operated and non-operated), significant vendor and
customer relationships and business systems not included in the projects
described above. The consulting firm has also been assisting Forest personnel in
the assessment and remediation of Year 2000 issues. The consultants commenced
their work in November 1998 and expect to complete the project in the third
quarter of 1999. Canadian Forest has engaged a consultant to review its business
systems and has retained outside legal counsel to provide support to management
in the review of third party relationships.
Forest believes that its Year 2000 project is approximately 90%
complete as of July 1999.
The internal and external costs associated with implementation of
business systems for accounting, production reporting and oil and gas reserve
reporting during 1998 and 1999 are expected to be between $2,500,000 and
$3,000,000. Of this amount, approximately 20% to 30% would have been required to
make our old systems Year 2000 compliant, and the remainder is for upgraded
hardware and software. The cost of the reviews being undertaken by outside
consultants contracted by the Year 2000 Steering Committee in the U.S. and
Canada is expected to be $200,000 to $300,000. The remediation cost of
non-compliant items noted in such reviews is not expected to exceed $300,000.
Forest believes that a failure to complete Year 2000 compliance, or a
failure by parties with whom Forest has material relationships to complete Year
2000 compliance, could have a material adverse effect on our financial condition
and results of operations. We believe we can provide the resources necessary to
ensure Year 2000 compliance prior to 2000, and thereby reduce the possibility of
significant interruptions of normal business operations. We also believe that a
sufficient number of alternate customers and suppliers exist if current
customers or suppliers are delayed in their efforts to achieve Year 2000
compliance.
-23-
<PAGE>
Forest has not, to date, implemented a Year 2000 Contingency Plan
because we believe all major issues have been resolved or will be resolved. If,
however, any remaining portions of Forest's Year 2000 Project fall behind
schedule, we would expect to develop and implement contingency plans addressing
non-compliant items in the third quarter of 1999.
RECENT ACCOUNTING PRONOUNCEMENT. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities (Statement No.133),
effective beginning with the first quarter of fiscal years beginning after
June 15, 2000. Statement No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Company has not determined the
impact Statement No. 133 will have on its financial statements and believes that
such determination will not be meaningful until closer to the date of initial
adoption.
-24-
<PAGE>
PART II. OTHER INFORMATION
ITEM 2c. RECENT SALE OF UNREGISTERED SECURITIES
There were no sales of unregistered securities during the second
quarter of 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
* Exhibit 4.1 Amendment No. 1 dated as of June 24, 1999 to
the Fourth Amended and Restated Credit
Agreement dated as of March 4, 1999 between
Forest Oil Corporation and Subsidiary
Guarantors and The Chase Manhattan Bank, as
agent.
* Exhibit 27 Financial Data Schedule.
* Filed with this report.
(b) Reports on Form 8-K
The following report on Form 8-K was filed by Forest during the
first quarter of 1999:
<TABLE>
<CAPTION>
Date of Report Item Reported Financial Statements Filed
-------------- ------------- ---------------------------------
<S> <C> <C>
January 22, 1999 Item 5, 7 Condensed Pro Forma Combined
Statement of Operations of
Forest Oil Corporation for the
year ended December 31, 1998.
</TABLE>
There were no reports on Form 8-K filed by Forest during the second
quarter of 1999.
-25-
<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: July 30, 1999 /s/ Joan C. Sonnen
---------------------------------------------------
Joan C. Sonnen
Vice President - Controller and Corporate Secretary
(Signed on behalf of the registrant)
/s/ David H. Keyte
---------------------------------------------------
David H. Keyte
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
-26-
<PAGE>
EXECUTION COUNTERPART
AMENDMENT NO. 1
AMENDMENT NO. 1 dated as of June 24, 1999 (this AMENDMENT NO.1) between: FOREST
OIL CORPORATION, a corporation duly organized and validly existing under the
laws of the State of New York (the "COMPANY"); CANADIAN FOREST OIL LTD., a
corporation duly organized and validly existing under the laws of the Province
of Alberta, Canada ("CANADIAN FOREST OIL"); each of the SUBSIDIARY BORROWERS
identified under the heading "SUBSIDIARY BORROWERS" on the signature pages
hereto and each Subsidiary of Canadian Forest Oil that becomes a Canadian
Borrower pursuant to Section 9.16 of the Credit Agreement (as defined below)
(individually, a "SUBSIDIARY BORROWER" and collectively, the "SUBSIDIARY
BORROWERS", and together with Canadian Forest Oil, the "CANADIAN BORROWERS");
each of the Subsidiaries of the Company that becomes a guarantor pursuant to
Section 9.16 of the Credit Agreement (individually, a "SUBSIDIARY GUARANTOR"
and, collectively, the "SUBSIDIARY GUARANTORS"); each of the lenders that is a
signatory hereto identified under the caption "U.S. BANKS" on the signature
pages hereto (including, without limitation, the New Banks referred to below) or
which, pursuant to Section 12.06(b) of the Credit Agreement, shall become a
"U.S. Bank" thereunder (individually, a "U.S. BANK" and, collectively, the "U.S.
BANKS"); each of the lenders that is a signatory hereto identified under the
caption "CANADIAN BANKS" on the signature pages hereto or which, pursuant to
Section 12.06(b) of the Credit Agreement, shall become a "Canadian Bank" under
the Credit Agreement (individually, a "CANADIAN BANK" and, collectively, the
"CANADIAN BANKS", and together with the U.S. Banks, the "BANKS" and
individually, a "BANK"); THE CHASE MANHATTAN BANK, as global administrative
agent for the Banks (in such capacity, together with its successors in such
capacity, the "GLOBAL ADMINISTRATIVE AGENT") and as lead arranger and sole book
manager (in such capacity, together with its successors in such capacity, the
"ARRANGER"); SALOMON BROTHERS HOLDING COMPANY INC, as syndication agent for the
Banks (in such capacity, together with its successors in such capacity, the
"SYNDICATION AGENT"); CHRISTIANIA BANK OG KREDITKASSE and SOCIETE GENERALE,
SOUTHWEST AGENCY, as co-agents for the U.S. Banks (each in such capacity,
together with their respective successors in such capacity, a "CO-AGENT" and
together with the Global Administrative Agent, the "U.S. CO-AGENTS"); THE CHASE
MANHATTAN BANK OF CANADA, as administrative agent for the Canadian Banks (in
such capacity, together with its successors in such capacity, the "CANADIAN
AGENT"); and BANK OF MONTREAL, as documentation agent for the Banks (in such
capacity, together with its successors in such capacity, the "DOCUMENTATION
AGENT") and as co-agent for the Canadian Banks (in such capacity, together with
its successors in such capacity, the "CANADIAN CO-AGENT" and together with the
Canadian Agent, the "CANADIAN CO-AGENTS" and together with the U.S. Co-Agents,
the Documentation Agent and the Syndication Agent, the "AGENTS" and
individually, an "AGENT").
WHEREAS
(A) The Company, Canadian Forest Oil, the Subsidiary Borrowers, the Subsidiary
Guarantors, the Banks (other than the New Banks), the U.S. Co-Agents and the
Canadian Agent are parties to a Fourth Amended and Restated Credit Agreement
dated as of March 4, 1999 (as in effect on the date hereof, the "CREDIT
AGREEMENT"), providing, subject to the terms and conditions thereof, for
extensions of credit to be made by said Banks to the Company and the Canadian
Borrowers in an aggregate principal or face amount not exceeding $300,000,000.
Page 1
<PAGE>
(B) Each of Salomon Brothers Holding Company Inc and General Electric Capital
Corporation (each, a "NEW BANK" and collectively, the "NEW BANKS") wishes to
become a party to the Credit Agreement, as amended hereby, as a "U.S. Bank"
thereunder.
(C) Certain of the Banks wish to increase or reduce their Commitments in
accordance with Annex I attached hereto.
(D) Certain of the Banks wish to terminate their Commitments and are executing
this Amendment No. 1 solely for purposes of obtaining the acknowledgement of the
Company and the Canadian Borrowers of such termination and to evidence such
termination.
(E) The Company and Canadian Forest Oil wish to obtain a waiver of Section 9.05
of the Credit Agreement from the Banks to the extent necessary with respect to
the reconveyance by the Company of all of its Hydrocarbon Properties in Canada
to Canadian Forest Oil pursuant to one or more petroleum, natural gas and
general rights conveyances by the Company in favor of Canadian Forest Oil.
(F) The Combined Supermajority Banks and the Company have requested the Global
Administrative Agent to redetermine the Borrowing Base in accordance with
Section 1.03(d) of the Credit Agreement.
(G) The Company contributed all of the capital stock of Saxon Petroleum Inc.
(SAXON) to Canadian Forest Oil, making it a wholly-owned direct Subsidiary of
Canadian Forest Oil; Saxon had been previously designated as an Unrestricted
Subsidiary, but has been redesignated as a Restricted Subsidiary and has
amalgamated with Canadian Forest Oil, with Canadian Forest Oil being the
continuing corporation.
(H) The Company, Canadian Forest Oil, the Subsidiary Borrowers, the Subsidiary
Guarantors, the Banks and the Agents wish to amend the Credit Agreement in
certain other respects, and accordingly, the parties hereto hereby agree as
follows:
Section 1. DEFINITIONS. Except as otherwise defined in this Amendment No.1,
terms defined in the Credit Agreement are used herein as defined therein.
Section 2. AMENDMENTS. Subject to the satisfaction of the conditions precedent
set forth in Section 5 below, the Credit Agreement shall be amended as follows
effective immediately on the date hereof upon the execution and delivery of this
Amendment No.1 by the parties hereto:
A. References in the Credit Agreement to "this Agreement" (and
indirect references such as "hereunder", "hereby", "herein" and "hereof") and
the "Notes" shall be deemed to be references to the Credit Agreement, as amended
hereby and as the same may from time to time be further amended or supplemented,
and to the Notes (including the New Notes under and as defined in Section
5(B)(1) hereof), respectively.
B. The New Banks shall each be deemed to be a "U.S. Bank" (and
hence, for the avoidance of doubt, a "Bank") under and for all purposes of the
Credit Agreement, as amended hereby, and each reference therein to "U.S. Bank"
or "Bank" shall be deemed to include each of the New Banks.
C. Each reference in the Credit Agreement to "U.S. Agent" is amended
to read "Global Administrative Agent".
Page 2
<PAGE>
D. Each of the lenders that is a signatory hereto identified under
the caption "U.S. BANKS" on the signature pages hereto shall be deemed to be, as
of the date hereof, a "U.S. Bank" under and for all purposes of the Credit
Agreement, as amended hereby, and each lender which is identified under the
caption "EXITING U.S. BANKS" on the signature pages hereto shall, as of the date
hereof, cease to be a U.S. Bank (an "EXITING U.S. BANK") under and for all
purposes of the Credit Agreement, as amended hereby upon the payment in full by
the Company of all U.S. Loans, U.S. Letter of Credit Liabilities and all other
fees, expenses and indemnities owing by the Company to such Banks and each such
Exiting U.S. Bank shall have its Commitment reduced to zero and cease to have
any liabilities or obligations hereunder or under the Credit Agreement.
E. Each of the lenders that is a signatory hereto identified under
the caption "CANADIAN BANKS" on the signature pages hereto shall be deemed to
be, as of the date hereof, a "Canadian Bank" under and for all purposes of the
Credit Agreement, as amended hereby, and the lender which is identified under
the caption "EXITING CANADIAN BANK" on the signature pages hereto shall, as of
the date hereof, cease to be a Canadian Bank (an "EXITING CANADIAN BANK") under
and for all purposes of the Credit Agreement, as amended hereby upon the payment
in full by the Canadian Borrowers of all Canadian Obligations and all other
fees, expenses and indemnities owing by the Canadian Borrowers to such Exiting
Canadian Bank and such Bank shall have its Commitment reduced to zero and cease
to have any liabilities or obligations under the Credit Agreement.
F. The first paragraph of the recitals to the Credit Agreement
setting out the parties thereto is deleted in its entirety and the following
paragraph shall be substituted therefor:
"FOREST OIL CORPORATION, a corporation duly organized and validly existing
under the laws of the State of New York (the "COMPANY"); CANADIAN FOREST
OIL LTD., a corporation duly organized and validly existing under the laws
of the Province of Alberta, Canada ("CANADIAN FOREST OIL"); each of the
SUBSIDIARY BORROWERS identified under the heading "SUBSIDIARY BORROWERS" on
the signature pages hereto and each Subsidiary of Canadian Forest Oil that
becomes a Canadian Borrower pursuant to Section 9.16 hereof (individually,
a "SUBSIDIARY BORROWER" and collectively, the "SUBSIDIARY BORROWERS", and
together with Canadian Forest Oil, the "CANADIAN BORROWERS" and
individually, a "CANADIAN BORROWER" and together with the Company, the
"BORROWERS" and individually, a "BORROWER"); each of the Subsidiaries of
the Company that becomes a guarantor pursuant to Section 9.16 hereof
(individually, a "SUBSIDIARY GUARANTOR" and, collectively, the "SUBSIDIARY
GUARANTORS" and, together with the Company and the Canadian Borrowers, the
"OBLIGORS" and individually, an "OBLIGOR"); each of the lenders that is a
signatory hereto identified under the caption "U.S. BANKS" on the signature
pages hereto or which, pursuant to Section 12.06(b) hereof, shall become a
"U.S. Bank" hereunder (individually, a "U.S. BANK" and, collectively, the
"U.S. BANKS"); each of the lenders that is a signatory hereto identified
under the caption "CANADIAN BANKS" on the signature pages hereto or which,
pursuant to Section 12.06(b) hereof, shall become a "Canadian Bank"
hereunder (individually, a "CANADIAN BANK" and, collectively, the "CANADIAN
BANKS", and together with the U.S. Banks, the "BANKS" and individually, a
"BANK"); THE CHASE MANHATTAN BANK, as global administrative agent for the
Banks (in such capacity, together with its successors in such capacity, the
"GLOBAL ADMINISTRATIVE AGENT") and as lead arranger and sole book manager
(in such capacity,
Page 3
<PAGE>
together with its successors in such capacity, the "ARRANGER"); SALOMON
BROTHERS HOLDING COMPANY INC, as syndication agent for the Banks (in such
capacity, together with its successors in such capacity, the "SYNDICATION
AGENT"); CHRISTIANIA BANK OG KREDITKASSE and SOCIETE GENERALE, SOUTHWEST
AGENCY, as co-agents for the U.S. Banks (each in such capacity, together
with the respective successors in such capacity, a "CO-AGENT" and together
with the Global Administrative Agent, the "U.S. CO-AGENTS"); THE CHASE
MANHATTAN BANK OF CANADA, as administrative agent for the Canadian Banks
(in such capacity, together with its successors in such capacity, the
"CANADIAN AGENT"); and BANK OF MONTREAL, as documentation agent for the
Banks (in such capacity, together with its successors in such capacity, the
"DOCUMENTATION AGENT") and as co-agent for the Canadian Banks (in such
capacity, together with its successors in such capacity, the "CANADIAN
CO-AGENT" and together with the Canadian Agent, the "CANADIAN CO-AGENTS"
and together with the U.S. Co-Agents, the Documentation Agent and the
Syndication Agent, the "AGENTS" and individually, an "AGENT")."
G. Section 1.01 of the Credit Agreement is amended by adding the
following defined term:
""FACILITY AGENTS" has the meaning specified in Section 11.05 hereof."
H. The reference in Section 2.01(a)(i) of the Credit Agreement to
"U.S.$275,000,000" is amended to read "U.S.$250,000,000."
I. The reference in Section 2.01(b)(i) of the Credit Agreement to
"U.S.$25,000,000" is amended to read "U.S.$50,000,000."
J. Each reference in Section 2.11 of the Credit Agreement to
"U.S.$25,000,000" is amended to read "U.S.$50,000,000" and each reference in
such Section to "U.S.$225,000,000" is amended to read "U.S.$200,000,000".
K. Section 2.11(b) of the Credit Agreement is amended by adding the
following after the phrase "by an amount in proportion to its Commitment
Percentage" in the 15th line thereof:
"; PROVIDED that notwithstanding any provision of this Agreement to the
contrary, no such increase or decrease shall become effective until the
Company or the Canadian Borrowers, as applicable, have reduced the U.S.
Loans and U.S. Letter of Credit Liabilities or the Canadian Obligations, as
the case may be, to an amount not in excess of the revised Allocated U.S.
Borrowing Base or Canadian Borrowing Base, as applicable."
L. Section 8.16 of the Credit Agreement is amended by inserting the
word "Restricted" in front of the word "Subsidiary" in the first line thereof.
M. Section 11.04 of the Credit Agreement is deleted in its entirety
and the following shall be substituted therefor:
"11.04 RIGHTS AS A BANK. With respect to its Commitment, the Loans made
by it, its Letters of Credit Interest and the Bankers' Acceptances held by
it, each of Chase (and any successor acting as Global Administrative Agent
or Arranger), Christiania Bank OG
Page 4
<PAGE>
Kreditkasse and Societe Generale, Southwest Agency, as U.S. Co-Agents (and
any successor acting as a U.S. Co-Agent), Chase Canada and Bank of Montreal
(and any successor acting as a Canadian Co-Agent or as successor to Bank of
Montreal as Documentation Agent), and Salomon Brothers Holding Company Inc
(and any successor acting as Syndication Agent), in its capacity as a Bank
hereunder shall have the same rights and powers hereunder as any other Bank
and may exercise the same as though it were not acting as such Agent, and
the term "U.S. Bank", "U.S. Banks", "Canadian Bank", "Canadian Banks",
"Relevant Bank", "Relevant Banks", "Bank" or "Banks" shall, unless the
context otherwise indicates, include each Agent, as applicable, in its
individual capacity. Each of Chase (and any successor acting as Global
Administrative Agent or Arranger), Christiania Bank OG Kreditkasse and
Societe Generale, Southwest Agency, as U.S. Co-Agents (and any successor
acting as a U.S. Co-Agent), Chase Canada and Bank of Montreal (and any
successor acting as a Canadian Co-Agent or as successor to Bank of Montreal
as Documentation Agent), Salomon Brothers Holding Company Inc (and any
successor acting as Syndication Agent) and their respective affiliates may
(without having to account therefor to any Bank) accept deposits from, lend
money to, make investments in and generally engage in any kind of banking,
trust or other business with the Obligors (and any of their Subsidiaries or
Affiliates) as if it were not acting as such Agent, and Chase, Christiania
Bank OG Kreditkasse, Societe Generale, Southwest Agency, Chase Canada, Bank
of Montreal, Salomon Brothers Holding Company Inc and their respective
affiliates may accept fees and other consideration from the Obligors for
services in connection with this Agreement or otherwise without having to
account for the same to the Banks."
N. Section 11.05 of the Credit Agreement is deleted in its entirety
and the following shall be substituted therefor:
"11.05 INDEMNIFICATION. The U.S. Banks agree to indemnify the U.S.
Co-Agents, the Canadian Banks agree to indemnify the Canadian Co-Agents and
each of the Banks agrees to indemnify the Syndication Agent and the
Documentation Agent (the "FACILITY AGENTS") (in each case, to the extent
not reimbursed under Sections 12.03 and 12.07 hereof, but without limiting
the obligations of the Borrowers under said Sections 12.03 and 12.07, and
including in any event any payments under any indemnity that either U.S.
Co-Agent is required to issue to any bank referred to in Section 4.02 of
the Security Agreement to which remittances in respect of Accounts, as
defined therein, are to be made), in the case of the U.S. Co-Agents,
ratably in accordance with the aggregate Principal Amount of the U.S. Loans
and U.S. Reimbursement Obligations held by the U.S. Banks (or, if no U.S.
Loans or U.S. Reimbursement Obligations are at the time outstanding,
ratably in accordance with their respective U.S. Commitments or, if no U.S.
Loans, U.S. Reimbursement Obligations or U.S. Commitments are at the time
outstanding or in effect, ratably in accordance with their respective U.S.
Commitments as most recently in effect), (collectively, for the purposes of
this section the "U.S. OBLIGATIONS"), in the case of the Canadian Agent,
ratably in accordance with the Equivalent Amount in U.S. Dollars of the
aggregate Principal Amount of the Canadian Loans and Canadian Reimbursement
Obligations and Bankers' Acceptances held by the Canadian Banks (or, if no
Canadian Loans, Canadian Reimbursement Obligations or Bankers' Acceptances
are at the time outstanding, ratably in accordance with their respective
Canadian Commitments or, if no Canadian Loans, Canadian Reimbursement
Obligations, Bankers' Acceptances or Canadian Commitments are at the time
outstanding or in effect, ratably in accordance with their respective
Canadian Commitments as most recently in effect), (collectively for the
purposes of this Section,
Page 5
<PAGE>
the "CANADIAN OBLIGATIONS") and, in the case of the Facility Agents,
ratably in accordance with the Equivalent Amount in U.S. Dollars of the
aggregate of the U.S. Obligations and Canadian Obligations held by each
Bank for any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind and
nature whatsoever that may be imposed on, incurred by or asserted against
such Agent (including by any Bank) arising out of or by reason of any
investigation in or in any way relating to or arising out of this Agreement
or any other Basic Document or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or
thereby (including, without limitation, the costs and expenses that the
Borrowers are obligated to pay under Sections 12.03 and 12.07 hereof, and
including also any payments under any indemnity that the U.S. Co-Agents, or
either of them is required to issue to any bank referred to in Section 4.02
of the Security Agreement to which remittances in respect of Accounts, as
defined therein, are to be made, but excluding, unless a Default has
occurred and is continuing, normal administrative costs and expenses
incident to the performance of its agency duties hereunder) or the
enforcement of any of the terms hereof or thereof or of any such other
documents, PROVIDED that no Bank shall be liable for any of the foregoing
to the extent they arise from the gross negligence or willful misconduct of
the party to be indemnified."
O. Section 11.08 of the Credit Agreement is deleted in its entirety and
the following shall be substituted therefor:
"11.08 RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment
and acceptance of a successor Agent as provided below, any Agent may resign
at any time by giving notice thereof to the U.S. Banks, the other U.S.
Co-Agents and the Company, in the case of a U.S. Co-Agent, to the Canadian
Banks, the other Canadian Co-Agent and the Canadian Borrowers, in the case
of a Canadian Co-Agent, and, in the case of the Facility Agents, to each
Bank, each other Agent, the Company and the Canadian Borrowers and any
Agent may be removed at any time with or without cause by the Majority U.S.
Banks, in the case of a U.S. Co-Agent, the Majority Canadian Banks, in the
case of a Canadian Co-Agent and the Combined Majority Banks in the case of
a Facility Agent. Upon any such resignation or removal, the Majority U.S.
Banks shall have the right to appoint a successor U.S. Co-Agent, the
Majority Canadian Banks shall have the right to appoint a successor
Canadian Co-Agent and the Combined Majority Banks shall have the right to
appoint a successor Facility Agent. If no successor Agent shall have been
so appointed by the Majority U.S. Banks, the Majority Canadian Banks or the
Combined Majority Banks, as the case may be, and shall have accepted such
appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Majority U.S. Banks', Majority Canadian Banks' or the
Combined Majority Banks (as the case may be) removal of the retiring Agent,
then the retiring Agent may, on behalf of the U.S. Banks, in the case of
retiring U.S. Co-Agent, the Canadian Banks, in the case of a retiring
Canadian Co-Agent, or the Banks, in the case of a retiring Facility Agent,
appoint (i) in the case of the U.S. Co-Agent, a successor U.S. Co-Agent,
that shall be a bank which has an office in New York, New York with a
combined capital and surplus of at least U.S.$1,000,000,000, (ii) in the
case of the Canadian Co-Agent, a successor Canadian Co-Agent, that shall be
a bank that has an office in Toronto or Calgary, Canada with a combined
capital and surplus of at least C$75,000,000, provided that no such
successor shall be required if there remains at least one U.S. Co-Agent or
Canadian Co-Agent or (iii) in the case of a Facility Agent, a successor to
such Facility Agent that shall be a bank that has an office in New York,
New York, Toronto, Canada
Page 6
<PAGE>
or Calgary, Canada that has a combined capital and surplus of at least
U.S.$1,000,000,000. Until the acceptance of any appointment as U.S.
Co-Agent, Canadian Co-Agent, or Facility Agent, as the case may be,
hereunder by a successor U.S. Co-Agent, Canadian Co-Agent or Facility
Agent, as the case may be, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring U.S. Co-Agent, Canadian Co-Agent, or Facility Agent, as the case
may be, and such retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation or removal
hereunder as U.S. Co-Agent, Canadian Co-Agent, or Facility Agent, as the
case may be, the provisions of this Section 11 shall continue in effect for
its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as such Agent."
P. Section 11.11 of the Credit Agreement is deleted in its entirety
and the following shall be substituted therefor:
"11.11 CO-AGENTS. If at any time the Canadian Banks shall appoint more
than one agent under this Agreement or the other Loan Documents, all
references to "Canadian Agent" in this Section 11 shall be deemed to be a
reference to the "Canadian Co-Agents"."
Q. Annex I to the Credit Agreement shall be deleted in its entirety
and replaced with Annex I hereto.
R. Schedule III to the Credit Agreement is deleted in its entirety
and Schedule III to this Amendment No. 1 is hereby inserted in lieu thereof.
The Agents and the Banks hereby consent to the contribution by the Company of
all of the stock of Saxon to Canadian Forest Oil, the redesignation of Saxon as
a Restricted Subsidiary and the amalgamation of Saxon with Canadian Forest Oil.
Section 3. COMMITMENT FEE. Notwithstanding that the amendment of the
Commitments contemplated by Section 2(Q) hereof shall not become effective until
the satisfaction of the conditions precedent specified in Section 5 hereof, for
purposes of calculating the amount of commitment fee payable under Section 2.05
of the Credit Agreement, the Commitments of the New Banks shall be deemed to
have become effective immediately upon the execution of this Amendment No. 1 by
each of the Banks (including the New Banks).
Section 4. REPRESENTATIONS AND WARRANTIES. Each of the Obligors represents and
warrants to the Banks and the Agents that (unless specifically limited to an
earlier date) the representations and warranties set forth in Section 8 of the
Credit Agreement are true and complete on and as of the date hereof with the
same force and effect as if made on and as of such date, and as if each
reference in said Section 8 to "this Agreement" and "the Notes" included
reference to this Amendment No.1 and to the New Notes.
Section 5. CONDITIONS PRECEDENT. As provided in Section 2, the amendments to
the Credit Agreement set forth in said Section 2 shall become effective, as of
the date hereof, upon the satisfaction of the following conditions precedent:
A. EXECUTION BY ALL PARTIES. This Amendment No.1 shall have been
executed and delivered by each of the parties hereto.
Page 7
<PAGE>
B. DOCUMENTS. The Agents shall have received the following
documents, each of which shall be satisfactory to the Agents in form and
substance:
(1) NOTES. (i) The Company shall have delivered to the Global
Administrative Agent for each U.S. Bank whose U.S. Commitment is
increased or reduced pursuant to Section 2(Q) hereof (other than the
Exiting U.S. Banks), in exchange for the Note heretofore delivered to
such Bank pursuant to Section 2.08(a) of the Credit Agreement, a new
promissory note substantially in the form of Exhibit A-1 to the Credit
Agreement, dated the date of the Note being exchanged, payable to such
U.S. Bank in a Principal Amount equal to the amount of its
U.S. Commitment (as altered hereby) and otherwise duly completed and
shall have delivered to the Global Administrative Agent for each New
Bank a promissory note substantially in the form of Exhibit A-1 to the
Credit Agreement, dated the date of the Notes delivered pursuant to
Section 2.08(a) of the Credit Agreement, payable to the order of each
such New Bank in a Principal Amount equal to the amount of such Bank's
U.S. Commitment (as specified in Annex I hereto) and otherwise duly
completed; and (ii) each of the Canadian Borrowers shall have
delivered to the Canadian Agent for each Canadian Bank whose Canadian
Commitment is altered pursuant to Section 2(Q) hereof (other than the
Exiting Canadian Bank), in exchange for the Note heretofore delivered
to such Canadian Bank pursuant to Section 2.08(b) of the Credit
Agreement, a new promissory note substantially in the form of
Exhibit A-2 to the Credit Agreement, dated the date of the Note being
exchanged, payable to such Canadian Bank in a Principal Amount equal
to the amount of its Canadian Commitment (as altered hereby) and
otherwise duly completed.
Each of the promissory notes (a "NEW NOTE") delivered to the
Banks (including, without limitation, each New Bank) pursuant to
clauses (i) and (ii) above shall constitute a "Note" under the Credit
Agreement, as amended hereby.
(2) LOANS. (i) The Obligors shall have borrowed from, received
from or issued to the Banks, respectively, Loans, Letters of Credit or
Bankers' Acceptances (as the case may be), (ii) each of the Banks
shall have made to, issued to or received from the Obligors,
respectively, Loans, Letters of Credit or Bankers' Acceptances (as the
case may be), and (iii) the Obligors (notwithstanding the provisions
of Section 4.02 of the Credit Agreement requiring that prepayments be
made ratably in accordance with the Principal Amounts of the Loans
held by the Banks) shall have prepaid all U.S. Loans, U.S. Letter of
Credit Liabilities and the Canadian Obligations made by the U.S.
Exiting Banks and Canadian Exiting Bank; IN EACH CASE in such amounts
as shall be necessary, together with accrued interest and any other
amounts payable under the Credit Agreement, so that, after giving
effect to such payments, issuances and prepayments, the U.S. Loans,
U.S. Letter of Credit Liabilities and the Canadian Obligations shall
be held by the Banks pro rata in accordance with the respective
amounts of their Commitments (as set out in Annex I hereto).
(3) OBLIGOR CORPORATE DOCUMENTS. (i) A certificate of the
Secretary or Assistant Secretary of each Obligor other than Canadian
Forest Oil (A) that since March 4, 1999, there have been no changes to
the charter and by-laws (or
Page 8
<PAGE>
equivalent documents) of such Obligor and (B) as to all corporate
authority for such Obligor (including, without limitation, board of
director resolutions and evidence of the incumbency of officers) with
respect to the execution, delivery and performance of this Amendment
No.1 and the Credit Agreement as amended hereby and the extensions of
credit under the Credit Agreement as amended hereby, the New Notes
and each other document to be delivered by such Obligor from time to
time in connection with the Credit Agreement as amended hereby (and
each Bank and Agent may conclusively rely on such certificate until
it receives notice in writing from the relevant Obligor to the
contrary) and (ii) a certificate of the Secretary or Assistant
Secretary of Canadian Forest Oil certifying as to its Certificate and
Articles of Amalgamation and by-laws (or equivalent documents) and as
to the matters in clause (i)(B) above.
(4) OPINIONS OF COUNSEL TO THE OBLIGORS. (i) An opinion, dated
the date hereof, of Vinson & Elkins L.L.P., counsel to each of the
U.S. Obligors, substantially in the form of Exhibit C-1 hereto and
covering such other matters as any Agent or any Bank may reasonably
request (and the Company hereby instructs such counsel to deliver such
opinion to the Banks and the Agents), (ii) an opinion, dated the date
hereof, of Macleod Dixon, Canadian counsel of each of the Canadian
Borrowers, substantially in the form of Exhibit C-2 hereto and
covering such other matters as any Agent or any Bank may reasonably
request (and each Canadian Borrower hereby instructs such counsel to
deliver such opinion to the Banks and the Agents) and (iii) an
opinion, dated the date hereof, of the General Counsel of the Company,
substantially in the form of Exhibit C-3 hereto and covering such
other matters as any Agent or any Bank may reasonably request (and the
Company hereby instructs such General Counsel to deliver such opinion
to the Banks and the Agents).
(5) ALBERTA CERTIFICATE. A certificate from the Registrar of
Corporations of Alberta evidencing the amalgamation of Saxon Petroleum
Inc. and Canadian Forest Oil Ltd. as Canadian Forest Oil pursuant to
Section 178 of the Business Corporations Act (Alberta).
(6) OTHER DOCUMENTS. Such other documents as (i) any Agent or
Bank, (ii) Freshfields LLP, special New York counsel to Chase or
(iii) Burnet, Duckworth & Palmer, special Canadian counsel to Chase
Canada, may reasonably request.
C. TERMINATION OF SAXON FACILITY. Evidence that (i) the $40,000,000
Demand, Revolving Credit Facility (the "Saxon Facility") entered into
between Saxon and Bank of Montreal pursuant to the Letter Agreement dated
October 28, 1997 has been duly terminated as of the date hereof in form and
substance satisfactory to each Bank and Burnet, Duckworth & Palmer, special
Canadian counsel to Chase Canada and (ii) all Liens created pursuant to the
Saxon Facility have been terminated.
Section 6. DEEMED NOTICE TO COMPANY AND CANADIAN FOREST OIL. The Company and
Canadian Forest Oil hereby acknowledge that the execution and delivery of this
Amendment No.1 shall constitute notice in accordance with Section 1.03(d) of the
Credit Agreement that the Borrowing Base has been redetermined by the Combined
Supermajority Banks to be U.S.$250,000,000 and has been reallocated in
accordance with Section 2(J) above and that such
Page 9
<PAGE>
redetermined Borrowing Base shall become effective immediately upon the
effectiveness of this Amendment No.1.
Section 7. FEES; EXPENSES; BREAKAGE COSTS. (a) The U.S. Obligors agree to pay
all reasonable out-of-pocket costs and expenses of the Agents (including,
without limitation, the reasonable fees and expenses of (i) Freshfields LLP,
special New York counsel to Chase and (ii) Burnet, Duckworth & Palmer, special
Canadian counsel to Chase Canada) in connection with the negotiation,
preparation, execution and delivery of this Amendment No.1.
(b) The Company and the Canadian Borrowers agree jointly and severally to pay
all amounts required pursuant to Section 5.05 of the Credit Agreement as shall
be sufficient to compensate each Bank for any loss, cost or expense (including,
without limitation, cost of breakage and redeployment of funds) that such Bank
determines is attributable to (i) any payment, mandatory or optional prepayment
or Conversion made by an Obligor in respect of a Eurodollar Loan, BA Loan or a
Bankers' Acceptance, as the case may be, or (ii) any failure by the Company to
borrow a Eurodollar Loan from such Bank or by any Canadian Borrower to accept an
extension of credit under the Credit Agreement, in each case due to the
contemplated increases and decreases of U.S. Loans, U.S. Letter of Credit
Liabilities and Canadian Obligations, as applicable among the Banks, provided
for herein as if all such contemplated increases and decreases of U.S. Loans,
U.S. Letter of Credit Liabilities and Canadian Obligations became effective on
June 24, 1999.
Section 8. WAIVER OF SECTION 9.05 OF THE CREDIT AGREEMENT. Subject to the
satisfaction of the conditions precedent specified in Section 5 above, but with
effect on and after the date hereof, each of the Banks and Agents hereby waives
compliance by the Company and Canadian Forest with the terms of Section 9.05 of
the Credit Agreement but only to the extent necessary to permit the Company to
convey all of its Hydrocarbon Properties in Canada to Canadian Forest Oil
pursuant to one or more petroleum, natural gas and general rights conveyances by
the Company in favor of Canadian Forest Oil and each U.S. Bank authorizes the
Global Administrative Agent and the Canadian Agent to execute such documents and
agreements as are required to release the Property from any Lien granted by the
Company and subject such Property to the Lien of Canadian Security Documents.
Section 9. ACKNOWLEDGEMENT OF OBLIGORS. Each Obligor hereby (a) consents to
the amalgamation of Saxon and Canadian Forest Oil, (b) agrees that each
reference to the Credit Agreement and words of similar import in each Loan
Document to which such Obligor is party shall be a reference to the Credit
Agreement as amended by this Amendment No. 1, and (c) confirms that its
obligations (including, without limitation, with respect to the indebtedness,
obligations and liabilities of Canadian Forest Oil under the Loan Documents to
which Canadian Forest Oil was a party immediately prior to its amalgamation with
Saxon) under each Loan Document to which it is party remain in full force and
effect after giving effect both to the amalgamation of Saxon and Canadian Forest
Oil and the amendment of the Credit Agreement by this Amendment No. 1.
Section 10. MISCELLANEOUS. Except as herein provided, the Credit Agreement
shall remain unchanged and in full force and effect. This Amendment No.1 may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same amendatory instrument and any of the parties hereto
may execute this Amendment No.1 by signing any such counterpart. This Amendment
No.1 shall be governed by, and construed in accordance with, the law of the
State of New York.
Page 10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.1 to be
duly executed and delivered as of the day and year first above written.
FOREST OIL CORPORATION
By
--------------------
Title:
Page 11
<PAGE>
CANADIAN FOREST OIL LTD.
By
----------------------
Title:
Page 12
<PAGE>
SUBSIDIARY BORROWERS
PRODUCERS MARKETING LTD.
By
----------------------
Title:
Page 13
<PAGE>
CONFIRMED AND AGREED IN ITS CAPACITY AS OBLIGOR AS
PROVIDED IN SECTION 9 HEREOF:
3189503 CANADA LTD.
By
----------------------------
Title:
Page 14
<PAGE>
U.S. BANKS
THE CHASE MANHATTAN BANK
By
----------------------------
Title:
Page 15
<PAGE>
SALOMON BROTHERS HOLDING COMPANY INC
By
----------------------------
Title:
Page 16
<PAGE>
CHRISTIANIA BANK OG
KREDITKASSE
By
----------------------------
Title:
Page 17
<PAGE>
SOCIETE GENERALE,
SOUTHWEST AGENCY
By
----------------------------
Title:
Page 18
<PAGE>
TORONTO DOMINION (TEXAS), INC.
By
----------------------------
Title:
Page 19
<PAGE>
HIBERNIA NATIONAL BANK
By
----------------------------
Title:
Page 20
<PAGE>
PARIBAS
By
----------------------------
Title:
By
----------------------------
Title:
Page 21
<PAGE>
GENERAL ELECTRIC CAPITAL
CORPORATION
By
----------------------------
Title:
Page 22
<PAGE>
CREDIT LYONNAIS NEW YORK
BRANCH
By
----------------------------
Title:
Page 23
<PAGE>
ROYAL BANK OF CANADA
By
----------------------------
Title:
Page 24
<PAGE>
EXITING U.S. BANKS
DEN NORSKE BANK ASA
By
----------------------------
Title:
By
----------------------------
Title:
Page 25
<PAGE>
BANK OF MONTREAL
By
----------------------------
Title:
Page 26
<PAGE>
CANADIAN BANKS
THE CHASE MANHATTAN BANK OF
CANADA
By
----------------------------
Title:
By
----------------------------
Title:
Page 27
<PAGE>
BANK OF MONTREAL
By
----------------------------
Title:
Page 28
<PAGE>
ROYAL BANK OF CANADA
By
----------------------------
Title:
Page 29
<PAGE>
EXITING CANADIAN BANK
CREDIT LYONNAIS CANADA
By
----------------------------
Title:
By
----------------------------
Title:
Page 30
<PAGE>
THE CHASE MANHATTAN BANK,
as Global Administrative Agent and Arranger
By
----------------------------
Title:
Page 31
<PAGE>
SALOMON BROTHERS HOLDING
COMPANY INC
as Syndication Agent
By
----------------------------
Title:
Page 32
<PAGE>
BANK OF MONTREAL,
as Canadian Co-Agent and
Documentation Agent
By
----------------------------
Title:
Page 33
<PAGE>
CHRISTIANIA BANK OG
KREDITKASSE,
as U.S. Co-Agent
By
----------------------------
Title:
Page 34
<PAGE>
SOCIETE GENERALE,
SOUTHWEST AGENCY,
as U.S. Co-Agent
By
----------------------------
Title:
Page 35
<PAGE>
THE CHASE MANHATTAN BANK
OF CANADA,
as Canadian Agent
By
----------------------------
Title:
By
----------------------------
Title:
Page 36
<PAGE>
ANNEX I
Banks and Commitments
<TABLE>
<CAPTION>
U.S. Banks U.S. Commitments
- ---------- ----------------
<S> <C>
The Chase Manhattan Bank U.S.$40,000,000
Salomon Brothers Holding Company Inc U.S.$40,000,000
Christiania Bank OG Kreditkasse U.S.$35,000,000
Societe Generale, Southwest Agency U.S.$35,000,000
Toronto Dominion (Texas), Inc. U.S.$25,000,000
Hibernia National Bank U.S.$20,000,000
Paribas U.S.$15,000,000
Credit Lyonnais New York Branch U.S.$15,000,000
General Electric Capital Corporation U.S.$15,000,000
Royal Bank of Canada U.S.$10,000,000
<CAPTION>
Canadian Banks Canadian Commitments
- -------------- --------------------
<S> <C>
Bank of Montreal U.S.$40,000,000
The Chase Manhattan Bank Of Canada U.S.$5,000,000
Royal Bank of Canada U.S.$5,000,000
</TABLE>
Page 37
<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 12 OF THE COMPANY'S FORM 10-Q FOR THE SIX MONTH PERIOD ENDING JUNE 30,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,413
<SECURITIES> 0
<RECEIVABLES> 53,754
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 60,466
<PP&E> 2,092,196
<DEPRECIATION> 1,425,716
<TOTAL-ASSETS> 758,960
<CURRENT-LIABILITIES> 62,068
<BONDS> 502,671
0
0
<COMMON> 4,465
<OTHER-SE> 168,243
<TOTAL-LIABILITY-AND-EQUITY> 758,960
<SALES> 177,939
<TOTAL-REVENUES> 177,939
<CGS> 107,554
<TOTAL-COSTS> 115,535
<OTHER-EXPENSES> 37,752
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,064
<INCOME-PRETAX> 3,588
<INCOME-TAX> (905)
<INCOME-CONTINUING> 4,493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,493
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
