<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 _____
<TABLE>
<CAPTION>
Number of Shares
Outstanding
Title of Class of Common Stock April 30, 2000
- ------------------------------ ----------------
<S> <C>
Common Stock, Par Value $.10 Per Share 53,544,028
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
FOREST OIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ----------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 96 3,155
Accounts receivable 70,580 64,719
Other current assets 3,702 3,484
---------- ----------
Total current assets 74,378 71,358
Net property and equipment, at cost 703,947 697,616
Goodwill and other intangible assets, net 21,527 22,092
Other assets 8,641 8,986
---------- ----------
$ 808,493 800,052
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 61,378 72,589
Accrued interest 3,057 10,105
Other current liabilities 2,114 3,481
---------- ----------
Total current liabilities 66,549 86,175
Long-term debt 391,802 371,680
Other liabilities 14,065 14,262
Deferred income taxes 9,221 8,951
Shareholders' equity:
Common stock 5,388 5,381
Capital surplus 722,386 721,832
Accumulated deficit (386,118) (396,007)
Accumulated other comprehensive loss (11,534) (11,774)
Treasury stock, at cost (3,266) (448)
---------- ----------
Total shareholders' equity 326,856 318,984
---------- ----------
$ 808,493 800,052
========== ==========
</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 March 31,
----------------------------
2000 1999
---------- -------------
(In Thousands Except Production
and Per Share Amounts)
<S> <C> <C>
PRODUCTION
Natural gas (mmcf) 13,896 16,994
========== =============
Oil, condensate and natural gas liquids (thousands of barrels) 1,026 1,056
========== =============
STATEMENTS OF CONSOLIDATED OPERATIONS
Revenue:
Marketing and processing $ 44,002 40,332
Oil and gas sales:
Gas 35,158 32,962
Oil, condensate and natural gas liquids 19,351 9,884
---------- -------------
Total oil and gas sales 54,509 42,846
---------- -------------
Total revenue 98,511 83,178
Operating expenses:
Marketing and processing 43,048 39,471
Oil and gas production 9,671 11,265
General and administrative 3,633 4,098
Depreciation and depletion 22,111 22,599
---------- -------------
Total operating expenses 78,463 77,433
---------- -------------
Earnings from operations 20,048 5,745
Other income and expense:
Other income, net (96) (3,238)
Interest expense 9,076 10,657
Translation loss (gain) on subordinated debt 713 (2,216)
---------- -------------
Total other income and expense 9,693 5,203
---------- -------------
Earnings before income taxes 10,355 542
Income tax expense (benefit):
Current 165 (159)
Deferred 301 251
---------- -------------
466 92
---------- -------------
Net earnings $ 9,889 450
---------- -------------
Weighted average number of common shares outstanding 53,697 44,648
========== =============
Basic and diluted earnings per common share $ .18 .01
========== =============
</TABLE>
See accompanying notes to condensed consolidated statements.
-2-
<PAGE>
FOREST OIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
---------- ----------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 9,889 450
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and depletion 22,111 22,599
Amortization of deferred debt costs 370 280
Translation loss (gain) on subordinated debt 713 (2,216)
Deferred income tax expense 301 251
Other, net 660 (2,964)
Decrease (increase) in accounts receivable (6,426) 5,372
Decrease (increase) in other current assets 179 (2,350)
Decrease in accounts payable (10,791) (1,066)
Decrease in accrued interest and other current liabilities (8,694) (8,946)
---------- ----------
Net cash provided by operating activities 8,312 11,410
Cash flows from investing activities:
Capital expenditures for property and equipment (29,501) (19,962)
Proceeds from sales of assets 1,405 12,296
Increase in other assets, net (495) (715)
---------- ----------
Net cash used by investing activities (28,591) (8,381)
Cash flows from financing activities:
Proceeds from bank borrowings 38,206 43,112
Repayments of bank borrowings (18,000) (145,943)
Issuance of 10 1/2% senior subordinated notes, net of issuance costs - 98,561
Redemption of 11 1/4% senior subordinated notes - (45)
Proceeds from the exercise of options 36 -
Purchase of treasury stock (2,818) -
Increase (decrease) in other liabilities, net (196) 86
---------- ----------
Net cash provided (used) by financing activities 17,228 (4,229)
Effect of exchange rate changes on cash (8) (33)
---------- ----------
Net decrease in cash and cash equivalents (3,059) (1,233)
Cash and cash equivalents at beginning of period 3,155 3,415
---------- ----------
Cash and cash equivalents at end of period $ 96 2,182
========== ==========
Cash paid (refunded) during the period for:
Interest $ 15,712 9,398
Income taxes $ (1,099) 218
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements included herein are
unaudited. In the opinion of management, all adjustments, consisting of normal
recurring accruals, have been made which are necessary for a fair presentation
of the financial position of Forest at March 31, 2000 and the results of
operations for the three months ended March 31, 2000 and 1999. 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 of Forest, and related notes thereto, filed
with Forest's annual report on Form 10-K for the year ended December 31, 1999,
previously filed with the Securities and Exchange Commission.
The components of total comprehensive earnings for the periods consist of
net earnings, foreign currency translation and changes in the unfunded pension
liability and are as follows:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 31, March 31,
2000 1999
--------- ---------
(In Thousands)
<S> <C> <C>
Net earnings $ 9,889 450
Other comprehensive net earnings (loss) 240 (381)
--------- ---------
Total comprehensive net earnings $ 10,129 69
========= =========
</TABLE>
(2) NET PROPERTY AND EQUIPMENT
Components of net property and equipment are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ---------
(In Thousands)
<S> <C> <C>
Oil and gas properties $ 2,178,891 2,154,514
Buildings, transportation and
other equipment 17,637 14,593
----------- -----------
2,196,528 2,169,107
Less accumulated depreciation,
depletion and valuation allowance (1,492,581) (1,471,491)
----------- -----------
$ 703,947 697,616
=========== ===========
</TABLE>
-4-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(3) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets recorded in the acquisition of
Producers Marketing Ltd. (ProMark), the Company's Canadian gas marketing
subsidiary, consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
(In Thousands)
<S> <C> <C>
Goodwill $ 15,815 15,873
Gas marketing contracts 13,798 13,848
----------- -----------
29,613 29,721
Less accumulated amortization (8,086) (7,629)
----------- -----------
$ 21,527 22,092
=========== ===========
</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
twelve years.
(4) LONG-TERM DEBT
Components of long-term debt are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
(In Thousands)
<S> <C> <C>
Global Credit Facility:
U.S. borrowings $ 52,800 39,500
Canadian borrowings 40,014 33,235
8 3/4% Senior Subordinated Notes 199,979 199,978
10 1/2% Senior Subordinated Notes 99,009 98,967
----------- -----------
$ 391,802 371,680
=========== ===========
</TABLE>
The 8 3/4% Senior Subordinated Notes (the 8 3/4% Notes) were issued by
Forest's wholly owned subsidiary, Canadian Forest Oil Ltd. (Canadian Forest),
and are guaranteed on a senior subordinated basis by Forest. 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 change in
the value of the Canadian dollar relative to the U.S. dollar during the first
quarter of 2000, Forest reported a noncash translation loss of approximately
$713,000, compared to a gain of $2,216,000 in the first quarter of 1999.
(5) EARNINGS 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
convertible preferred stock, stock options and warrants. The effect of
potentially dilutive securities is based on earnings (loss) before extraordinary
items.
-5-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(5) EARNINGS PER SHARE, CONTINUED
The following sets forth the calculation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
2000 (1) 1999 (2)
---------- ---------
(In Thousands Except
Per Share Amounts)
<S> <C> <C>
Net earnings available to common shareholders $ 9,889 450
Weighted average common shares outstanding
during the period 53,697 44,648
Add dilutive effects of employee stock options 265 -
---------- ---------
Weighted average common shares outstanding
including the effects of dilutive securities 53,962 44,648
========== =========
Basic earnings per share $ .18 .01
========== =========
Diluted earnings per share $ .18 .01
========== =========
</TABLE>
(1) At March 31, 2000, options to purchase 2,505,000 shares of common stock at
prices ranging from $9.31 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 period. These options expire at various
dates from 2000 through 2010.
(2) At March 31, 1999, options to purchase 3,057,000 shares of common stock at
prices ranging from $7.44 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 period. These options expire at various
dates from 2000 through 2009.
-6-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(6) 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 MARCH 31, 2000
Oil and Gas Operations
-------------------------------------------------------- Marketing
Offshore Onshore Western Total and
Gulf of Gulf United United Processing Total
Mexico Coast States States Canada Total Canada Company
-------- ------- -------- -------- -------- -------- -------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 20,971 12,031 8,109 41,111 13,606 54,717 43,794 98,511
Marketing and processing expense - - - - - - 43,048 43,048
Oil and gas production expense 2,453 3,256 1,297 7,006 2,665 9,671 - 9,671
General and administrative expense 719 913 582 2,214 1,039 3,253 380 3,633
Depreciation and depletion expense 9,430 5,339 2,281 17,050 4,215 21,265 500 21,765
-------- ------- -------- -------- -------- -------- -------- -------
Earnings (loss) from operations $ 8,369 2,523 3,949 14,841 5,687 20,528 (134) 20,394
======== ======= ======== ======== ======== ======== ======== =======
Capital expenditures $ 6,443 2,214 3,130 11,787 15,808 27,595 - 27,595
======== ======= ======== ======== ======== ======== ======== =======
Property and equipment, net $111,842 273,831 101,010 486,683 188,268 674,951 - 674,951
======== ======= ======== ======== ======== ======== ======== =======
</TABLE>
Information for Forest's reportable segments relates to the Company's March 31,
2000 consolidated totals as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
EARNINGS BEFORE INCOME TAXES:
Earnings from operations for reportable segments $ 20,394
Administrative asset depreciation (346)
Other income, net 96
Interest expense (9,076)
Translation loss on subordinated debt (713)
----------
Earnings before income taxes $ 10,355
==========
CAPITAL EXPENDITURES:
Reportable segments $ 27,595
International interests 1,619
Administrative assets and other 287
----------
Total capital expenditures $ 29,501
==========
PROPERTY AND EQUIPMENT, NET:
Reportable segments $ 674,951
International interests 23,634
Administrative assets, net and other 5,362
----------
Total property and equipment, net $ 703,947
==========
</TABLE>
-7-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(6) BUSINESS AND GEOGRAPHICAL SEGMENTS, CONTINUED
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
Oil and Gas Operations
-------------------------------------------------------- Marketing
Offshore Onshore Western Total and
Gulf of Gulf United United Processing Total
Mexico Coast States States Canada Total Canada Company
-------- ------- -------- -------- -------- -------- -------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 20,262 7,435 6,927 34,624 8,331 42,955 40,223 83,178
Marketing and processing expense - - - - - - 39,471 39,471
Oil and gas production expense 3,084 4,368 1,421 8,873 2,392 11,265 - 11,265
General and administrative expense 1,271 875 571 2,717 729 3,446 652 4,098
Depreciation and depletion expense 12,140 3,728 2,099 17,967 3,897 21,864 465 22,329
-------- ------- -------- -------- -------- -------- -------- -------
Earnings (loss) from operations $ 3,767 (1,536) 2,836 5,067 1,313 6,380 (365) 6,015
======== ======= ======== ======== ======== ======== ======== =======
Capital expenditures $ 2,367 5,951 1,164 9,482 9,793 19,275 - 19,275
======== ======= ======== ======== ======== ======== ======== =======
Property and equipment, net $117,809 263,147 102,235 483,191 154,103 637,294 - 637,294
======== ======= ======== ======== ======== ======== ======== =======
</TABLE>
Information for Forest's reportable segments relates to the Company's March 31,
1999 consolidated totals as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
LOSS BEFORE INCOME TAXES:
Earnings from operations for reportable segments $ 6,015
Administrative asset depreciation (270)
Other income, net 3,238
Interest expense (10,657)
Translation gain on subordinated debt 2,216
----------
Loss before income taxes $ 542
==========
CAPITAL EXPENDITURES:
Reportable segments $ 19,275
International interests 208
Administrative assets and other 479
----------
Total capital expenditures $ 19,962
==========
PROPERTY AND EQUIPMENT, NET:
Reportable segments $ 637,294
International interests 14,643
Administrative assets, net and other 5,995
----------
Total property and equipment, net $ 657,932
==========
</TABLE>
-8-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(6) SUPPLEMENTAL GUARANTOR INFORMATION
Canadian Forest is the issuer of the 8 3/4% Notes (see Note 6). ProMark,
which is a wholly owned subsidiary of Canadian Forest, is a subsidiary
guarantor of the 8 3/4% Notes. The 8 3/4% Notes are unconditionally
guaranteed on a senior subordinated basis by Forest. The indenture executed
in connection with the 8 3/4% Notes does not place significant restrictions
on a subsidiary's ability to make distributions to the parent.
The Company has not presented separate financial statements and other
disclosures concerning Canadian Forest or ProMark because management has
determined that such information is not material to holders of the 8 3/4% Notes;
however, the following condensed consolidating financial information is being
provided as of March 31, 2000 and December 31, 1999 and for the three months
ended March 31, 2000 and March 31, 1999. Investments in subsidiaries are
accounted for on the cost basis. Earnings or losses of subsidiaries are
therefore not reflected in the related investment accounts. The principal
eliminating entries eliminate investments in subsidiaries and intercompany
balances.
-9-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(6) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
MARCH 31, 2000
<TABLE>
<CAPTION>
Canadian Producers Consolidated
Forest Oil Forest Oil Marketing Eliminating Forest Oil
Corporation Ltd. Ltd. Entries Corporation
----------- ---------- --------- ----------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 637 (593) 52 - 96
Accounts receivable 38,488 12,301 19,791 - 70,580
Other current assets 2,321 (1,225) 2,606 - 3,702
----------- ---------- --------- ----------- ------------
Total current assets 41,446 10,483 22,449 - 74,378
Intercompany receivables - 15,170 - (15,170) -
Net property and equipment,
at cost, full cost method 520,362 183,482 103 - 703,947
Goodwill and other intangible
assets, net - - 21,527 - 21,527
Intercompany investments 34,315 25,713 - (60,028) -
Other assets 5,579 3,062 - - 8,641
----------- ---------- --------- ----------- ------------
$ 601,702 237,910 44,079 (75,198) 808,493
=========== ========== ========= =========== ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,689 13,379 18,310 - 61,378
Accrued interest 2,273 784 - - 3,057
Other current liabilities 1,923 191 - - 2,114
----------- ---------- --------- ----------- ------------
Total current liabilities 33,885 14,354 18,310 - 66,549
Intercompany payables 12,723 - 2,447 (15,170) -
Long-term debt 151,809 239,993 - - 391,802
Other liabilities 13,819 246 - - 14,065
Deferred income taxes - 21,243 (12,022) - 9,221
Shareholders' equity:
Common stock 5,388 34,315 25,265 (59,580) 5,388
Capital surplus 722,386 - - - 722,386
Accumulated deficit (331,957) (65,691) 11,530 - (386,118)
Accumulated other
comprehensive loss (3,533) (6,550) (1,451) - (11,534)
Treasury stock, at cost (2,818) - - (448) (3,266)
----------- ---------- --------- ----------- ------------
Total shareholders' equity 389,466 (37,926) 35,344 (60,028) 326,856
----------- ---------- --------- ----------- ------------
$ 601,702 237,910 44,079 (75,198) 808,493
=========== ========== ========= =========== ============
</TABLE>
-10-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(6) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Canadian Producers Consolidated
Forest Oil Forest Oil Marketing Eliminating Forest Oil
Corporation Ltd. Ltd. Entries Corporation
----------- ---------- --------- ----------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Revenue:
Marketing and processing $ 208 - 43,794 - 44,002
Oil and gas sales:
Gas 29,336 4,828 994 - 35,158
Oil, condensate and
natural gas liquids 10,901 8,450 - - 19,351
----------- ---------- --------- ----------- ------------
Total oil and gas sales 40,237 13,278 994 - 54,509
----------- ---------- --------- ----------- ------------
Total revenue 40,445 13,278 44,788 - 98,511
Expenses:
Marketing and processing - - 43,048 - 43,048
Oil and gas production 7,006 2,589 76 - 9,671
General and administrative 2,214 1,039 380 - 3,633
Depreciation and depletion 17,335 3,948 828 - 22,111
----------- ---------- --------- ----------- ------------
Total operating expenses 26,555 7,576 44,332 - 78,463
----------- ---------- --------- ----------- ------------
Earnings from operations 13,890 5,702 456 - 20,048
Other income and expense:
Other (income) expense, net (76) (5,591) 5,230 341 (96)
Interest expense 3,930 5,146 341 (341) 9,076
Translation loss on
subordinated debt - 713 - - 713
----------- ---------- --------- ----------- ------------
Total other income and
expense 3,854 268 5,571 - 9,693
----------- ---------- --------- ----------- ------------
Earnings (loss) before income taxes
and extraordinary item 10,036 5,434 (5,115) - 10,355
Income tax expense (benefit):
Current - 137 28 - 165
Deferred - 19,584 (19,283) - 301
----------- ---------- --------- ----------- ------------
- 19,721 (19,255) - 466
----------- ---------- --------- ----------- ------------
Net earnings (loss) $ 10,036 (14,287) 14,140 - 9,889
=========== ========== ========= =========== =============
</TABLE>
-11-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(6) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Canadian Producers Consolidated
Forest Oil Forest Oil Marketing Forest Oil
Corporation Ltd. Ltd. Corporation
----------- ---------- --------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net loss before extraordinary item $ 10,036 (14,287) 14,140 9,889
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and depletion 17,335 3,948 828 22,111
Amortization of deferred debt costs 268 102 - 370
Translation loss on subordinated notes - 713 - 713
Deferred income tax expense (benefit) - 19,584 (19,283) 301
Other, net 532 130 (2) 660
Decrease (increase) in accounts receivable (1,516) (5,352) 442 (6,426)
Decrease (increase) in other current assets (93) 287 (15) 179
Increase (decrease) in accounts payable (12,103) (990) 2,302 (10,791)
Increase in accrued interest and other
current liabilities (3,908) (4,786) - (8,694)
----------- ---------- --------- ----------
Net cash provided (used) by operating
activities 10,551 (651) (1,588) 8,312
Cash flows from investing activities:
Capital expenditures for property and
equipment (13,642) (15,859) - (29,501)
Proceeds from sale of assets (16) 1,421 - 1,405
Increase in other assets, net (495) - - (495)
----------- ---------- --------- ----------
Net cash used by investing activities (14,153) (14,438) - (28,591)
Cash flows from financing activities:
Proceeds from bank borrowings 31,300 6,906 - 38,206
Repayments of bank borrowings (18,000) - - (18,000)
Proceeds from the exercise of options and
stock issued for compensation 36 - - 36
Purchase of treasury stock (2,818) - - (2,818)
Decrease in other liabilities, net (105) (91) - (196)
----------- ---------- --------- ----------
Net cash provided by financing activities 10,413 6,815 - 17,228
Intercompany advances, net (9,797) 8,025 1,772 -
Effect of exchange rate changes on cash (7) (1) - (8)
----------- ---------- --------- ----------
Net increase (decrease) in cash and cash equivalents (2,993) (250) 184 (3,059)
Cash and cash equivalents at beginning of year 3,630 (343) (132) 3,155
----------- ---------- --------- ----------
Cash and cash equivalents at end of year $ 637 (593) 52 96
=========== ========== ========= ==========
</TABLE>
-12-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(6) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Canadian Producers Consolidated
Forest Oil Forest Oil Marketing Eliminating Forest Oil
Corporation Ltd. Ltd. Entries Corporation
----------- ---------- --------- ----------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,630 (343) (132) - 3,155
Accounts receivable 36,972 4,921 22,826 - 64,719
Other current assets 2,228 1,176 80 - 3,484
----------- ---------- --------- ----------- ------------
Total current assets 42,830 5,754 22,774 - 71,358
Intercompany receivables 226 65,646 - (65,872) -
Net property and equipment,
at cost, full cost method 523,540 121,196 52,880 - 697,616
Goodwill and other intangible
assets, net - - 22,092 - 22,092
Intercompany investments 24,315 25,713 - (50,028) -
Other assets 5,810 3,176 - - 8,986
----------- ---------- --------- ----------- ------------
$ 596,721 221,485 97,746 (115,900) 800,052
=========== ========== ========= =========== ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,792 14,733 16,064 - 72,589
Accrued interest 4,844 5,261 - - 10,105
Other current liabilities 3,260 221 - - 3,481
----------- ---------- --------- ----------- ------------
Total current liabilities 49,896 20,215 16,064 - 86,175
Intercompany payables 12,746 - 53,126 (65,872) -
Long-term debt 138,467 233,213 - - 371,680
Other liabilities 13,924 338 - - 14,262
Deferred income taxes - 1,714 7,237 - 8,951
Shareholders' equity
Common stock 5,381 24,315 25,265 (49,580) 5,381
Capital surplus 721,832 - - - 721,832
Accumulated deficit (341,993) (51,404) (2,610) - (396,007)
Accumulated other
comprehensive loss (3,532) (6,906) (1,336) - (11,774)
Treasury stock, at cost - - - (448) (448)
----------- ---------- --------- ----------- ------------
Total shareholders' equity 381,688 (33,995) 21,319 (50,028) 318,984
----------- ---------- --------- ----------- ------------
$ 596,721 221,485 97,746 (115,900) 800,052
=========== ========== ========= =========== ============
</TABLE>
-13-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(6) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Canadian Producers Consolidated
Forest Oil Forest Oil Marketing Eliminating Forest Oil
Corporation Ltd. Ltd. Entries Corporation
----------- ---------- --------- ----------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Revenue:
Marketing and processing $ 109 - 40,223 - 40,332
Oil and gas sales:
Gas 28,693 4,269 - - 32,962
Oil, condensate and
natural gas liquids 5,822 4,062 - - 9,884
----------- ---------- --------- ----------- ------------
Total oil and gas sales 34,515 8,331 - - 42,846
----------- ---------- --------- ----------- ------------
Total revenue 34,624 8,331 40,223 - 83,178
Expenses:
Marketing and processing - - 39,471 - 39,471
Oil and gas production 8,873 2,392 - - 11,265
General and administrative 2,717 729 652 - 4,098
Depreciation and depletion 18,123 3,991 485 - 22,599
----------- ---------- --------- ----------- ------------
Total operating expenses 29,713 7,112 40,608 - 77,433
----------- ---------- --------- ----------- ------------
Earnings (loss) from operations 4,911 1,219 (385) - 5,745
Other income and expense:
Other income, net (821) (3,318) (901) 1,802 (3,238)
Interest expense 6,504 4,968 987 (1,802) 10,657
Translation gain on
subordinated debt - (2,216) - - (2,216)
----------- ---------- --------- ----------- ------------
Total other income and
expense 5,683 (566) 86 - 5,203
----------- ---------- --------- ----------- ------------
Earnings (loss) before income taxes (772) 1,785 (471) - 542
Income tax expense (benefit):
Current - (219) 60 - (159)
Deferred - 396 (145) - 251
----------- ---------- --------- ----------- ------------
- 177 (85) - 92
----------- ---------- --------- ----------- ------------
Net earnings (loss) $ (772) 1,608 (386) - 450
=========== ========== ========= =========== ============
</TABLE>
-14-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(6) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Canadian Producers Consolidated
Forest Oil Forest Oil Marketing Forest Oil
Corporation Ltd. Ltd. Corporation
----------- ---------- --------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net earnings (loss) before extraordinary item $ (772) 1,608 (386) 450
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and depletion 18,123 3,991 485 22,599
Amortization of deferred debt costs 182 98 - 280
Translation gain on subordinated notes - (2,216) - (2,216)
Deferred income tax expense (benefit) - 396 (145) 251
Other, net (506) (2,457) (1) (2,964)
Decrease (increase) in accounts receivable 5,124 (1,885) 2,133 5,372
Decrease (increase) in other current assets (1,934) 647 (1,063) (2,350)
Increase (decrease) in accounts payable (6,222) 6,592 (1,436) (1,066)
Increase (decrease) in accrued interest and
other current liabilities (992) (8,792) 838 (8,946)
----------- ---------- --------- -----------
Net cash provided (used) by operating
activities 13,003 (2,018) 425 11,410
Cash flows from investing activities:
Capital expenditures for property and
equipment (10,164) (9,798) - (19,962)
Proceeds from sale of assets 5,122 7,174 - 12,296
Increase in other assets, net (715) - - (715)
----------- ---------- --------- -----------
Net cash used by investing activities (5,757) (2,624) - (8,381)
Cash flows from financing activities:
Proceeds from bank borrowings 28,200 14,912 - 43,112
Repayments of bank borrowings (119,300) (26,643) - (145,943)
Issuance of 10 1/2% senior subordinated
notes, net of issuance costs 98,561 - - 98,561
Redemption of 11 1/4% senior
subordinated notes (45) - - (45)
Increase (decrease) in other liabilities, net 147 (61) - 86
----------- ---------- --------- -----------
Net cash provided (used) by financing
activities 7,563 (11,792) - (4,229)
Intercompany advances, net (15,489) 15,489 - -
Effect of exchange rate changes on cash (3) (30) - (33)
----------- ---------- --------- -----------
Net increase (decrease) in cash and cash equivalents (683) (975) 425 (1,233)
Cash and cash equivalents at beginning of year 3,713 (33) (265) 3,415
----------- ---------- --------- -----------
Cash and cash equivalents at end of year $ 3,030 (1,008) 160 2,182
=========== ========== ========= ===========
</TABLE>
-15-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto.
FORWARD-LOOKING STATEMENTS
Certain of the statements set forth in this Form 10-Q, such as the
statements regarding planned capital expenditures and the availability of
capital resources to fund capital expenditures, are forward-looking and are
based 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 2000 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 our 1999 Annual Report on Form
10-K.
RESULTS OF OPERATIONS FOR THE FIRST QUARTER OF 2000
Net earnings for the first quarter of 2000 were $9,889,000 or $.18 per
basic and diluted common share compared to $450,000 or $.01 per basic and
diluted common share in the corresponding period of 1999. The current period
included a noncash loss on currency translation of $713,000 related to
subordinated debt issued by a Canadian subsidiary. The 1999 period included a
noncash gain on currency translation of $2,216,000. Exclusive of currency
translation, net earnings for the first quarter of 2000 amounted to $10,602,000
compared to a net loss of $1,766,000 in the corresponding 1999 period.
Marketing and processing revenue increased 9% to $44,002,000 in the first
quarter of 2000 from $40,332,000 in the first quarter of 1999, while related
marketing and processing expense increased 9% to $43,048,000 compared to
$39,471,000 in the same period of the previous year. The gross margin reported
for marketing and processing activities increased to $954,000 in the first
quarter of 2000 from $861,000 in the corresponding 1999 period. The increase
resulted from higher gas plant revenues.
Oil and gas sales revenue increased by 27% to $54,509,000 in the first
quarter of 2000 from $42,846,000 in the first quarter of 1999 due primarily to
higher oil and gas prices. Production volumes for natural gas and liquids
(consisting of oil, condensate and natural gas liquids) in the first quarter of
2000 decreased 14% from the comparable 1999 period, due primarily to
significantly higher production from Eugene Island Block 53 in the 1999 period.
The average sales prices received for natural gas and liquids in the first
quarter of 2000 increased 30% and 101%, respectively, compared to the average
sales price received in the corresponding 1999 period.
Oil and gas production expense of $9,671,000 in the first quarter of 2000
decreased 14% from $11,265,000 in the comparable period of 1999 primarily as a
result of fewer workovers and lower direct operating expense in the 2000 period.
On an MCFE basis (MCFE means thousands of cubic feet of natural gas equivalents,
using a conversion ratio of one barrel of oil to six MCF of natural gas),
production expense was $.48 per MCFE in the first quarter of 2000 and 1999.
-16-
<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 March 31, 2000
--------------------------------------------------------------------
Offshore Onshore Western Total
Gulf of Gulf United United Total
Mexico Coast States States Canada Company
-------- --------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
NATURAL GAS
Production (MMCF) 6,275 2,425 2,225 10,925 2,971 13,896
Sales price received (per MCF) $ 2.58 2.61 2.25 2.51 2.18 2.44
Effects of energy swaps (per MCF)(1) .09 .09 .08 .09 .08 .09
------- --------- -------- --------- -------- ---------
Average sales price (per MCF) $ 2.67 2.70 2.33 2.60 2.26 2.53
LIQUIDS
Oil and condensate:
Production (MBBLS) 203 218 31 452 273 725
Sales price received (per BBL) $ 27.19 28.41 29.00 27.91 24.57 26.66
Effects of energy swaps (per BBL)(1) (6.29) (6.57) (6.71) (6.46) (5.68) (6.17)
------- --------- -------- --------- -------- ---------
Average sales price (per BBL) $ 20.90 21.84 22.29 21.45 18.89 20.49
Natural gas liquids:
Production (MBBLS) - 43 146 189 112 301
Average sales price (per BBL) $ - 12.05 15.31 14.57 15.59 14.95
Total liquids production (MBBLS) 203 261 177 641 385 1,026
Average liquids sales price (per BBL) $ 20.90 20.23 16.53 19.42 17.93 18.86
TOTAL PRODUCTION:
Production volumes (MMCFE) 7,493 3,991 3,287 14,771 5,281 20,052
Average sales price (per MCFE) $ 2.80 2.97 2.46 2.76 2.57 2.72
Operating expense (per MCFE) .33 .82 .39 .47 .50 .48
------- --------- -------- --------- -------- ---------
Netback (per MCFE) $ 2.47 2.15 2.07 2.29 2.07 2.24
======= ========= ======== ========= ======== =========
</TABLE>
(1) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuations. Hedged natural gas volumes were 6,787 MMCF in
the three months ended March 31, 2000. Hedged oil and condensate volumes
were 642,000 barrels in the three months ended March 31, 2000. The
aggregate net loss under energy swap agreements was $3,285,000 for the
period and was accounted for as a decrease to oil and gas sales.
-17-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
--------------------------------------------------------------------
Offshore Onshore Western Total
Gulf of Gulf United United Total
Mexico Coast States States Canada Company
-------- --------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
NATURAL GAS
Production (MMCF) 8,272 2,621 2,718 13,611 3,383 16,994
Sales price received (per MCF) $ 1.83 1.70 1.71 1.78 1.28 1.68
Effects of energy swaps (per MCF)(1) .31 .42 .28 .33 (.02) .26
------- ------- ------- ------- ------- --------
Average sales price (per MCF) $ 2.14 2.12 1.99 2.11 1.26 1.94
LIQUIDS
Oil and condensate:
Production (MBBLS) 255 171 61 487 305 792
Sales price received (per BBL) $ 8.87 11.08 12.26 10.07 10.63 10.28
Effects of energy swaps (per BBL)(1) - .54 - .19 - .12
------- ------- ------- ------- ------- --------
Average sales price (per BBL) $ 8.87 11.62 12.26 10.26 10.63 10.40
Natural gas liquids:
Production (MBBLS) 1 39 112 152 112 264
Average sales price (per BBL) $ 10.00 7.21 4.77 5.43 7.33 6.23
Total liquids production (MBBLS) 256 210 173 639 417 1,056
Average liquids sales price (per BBL) $ 8.88 10.80 7.41 9.11 9.74 9.36
TOTAL PRODUCTION
Production volumes (MMCFE) 9,808 3,881 3,756 17,445 5,885 23,330
Average sales price (per MCFE) $ 2.04 2.02 1.78 1.98 1.42 1.83
Operating expense (per MCFE) .31 1.13 .38 .51 .41 .48
------- ------- ------- ------- ------- --------
Netback (per MCFE) $ 1.73 .89 1.40 1.47 1.01 1.35
======= ======= ======= ======= ======= ========
</TABLE>
(1) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuations. Hedged natural gas volumes were 8,565 MMCF in
the three months ended March 31, 1999. Hedged oil and condensate volumes
were 70,000 barrels in the three months ended March 31, 1999. The aggregate
net gain under energy swap agreements was $4,472,000 for the period and was
accounted for as an increase to oil and gas sales.
General and administrative expense decreased 11% to $3,633,000 in the
first quarter of 2000 compared to $4,098,000 in the comparable period of
1999. Total overhead costs (capitalized and expensed general and
administrative costs) were $6,514,000 in the first quarter of 2000 compared
to $6,295,000 in the comparable period of 1999. The increase was due
primarily to higher employee related costs, offset partially by an insurance
dividend in the 2000 period. The amount capitalized of $2,881,000 in the
first quarter of 2000 increased 31% from the corresponding 1999 period due
primarily to increased overhead costs and higher capitalization rates
associated with international projects.
-18-
<PAGE>
The following table summarizes the total overhead costs incurred during the
periods:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
------ ------
(In Thousands)
<S> <C> <C>
Overhead costs capitalized $2,881 2,197
General and administrative costs
expensed (1) 3,633 4,098
------ ------
Total overhead costs $6,514 6,295
====== ======
</TABLE>
(1) Includes $380,000 and $652,000 related to marketing and processing
operations for the three months ended March 31, 2000 and 1999,
respectively.
Depreciation and depletion expense decreased 2% to $22,111,000 in the first
quarter of 2000 from $22,599,000 in the first quarter of 1999. On a per-unit
basis, depletion expense was approximately $1.06 per MCFE in the first quarter
of 2000 compared to $.94 per MCFE in the corresponding 1999 period. The increase
in the depletion rate during 2000 is attributable to increased estimates of
future development costs in the current favorable price environment, as well
as to higher finding costs associated with 1999 projects.
Other income was $96,000 in the first quarter of 2000 compared to
$3,238,000 in the first quarter of 1999. The 1999 period includes a gain of
approximately $2,500,000 from the sale of gas processing facilities and a gain
of $780,000 on the sale of an investment.
Interest expense decreased 15% to $9,076,000 in the first quarter of 2000
compared to $10,657,000 in the corresponding 1999 period due primarily to lower
bank debt balances, offset partially by additional interest related to the
issuance of our 10 1/2% Notes.
The foreign currency translation loss was $713,000 in the first quarter of
2000 compared to a gain of $2,216,000 in the first quarter of 1999. 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 $.6899 per $1.00 U.S. at March 31,
2000 compared to $.6924 at December 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.
-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.
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. No prediction can be made as to the prices we will receive
for our future oil and gas production. Additionally, we have 5 offshore Gulf of
Mexico wells whose combined production currently represents approximately 26% of
our consolidated daily deliverability. Our production, revenue and cash flow
could be adversely affected if production from these properties decreases
significantly.
STOCK PURCHASE PROGRAMS. In March 2000 we announced a plan to purchase
shares of Forest's securities in the open market from time to time in a total
amount not to exceed $25,000,000. Pursuant to this plan, we purchased 305,000
shares of common stock at an average price of $9.25 per share in March 2000,
and in April 2000 we purchased approximately $5.0 million principal amount of
8 3/4% Notes at an average price of 92.6% of par value. We also announced a
stock buyback program pursuant to which we will purchase shares of Forest's
common stock from holders of fewer than 100 shares.
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 April 30, 2000
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, 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 proved oil and gas properties in the United States, 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 March 31, 2000, the outstanding borrowings under the global credit
facility were $52,800,000 in the United States and $40,014,000 in Canada. At
April 30, 2000, the outstanding borrowings were $58,000,000 in the United States
and $40,536,000 in Canada, with an average effective interest rate of 7.1%. At
April 30, 2000, Forest had also used the global credit facility for letters of
credit in the amount of $775,000 in the United States and $1,201,000 CDN in
Canada.
-20-
<PAGE>
WORKING CAPITAL. Forest had a working capital surplus of approximately
$7,829,000 at March 31, 2000 compared to a deficit of approximately $14,817,000
at December 31, 1999. The increase in the working capital is due primarily to a
decrease in payables related to exploration and development activities.
Periodically, Forest 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 $8,312,000 in the first quarter of 2000
compared to $11,410,000 in the first quarter of 1999. The 2000 period
included increased funds used for net working capital changes, offset
partially by higher net earnings. We used $28,591,000 for investing
activities in the first quarter of 2000 compared to $8,381,000 in the
corresponding period in 1999. Cash used in the 2000 period was greater than
cash used in the 1999 period due primarily to increased exploration and
development activities and lower proceeds from property sales. Net cash
provided by financing activities in the first quarter of 2000 was $17,228,000
compared to cash used of $4,229,000 in the first quarter of 1999. The 2000
period included $20,206,000 of net bank borrowings. The 1999 period included
net repayments of bank borrowings of $102,831,000 offset by net proceeds of
$98,561,000 from the issuance of the 10 1/2% Notes.
CAPITAL EXPENDITURES. Expenditures for property acquisition, exploration
and development for the first three months of 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
2000 1999
---------- ----------
(In Thousands)
<S> <C> <C>
Property acquisition costs:
Proved properties $ 77 (732)
Undeveloped properties 1 -
---------- ----------
78 (732)
Exploration costs:
Direct costs 8,992 11,666
Overhead capitalized 1,280 769
---------- ----------
10,272 12,435
Development costs:
Direct costs 17,263 6,384
Overhead capitalized 1,601 1,428
---------- ----------
18,864 7,812
---------- ----------
$ 29,214 19,515
========== ==========
</TABLE>
-21-
<PAGE>
Forest's anticipated capital expenditures for 2000 are approximately
$140,000,000, including capitalized overhead of approximately $10,000,000. We
intend to meet our 2000 capital expenditure financing requirements using cash
flows generated by operations, sales of non-strategic assets and, if
necessary, 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 March 31,
2000 the ProMark Netback Pool had entered into fixed price contracts to sell
approximately 4.0 BCF of natural gas through the remainder of 2000 at an average
price of $2.34 CDN per MCF and approximately 5.3 BCF of natural gas in 2001 at
an average price of approximately $2.43 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 1999 Canadian Forest supplied 34% of the gas for the Netback Pool.
In addition to its commitments to the ProMark Netback Pool, Canadian Forest
is committed to sell .3 BCF of natural gas during the remainder of 2000 at a
fixed price of approximately $3.18 CDN per MCF and .4 BCF of natural gas in 2001
at a fixed price of approximately $3.30 CDN per MCF.
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 May 1, 2000 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>
April through December 2000 58.8 $ 2.42 1,858 $ 20.40
2001 21.7 $ 2.45 - $ -
2002 16.7 $ 2.48 - $ -
</TABLE>
In addition, the Company utilizes collars that establish a price between a
floor and ceiling to hedge natural gas and oil prices. As of May 1, 2000 Forest
had the following collars in place:
<TABLE>
<CAPTION>
Natural Gas
-------------------------------------------------------------
Average Floor Average Ceiling
Price Price BBTU'S Per Day
------------- --------------- --------------
<S> <C> <C> <C>
April through December 2000 $ 2.75 $ 2.90 2.2
</TABLE>
<TABLE>
<CAPTION>
Oil
--------------------------------------------------------------
Average Floor Average Ceiling
Price Price Barrels Per Day
------------- --------------- ---------------
<S> <C> <C> <C>
April through December 2000 $ 18.19 $ 20.93 3,500
2001 $ 20.00 $ 25.00 500
</TABLE>
-22-
<PAGE>
The Company also uses basis swaps in connection with natural gas swaps to
fix the differential price between the NYMEX price and the index price at which
the hedged gas is sold. At May 1, 2000 there were basis swaps in place with
weighted average volumes of 36,435 MMBTU's per day during the remainder of 2000
and 18,315 MMBTU's per day in 2001.
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 30, 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.
-23-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
* 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 2000:
<TABLE>
<CAPTION>
Date of Report Item Reported Financial Statements Filed
----------------- ------------- --------------------------
<S> <C> <C>
February 15, 2000 Item 5, 7 None.
</TABLE>
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOREST OIL CORPORATION
(Registrant)
Date: May 15, 2000 /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)
-25-
<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 FINANCIAL STATEMENTS ON PAGES 1 THROUGH 15 OF THE
COMPANY'S FORM 10-Q FOR THE THREE MONTH PERIOD ENDING MARCH 31, 2000, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 96
<SECURITIES> 0
<RECEIVABLES> 70,580
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 74,378
<PP&E> 2,196,528
<DEPRECIATION> 1,492,581
<TOTAL-ASSETS> 808,493
<CURRENT-LIABILITIES> 66,549
<BONDS> 391,802
0
0
<COMMON> 5,388
<OTHER-SE> 321,468
<TOTAL-LIABILITY-AND-EQUITY> 808,493
<SALES> 98,511
<TOTAL-REVENUES> 98,511
<CGS> 52,719
<TOTAL-COSTS> 56,352
<OTHER-EXPENSES> 22,728
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,076
<INCOME-PRETAX> 10,355
<INCOME-TAX> 466
<INCOME-CONTINUING> 9,889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,889
<EPS-BASIC> .18
<EPS-DILUTED> .18
</TABLE>
