<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, 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 / /
Number of Shares
Outstanding
Title of Class of Common Stock July 31, 2000
------------------------------ -------------
Common Stock, Par Value $.10 Per Share 54,121,689
<PAGE>
PART I. FINANCIAL INFORMATION
FOREST OIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- -----------------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,826 3,155
Accounts receivable 78,711 64,719
Other current assets 8,503 3,484
---------- -------
Total current assets 94,040 71,358
Net property and equipment, at cost 715,537 697,616
Goodwill and other intangible assets, net 20,616 22,092
Other assets 9,151 8,986
---------- -------
$ 839,344 800,052
========== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 70,315 72,589
Accrued interest 9,972 10,105
Other current liabilities 2,626 3,481
---------- -------
Total current liabilities 82,913 86,175
Long-term debt 395,676 371,680
Other liabilities 13,857 14,262
Deferred income taxes 10,247 8,951
Shareholders' equity:
Common stock 5,412 5,381
Capital surplus 724,369 721,832
Accumulated deficit (378,852) (396,007)
Accumulated other comprehensive loss (11,012) (11,774)
Treasury stock, at cost (3,266) (448)
---------- -------
Total shareholders' equity 336,651 318,984
---------- -------
$ 839,344 800,052
========== =======
</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 Six Months Ended
------------------------ -----------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
--------- -------- -------- --------
<S> <C> <C> <C> <C>
(In Thousands Except Production and Per Share Amounts)
PRODUCTION
Natural gas (mmcf) 14,512 15,751 28,408 32,745
========== ====== ======= ======
Oil, condensate and natural gas
liquids (thousands of barrels) 1,003 1,118 2,029 2,174
========== ====== ======= ======
STATEMENTS OF CONSOLIDATED OPERATIONS
Revenue:
Marketing and processing $ 58,716 40,514 102,718 80,846
Oil and gas sales:
Gas 40,813 32,291 75,971 65,253
Oil, condensate and natural gas liquids 18,912 14,782 38,263 24,666
---------- ------ ------- ------
Total oil and gas sales 59,725 47,073 114,234 89,919
---------- ------ ------- ------
Total revenue 118,441 87,587 216,952 170,765
Operating expenses:
Marketing and processing 57,645 39,664 100,693 79,135
Oil and gas production 10,696 12,438 20,367 23,703
General and administrative 4,470 3,883 8,103 7,981
Depreciation and depletion 23,443 21,767 45,554 44,366
---------- ------ ------- ------
Total operating expenses 96,254 77,752 174,717 155,185
---------- ------ ------- ------
Earnings from operations 22,187 9,835 42,235 15,580
Other income and expense:
Other expense (income), net 310 683 214 (2,555)
Interest expense 9,448 10,407 18,524 21,064
Translation loss (gain) on subordinated debt 4,101 (4,301) 4,814 (6,517)
---------- ------ ------- ------
Total other income and expense 13,859 6,789 23,552 11,992
---------- ------ ------- ------
Earnings before income taxes and extraordinary item 8,328 3,046 18,683 3,588
Income tax expense (benefit):
Current 141 78 306 (81)
Deferred 1,113 (1,075) 1,414 (824)
---------- ------ ------- ------
1,254 (997) 1,720 (905)
---------- ------ ------- ------
Earnings before extraordinary item 7,074 4,043 16,963 4,493
Extraordinary item - gain on extinguishment of debt 192 - 192 -
---------- ------ ------- ------
Net earnings $ 7,266 4,043 17,155 4,493
========== ====== ======= ======
Weighted average number of common shares
outstanding 53,677 44,655 53,687 44,651
========== ====== ======= ======
Basic earnings per common share $ .14 .09 .32 .10
========== ====== ======= ======
Diluted earnings per common share $ .13 .09 .32 .10
========== ====== ======= ======
</TABLE>
See accompanying 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, June 30,
2000 1999
--------- --------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings before extraordinary item $ 16,963 4,493
Adjustments to reconcile net earnings before extraordinary item to
net cash provided by operating activities:
Depreciation and depletion 45,554 44,366
Amortization of deferred debt costs 740 610
Translation loss (gain) on subordinated debt 4,814 (6,517)
Deferred income tax expense 1,414 (824)
Other, net 558 (2,946)
Decrease (increase) in accounts receivable (18,081) 3,087
Increase in other current assets (1,680) (2,093)
Decrease in accounts payable (7,373) (381)
Increase in accrued interest and other current liabilities 4,877 291
--------- --------
Net cash provided by operating activities 47,786 40,086
Cash flows from investing activities:
Capital expenditures for property and equipment (73,609) (48,656)
Proceeds from sales of assets 7,234 14,781
Increase in other assets, net (1,464) (976)
--------- --------
Net cash used by investing activities (67,839) (34,851)
Cash flows from financing activities:
Proceeds from bank borrowings 71,757 66,151
Repayments of bank borrowings (42,024) (168,780)
Issuance of 10 1/2% senior subordinated notes, net of issuance costs - 98,561
Redemption of 8 3/4% senior subordinated notes (4,630) -
Redemption of 11 1/2% senior subordinated notes - (45)
Proceeds from the exercise of options 1,963 -
Purchase of treasury stock (2,818) -
Decrease in other liabilities, net (567) (2,081)
--------- --------
Net cash provided (used) by financing activities 23,681 (6,194)
Effect of exchange rate changes on cash 43 (43)
--------- --------
Net increase (decrease) in cash and cash equivalents 3,671 (1,002)
Cash and cash equivalents at beginning of period 3,155 3,415
--------- --------
Cash and cash equivalents at end of period $ 6,826 2,413
========= ========
Cash paid (refunded) during the period for:
Interest $17,763 23,286
Income taxes $(3,319) 470
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 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 June 30, 2000 and the results of
operations for the three and six month periods ended June 30, 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, 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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
-------- ----- ------ ------
(In Thousands)
<S> <C> <C> <C> <C>
Net earnings $ 7,266 4,043 17,155 4,493
Other comprehensive net
earnings (loss) 522 (881) 762 (1,262)
-------- ----- ------ ------
Total comprehensive
earnings $ 7,788 3,162 17,917 3,231
======== ===== ====== ======
</TABLE>
(2) NET PROPERTY AND EQUIPMENT
Components of net property and equipment are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(In Thousands)
<S> <C> <C>
Oil and gas properties $ 2,210,029 2,154,514
Buildings, transportation and
other equipment 18,006 14,593
------------ ----------
2,228,035 2,169,107
Less accumulated depreciation,
depletion and valuation allowance (1,512,498) (1,471,491)
------------ ----------
$ 715,537 697,616
============ ==========
</TABLE>
4
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(3) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets recorded in the acquisition of Producer's
Marketing Ltd. (ProMark), the Company's Canadian gas marketing subsidiary,
consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
(In Thousands)
<S> <C> <C>
Goodwill $ 15,491 15,873
Gas marketing contracts 13,518 13,848
---------- ------
29,009 29,721
Less accumulated amortization (8,393) (7,629)
---------- ------
$ 20,616 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 12
years.
(4) LONG-TERM DEBT
Components of long-term debt are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
(In Thousands)
<S> <C> <C>
Global Credit Facility:
U.S. borrowings $ 65,000 39,500
Canadian borrowings 36,499 33,235
8 3/4% Senior Subordinated Notes 195,125 199,978
10 1/2% Senior Subordinated Notes 99,052 98,967
---------- -------
$ 395,676 371,680
========== =======
</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 second
quarter and first six months of 2000, Forest reported noncash translation losses
of approximately $4,101,000 and $4,814,000, respectively, compared to noncash
translation gains of $4,301,000 and $6,517,000 in the second quarter and first
six months of 1999, respectively.
5
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(5) EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings
attributable to common stock by the weighted average number of common shares
outstanding during each period, excluding treasury shares.
Diluted earnings 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 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,
--------------------- -----------------
2000(1) 1999(2) 2000(3) 1999(2)
--------- ------- ------- ------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
Income before extraordinary item $ 7,074 4,043 16,963 4,493
Weighted average common shares outstanding
during the period 53,677 44,655 53,687 44,651
Add dilutive effects of employee stock options 773 348 522 96
--------- ------ ------ ------
Weighted average common shares outstanding
including the effects of dilutive securities 54,450 45,003 54,209 44,747
========= ====== ====== ======
Basic earnings per share before
extraordinary item $ .13 .09 .32 .10
========= ====== ====== ======
Diluted earnings per share before
extraordinary item $ .13 .09 .32 .10
========= ====== ====== ======
</TABLE>
(1) At June 30, 2000, options to purchase 1,118,000 shares of common stock at
prices ranging from $13.65 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 2002 through 2010.
(2) 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 2002 through 2008.
(3) At June 30, 2000, options to purchase 1,231,000 shares of common stock at
prices ranging from $11.65 to $25.00 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 2002 through 2010.
6
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(6) BUSINESS AND GEOGRAPHICAL SEGMENTS
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, 2000 Oil and Gas Operations
-------------------------------- ------------------------------------------------------------------- Marketing
Offshore Onshore Western Total and
Gulf of Gulf of United United Processing Total
Mexico Mexico States States Canada Total Canada Company
-------- ------- ------- ------ ------ ------- ---------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 25,509 11,620 9,767 46,896 13,114 60,010 58,431 118,441
Marketing and processing expense - - - - - - 57,645 57,645
Oil and gas production expense 3,256 3,135 1,604 7,995 2,701 10,696 - 10,696
General and administrative expense 1,148 1,148 840 3,136 945 4,081 389 4,470
Depreciation and depletion expense 9,898 5,466 2,615 17,979 4,598 22,577 486 23,063
-------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from operations $ 11,207 1,871 4,708 17,786 4,870 22,656 (89) 22,567
======== ======= ======= ======= ======= ======= ======= =======
Capital expenditures $ 26,570 2,972 3,592 33,134 8,649 41,783 - 41,783
======== ======= ======= ======= ======= ======= ======= =======
Property and equipment, net $128,313 266,060 101,906 496,279 188,323 684,602 - 684,602
======== ======= ======= ======= ======= ======= ======= =======
</TABLE>
Information for Forest's reportable segments relates to the three months ended
June 30, 2000 consolidated totals as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
EARNINGS BEFORE INCOME TAXES:
Earnings from operations for reportable segments $ 22,567
Administrative asset depreciation (380)
Other income, net (310)
Interest expense (9,448)
Translation loss on subordinated debt (4,101)
----------
Earnings before income taxes $ 8,328
==========
CAPITAL EXPENDITURES:
Reportable segments $ 41,783
International interests 1,894
Administrative assets and other 431
----------
Total capital expenditures $ 44,108
==========
PROPERTY AND EQUIPMENT, NET:
Reportable segments $ 684,602
International interests 25,520
Administrative assets, net and other 5,415
----------
Total property and equipment, net $ 715,537
==========
</TABLE>
7
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(6) BUSINESS AND GEOGRAPHICAL SEGMENTS, CONTINUED
<TABLE>
<CAPTION>
Three months ended June 30, 1999 Oil and Gas Operations
-------------------------------- ------------------------------------------------------------------- Marketing
Offshore Onshore Western Total and
Gulf of Gulf of United United Processing Total
Mexico Mexico States States 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>
8
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(6) BUSINESS AND GEOGRAPHICAL SEGMENTS, CONTINUED
<TABLE>
<CAPTION>
Six months ended June 30, 2000 Oil and Gas Operations
------------------------------ ------------------------------------------------------------------- Marketing
Offshore Onshore Western Total and
Gulf of Gulf of United United Processing Total
Mexico Mexico States States Canada Total Canada Company
-------- ------- ------- ------ ------ ------- ---------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 46,548 23,583 17,876 88,007 26,720 114,727 102,225 216,952
Marketing and processing expense - - - - - - 100,693 100,693
Oil and gas production expense 5,709 6,391 2,901 15,001 5,366 20,367 - 20,367
General and administrative expense 1,867 2,061 1,422 5,350 1,984 7,334 769 8,103
Depreciation and depletion expense 19,327 10,804 4,898 35,029 8,813 43,842 986 44,828
-------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from operations $ 19,645 4,327 8,655 32,627 10,557 43,184 (223) 42,961
======== ======= ======= ======= ======= ======= ======= =======
Capital expenditures $ 33,013 5,186 6,722 44,921 24,457 69,378 - 69,378
======== ======= ======= ======= ======= ======= ======= =======
Property and equipment, net $128,313 266,060 101,906 496,279 188,323 684,602 - 684,602
======== ======= ======= ======= ======= ======= ======= =======
</TABLE>
Information for Forest's reportable segments relates to the six months ended
June 30, 2000 consolidated totals as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
EARNINGS BEFORE INCOME TAXES:
Earnings from operations for reportable segments $ 42,961
Administrative asset depreciation (726)
Other income, net (214)
Interest expense (18,524)
Translation loss on subordinated debt (4,814)
----------
Earnings before income taxes $ 18,683
==========
CAPITAL EXPENDITURES:
Reportable segments $ 69,378
International interests 3,513
Administrative assets and other 718
----------
Total capital expenditures $ 73,609
==========
PROPERTY AND EQUIPMENT, NET:
Reportable segments $ 684,602
International interests 25,520
Administrative assets, net and other 5,415
----------
Total property and equipment, net $ 715,537
==========
</TABLE>
9
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(6) BUSINESS AND GEOGRAPHICAL SEGMENTS, CONTINUED
<TABLE>
<CAPTION>
Six months ended June 30, 1999 Oil and Gas Operations
------------------------------ ------------------------------------------------------------------- Marketing
Offshore Onshore Western Total and
Gulf of Gulf of United United Processing Total
Mexico Mexico States States 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 80,652 170,765
Marketing and processing expense - - - - - - 79,135 79,135
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 (733) 16,112
======== ======= ======= ======= ======= ======= ======= =======
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 $ 16,112
Administrative asset depreciation (532)
Other income, net 2,555
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>
10
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(7) SUPPLEMENTAL GUARANTOR INFORMATION
Canadian Forest is the issuer of the 8 3/4% Notes (see Note 4).
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 June 30, 2000 and December 31, 1999 and for the three and six
months ended June 30, 2000 and June 30, 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.
11
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(7) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
JUNE 30, 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 $ 5,090 447 1,289 - 6,826
Accounts receivable 45,234 7,845 25,632 - 78,711
Other current assets 7,281 1,134 88 - 8,503
---------- -------- ------- ------- --------
Total current assets 57,605 9,426 27,009 - 94,040
Net property and equipment,
at cost, full cost method 531,914 183,536 87 - 715,537
Goodwill and other intangible
assets, net - - 20,616 - 20,616
Intercompany investments 19,432 25,713 - (45,145) -
Other assets 6,318 2,833 - - 9,151
---------- -------- ------- ------- --------
$ 615,269 221,508 47,712 (45,145) 839,344
========== ======== ======= ======= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,807 9,497 25,011 - 70,315
Accrued interest 4,955 5,013 4 - 9,972
Other current liabilities 2,315 311 - - 2,626
---------- -------- ------- ------- --------
Total current liabilities 43,077 14,821 25,015 - 82,913
Long-term debt 164,052 231,624 - - 395,676
Other liabilities 13,825 32 - - 13,857
Deferred income taxes - 22,085 (11,838) - 10,247
Shareholders' equity:
Common stock 5,412 19,432 25,265 (44,697) 5,412
Capital surplus 724,369 - - - 724,369
Accumulated deficit (327,688) (62,602) 11,438 - (378,852)
Accumulated other
comprehensive loss (4,960) (3,884) (2,168) - (11,012)
Treasury stock, at cost (2,818) - - (448) (3,266)
---------- -------- ------- ------- --------
Total shareholders' equity 394,315 (47,054) 34,535 (45,145) 336,651
---------- -------- ------- ------- --------
$ 615,269 221,508 47,712 (45,145) 839,344
========== ======== ======= ======= ========
</TABLE>
12
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(7) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 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 $ 285 - 58,431 - 58,716
Oil and gas sales:
Gas 33,400 7,413 - - 40,813
Oil, condensate and
natural gas liquids 10,237 8,675 - - 18,912
---------- -------- ------- ------- --------
Total oil and gas sales 43,637 16,088 - - 59,725
---------- -------- ------- ------- --------
Total revenue 43,922 16,088 58,431 - 118,441
Expenses:
Marketing and processing - - 57,645 - 57,645
Oil and gas production 7,995 2,701 - - 10,696
General and administrative 3,136 945 389 - 4,470
Depreciation and depletion 18,293 4,664 486 - 23,443
---------- -------- ------- ------- --------
Total operating expenses 29,424 8,310 58,520 - 96,254
---------- -------- ------- ------- --------
Earnings from operations 14,498 7,778 (89) - 22,187
Other income and expense:
Other (income) expense, net 352 (64) (1) 23 310
Interest expense 4,348 5,100 23 (23) 9,448
Translation loss on
subordinated debt - 4,101 - - 4,101
---------- -------- ------- ------- --------
Total other income and
expense 4,700 9,137 22 - 13,859
---------- -------- ------- ------- --------
Earnings (loss) before income taxes
and extraordinary item 9,798 (1,359) (111) - 8,328
Income tax expense (benefit):
Current - 101 40 - 141
Deferred - 1,173 (60) - 1,113
---------- -------- ------- ------- --------
- 1,274 (20) - 1,254
---------- -------- ------- ------- --------
Earnings (loss)
before extraordinary item 9,798 (2,633) (91) - 7,074
Extraordinary item -
gain on extinguishment of debt - 192 - - 192
---------- -------- ------- ------- --------
Net earnings (loss) $ 9,798 (2,441) (91) - 7,266
========== ======== ======= ======= ========
</TABLE>
13
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(7) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 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 $ 493 - 102,225 - 102,718
Oil and gas sales:
Gas 62,736 12,761 474 - 75,971
Oil, condensate and
natural gas liquids 21,138 16,605 520 - 38,263
---------- -------- ------- ------- --------
Total oil and gas sales 83,874 29,366 994 - 114,234
---------- -------- ------- ------- --------
Total revenue 84,367 29,366 103,219 - 216,952
Expenses:
Marketing and processing - - 100,693 - 100,693
Oil and gas production 15,001 5,290 76 - 20,367
General and administrative 5,350 1,984 769 - 8,103
Depreciation and depletion 35,628 8,612 1,314 - 45,554
---------- -------- ------- ------- --------
Total operating expenses 55,979 15,886 102,852 - 174,717
---------- -------- ------- ------- --------
Earnings from operations 28,388 13,480 367 - 42,235
Other income and expense:
Other (income) expense, net 276 (5,655) 5,229 364 214
Interest expense 8,278 10,246 364 (364) 18,524
Translation loss on
subordinated debt - 4,814 - - 4,814
---------- -------- ------- ------- --------
Total other income and
expense 8,554 9,405 5,593 - 23,552
---------- -------- ------- ------- --------
Earnings (loss) before income taxes
and extraordinary item 19,834 4,075 (5,226) - 18,683
Income tax expense (benefit):
Current - 238 68 - 306
Deferred - 20,757 (19,343) - 1,414
---------- -------- ------- ------- --------
- 20,995 (19,275) - 1,720
---------- -------- ------- ------- --------
Earnings (loss) before extraordinary item 19,834 (16,920) 14,049 - 16,963
Extraordinary item - gain on
extinguishment of debt - 192 - - 192
---------- -------- ------- ------- --------
Net earnings (loss) $ 19,834 (16,728) 14,049 - 17,155
========== ======== ======= ======= ========
</TABLE>
14
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(7) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 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 earnings (loss) before extraordinary item $ 19,834 (16,920) 14,049 16,963
Adjustments to reconcile net earnings (loss)
before extraordinary item to net cash
provided by operating activities:
Depreciation and depletion 35,628 8,612 1,314 45,554
Amortization of deferred debt costs 541 199 - 740
Translation loss on subordinated debt - 4,814 - 4,814
Deferred income tax expense (benefit) - 20,757 (19,343) 1,414
Other, net 674 (115) (1) 558
Increase in accounts receivable (8,036) (4,312) (5,733) (18,081)
Decrease (increase) in other current assets (5,279) 1,168 2,431 (1,680)
Decrease in accounts payable (5,985) (1,356) (32) (7,373)
Increase (decrease) in accrued interest
and other current liabilities (834) (3,651) 9,362 4,877
---------- -------- ------- -------
Net cash provided by operating activities 36,543 9,196 2,047 47,786
Cash flows from investing activities:
Capital expenditures for property and
equipment (49,056) (24,553) - (73,609)
Proceeds from sale of assets 5,553 1,681 - 7,234
Increase in other assets, net (1,464) - - (1,464)
---------- -------- ------- -------
Net cash used by investing activities (44,967) (22,872) - (67,839)
Cash flows from financing activities:
Proceeds from bank borrowings 63,500 8,257 - 71,757
Repayments of bank borrowings (38,000) (4,024) - (42,024)
Redemption of 8 3/4% senior subordinated notes - (4,630) - (4,630)
Proceeds from the exercise of options 1,963 - - 1,963
Purchase of treasury stock (2,818) - - (2,818)
Decrease in other liabilities, net (262) (305) - (567)
---------- -------- ------- -------
Net cash provided (used)
by financing activities 24,383 (702) - 23,681
Intercompany advances, net (14,429) 15,054 (625) -
Effect of exchange rate changes on cash (70) 114 (1) 43
---------- -------- ------- -------
Net increase in cash and cash equivalents 1,460 790 1,421 3,671
Cash and cash equivalents at beginning of year 3,630 (343) (132) 3,155
---------- -------- ------- -------
Cash and cash equivalents at end of year $ 5,090 447 1,289 6,826
========== ======== ======= =======
</TABLE>
15
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(7) 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>
16
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(7) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 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 $ 85 - 40,429 - 40,514
Oil and gas sales:
Gas 27,818 4,473 - - 32,291
Oil, condensate and
natural gas liquids 8,998 5,784 - - 14,782
---------- -------- ------- ------- --------
Total oil and gas sales 36,816 10,257 - - 47,073
---------- -------- ------- ------- --------
Total revenue 36,901 10,257 40,429 - 87,587
Expenses:
Marketing and processing - - 39,664 - 39,664
Oil and gas production 9,209 3,229 - - 12,438
General and administrative 2,545 685 653 - 3,883
Depreciation and depletion 17,349 3,926 492 - 21,767
---------- -------- ------- ------- --------
Total operating expenses 29,103 7,840 40,809 - 77,752
---------- -------- ------- ------- --------
Earnings (loss) from operations 7,798 2,417 (380) - 9,835
Other income and expense:
Other (income) expense, net 567 (428) (544) 1,088 683
Interest expense 5,973 4,849 673 (1,088) 10,407
Translation gain on
subordinated debt - (4,301) - - (4,301)
---------- -------- ------- ------- --------
Total other income and
expense 6,540 120 129 - 6,789
---------- -------- ------- ------- --------
Earnings (loss) before income taxes 1,258 2,297 (509) - 3,046
Income tax expense (benefit):
Current - (14) 92 - 78
Deferred - (850) (225) - (1,075)
---------- -------- ------- ------- --------
- (864) (133) - (997)
---------- -------- ------- ------- --------
Net earnings (loss) $ 1,258 3,161 (376) - 4,043
========== ======== ======= ======= ========
</TABLE>
17
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(7) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 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 $ 194 - 80,652 - 80,846
Oil and gas sales:
Gas 56,511 8,742 - - 65,253
Oil, condensate and
natural gas liquids 14,820 9,846 - - 24,666
---------- -------- ------- ------- --------
Total oil and gas sales 71,331 18,588 - - 89,919
---------- -------- ------- ------- --------
Total revenue 71,525 18,588 80,652 - 170,765
Expenses:
Marketing and processing - - 79,135 - 79,135
Oil and gas production 18,082 5,621 - - 23,703
General and administrative 5,262 1,414 1,305 - 7,981
Depreciation and depletion 35,472 7,917 977 - 44,366
---------- -------- ------- ------- --------
Total operating expenses 58,816 14,952 81,417 - 155,185
---------- -------- ------- ------- --------
Earnings (loss) from operations 12,709 3,636 (765) - 15,580
Other income and expense:
Other income, net (254) (3,746) (1,445) 2,890 (2,555)
Interest expense 12,477 9,817 1,660 (2,890) 21,064
Translation gain on
subordinated debt - (6,517) - - (6,517)
---------- -------- ------- ------- --------
Total other income and
expense 12,223 (446) 215 - 11,992
---------- -------- ------- ------- --------
Earnings (loss) before income taxes 486 4,082 (980) - 3,588
Income tax expense (benefit):
Current - (233) 152 - (81)
Deferred - (454) (370) - (824)
---------- -------- ------- ------- --------
- (687) (218) - (905)
---------- -------- ------- ------- --------
Net earnings (loss) $ 486 4,769 (762) - 4,493
========== ======== ======= ======= ========
</TABLE>
18
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(7) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 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) $ 486 4,769 (762) 4,493
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and depletion 35,472 7,917 977 44,366
Amortization of deferred debt costs 411 199 - 610
Translation gain on subordinated debt - (6,517) - (6,517)
Deferred income tax benefit - (454) (370) (824)
Other, net (483) (2,462) (1) (2,946)
Decrease (increase) in accounts receivable 3,039 (137) 185 3,087
Decrease (increase) in other current assets (1,668) 858 (1,283) (2,093)
Increase (decrease) in accounts payable (1,633) 858 394 (381)
Increase (decrease) in accrued interest and
other current liabilities 2,406 (3,440) 1,325 291
---------- -------- ------- -------
Net cash provided by operating activities 38,030 1,591 465 40,086
Cash flows from investing activities:
Capital expenditures for property and
equipment (31,272) (17,384) - (48,656)
Proceeds from sale of assets 7,593 7,188 - 14,781
Increase in other assets, net (976) - - (976)
---------- -------- ------- -------
Net cash used by investing activities (24,655) (10,196) - (34,851)
Cash flows from financing activities:
Proceeds from bank borrowings 41,800 24,351 - 66,151
Repayments of bank borrowings (138,200) (30,580) - (168,780)
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)
Decrease in other liabilities, net (2,040) (41) - (2,081)
---------- -------- ------- -------
Net cash provided (used) by financing
activities 76 (6,270) - (6,194)
Intercompany advances, net (15,132) 15,132 - -
Effect of exchange rate changes on cash 6 (47) (2) (43)
---------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents (1,675) 210 463 (1,002)
Cash and cash equivalents at beginning of year 3,713 (33) (265) 3,415
---------- -------- ------- -------
Cash and cash equivalents at end of year $ 2,038 177 198 2,413
========== ======== ======= =======
</TABLE>
19
<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 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 the 1999 Annual Report on Form
10-K.
RESULTS OF OPERATIONS FOR THE SECOND QUARTER OF 2000
Net earnings for the second quarter of 2000 were $7,266,000 or $.14
per basic and $.13 per diluted common share compared to $4,043,000 or $.09
per basic and diluted common share in the corresponding period of 1999. The
current period included a noncash loss on currency translation of $4,101,000
related to subordinated debt issued by Forest's Canadian subsidiary and an
extraordinary gain on extinguishment of debt of $192,000. The 1999 period
included a noncash gain on currency translation of $4,301,000. Exclusive of
currency translation and the extraordinary gain, net earnings for the second
quarter of 2000 amounted to $11,175,000 compared to a net loss of $258,000 in
the corresponding 1999 period.
Marketing and processing revenue increased by 45% to $58,716,000 in the
second quarter of 2000 from $40,514,000 in the second quarter of 1999 and the
related marketing and processing expense increased by 45% to $57,645,000 in the
second quarter of 2000 from $39,664,000 in the same period of the previous year.
The increase in marketing revenue and expense is due primarily to higher natural
gas prices. The gross margin reported for marketing and processing activities
increased to $1,071,000 in the second quarter of 2000 from $850,000 in the
second quarter of 1999. The increase resulted from higher gas processing
revenues in the United States.
Oil and gas sales revenue increased by 27% to $59,725,000 in the second
quarter of 2000 from $47,073,000 in the second 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 second quarter of
2000 decreased 10% from the comparable 1999 period, due primarily to
significantly higher production from Eugene Island 53 in the 1999 period. The
average sales prices received for natural gas and liquids in the second quarter
of 2000 increased 37% and 43%, respectively, compared to the average sales
prices received in the corresponding 1999 period.
Oil and gas production expense of $10,696,000 in the second quarter of
2000 decreased 14% from $12,438,000 in the comparable period of 1999 primarily
as a result of fewer workovers in the Gulf Coast Region, offset in part by
higher production taxes due to higher product prices. 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 decreased
approximately 5% in the second quarter of 2000 to $.52 per MCFE from $.55 MCFE
in the second quarter of 1999.
20
<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, 2000
--------------------------------------------------------------------
Offshore Onshore Western Total
Gulf of Gulf United United Total
Mexico Coast States U.S. Canada Company
-------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
NATURAL GAS
Production (MMCF) 6,738 2,088 2,562 11,388 3,124 14,512
Sales price received (per MCF) $ 3.65 3.55 3.03 3.49 2.12 3.19
Effects of energy swaps (per MCF)(1) (.41) (.46) (.34) (.40) (.30) (.38)
------- ------- ------- ------ ------ -------
Average sales price (per MCF) $ 3.24 3.09 2.69 3.09 1.82 2.81
LIQUIDS
Oil and condensate:
Production (MBBLS) 196 213 37 446 276 722
Sales price received (per BBL) $ 25.64 27.48 28.76 26.77 28.96 27.61
Effects of energy swaps (per BBL)(1) (7.03) (7.51) (7.73) (7.31) (7.78) (7.49)
------- ------- ------- ------ ------ -------
Average sales price (per BBL) $ 18.61 19.97 21.03 19.46 21.18 20.12
Natural gas liquids:
Production (MBBLS) - 47 134 181 100 281
Average sales price (per BBL) $ - 13.87 15.75 15.28 16.22 15.62
Total liquids production (MBBLS) 196 260 171 627 376 1,003
Average liquids sales price (per BBL) $ 18.63 18.87 16.89 18.25 19.86 18.86
TOTAL PRODUCTION
Production volumes (MMCFE) 7,914 3,648 3,588 15,150 5,380 20,530
Average sales price (per MCFE) $ 3.22 3.12 2.73 3.08 2.44 2.91
Operating expense (per MCFE) .41 .86 .45 .53 .50 .52
------- ------- ------- ------ ------ -------
Netback (per MCFE) $ 2.81 2.26 2.28 2.55 1.94 2.39
======= ======= ======= ====== ====== =======
</TABLE>
(1) Energy swaps were entered into to hedge the price of spot market
volumes against price fluctuations. Hedged natural gas volumes were
6,061 MMCF in the three months ended June 30, 2000. Hedged oil and
condensate volumes were 597,000 barrels in the three months ended June
30, 2000 period. The aggregate net loss under energy swap agreements
was $10,906,000 for the period and was accounted for as a decrease to
oil and gas sales.
21
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
--------------------------------------------------------------------
Offshore Onshore Western Total
Gulf of Gulf United United Total
Mexico Coast States 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.
General and administrative expense increased 15% to $4,470,000 in the
second quarter of 2000 compared to $3,883,000 in the comparable period of 1999.
Total overhead costs (capitalized and expensed general and administrative costs)
were $7,285,000 in the second quarter of 2000 compared to $5,748,000 in the
comparable period of 1999. The increase was due primarily to higher employee
related costs and professional service costs. The amount capitalized of
$2,815,000 in the second quarter of 2000 increased 51% from the corresponding
1999 period due primarily to increased overhead costs and higher capitalization
rates associated with international projects.
22
<PAGE>
Depreciation and depletion expense increased 8% to $23,443,000 in the
second quarter of 2000 from $21,767,000 in the second quarter of 1999. On a
per-unit basis, depletion expense was approximately $1.10 per MCFE in the second
quarter of 2000 compared to $.94 per MCFE in the corresponding 1999 period. The
increase in the per-unit rate is due primarily to increased anticipated future
development costs in the present inflationary environment for oilfield services.
Other expense was $310,000 in the second quarter of 2000 compared to
$683,000 in the second quarter of 1999.
Interest expense decreased 9% to $9,448,000 in the second quarter of
2000 compared to $10,407,000 in the corresponding 1999 period, due primarily to
lower bank debt balances.
The foreign currency translation loss was $4,101,000 in the second
quarter of 2000, compared to a gain of $4,301,000 in the second 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 $.6759 per $1.00 U.S. at June
30, 2000 compared to $.6899 at March 31, 2000. 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 of $192,000 in the second quarter of 2000
resulted from the purchase of approximately $5,000,000 principal amount of 8
3/4% Notes at an average price of 92.6% of par value.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
Net earnings for the first six months of 2000 were $17,155,000, or $.32
per basic and diluted common share compared to $4,493,000 or $.10 per basic and
diluted common share in the first six months of 1999. The current period
includes a noncash loss on foreign currency translation of $4,814,000 and an
extraordinary gain on extinguishment of debt of $192,000. The 1999 period
included a noncash gain on currency translation of $6,517,000. Exclusive of
currency translation and the extraordinary gain, net earnings for the first six
months of 2000 amounted to $21,777,000 compared to a net loss of $2,024,000 in
the corresponding 1999 period.
Marketing and processing revenue increased 27% to $102,718,000 in the
first six months of 2000 from $80,846,000 in the first six months of 1999, while
the related marketing and processing expense increased by 27% to $100,693,000 in
the 2000 period from $79,135,000 in the previous year. The increase in marketing
revenue and expense is due primarily to higher natural gas prices. The gross
margin reported for marketing and processing activities of $2,025,000 in the
first six months of 2000 was higher than the gross margin of $1,711,000 in the
first six months of 1999. The increase in the gross margin resulted primarily
from higher gas processing revenues in the United States.
Oil and gas sales revenue increased by 27% to $114,234,000 in the first
six months of 2000 from $89,919,000 in the first six months of 1999 due
primarily to higher oil and gas prices. Production volumes for natural gas and
liquids in the first six months of 2000 decreased 11% from the comparable 1999
period due primarily to significantly higher production from Eugene Island Block
53 in the 1999 period. The average sales price received for natural gas and
liquids during the first six months of 2000 increased 34% and 66%, respectively,
compared to the average sales price received in the corresponding 1999 period.
Oil and gas production expense of $20,367,000 in the first six months
of 2000 decreased 14% from $23,703,000 in the comparable period of 1999,
primarily as a result of fewer workovers in the Gulf Coast Region, offset
in part by higher production taxes due to higher product prices. On an MCFE
basis, production expense decreased approximately 4% in the first six months of
2000 to $.50 per MCFE from $.52 per MCFE in the first six months of 1999.
23
<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, 2000
--------------------------------------------------------------------
Offshore Onshore Western Total
Gulf of Gulf United United Total
Mexico Coast States U.S. Canada Company
-------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
NATURAL GAS
Production (MMCF) 13,013 4,513 4,787 22,313 6,095 28,408
Sales price received (per MCF) $ 3.13 3.04 2.66 3.01 2.15 2.82
Effects of energy swaps (per MCF) (1) (.17) (.16) (.14) (.16) (.12) (.15)
------- ------- ------- ------ ------ -------
Average sales price (per MCF) $ 2.96 2.88 2.52 2.85 2.03 2.67
LIQUIDS
Oil and condensate:
Production (MBBLS) 399 431 68 898 549 1,447
Sales price received (per BBL) $ 26.43 27.94 28.86 27.34 26.78 27.13
Effects of energy swaps (per BBL)(1) (6.65) (7.03) (7.26) (6.88) (6.74) (6.83)
------- ------- ------- ------ ------ -------
Average sales price (per BBL) $ 19.78 20.91 21.60 20.46 20.04 20.30
Natural gas liquids:
Production (MBBLS) - 90 280 370 212 582
Average sales price (per BBL) $ - 13.00 15.52 14.92 15.89 15.27
Total liquids production (MBBLS) 399 521 348 1,268 761 2,029
Average liquids sales price (per BBL) $ 19.79 19.55 16.71 18.84 18.88 18.86
TOTAL PRODUCTION:
Production volumes (MMCFE) 15,407 7,639 6,875 29,921 10,661 40,582
Average sales price (per MCFE) $ 3.01 3.04 2.60 2.92 2.50 2.81
Operating expense (per MCFE) .37 .84 .42 .50 .50 .50
------- ------- ------- ------ ------ -------
Netback (per MCFE) $ 2.64 2.20 2.18 2.42 2.00 2.31
======= ======= ======= ====== ====== =======
</TABLE>
(1) Energy swaps were entered into to hedge the price of spot market
volumes against price fluctuations. Hedged natural gas volumes were
12,868 MMCF in the six months ended June 30, 2000. Hedged oil and
condensate volumes were 1,239,000 barrels in the six months ended June
30, 2000. The aggregate net loss under energy swap agreements was
$14,191,000 for the period and was accounted for as a decrease to oil
and gas sales.
24
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
--------------------------------------------------------------------
Offshore Onshore Western Total
Gulf of Gulf United United Total
Mexico Coast States 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.
25
<PAGE>
General and administrative expense increased 2% to $8,103,000 in the
first six months of 2000 compared to $7,981,000 in the comparable period of
1999. Total overhead costs (capitalized and expensed general and administrative
costs) were $13,799,000 in the first six months of 2000 compared to $12,043,000
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 $5,696,000 in the first six months of 2000
increased 40% from the corresponding 1999 period due primarily to increased
overhead costs and higher capitalization rates associated with international
projects.
The following table summarizes the total overhead costs incurred during
the periods:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
------- ----- ------ ------
(In Thousands)
<S> <C> <C> <C> <C>
Overhead costs capitalized $ 2,815 1,865 5,696 4,062
General and administrative costs
expensed (1) 4,470 3,883 8,103 7,981
------- ----- ------ ------
Total overhead costs $ 7,285 5,748 13,799 12,043
======= ===== ====== ======
</TABLE>
(1) Includes $389,000 and $653,000 related to marketing and processing
operations for the three month periods ended June 30, 2000 and 1999,
respectively, and $769,000 and $1,305,000 for the six month periods
ended June 30, 2000 and 1999, respectively.
Depreciation and depletion expense increased 3% to $45,554,000 in the
first six months of 2000 from $44,366,000 in the first six months of 1999. On a
per-unit basis, depletion expense was approximately $1.08 per MCFE in the first
six months of 2000 compared to $.94 per MCFE in the corresponding 1999 period.
The increase in the per-unit rate is due primarily to increased anticipated
future development costs in the present inflationary environment for oilfield
services.
Other expense was $214,000 in the first six months of 2000 compared to
other income of $2,555,000 in the first six months of 1999. The 1999 period
includes a gain of approximately $2,500,000 from the sale of a gas processing
facility and a gain of approximately $780,000 from the sale of an investment.
Interest expense decreased 12% to $18,524,000 in the first six months
of 2000 compared to $21,064,000 in the corresponding 1999 period, due primarily
to lower bank debt balances, offset in part by additional interest related to
our 10 1/2% Notes which were issued in February, 1999.
The foreign currency translation loss was $4,814,000 in the first six
months of 2000, compared to a gain of $6,517,000 in the first six months of
1999. The value of the Canadian dollar was $.6759 per $1.00 U.S. at June 30,
2000 compared to $.6924 at December 31, 1999.
The extraordinary gain on extinguishment of debt in the first six
months of 2000 resulted from the purchase of approximately $5,000,000 principal
amount of 8 3/4% Notes at 92.6% of par value.
26
<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 27% of our consolidated daily deliverability. Our production,
revenue and cash flow could be adversely affected if production from these
properties decreases significantly.
MERGER WITH FORCENERGY, INC. On July 10, 2000, Forest and Forcenergy
jointly announced a proposed merger. Under the merger agreement, Forcenergy
common stockholders will receive 1.6 Forest common shares for each share of
Forcenergy common stock they own. Forest will also exchange its common shares
for Forcenergy's outstanding preferred stock, at a ratio of 68.6141 Forest
common shares for each $1,000 principal amount of Forcenergy preferred stock.
The exchange ratios are subject to adjustment if a proposed 1-for-2 reverse
stock split of Forest common shares is approved. The transaction is subject to
approval by the shareholders of both companies and customary regulatory
approval. The merger will be accounted for under the pooling of interests
method.
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 31, 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, 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, 2000, the outstanding borrowings under the global credit
facility were $65,000,000 in the U.S. and $36,499,000 in Canada. At July 31,
2000, the outstanding borrowings were $71,000,000 in the U.S. and $33,771,000
in Canada, with an average effective interest rate of 7.6%. At July 31, 2000
Forest had also used the global credit facility for letters of credit in the
amount of $747,000 in the United States and $1,645,000 CDN in Canada.
In connection with the merger with Forcenergy, the Company is
negotiating a new $600 million senior credit facility with a $500 million
secured borrowing base, lead by The Chase Manhattan Bank. This facility will
replace the existing senior facilities of both Forest and Forcenergy. At
June 30, 2000 Forcenergy had an outstanding bank balance of $231 million and
Forest had an outstanding bank balance of $65 million in the U.S. and $36
million in Canada. The senior facility will become effective upon the
consummation of the merger of Forest and Forcenergy.
WORKING CAPITAL. Forest had a working capital surplus of
approximately $11,127,000 at June 30, 2000 compared to a deficit of
approximately $14,817,000 at December 31, 1999. The increase in working
capital is due primarily to an increase in revenue receivables due to higher
product prices. Periodically, however, 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 increased to $47,786,000 in the first six months of 2000
compared to $40,086,000 in the first six months of 1999. The increase was due
primarily to higher oil and gas revenue. We used $67,839,000 for investing
activities in 2000 compared to $34,851,000 in 1999. Cash used in the 2000
period was greater than the cash used in the 1999 period due primarily to
increased acquisition and development activities. Net cash provided by
financing activities in 2000 was $23,681,000 compared to net cash used of
$6,194,000 in 1999. The 2000 period included $29,733,000 of net bank
borrowings. The 1999 period included net repayments of bank borrowings of
$102,629,000 offset partially by net proceeds of $98,561,000 from the
issuance of the 10 1/2% Notes.
27
<PAGE>
CAPITAL EXPENDITURES. Expenditures for property acquisition,
exploration and development for the first six months of 2000 and 1999 were as
follows:
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------
June 30, 2000 June 30, 1999
------------- -------------
(In Thousands)
<S> <C> <C>
Property acquisition costs:
Proved properties $ 13,758 (1,169)
Undeveloped properties (1) 79
---------- --------
13,757 (1,090)
Exploration costs:
Direct costs 24,852 27,813
Overhead capitalized 2,439 1,539
---------- --------
27,291 29,352
Development costs:
Direct costs 28,586 16,582
Overhead capitalized 3,257 2,523
---------- --------
31,843 19,105
---------- --------
$ 72,891 47,367
========== ========
</TABLE>
Forest's anticipated capital expenditures for 2000 are approximately
$165,000,000, including capitalized overhead of approximately $10,600,000. We
intend to meet our 1999 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 June 30,
2000 the ProMark Netback Pool had entered into fixed price contracts to sell
approximately 2.8 BCF of natural gas through the remainder of 2000 at an average
price of $2.37 CDN per MCF and approximately 5.5 BCF of natural gas in 2001 at
an average price of approximately $2.45 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.
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 August 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>
July through December 2000 53.7 $ 2.53 1,400 $ 21.88
2001 22.9 $ 2.54 - $ -
2002 16.7 $ 2.48 - $ -
</TABLE>
28
<PAGE>
In addition, the Company utilizes collars that establish a price
between a floor and ceiling to hedge natural gas and oil prices. As of August 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>
July through December 2000 $ 2.75 $2.90 3.3
</TABLE>
<TABLE>
<CAPTION>
Oil
-------------------------------------------------------------
Average Floor Average Ceiling
Price Price Barrels Per Day
------------- --------------- --------------
<S> <C> <C> <C>
July through December 2000 $ 18.19 $ 20.93 3,500
2001 $ 21.58 $ 27.00 1,500
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS. In March 2000, the Financial
Accounting Standard Board ("FASB") issued FASB Interpretation No. 44
"Accounting for Certain Transactions involving Stock Compensation - and
interpretation of APB Opinion No. 25 ("FIN 44"). This opinion provides
guidance on the accounting for certain stock option transactions and
subsequent amendments to stock option transactions. FIN 44 is effective July
1, 2000, but certain conclusions cover specific events that occur after
either December 15, 1998 or January 12, 2000. To the extent that FIN 44
covers events occurring during the period from December 15, 1998 and January
12, 2000, but before July 1, 2000, the effects of applying this Interpretation
are to be recognized on a prospective basis. The Company does not expect the
impact on its financial position or results of operations to be material.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101, "Revenue Recognition (SAB 101), which
provides guidance on the recognition, presentation and disclosure of revenue
in financial statements filed with the SEC. Subsequently, the SEC released
SAB 101B, which delayed the implementation date of SAB 101 for registrants
with fiscal years beginning between December 16, 1999 and March 15, 2000. The
Company has not yet assessed the impact, if any, that SAB 101 might have on
its financial position or results of operations.
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.
29
<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
There were no reports on Form 8-K filed by Forest during the second
quarter of 2000.
30
<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: August 14, 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)
31
