<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 September 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 October 31, 2000
------------------------------ ----------------
Common Stock, Par Value $.10 Per Share 53,958,635
<PAGE>
PART I. FINANCIAL INFORMATION
FOREST OIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,807 3,155
Accounts receivable 90,843 64,719
Other current assets 23,149 3,484
--------- -------
Total current assets 121,799 71,358
Net property and equipment, at cost 738,462 697,616
Goodwill and other intangible assets, net 19,830 22,092
Other assets 9,074 8,986
--------- -------
$ 889,165 800,052
========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 93,706 72,589
Accrued interest 3,172 10,105
Other current liabilities 2,586 3,481
--------- -------
Total current liabilities 99,464 86,175
Long-term debt 414,447 371,680
Other liabilities 12,289 14,262
Deferred income taxes 12,417 8,951
Shareholders' equity:
Common stock 5,428 5,381
Capital surplus 725,991 721,832
Accumulated deficit (367,071) (396,007)
Accumulated other comprehensive loss (10,534) (11,774)
Treasury stock, at cost (3,266) (448)
--------- -------
Total shareholders' equity 350,548 318,984
--------- -------
$ 889,165 800,052
========= =======
</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 September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
--------- ------ ------- -------
(In Thousands Except Production and Per Share Amounts)
<S> <C> <C> <C> <C>
PRODUCTION
Natural gas (mmcf) 13,889 15,485 42,297 48,230
========= ====== ======= =======
Oil, condensate and natural gas
liquids (thousands of barrels) 1,073 1,134 3,102 3,308
========= ====== ======= =======
STATEMENTS OF CONSOLIDATED OPERATIONS
Revenue:
Marketing and processing $ 67,973 42,414 170,691 123,260
Oil and gas sales:
Gas 42,494 35,119 118,465 100,372
Oil, condensate and natural gas liquids 24,449 15,601 62,712 40,267
--------- ------ ------- -------
Total oil and gas sales 66,943 50,720 181,177 140,639
--------- ------ ------- -------
Total revenue 134,916 93,134 351,868 263,899
Operating expenses:
Marketing and processing 67,162 41,438 168,282 120,572
Oil and gas production 11,791 10,386 31,731 34,089
General and administrative 4,489 4,031 12,592 12,012
Depreciation and depletion 24,011 22,203 69,565 66,569
--------- ------ ------- -------
Total operating expenses 107,453 78,058 282,170 233,242
--------- ------ ------- -------
Earnings from operations 27,463 15,076 69,698 30,657
Other income and expense:
Other (income) expense, net 494 129 708 (2,425)
Interest expense 9,697 10,820 28,221 31,884
Translation (gain) loss on subordinated debt 2,824 (755) 7,638 (7,272)
--------- ------ ------- -------
Total other income and expense 13,015 10,194 36,567 22,187
--------- ------ ------- -------
Earnings before income taxes and extraordinary item 14,448 4,882 33,131 8,470
Income tax expense (benefit):
Current 325 (17) 631 (98)
Deferred 2,342 (505) 3,756 (1,329)
--------- ------ ------- -------
2,667 (522) 4,387 (1,427)
--------- ------ ------- -------
Earnings before extraordinary item 11,781 5,404 28,744 9,897
Extraordinary item - gain (loss) on extinguishment
of debt -- (598) 192 (598)
--------- ------ ------- -------
Net earnings $ 11,781 4,806 28,936 9,299
========= ====== ======= =======
Weighted average number of common shares
outstanding 53,745 48,556 53,856 45,967
========= ====== ======= =======
Basic earnings per common share:
Earnings attributable to common stock
before extraordinary item $ .22 .11 .54 .21
Extraordinary item - loss on
extinguishment of debt -- (.01) -- (.01)
--------- ------ ------- -------
Earnings attributable to common stock $ .22 .10 .54 .20
========= ====== ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-2-
<PAGE>
FOREST OIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF PRODUCTION AND OPERATIONS
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
--------- ------ ------- -------
(In Thousands Except Production and Per Share Amounts)
<S> <C> <C> <C> <C>
Diluted earnings per common share:
Earnings attributable to common stock
before extraordinary item $ .22 .11 .53 .21
Extraordinary item - loss on
extinguishment of debt -- (.01) -- (.01)
------- ------ ------- -------
Earnings attributable to common stock $ .22 .10 .53 .20
======= ====== ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
FOREST OIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
--------- --------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings before extraordinary item $ 28,744 9,897
Adjustments to reconcile net earnings before extraordinary item to
net cash provided by operating activities:
Depreciation and depletion 69,565 66,569
Amortization of deferred debt costs 1,114 958
Translation loss (gain) on subordinated debt 7,638 (7,272)
Deferred income tax expense (benefit) 3,756 (1,329)
Stock compensation 502 --
Other, net (22) (3,122)
Increase in accounts receivable (30,725) (2,589)
Increase in other current assets (16,344) (5,163)
Increase in accounts payable 13,982 4,071
Increase (decrease) in accrued interest and other current liabilities 812 (2,077)
--------- --------
Net cash provided by operating activities 79,022 59,943
Cash flows from investing activities:
Capital expenditures for property and equipment (123,171) (83,313)
Proceeds from sales of assets 7,427 17,341
Increase in other assets, net (1,760) (506)
--------- --------
Net cash used by investing activities (117,504) (66,478)
Cash flows from financing activities:
Proceeds from bank borrowings 112,350 96,288
Repayments of bank borrowings (63,253) (309,485)
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 1/4% senior subordinated notes -- (9,083)
Proceeds of common stock offering, net of cost -- 131,188
Proceeds from the exercise of options 3,594 1,388
Purchase of treasury stock (2,818) --
Decrease in other liabilities, net (2,133) (2,453)
--------- --------
Net cash provided by financing activities 43,110 6,404
Effect of exchange rate changes on cash 24 (20)
--------- --------
Net increase (decrease) in cash and cash equivalents 4,652 (151)
Cash and cash equivalents at beginning of period 3,155 3,415
--------- --------
Cash and cash equivalents at end of period $ 7,807 3,264
========= ========
Cash paid (refunded) during the period for:
Interest $ 33,755 39,945
Income taxes $ (3,404) (177)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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 September 30, 2000 and
the results of its operations for the three and nine month periods ended
September 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/A 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 Nine Months Ended
September 30, September 30,
------------------------ ----------------------
2000 1999 2000 1999
------- ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C>
Net earnings $11,781 4,806 28,936 9,299
Other comprehensive net
earnings (loss) 478 (251) 1,240 (1,513)
------- ------ ------ ------
Total comprehensive net
earnings $12,259 4,555 30,176 7,786
======= ===== ====== ======
</TABLE>
(2) NET PROPERTY AND EQUIPMENT
Components of net property and equipment are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ -----------
(In Thousands)
<S> <C> <C>
Oil and gas properties $ 2,253,609 2,154,514
Buildings, transportation and
other equipment 18,484 14,593
----------- ----------
2,272,093 2,169,107
Less accumulated depreciation,
depletion and valuation allowance (1,533,631) (1,471,491)
----------- ----------
$ 738,462 697,616
=========== ==========
</TABLE>
-5-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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>
September 30, December 31,
2000 1999
------------ ------------
(In Thousands)
<S> <C> <C>
Goodwill $ 15,256 15,873
Gas marketing contracts 13,310 13,848
-------- ------
28,566 29,721
Less accumulated amortization (8,736) (7,629)
-------- ------
$ 19,830 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>
September 30, December 31,
2000 1999
------------ -----------
(In Thousands)
<S> <C> <C>
Global Credit Facility
U.S. borrowings $ 85,100 39,500
Canadian borrowings 35,272 33,235
8 3/4% Senior Subordinated Notes 194,981 199,978
10 1/2% Senior Subordinated Notes 99,094 98,967
-------- -------
$414,447 371,680
======== =======
</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 third
quarter and first nine months of 2000, Forest reported noncash translation
losses of approximately $2,824,000 and $7,638,000, respectively, compared to
noncash translation gains of $755,000 and $7,272,000 in the third quarter and
first nine months of 1999, respectively.
-6-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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 Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2000(1) 1999(2) 2000(3) 1999(4)
------ ------ ------ ------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
Income before extraordinary item $11,781 5,404 28,744 9,897
======= ====== ====== ======
Weighted average common shares outstanding
during the period 53,745 48,556 53,856 45,967
Add dilutive effects of employee stock options 853 813 646 280
------- ------ ------ ------
Weighted average common shares outstanding
including the effects of dilutive securities 54,598 49,369 54,502 46,247
======= ====== ====== ======
Basic earnings per share before
extraordinary item $ .22 .11 .54 .21
======= ====== ====== ======
Diluted earnings per share before
extraordinary item $ .22 .11 .53 .21
======= ====== ====== ======
</TABLE>
(1) At September 30, 2000, options to purchase 564,000 shares of common stock
at prices ranging from $14.75 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 September 30, 1999, options to purchase 482,000 shares of common stock
at prices ranging from $16.50 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 2003 through 2008.
(3) At September 30, 2000, options to purchase 1,191,700 shares of common stock
at prices ranging from $12.38 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.
(4) At September 30, 1999, options to purchase 1,663,560 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 those options were greater than the average market
price of the common stock during the period. These options expire at
various dates from 2002 to 2008.
-7-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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 September 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 $ 26,412 12,998 12,505 51,915 15,377 67,292 67,624 134,916
Marketing and processing expense -- 237 -- 237 -- 237 66,925 67,162
Oil and gas production expense 3,718 2,711 1,905 8,334 3,457 11,791 -- 11,791
General and administrative expense 1,113 1,024 958 3,095 1,090 4,185 304 4,489
Depreciation and depletion expense 10,020 5,108 3,417 18,545 4,574 23,119 815 23,934
-------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from operations $ 11,561 3,918 6,225 21,704 6,256 27,960 (420) 27,540
======== ======= ======= ======= ======= ======= ======= =======
Capital expenditures $ 26,116 264 5,690 32,070 12,165 44,235 -- 44,235
======== ======= ======= ======= ======= ======= ======= =======
Property and equipment, net $144,100 261,184 104,368 509,652 192,848 702,500 -- 702,500
======== ======= ======= ======= ======= ======= ======= =======
</TABLE>
Information for Forest's reportable segments relates to the three months ended
September 30, 2000 consolidated totals as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
EARNINGS BEFORE INCOME TAXES:
Earnings from operations for reportable segments $ 27,540
Administrative asset depreciation (77)
Other expense, net (494)
Interest expense (9,697)
Translation loss on subordinated debt (2,824)
---------
Earnings before income taxes $ 14,448
=========
CAPITAL EXPENDITURES:
Reportable segments $ 44,235
International interests 4,812
Administrative assets and other 515
---------
Total capital expenditures $ 49,562
=========
PROPERTY AND EQUIPMENT, NET:
Reportable segments $ 702,500
International interests 30,324
Administrative assets, net and other 5,638
---------
Total property and equipment, net $ 738,462
=========
</TABLE>
-8-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(6) BUSINESS AND GEOGRAPHICAL SEGMENTS, CONTINUED
<TABLE>
<CAPTION>
Three months ended September 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 $ 20,806 11,052 8,091 39,949 11,076 51,025 42,109 93,134
Marketing and processing expense -- -- -- -- -- -- 41,438 41,438
Oil and gas production expense 2,736 1,811 2,100 6,647 3,739 10,386 -- 10,386
General and administrative expense 1,126 922 636 2,684 712 3,396 635 4,031
Depreciation and depletion expense 10,248 4,947 2,221 17,416 4,064 21,480 519 21,999
-------- ------- ------- ------- ------ ------- ------- -------
Earnings (loss) from operations $ 6,696 3,372 3,134 13,202 2,561 15,763 (483) 15,280
======== ======= ======= ======= ======= ======= ======= =======
Capital expenditures $ 11,100 11,406 2,049 24,555 8,463 33,018 -- 33,018
======== ======= ======= ======= ======= ======= ======= =======
Property and equipment, net $114,011 273,894 100,027 487,932 163,900 651,832 -- 651,832
======== ======= ======= ======= ======= ======= ======= =======
</TABLE>
Information for Forest's reportable segments relates to the three months ended
September 30, 1999 consolidated totals as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
EARNINGS BEFORE INCOME TAXES:
Earnings from operations for reportable segments $ 15,280
Administrative asset depreciation (204)
Other income, net (129)
Interest expense (10,820)
Translation gain on subordinated debt 755
---------
Earnings before income taxes $ 4,882
=========
CAPITAL EXPENDITURES:
Reportable segments $ 33,018
International interests 1,006
Administrative assets and other 633
---------
Total capital expenditures $ 34,657
=========
PROPERTY AND EQUIPMENT, NET:
Reportable segments $ 651,832
International interests 20,157
Administrative assets, net and other 5,412
---------
Total property and equipment, net $ 677,401
=========
</TABLE>
-9-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(6) BUSINESS AND GEOGRAPHICAL SEGMENTS, CONTINUED
<TABLE>
<CAPTION>
Nine months ended September 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 $ 72,960 36,581 30,381 139,922 42,097 182,019 169,849 351,868
Marketing and processing expense -- 664 -- 664 -- 664 167,618 168,282
Oil and gas production expense 9,427 8,675 4,806 22,908 8,823 31,731 -- 31,731
General and administrative expense 2,980 3,085 2,380 8,445 3,074 11,519 1,073 12,592
Depreciation and depletion expense 29,481 15,979 8,114 53,574 13,387 66,961 1,801 68,762
-------- ------- ------- ------- ------ ------- ------- -------
Earnings (loss) from operations $ 31,072 8,178 15,081 54,331 16,813 71,144 (643) 70,501
======== ======= ======= ======= ======= ======= ======= =======
Capital expenditures $ 59,129 5,450 12,412 76,991 36,622 113,613 -- 113,613
======== ======= ======= ======= ======= ======= ======= =======
Property and equipment, net $144,100 261,184 104,368 509,652 192,848 702,500 -- 702,500
======== ======= ======= ======= ======= ======= ======= =======
</TABLE>
Information for Forest's reportable segments relates to the nine months ended
September 30, 2000 consolidated totals as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
EARNINGS BEFORE INCOME TAXES:
Earnings from operations for reportable segments $ 70,501
Administrative asset depreciation (803)
Other expense, net (708)
Interest expense (28,221)
Translation loss on subordinated debt (7,638)
---------
Earnings before income taxes $ 33,131
=========
CAPITAL EXPENDITURES:
Reportable segments $ 113,613
International interests 8,325
Administrative assets and other 1,233
---------
Total capital expenditures $ 123,171
=========
PROPERTY AND EQUIPMENT, NET:
Reportable segments $ 702,500
International interests 30,324
Administrative assets, net and other 5,638
---------
Total property and equipment, net $ 738,462
=========
</TABLE>
-10-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(6) Business and Geographical Segments, continued
<TABLE>
<CAPTION>
Nine months ended September 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 $ 60,644 28,932 22,022 111,598 29,540 141,138 122,761 263,889
Marketing and processing expense -- -- -- -- -- -- 120,572 120,572
Oil and gas production expense 9,630 10,406 4,693 24,729 9,360 34,089 -- 34,089
General and administrative expense 3,487 2,627 1,832 7,946 2,126 10,072 1,940 12,012
Depreciation and depletion expense 32,898 13,121 6,556 52,575 11,794 64,369 1,464 65,833
-------- ------- ------- ------- ------ ------- ------- -------
Earnings from operations $ 14,629 2,778 8,941 26,348 6,260 32,608 (1,215) 31,393
======== ======= ======= ======= ======= ======= ======= =======
Capital expenditures $ 18,913 26,498 4,435 49,846 25,752 75,598 -- 75,598
======== ======= ======= ======= ======= ======= ======= =======
Property and equipment, net $114,011 273,894 100,027 487,932 163,900 651,832 -- 651,832
======== ======= ======= ======= ======= ======= ======= =======
</TABLE>
Information for Forest's reportable segments relates to the nine months ended
September 30, 1999 consolidated totals as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
EARNINGS BEFORE INCOME TAXES:
Earnings from operations for reportable segments $ 31,393
Administrative asset depreciation (736)
Other income, net 2,425
Interest expense (31,884)
Translation gain on subordinated debt 7,272
---------
Earnings before income taxes $ 8,470
=========
CAPITAL EXPENDITURES:
Reportable segments $ 75,598
International interests 5,777
Administrative assets and other 1,938
---------
Total capital expenditures $ 83,313
=========
PROPERTY AND EQUIPMENT, NET:
Reportable segments $ 651,832
International interests 20,157
Administrative assets, net and other 5,412
---------
Total property and equipment, net $ 677,401
=========
</TABLE>
-11-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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 September 30, 2000 and December 31, 1999 and for the three and
nine months ended September 30, 2000 and September 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.
-12-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(7) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
SEPTEMBER 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 $ 5,494 (242) 2,555 -- 7,807
Accounts receivable 53,154 10,308 27,381 -- 90,843
Other current assets 21,950 1,010 189 -- 23,149
--------- ------- ------ ------- -------
Total current assets 80,598 11,076 30,125 -- 121,799
Net property and equipment,
at cost, full cost method 550,235 188,154 73 -- 738,462
Goodwill and other intangible
assets, net -- -- 19,830 -- 19,830
Intercompany investments 25,433 25,713 -- (51,146) --
Other assets 6,380 2,694 -- -- 9,074
--------- ------- ------ ------- -------
$ 662,646 227,637 50,028 (51,146) 889,165
========= ======= ====== ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 52,909 13,040 27,757 -- 93,706
Accrued interest 2,422 750 -- -- 3,172
Other current liabilities 2,015 566 5 -- 2,586
--------- ------- ------ ------- -------
Total current liabilities 57,346 14,356 27,762 -- 99,464
Long-term debt 184,194 230,253 -- -- 414,447
Other liabilities 12,318 (29) -- -- 12,289
Deferred income taxes -- 24,113 (11,696) -- 12,417
Shareholders' equity:
Common stock 5,428 25,433 25,265 (50,698) 5,428
Capital surplus 725,991 -- -- -- 725,991
Accumulated deficit (314,853) (63,612) 11,394 -- (367,071)
Accumulated other
comprehensive loss (4,960) (2,877) (2,697) -- (10,534)
Treasury stock, at cost (2,818) -- -- (448) (3,266)
--------- ------- ------ ------- -------
Total shareholders' equity 408,788 (41,056) 33,962 (51,146) 350,548
--------- ------- ------ ------- -------
$ 662,646 227,637 50,028 (51,146) 889,165
========= ======= ====== ======= =======
</TABLE>
-13-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(7) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 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>
Revenue:
Marketing and processing $ 349 -- 67,624 67,973
Oil and gas sales:
Gas 34,508 7,986 -- 42,494
Oil, condensate and
natural gas liquids 13,528 10,921 -- 24,449
------- ------ ------ -------
Total oil and gas sales 48,036 18,907 -- 66,943
------- ------ ------ -------
Total revenue 48,385 18,907 67,624 134,916
Expenses:
Marketing and processing 237 -- 66,925 67,162
Oil and gas production 8,334 3,457 -- 11,791
General and administrative 3,095 1,090 304 4,489
Depreciation and depletion 18,874 4,650 487 24,011
------- ------ ------ -------
Total operating expenses 30,540 9,197 67,716 107,453
------- ------ ------ -------
Earnings from operations 17,845 9,710 (92) 27,463
Other income and expense:
Other (income) expense, net 218 326 (50) 494
Interest expense 4,648 5,040 9 9,697
Translation loss on
subordinated debt -- 2,824 -- 2,824
------- ------ ------ -------
Total other income and
expense 4,866 8,190 (41) 13,015
------- ------ ------ -------
Earnings (loss) before income taxes
and extraordinary item 12,979 1,520 (51) 14,448
Income tax expense (benefit):
Current 143 149 33 325
Deferred -- 2,382 (40) 2,342
------- ------ ------ -------
143 2,531 (7) 2,667
------- ------ ------ -------
Net earnings (loss) $12,836 (1,011) (44) 11,781
======= ====== ====== =======
</TABLE>
-14-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(7) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 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 $ 842 -- 169,849 -- 170,691
Oil and gas sales:
Gas 97,244 20,747 474 -- 118,465
Oil, condensate and
natural gas liquids 34,666 27,526 520 -- 62,712
-------- ------- ------- ----- -------
Total oil and gas sales 131,910 48,273 994 -- 181,177
-------- ------- ------- ----- -------
Total revenue 132,752 48,273 170,843 -- 351,868
Expenses:
Marketing and processing 664 -- 167,618 -- 168,282
Oil and gas production 22,908 8,747 76 -- 31,731
General and administrative 8,445 3,074 1,073 -- 12,592
Depreciation and depletion 54,502 13,262 1,801 -- 69,565
-------- ------- ------- ----- -------
Total operating expenses 86,519 25,083 170,568 -- 282,170
-------- ------- ------- ----- -------
Earnings from operations 46,233 23,190 275 -- 69,698
Other income and expense:
Other (income) expense, net 494 (5,329) 5,179 364 708
Interest expense 12,926 15,286 373 (364) 28,221
Translation loss on
subordinated debt -- 7,638 -- -- 7,638
-------- ------- ------- ----- -------
Total other income and
expense 13,420 17,595 5,552 -- 36,567
-------- ------- ------- ----- -------
Earnings (loss) before income taxes
and extraordinary item 32,813 5,595 (5,277) -- 33,131
Income tax expense (benefit):
Current 143 387 101 -- 631
Deferred -- 23,139 (19,383) -- 3,756
-------- ------- ------- ----- -------
143 23,526 (19,282) -- 4,387
-------- ------- ------- ----- -------
Earnings (loss) before extraordinary item 32,670 (17,931) 14,005 -- 28,744
Extraordinary item - gain on
extinguishment of debt -- 192 -- -- 192
-------- ------- ------- ----- -------
Net earnings (loss) $ 32,670 (17,739) 14,005 -- 28,936
======== ======= ======= ===== =======
</TABLE>
-15-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(7) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 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 $ 32,670 (17,931) 14,005 28,744
Adjustments to reconcile net earnings (loss) before
extraordinary item to net cash provided by
operating activities:
Depreciation and depletion 54,502 13,262 1,801 69,565
Amortization of deferred debt costs 817 297 -- 1,114
Translation loss on subordinated debt -- 7,638 -- 7,638
Deferred income tax expense (benefit) -- 23,139 (19,383) 3,756
Stock compensation 502 -- -- 502
Other, net 77 (101) 2 (22)
Increase in accounts receivable (15,956) (6,918) (7,851) (30,725)
Decrease (increase) in other current assets (19,948) 1,275 2,329 (16,344)
Increase (decrease) in accounts payable 11,117 (9,566) 12,431 13,982
Increase (decrease) in accrued interest and other
current liabilities (3,667) 4,474 5 812
--------- ------ ------- -------
Net cash provided by operating activities 60,114 15,569 3,339 79,022
Cash flows from investing activities:
Capital expenditures for property and
equipment (86,408) (36,763) -- (123,171)
Proceeds from sale of assets 5,712 1,715 -- 7,427
Increase in other assets, net (1,760) -- -- (1,760)
--------- ------ ------- -------
Net cash used by investing activities (82,456) (35,048) -- (117,504)
Cash flows from financing activities:
Proceeds from bank borrowings 100,100 12,250 -- 112,350
Repayments of bank borrowings (54,500) (8,753) -- (63,253)
Redemption of 8 3/4% senior subordinated notes -- (4,630) -- (4,630)
Proceeds from the exercise of options 3,594 -- -- 3,594
Purchase of treasury stock (2,818) -- -- (2,818)
Decrease in other liabilities, net (1,769) (364) -- (2,133)
--------- ------ ------- -------
Net cash provided (used) by financing activities 44,607 (1,497) -- 43,110
Intercompany advances, net (20,429) 21,054 (625) --
Effect of exchange rate changes on cash 28 23 (27) 24
--------- ------ ------- -------
Net increase in cash and cash equivalents 1,864 101 2,687 4,652
Cash and cash equivalents at beginning of year 3,630 (343) (132) 3,155
--------- ------ ------- -------
Cash and cash equivalents at end of year $ 5,494 (242) 2,555 7,807
========= ====== ======= =======
</TABLE>
-16-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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>
-17-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(7) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 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 $ 305 -- 42,109 -- 42,414
Oil and gas sales:
Gas 30,020 5,099 -- -- 35,119
Oil, condensate and
natural gas liquids 8,895 6,706 -- -- 15,601
-------- ------- ------ ----- -------
Total oil and gas sales 38,915 11,805 -- -- 50,720
-------- ------- ------ ----- -------
Total revenue 39,220 11,805 42,109 -- 93,134
Expenses:
Marketing and processing -- -- 41,438 -- 41,438
Oil and gas production 6,647 3,739 -- -- 10,386
General and administrative 2,684 712 635 -- 4,031
Depreciation and depletion 17,572 4,145 486 -- 22,203
-------- ------- ------ ----- -------
Total operating expenses 26,903 8,596 42,559 -- 78,058
-------- ------- ------ ----- -------
Earnings (loss) from operations 12,317 3,209 (450) -- 15,076
Other income and expense:
Other (income) expense, net 167 (265) (227) 454 129
Interest expense 5,983 5,045 246 (454) 10,820
Translation gain on
subordinated debt -- (755) -- -- (755)
-------- ------- ------ ----- -------
Total other income and
expense 6,150 4,025 19 -- 10,194
-------- ------- ------ ----- -------
Earnings (loss) before income taxes and
extraordinary item 6,167 (816) (469) -- 4,882
Income tax expense (benefit):
Current -- (34) 17 -- (17)
Deferred -- (370) (135) -- (505)
-------- ------- ------ ----- -------
-- (404) (118) -- (522)
-------- ------- ------ ----- -------
Net earnings (loss) before extraordinary item 6,167 (412) (351) -- 5,404
Extraordinary item - loss on
extinguishment of debt (598) -- -- -- (598)
-------- ------- ------ ----- -------
Net earnings (loss) $ 5,569 (412) (351) -- 4,806
======== ======= ====== ===== =======
</TABLE>
-18-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(7) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 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 $ 499 -- 122,761 -- 123,260
Oil and gas sales:
Gas 86,531 13,841 -- -- 100,372
Oil, condensate and
natural gas liquids 23,715 16,552 -- -- 40,267
--------- ------- ------- ----- -------
Total oil and gas sales 110,246 30,393 -- -- 140,639
--------- ------- ------- ----- -------
Total revenue 110,745 30,393 122,761 -- 263,899
Expenses:
Marketing and processing -- -- 120,572 -- 120,572
Oil and gas production 24,729 9,360 -- -- 34,089
General and administrative 7,946 2,126 1,940 -- 12,012
Depreciation and depletion 53,044 12,061 1,464 -- 66,569
--------- ------- ------- ----- -------
Total operating expenses 85,719 23,547 123,976 -- 233,242
--------- ------- ------- ----- -------
Earnings (loss) from operations 25,026 6,846 (1,215) -- 30,657
Other income and expense:
Other income, net (87) (4,010) (1,672) 3,344 (2,425)
Interest expense 18,460 14,862 1,906 (3,344) 31,884
Translation gain on
subordinated debt -- (7,272) -- -- (7,272)
--------- ------- ------- ----- -------
Total other income and
expense 18,373 3,580 234 -- 22,187
--------- ------- ------- ----- -------
Earnings (loss) before income taxes
and extraordinary item 6,653 3,266 (1,449) -- 8,470
Income tax expense (benefit):
Current -- (267) 169 -- (98)
Deferred -- (824) (505) -- (1,329)
--------- ------- ------- ----- -------
-- (1,091) (336) -- (1,427)
--------- ------- ------- ----- -------
Net earnings (loss) before
extraordinary item 6,653 4,357 (1,113) -- 9,897
Extraordinary item - loss on
extinguishment of debt (598) -- -- -- (598)
--------- ------- ------- ----- -------
Net earnings (loss) $ 6,055 4,357 (1,113) -- 9,299
========= ======= ======= ===== =======
</TABLE>
-19-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(7) SUPPLEMENTAL GUARANTOR INFORMATION, CONTINUED
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 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) $ 6,653 4,357 (1,113) 9,897
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and depletion 53,044 12,061 1,464 66,569
Amortization of deferred debt costs 659 299 -- 958
Translation gain on subordinated debt -- (7,272) -- (7,272)
Deferred income tax benefit -- (824) (505) (1,329)
Other, net (523) (2,602) 3 (3,122)
Decrease (increase) in accounts receivable (6,688) 3,210 889 (2,589)
Decrease (increase) in other current assets (1,144) (3,066) (953) (5,163)
Increase in accounts payable 2,021 1,987 63 4,071
Increase (decrease) in accrued interest and
other current liabilities 789 (4,191) 1,325 (2,077)
--------- ------- ------ --------
Net cash provided by operating activities 54,811 3,959 1,173 59,943
Cash flows from investing activities:
Capital expenditures for property and
equipment (57,408) (25,905) -- (83,313)
Proceeds from sale of assets 7,716 9,625 -- 17,341
Increase in other assets, net (506) -- -- (506)
--------- ------- ------ --------
Net cash used by investing activities (50,198) (16,280) -- (66,478)
Cash flows from financing activities:
Proceeds from common stock offering, net
of cost 131,188 -- -- 131,188
Proceeds from bank borrowings 64,500 31,788 -- 96,288
Repayments of bank borrowings (277,900) (31,585) -- (309,485)
Issuance of 10 1/2% senior subordinated
notes, net of issuance costs 98,561 -- -- 98,561
Redemption of 11 1/4% senior
subordinated notes (9,083) -- -- (9,083)
Proceeds from the exercise of options 1,388 -- -- 1,388
Decrease in other liabilities, net (2,431) (22) -- (2,453)
--------- ------- ------ --------
Net cash provided by financing activities 6,223 181 -- 6,404
Intercompany advances, net (12,681) 12,681 -- --
Effect of exchange rate changes on cash 8 (63) 35 (20)
--------- ------- ------ --------
Net increase (decrease) in cash and cash equivalents (1,837) 478 1,208 (151)
Cash and cash equivalents at beginning of year 3,713 (33) (265) 3,415
--------- ------- ------ --------
Cash and cash equivalents at end of year $ 1,876 445 943 3,264
========= ======= ====== ========
</TABLE>
-20-
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(8) FOREST AND FORCENERGY INC MERGER
On July 10, 2000, Forest and Forcenergy Inc (Forcenergy) jointly announced
a proposed merger. Forcenergy common stockholders will receive 1.6 Forest common
shares for each share of Forcenergy common stock they own and Forest will
exchange its common shares for Forcenergy's outstanding preferred stock at a
ratio of 68.6141 Forest common shares for each $1,000 stated value amount of
Forcenergy preferred stock. The shareholders' meetings to vote on the merger
will be held on December 7, 2000.
The merger will be accounted for as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of Forest and Forcenergy will be carried forward to the
combined company at their recorded amounts, and income of the combined company
will include income of Forest and Forcenergy for the entire fiscal year in which
the merger occurs. The results of operations of Forcenergy prior to December 31,
1999, the effective date of its reorganization and fresh start reporting, will
not be included in the financial statements of the combined company.
The following unaudited pro forma data summarizes the combined results of
operations of Forest and Forcenergy as if the merger was effective as of
September 30, 2000:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 2000 September 30, 2000
------------------ -----------------
(In Thousands)
<S> <C> <C>
Total revenue $2,292,280 600,334
========== ==========
Net earnings $ 33,794 75,068
========== ==========
Earnings attributable to common stock $ 32,334 72,037
========== ==========
Weighted average number of common
shares outstanding 95,124 95,150
========== ==========
Earnings per common share $ .34 .76
========== ==========
</TABLE>
There were no adjustments necessary to conform the accounting methods of
Forest and Forcenergy. The pro forma data does not give effect to the
proposed 1-for-2 reverse stock split.
-21-
<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/A and Forest's joint proxy statement/prospectus dated November 7, 2000
relating to the proposed merger with Forcenergy Inc.
RESULTS OF OPERATIONS FOR THE THIRD QUARTER OF 2000
Net earnings for the third quarter of 2000 were $11,781,000 or $.22 per
basic and diluted common share compared to $4,806,000 or $.10 per basic and
diluted common share in the corresponding period of 1999. The current period
included a noncash loss on currency translation of $2,824,000 related to
subordinated debt issued by Forest's Canadian subsidiary. The 1999 period
included a noncash gain on currency translation of $755,000 and an extraordinary
loss on extinguishment of debt of $598,000. Exclusive of currency translation
and the extraordinary items, net earnings for the third quarter of 2000 amounted
to $14,605,000 compared to net earnings of $4,649,000 in the corresponding 1999
period.
Marketing and processing revenue increased by 60% to $67,973,000 in the
third quarter of 2000 from $42,414,000 in the third quarter of 1999 and the
related marketing and processing expense increased by 62% to $67,162,000 in the
third quarter of 2000 from $41,438,000 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
decreased to $811,000 in the third quarter of 2000 from $976,000 in the third
quarter of 1999. The decrease resulted from higher gas processing expense in the
United States.
Oil and gas sales revenue increased by 32% to $66,943,000 in the third
quarter of 2000 from $50,720,000 in the third 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 third quarter of
2000 decreased 11% 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 third quarter
of 2000 increased 35% and 66%, respectively, compared to the average sales
prices received in the corresponding 1999 period.
Oil and gas production expense of $11,791,000 in the third quarter of
2000 increased 14% from $10,386,000 in the comparable period of 1999
primarily as a result of increased workover activity and 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 increased approximately
23% in the third quarter of 2000 to $.58 per MCFE from $.47 MCFE in the third
quarter of 1999.
-22-
<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 September 30, 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) 6,152 1,992 2,914 11,058 2,831 13,889
Sales price received (per MCF) $ 4.41 4.35 3.53 4.17 2.91 3.91
Effects of energy swaps (per MCF)(1) (.97) (.98) (.71) (.90) (.65) (.85)
------- ------ ------ ------ ------ ------
Average sales price (per MCF) $ 3.44 3.37 2.82 3.27 2.26 3.06
LIQUIDS
Oil and condensate:
Production (MBBLS) 216 195 40 451 288 739
Sales price received (per BBL) $ 30.15 31.28 32.20 30.82 30.26 30.60
Effects of energy swaps (per BBL)(1) (6.06) (6.07) (6.53) (6.11) (6.04) (6.08)
------- ------ ------ ------ ------ ------
Average sales price (per BBL) $ 24.09 25.21 25.67 24.71 24.22 24.52
Natural gas liquids:
Production (MBBLS) -- 52 177 229 105 334
Average sales price (per BBL) $ -- 19.79 18.38 18.71 19.48 18.95
Total liquids production (MBBLS) 216 247 217 680 393 1,073
Average liquids sales price (per BBL) $ 24.10 24.07 19.72 22.69 22.95 22.79
TOTAL PRODUCTION
Production volumes (MMCFE) 7,448 3,474 4,216 15,138 5,189 20,327
Average sales price (per MCFE) $ 3.54 3.64 2.96 3.41 2.97 3.29
Operating expense (per MCFE) (.50) (.78) (.45) (.55) (.67) (.58)
------- ------ ------ ------ ------ ------
Netback (per MCFE) $ 3.04 2.86 2.51 2.86 2.30 2.71
======= ====== ====== ====== ====== ======
</TABLE>
(1) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuations. Hedged natural gas volumes were 5,934 MMCF in
the three months ended September 30, 2000. Hedged oil and condensate
volumes were 444,500 barrels in the three months ended September 30, 2000
period. The aggregate net loss under energy swap agreements was $16,325,000
for the period and was accounted for as a decrease to oil and gas sales.
-23-
<PAGE>
<TABLE>
<CAPTION>
Three Months September 30, 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) 7,175 2,806 2,444 12,425 3,060 15,485
Sales price received (per MCF) $ 2.65 2.72 2.27 2.59 1.86 2.45
Effects of energy swaps (per MCF)(1) (.16) (.23) (.06) (.16) (.26) (.18)
------- ------ ------ ------ ------ ------
Average sales price (per MCF) $ 2.49 2.49 2.21 2.43 1.60 2.27
LIQUIDS
Oil and condensate:
Production (MBBLS) 221 244 47 512 330 842
Sales price received (per BBL) $ 19.53 18.80 21.47 19.36 18.51 19.03
Effects of energy swaps (per BBL)(1) (5.49) (5.95) (3.87) (5.56) (3.55) (4.78)
------- ------ ------ ------ ------ ------
Average sales price (per BBL) $ 14.04 12.85 17.60 13.80 14.96 14.25
Natural gas liquids:
Production (MBBLS) -- 43 146 189 103 292
Average sales price (per BBL) $ -- 10.26 12.73 12.29 12.32 12.30
Total liquids production (MBBLS) 221 287 193 701 433 1,134
Average liquids sales price (per BBL) $ 14.18 12.46 13.91 13.40 14.33 13.76
TOTAL PRODUCTION:
Production volumes (MMCFE) 8,501 4,528 3,602 16,631 5,658 22,289
Average sales price (per MCFE) $ 2.47 2.33 2.24 2.38 1.96 2.28
Operating expense (per MCFE) (.32) (.40) (.58) (.40) (.66) (.47)
------- ------ ------ ------ ------ ------
Netback (per MCFE) $ 2.15 1.93 1.66 1.98 1.30 1.81
======= ====== ====== ====== ====== ======
</TABLE>
(1) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuations. Hedged natural gas volumes were 7,949 MMCF in
the three months ended September 30, 1999. Hedged oil and condensate
volumes were 783,000 barrels in the three months ended September 30, 1999.
The aggregate net loss under energy swap agreements was $6,775,000 for the
period and was accounted for as a decrease to oil and gas sales.
General and administrative expense increased 11% to $4,489,000 in the third
quarter of 2000 compared to $4,031,000 in the comparable period of 1999. Total
overhead costs (capitalized and expensed general and administrative costs) were
$6,944,000 in the third quarter of 2000 compared to $5,833,000 in the comparable
period of 1999. The increase was due primarily to higher employee related costs
and professional service costs. The amount capitalized of $2,455,000 in the
third quarter of 2000 increased 36% from the corresponding 1999 period due
primarily to increased overhead costs and higher capitalization rates associated
with international projects.
-24-
<PAGE>
Depreciation and depletion expense increased 8% to $24,011,000 in the third
quarter of 2000 from $22,203,000 in the third quarter of 1999. On a per-unit
basis, depletion expense was approximately $1.14 per MCFE in the third quarter
of 2000 compared to $.96 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 $494,000 in the third quarter of 2000 compared to
$129,000 in the third quarter of 1999.
Interest expense decreased 10% to $9,697,000 in the third quarter of 2000
compared to $10,820,000 in the corresponding 1999 period, due primarily to lower
bank debt balances.
The foreign currency translation loss was $2,824,000 in the third quarter
of 2000, compared to a gain of $755,000 in the third 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 $.6655 per $1.00 U.S. at September
30, 2000 compared to $.6759 at June 30, 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 income tax expense of $2,667,000 for the three months ended September
30, 2000 increased over the tax benefit of $522,000 for the corresponding period
in 1999 due primarily to an increase in earnings from Canadian operations in the
2000 period compared to the corresponding period of 1999.
The extraordinary loss on extinguishment of debt of $598,000 in the third
quarter of 1999 resulted from the redemption of $8,631,000 remaining principal
amount of 11 1/4% Senior Subordinated Notes at 103.792% of par value.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Net earnings for the first nine months of 2000 were $28,936,000, or $.54
per basic and $.53 per diluted common share compared to $9,299,000 or $.20 per
basic and diluted common share in the first nine months of 1999. The current
period includes a noncash loss on foreign currency translation of $7,638,000 and
an extraordinary gain on extinguishment of debt of $192,000. The 1999 period
included a noncash gain on currency translation of $7,272,000 and an
extraordinary loss on extinguishment of debt of $598,000. Exclusive of currency
translation and the extraordinary items, net earnings for the first nine months
of 2000 amounted to $36,382,000 compared to net earnings of $2,625,000 in the
corresponding 1999 period.
Marketing and processing revenue increased 38% to $170,691,000 in the first
nine months of 2000 from $123,260,000 in the first nine months of 1999, while
the related marketing and processing expense increased by 40% to $168,282,000 in
the 2000 period from $120,572,000 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 $2,409,000 in
the first nine months of 2000 was 10% lower than the gross margin of $2,688,000
in the first nine months of 1999. The decrease in the gross margin resulted
primarily from higher gas processing expense in the United States.
Oil and gas sales revenue increased by 29% to $181,177,000 in the first
nine months of 2000 from $140,639,000 in the first nine months of 1999 due
primarily to higher oil and gas prices. Production volumes for natural gas and
liquids in the first nine 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 nine months of 2000 increased 35% and 66%,
respectively, compared to the average sales price received in the corresponding
1999 period.
Oil and gas production expense of $31,731,000 in the first nine months of
2000 decreased 7% from $34,089,000 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 increased approximately 4% in the first nine months of 2000
to $.52 per MCFE from $.50 per MCFE in the first nine months of 1999.
-25-
<PAGE>
The following tables set forth production volumes, weighted average sales
prices and production expenses during the periods as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30, 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) 19,165 6,505 7,701 33,371 8,926 42,297
Sales price received (per MCF) $ 3.54 3.44 2.99 3.40 2.39 3.18
Effects of energy swaps (per MCF) (1) (.42) (.41) (.36) (.41) (.29) (.38)
------- ------ ------ ------ ------ ------
Average sales price (per MCF) $ 3.12 3.03 2.63 2.99 2.10 2.80
LIQUIDS
Oil and condensate:
Production (MBBLS) 615 626 108 1,349 837 2,186
Sales price received (per BBL) $ 27.73 28.98 30.10 28.50 27.98 28.31
Effects of energy swaps (per BBL)(1) (6.44) (6.73) (6.99) (6.62) (6.50) (6.58)
------- ------ ------ ------ ------ ------
Average sales price (per BBL) $ 21.29 22.25 23.11 21.88 21.48 21.73
Natural gas liquids:
Production (MBBLS) -- 142 457 599 317 916
Average sales price (per BBL) $ -- 15.49 16.63 16.37 17.08 16.61
Total liquids production (MBBLS) 615 768 565 1,948 1,154 3,102
Average liquids sales price (per BBL) $ 21.30 21.00 17.87 20.19 20.27 20.22
TOTAL PRODUCTION:
Production volumes (MMCFE) 22,855 11,113 11,091 45,059 15,850 60,909
Average sales price (per MCFE) $ 3.18 3.23 2.74 3.09 2.66 2.97
Operating expense (per MCFE) (.41) (.78) (.43) (.51) (.56) (.52)
------- ------ ------ ------ ------ ------
Netback (per MCFE) $ 2.77 2.45 2.31 2.58 2.10 2.45
======= ====== ====== ====== ====== ======
</TABLE>
(1) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuations. Hedged natural gas volumes were 18,801 MMCF in
the nine months ended September 30, 2000. Hedged oil and condensate volumes
were 1,683,500 barrels in the nine months ended September 30, 2000. The
aggregate net loss under energy swap agreements was $30,516,000 for the
period and was accounted for as a decrease to oil and gas sales.
-26-
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 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) 22,705 8,204 7,796 38,705 9,525 48,230
Sales price received (per MCF) $ 2.22 2.24 1.95 2.16 1.55 2.04
Effects of energy swaps (per MCF) (1) .07 .07 .09 .08 (.12) .04
------- ------ ------ ------ ------ ------
Average sales price (per MCF) $ 2.29 2.31 2.04 2.24 1.43 2.08
LIQUIDS
Oil and condensate:
Production (MBBLS) 691 648 157 1,496 953 2,449
Sales price received (per BBL) $ 14.37 15.97 16.56 15.29 14.87 15.13
Effects of energy swaps (per BBL)(1) (1.79) (3.00) (1.16) (2.25) (1.34) (1.90)
------- ------ ------ ------ ------ ------
Average sales price (per BBL) $ 12.58 12.97 15.40 13.04 13.53 13.23
Natural gas liquids:
Production (MBBLS) 1 133 404 538 321 859
Average sales price (per BBL) $ 11.00 8.32 9.10 8.91 9.55 9.15
Total liquids production (MBBLS) 692 781 561 2,034 1,274 3,308
Average liquids sales price (per BBL) $ 12.58 12.18 10.87 11.95 12.53 12.17
TOTAL PRODUCTION:
Production volumes (MMCFE) 26,857 12,890 11,162 50,909 17,169 68,078
Average sales price (per MCFE) $ 2.26 2.21 1.97 2.19 1.73 2.07
Operating expense (per MCFE) (.36) (.81) (.42) (.49) (.55) (.50)
------- ------ ------ ------ ------ ------
Netback (per MCFE) $ 1.90 1.40 1.55 1.70 1.18 1.57
======= ====== ====== ====== ====== ======
</TABLE>
(1) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuations. Hedged natural gas volumes were 25,161 MMCF in
the nine months ended September 30, 1999. Hedged oil and condensate volumes
were 1,461,000 barrels in the nine months ended September 30, 1999. The
aggregate net gain under energy swap agreements was $2,838,000 for the
period and was accounted for as a increase to oil and gas sales.
-27-
<PAGE>
General and administrative expense increased 5% to $12,592,000 in the first
nine months of 2000 compared to $12,012,000 in the comparable period of 1999.
Total overhead costs (capitalized and expensed general and administrative costs)
were $20,743,000 in the first nine months of 2000 compared to $17,876,000 in the
comparable period of 1999. The increase was due primarily to higher employee
related costs and professional service costs, offset partially by an insurance
dividend in the 2000 period. The amount capitalized of $8,151,000 in the first
nine months of 2000 increased 39% 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 Nine Months Ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
------ ----- ----- -----
(In Thousands)
<S> <C> <C> <C> <C>
Overhead costs capitalized $2,455 1,802 8,151 5,864
General and administrative costs
expensed (1) 4,489 4,031 12,592 12,012
------ ----- ------ ------
Total overhead costs $6,944 5,833 20,743 17,876
====== ===== ====== ======
</TABLE>
(1) Includes $304,000 and $635,000 related to marketing and processing
operations for the three month periods ended September 30, 2000 and 1999,
respectively, and $1,073,000 and $1,940,000 for the nine month periods
ended September 30, 2000 and 1999, respectively.
Depreciation and depletion expense increased 5% to $69,565,000 in the first
nine months of 2000 from $66,569,000 in the first nine months of 1999. On a
per-unit basis, depletion expense was approximately $1.10 per MCFE in the first
nine months of 2000 compared to $.95 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 $708,000 in the first nine months of 2000 compared to
other income of $2,425,000 in the first nine months of 1999. The 2000 period
includes costs of approximately $675,000 to settle a royalty dispute. The 1999
period includes a gain of approximately $2,500,000 from the sale of a gas
processing facility.
Interest expense decreased 11% to $28,221,000 in the first nine months of
2000 compared to $31,884,000 in the corresponding 1999 period, due primarily to
lower bank debt balances.
The foreign currency translation loss was $7,638,000 in the first nine
months of 2000, compared to a gain of $7,272,000 in the first nine months of
1999. The value of the Canadian dollar was $.6655 per $1.00 U.S. at September
30, 2000 compared to $.6924 at December 31, 1999.
The income tax expense of $4,387,000 for the first nine months of 2000
increased over the tax benefit of $1,427,000 for the corresponding period of
1999 due primarily to an increase in earnings from Canadian operations in the
first nine months of 2000 compared to the corresponding period of 1999.
The extraordinary gain on extinguishment of debt of $192,000 in the first
nine 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. The extraordinary loss
on extinguishment of debt of $598,000 in the first nine months of 1999 resulted
from the redemption of $8,328,000 remaining principal amount of 11 1/4% Senior
Subordinated Notes at 103.792% of par value.
-28-
<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 four offshore Gulf
of Mexico wells whose combined production currently represents approximately 28%
of our consolidated daily deliverability. Our production, revenue and cash flow
could be adversely affected if production from these properties decreases
significantly.
BANK CREDIT FACILITIES. Forest and its subsidiaries, Canadian Forest and
ProMark, have a $300,000,000 global credit facility which currently provides for
a global borrowing base of $250,000,000 through a syndicate of banks led by The
Chase Manhattan Bank and The Chase Manhattan Bank of Canada. At October 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 September 30, 2000, the outstanding borrowings under the global credit
facility were $85,100,000 in the U.S. and $35,272,000 in Canada. At October 31,
2000, the outstanding borrowings were $76,000,000 in the U.S. and $33,256,000 in
Canada, with an average effective interest rate of 7.64%. At October 31, 2000
Forest had also used the global credit facility for letters of credit in the
amount of $834,000 in the United States and $1,770,000 CDN in Canada.
In connection with the merger with Forcenergy, the Company negotiated a new
$600 million senior credit facility with a $500 million secured borrowing base,
led by The Chase Manhattan Bank. This facility will replace the existing senior
facilities of both Forest and Forcenergy. At September 30, 2000 Forcenergy had
outstanding bank borrowings of $232,500,000. 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
$22,335,000 at September 30, 2000 compared to a deficit of approximately
$14,817,000 at December 31, 1999. The increase in working capital is due
primarily to cash deposits related to hedging arrangements; exclusive of these
deposits Forest would have reported a working capital deficit at the end of the
period. Such working capital deficits are typical for Forest and 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 $79,022,000 in the first nine months of 2000 compared to
$59,943,000 in the first nine months of 1999. The increase was due primarily to
higher oil and gas revenue. We used $117,504,000 for investing activities in
2000 compared to $66,478,000 in 1999. Cash used in the 2000 period was greater
than the cash used in the 1999 period due primarily to increased acquisition,
exploration and
-29-
<PAGE>
development activities. Net cash provided by financing activities in 2000 was
$43,110,000 compared to net cash provided of $6,404,000 in 1999. The 2000 period
included $49,097,000 of net bank borrowings. The 1999 period included net
proceeds of $98,561,000 from the issuance of the 10 1/2% Notes, and net proceeds
of $131,188,000 from the issuance of common stock, offset partially by net
repayments of bank borrowings of $213,197,000.
CAPITAL EXPENDITURES. Expenditures for property acquisition, exploration
and development for the first nine months of 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
--------- ------
(In Thousands)
<S> <C> <C>
Property acquisition costs:
Proved properties $ 14,340 72
Undeveloped properties -- 1,058
--------- ------
14,340 1,130
Exploration costs:
Direct costs 54,317 44,093
Overhead capitalized 3,372 2,199
--------- ------
57,689 46,292
Development costs:
Direct costs 45,130 30,288
Overhead capitalized 4,779 3,665
--------- ------
49,909 33,953
--------- ------
$ 121,938 81,375
========= ======
</TABLE>
Forest's anticipated capital expenditures for 2000 are approximately
$187,200,000, including capitalized overhead of approximately $10,600,000. 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. The ProMark
Netback Pool is operated by ProMark, Forest's marketing subsidiary. At September
30, 2000 the ProMark Netback Pool had entered into fixed price contracts to sell
approximately 1.4 BCF of natural gas through the remainder of 2000 at an average
price of $2.42 CDN per MCF and approximately 5.5 BCF of natural gas in 2001 at
an average price of approximately $2.47 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 in cash on a
monthly basis. By entering into swap agreements we effectively fix the price
that we will receive in the future for the hedged production. We enter into swap
agreements when prices are less volatile or when collar arrangements are not
attractively priced. As of November 1, 2000 Forest had the following swaps in
place:
-30-
<PAGE>
<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>
October through December 2000 47.1 $ 3.01 1,500 $ 22.57
2001 22.9 $ 2.53 1,000 $ 28.43
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. Collars are also settled
in cash on a monthly basis. By entering into collars we effectively provide a
floor for the price that we will receive for the hedged production; however, we
also establish a maximum price that we will receive for the hedged production if
prices increase above the ceiling price. We enter into collars during periods of
volatile commodity prices in order to protect against a significant decline in
prices in exchange for forgoing the benefit of price increases in excess of the
collar price on the hedged production. As of November 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>
October through December 2000 $ 2.75 2.90 6.6
2001 3.80 4.95 15.0
</TABLE>
<TABLE>
<CAPTION>
Oil
-----------------------------------------------------
Average Floor Average Ceiling
Price Price BBTU's Per Day
------------- --------------- --------------
<S> <C> <C> <C>
October through December 2000 $ 18.19 20.93 3,500
2001 $ 23.19 27.81 2,000
</TABLE>
Forest periodically assesses the estimated portion of its anticipated
production that is subject to hedging arrangements, and we adjust this
percentage based on our assessment of market conditions and the availability of
hedging arrangements which meet our criteria. Hedging arrangements covered 42%
and 55% of our consolidated production, on an equivalent basis, during the third
quarter of 2000 and 1999, respectively. Hedging arrangements covered 48% and 50%
of our consolidated production, on an equivalent basis, for the nine months
ended September 30, 2000 and 1999, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS. In March 2000, the Financial
Accounting Standards Board (FASB) issued FASB Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation - an
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 adoption of FIN 44 did
not have an impact on Forest's financial position or results of operations.
In December 1999, the Securities and Exchange Commision (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
until the fourth quarter of 2000. The Company has not yet assessed the
impact, if any, that SAB 101 might have on its financial position or results
of operations.
-31-
<PAGE>
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 determined that Statement No. 133 will
have an impact on its financial statements and is evaluating the significance
of the impact.
-32-
<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 third
quarter of 2000:
<TABLE>
<CAPTION>
Date of Report Item Reported Financial Statements Filed
-------------- ------------- --------------------------
<S> <C> <C>
July 10, 2000 Item 5,7 None
</TABLE>
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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: November 14, 2000 /s/ Joan C. Sonnen
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Joan C. Sonnen
Vice President - Controller and Corporate
Secretary
(Signed on behalf of the registrant)
/s/ David H. Keyte
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David H. Keyte
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
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