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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 1-13515
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FOREST OIL CORPORATION
(Exact name of registrant as specified in its charter)
State of incorporation: NEW YORK I.R.S. Employer Identification No. 25-0484900
1600 BROADWAY
SUITE 2200
DENVER, COLORADO 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 303-812-1400
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, Par Value $.10 Per Share New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
Warrants to purchase Common Stock, expiring February 15, 2004
Warrants to purchase Common Stock, expiring February 15, 2005
Warrants to purchase Common Stock, expiring March 20, 2010
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 / /
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $1,070,311,179 as of February 28, 2001 (based on
the last reported sale price of such stock on the New York Stock Exchange
Composite Tape).
There were 48,480,706 shares of the registrant's Common Stock, Par Value
$.10 Per Share outstanding as of February 28, 2001.
Document incorporated by reference: Proxy Statement of Forest Oil
Corporation relative to the Annual Meeting of Shareholders to be held on May 9,
2001, which is incorporated into Part III of this Form 10- K.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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TABLE OF CONTENTS
PAGE NO.
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 18
Item 3. Legal Proceedings........................................... 23
Item 4. Submission of Matters to a Vote of Security Holders......... 23
Item 4A. Executive Officers of Forest................................ 24
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 26
Item 6. Selected Financial and Operating Data....................... 28
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 30
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 37
Item 8. Financial Statements and Supplementary Data................. 39
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 39
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 93
Item 11. Executive Compensation...................................... 93
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 93
Item 13. Certain Relationships and Related Transactions.............. 93
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................. 93
PART I
This section highlights information that is discussed in more detail in the
remainder of the document. Throughout this document we make statements that are
classified as "forward-looking". Please refer to the "Forward-Looking
Statements" section on page 17 of this document for an explanation of these
types of assertions. We also use the terms "Forest", "Company", "we", "our" and
"us" to refer to Forest Oil Corporation.
ITEM 1. BUSINESS
THE COMPANY
Forest Oil Corporation is an independent oil and gas company engaged in the
exploration, development, acquisition, production and marketing of natural gas
and liquids. Forest was incorporated in New York in 1924, the successor to a
company formed in 1916, and has been a publicly held company since 1969. At
March 1, 2001, the Anschutz Corporation, a private Denver-based corporation,
owned approximately 31% of our outstanding common stock.
Forest operates from production offices located in Lafayette and Metairie,
Louisiana; Denver, Colorado; Anchorage, Alaska; and Calgary, Alberta and runs
its international business (other than Canada) from an office located in
Houston, Texas. Forest's corporate headquarters is located in Denver, Colorado.
On December 31, 2000 Forest had 530 employees, of whom 349 were salaried and 181
were hourly. For financial information relating to our geographic and
operational segments, see Note 13 of Notes to Consolidated Financial Statements.
Forest's estimated proved reserves were 1,380 BCFE at December 31, 2000 of
which approximately 61% was natural gas. As of December 31, 2000, our estimated
proved developed reserves were approximately 73% of total estimated proved
reserves.
Forest's principal reserves and producing properties are all located in
North America. In the United States, we have business units operating in four
areas: offshore Gulf of Mexico, onshore Gulf of Mexico, the Western United
States and Alaska. Our fifth business unit is in Canada, where our oil and gas
operations are conducted by our wholly owned subsidiary, Canadian Forest
Oil Ltd. Our sixth business unit consists of our interests in various other
countries, including South Africa, Gabon, Switzerland, Germany, Albania, Italy,
Romania, Thailand and Tunisia; activity in these areas has, to date, been
exploratory in nature and is conducted by our wholly owned subsidiary, Forest
Oil International.
At December 31, 2000, approximately 87% of our oil and gas reserves were in
the United States and approximately 13% were in Canada; oil and gas reserves in
the offshore Gulf of Mexico area represented approximately 36% of total oil and
gas reserves. Approximately 89% of our total production in 2000 was in the
United States and approximately 11% was in Canada. During 2000, we produced
approximately 498 MMCFE per day, of which 56% was in the Gulf of Mexico offshore
area. (An MCF is one thousand cubic feet of natural gas. MMCF is used to
designate one million cubic feet of natural gas and BCF refers to one billion
cubic feet of natural gas. MCFE means thousands of cubic feet of natural gas
equivalents, using a conversion ratio of one barrel of liquids to six MCF of
natural gas. BCFE means billions of cubic feet of natural gas equivalents. With
respect to liquids, the term BBL means one barrel of liquids whereas MBBLS is
used to designate one thousand barrels of liquids. The term liquids is used to
describe oil, condensate and natural gas liquids.)
MERGER WITH FORCENERGY INC
On December 7, 2000, Forest completed its merger with Forcenergy Inc
(Forcenergy). Pursuant to the terms of the merger agreement, Forcenergy
stockholders received 0.8 of a Forest common share for each share of Forcenergy
common stock they owned and 34.307 Forest common shares for each $1,000 stated
value amount of Forcenergy preferred stock. In addition, each warrant to
purchase Forcenergy common
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stock was exchanged for a warrant to purchase 0.8 shares of Forest common stock.
The merger was accounted for under the pooling of interests method of
accounting.
In conjunction with the merger with Forcenergy, Forest effected a 1-for-2
reverse stock split. Unless otherwise indicated, all share and per share amounts
included herein have been adjusted to give retroactive effect to the 1-for-2
reverse stock split.
In connection with the merger Forest entered into a registration rights
agreement with certain of Forcenergy's largest stockholders, Lehman Brothers
Inc., certain funds administered by Oaktree Capital Management, LLC and The
Anschutz Corporation. Pursuant to that registration rights agreement Forest has
filed a registration statement with the Securities and Exchange Commission for
all of the shares of Forest common stock acquired by Lehman and the Oaktree
funds in the merger. The registration statement covers sales in either
negotiated transactions directly with purchasers, block or other institutional
trades, or one or more underwritten offerings. The approximately 8,900,000
shares of common stock covered by the registration statement represent
approximately 18% of the outstanding common stock of Forest as of March 1, 2001.
SALES AND MARKETS
OIL AND GAS OPERATIONS. Forest's U.S. production is generally sold at the
wellhead to oil and natural gas purchasing companies in the areas where it is
produced. Liquids are typically sold under short-term contracts at prices based
upon posted field prices. Natural gas in the United States is generally sold
month to month on the spot market.
Currently, nearly all of our U.S. natural gas is sold at the wellhead at
spot market prices. The term "spot market" as used herein refers to contracts
with a term of six months or less or contracts which call for a redetermination
of sales prices every six months or earlier. We believe that the loss of one or
more of our current natural gas spot purchasers should not have a material
adverse effect on Forest's business in the United States because any individual
spot purchaser could be readily replaced by another spot purchaser who would pay
approximately the same sales price.
Substantially all of our Alaskan oil production, which was acquired in the
merger with Forcenergy, is sold to one purchaser. The contract with this
purchaser runs through December 31, 2001, and is automatically renewed from year
to year thereafter until terminated by either party upon sixty (60) days prior
written notice.
In Canada, liquids are typically sold under short-term contracts at prices
based upon posted prices at Alberta pipeline and processing hubs netted back to
the field. Canadian Forest's natural gas production is sold primarily through
the ProMark Netback Pool which is operated by ProMark, the marketing subsidiary
of Canadian Forest. Canadian Forest sold approximately 85% of its natural gas
production through the ProMark Netback Pool in 2000.
From time to time we enter into energy swaps and collars to hedge the price
of spot market volumes against price fluctuations. See Quantitative and
Qualitative Disclosures About Market Risk--Commodity Price Risk.
MARKETING AND TRADING ACTIVITIES. The ProMark Netback Pool matches major
end users with providers of gas supply through arranged transportation channels,
and uses a netback pricing mechanism to establish the wellhead price paid to
producers. Under this netback arrangement, producers receive the blended market
price less related transportation and other direct costs. ProMark charges a
marketing fee for marketing and administering the gas supply pool.
The ProMark Netback Pool gas sales in 2000 averaged 86 MMCF per day, of
which Canadian Forest supplied approximately 32 MMCF per day or 37%.
Approximately 18% of the volumes sold in the
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ProMark Netback Pool in 2000 were sold at fixed prices. The remainder of the
volumes sold were priced in a variety of ways, including prices based on
indices.
In addition to operating the ProMark Netback Pool, ProMark provides other
marketing services for producers and consumers of natural gas. ProMark manages
long-term gas supply contracts for industrial customers and provides
full-service purchasing, accounting and gas nomination services for both
producers and customers on a fee-for-services basis. ProMark follows procedures
to immediately match its gas purchase and sales commitments with offsetting gas
purchase or sales. We are, however, exposed to credit risk in that there exists
the possibility that the counterparties to agreements will fail to perform their
contractual obligations. The credit of counterparties is evaluated and letters
of credit or parent guarantees are obtained when considered necessary to
minimize credit risk.
OTHER FOREIGN OPERATIONS
Forest considers, from time to time, certain oil and gas opportunities in
other foreign countries. Foreign oil and natural gas operations are subject to
certain risks, such as nationalization, confiscation, terrorism, renegotiation
of existing contracts and currency fluctuations. Forest monitors the political,
regulatory and economic developments in any foreign countries in which it
operates.
We currently hold concessions in South Africa, Gabon, Switzerland, Germany,
Albania, Italy, Romania, Thailand and Tunisia. We currently have no production
from any of the foregoing concessions. Forest is currently conducting drilling
operations in South Africa and Albania. These international interests comprise
approximately 2% of our total assets at December 31, 2000.
COMPETITION
The oil and natural gas industry is intensely competitive. Competition is
particularly intense in the acquisition of prospective oil and natural gas
properties and oil and gas reserves. Forest's competitive position depends on
our geological, geophysical and engineering expertise, our financial resources,
our ability to develop properties and our ability to select, acquire and develop
proved reserves. We compete with a substantial number of other companies having
larger technical staffs and greater financial and operational resources. Many
such companies not only engage in the acquisition, exploration, development and
production of oil and natural gas reserves, but also carry on refining
operations, generate electricity and market refined products. We also compete
with major and independent oil and gas companies in the marketing and sale of
oil and gas to transporters, distributors and end users. The oil and natural gas
industry competes with other industries supplying energy and fuel to industrial,
commercial and individual consumers. Forest competes with other oil and natural
gas companies in attempting to secure drilling rigs and other equipment
necessary for drilling and completion of wells. Such equipment may be in short
supply from time to time. Finally, companies not previously investing in oil and
natural gas may choose to acquire reserves to establish a firm supply or simply
as an investment. Such companies provide competition for Forest.
Forest's business is affected not only by such competition, but also by
general economic developments, governmental regulations and other factors that
affect our ability to market our oil and natural gas production. The prices of
oil and natural gas realized by Forest are highly volatile. The price of oil is
generally dependent on world supply and demand, while the price we receive for
our natural gas is tied to the specific markets in which such gas is sold.
Declines in crude oil prices or natural gas prices adversely impact Forest's
activities. Our financial position and resources may also adversely affect our
competitive position. Lack of available funds or financing alternatives will
prevent us from executing our operating strategy and from deriving the expected
benefits therefrom. For further information concerning Forest's financial
position, see Management's Discussion and Analysis of Financial Condition and
Results of Operations.
3
ProMark also faces significant competition from other gas marketers, some of
whom are significantly larger in size and have greater financial resources than
ProMark, Canadian Forest or Forest.
REGULATION
UNITED STATES. Various aspects of our oil and natural gas operations are
regulated by administrative agencies under statutory provisions of the states
where such operations are conducted and by certain agencies of the Federal
government for operations on Federal leases. All of the jurisdictions in which
we own or operate producing crude oil and natural gas properties have statutory
provisions regulating the exploration for and production of crude oil and
natural gas, including provisions requiring permits for the drilling of wells
and maintaining bonding requirements in order to drill or operate wells and
provisions relating to the location of wells, the method of drilling and casing
wells, the surface use and restoration of properties upon which wells are
drilled and the plugging and abandoning of wells. Our operations are also
subject to various conservation laws and regulations. These include the
regulation of the size of drilling and spacing units or proration units and the
number of wells which may be drilled in an area and the unitization or pooling
of crude oil and natural gas properties. In this regard, some states can order
the pooling or integration of tracts to facilitate exploration while other
states rely on voluntary pooling of lands and leases. In addition, state
conservation laws establish maximum rates of production from crude oil and
natural gas wells, generally prohibit the venting or flaring of natural gas, and
impose certain requirements regarding the ratability or fair apportionment of
production from fields and individual wells. Some states, such as Texas and
Oklahoma, have, in recent years, reviewed and substantially revised methods
previously used to make monthly determinations of allowable rates of production
from fields and individual wells. The effect of these regulations is to limit
the amounts of crude oil and natural gas we can produce from our wells, and to
limit the number of wells or the location at which we can drill.
The Federal Energy Regulatory Commission (FERC) regulates the transportation
and sale for resale of natural gas in interstate commerce under the Natural Gas
Act of 1938 (NGA) and the Natural Gas Policy Act of 1978 (NGPA). In the past,
the Federal government has regulated the prices at which oil and gas could be
sold. The Natural Gas Wellhead Decontrol Act of 1989 (the Decontrol Act) removed
all NGA and NGPA price and nonprice controls affecting producers' wellhead sales
of natural gas effective January 1, 1993. While sales by producers of natural
gas, and all sales of crude oil, condensate and natural gas liquids can
currently be made at uncontrolled market prices, Congress could reenact price
controls in the future.
Commencing in April 1992, the FERC issued Order No. 636 and subsequent
orders (collectively, Order No. 636), which require interstate pipelines to
provide transportation separate, or "unbundled", from the pipelines' sales of
gas. Also, Order No. 636 requires pipelines to provide open-access
transportation on a basis that is equal for all gas supplies. Although Order
No. 636 does not directly regulate gas producers like Forest, the FERC has
stated that it intends for Order No. 636 to foster increased competition within
all phases of the natural gas industry. The courts have largely affirmed the
significant features of Order No. 636 and numerous related orders pertaining to
the individual pipelines, although certain appeals remain pending and the FERC
continues to review and modify its open access regulations. Commencing in
February 2000, the FERC issued Order No. 637 and subsequent orders
(collectively, Order No. 637), which, among other things, (i) lifts the
cost-based cap on pipeline transportation rates in the capacity release market
until September 30, 2002, for releases of pipeline capacity of less than one
year, (ii) permits pipelines to charge different maximum cost-based rates for
peak and off-peak times, (iii) encourages auctions for pipeline capacity,
(iv) requires pipelines to implement imbalance management services, and
(v) restricts the ability of pipelines to impose penalties for imbalances,
overruns, and non-compliance with operational flow orders. Order No. 637 also
requires the FERC Staff to analyze whether the FERC should implement additional
fundamental policy changes, including, among other things, whether to pursue
performance-based ratemaking or other non-cost based ratemaking techniques and
whether the FERC should mandate greater standardization in terms and conditions
of service across
4
the interstate pipeline grid. Most major aspects of Order No. 637 are currently
pending judicial review. The FERC has also recently implemented new regulations
governing the procedure for obtaining authorization to construct new pipeline
facilities and has issued a policy statement, which it largely affirmed in a
recent order on rehearing, establishing a presumption in favor of requiring
owners of new pipeline facilities to charge rates based solely on the costs
associated with such new pipeline facilities.
While any additional FERC action on these matters would affect Forest only
indirectly, these changes are intended to further enhance competition in natural
gas markets. We cannot predict what further action the FERC will take on these
matters, nor can it predict whether and to what extent the FERC's regulations
will survive judicial review and, if so, whether the FERC's actions will achieve
the stated goal of increased competition in natural gas markets. However, we do
not believe that it will be treated materially differently than other natural
gas producers and markets with which it competes.
In Order Nos. 561 and 561-A, the FERC established an indexing system under
which oil pipelines are able to change their transportation rates, subject to
prescribed ceiling levels. The indexing system, which allows or may require
pipelines to make rate changes to track changes in the Producer Price Index for
Finished Goods, minus one percent, became effective January 1, 1995. In certain
circumstances, these rules permit oil pipelines to establish rates using
traditional cost of service or other methods of rate making. To date, we do not
believe Order Nos. 561 and 561-A have materially increased transportation costs
associated with oil production from our oil producing operations.
The Outer Continental Shelf Lands Act (OCSLA) requires that all pipelines
operating on or across the Outer Continental Shelf (the OCS) provide
open-access, non-discriminatory service. Commencing in April 2000, FERC issued
Order No. 639 and subsequent orders (collectively, Order No. 639), which imposed
certain reporting requirements applicable to "gas service providers" operating
on the OCS concerning their prices and other terms and conditions of service.
The purpose of Order No. 639 is to provide regulators and other interested
parties with sufficient information to detect and to remedy discriminatory
conduct by such service providers. FERC has stated that these reporting rules
apply to OCS gatherers and has clarified that they may also apply to other OCS
service providers including platform operators performing dehydration,
compression, processing and related services for third parties. Judicial review
of Order No. 639 is currently pending. We cannot predict whether and to what
extent these regulations will survive such review, and what effect, if any, they
may have on our financial condition or operations. The rules, if allowed to
stand, may increase the frequency of claims of discriminatory service, may
decrease competition among OCS service providers and may lessen the willingness
of OCS gathering companies to provide service on a discounted basis.
Certain operations that we conduct are on federal oil and gas leases, which
the Minerals Management Service (MMS) administers. The MMS issues such leases
through competitive bidding. These leases contain relatively standardized terms
and require compliance with detailed MMS regulations and orders pursuant to the
OCSLA (which are subject to change by the MMS). For offshore operations, lessees
must obtain MMS approval for exploration plans and development and production
plans prior to the commencement of such operations. In addition to permits
required from other agencies (such as the Coast Guard, the Army Corps of
Engineers and the Environmental Protection Agency), lessees must obtain a permit
from the MMS prior to the commencement of drilling. Lessees must also comply
with detailed MMS regulations governing, among other things, engineering and
construction specifications for offshore production facilities, safety
procedures, flaring of production, plugging and abandonment of OCS wells,
calculation of royalty payments and the valuation of production for this purpose
and removal of facilities. To cover the various obligations of lessees on the
OCS, the MMS generally requires that lessees post substantial bonds or other
acceptable assurances that such obligations will be met. The cost of such bonds
or other surety can be substantial and we can provide no assurance that the we
can continue to obtain bonds or other surety in all cases. Under certain
circumstances, the MMS may require our operations on federal leases to be
suspended or terminated. Any such suspension or termination could materially and
adversely affect our financial condition and operations.
5
In March 2000, the MMS issued a final rule modifying the valuation
procedures for the calculation of royalties owed for crude oil sales. When oil
production sales are not in arms-length transactions, the new royalty
calculation will base the valuation of oil production on spot market prices
instead of the posted prices that were previously utilized. We do not believe
that this rule will have a material adverse effect on our operations.
Additional proposals and proceedings that might affect the oil and gas
industry are regularly considered by Congress, states, the FERC and the courts.
We cannot predict when or whether any such proposals may become effective. In
the past, the natural gas industry has been heavily regulated. There is no
assurance that the regulatory approach currently pursued by the FERC will
continue indefinitely. Notwithstanding the foregoing, we do not anticipate that
compliance with existing federal, state and local laws, rules and regulations
will have a material or significantly adverse effect upon our capital
expenditures, earnings or competitive position. No material portion of Forest's
business is subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the Federal government.
CANADA. The oil and natural gas industry in Canada is subject to extensive
controls and regulations imposed by various levels of government. It is not
expected that any of these controls or regulations will affect our operations in
a manner materially different than they would affect other oil and gas companies
of similar size. All current legislation is a matter of public record and we are
unable to predict what additional legislation or amendments may be created.
In Canada, oil exports are subject to regulation by the National Energy
Board (NEB), an independent federal regulatory agency. Exports may be made
pursuant to export orders with terms not exceeding one year in the case of light
crude, and not exceeding two years in the case of heavy crude. Natural gas
exported from Canada is also subject to regulation by the NEB. Exporters are
free to negotiate prices and other terms with purchasers, provided that the
export contracts must continue to meet certain criteria prescribed by the NEB.
Natural gas exports for a term of less than two years must be made pursuant to
an NEB order, or, in the case of exports for a longer duration (to a maximum of
25 years) pursuant to an export license from the NEB with government of Canada
approval.
The provincial governments of Alberta, British Columbia and Saskatchewan
also regulate the volume of natural gas which may be removed from those
provinces for consumption elsewhere based on such factors as reserve
availability, transportation arrangements and market considerations.
In addition to federal regulation, each province has legislation and
regulations which govern land tenure, royalties, production rates, environmental
protection and other matters. The royalty regime is a significant factor in the
profitability of oil and natural gas production. Royalties payable on production
from lands other than Crown lands are determined by negotiations between the
mineral owner and the lessee. Crown royalties are determined by government
regulation and are generally calculated as a percentage of the value of the
gross production, and the rate of royalties payable generally depends in part on
prescribed reference prices, well productivity, geographical location, field
discovery date and the type or quality of the petroleum product produced.
From time to time the governments of Canada, Alberta, British Columbia and
Saskatchewan have established incentive programs which have included royalty
rate deductions, royalty holidays and tax credits for the purpose of encouraging
oil and natural gas exploration or enhanced recovery projects. The trend in
recent years has been for provincial governments to allow such programs to
expire without renewal, and consequently few such programs are currently
operative.
In Alberta, certain producers of oil or natural gas are entitled to a credit
against the royalties to the Crown by virtue of the ARTC (Alberta royalty tax
credit) program. The credit is determined by applying a specified rate to a
maximum of $2 million CDN of Alberta Crown royalties payable for each producer
or associated group of producers. The specified rate is a function of the
Royalty Tax Credit reference price (RTCRP) which is set quarterly by the Alberta
Department of Energy and ranges from 25% to 75%,
6
depending on oil and gas par prices for the previous calendar quarter. Canadian
Forest is eligible for ARTC credits only on eligible properties acquired and
wells drilled after the change of control. Crown royalties on production from
producing properties acquired from corporations claiming maximum entitlement to
ARTC will generally not be eligible.
The provincial government of Alberta is proposing changes to the ARTC
program. Proposed changes include (i) the establishment of a $10,000 minimum
royalty payment for ARTC, (ii) the elimination of ARTC for individuals and
trusts, and (iii) changes in the manner companies report and verify ARTC
eligible properties.
Oil and natural gas royalty holidays and reductions for specific wells
reduce the amount of Crown royalties paid by Forest to the provincial
governments.
REGULATION IN NORTHWEST TERRITORIES OF CANADA. Currently, the provincial
governments have jurisdiction over the exploration and development of oil and
gas resources in the provinces of Canada and the federal government has
jurisdiction over the exploration and development of oil and gas resources in
the Canadian territories. The Yukon, Northwest Territories and Nunavut
governments recently signed a Northern Cooperation Accord for the purpose of
cooperating to seek jurisdiction over the oil and gas resources in these
territories. If jurisdiction over the oil and gas resources in these territories
were to be transferred to the territorial governments, the territorial
governments would have the authority to regulate the grant of drilling permits,
the construction of pipelines and other matters affecting oil and gas
exploration and development activities. We are unable to predict whether any
transfer of jurisdiction to the territorial governments would affect our
proposed exploration and development activities in the Northwest Territories,
although it is possible that the territorial governments would adopt policies or
regulations that could delay or limit our proposed exploration and development
activities, delay or prevent the construction of pipelines or result in the
payment of higher royalties or taxes than would otherwise be the case under the
current federal regulatory framework.
Canadian Forest's right to produce oil and gas from its Northwest
Territories properties, along with the production rights of other industry
participants in these properties, are subject to finalizing the commercial
discovery licenses and production licenses for the wells to be produced. Until
the particulars for these licenses and the related spacing units are finalized,
Canadian Forest's share of production cannot be finally determined.
NORTH AMERICAN FREE TRADE AGREEMENT. On January 1, 1994 the North American
Free Trade Agreement (NAFTA) among the governments of Canada, the United States
and Mexico became effective. NAFTA carries forward most of the material energy
terms contained in the Canada-U.S. Free Trade Agreement. In the context of
energy resources, Canada continues to remain free to determine whether exports
to the United States or Mexico will be allowed provided that any export
restrictions do not: (i) reduce the proportion of energy resource exported
relative to domestic use (based upon the proportion prevailing in the most
recent 36-month period), (ii) impose an export price higher than the domestic
price, and (iii) disrupt normal channels of supply. All three countries are
prohibited from imposing minimum export or import price requirements. NAFTA
contemplates clearer disciplines on regulators to ensure fair implementation of
any regulatory changes and to minimize disruption of contractual arrangements,
which is important for Canadian natural gas exports.
ENVIRONMENTAL MATTERS. Extensive U.S. federal, state and local laws govern
oil and natural gas operations, regulate the discharge of materials into the
environment or otherwise relate to environmental protection. Numerous
governmental agencies, such as the U.S. Environmental Protection Agency
(commonly called the EPA) issue regulations to implement and enforce such laws
which are often difficult and costly to comply with and which carry substantial
administrative, civil and even criminal penalties for failure to comply. These
laws and regulations may, in certain circumstances, impose "strict liability"
for environmental contamination, rendering a person liable for environmental and
natural resource damages
7
and cleanup costs without regard to negligence or fault on the part of such
person. These laws and regulations may restrict the rate of oil and natural gas
production below the rate that would otherwise exist or even prohibit
exploration or production activities in sensitive areas. This regulatory burden
on the oil and natural gas industry increases its cost of doing business and
consequently affects its profitability. Changes in existing environmental laws
or the adoption of new environmental laws have the potential to adversely effect
our operations, earnings or competitive position, as well as the oil and gas
exploration and production industry in general. While we believe that we are in
substantial compliance with current applicable environmental laws and
regulations and that continued compliance with existing requirements will not
have a material adverse impact on Forest, we cannot give any assurance that we
will not be adversely affected in the future.
The Oil Pollution Act of 1990 (OPA) and regulations thereunder impose a
variety of requirements on "responsible parties" related to the prevention of
oil spills and liability for damages resulting from such spills in U.S. waters.
A "responsible party" includes the owner or operator of a pipeline, vessel or
onshore facility, or the lessee or permittee of the area in which an offshore
facility is located. OPA assigns liability to each responsible party for oil
cleanup costs and a variety of public and private damages from oil spills. OPA
also requires operators of offshore OCS facilities to demonstrate to the MMS
that they possess at least $35 million in financial resources that are available
to pay for costs that may be incurred in responding to an oil spill. This
financial responsibility amount can increase up to a maximum of $150 million if
the MMS determines that a greater amount is justified based on specific risks
posed by the operations or if the worst case oil-spill discharge volume possible
at a facility exceeds applicable threshold volumes established by the MMS under
rules it issued in August 1998 pertaining to covered offshore facilities. While
liability limits apply in some circumstances, a party cannot take advantage of
liability limits if the spill was caused by gross negligence or willful
misconduct or resulted from violation of a federal safety, construction or
operating regulation. If the party fails to report a spill or to cooperate fully
in the cleanup, liability limits likewise do not apply. Even if applicable, the
liability limits for offshore facilities require the responsible party to pay
all removal costs, plus up to $75 million in other damages. Few defenses exist
to the liability imposed by OPA.
The U.S. Water Pollution Control Act (commonly called the Clean Water Act)
imposes restrictions and strict controls regarding the discharge of produced
waters and other oil and gas wastes in navigable waters. Many state discharge
regulations and the federal National Pollutant Discharge Elimination System
generally prohibit the discharge of produced water and sand, drilling fluids,
drill cuttings and certain other substances related to the oil and gas industry
into coastal waters. Although the costs to comply with these zero discharge
mandates under federal or state law may be significant, the entire industry is
expected to experience similar costs in the western Gulf of Mexico and we
believe that these costs will not have a material adverse impact on our
financial condition and operations.
Forest generates wastes, including hazardous wastes, that are subject to the
federal Resource Conservation and Recovery Act, as amended (commonly referred to
as RCRA) and comparable state statues. The EPA and various state agencies have
limited the approved methods of disposal for certain hazardous and nonhazardous
wastes. Moreover, certain oil and gas exploration and production wastes
generated by Forest that are currently exempt from treatment as "hazardous
waste" may in the future be designated as "hazardous wastes" and therefore be
subject to more rigorous and costly operating and disposal requirements.
The Comprehensive Environmental Response, Compensation and Liability Act, as
amended (commonly called CERCLA but also known as "Superfund") and comparable
state laws impose liability without regard to fault or the legality of the
original conduct, on certain classes of persons who are considered to be
responsible for the release of a "hazardous substance" into the environment.
These persons include the current owner and operator of the disposal site or
sites where the release occurred and companies that transported or disposed or
arranged for the transport or disposal of the hazardous substances that have
been released at the site. Persons who are or were responsible for releases of
hazardous substances under
8
CERCLA may be subject to joint and several liability for the costs of cleaning
up the hazardous substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for neighboring landowners
and other third parties to file claims for personal injury and property damage
allegedly caused by the release of hazardous substances or other pollutants into
the environment. In the ordinary course of Forest's operations, substances may
be generated that fall within the definition of "hazardous substances." Although
we have utilized operating and disposal practices that were standard in the
industry at the time, hydrocarbons or other wastes may have been disposedof or
released on or under the properties owned or leased by us or on or under other
locations where such wastes have been taken for disposal. Moreover, we may own
or operate properties that in the past were operated by third parties whose
operations were not under our control. Those properties and any wastes that may
have been disposed or released on them may be subject to CERCLA, RCRA, and
analogous state laws, and we potentially could be required to remediate such
properties.
In Canada, the oil and natural gas industry is currently subject to
environmental regulation pursuant to provincial and federal legislation.
Environmental legislation provides for restrictions and prohibitions on releases
or emissions of various substances produced or utilized in association with
certain oil and gas industry operations. In addition, legislation requires that
well and facility sites be abandoned and reclaimed to the satisfaction of
provincial authorities. A breach of such legislation may result in the
imposition of fines and penalties.
In Alberta, environmental compliance has been governed by the Alberta
Environmental Protection and Enhancement Act (AEPEA) since September 1, 1993. In
addition to replacing a variety of older statutes which related to environmental
matters, AEPEA also imposes certain environmental responsibilities on oil and
natural gas operators in Alberta and in certain instances also imposes greater
penalties for violations.
British Columbia's Environmental Assessment Act became effective June 30,
1995. This legislation rolls the previous processes for the review of major
energy projects into a single environmental assessment process which
contemplates public participation in the environmental review.
Although we maintain insurance against some, but not all, of the risks
described above, including insuring the costs of clean-up operations, public
liability and physical damage, there is no assurance that such insurance will be
adequate to fully cover all such costs or that such insurance will continue to
be available in the future or that such insurance will be available at premium
levels that justify its purchase. The occurrence of a significant
environmental-related event not fully insured or indemnified against could have
a material adverse effect on our financial condition and operations.
We have established guidelines to be followed to comply with U.S. and
Canadian environmental laws and regulations. In addition, we have designated a
compliance officer whose responsibility is to monitor regulatory requirements
and their impacts on Forest and to implement appropriate compliance procedures.
We also employ an environmental manager whose responsibilities include causing
Forest's operations to be carried out in accordance with applicable
environmental guidelines and implementing adequate safety precautions. Although
we maintain pollution insurance against the costs of clean-up operations, public
liability and physical damage, there is no assurance that such insurance will be
adequate to cover all such costs or that such insurance will continue to be
available in the future.
We believe that it is reasonably likely that the trend in environmental
legislation and regulation will continue toward stricter standards. We are
committed to meeting our responsibilities to protect the environment wherever it
operates and anticipate making increased expenditures of both a capital and
expense nature as a result of increasingly stringent laws relating to the
protection of the environment.
9
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH ELSEWHERE IN THIS FORM 10-K, THE
FOLLOWING FACTORS SHOULD BE CAREFULLY CONSIDERED WHEN EVALUATING FOREST.
OIL AND GAS PRICE DECLINES AND THEIR VOLATILITY COULD ADVERSELY AFFECT
FOREST'S REVENUE, CASH FLOWS AND PROFITABILITY. Prices for oil and natural gas
fluctuate widely. Natural gas prices affect Forest more than oil prices, because
most of our production and reserves are natural gas. At December 31, 2000, 61%
of our estimated proved reserves consisted of natural gas on an MCFE basis and,
during 2000, approximately 62% of our total production consisted of natural gas.
Forest's revenues, profitability and future rate of growth depend
substantially upon the prevailing prices of oil and natural gas. Prices also
affect the amount of cash flow available for capital expenditures and our
ability to borrow money or raise additional capital. The amount we can borrow
from banks may be subject to redetermination based on current prices. In
addition, we may have ceiling test writedowns when prices decline. Lower prices
may also reduce the amount of oil and natural gas that Forest can produce
economically.
We cannot predict future oil and natural gas prices. Factors that can cause
this fluctuation include:
- relatively minor changes in the supply of and demand for oil and natural
gas;
- market uncertainty;
- the level of consumer product demand;
- weather conditions;
- domestic and foreign governmental regulations;
- the price and availability of alternative fuels;
- political and economic conditions in oil producing countries, particularly
those in the Middle East;
- the foreign supply of oil and natural gas;
- the price of oil and gas imports; and
- overall economic conditions.
HEDGING TRANSACTIONS MAY LIMIT OUR POTENTIAL GAINS. In order to manage our
exposure to price risks in the marketing of our oil and natural gas, we enter
into oil and gas price hedging arrangements with respect to a portion of our
expected production. Our hedges are limited in life, usually for periods of one
year or less. While intended to reduce the effects of volatile oil and gas
prices, such transactions may limit our potential gains if oil and gas prices
were to rise substantially over the price established by the arrangements. In
addition, such transactions may expose us to the risk of financial loss in
certain circumstances, including instances in which:
- our production is less than expected;
- there is a widening of price differentials between delivery points for our
production and the delivery point assumed in the hedge arrangement; or
- the counterparties to our future contracts fail to perform under the
contracts.
For further information concerning prices, market conditions and energy swap
and collar agreements, see Management's Discussion and Analysis of Financial
Condition and Results of Operations, and Quantitative and Qualitative
Disclosures About Market Risk--Commodity Price Risk, and Notes 9 and 11 of Notes
to Consolidated Financial Statements.
10
CERTAIN PARTIES WITH WHOM WE HAVE LONG-TERM CONTRACTS MAY FAIL TO
PERFORM. We have long-term contracts, including agreements for the sale of oil
and gas. The other parties to these contracts could fail to perform their
contractual obligations. This failure could be caused by financial difficulties
of these parties that are beyond our control. Our ability to enforce these
contractual obligations may be adversely affected by bankruptcy and other
creditors' rights laws.
WE MAY NOT BE ABLE TO OBTAIN ADEQUATE FINANCING TO EXECUTE OUR OPERATING
STRATEGY. We have historically addressed our long-term liquidity needs through
the use of bank credit facilities, the issuance of debt and equity securities
and the use of cash provided by operating activities. We continue to examine the
following alternative sources of long-term capital:
- bank borrowings or the issuance of debt securities;
- the sale of common stock, preferred stock or other equity securities;
- the issuance of nonrecourse production-based financing or net profits
interests;
- sales of non-strategic properties;
- sales of prospects and technical information; and
- joint venture financing.
The availability of these sources of capital will depend upon a number of
factors, some of which are beyond our control. These factors include general
economic and financial market conditions, oil and natural gas prices and the
value and performance of Forest. We may be unable to execute our operating
strategy if we cannot obtain capital from these sources.
ESTIMATES OF OIL AND GAS RESERVES ARE UNCERTAIN AND INHERENTLY
IMPRECISE. This Form 10-K contains estimates of our proved oil and gas reserves
and the estimated future net revenues from such reserves. These estimates are
based upon various assumptions, including assumptions required by the Securities
and Exchange Commission relating to oil and gas prices, drilling and operating
expenses, capital expenditures, taxes and availability of funds. The process of
estimating oil and gas reserves is complex. Such process requires significant
decisions and assumptions in the evaluation of available geological,
geophysical, engineering and economic data for each reservoir. Therefore, these
estimates are inherently imprecise.
Actual future production, oil and gas prices, revenues, taxes, development
expenditures, operating expenses and quantities of recoverable oil and gas
reserves most likely will vary from those estimated. In certain situations,
hydrocarbon reservoirs underlying our properties may extend beyond the
boundaries of our own acreage to adjacent acreage owned by others. In this case,
our properties may also be susceptible to hydrocarbon drainage from production
by the operators on those adjacent properties. Any significant variance could
materially affect the estimated quantities and present value of reserves set
forth. In addition, we may adjust estimates of proved reserves to reflect
production history, results of exploration and development, prevailing oil and
gas prices and other factors, many of which are beyond our control. Actual
production, revenue, taxes, development expenditures and operating expenses with
respect to our reserves will likely vary from the estimates used. Such variances
may be material.
At December 31, 2000, approximately 27% of our estimated proved reserves
were undeveloped. Undeveloped reserves, by their nature, are less certain.
Recovery of undeveloped reserves requires significant capital expenditures and
successful drilling operations. The estimates of our future reserves include the
assumption that we will make significant capital expenditures to develop our
reserves. Although we have prepared estimates of our oil and gas reserves and
the costs associated with these reserves in accordance with industry standards,
we cannot assure you that the estimated costs are accurate, that development
will occur as scheduled or that the results will be as estimated. See Note 14 of
Notes to Consolidated Financial Statements.
11
You should not assume that the present value of future net revenues referred
to in this Form 10-K is the current market value of our estimated oil and gas
reserves. In accordance with Securities and Exchange Commission requirements,
the estimated discounted future net cash flows from proved reserves are
generally based on prices and costs as of the date of the estimate. Actual
future prices and costs may be materially higher or lower than the prices and
costs as of the date of the estimate. Any changes in consumption by gas
purchasers or in governmental regulations or taxation will also affect actual
future net cash flows. The timing of both the production and the expenses from
the development and production of oil and gas properties will affect the timing
of actual future net cash flows from estimated proved reserves and their present
value. In addition, the 10% discount factor, which is required by the Securities
and Exchange Commission to be used in calculating discounted future net cash
flows for reporting purposes, is not necessarily the most accurate discount
factor. The effective interest rate at various times and the risks associated
with Forest or the oil and gas industry in general will affect the accuracy of
the 10% discount factor.
LEVERAGE WILL MATERIALLY AFFECT OUR OPERATIONS. As of December 31, 2000,
our long-term debt was approximately $622 million, including approximately
$334 million outstanding under our global bank credit facility with a syndicate
of banks led by The Chase Manhattan Bank and The Chase Manhattan Bank of Canada.
Our long-term debt represented 42% of our total capitalization at December 31,
2000.
Our level of debt affects our operations in several important ways,
including the following:
- a significant portion of our cash flow from operations is used to pay
interest on borrowings;
- the covenants contained in the agreements governing our debt limit our
ability to borrow additional funds, to dispose of assets, or to pay
dividends;
- the covenants contained in the agreements governing our debt may affect
our flexibility in planning for, and reacting to, changes in business
conditions;
- a high level of debt could impair our ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions, general corporate or other purposes; and
- the terms of the agreements governing our debt permit our creditors to
accelerate payments upon an event of default or a change of control.
In addition, we may alter our capitalization significantly in order to make
future acquisitions or develop our properties. These changes in capitalization
may increase our level of debt significantly. A high level of debt increases the
risk that we may default on our debt obligations. Our ability to meet our debt
obligations and to reduce our level of debt depends on our future performance.
General economic conditions and financial, business and other factors affect our
operations, our future performance and our ability to raise additional capital.
Many of these factors are beyond our control.
If Forest is unable to repay its debt at maturity out of cash on hand, it
could attempt to refinance such debt, or repay such debt with the proceeds of
any equity offering. We cannot assure you that Forest will be able to generate
sufficient cash flow to pay the interest on its debt or that future debt or
equity financing will be available to pay or refinance such debt. In addition,
if Forest's bank credit facility rating is downgraded, Forest's ability to
borrow under the global credit facility would be subject to a borrowing base
that would re-determined semi-annually. If, following such a re-determination,
Forest's outstanding borrowings exceeded the amount of the re-determined
borrowing base, Forest would be forced to repay a portion of the outstanding
borrowings in excess of the re-determined borrowing base. We cannot assure you
that we will have sufficient funds to make such repayments. If we are not able
to negotiate renewals of our borrowings or to arrange new financing, we may have
to sell significant assets. Any such sale would have a material adverse effect
on our business and financial results. Factors that will affect our ability to
raise cash through an offering of our capital stock or a refinancing of our debt
include financial market
12
conditions and our value and performance at the time of such offering or other
financing. We cannot assure you that any such offering or refinancing can be
successfully completed.
LOWER OIL AND GAS PRICES MAY CAUSE US TO RECORD CEILING LIMITATION
WRITEDOWNS. We use the full cost method of accounting to report our oil and gas
operations. Accordingly, we capitalize the cost to acquire, explore for and
develop oil and gas properties. Under full cost accounting rules, the net
capitalized costs of oil and gas properties may not exceed a "ceiling limit"
which is based upon the present value of estimated future net cash flows from
proved reserves, discounted at 10%, plus the lower of cost or fair market value
of unproved properties. If net capitalized costs of oil and gas properties
exceed the ceiling limit, we must charge the amount of the excess to earnings.
This is called a "ceiling limitation writedown." This charge does not impact
cash flow from operating activities, but does reduce our shareholders' equity.
The risk that we will be required to write down the carrying value of our oil
and gas properties increases when oil and gas prices are low or volatile. In
addition, writedowns may occur if we experience substantial downward adjustments
to our estimated proved reserves or if purchasers cancel long-term contracts for
our natural gas production. In 1998, we recorded after-tax writedowns of
$175 million ($199.5 million pre-tax). We cannot assure you that we will not
experience ceiling limitation writedowns in the future.
WE MAY INCUR SIGNIFICANT ABANDONMENT COSTS OR BE REQUIRED TO POST
SUBSTANTIAL PERFORMANCE BONDS IN CONNECTION WITH THE PLUGGING AND ABANDONMENT OF
WELLS. We are responsible for the costs associated with the plugging of wells,
the removal of facilities and equipment and site restoration on our oil and gas
properties, pro rata to our working interest. We provide for expected future
abandonment liabilities by accruing for such costs as a component of depletion,
depreciation and amortization as production occurs. We also account for these
future liabilities by including all projected abandonment costs as a reduction
in the future cash flows from our reserves in our reserve reporting. As of
December 31, 2000, total undiscounted future abandonment costs were estimated to
be approximately $178.3 million, primarily for properties in offshore Gulf of
Mexico and Alaska waters. Approximately $9.9 million in abandonment costs are
anticipated to be incurred in 2001, all of which will be funded by cash flow
from operations or from temporary borrowings. Estimates of abandonment costs and
their timing may change due to many factors, including actual drilling and
production results, inflation rates, changes in abandonment techniques and
technology, and changes in environmental laws and regulations.
WE MAY NOT BE ABLE TO REPLACE PRODUCTION WITH NEW RESERVES. In general, the
volume of production from oil and gas properties declines as reserves are
depleted. The decline rates depend on reservoir characteristics. Gulf of Mexico
reservoirs experience steep declines, while the declines in long-lived fields in
other regions are relatively slow. Production from Gulf of Mexico reservoirs
represented approximately 56% of our total production in 2000. Our reserves will
decline as they are produced unless we acquire properties with proved reserves
or conduct successful exploration and development activities. Forest's future
natural gas and oil production is highly dependent upon its level of success in
finding or acquiring additional reserves. The business of exploring for,
developing or acquiring reserves is capital intensive and uncertain. We may be
unable to make the necessary capital investment to maintain or expand our oil
and gas reserves if cash flow from operations is reduced and external sources of
capital become limited or unavailable. We cannot assure you that our future
exploration, development and acquisition activities will result in additional
proved reserves or that we will be able to drill productive wells at acceptable
costs.
OUR OPERATIONS ARE SUBJECT TO NUMEROUS RISKS OF OIL AND GAS DRILLING AND
PRODUCTION ACTIVITIES. Oil and gas drilling and production activities are
subject to numerous risks, including the risk that no commercially productive
oil or natural gas reservoirs will be found. The cost of drilling and completing
wells is often uncertain. Oil and gas drilling and production activities may be
shortened, delayed or canceled as a result of a variety of factors, many of
which are beyond our control. These factors include:
- unexpected drilling conditions;
- pressure or irregularities in formations;
13
- equipment failures or accidents;
- weather conditions; and
- shortages in experienced labor or shortages or delays in the delivery of
equipment.
The prevailing prices of oil and natural gas also affect the cost of and the
demand for drilling rigs, production equipment and related services.
We cannot assure you that the new wells we drill will be productive or that
we will recover all or any portion of our investment. Drilling for oil and
natural gas may be unprofitable. Drilling activities can result in dry wells and
wells that are productive but do not produce sufficient net revenues after
operating and other costs.
OUR INDUSTRY EXPERIENCES NUMEROUS OPERATING RISKS. The oil and gas industry
experiences numerous operating risks. These operating risks include the risk of
fire, explosions, blow-outs, pipe failure, abnormally pressured formations and
environmental hazards. Environmental hazards include oil spills, gas leaks,
pipeline ruptures or discharges of toxic gases. If any of these industry
operating risks occur, we could have substantial losses. Substantial losses may
be caused by injury or loss of life, severe damage to or destruction of
property, natural resources and equipment, pollution or other environmental
damage, clean-up responsibilities, regulatory investigation and penalties and
suspension of operations. Additionally, a substantial portion of our oil and gas
operations is located offshore in the Gulf of Mexico. The Gulf of Mexico area
experiences tropical weather disturbances, some of which can be severe enough to
cause substantial damage to facilities and possibly interrupt production. In
accordance with industry practice, we maintain insurance against some, but not
all, of the risks described above. We cannot assure you that our insurance will
be adequate to cover losses or liabilities. Also, we cannot predict the
continued availability of insurance at premium levels that justify its purchase.
THE PROFITABILITY OF OUR GAS MARKETING ACTIVITIES MAY BE LIMITED. Our
operations include gas marketing through our subsidiary, ProMark. ProMark's gas
marketing operations consist of the marketing of gas production in Canada, the
purchase and direct sale of third parties' natural gas, the handling of
transportation and operations of third party gas and spot purchasing and selling
of natural gas. The profitability of such natural gas marketing operations
depends on our ability to assess and respond to changing market conditions,
including credit risk. Profitability also depends on our ability to maximize the
volume of third party natural gas that we purchase and resell or exchange and to
obtain a satisfactory fee for service or margin between the negotiated purchase
price and the sales price for such volumes. If we are unable to respond
accurately to changing conditions in the gas marketing business, our results of
operations could be materially adversely affected. ProMark does not buy or sell
gas to hold as a speculative position. All transactions are immediately offset,
fixing the margin. ProMark is exposed to credit risk because the counterparties
to agreements might not perform their contractual obligations.
OUR INTERNATIONAL OPERATIONS MAY BE ADVERSELY AFFECTED BY CURRENCY
FLUCTUATIONS AND ECONOMIC AND POLITICAL DEVELOPMENTS. We have significant oil
and gas operations in Canada. The expenses of such operations, which represent
approximately 10% of consolidated cash costs of oil and gas operations, are
payable in Canadian dollars. Most of the revenue from Canadian natural gas and
oil sales, which represents 9% of total oil and gas revenue, is based upon U.S.
dollars price indices. As a result, Canadian operations are subject to the risk
of fluctuations in the relative value of the Canadian and U.S. dollars. Forest
is also required to recognize foreign currency translation gains or losses
related to the debt issued by our Canadian subsidiary because the debt is
denominated in U.S. dollars and the functional currency of such subsidiary is
the Canadian dollar. We have also acquired additional oil and gas assets in
other countries. Although there are no material operations in these countries,
our foreign operations may also be adversely affected by political and economic
developments, royalty and tax increases and other laws or policies in these
countries, as well as U.S. policies affecting trade, taxation and investment in
other countries.
14
COMPETITION WITHIN OUR INDUSTRY MAY ADVERSELY AFFECT OUR OPERATIONS. We
operate in a highly competitive environment. Forest competes with major and
independent oil and gas companies for the acquisition of desirable oil and gas
properties and the equipment and labor required to develop and operate such
properties. Forest also competes with major and independent oil and gas
companies in the marketing and sale of oil and natural gas. Many of these
competitors have financial and other resources substantially greater than ours.
OUR FUTURE ACQUISITIONS MAY NOT CONTAIN ECONOMICALLY RECOVERABLE
RESERVES. Our recent growth is due in part to acquisitions of producing
properties. The successful acquisition of producing properties requires an
assessment of a number of factors beyond our control. These factors include
recoverable reserves, future oil and gas prices, operating costs and potential
environmental and other liabilities. Such assessments are inexact and their
accuracy is inherently uncertain. In connection with such assessments, we
perform a review of the subject properties, which we believe is generally
consistent with industry practices. However, such a review will not reveal all
existing or potential problems. In addition, the review will not permit a buyer
to become sufficiently familiar with the properties to fully assess their
deficiencies and capabilities. We do not inspect every platform or well. Even
when a platform or well is inspected, structural and environmental problems are
not necessarily discovered. We are generally not entitled to contractual
indemnification for preclosing liabilities, including environmental liabilities.
Normally, we acquire interests in properties on an "as is" basis with limited
remedies for breaches of representations and warranties. In addition,
competition for producing oil and gas properties is intense and many of our
competitors have financial and other resources which are substantially greater
than those available to us. Therefore, we cannot assure you that we will be able
to acquire oil and gas properties that contain economically recoverable reserves
or that we will acquire such properties at acceptable prices.
THE MARKETABILITY OF FOREST'S PRODUCTION DEPENDS LARGELY UPON THE
AVAILABILITY, PROXIMITY AND CAPACITY OF GAS GATHERING SYSTEMS, PIPELINES AND
PROCESSING FACILITIES. The marketability of our production depends in part upon
the availability, proximity and capacity of gas gathering systems, pipelines and
processing facilities. Transportation space on such gathering systems and
pipelines is occasionally limited and at times unavailable due to repairs or
improvements being made to such facilities or due to such space being utilized
by other companies with priority transportation agreements. Our access to
transportation options can also be affected by U.S. federal and state and
Canadian regulation of oil and gas production and transportation, general
economic conditions, and changes in supply and demand. These factors and the
availability of markets are beyond our control. If market factors dramatically
change, the financial impact on Forest could be substantial and could adversely
affect our ability to produce and market oil and natural gas.
OUR OIL AND GAS OPERATIONS ARE SUBJECT TO VARIOUS GOVERNMENTAL REGULATIONS
THAT MATERIALLY AFFECT OUR OPERATIONS. Our oil and gas operations are subject
to various U.S. federal, state and local and Canadian federal and provincial
governmental regulations. These regulations may be changed in response to
economic or political conditions. Matters regulated include permits for
discharges of wastewaters and other substances generated in connection with
drilling operations, bonds or other financial responsibility requirements to
cover drilling contingencies and well plugging and abandonment costs, reports
concerning operations, the spacing of wells, and unitization and pooling of
properties and taxation. At various times, regulatory agencies have imposed
price controls and limitations on oil and gas production. In order to conserve
supplies of oil and gas, these agencies have restricted the rates of flow of oil
and gas wells below actual production capacity. In addition, the OPA requires
operators of offshore facilities to prove that they have the financial
capability to respond to costs that may be incurred in connection with potential
oil spills. Under such law and other federal and state environmental statutes,
owners and operators of certain defined facilities are strictly liable for such
spills of oil and other regulated substances, subject to certain limitations. A
substantial spill from one of our facilities could have a material adverse
effect on our results of operations, competitive position or financial
condition. U.S. and non-U.S. laws regulate production, handling, storage,
transportation and disposal of oil and gas, by-products from oil and gas and
other substances and materials produced or used in connection with oil and gas
operations. We cannot predict the ultimate cost of compliance with these
requirements or their effect on our operations.
15
THERE ARE UNCERTAINTIES IN SUCCESSFULLY INTEGRATING OUR ACQUISTIONS,
SPECIFICALLY OUR RECENT MERGER WITH FORCENERGY. Integrating businesses involves
a number of special risks, including the possibility that management may be
distracted from regular business concerns by the need to integrate operations,
that unforeseen difficulties can arise in integrating operations and systems and
problems concerning retaining and assimilating the employees of the combined
company, any of which could lead to potential adverse short-term or long-term
effects on operating results.
THE SIGNIFICANT OWNERSHIP POSITION OF ANSCHUTZ COULD LIMIT FOREST'S ABILITY
TO ENTER INTO CERTAIN TRANSACTIONS. As of March 1, 2001, The Anschutz
Corporation owned approximately 31% of our outstanding common stock. Pursuant to
a shareholder agreement between Anschutz and Forest, Anschutz designated three
of Forest's directors. Therefore, Anschutz can substantially influence matters
being considered by Forest's board of directors. The shareholder agreement,
which also prohibited Anschutz from acquiring in excess of 49.9% of the
outstanding Forest common shares, expired on July 27, 2000.
Applicable law requires that the holders of two-thirds of the outstanding
Forest common shares approve a future merger with a third party; therefore,
control of Forest most likely could not be transferred to a third party without
Anschutz's consent and agreement. A third party probably would not offer to pay
a premium to acquire Forest without the prior agreement of Anschutz, even if the
board of directors should choose to attempt to sell Forest in the future. In
addition, shareholder approval would be required by New York Stock Exchange
rules for the issuance of common stock to a third party in an amount in excess
of 20% of the outstanding common stock. Anschutz's opposition to such a
transaction could significantly reduce the likelihood of its approval.
WE DO NOT PAY DIVIDENDS. We have not declared any cash dividends on our
common stock in a number of years and have no intention to do so in the near
future. In addition, we are limited in the amount we can pay by our global
credit agreement and the indentures pursuant to which our subordinated notes
were issued.
OUR RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS HAVE PROVISIONS THAT
DISCOURAGE CORPORATE TAKEOVERS AND COULD PREVENT SHAREHOLDERS FROM REALIZING A
PREMIUM ON THEIR INVESTMENT. Certain provisions of our Restated Certificate of
Incorporation and By-Laws and provisions of the New York Business Corporation
Law may have the effect of delaying or preventing a change in control. Our
directors are elected to staggered terms. Also, our Restated Certificate of
Incorporation authorizes our board of directors to issue preferred stock without
shareholder approval and to set the rights, preferences and other designations,
including voting rights of those shares as the board may determine. Additional
provisions include restrictions on business combinations and the availability of
authorized but unissued common stock. These provisions, alone or in combination
with each other and with the rights plan described below, may discourage
transactions involving actual or potential changes of control, including
transactions that otherwise could involve payment of a premium over prevailing
market prices to shareholders for their common stock.
Our board of directors has adopted a shareholder rights plan. The existence
of the rights plan may impede a takeover of Forest not supported by the board of
directors, including a proposed takeover that may be desired by a majority of
our shareholders or involving a premium over the prevailing market price of our
common stock.
16
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
The information in this Form 10-K may contain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements appear in a number of
places and include statements regarding our plans, beliefs or current
expectations including those plans, beliefs and expectations of our officers and
directors with respect to, among other things:
- budgeted capital expenditures;
- increases in oil and gas production;
- our outlook on oil and gas prices;
- estimates of our oil and gas reserves;
- the impact of political and regulatory developments;
- our future financial condition or results of operations; and
- our business strategy and other plans and objectives for future
operations.
When considering such forward-looking statements, you should keep in mind
the risk factors and other cautionary statements in this Form 10-K. The risk
factors noted in this Form 10-K and other factors noted throughout this
Form 10-K, including certain risks and uncertainties, could cause our actual
results to differ materially from those contained in any forward-looking
statement. Prices for oil and natural gas fluctuate widely. Numerous
uncertainties are inherent in estimating proved oil and natural gas reserves and
in projecting future rates of production and timing of development expenditures.
Many of these uncertainties are beyond our control. Reserve engineering is a
subjective process of estimating underground accumulations of oil and natural
gas that cannot be measured in an exact way. The accuracy of any reserve
estimate depends on the quality of available data and the interpretation of such
data by geological engineers. As a result, estimates made by different engineers
often vary from one another. In addition, the results of drilling, testing and
production activities may justify revisions of estimates that were made
previously. If significant, such revisions would change the schedule of any
further production and development drilling. Accordingly, reserve estimates are
generally different from the quantities of oil and natural gas that are
ultimately recovered.
All forward-looking statements attributable to Forest are expressly
qualified in their entirety by this cautionary statement.
17
ITEM 2. PROPERTIES
Forest's principal reserves and producing properties are oil and gas
properties located in the United States in the Gulf of Mexico, Louisiana, Texas
and Alaska and in Canada in Alberta and the Northwest Territories.
RESERVES
Information regarding Forest's proved and proved developed oil and gas
reserves and the standardized measure of discounted future net cash flows and
changes therein is included in Note 14 of Notes to Consolidated Financial
Statements.
Since January 1, 2000 Forest has not filed any oil or natural gas reserve
estimates or included any such estimates in reports to any Federal or foreign
governmental authority or agency, other than the Securities and Exchange
Commission (SEC) and the Department of Energy (DOE). There were no differences
between the reserve estimates included in the SEC report, the DOE report and
those included herein, except for production and additions and deletions due to
the difference in the "as of" dates of such reserve estimates.
PRODUCTION
The following table shows net liquids and natural gas production for Forest
and its subsidiaries for the years ended December 31, 2000, 1999 and 1998:
NET NATURAL GAS AND
LIQUIDS PRODUCTION(1)
------------------------------
2000 1999 1998
-------- -------- --------
United States:
Natural Gas (MMCF)............................... 102,320 49,279 47,394
Liquids (MBBLS).................................. 9,891 2,712 2,405
Canada:
Natural Gas (MMCF)............................... 11,522 12,423 14,916
Liquids (MBBLS).................................. 1,536 1,685 1,864
Total (MMCFE)...................................... 182,404 88,084 87,924
- ------------------------
(1) Volumes reported for natural gas include insignificant amounts of sulfur
production on the basis that one long ton of sulfur is equivalent to 15 MCF
of natural gas. Liquids volumes include both oil and condensate and natural
gas liquids.
18
AVERAGE SALES PRICES AND PRODUCTION COSTS PER UNIT OF PRODUCTION
The following table sets forth the average sales prices per MCF of natural
gas and per barrel of liquids and the average production cost per equivalent
unit of production for the years ended December 31, 2000, 1999 and 1998 for
Forest and its subsidiaries:
UNITED STATES CANADA
------------------------------ ------------------------------
2000 1999(1) 1998(1) 2000 1999(1) 1998(1)
-------- -------- -------- -------- -------- --------
Average Sales Prices:
Natural Gas
Production (MMCF)(2)...................... 102,320 49,279 47,394 11,522 12,423 14,916
Sales price received (per MCF)............ $ 4.02 2.31 2.13 2.64 1.61 1.23
Effects of energy swaps (per MCF)(2)...... (.67) .03 .09 (.44) (.07) (.02)
-------- ------ ------ ------ ------ ------
Average sales price (per MCF)............. $ 3.35 2.34 2.22 2.20 1.54 1.21
Liquids:
Oil and condensate:
Production (MBBLS)........................ 8,775 1,985 1,919 1,110 1,254 1,389
Sales price received (per BBL)............ $ 28.74 17.84 12.67 28.54 16.98 12.13
Effects of energy swaps (per BBL)(2)...... (5.65) (3.11) .45 (5.61) (2.37) 1.06
-------- ------ ------ ------ ------ ------
Average sales price (per BBL)............. $ 23.09 14.73 13.12 22.94 14.61 13.19
Natural gas liquids:
Production (MBBLS)........................ 1,116 727 486 426 431 475
Average sales price (per BBL)............. $ 18.72 9.95 7.00 18.19 10.70 7.25
Total liquids production (MBBLS)............ 9,891 2,712 2,405 1,536 1,685 1,864
Average sales price (per BBL)............... $ 22.59 13.45 11.88 21.62 13.61 11.68
Average production cost (per MCFE)(3)......... $ .79 .55 .53 .62 .59 .47
- ------------------------
(1) Financial data for 1999 and 1998 have been restated to reflect the
reclassification of transportation costs from oil and gas revenue to oil and
gas production expense to comply with a recent accounting pronouncement.
(2) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuations. Hedged natural gas volumes were 53,078 MMCF,
32,481 MMCF and 26,527 MMCF for the years ended December 31, 2000, 1999 and
1998, respectively. Hedged oil and condensate volumes were 6,953,000
barrels, 2,075,000 barrels and 392,900 barrels for 2000, 1999 and 1998,
respectively. The aggregate gains (losses) under energy swap agreements were
$(129,091,000), $(8,684,000) and $6,305,000 respectively, for the years
ended December 31, 2000, 1999 and 1998 and were accounted for as increases
(reductions) to oil and gas sales.
(3) Production costs were converted to common units of measure using a
conversion ratio of one barrel of oil to six MCF of natural gas and one long
ton of sulfur to 15 MCF of natural gas. Such production costs exclude all
depreciation, depletion and provision for impairment associated with
property and equipment.
19
PRODUCTIVE WELLS
The following summarizes total gross and net productive wells of Forest and
its subsidiaries at December 31, 2000:
PRODUCTIVE WELLS(1)
------------------------
UNITED STATES CANADA
------------- --------
Gross(2)
Gas................................................... 817 201
Oil................................................... 2,025 280
----- ---
Totals(3)......................................... 2,842 481
===== ===
Net(4)
Gas................................................... 371 114
Oil................................................... 753 204
----- ---
Totals............................................ 1,124 318
===== ===
- ------------------------
(1) Productive wells are producing wells and wells capable of production,
including wells that are shut-in.
(2) A gross well is a well in which a working interest is owned. The number of
gross wells is the total number of wells in which a working interest is
owned.
(3) Includes 23 dual completions in the United States and 5 dual completions in
Canada. Dual completions are counted as one well. If one completion is an
oil completion, the well is classified as an oil well.
(4) A net well is deemed to exist when the sum of fractional ownership working
interests in gross wells equals one. The number of net wells is the sum of
the fractional working interests owned in gross wells expressed as whole
numbers and fractions thereof.
20
DEVELOPED AND UNDEVELOPED ACREAGE
Forest and its subsidiaries held acreage as set forth below at December 31,
2000 and 1999. A majority of the developed acreage is subject to mortgage liens
securing our bank indebtedness. See Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 4 of Notes to
Consolidated Financial Statements.
DEVELOPED ACREAGE(1) UNDEVELOPED ACREAGE(2)
-------------------- -----------------------
GROSS(3) NET(4) GROSS(3) NET(4)
--------- -------- ---------- ----------
United States:
Offshore................................ 717,079 333,591 187,200 142,570
Onshore................................. 356,908 111,461 639,391 108,867
Western................................. 46,147 18,034 132,373 73,563
Alaska.................................. 295,164 22,119 158,115 151,090
--------- ------- ---------- ----------
1,415,298 485,205 1,117,079 476,090
Canada.................................... 262,684 134,015 1,508,266 610,702
International:
South Africa............................ -- -- 10,266,218 7,186,352
Tunisia................................. -- -- 3,270,420 2,289,294
Gabon................................... -- -- 2,409,276 2,409,276
Australia(5)............................ -- -- 2,400,000 1,380,000
Switzerland............................. -- -- 1,850,000 925,000
Germany................................. -- -- 1,515,442 1,515,442
Albania................................. -- -- 1,647,141 494,141
Italy................................... -- -- 816,361 748,556
Romania................................. -- -- 766,899 766,899
Thailand................................ -- -- 241,122 241,122
--------- ------- ---------- ----------
-- -- 25,182,879 17,956,082
--------- ------- ---------- ----------
Total acreage at December 31, 2000........ 1,677,982 619,220 27,808,224 19,042,874
========= ======= ========== ==========
Total acreage at December 31, 1999........ 1,492,596 639,091 60,558,102 33,874,087
========= ======= ========== ==========
- ------------------------
(1) Developed acres are those acres which are spaced or assigned to productive
wells.
(2) Undeveloped acres are considered to be those acres on which wells have not
been drilled or completed to a point that would permit the production of
commercial quantities of oil or natural gas, regardless of whether such
acreage contains proved reserves. It should not be confused with undrilled
acreage held by production under the terms of a lease.
(3) A gross acre is an acre in which a working interest is owned. The number of
gross acres is the total number of acres in which a working interest is
owned.
(4) A net acre is deemed to exist when the sum of the fractional ownership
working interests in gross acres equals one. The number of net acres is the
sum of the fractional working interests owned in gross acres expressed as
whole numbers and fractions thereof.
(5) This acreage was sold in February 2001.
The reduction in undeveloped acreage at December 31, 2000 compared to
December 31, 1999 is attributable to expirations of foreign concessions held by
Forcenergy. Approximately 4% of our net undeveloped acreage at December 31, 2000
is under leases that have terms expiring in 2001, if not held by
21
production, and approximately 1% of net undeveloped acreage will expire in 2002
if not also held by production.
DRILLING ACTIVITY
Forest and its subsidiaries owned interests in gross and net exploratory and
development wells for the years ended December 31, 2000, 1999 and 1998 as set
forth below. This information does not include wells drilled under farmout
agreements.
UNITED STATES CANADA INTERNATIONAL
------------------------------ ------------------------------ -------------
2000 1999 1998 2000 1999 1998 2000
-------- -------- -------- -------- -------- -------- -------------
Gross Exploratory Wells:
Dry(1)...................................... 12 3 6 6 5 7 2
Productive(2)............................... 50 13 7 13 1 2 --
---- --- --- --- --- ---- ---
62 16 13 19 6 9 2
==== === === === === ==== ===
Net Exploratory Wells:(3)
Dry(1)...................................... 6.3 1.7 4.3 2.0 2.4 5.6 1.4
Productive(2)............................... 26.5 5.7 4.7 7.6 1.0 .7 --
---- --- --- --- --- ---- ---
32.8 7.4 9.0 9.6 3.4 6.3 1.4
==== === === === === ==== ===
Gross Development Wells:
Dry(1)...................................... -- -- -- -- -- 2 --
Productive(2)............................... 16 6 9 -- 8 14 --
---- --- --- --- --- ---- ---
16 6 9 -- 8 16 --
==== === === === === ==== ===
Net Development Wells:
Dry(1)...................................... -- -- -- -- -- 2.0 --
Productive(2)............................... 8.9 3.2 2.6 -- 1.9 10.0 --
---- --- --- --- --- ---- ---
8.9 3.2 2.6 -- 1.9 12.0 --
==== === === === === ==== ===
- ------------------------
(1) A dry well (hole) is a well found to be incapable of producing either oil or
natural gas in sufficient quantities to justify completion as an oil or
natural gas well.
(2) Productive wells are producing wells and wells capable of production,
including wells that are shut-in.
(3) A net well is deemed to exist when the sum of fractional ownership working
interests in gross wells equals one. The number of net wells is the sum of
the fractional working interests owned in gross wells expressed as whole
numbers and fractions thereof.
At December 31, 2000 Forest and its subsidiaries had seven exploratory wells
(4.1 net) and six development wells (4.7 net) that were in the process of being
drilled. Of the seven exploratory wells, one in Canada is still being evaluated
(0.3 net), one in the United States is still being drilled (1.0 net), two in
international are still being drilled (1.0 net), one in international (0.7 net)
was successful and two in the United States were dry holes (1.1 net). Of the six
development wells, two in Canada are still being evaluated (1.4 net), three in
the United States were productive (2.5 net) and one in Canada was productive
(0.8 net).
DELIVERY COMMITMENTS
Approximately 85% of Canadian Forest's natural gas production was sold
through the ProMark Netback Pool in 2000. At December 31, 2000 the ProMark
Netback Pool had entered into fixed price contracts to sell approximately 5.5
BCF of natural gas in 2001 at an average price of $2.52 CDN per MCF and
approximately 5.5 BCF of natural gas in 2002 at an average price of
approximately $2.61 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 2000,
Canadian Forest supplied approximately 37% of the gas for the Netback Pool.
In addition to its commitments to the ProMark Netback Pool, Canadian Forest
is committed to sell an additional .6 BCF of natural gas in 2001 at a fixed
price of approximately $3.25 CDN per MCF and another .5 BCF of natural gas in
2002 at a fixed price of approximately $3.37 CDN per MCF.
There are no long-term delivery commitments in the United States as of
December 31, 2000.
22
ITEM 3. LEGAL PROCEEDINGS
Forest, in the ordinary course of business, is a party to various legal
actions. In the opinion of our management, none of these actions, either
individually or in the aggregate, will have a material adverse effect on our
financial condition, liquidity or results of operations.
On March 21, 1999, Forcenergy and its wholly-owned subsidiary, Forcenergy
Resources Inc., filed voluntarily under Chapter 11 of the U.S. Bankruptcy Code
in order to facilitate the restructuring of Forcenergy's long-term debt,
revolving credit, trade and other obligations. Forcenergy continued to operate
as a debtor-in-possession subject to the bankruptcy court's supervision and
orders until its plan of reorganization (which was confirmed on January 19,
2000) became effective on February 15, 2000.
Prior to its merger with Forest, Forcenergy was a party to various claims
and routine litigation arising in the normal course of its business. Obligations
of Forcenergy arising out of activities prior to the March 21, 1999 bankruptcy
petition date will be discharged in accordance with the plan of reorganization.
The largest remaining disputed claim filed with the bankruptcy court is the
claim of Escopeta Oil & Gas Corp., Escopeta Production Alaska, Inc., Danny S.
Davis, Robert Warthen and Walten D. Wells (collectively, the "Escopeta Group"),
which asserted a claim in excess of $100 million. Forest believes the Escopeta
Group claim to be without merit and continues to vigorously contest it. Based on
information currently available, Forest believes that the result of all
remaining claims and litigation, including that of the Escopeta Group, will not
have a material adverse effect on the financial position or results of
operations of Forest.
Pursuant to its plan of reorganization, Forcenergy established a reserve of
Forcenergy common stock to be distributed to claimants in the event their
disputed claims are ultimately determined by the bankruptcy court to be allowed
claims. The reserved shares of Forcenergy common stock became Forest common
shares in accordance with the terms of the merger. Forest believes that the
shares in the reserve are sufficient to cover any allowed claims. If the shares
in the reserve are inadequate to cover all allowed claims, then under the
Forcenergy plan of reorganization Forest would be required to issue additional
shares of common stock to the holders of such claims. Forest believes, however,
that the shares in the reserve are adequate to cover all remaining disputed
claims that may be subsequently allowed. There can be no assurance, however,
that this will be the case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 7, 2000, a special meeting of Forest's shareholders was held in
Denver, Colorado. The following proposals were submitted to a vote of
shareholders and were adopted by the margins indicated:
1. Approving the issuance of the common shares to be received by Forcenergy
Inc stockholders in the proposed merger between Forcenergy and Forest
Acquisition I Corporation, a newly-formed, wholly-owned subsidiary of
Forest, and to approve the other transactions contemplated by the merger
agreement.
NUMBER OF SHARES
----------------
FOR AGAINST ABSTENTIONS BROKER NON-VOTES
- ---------- --------- ----------- ----------------
42,563,791 1,837,817 26,753 9,866,939
2. Effecting a 1-for-2 reverse stock split of the Forest common stock.
NUMBER OF SHARES
----------------
FOR AGAINST ABSTENTIONS BROKER NON-VOTES
- ---------- --------- ----------- ----------------
46,245,791 4,370,388 26,949 3,652,172
23
ITEM 4A. EXECUTIVE OFFICERS OF FOREST
The following information with respect to the executive officers of Forest
is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
YEARS WITH
NAME AGE FOREST OFFICE (1)
- ---- -------- ---------- ------------------------------------------------
Robert S. Boswell................. 51 15 Chairman of the Board since March 2000. Chief
Executive Officer since December 1995 and
President from November 1993 to March 2000.
Chief Financial Officer from May 1991 until
December 1995. Member of the Board of
Directors since 1986. Chairman of the
Nominating Committee and member of the
Executive Committee. Director of
C.E. Franklin Ltd.
Richard G. Zepernick, Jr.......... 40 -- President and Chief Operating Officer since
December 2000. President and Chief Executive
Officer of Forcenergy Inc from April 2000 to
December 2000. Senior Vice President--Gulf of
Mexico of Ocean Energy, Inc. from June 1998 to
March 2000. Executive Vice President--North
America for Ocean Energy, Inc. from May 1997
to May 1998. Executive Vice President and
Chief Operating Officer of Ocean Energy, Inc.
from January 1996 to April 1997.
David H. Keyte.................... 44 13 Executive Vice President and Chief Financial
Officer since November 1997. Vice President and
Chief Financial Officer from December 1995 to
November 1997. Vice President and Chief
Accounting Officer from December 1993 until
December 1995. Chairman of the Employee
Benefits Committee.
Gary E. Carlson................... 54 -- Senior Vice President--Alaska since December
2000. Vice President--Alaska Division of
Forcenergy Inc from March 1997 to December
2000. General Manager for Health, Environment
and Safety Support Worldwide of Unocal from
1996 to February 1997.
Forest D. Dorn.................... 46 23 Senior Vice President--Corporate Services since
December 2000. Senior Vice President--Gulf
Coast Region from November 1997 to December
2000. Vice President--Gulf Coast Region from
August 1996 to November 1997. Vice President
and General Business Manager from December
1993 to August 1996. Member of the Employee
Benefits Committee.
Neal A. Stanley................... 53 4 Senior Vice President--Western Region since
November 1997. Vice President--Western Region
from August 1996 to November 1997. Prior
thereto President of Teton Oil and Gas
Corporation.
24
YEARS WITH
NAME AGE FOREST OFFICE (1)
- ---- -------- ---------- ------------------------------------------------
Robert G. Gerdes.................. 44 -- Senior Vice President--Gulf Offshore Metairie
since December 2000. Vice President--Gulf of
Mexico, Onshore and International of
Forcenergy Inc from March 2000 to December
2000. Vice President--Geosciences of
Forcenergy Inc from October 1997 to March
2000. Geologist and Evaluations Manager of
Forcenergy Inc from 1994 to October 1997.
James W. Knell.................... 50 13 Senior Vice President--Gulf Coast Region since
December 2000. Vice President--Gulf Coast
Region from May 1999 to December 2000. Gulf
Coast Business Unit Manager from November 1997
to May 1999. Corporate Drilling and Production
Manager from December 1991 to November 1997.
Newton W. Wilson, III............. 50 -- Senior Vice President--Legal Affairs and
Corporate Secretary since December 2000.
Consultant to Mariner Energy LLC from 1999 to
December 2000. Consultant to Sterling City
Capital from 1998 to 1999. President and Chief
Operations Officer of Union Texas
Americas Ltd. from 1996 to 1998. General
Counsel, Vice-President Administration and
Secretary of Union Texas Americas Ltd. from
1993 to 1996. Member of the Employee Benefits
Committee.
Cecil N. Colwell.................. 50 12 Vice President--Drilling since December 2000.
Prior thereto, Drilling Manager since November
1988.
Joan C. Sonnen.................... 47 11 Vice President--Controller, Chief Accounting
Officer and Assistant Secretary since December
2000. Vice President--Controller and Corporate
Secretary from May 1999 to December 2000.
Corporate Secretary from March 1999 to
December 2000. Controller since December 1993.
Member of the Employee Benefits Committee.
Donald H. Stevens................. 48 3 Vice President--Capital Markets and Treasurer
since December 1998. Vice President--Capital
Markets and Strategic Initiatives from August
1997 to December 1998. Prior thereto Vice
President-Corporate Relations and Capital
Markets of Barrett Resources Corporation.
Director of FieldPoint Petroleum Corporation.
Matthew A. Wurtzbacher............ 38 2 Vice President--Corporate Planning and
Development since December 2000.
Manager--Operational Planning and Corporate
Engineering from June 1998 to December 2000.
Financial Engineering Manager of Schlumberger
Oilfield Services, North America from 1996 to
1998. Senior Reservoir Engineer of Enron Oil
and Gas Company from 1993 to 1996.
- ------------------------
(1) The term of office of each officer is one year from the date of his or her
election immediately following the last annual meeting of shareholders and
until the officer's respective successor has been elected and qualified or
until his or her earlier death, resignation or removal from office whichever
occurs first. Each of the named persons has held the office indicated since
the last annual meeting of shareholders, except as otherwise indicated.
25
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
Forest has one class of common shares outstanding, its Common Stock, par
value $.10 per share (Common Stock).
On February 28, 2001, 48,480,706 shares of Common Stock were held by 2,652
holders of record. The number of holders does not include the shareholders for
whom shares are held in a "nominee" or "street" name.
Forest's Common Stock is listed on the New York Stock Exchange. The high and
low intraday sales prices of the Common Stock for each quarterly period of the
years presented are listed in the chart below. Periods prior to December 2000
have been restated giving retroactive effect to the 1-for-2 reverse stock split.
See Note 7 of Notes to Consolidated Financial Statements. There were no
dividends declared on the Common Stock in 1999, 2000, or in the first quarter of
2001.
HIGH LOW
-------- --------
1999: First Quarter...................................... $17.875 $ 10.75
Second Quarter..................................... 27.125 15.00
Third Quarter...................................... 36.25 25.375
Fourth Quarter..................................... 33.75 18.00
2000: First Quarter...................................... $ 25.25 $14.375
Second Quarter..................................... 34.50 20.25
Third Quarter...................................... 38.00 23.50
Fourth Quarter..................................... 37.50 24.75
2001: First Quarter (through March 1).................... $ 36.99 $ 31.25
WARRANTS
At February 28, 2001, Forest had outstanding 238,831 warrants expiring on
February 15, 2004 that entitle the holder to purchase shares of Common Stock
(the 2004 Warrants). Each 2004 Warrant entitles the holder to purchase 0.8
shares of Common Stock for $16.67, or an equivalent per share price of $20.84.
On February 28, 2001, the 2004 Warrants were held by 483 holders of record.
The 2004 Warrants are quoted on the NASDAQ OTC Bulletin Board. The high and
low closing sales prices of the 2004 Warrants for each quarterly period of the
years presented are listed in the chart below:
HIGH LOW
-------- --------
2000: First Quarter...................................... $ N/A $ N/A
Second Quarter..................................... 9.00 0.25
Third Quarter...................................... 13.00 5.00
Fourth Quarter..................................... 15.50 8.00
2001: First Quarter (through March 1).................... $ 15.00 $ 12.25
At February 28, 2001, Forest also had outstanding 239,029 warrants expiring
on February 15, 2005 that entitle the holder to purchase shares of Common Stock
(the 2005 Warrants). Each 2005 Warrant entitles the holder to purchase 0.8
shares of Common Stock for $20.83, or an equivalent per share price of $26.04.
On February 28, 2001, the 2005 Warrants were held by 484 holders of record.
26
The 2005 Warrants are quoted on the NASDAQ OTC Bulletin Board. The high and
low closing sales prices of the 2005 Warrants for each quarterly period of the
years presented are listed in the chart below:
HIGH LOW
-------- --------
2000: First Quarter...................................... $ N/A $ N/A
Second Quarter..................................... 6.00 0.03
Third Quarter...................................... 8.50 3.00
Fourth Quarter..................................... 14.00 6.00
2001: First Quarter (through March 1).................... $ 13.63 $ 11.50
At February 28, 2001, Forest also had outstanding 1,773,885 subscription
warrants that entitle the holder to purchase shares of Common Stock
(Subscription Warrants). Each Subscription Warrant entitles the holder to
purchase 0.8 shares of Common Stock for $10.00, or an equivalent per share price
of $12.50. The Subscription Warrants are detachable and expire on March 20, 2010
or earlier upon notice of expiration by Forest if, after March 20, 2004, the
market price of the Common Stock has exceeded the exercise price of the
Subscription Warrants for a period of 30 consecutive trading days.
On February 28, 2001, the Subscription Warrants were held by 13 holders of
record.
The Subscription Warrants are quoted on the NASDAQ OTC Bulletin Board. The
high and low closing sales prices of the Subscription Warrants for each
quarterly period of the years presented are listed in the chart below:
HIGH LOW
-------- --------
2000: First Quarter...................................... $ N/A $ N/A
Second Quarter..................................... N/A N/A
Third Quarter...................................... 17.13 12.00
Fourth Quarter..................................... 23.50 12.00
2001: First Quarter (through March 1).................... $ 23.50 $ 19.75
DIVIDEND RESTRICTIONS
Forest's present or future ability to pay dividends is restricted by
(i) the provisions of the New York Business Corporation Law (NYBCL),
(ii) certain restrictive provisions in the Indentures executed in connection
with Canadian Forest's 8 3/4% Senior Subordinated Notes due September 15, 2007
which are guaranteed by Forest and Forest's 10 1/2% Senior Subordinated Notes
due 2006, and (iii) the Credit Agreement dated as of October 10, 2000 with The
Chase Manhattan Bank, as global administrative agent for a group of banks. Under
these restrictions, Forest was not prohibited from paying dividends on its
Common Stock as of March 1, 2001.
Forest has not paid dividends on its Common Stock during the past five years
and does not anticipate that it will do so in the foreseeable future. The future
payment of dividends, if any, on the Common Stock is within the discretion of
the Board of Directors and will depend on Forest's earnings, capital
requirements, financial condition and other relevant factors. There is no
assurance that Forest will pay any dividends. For further information regarding
our equity securities and our ability to pay dividends on our Common Stock, see
Notes 4 and 7 of Notes to Consolidated Financial Statements.
27
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected financial and operating data of
Forest on a historical basis as of and for each of the years in the five-year
period ended December 31, 2000. This data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto.
Financial data for years prior to 2000 have been restated to reflect the
reclassification of transportation costs from oil and gas revenue to oil and gas
production expense to comply with a recent accounting pronouncement.
On December 7, 2000, Forest completed its merger with Forcenergy Inc
(Forcenergy). The merger was 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 were carried
forward to the combined company at their recorded amounts, and income of the
combined company includes income of Forest and Forcenergy for the entire year.
The results of operations of Forcenergy prior to December 31, 1999, the
effective date of its reorganization and fresh-start reporting, are not included
in the financial statements of the combined company.
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ---------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS, VOLUMES AND PRICES)
FINANCIAL DATA
Revenue:
Marketing and processing................ $ 288,133 166,283 151,079 184,399 187,374
Oil and gas sales....................... 624,925 193,841 173,701 158,450 130,547
---------- --------- -------- ------- -------
Total revenue........................... $ 913,058 360,124 324,780 342,849 317,921
Earnings (loss) before extraordinary
items................................... $ 130,608 19,641 (197,786) 3,089 1,139
Net earnings (loss)....................... $ 130,608 19,043 (191,590) (9,270) 3,305
Weighted average number of common shares
outstanding............................. 46,330 23,971 20,455 16,834 12,531
Net earnings (loss) attributable to common
stock................................... $ 126,440 19,043 (191,590) (9,459) 1,147
Basic earnings (loss) per share:
Earnings (loss) attributable to common
stock before extraordinary items...... $ 2.73 .82 (9.67) .17 (.08)
Extraordinary items..................... -- (.03) .30 (.73) .17
---------- --------- -------- ------- -------
Earnings (loss) attributable
to common stock....................... $ 2.73 .79 (9.37) (.56) .09
Diluted earnings (loss) per share:
Earnings (loss) attributable to common
stock before extraordinary items...... $ 2.64 .81 (9.67) .18 (.08)
Extraordinary items..................... -- (.02) .30 (.72) .17
---------- --------- -------- ------- -------
Earnings (loss) attributable
to common stock....................... $ 2.64 .79 (9.37) (.54) .09
Total assets.............................. $1,752,378 1,474,689 759,736 647,782 563,458
Long-term debt............................ $ 622,234 686,153 505,450 254,760 168,859
Other long-term liabilities............... $ 31,241 25,112 24,267 51,787 61,151
Shareholders' equity...................... $ 858,966 558,984 168,991 261,827 242,443
28
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ---------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS, VOLUMES AND PRICES)
OPERATING DATA
Annual production:
Gas (MMCF).............................. 113,842 61,702 62,310 49,035 42,496
Liquids (MBBLS)......................... 11,427 4,397 4,269 3,207 2,749
Average price received:
Gas (per MCF)........................... $ 3.23 2.17 1.98 2.10 1.91
Liquids (per Barrel).................... $ 22.46 13.51 11.79 17.29 17.93
Capital expenditures, net of asset
sales................................... $ 372,688 104,612 461,452 147,130 234,556
Proved Reserves:
Gas (MMCF).............................. 844,058 825,623 564,264 378,315 334,180
Liquids (MBBLS)......................... 89,241 97,086 35,069 24,636 24,014
Standardized measure of discounted future
net cash flows relating to proved oil
and gas reserves........................ $3,694,431 1,419,022 522,831 439,570 559,869
29
ITEM 7. 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.
On December 7, 2000, Forest completed its merger with Forcenergy Inc
(Forcenergy). The merger was 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 were carried
forward to the combined company at their recorded amounts, and income of the
combined company includes income of Forest and Forcenergy for the entire year.
The results of operations of Forcenergy prior to December 31, 1999, the
effective date of its reorganization and fresh-start reporting, are not included
in the financial statements of the combined company.
RESULTS OF OPERATIONS
Net earnings for 2000 were $130,608,000 compared to net earnings of
$19,043,000 in 1999. Exclusive of unusual or non-recurring items, net earnings
were $136,777,000 for 2000 compared to $9,080,000 in 1999. Items excluded from
this computation consist of merger-related expenses of $28,491,000 (net of tax)
in 2000, impairment of oil and gas properties of $5,876,000 in 2000, non-cash
foreign currency translation losses of $7,102,000 in 2000, a one-time tax credit
of $35,300,000 in 2000, non-cash foreign currency translation gains of
$10,561,000 in 1999 and an extraordinary loss on extinguishment of debt of
$598,000 in 1999. The improvement in earnings was primarily due to higher
production volumes resulting from the merger with Forcenergy and higher product
prices.
Net earnings for 1999 were $19,043,000 compared to a net loss of
$191,590,000 in 1998. Exclusive of unusual or non-recurring items, net earnings
were $9,080,000 for 1999 compared to a net loss of $14,466,000 in 1998. Items
excluded from the 1998 computation consist of a writedown of oil and gas
properties of $175,000,000 ($199,500,000 pre-tax), non-cash foreign currency
translation losses of $8,320,000, and an extraordinary gain on extinguishment of
debt of $6,196,000. The improvement in earnings was due primarily to higher
prices and lower depletion expense.
Marketing and processing revenue increased by 73% to $288,133,000 in 2000
from $166,283,000 in 1999, and the related marketing and processing expense
increased by 75% to $285,039,000 in 2000 from $162,617,000 in the previous year.
The gross margin for marketing and processing activities decreased to $3,094,000
in 2000 from $3,666,000 in 1999. The decrease in the margin is due primarily to
lower margins on processing activities in the United States.
Marketing and processing revenue increased by 10% to $166,283,000 in 1999
from $151,079,000 in 1998 and the related marketing and processing expense
increased by 12% to $162,617,000 in 1999 from $144,758,000 in the previous year.
The gross margin reported for marketing and processing activities decreased to
$3,666,000 in 1999 from $6,321,000 in 1998. The decrease resulted primarily from
the effects of an increasingly competitive market which caused trading margins
to tighten, and lower gas processing income due to the sale of processing
facilities in the first quarter of 1999.
Oil and gas sales revenue increased by 222% to $624,925,000 in 2000 from
$193,841,000 in 1999 due primarily to higher production volumes resulting from
the merger with Forcenergy and higher oil and gas prices. The average sales
prices received for natural gas and liquids in 2000 increased 48% and 66%,
respectively, compared to the average sales prices received in 1999. Production
volumes on an MMCFE basis were 107% higher in 2000 compared to 1999.
Oil and gas sales revenue increased by 12% to $193,841,000 in 1999 from
$173,701,000 in 1998 due primarily to higher natural gas and liquids prices. The
average sales prices received for natural gas and liquids in 1999 increased 10%
and 15%, respectively, compared to the average sales prices received in 1998.
Production volumes for natural gas and liquids on an MCFE basis were less than
1% higher in 1999 compared to 1998.
30
Oil and gas production expense increased 185% to $140,218,000 in 2000 from
$49,145,000 in 1999. On an MMCFE basis, production expense was $.77 per MCFE in
2000 compared to $.56 per MCFE in 1999. The increase in expense and per-unit
rates are due primarily to higher operating costs associated with Forcenergy
properties, higher production taxes and increased workover activity.
Oil and gas production expense increased 9% to $49,145,000 in 1999 from
$44,944,000 in 1998, due primarily to non-recurring direct operating expenses
and expensed workovers. On an MCFE basis, production expense was $.56 per MCFE
in 1999 compared to $.51 in 1998. The increase in the per-unit expense is
attributable to higher costs being spread over essentially the same production
base.
Production volumes, weighted average sales prices and production expenses
for the years ended December 31, 2000, 1999 and 1998 for Forest and its
subsidiaries were as follows:
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999(1) 1998(1)
-------- -------- --------
NATURAL GAS
Production (MMCF)......................................... 113,842 61,702 62,310
Sales price received (per MCF)............................ $ 3.87 2.17 1.92
Effects of energy swaps (per MCF)(2)...................... (.64) 0.01 0.06
------- ------ ------
Average sales price(per MCF).............................. $ 3.23 2.18 1.98
LIQUIDS
Oil and condensate:
Production (MBBLS)........................................ 9,885 3,239 3,308
Sales price received (per BBL)............................ $ 28.72 17.51 12.44
Effects of energy swaps (per BBL)(2)...................... (5.65) (2.82) 0.71
------- ------ ------
Average sales price (per BBL)............................. $ 23.07 14.69 13.15
Natural gas liquids:
Production (MBBLS)........................................ 1,542 1,158 961
Average sales price (per BBL)............................. $ 18.57 10.23 7.13
Total liquids production (MBBLS).......................... 11,427 4,397 4,269
Average sales price (per BBL)............................. $ 22.46 13.51 11.79
TOTAL PRODUCTION
Production volumes (MMCFE).................................. 182,404 88,084 87,924
Average sales price (per MCFE).............................. $ 3.43 2.20 1.97
Operating expense (per MCFE)................................ 0.77 0.56 0.51
------- ------ ------
Netback (per MCFE).......................................... $ 2.66 1.64 1.46
======= ====== ======
- ------------------------
(1) Financial data for 1999 and 1998 have been restated to reflect the
reclassification of transportation costs from oil and gas revenue to oil and
gas production expense to comply with a recent accounting pronouncement.
(2) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuations. Hedged natural gas volumes were 53,078 MMCF,
32,481 MMCF and 26,527 MMCF in 2000, 1999 and 1998, respectively. Hedged oil
and condensate volumes were 6,953,000 barrels, 2,075,000 barrels and 392,900
barrels in 2000, 1999 and 1998, respectively. The aggregate net gains
(losses) under energy swap agreements were $(129,091,000), $(8,684,000) and
$6,305,000, respectively, for the years ended December 31, 2000, 1999 and
1998 and were accounted for as increases (reductions) to oil and gas sales.
31
General and administrative expense increased 132% to $35,580,000 in 2000
compared to $15,362,000 in 1999. The increase was due primarily to general and
administrative expenses related to Forcenergy operations in 2000. General and
administrative expense decreased 23% to $15,362,000 in 1999 compared to
$19,849,000 in 1998. The 1998 period included approximately $1,500,000 of
non-recurring expenses of a Canadian subsidiary, Saxon Petroleum Inc., as a
result of its decision to investigate strategic alternatives, whereas the 1999
period reflected the efficiencies achieved by combining Saxon's operations with
those of Canadian Forest.
Total overhead costs (capitalized and expensed general and administrative
costs) were $56,666,000 in 2000, $24,235,000 in 1999 and $27,996,000 in 1998.
Total overhead costs increased 134% in 2000 compared to 1999 due primarily to
overhead attributable to Forcenergy operations, and decreased by 13% in 1999
compared to 1998. The following table summarizes total overhead costs incurred
during the periods:
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Overhead costs capitalized......................... $21,086 8,873 8,117
General and administrative costs expensed(1)....... 35,580 15,362 19,849
------- ------ ------
Total overhead costs............................. $56,666 24,235 27,966
======= ====== ======
Number of salaried employees at end of year........ 530 207 211
======= ====== ======
- ------------------------
(1) Includes $1,386,000, $2,059,000 and $2,819,000 in 2000, 1999 and 1998,
respectively, related to marketing and processing operations.
Merger and seismic licensing costs of $31,577,000 in 2000 include banking,
legal, accounting, printing and other consulting costs related to the merger;
severance paid to terminated employees; expenses for office closures, employee
relocation, data migration and systems integration; and costs of transferring
seismic licenses from Forcenergy to Forest.
Depreciation and depletion expense increased 141% to $212,480,000 in 2000
from $88,190,000 in 1999 due primarily to increased production as a result of
the merger with Forcenergy and an increased per-unit rate. The depletion rate
increased to $1.15 per MCFE in 2000 compared to $.96 per MCFE in 1999, due
primarily to higher finding costs in 2000 and higher than anticipated future
development costs in the current inflationary environment for oilfield services.
Depreciation and depletion expense decreased 12% to $88,190,000 in 1999 from
$100,105,000 in 1998 due to a lower per-unit rate. The depletion rate decreased
to $.96 per MCFE in 1999 compared to $1.10 per MCFE in 1998. This decline is
attributable to favorable per-unit costs associated with 1998 acquisitions and
Gulf of Mexico discoveries, as well as to writedowns of oil and gas properties
in the third and fourth quarters of 1998.
At December 31, 2000 Forest had undeveloped properties with a cost basis of
approximately $132,807,000 in the United States and $33,524,000 in Canada which
were not subject to depletion, compared to $114,545,000 in the United States and
$39,580,000 in Canada at December 31, 1999 and $58,609,000 in the United States
and $26,443,000 in Canada at December 31, 1998. The increase in 2000 is due
primarily to wells in progress in Alaska, offset partially by surrendered and
abandoned leases. The increase in 1999 compared to 1998 is due primarily to
undeveloped properties acquired in the merger with Forcenergy and to wells in
progress in Canada. Forest also had capitalized costs related to international
interests of approximately $40,432,000, $21,493,000 and $14,435,000 at
December 31, 2000, 1999 and 1998, respectively, which were not being depleted
pending establishment of proved reserves.
In the fourth quarter of 2000, Forest recorded an impairment of $5,876,000
related to unsuccessful exploratory wells drilled in Switzerland and Thailand.
In the third and fourth quarters of 1998, Forest recorded writedowns of its oil
and gas properties pursuant to the ceiling test limitation prescribed by the
32
Securities and Exchange Commission for companies using the full cost method of
accounting. The writedowns totaled $175,000,000 ($199,500,000 pre-tax) and were
primarily a result of declining oil and gas prices.
Additional writedowns of the full cost pools in the United States and Canada
may be required if oil and gas prices decline, undeveloped property values
decrease, estimated proved reserve volumes are revised downward or costs
incurred in exploration, development, or acquisition activities in the
respective full cost pools exceed the discounted future net cash flows from the
additional reserves, if any, attributable to each of the cost pools.
Other income of $1,757,000 in 2000 included interest income of approximately
$1,972,000, equity income of approximately $998,000 from a pipeline investment
and a gain of approximately $704,000 from the sale of an investment, offset
partially by approximately $755,000 of franchise taxes and approximately
$454,000 of unsuccessful acquisition costs. Other income of $2,629,000 in 1999
included a gain of approximately $2,500,000 from the sale of gas processing
facilities in the first quarter of 1999. Other income of $8,078,000 in 1998
included approximately $6,600,000 (before tax) relating to a gas contract
settlement in Canada and $1,400,000 of death benefits received under a life
insurance policy covering a former executive officer.
Interest expense of $60,269,000 in 2000 increased $19,396,000 or 47%
compared to 1999 due primarily to the merger with Forcenergy. Interest expense
of $40,873,000 in 1999 increased $1,887,000 or 5% compared to 1998 due primarily
to the issuance of the 10 1/2% Senior Subordinated Notes due 2006 (the 10 1/2%
Notes), partially offset by lower bank debt balances.
Foreign currency translation gains (losses) were $(7,102,000) in 2000,
$10,561,000 in 1999 and $(8,320,000) in 1998. Foreign currency translation gains
and losses relate to translation of the 8 3/4% Notes issued by Canadian Forest,
and are attributable to the increases and decreases in the value of the Canadian
dollar relative to the U.S. dollar during the period. The value of the Canadian
dollar was $.6672 per $1.00 U.S. at December 31, 2000 compared to $.6924 at
December 31, 1999, $.6535 at December 31, 1998 and $.6992 at December 31, 1997.
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.
Income tax expense of $6,066,000 was recognized in 2000 compared to income
tax benefits of $2,514,000 in 1999 and $25,818,000 in 1998. The changes are
attributable primarily to improvements in profitability. Expense of $6,066,000
in 2000 represents expense of $34,661,000 attributable to United States
operations and $6,705,000 recorded by Canadian Forest, offset by an income tax
benefit of $35,300,000 attributable to expected utilization of the deferred
income tax assets of Forest. Realization of Forcenergy's fresh start deferred
tax assets was required to be recorded as an adjustment of additional paid-in
capital.
The extraordinary loss on extinguishment of debt of $598,000 in 1999
resulted from redemption of $8,631,000 remaining principal amount of 11 1/4%
Senior Subordinated Notes at 103.792% of par value. The extraordinary gain of
$6,196,000 on extinguishment of debt in 1998 resulted from settlement of
Forest's remaining nonrecourse production payment obligation in exchange for
135,607 shares of Forest common stock valued at $3,750,000.
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. 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.
33
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.
SECURITIES REPURCHASES. During 2000, we repurchased 152,400 shares of
Forest common stock and $10,600,000 principal amount of subordinated notes.
BANK CREDIT FACILITIES. In connection with the merger with Forcenergy,
Forest and its subsidiaries, Canadian Forest and ProMark, negotiated a new
global credit facility through a syndicate of banks led by The Chase Manhattan
Bank and The Chase Manhattan Bank of Canada. This facility replaced the senior
facilities of Forest and Forcenergy and was effective on December 7, 2000, the
date of completion of the merger. Due to the recent upgrade in Forest's bank
credit facility rating, the borrowing base limitations previously imposed upon
us were removed. As such, the current global credit facility commitments and
borrowing limits in the United States and Canada are $500,000,000 and
$100,000,000, respectively. If Forest's bank credit facility rating is
downgraded, the ability to borrow under the global credit facility would be
limited to a borrowing base that would be re-determined semi-annually. Funds
borrowed under the global credit facility can be used for general corporate
purposes. Under the terms of the global credit facility, Forest and its
restricted subsidiaries are subject to certain covenants and financial tests,
including restrictions or requirements with respect to dividends, additional
debt, liens, asset sales, investments, hedging activities, mergers and reporting
responsibilities.
The global credit facility is secured by a lien on, and a security interest
in, a portion of our proved oil and gas properties in the United States and
Canada, related assets, pledges of accounts receivable, and a pledge of 65% of
the capital stock of Canadian Forest and 100% of the capital stock of Forest
Pipeline Company. If Forest's bank credit facility rating is downgraded, we may
be obligated to pledge additional properties.
At December 31, 2000, the outstanding borrowings under the global credit
facility were $305,000,000 in the United States and $28,690,000 in Canada. At
March 1, 2001, the outstanding borrowings were $258,000,000 in the United States
and $13,058,000 in Canada, with an average effective interest rate of 7.65%. At
March 1, 2001, Forest had also used the global credit facility for letters of
credit in the amount of $5,882,000 in the United States and $1,725,000 CDN in
Canada.
WORKING CAPITAL. Forest had a working capital deficit of approximately
$1,109,000 at December 31, 2000 compared to a working capital surplus of
approximately $26,885,000 at December 31, 1999. The decrease in working capital
is due primarily to an increase in payables related to exploration and
development activities in the fourth quarter of 2000 compared to the
corresponding period in 1999, merger-related payables outstanding at
December 31, 2000 and a decrease in cash as a result of reduction of long-term
debt, offset partially by an increase in revenue-related accounts receivable
balances due to higher oil and gas prices at the end of 2000. Periodically,
Forest reports working capital deficits at the end of a period. Such working
capital deficits are principally the result of accounts payable for capitalized
exploration and development costs. Settlement of these payables is funded by
cash flow from operations or, if necessary, by drawdowns on long-term bank
credit facilities. For cash management purposes, drawdowns on the credit
facilities are not made until the due dates of the payables.
CASH FLOW. Historically, one of Forest's primary sources of capital has
been net cash provided by operating activities. Net cash provided by operating
activities increased to $306,532,000 in 2000 compared to $110,513,000 in 1999.
The 2000 period included higher production revenue due to higher oil and gas
prices and increased production due primarily to the merger with Forcenergy. We
used $376,061,000 for investing activities in 2000 compared to $105,646,000 in
1999. The increase was due primarily to higher
34
exploration and development expenditures in 2000 as a result of the merger with
Forcenergy. Cash used by financing activities in 2000 was $16,172,000 compared
to $91,367,000 in 1999. The 2000 period included net repayments of bank debt of
$52,006,000, offset partially by net proceeds of $38,800,000 from Forcenergy's
issuance of 14% Series A Cumulative Preferred Stock. The 1999 period included
net proceeds of $98,561,000 from the issuance of the 10 1/2% Notes, net proceeds
of $131,188,000 from the issuance of common stock, and $96,506,000 of cash
acquired in the merger with Forcenergy, offset by net repayments of bank
borrowings of $225,765,000.
Net cash provided by operating activities increased to $110,513,000 in 1999
compared to $89,444,000 in 1998. The 1999 period included higher production
revenue due to higher oil and gas prices and additional funds provided by net
working capital changes. We used $105,646,000 for investing activities in 1999
compared to $365,294,000 in 1998. Cash used in the 1998 period was greater than
cash used in the 1999 period due primarily to the acquisition of our onshore
Louisiana properties. Cash provided by financing activities in 1999 was
$91,367,000 compared to $260,954,000 in 1998. 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, and $96,506,000 of cash at
the date of fresh-start of Forcenergy, offset by net repayments of bank
borrowings of $225,765,000. The 1998 period included net bank borrowings of
$187,620,000 and net proceeds of $74,589,000 from the issuance of the 8 3/4%
Notes.
CAPITAL EXPENDITURES. Expenditures for property acquisition, exploration
and development for the past three years were as follows:
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Property acquisition costs:
Proved properties............................. $ 20,213 1,043 290,915
Undeveloped properties........................ 2,486 1,200 48,249
-------- ------- -------
22,699 2,243 339,164
Exploration costs:
Direct costs.................................. 126,367 61,978 57,149
Overhead capitalized.......................... 7,013 3,789 3,265
-------- ------- -------
133,380 65,767 60,414
Development costs:
Direct costs.................................. 217,886 49,259 65,721
Overhead capitalized.......................... 14,073 5,084 4,852
-------- ------- -------
231,959 54,343 70,573
-------- ------- -------
$388,038 122,353 470,151
======== ======= =======
Forest's anticipated expenditures for exploration and development in 2001
are approximately $400,000,000. We intend to meet our 2001 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.
35
DISPOSITIONS OF NON-STRATEGIC ASSETS. As a part of our ongoing operations,
we dispose of non-strategic assets. Assets with little value or which are not
consistent with our operating strategy are identified for sale or trade. At the
present time, Forest is offering for sale certain properties in each of our
operating regions.
During 2000, Forest disposed of properties with estimated proved reserves of
approximately 28.3 BCF of natural gas and 913,000 barrels of oil for total net
proceeds of $17,304,000. During 1999, we disposed of properties with estimated
proved reserves of approximately 7.7 BCF of natural gas and 956,000 barrels of
oil for total net proceeds of $8,756,000. Also during 1999, we disposed of gas
processing facilities for net proceeds of $7,174,000 and disposed of a long-term
investment for net proceeds of $4,565,000. During 1998, we disposed of
properties with estimated proved reserves of approximately 6.2 BCF of natural
gas and 2,440,000 barrels of oil for total proceeds of $10,302,000.
RECENT ACCOUNTING PRONOUNCEMENTS. As of January 1, 2001, we adopted SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" as
amended by SFAS No. 137 and No. 138. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. It requires the
recognition of all derivative instruments as assets or liabilities in the
balance sheet and measurement of those instruments at fair value. The accounting
treatment of changes in fair value is dependent upon whether or not a derivative
instrument is designated as a hedge and if so, the type of hedge. For
derivatives designated as cash flow hedges, changes in fair value are recognized
in other comprehensive income until the hedged item is recognized in earnings.
We periodically hedge a portion of our oil and gas production through swap
and collar agreements. The purpose of the hedges is to provide a measure of
stability in the volatile environment of oil and gas prices and to manage our
exposure to commodity price risk. All of Forest's energy swap and collar
agreements and a portion of our basis swaps in place at December 31, 2000 have
been designated as cash flow hedges. Upon adoption of SFAS No. 133 on
January 1, 2001 we will record a liability of approximately $52,700,000 (of
which $10,900,000 will be classified as current) and a deferred tax asset of
approximately $20,000,000 (of which $4,200,000 will be classified as current)
and a corresponding reduction in other comprehensive income of approximately
$32,700,000.
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 was effective
July 1, 2000, but certain conclusions cover specific events that occur after
either December 15, 1998 or January 12, 2000. 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 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 until the fourth quarter
of 2000. The implementation of the provisions of SAB 101 did not have a material
impact on the financial position or results of operations of Forest.
36
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Forest is exposed to market risk, including the effects of adverse changes
in commodity prices, foreign currency exchange rates and interest rates as
discussed below.
COMMODITY PRICE RISK
Forest produces and sells natural gas, crude oil and natural gas liquids for
its own account in the United States and Canada and, through ProMark, its
marketing subsidiary, markets natural gas for third parties in Canada. As a
result, our financial results are affected when prices for these commodities
fluctuate. Such effects can be significant. In order to manage commodity prices
and to reduce the impact of fluctuations in prices, we enter into long-term
contracts and use a hedging strategy. Under our hedging strategy, Forest enters
into energy swaps, collars and other financial instruments. These arrangements,
which are based on prices available in the financial markets at the time the
contracts are entered into, are settled in cash and do not require physical
deliveries of hydrocarbons. We use the hedge or deferral method of accounting
for these activities and, as a result, gains and losses on the related
instruments are generally offset by similar changes in the realized prices of
the commodities. ProMark also enters into trading activities on a limited basis
in Canada.
LONG-TERM SALES CONTRACTS. A significant portion of Canadian Forest's
natural gas production is sold through the ProMark Netback Pool. At
December 31, 2000 the ProMark Netback Pool had entered into fixed price
contracts to sell approximately 5.5 BCF of natural gas in 2001 at an average
price of $2.52 CDN per MCF and approximately 5.5 BCF of natural gas in 2002 at
an average price of approximately $2.61 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 2000 Canadian Forest supplied approximately 37% of the gas for the
ProMark Netback Pool.
In addition to its commitments to the ProMark Netback Pool, Canadian Forest
is committed to sell .6 BCF of natural gas in 2001 at a fixed price of
approximately $3.25 CDN per MCF and .5 BCF of natural gas in 2002 at a fixed
price of approximately $3.37 CDN per MCF.
HEDGING PROGRAM. In a typical swap agreement, Forest receives the
difference between a fixed price per unit of production and a price based on an
agreed upon third-party index if the index price is lower. If the index price is
higher, Forest pays the difference. By entering into swap agreements we
effectively fix the price that we will receive in the future for the hedged
production. Our current swaps are settled in cash on a monthly basis. We enter
into swap agreements when prices are less volatile or when collar arrangements
are not attractively priced. As of December 31, 2001, Forest had the following
swaps in place:
NATURAL GAS OIL
----------------------- -----------------------
AVERAGE AVERAGE
BBTU'S HEDGED PRICE BARRELS HEDGED PRICE
PER DAY PER MMBTU PER DAY PER BBL
-------- ------------ -------- ------------
2001................................ 27.1 $3.57 1,000 $28.43
2002................................ 16.7 $2.48 -- $ --
We also enter into collar agreements with third parties that are accounted
for as hedges. A collar agreement is similar to a swap agreement, except that we
receive the difference between the floor price and the index price only if the
index price is below the floor price, and we pay the difference between the
ceiling price and the index price only if the index price is above the ceiling
price. Collars are also settled in cash, either on a monthly basis or at the end
of their terms. By entering into collars we effectively provide a floor for the
price that we will receive for the hedged production; however, the collar also
establishes 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
37
decline in prices in exchange for forgoing the benefit of price increases in
excess of the ceiling price on the hedged production. As of December 31, 2001,
we had the following collars in place:
NATURAL GAS
------------------------------------------------
AVERAGE FLOOR AVERAGE CEILING
PRICE PRICE
PER MMBTU PER MMBTU BBTU'S PER DAY
------------- --------------- --------------
2001................................ $4.45 $6.61 53.8
OIL
-------------------------------------------------
AVERAGE FLOOR AVERAGE CEILING
PRICE PRICE
PER BBL PER BBL BARRELS PER DAY
------------- --------------- ---------------
2001................................. $25.39 $31.70 6,000
We also use basis swaps in connection with natural gas swaps to fix the
differential price between the NYMEX price and the index price at which the
hedged gas is sold. At December 31, 2000 there were basis swaps in place with
weighted average volumes of 64,562 MMBTU's per day in 2001.
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 52%,
51% and 33% of our consolidated production, on an equivalent basis, during the
years ended December 31, 2000, 1999 and 1998, respectively.
TRADING ACTIVITIES. Profits or losses generated by the purchase and sale of
third parties' gas are based on the spread between the prices of natural gas
purchased and sold. ProMark does not enter into agreements to buy or sell
natural gas to hold as a speculative position. All transactions are immediately
offset, thereby fixing the margin. At December 31, 2000, ProMark's trading
operations had contracts to purchase an aggregate of 5.4 BCF of natural gas in
2001 at an average price of $5.03 CDN per MCF and had contracts to sell an
aggregate of 5.4 BCF of natural gas in 2001 at an average price of $5.05 CDN per
MCF.
FOREIGN CURRENCY EXCHANGE RISK
Forest conducts business in several foreign currencies and thus is subject
to foreign currency exchange rate risk on cash flows related to sales, expenses,
financing and investing transactions. In the past, we have not entered into any
foreign currency forward contracts or other similar financial instruments to
manage this risk.
CANADA. The Canadian dollar is the functional currency of Canadian Forest.
As a result, Canadian Forest is exposed to foreign currency translation risk
related to translation of the principal amount of the 8 3/4% Notes issued by it
in late 1997 and early 1998 because these notes are denominated in U.S. dollars.
The $192,400,000 principal amount of the debt is due in 2007.
OPERATIONS OUTSIDE OF NORTH AMERICA. The foreign concessions held by Forest
are in relatively early stages of exploratory activities. Expenditures incurred
relative to these interests have been primarily U.S. dollar-denominated.
INTEREST RATE RISK
At the present time, Forest has no financial instruments in place to manage
the impact of changes in interest rates. Therefore, our exposure to changes in
interest rates results from short-term and long-term
38
debt with both fixed and floating interest rates. The following table presents
principal or notional amounts and related average interest rates by year of
maturity for Forest's debt obligations at December 31, 2000:
2001 2002 2003 2004 2005 THEREAFTER TOTAL FAIR VALUE
-------- -------- -------- -------- -------- ---------- -------- ----------
(DOLLAR AMOUNTS IN THOUSANDS)
Bank credit facilities:
Variable rate................ $ -- -- -- -- 333,690 -- 333,690 333,690
Average interest rate........ -- -- -- -- 8.12% -- 8.12%
Long-term debt:
Fixed rate................... $ -- -- -- -- -- 288,544 288,544 289,190
Average interest rate........ -- -- -- -- -- 9.34% 9.34%
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information concerning this Item begins on the following page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
39
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Forest Oil Corporation:
We have audited the accompanying consolidated balance sheets of Forest Oil
Corporation and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Forest Oil
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Denver, Colorado
February 12, 2001
40
FOREST OIL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------
2000 1999
---------- ---------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 14,003 99,661
Accounts receivable....................................... 203,245 110,733
Other current assets...................................... 21,580 20,931
---------- ---------
Total current assets.................................... 238,828 231,325
Net property and equipment, at cost, full cost method
(Notes 3 and 4)........................................... 1,359,756 1,209,709
Deferred income taxes (Note 5).............................. 119,300 --
Goodwill and other intangible assets, net................... 19,412 22,092
Other assets................................................ 15,082 11,563
---------- ---------
$1,752,378 1,474,689
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 192,200 137,133
Accrued interest.......................................... 11,436 31,022
Accrued reorganization costs.............................. -- 11,236
Other current liabilities................................. 36,301 25,049
---------- ---------
Total current liabilities............................... 239,937 204,440
Long-term debt (Notes 3, 4 and 15).......................... 622,234 686,153
Other liabilities........................................... 16,376 16,161
Deferred income taxes (Note 5).............................. 14,865 8,951
Shareholders' equity (Notes 2, 3, 4, 6 and 7)
Common stock, 48,397,177 shares (46,104,575 shares in
1999)................................................... 4,840 4,611
Capital surplus........................................... 1,139,136 962,602
Accumulated deficit....................................... (269,567) (396,007)
Accumulated other comprehensive loss...................... (12,177) (11,774)
Treasury stock, at cost, 167,931 shares in 2000 and 15,531
shares in 1999.......................................... (3,266) (448)
---------- ---------
Total shareholders' equity.............................. 858,966 558,984
---------- ---------
$1,752,378 1,474,689
========== =========
See accompanying Notes to Consolidated Financial Statements.
41
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
Revenue:
Marketing and processing.................................. $288,133 166,283 151,079
Oil and gas sales:
Gas..................................................... 368,245 134,426 123,352
Oil, condensate and natural gas liquids................. 256,680 59,415 50,349
-------- ------- --------
Total oil and gas sales............................... 624,925 193,841 173,701
-------- ------- --------
Total revenue....................................... 913,058 360,124 324,780
Operating expenses:
Marketing and processing.................................. 285,039 162,617 144,758
Oil and gas production.................................... 140,218 49,145 44,944
General and administrative................................ 35,580 15,362 19,849
Merger and seismic licensing (Note 2)..................... 31,577 -- --
Depreciation and depletion................................ 212,480 88,190 100,105
Impairment of oil and gas properties...................... 5,876 -- 199,500
-------- ------- --------
Total operating expenses............................ 710,770 315,314 509,156
-------- ------- --------
Earnings (loss) from operations............................. 202,288 44,810 (184,376)
Other income and expense:
Other income, net......................................... (1,757) (2,629) (8,078)
Interest expense.......................................... 60,269 40,873 38,986
Translation (gain) loss on subordinated debt (Note 4)..... 7,102 (10,561) 8,320
-------- ------- --------
Total other income and expense...................... 65,614 27,683 39,228
-------- ------- --------
Earnings (loss) before income taxes and extraordinary
items..................................................... 136,674 17,127 (223,604)
Income tax expense (benefit) (Note 5):
Current................................................... 1,666 (2,921) 1,272
Deferred.................................................. 4,400 407 (27,090)
-------- ------- --------
6,066 (2,514) (25,818)
-------- ------- --------
Earnings (loss) before extraordinary items.................. 130,608 19,641 (197,786)
Extraordinary items--gain (loss) on extinguishment of debt
(Note 4).................................................. -- (598) 6,196
-------- ------- --------
Net earnings (loss)......................................... $130,608 19,043 (191,590)
======== ======= ========
Earnings (loss) attributable to common stock................ $126,440 19,043 (191,590)
======== ======= ========
Weighted average number of common shares outstanding........ 46,330 23,971 20,455
======== ======= ========
Basic earnings (loss) per common share:
Earnings (loss) attributable to common stock before
extraordinary items..................................... $ 2.73 .82 (9.67)
Extraordinary items--gain (loss) on extinguishment of
debt.................................................... -- (.03) .30
-------- ------- --------
Earnings (loss) attributable to common stock.............. $ 2.73 .79 (9.37)
======== ======= ========
Diluted earnings (loss) per common share:
Earnings (loss) attributable to common stock before
extraordinary items..................................... $ 2.64 .81 (9.67)
Extraordinary items--gain (loss) on extinguishment of
debt.................................................... -- (.02) .30
-------- ------- --------
Earnings (loss) attributable to common stock.............. $ 2.64 .79 (9.37)
======== ======= ========
See accompanying Notes to Consolidated Financial Statements.
42
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
OTHER
PREFERRED COMMON CAPITAL ACCUMULATED COMPREHENSIVE TREASURY
STOCK STOCK SURPLUS DEFICIT INCOME (LOSS) STOCK
--------- -------- --------- ------------ -------------- --------
(IN THOUSANDS)
Balance December 31, 1997........................ $ -- 1,816 490,724 (223,460) (7,253) --
Net loss....................................... -- -- -- (191,590) -- --
Common Stock issued in the Louisiana
Acquisition (Notes 3 and 7).................... -- 50 14,169 -- -- --
Common Stock issued in the Anschutz
Acquisition (Notes 3 and 7).................... -- 297 67,268 -- -- --
Common Stock issued to minority shareholders of
Saxon (Notes 3 and 7)........................ -- 55 15,974 -- -- (448)
Common Stock issued for settlement of
production payment obligation (Notes 4 and
7)........................................... -- 14 3,736 -- -- --
Common Stock issued as compensation
(Note 7)..................................... -- 1 333 -- -- --
Increase in unfunded pension liability
(Note 8)..................................... -- -- -- -- (804) --
Foreign currency translation................... -- -- -- -- (1,891) --
-------- ----- --------- -------- ------- ------
Balance December 31, 1998........................ -- 2,233 592,204 (415,050) (9,948) (448)
Net earnings................................... -- -- -- 19,043 -- --
Common Stock issued, net of offering costs
(Note 7)..................................... -- 450 130,738 -- -- --
Common Stock issued as compensation
(Note 7)..................................... -- 1 103 -- -- --
Stock options exercised (Note 7)............... -- 7 1,421 -- -- --
Employee stock purchase plan (Note 7).......... -- -- 56 -- -- --
Reduction in unfunded pension liability
(Note 8)..................................... -- -- -- -- 493 --
Foreign currency translation................... -- -- -- -- (2,319) --
Equity of Forcenergy on a fresh-start basis
(Note 2)..................................... -- 1,920 238,080 -- -- --
-------- ----- --------- -------- ------- ------
Balance December 31, 1999........................ -- 4,611 962,602 (396,007) (11,774) (448)
Net earnings................................... -- -- -- 130,608 -- --
Preferred Stock issued (Note 6)................ 38,858 -- -- -- -- --
Preferred Stock dividends paid in kind
(Note 6)..................................... 4,168 -- -- (4,168) -- --
Preferred Stock exchanged for Common Stock
(Note 6)..................................... (43,026) 152 42,874 -- -- --
Exercise of warrants (Note 7).................. -- 2 294 -- -- --
Stock options exercised (Note 7)............... -- 69 11,849 -- -- --
Employee stock purchase plan (Note 7).......... -- 3 338 -- -- --
Common stock issued as compensation
(Note 7)..................................... -- 3 595 -- -- --
Stock option compensation (Note 7)............. -- -- 3,013 -- -- --
Tax benefit of stock options exercised......... -- -- 2,900 -- -- --
Purchase of treasury stock (Note 7)............ -- -- -- -- -- (2,818)
Increase in unfunded pension liability
(Note 8)..................................... -- -- -- -- (2,072) --
Unrealized gain on market value of
investment................................... -- -- -- -- 39 --
Foreign currency translation................... -- -- -- -- 1,630 --
Fresh start tax benefits recognized
(Note 5)..................................... -- -- 114,671 -- -- --
-------- ----- --------- -------- ------- ------
Balance December 31, 2000........................ $ -- 4,840 1,139,136 (269,567) (12,177) (3,266)
======== ===== ========= ======== ======= ======
See accompanying Notes to Consolidated Financial Statements.
43
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
--------- -------- --------
(IN THOUSANDS)
Cash flows from operating activities:
Net earnings (loss) before preferred dividends and
extraordinary items..................................... $ 130,608 19,641 (197,786)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and depletion.............................. 212,480 88,190 100,105
Impairment of oil and gas properties.................... 5,876 -- 199,500
Amortization of deferred debt costs..................... 1,517 1,341 902
Translation loss (gain) on subordinated debt............ 7,102 (10,561) 8,320
Deferred income tax expense (benefit)................... 4,400 407 (27,090)
Stock and stock option compensation..................... 3,611 -- --
Other, net.............................................. (1,452) (3,529) (698)
(Increase) decrease in accounts receivable.............. (97,195) (4,949) 8,539
(Increase) decrease in other current assets............. 2,983 (3,304) 1,663
Increase (decrease) in accounts payable................. 10,661 18,244 (13,809)
Increase in accrued interest and other current
liabilities............................................ 37,177 5,033 9,798
--------- -------- --------
Net cash provided by operating activities before
reorganization item.................................. 317,768 110,513 89,444
Decrease in reorganization costs payable................ (11,236) -- --
--------- -------- --------
Net cash provided by operating activities after
reorganization item.................................. 306,532 110,513 89,444
Cash flows from investing activities:
Capital expenditures for property and equipment......... (389,992) (125,083) (374,378)
Proceeds from sale of assets............................ 17,304 20,471 10,302
Increase in other assets, net........................... (3,373) (1,034) (1,218)
--------- -------- --------
Net cash used by investing activities................. (376,061) (105,646) (365,294)
Cash flows from financing activities:
Proceeds from bank borrowings........................... 638,407 112,427 464,088
Repayments of bank borrowings........................... (690,413) (338,192) (276,468)
Repayments of production payment obligation............. -- -- (58)
Issuance of 10 1/2% senior subordinated notes, net of
issuance costs......................................... -- 98,561 --
Issuance of 8 3/4% senior subordinated notes, net of
issuance costs......................................... -- -- 74,589
Redemption of 10 1/2% notes............................. (3,067) -- --
Redemption of 8 3/4% notes.............................. (7,184) -- --
Redemption of 11 1/4% senior subordinated notes......... -- (9,083) --
Proceeds from issuance of preferred stock............... 38,800 -- --
Cash balance of Forcenergy at date of fresh-start....... -- 96,506 --
Proceeds of common stock offering, net of offering
costs.................................................. -- 131,188 --
Proceeds from exercise of options and warrants.......... 12,556 1,589 --
Purchase of treasury stock.............................. (2,818) -- --
Decrease in other liabilities, net...................... (2,453) (1,629) (1,197)
--------- -------- --------
Net cash provided (used) by financing activities...... (16,172) 91,367 260,954
Effect of exchange rate changes on cash..................... 43 12 120
--------- -------- --------
Net decrease in cash and cash equivalents................... (85,658) 96,246 (14,776)
Cash and cash equivalents at beginning of year.............. 99,661 3,415 18,191
--------- -------- --------
Cash and cash equivalents at end of year.................... $ 14,003 99,661 3,415
========= ======== ========
Cash paid (refunded) during the year for:
Interest.................................................. $ 79,381 42,596 35,534
Income taxes.............................................. $ (2,167) (101) 1,172
See accompanying Notes to Consolidated Financial Statements.
44
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF THE BUSINESS--Forest Oil Corporation is engaged in the
acquisition, exploration, development, production and marketing of natural gas
and liquids. The Company was incorporated in New York in 1924, the successor to
a company formed in 1916, and has been publicly held since 1969. The Company is
active in several of the major exploration and producing areas in and offshore
the United States and in Canada, and has exploratory interests in various other
foreign countries.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION--The consolidated
financial statements include the accounts of Forest Oil Corporation and its
consolidated subsidiaries (Forest or the Company). Significant intercompany
balances and transactions are eliminated. The Company generally consolidates all
subsidiaries in which it controls over 50% of the voting interests. Entities in
which the Company does not have a direct or indirect majority voting interest
are generally accounted for using the equity method.
On December 7, 2000, Forest completed its merger with Forcenergy Inc
(Forcenergy). The merger was 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 were carried
forward to the combined company at their recorded amounts, and income of the
combined company includes income of Forest and Forcenergy for the entire year.
The results of operations of Forcenergy prior to December 31, 1999, the
effective date of its reorganization and fresh start reporting, are not included
in the financial statements of the combined company.
In the course of preparing the consolidated financial statements, management
makes various assumptions and estimates to determine the reported amounts of
assets, liabilities, revenue and expenses, and in the disclosures of commitments
and contingencies. Changes in these assumptions and estimates will occur as a
result of the passage of time and the occurrence of future events and,
accordingly, actual results could differ from amounts estimated.
CASH EQUIVALENTS--For purposes of the statements of cash flows, the Company
considers all debt instruments with original maturities of three months or less
to be cash equivalents.
PROPERTY AND EQUIPMENT--The Company uses the full cost method of accounting
for oil and gas properties. Separate cost centers are maintained for each
country in which the Company has operations. During 2000, 1999 and 1998, the
Company's primary oil and gas operations were conducted in the United States and
in Canada. All costs incurred in the acquisition, exploration and development of
properties (including costs of surrendered and abandoned leaseholds, delay lease
rentals, dry holes and overhead related to exploration and development
activities) are capitalized. Capitalized costs applicable to each cost center
are depleted using the units of production method based on conversion to common
units of measure using one barrel of oil as an equivalent to six thousand cubic
feet (MCF) of natural gas. A reserve is provided for estimated future costs of
site restoration, dismantlement and abandonment activities as a component of
depletion.
Unusually significant investments in unproved properties, including related
capitalized interest costs, are not depleted pending the determination of the
existence of proved reserves. Unproved properties are assessed annually to
ascertain whether impairment has occurred. Unproved properties whose costs are
individually significant are assessed individually by considering the primary
lease terms of the properties, the holding period of the properties, and
geographic and geologic data obtained relating to the properties. Where it is
not practicable to individually assess the amount of impairment of properties
for which costs
45
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
are not individually significant, such properties are grouped for purposes of
assessing impairment. The amount of impairment assessed is added to the costs to
be amortized.
As of December 31, 2000, 1999 and 1998, there were undeveloped property
costs of $132,807,000, $114,545,000 and $58,609,000, respectively, which were
not being depleted in the United States and $33,524,000, $39,580,000 and
$26,443,000, respectively, which were not being depleted in Canada. Of the
undeveloped costs in the United States not being depleted at December 31, 2000,
approximately 38% were incurred in 2000, 29% in 1999, 27% in 1998, 3% in 1997
and 3% in 1996. Of the undeveloped costs in Canada not being depleted at
December 31, 2000, 46% were incurred in 2000, 24% in 1999, 6% in 1998, 7% in
1997 and 17% in 1996.
The Company holds interests in various international projects. As of
December 31, 2000, 1999 and 1998, costs related to these international interests
of approximately $40,432,000, $21,493,000 and $14,435,000, respectively, were
not being depleted pending determination of the existence of proved reserves. In
the fourth quarter of 2000, Forest recorded an impairment of $5,876,000 related
to unsuccessful exploratory wells drilled in Switzerland and Thailand.
Depletion per unit of production (MCFE) for each of the Company's cost
centers was as follows:
UNITED STATES CANADA
------------- --------
2000.................................... $1.18 .87
1999.................................... 1.06 .70
1998.................................... 1.20 .85
Pursuant to full cost accounting rules, capitalized costs less related
accumulated depletion and deferred income taxes for each cost center may not
exceed the sum of (1) the present value of future net revenue from estimated
production of proved oil and gas reserves using current prices and a discount
factor of 10%; plus (2) the cost of properties not being amortized, if any; plus
(3) the lower of cost or estimated fair value of unproved properties included in
the costs being amortized, if any; less (4) income tax effects related to
differences in the book and tax basis of oil and gas properties. As a result of
this limitation on capitalized costs, the accompanying financial statements
included a provision for impairment of oil and gas property costs in 1998 of
$139,500,000 in the United States and $35,500,000 ($60,000,000 pre-tax) in
Canada. There were no provisions for impairment of oil and gas properties in
1999. Gain or loss is not recognized on the sale of oil and gas properties
unless the sale significantly alters the relationship between capitalized costs
and proved oil and gas reserves attributable to a cost center.
Buildings, transportation and other equipment are depreciated on the
straight-line method based upon estimated useful lives of the assets ranging
from five to forty-five years.
46
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Net property and equipment at December 31 consists of the following:
2000 1999
----------- ----------
(IN THOUSANDS)
Oil and gas properties.............................. $ 3,020,778 2,664,607
Buildings, transportation and other equipment....... 21,399 16,593
----------- ----------
3,042,177 2,681,200
Less accumulated depreciation, depletion and
valuation allowance............................... (1,682,421) (1,471,491)
----------- ----------
$ 1,359,756 1,209,709
=========== ==========
GOODWILL AND OTHER INTANGIBLE ASSETS--Goodwill and other intangible assets
recorded in the acquisition of the Company's gas marketing subsidiary consist of
the following at December 31, 2000 and 1999:
2000 1999
-------- --------
(IN THOUSANDS)
Goodwill................................................... $15,295 15,873
Gas marketing contracts.................................... 13,344 13,848
------- ------
28,639 29,721
Less accumulated amortization.............................. (9,227) (7,629)
------- ------
$19,412 22,092
======= ======
Goodwill is being amortized on a straight line basis over 20 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.
GAS MARKETING--The Company's gas marketing subsidiary, ProMark, enters into
fixed price agreements to purchase and sell natural gas. ProMark's general
strategy for this business is to enter into offsetting purchase and sales
contracts. Net open positions relating to these contracts do occur, but have not
been significant to date. Revenue from the sale of the gas is recorded as
marketing revenue and the cost of the gas sold is recorded as marketing expense.
ProMark also provides natural gas marketing aggregation services for third
parties. Fees earned for such services are recorded as marketing revenue as the
services are performed.
OIL AND GAS SALES--The Company accounts for oil and gas sales using the
entitlements method. Under the entitlements method, revenue is recorded based
upon the Company's share of volumes sold, regardless of whether the Company has
taken its proportionate share of volumes produced. The Company records a
receivable or payable to the extent it receives less or more than its
proportionate share of the related revenue. As of December 31, 2000 the Company
had produced approximately 489 MMCF more than its entitled share of production.
The estimated value of this imbalance of approximately $1,655,000 is included in
the accompanying consolidated balance sheet as a long-term liability.
No single customer accounted for more than 10% of total revenue in 2000,
1999 or 1998.
47
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
HEDGING TRANSACTIONS--In order to minimize exposure to fluctuations in oil
and natural gas prices, the Company hedges the price of future oil and natural
gas production by entering into certain contracts and financial arrangements.
These instruments are accounted for as hedges when the instrument is designated
as a hedge of the related production and there exists a high degree of
correlation between the fair value of the instrument and the fair value of the
hedged production. The degree of correlation is assessed periodically. If an
instrument does not meet the designation or effectiveness criteria, any gain or
loss on the instrument is recognized immediately in earnings. Otherwise, gains
and losses related to hedging transactions are recognized as adjustments to the
revenue recorded for the related production. If an instrument is settled early,
any gains or losses are deferred and recognized as adjustments to the revenue
recorded for the related hedged production. Costs associated with the purchase
of certain hedging instruments are also deferred and amortized against revenue
related to the hedged production.
INCOME TAXES--The Company uses the asset and liability method of accounting
for income taxes which requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
financial accounting bases and tax bases of assets and liabilities.
FOREIGN CURRENCY TRANSLATION--The functional currency of Canadian Forest
Oil Ltd. (Canadian Forest), the Company's wholly owned Canadian subsidiary, is
the Canadian dollar. Assets and liabilities related to the Company's Canadian
operations are generally translated at current exchange rates, and related
translation adjustments are reported as a component of shareholders' equity in
accumulated other comprehensive loss. Income statement accounts are translated
at the average rates during the period. The Company is also required to
recognize foreign currency translation gains or losses related to its 8 3/4%
Senior Subordinated Notes due 2007 (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, the Company reported noncash translation
gains (losses) of approximately ($7,102,000), $10,561,000 and ($8,320,000) for
the years ended December 31, 2000, 1999 and 1998, respectively.
EARNINGS (LOSS) PER SHARE--Basic earnings (loss) per share is computed by
dividing net earnings (loss) attributable to common stock by the weighted
average number of common shares outstanding during each period, excluding
treasury shares. Net earnings (loss) attributable to common stock represents net
earnings (loss) less preferred stock dividends of $4,168,000 in 2000.
Diluted earnings (loss) per share is computed by adjusting the average
number of common shares outstanding for the dilutive effect, if any, of
convertible preferred stock, stock options and warrants. The effect of
potentially dilutive securities is based on earnings (loss) before extraordinary
items.
48
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The following sets forth the calculation of basic and diluted earnings per
share for income before extraordinary items for the years ended December 31:
2000(1) 1999(2) 1998(3)
-------- -------- --------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
Earnings (loss) before extraordinary items...... $130,608 19,641 (197,786)
Less: Preferred stock dividends................. (4,168) -- --
-------- ------ --------
Earnings (loss) before extraordinary items
available to common stockholders.............. $126,440 19,641 (197,786)
======== ====== ========
Weighted average common shares outstanding
during the period............................. 46,330 23,971 20,455
Add dilutive effects of:
Employee options................................ 1,178 162 --
Warrants........................................ 469 -- --
-------- ------ --------
Weighted average common shares outstanding
during the period including the effects of
dilutive securities........................... 47,977 24,133 20,455
======== ====== ========
Basic earnings (loss) per share before
extraordinary items........................... $ 2.73 .82 (9.67)
======== ====== ========
Diluted earnings (loss) per share before
extraordinary items........................... $ 2.64 .81 (9.67)
======== ====== ========
- ------------------------
(1) At December 31, 2000, options to purchase 1,867,400 shares of common stock
at prices ranging from $27.30 to $50.00 per share were outstanding, but were
not included in the computation of diluted loss per share for the year ended
December 31, 2000. The exercise prices of these options were greater than
the average market price of the common shares. These options expire at
various dates from 2002 to 2010.
(2) At December 31, 1999, options to purchase 829,680 shares of common stock at
prices ranging from $22.50 to $50.00 per share were outstanding, but were
not included in the computation of diluted loss per share for the year ended
December 31, 1999. The exercise prices of these options were greater than
the average market price of the common shares. These options expire at
various dates from 2002 to 2008.
(3) At December 31, 1998, options to purchase 937,680 shares of common stock at
prices ranging from $16.76 to $50.00 per share were outstanding, but were
not included in the computation of diluted loss per share for the year ended
December 31, 1998. The effect of the assumed exercises of these options was
antidilutive. These options expire at various dates from 2002 to 2008.
49
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
COMPREHENSIVE INCOME (LOSS)--The components of total comprehensive income
(loss) consist of net earnings (loss), preferred stock dividends, foreign
currency translation, changes in the unfunded pension liability and unrealized
gain on securities available for sale and are as follows:
UNREALIZED
GAIN ON ACCUMULATED
FOREIGN UNFUNDED SECURITIES OTHER NET PREFERRED TOTAL
CURRENCY PENSION AVAILABLE FOR COMPREHENSIVE EARNINGS STOCK COMPREHENSIVE
TRANSLATION LIABILITY SALE INCOME (LOSS) (LOSS) DIVIDENDS INCOME (LOSS)
----------- --------- ------------- -------------- -------- --------- --------------
(IN THOUSANDS)
Balance at December 31, 1997... $(4,031) (3,222) -- (7,253) (223,460) -- (230,713)
1998 activity (1,891) (804) -- (2,695) (191,590) -- (194,285)
------- ------ --- ------- -------- ------ --------
Balance at December 31, 1998... (5,922) (4,026) -- (9,948) (415,050) -- (424,998)
1999 activity (2,319) 493 -- (1,826) 19,043 -- 17,217
------- ------ --- ------- -------- ------ --------
Balance at December 31, 1999... (8,241) (3,533) -- (11,774) (396,007) -- (407,781)
2000 activity 1,630 (2,072) 39 (403) 130,608 (4,168) 126,037
------- ------ --- ------- -------- ------ --------
Balance at December 31, 2000... $(6,611) (5,605) 39 (12,177) (265,399) (4,168) (281,744)
======= ====== === ======= ======== ====== ========
RECLASSIFICATIONS--Certain amounts in prior years' financial statements have
been reclassified to conform to the 2000 financial statement presentation.
(2) MERGER WITH FORCENERGY INC:
On December 7, 2000 Forest announced the completion of its merger with
Forcenergy. Pursuant to the terms of the merger agreement, and after giving
effect to the reverse split of Forest common shares, Forcenergy stockholders
received 0.8 of a Forest common share for each share of Forcenergy common stock
they owned and 34.307 Forest common shares for each $1,000 stated value amount
of Forcenergy preferred stock. In addition, each warrant to purchase Forcenergy
common stock was exchanged for a warrant to purchase 0.8 shares of Forest common
stock. The merger was 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 were carried forward to the
combined company at their recorded amounts, and income of the combined company
includes income of Forest and Forcenergy for the entire year. The results of
operations of Forcenergy prior to December 31, 1999, the effective date of its
reorganization and fresh start reporting, are not included in the financial
statements of the combined company.
The results of operations previously reported by the separate companies for
the nine months ended September 30, 2000 are as follows:
NINE MONTHS ENDED
SEPTEMBER 30, 2000
--------------------------------
FOREST FORCENERGY COMBINED
-------- ---------- --------
(IN THOUSANDS)
Total revenue................................. $353,942 250,835 604,777
Net earnings.................................. $ 28,936 46,132 75,068
There were no intercompany transactions between Forest and Forcenergy prior
to the combination.
50
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(2) MERGER WITH FORCENERGY INC: (CONTINUED)
Merger and seismic licensing costs reported in the Statements of Operations
for the year ended December 31, 2000 of $31,577,000 (approximately $28,500,000
net of tax) included the following merger-related costs: banking, legal,
accounting, printing and other consulting costs related to the merger; severance
paid to terminated employees; expenses for office closures, employee relocation,
data migration and systems integration; and costs of transferring seismic
licenses from Forcenergy to Forest.
(3) ACQUISITIONS:
ANSCHUTZ ACQUISITION:
In June 1998, Forest issued 2,975,000 shares of common stock valued at
$67,565,000 to The Anschutz Corporation (Anschutz) in exchange for certain oil
and gas assets. The oil and gas assets acquired included an interest in the
Anschutz Ranch East Field located in Utah and Wyoming. The acquisition also
included certain of Anschutz's international oil and gas projects encompassing
approximately 18 million net acres of undeveloped land.
LOUISIANA ACQUISITION:
In February 1998 the Company purchased interests in oil and natural gas
properties in 13 fields located onshore Louisiana from a private company for
total consideration of approximately $230,776,000. The consideration consisted
of approximately $216,557,000 of cash, funded primarily from the Company's bank
credit facility and from the issuance of $75,000,000 principal amount of 8 3/4%
Notes and 1,000,000 shares of the Company's Common Stock.
SAXON PETROLEUM INC.:
Prior to 1998, the Company acquired a majority interest in Saxon
Petroleum Inc. (Saxon). In August 1998, the Company acquired all of the
outstanding common shares of Saxon Petroleum Inc. not previously owned by Forest
in exchange for 540,628 shares of Forest Common Stock valued at $16,029,000.
Canadian Forest received 10,570 shares of Forest Common Stock for the shares of
common stock of Saxon that it owned. A former officer of Saxon returned 4,961
shares of Forest Common Stock in exchange for extinguishment of a loan. These
shares have been recorded as treasury stock at December 31, 2000 and 1999.
In October 1998, ownership of Saxon was transferred from Forest to its
wholly owned subsidiary Canadian Forest Oil Ltd. In June 1999, Saxon was
liquidated into Canadian Forest.
51
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(4) LONG-TERM DEBT:
Long-term debt at December 31 consisted of the following:
2000 1999
-------- --------
(IN THOUSANDS)
Global Credit facility:
U.S. borrowings........................................ $305,000 353,973
Canadian borrowings.................................... 28,690 33,235
8 3/4% Senior Subordinated Notes......................... 192,382 199,978
10 1/2% Senior Subordinated Notes........................ 96,162 98,967
-------- -------
Long-term debt........................................... $622,234 686,153
======== =======
GLOBAL CREDIT FACILITY:
The Company, Canadian Forest and ProMark have a global credit facility
through a syndicate of banks led by The Chase Manhattan Bank and The Chase
Manhattan Bank of Canada. The maximum credit facility allocations in the United
States and Canada are $500,000,000 and $100,000,000, respectively. Funds
borrowed under the global credit facility can be used for general corporate
purposes. Under the terms of the global credit facility, the Company and its
restricted subsidiaries are subject to certain covenants and financial tests,
including restrictions or requirements with respect to dividends, additional
debt, liens, asset sales, investments, hedging activities, mergers and reporting
responsibilities.
The global credit facility is secured by a lien on, and a security interest
in, a portion of the Company's proved oil and gas properties in the United
States and Canada, related assets, pledges of accounts receivable and a pledge
of 65% of the capital stock of Canadian Forest and 100% of the capital stock of
Forest Pipeline Company.
At December 31, 2000 the outstanding balance under the global credit
facility was $305,000,000 in the United States and $28,690,000 in Canada with a
weighted average interest rate of 8.12% per annum. The Company had also used the
global credit facility for letters of credit in the approximate amount of
$5,884,000 in the United States and $1,770,000 CDN in Canada.
8 3/4% SENIOR SUBORDINATED NOTES:
In September 1997 Canadian Forest completed an offering of $125,000,000 of
8 3/4% Senior Subordinated Notes due 2007 (the 8 3/4% Notes), which were sold at
99.745% of par and guaranteed on a senior subordinated basis by the Company. In
February 1998 Canadian Forest issued $75,000,000 principal amount of 8 3/4%
Notes, an add-on to the September 1997 offering.
The Company 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 2000, 1999 and 1998, the Company reported noncash translation
gains (losses) of approximately $(7,102,000), $10,561,000 and $(8,320,000)
respectively, in those years.
In April 2000, the Company purchased $5,000,000 principal amount of 8 3/4%
Notes at an average price of 92.6% of par value. In December 2000, the Company
purchased $2,600,000 principal amount of 8 3/4%
52
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(4) LONG-TERM DEBT: (CONTINUED)
Notes at 96.7% of par value. As a result of these purchases, Forest recorded
gains of $192,000 and $47,000 in the second and fourth quarters of 2000,
respectively.
10 1/2% SENIOR SUBORDINATED NOTES:
In February 1999, Forest issued $100,000,000 principal amount of 10 1/2%
Senior Subordinated Notes due 2006 (the 10 1/2% Notes) at 98.811% of par.
In December 2000, the Company purchased $3,000,000 principal amount of
10 1/2% Notes at an average price of 102.3% of par value, resulting in a loss of
$110,000 in the fourth quarter of 2000.
PRODUCTION PAYMENT OBLIGATION:
In June 1998 the Company settled its remaining nonrecourse production
payment obligation for 135,607 shares of the Company's Common Stock. The stock
was valued at $3,750,000 based upon the weighted average trading price for the
10 day trading period preceding the closing date. The obligation, which
originated in May 1992, had a remaining book value of approximately $9,966,000
at the time of the settlement. As a result of this settlement, the Company
recorded an extraordinary gain on extinguishment of debt of $6,196,000 (net of
related expenses) in 1998.
11 1/4% SENIOR SUBORDINATED NOTES:
In September 1999 Forest redeemed the remaining principal amount of its
11 1/4% Notes at 103.792% of par. As a result of this redemption, Forest
recorded an extraordinary loss on extinguishment of debt of $598,000 in the
third quarter of 1999.
53
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(5) INCOME TAXES:
The income tax expense (benefit) was different from amounts computed by
applying the statutory Federal income tax rate for the following reasons:
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Tax expense (benefit) at 35% of income (loss)
before income taxes and extraordinary item...... $ 47,836 5,994 (78,261)
State tax expense at 3% of income (loss) before
income taxes and extraordinary item............. 4,100 -- --
Change in the valuation allowance for deferred tax
assets attributable to income (loss) before
income taxes and extraordinary item............. (55,833) (8,346) 51,620
Tax expense (benefit) of higher effective rate on
Canadian income (loss).......................... 404 425 (7,200)
Canadian branch income taxable in both Canada and
United States................................... -- 409 1,733
Canadian Crown payments (net of Alberta Royalty
Tax Credit) not deductible for tax purposes..... 6,079 3,261 2,012
Canadian resource allowance....................... (6,781) (4,853) (2,210)
Canadian non-deductible depletion and
amortization.................................... 945 1,335 3,960
Canadian large corporation tax.................... 513 314 519
Expiration of tax carryforwards................... 523 515 450
Nondeductible (nontaxable) foreign exchange
(gains) losses.................................. 2,100 (1,634) --
Nondeductible merger costs........................ 4,318 -- --
Adjustment to deferred tax assets for filed
returns and other............................... 1,862 66 1,559
-------- ------ -------
Total income tax expense (benefit)................ $ 6,066 (2,514) (25,818)
======== ====== =======
Deferred income taxes generally result from recognizing income and expenses
at different times for financial and tax reporting. In the United States, the
largest differences are the tax effect of the capitalization of certain
development, exploration and other costs under the full cost method of
accounting, recording proceeds from the sale of properties in the full cost
pool, and the provision for impairment of oil and gas properties for financial
accounting purposes. In Canada, differences result in part from accelerated cost
recovery of oil and gas capital expenditures for tax purposes.
54
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(5) INCOME TAXES: (CONTINUED)
The components of the net deferred tax liability by geographical segment at
December 31, 2000 and 1999 were as follows:
DECEMBER 31, 2000
-----------------------------------
UNITED STATES CANADA TOTAL
------------- -------- --------
(IN THOUSANDS)
Deferred tax assets:
Property and equipment...................... $ 45,834 -- 45,834
Investment in subsidiaries.................. 2,366 -- 2,366
Accrual for medical and retirement
benefits.................................. 2,920 (37) 2,883
Unrealized foreign exchange losses.......... -- 2,542 2,542
Net operating loss carryforward............. 144,361 3,450 147,811
Depletion carryforward...................... 7,554 -- 7,554
Investment tax credit carryforward.......... 73 -- 73
Alternative minimum tax credit
carryforward.............................. 2,768 -- 2,768
Other....................................... 3,740 -- 3,740
-------- ------- -------
Total gross deferred tax assets........... 209,616 5,955 215,571
Less valuation allowance.................. (90,316) (2,542) (92,858)
-------- ------- -------
Net deferred tax assets................... 119,300 3,413 122,713
Deferred tax liabilities:
Property and equipment...................... -- (14,051) (14,051)
Deferred income on long term contracts...... -- (3,514) (3,514)
Other....................................... -- (713) (713)
-------- ------- -------
Total gross deferred tax liabilities...... -- (18,278) (18,278)
-------- ------- -------
Net deferred tax assets (liabilities)..... $119,300 (14,865) 104,435
======== ======= =======
55
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(5) INCOME TAXES: (CONTINUED)
DECEMBER 31, 1999
-----------------------------------
UNITED STATES CANADA TOTAL
------------- -------- --------
(IN THOUSANDS)
Deferred tax assets:
Property and equipment..................... $ 102,760 -- 102,760
Investment in subsidiaries................. 2,746 -- 2,746
Accrual for medical and retirement
benefits................................. 2,189 150 2,339
Unrealized foreign exchange losses......... -- 1,618 1,618
Net operating loss carryforward............ 142,039 3,781 145,820
Depletion carryforward..................... 6,958 -- 6,958
Investment tax credit carryforward......... 595 -- 595
Alternative minimum tax credit
carryforward............................. 2,238 -- 2,238
Other...................................... 2,219 -- 2,219
--------- ------- --------
Total gross deferred tax assets.......... 261,744 5,549 267,293
--------- ------- --------
Less valuation allowance................. (261,744) (1,618) (263,362)
--------- ------- --------
Net deferred tax assets.................. -- 3,931 3,931
Deferred tax liabilities:
Property and equipment..................... -- (8,182) (8,182)
Deferred income on long term contracts..... -- (4,163) (4,163)
Other...................................... -- (537) (537)
--------- ------- --------
Total gross deferred tax liabilities..... -- (12,882) (12,882)
--------- ------- --------
Net deferred tax liability............... $ -- (8,951) (8,951)
========= ======= ========
The net changes in the valuation allowance for the years ended December 31,
2000, 1999 and 1998 were as follows:
2000 1999 1998
--------- -------- --------
(IN THOUSANDS)
Increase (decrease) in the valuation allowance
for deferred tax assets attributable to income
(loss) before income taxes and extraordinary
item........................................... $ (55,833) (8,346) 51,620
Decrease in the valuation allowance attributable
to the difference between book basis and tax
basis of acquisitions.......................... -- (537) (17,073)
Decrease in the valuation allowance attributable
to fresh start deferred tax assets
recognized..................................... (114,671) -- --
Increase (decrease) in the valuation allowance
attributable to extraordinary gains (losses)... -- 209 (2,169)
--------- ------ -------
Net increase (decrease) in the valuation
allowance...................................... $(170,504) (8,674) 32,378
========= ====== =======
56
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(5) INCOME TAXES: (CONTINUED)
The Alternative Minimum Tax (AMT) credit carryforward available to reduce
future U.S. Federal regular taxes aggregated $2,768,000 at December 31, 2000.
This amount may be carried forward indefinitely. U.S. Federal regular and AMT
net operating loss carryforwards at December 31, 2000 were approximately
$379,897,000 and $266,761,000, respectively, and will expire in the years
indicated below:
REGULAR AMT
-------- --------
(IN THOUSANDS)
2005..................................................... $ 7,457 --
2006..................................................... 3,381 --
2007..................................................... 59,357 --
2008..................................................... 61,716 36,204
2009..................................................... 48,926 33,847
2010..................................................... 84,906 85,778
2011..................................................... 647 2
2012..................................................... 3,944 2,743
2018..................................................... 71,632 68,764
2019..................................................... 37,931 39,423
-------- -------
$379,897 266,761
======== =======
AMT net operating loss carryforwards can be used to offset 90% of AMT income
in future years.
Investment tax credit carryforwards available to reduce future U.S. Federal
income taxes aggregated $73,000 at December 31, 2000 and expire in 2001.
Percentage depletion carryforwards available to reduce future U.S. Federal
taxable income aggregated $19,879,000 at December 31, 2000. This amount may be
carried forward indefinitely.
Canadian net operating losses available to reduce future Canadian Federal
income taxes were $7,732,000 ($11,589,000 CDN) at December 31, 2000 and will
expire in the years indicated below:
(IN THOUSANDS)
2003.......................................... $2,330
2004.......................................... 5,243
2005.......................................... 159
------
$7,732
======
Canadian tax pools relating to the exploration, development and production
of oil and natural gas which are available to reduce future Canadian Federal
income taxes aggregated approximately $156,751,000 ($234,938,000 CDN) at
December 31, 2000. These tax pool balances are deductible on a declining balance
basis ranging from 10% to 100% of the balance annually. The amounts may be
carried forward indefinitely.
The availability of some of the U.S. tax attributes to reduce current and
future U.S. Federal taxable income of the Company is subject to various
limitations under the Internal Revenue Code. In particular, the Company's
ability to utilize such tax attributes could be limited due to the occurrence of
an "ownership change" within the meaning of Section 382 of the Internal Revenue
Code. "Ownership changes" occurred
57
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(5) INCOME TAXES: (CONTINUED)
in Forest in 1995 following the Anschutz transaction, in 1996 following the
public stock issuance, and in 1998 from the accumulated effect of several stock
issuances and exchanges in 1996, 1997 and 1998. "Ownership changes" occurred in
Forcenergy in 2000 following its emergence from bankruptcy. Under the general
provisions of Section 382 of the Code, the Company's ability to utilize
substantially all of Forest's net operating loss carryforwards will be subject
to an annual limitation of approximately $5,700,000 and the Company's ability to
utilize substantially all of Forcenergy's net operating loss carryforwards will
be subject to an annual limitation of approximately $13,750,000. To the extent
of any net unrealized built-in gains at the time of an ownership change, the
annual limitation can be increased by (a) any gains recognized in the five years
following an ownership change on the disposition of certain assets, to the
extent that the value of the assets disposed of exceeded their tax basis on the
date of the ownership change, or (b) any item of income which is properly taken
into account in the five years following the ownership change but which is
attributable to periods before the ownership change. The ability of the Company
to fully utilize its net operating loss carryforwards may be limited by these
provisions.
Due to limitations in the Internal Revenue Code, other than the Section 382
limitations discussed above, the Company believes it is unlikely that it will be
able to use any of its investment tax credit carryforwards before they expire.
(6) PREFERRED STOCK:
In March 2000, Forcenergy issued 40,000 shares of 14% Series A Cumulative
Preferred Stock (the Preferred Stock) for net proceeds of approximately
$38,800,000 as part of a rights offering to holders of unsecured claims. The
Preferred Stock was non-convertible, and dividends were payable quarterly in
additional shares of Preferred Stock. On December 7, 2000, in conjunction with
the merger with Forcenergy, the Company issued 1,514,004 shares of Common Stock
in exchange for the 44,131 outstanding shares of Preferred Stock.
(7) COMMON STOCK:
COMMON STOCK:
The Company has 200,000,000 shares of Common Stock, par value $.10 per
share, authorized.
On December 7, 2000, in conjunction with the merger with Forcenergy, a
1-for-2 reverse stock split was approved by the Company's shareholders. Unless
otherwise indicated, all share and per share amounts in these financial
statements have been adjusted to give retroactive effect to the 1-for-2 reverse
stock split.
In March 2000, the Company purchased 152,400 shares of Common Stock for
approximately $2,818,000.
In August 1999, 4,500,000 shares of Common Stock were sold for $30.875 per
share in a public offering. The net proceeds to Forest from the issuance of
shares totaled approximately $131,000,000 after deducting issuance costs and
underwriting fees.
During 1998, the Company issued 4,151,235 shares of Common Stock in
connection with acquisitions, the purchase of the minority interest in Saxon
Petroleum and the settlement of a production payment obligation, as described in
Notes 3 and 4.
58
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(7) COMMON STOCK: (CONTINUED)
RIGHTS AGREEMENT:
In October 1993, the Board of Directors adopted a shareholders' rights plan
(the Plan) and entered into the Rights Agreement. The Company distributed one
Preferred Share Purchase Right (the Rights) for each outstanding share of the
Company's Common Stock. The Rights are exercisable only if a person or group
acquires 20% or more of the Company's Common Stock or announces a tender offer
which would result in ownership by a person or group of 20% or more of the
Common Stock. Each Right initially entitles each shareholder to buy 1/100th of a
share of a new series of Preferred Stock at an exercise price of $60.00, subject
to adjustment upon certain occurrences. Each 1/100th of a share of such new
Preferred Stock that can be purchased upon exercise of a Right has economic
terms designed to approximate the value of one share of Common Stock. The Rights
will expire on October 29, 2003, unless extended or terminated earlier. The
Company has amended the Rights Agreement to exempt from the provisions of the
Rights Agreement certain shares of Common Stock held by Anschutz.
WARRANTS:
The Company has outstanding 238,831 warrants to purchase shares of its
Common Stock (the 2004 Warrants). Each 2004 Warrant entitles the holder to
purchase 0.8 shares of Common Stock for $16.67, or an equivalent per share price
of $20.84. The 2004 Warrants expire on February 15, 2004.
The Company has outstanding 239,029 warrants to purchase shares of its
Common Stock (the 2005 Warrants). Each 2005 Warrant entitles the holder to
purchase 0.8 shares of Common Stock for $20.83, or an equivalent per share price
of $26.04. The 2005 Warrants expire on February 15, 2005.
The Company has outstanding 1,773,885 warrants to purchase shares of its
Common Stock (Subscription Warrants). Each Subscription Warrant entitles the
holder to purchase 0.8 shares of Common Stock for $10.00, or an equivalent per
share price of $12.50. The Subscription Warrants are detachable and expire on
March 20, 2010 or earlier upon notice of expiration by the Company if, after
March 20, 2004, the market price of the Common Stock has exceeded the exercise
price of the Subscription Warrants for a period of 30 consecutive trading days.
During 2000, 22,604 shares of Common Stock were issued for approximately
$296,000 upon exercise of warrants.
RESTRICTED STOCK AWARDS:
During 2000, the Company issued 32,486 shares of restricted Common Stock to
officers and employees as a portion of the bonuses earned pursuant to the
Business Unit Annual Incentive Plan for the year ended December 31, 1999. During
1998, the Company issued 7,964 shares of restricted Common Stock to officers and
employees as a portion of the bonuses earned pursuant to the Business Unit
Annual Incentive Plan for the year ended December 31, 1997. All of the shares
issued vested immediately upon issuance, but are subject to a two-year
restriction on transfer.
In 1999, the Company entered into restricted stock agreements with two
executives covering 20,168 shares of Common Stock. The shares carry restrictions
as to forfeiture, transfer and encumbrance. The restrictions lapse 20% annually
beginning January 1, 2000.
59
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(7) COMMON STOCK: (CONTINUED)
During 2000, 1999 and 1998, the Company issued 4,393, 5,497 and 4,345 shares
of restricted common stock, respectively, to members of its board of directors
as payment of a portion of their annual directors fees. All of the shares issued
vested immediately upon issuance but are subject to a two-year restriction on
transfer.
STOCK OPTIONS:
The Company has a Stock Incentive Plan under which non-qualified stock
options may be granted to key employees and non-employee directors. The
aggregate number of shares of Common Stock which the Company may issue under
options granted pursuant to this plan may not exceed 10% of the total number of
shares outstanding or issuable at the date of grant pursuant to outstanding
rights, warrants, convertible or exchangeable securities or other options. The
exercise price of an option may not be less than 85% of the fair market value of
one share of Common Stock on the date of grant. Options under the plan generally
vest 20% on the date of grant and an additional 20% on each grant anniversary
date thereafter.
On February 15, 2000, Forcenergy adopted the Forcenergy 1999 Stock Option
Plan. On December 7, 2000, in connection with the merger, the Company assumed
the obligations of the plan and all options outstanding on that date became
fully vested. No additional awards will be granted under the Forcenergy 1999
Stock Option Plan.
The following table summarizes the activity in the Company's stock-based
compensation plans for the years ended December 31, 2000, 1999 and 1998:
WEIGHTED
AVERAGE NUMBER OF
NUMBER OF EXERCISE SHARES
SHARES PRICE EXERCISABLE
--------- -------- -----------
Outstanding at December 31, 1997.............. 918,180 $28.76 339,510
Granted at fair value....................... 96,250 29.34
Cancelled................................... (76,750) 28.44
--------- ------
Outstanding at December 31, 1998.............. 937,680 $28.84 499,150
Granted at fair value....................... 626,500 14.94
Granted in excess of fair value............. 384,000 20.00
Exercised................................... (73,000) 19.58
Cancelled................................... (60,950) 27.19
--------- ------
Outstanding at December 31, 1999.............. 1,814,230 $22.60 782,590
Granted at fair value....................... 2,512,011 22.34
Granted below fair value.................... 252,500 14.06
Exercised................................... (686,004) 17.06
Cancelled................................... (68,964) 22.38
--------- ------
Outstanding at December 31, 2000.............. 3,823,773 $22.86 2,046,573
========= ======
60
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(7) COMMON STOCK: (CONTINUED)
The fair value of each option granted in 2000, 1999 and 1998 was estimated
using the Black-Scholes option pricing model. The following assumptions were
used to compute the weighted average fair market value of options granted:
2000 1999 1998
------------ ------------ ------------
Expected life of options... 5 years 5 years 5 years
Risk free interest rates... 5.14%-6.68% 5.06%-6.31% 4.19%-5.57%
Estimated volatility....... 60.64% 59.29% 57.22%
Dividend yield............. 0.0% 0.0% 0.0%
Weighted average fair
market value of options
granted during the
year..................... $12.95 $9.16 $15.94
The following table summarizes information about options outstanding at
December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF AS OF CONTRACTUAL EXERCISE AS OF EXERCISE
EXERCISE PRICES 12/31/2000 LIFE PRICE 12/31/2000 PRICE
- --------------- ----------- ----------- -------- ----------- --------
$12.50 915,293 9.15 $12.50 915,293 $12.50
14.88-20.00 836,300 8.59 17.28 280,150 17.71
20.63-29.50 441,130 6.23 25.78 382,630 25.89
29.75 1,385,050 9.92 29.75 278,450 29.75
29.88-50.00 246,000 6.24 36.37 190,050 36.96
--------- ---- ------ --------- ------
3,823,773 8.78 $22.86 2,046,573 $20.34
========= ==== ====== ========= ======
STOCK PURCHASE PLAN:
In June 1999, the Company adopted the 1999 Employee Stock Purchase Plan,
under which the Company is authorized to issue up to 125,000 shares of Common
Stock to employees who are regularly scheduled to work more than 20 hours per
week and more than five months in any calendar year. Under the terms of the
plan, employees can choose each quarter to have up to 15% of their annual base
earnings withheld to purchase Common Stock, up to a limit of $25,000 per
calendar year. The purchase price of the stock is 85% of the lower of its
beginning-of-quarter or end-of-quarter market price. The employee is restricted
from selling the stock for a period of six months after purchase. Under this
plan, the Company sold 6,735 shares and 2,445 shares of Common Stock to
employees in 2000 and 1999, respectively.
61
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(7) COMMON STOCK: (CONTINUED)
The fair value of each stock purchase right granted during 2000 and 1999 was
estimated using the Black-Scholes option pricing model. The following
assumptions were used to compute the weighted average fair market value of
purchase rights granted:
2000 1999
-------------- --------------
Expected option life....................... 3 months 3 months
Risk free interest rates................... 5.83% to 6.50% 4.65% to 4.86%
Estimated volatility....................... 60.64% 57.93%
Dividend yield............................. 0.0% 0.0%
Weighted average fair market value of
purchase rights granted.................. $7.00 $7.62
On February 15, 2000, Forcenergy adopted the Forcenergy Inc 1999 Employee
Stock Purchase Plan, under which Forcenergy was authorized to issue up to
384,000 shares of common stock to employees who were full-time employees, or
part-time employees meeting certain criteria. On December 7, 2000, in connection
with the merger, the Company assumed the outstanding obligations of the plan
through December 31, 2000, and the plan was terminated. The purchase price of
the stock was 85% of the lower of the market price at the beginning or end of
each semi-annual period. Under this plan, 26,377 shares of Common Stock were
sold to employees in 2000.
The fair value of each stock purchase right granted during 2000 was
estimated using the Black-Sholes option pricing model. The following assumptions
were used to compute the weighted average fair market value of the purchase
rights granted:
2000
------------------
Expected option life........................................ 6 months
Risk free interest rates.................................... 6.12% to 6.50%
Estimated volatility........................................ 60.64%
Dividend yield.............................................. 0.0%
Weighted average fair market value of purchase rights
granted.................................................... $5.08
The Company applies APB Opinion 25 and related Interpretations in accounting
for its plans. Accordingly, no compensation cost is recognized for options
granted at a price equal to or greater than the fair market value of the common
stock. Compensation cost is recognized over the vesting period of options
granted at a price less than the fair market value of the common stock at the
date of the grant. No compensation cost is recognized for stock purchase rights
that qualify under Section 423 of the Internal Revenue Code as a noncompensatory
plan. Had compensation cost for the Company's stock-based compensation plans
been determined using the fair value of the options at the grant date, the
Company's net earnings (loss) for the years ended December 31, 2000, 1999 and
1998 would have been $109,818,000, $14,321,000 and $(195,187,000), respectively,
and the basic earnings (loss) per share would have been $2.29, $.60 and $(9.54)
per share, respectively.
62
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(8) EMPLOYEE BENEFITS:
The Company has a qualified defined benefit pension plan which covers its
employees in the United States (Pension Plan). The Pension Plan has been
curtailed and all benefit accruals were suspended effective May 31, 1991. The
Company also has a non-qualified unfunded supplementary retirement plan (the
Supplemental Executive Retirement Plan) that provides certain officers with
defined retirement benefits in excess of qualified plan limits imposed by
Federal tax law. Benefit accruals were suspended effective May 31, 1991 in
connection with suspension of benefit accruals under the Pension Plan. Amounts
for both the Pension Plan and the Supplemental Executive Retirement Plan are
combined in the "Pension Benefits" column below.
In addition to the defined benefit pension plans described above, the
Company also accrues expected costs of providing postretirement benefits to
employees, their beneficiaries and covered dependents in accordance with
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pension," (Statement No. 106). These amounts,
which consist primarily of medical benefits payable on behalf of retirees in the
United States, are presented in the "Postretirement Benefits" column below.
The following tables set forth the plans' benefit obligations, fair value of
plan assets and funded status at December 31, 2000 and 1999:
BENEFIT OBLIGATIONS:
POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
Projected benefit obligation at the
beginning of the year..................... $26,377 28,400 6,595 7,587
Service cost................................ -- -- 219 269
Interest cost............................... 1,974 1,931 507 478
Actuarial (gain) loss....................... 691 (1,684) 248 (1,252)
Benefits paid............................... (2,353) (2,270) (471) (563)
Retiree contributions....................... -- -- 78 76
------- ------ ----- ------
Projected benefit obligation at the end of
the year.................................. $26,689 26,377 7,176 6,595
======= ====== ===== ======
63
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(8) EMPLOYEE BENEFITS: (CONTINUED)
FAIR VALUE OF PLAN ASSETS:
POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
Fair value of plan assets at beginning of
the year.................................. $23,815 25,287 -- --
Actual return on plan assets................ 618 741 -- --
Plan participants' contribution............. -- -- 78 76
Employer contribution....................... 128 57 393 546
Benefits paid............................... (2,353) (2,270) (471) (622)
------- ------ ----- ------
Fair value of plan assets at the end of the
year...................................... $22,208 23,815 -- --
======= ====== ===== ======
FUNDED STATUS:
POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
Excess of projected benefit obligation over
plan assets............................... $(4,480) (2,562) (7,176) (6,595)
Unrecognized actuarial loss................. 5,603 3,532 592 344
------- ------ ------ ------
Net amount recognized....................... $ 1,123 970 (6,584) (6,251)
======= ====== ====== ======
Amounts recognized in the balance sheet
consist of:
Prepaid pension cost........................ $ 1,542 1,399 -- --
Accrued benefit liability................... (4,480) (2,562) (6,584) (6,251)
Accumulated other comprehensive income...... 4,061 2,133 -- --
------- ------ ------ ------
Net amount recognized....................... $ 1,123 970 (6,584) (6,251)
======= ====== ====== ======
64
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(8) EMPLOYEE BENEFITS: (CONTINUED)
The following tables set forth the components of the net periodic cost of
the plans and the underlying weighted average actuarial assumptions for the
years ended December 31, 2000, 1999 and 1998:
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------------------ ------------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
Service cost............................... $ -- -- -- 219 269 191
Interest cost.............................. 1,932 1,931 1,924 507 478 486
Expected return on plan assets............. (2,032) (2,165) (2,130) -- -- --
Recognized actuarial loss.................. 29 232 62 -- 39 25
------- ------ ------ ---- ---- ----
Total net periodic expense (benefit)....... $ (71) (2) (144) 726 786 702
======= ====== ====== ==== ==== ====
Discount rate.............................. 7.50% 8.00% 6.75% 7.50% 8.00% 6.75%
======= ====== ====== ==== ==== ====
Expected return on plan assets............. 9.00% 9.00% 9.00% n/a n/a n/a
======= ====== ====== ==== ==== ====
Assumed health care cost trend rates have a significant effect on the
amounts reported for postretirement benefits. A one-percentage-point change in
assumed health care cost trend rates would have the following effects for 2000:
POSTRETIREMENT BENEFITS
-------------------------
1% INCREASE 1% DECREASE
----------- -----------
(IN THOUSANDS)
Effect on service and interest cost components........ $ 131 (103)
Effect on postretirement benefit obligation........... $1,033 (843)
65
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(8) EMPLOYEE BENEFITS: (CONTINUED)
For measurement purposes, a 7.1% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2001. The rate was assumed
to decrease .8% per year until it reaches 5.5% in 2003 and to remain at that
level thereafter.
As a result of suspension of benefit accruals under the Pension Plan and the
Supplemental Executive Retirement Plan, the Company records as a liability the
unfunded pension liabilities attributable to these plans. The following changes
in the minimum unfunded pension liability were recorded as adjustments to other
comprehensive income:
2000............................................... $(2,072)
1999............................................... $ 493
1998............................................... $ (804)
Canadian Forest has a non-contributory defined benefit pension plan (the
Canadian Defined Benefit Plan). Benefits under the Canadian Defined Benefit Plan
are based on years of service, the employee's average annual compensation during
the highest consecutive sixty month period of pensionable service and the
employee's age at retirement.
The following tables set forth the estimated benefit obligations, fair value
of plan assets and funded status of the Canadian Defined Benefit Plan at
December 31, 2000 and 1999:
BENEFIT OBLIGATIONS:
2000 1999
-------- --------
(IN THOUSANDS OF
CANADIAN DOLLARS)
Projected benefit obligation at the beginning of the
year..................................................... $ 6,062 6,888
Service cost............................................... 326 400
Interest cost.............................................. 362 426
Actuarial (gain) loss...................................... 220 (1,272)
Benefits paid.............................................. (463) (380)
Benefit obligation settled on conversion of employees to
members of the defined contribution plan................. (1,548) --
------- ------
Projected benefit obligation at the end of the year........ $ 4,959 6,062
======= ======
FAIR VALUE OF PLAN ASSETS:
2000 1999
-------- --------
(IN THOUSANDS OF
CANADIAN DOLLARS)
Fair value of plan assets at beginning of the year.......... $ 9,031 8,572
Actual return on plan assets................................ 524 839
Employer contributions...................................... 81 --
Benefits paid............................................... (463) (380)
Settlement payments on conversion to defined contribution
plan...................................................... (1,984) --
------- -----
Fair value of plan assets at the end of the year............ $ 7,189 9,031
======= =====
66
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(8) EMPLOYEE BENEFITS: (CONTINUED)
FUNDED STATUS:
2000 1999
-------- --------
(IN THOUSANDS OF
CANADIAN DOLLARS)
Excess of assets over projected benefit obligation......... $ 2,230 2,969
Unamortized transitional obligation asset.................. (2,272) (3,334)
Unamortized net actuarial loss............................. 165 --
------- ------
Prepaid pension cost (accrued benefit liability)........... $ 123 (365)
======= ======
On April 1, 2000, a defined contribution plan (the Canadian Defined
Contribution Plan) was introduced and many of Canadian Forest's employees
elected to be covered under the new plan. Employees who did not elect to be
covered under the Canadian Defined Contribution Plan continue to be covered
under the Canadian Defined Benefit Plan. The Company recorded a curtailment gain
of $323,000 for the decrease in the projected benefit obligation related to
those employees who are no longer covered by the Canadian Defined Benefit Plan.
The following table sets forth the components of net periodic pension cost
and the underlying weighted average actuarial assumptions for the years ended
December 31, 2000, 1999 and 1998. The amounts shown include costs of both of the
Canadian plans because the surplus attributable to the defined benefits plan is
being used to meet the obligations of both plans:
2000 1999 1998
-------- -------- --------
(IN THOUSANDS OF
CANADIAN DOLLARS)
Service cost............................................ $ 326 400 260
Interest cost........................................... 362 426 446
Expected return on plan assets.......................... (525) (477) (510)
Amortization of transition asset........................ (246) (68) (69)
Recognized actuarial gains.............................. -- (138) (45)
Settlement gain......................................... (323) -- --
----- ---- ----
Total net periodic pension cost......................... $(406) 143 82
===== ==== ====
Discount rate........................................... 7.25% 6.00% 7.00%
===== ==== ====
Expected return on plan assets.......................... 7.00% 6.00% 7.00%
===== ==== ====
RETIREMENT SAVINGS PLANS:
The Company sponsors a qualified tax-deferred savings plan for its employees
in the United States in accordance with the provisions of Section 401(k) of the
Internal Revenue Code. Employees may defer up to 15% of their compensation,
subject to certain limitations. The Company matches employee contributions up to
5% of employee compensation. The expense associated with the Company's
contributions was $578,000 in 2000, $518,000 in 1999 and $551,000 in 1998.
The Company also sponsors a qualified tax-deferred savings plan in
accordance with the provisions of Section 401(k) of the Internal Revenue Code
for employees formerly employed by Forcenergy. Employees
67
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(8) EMPLOYEE BENEFITS: (CONTINUED)
may defer up to 15% of their compensation, subject to certain limitations. The
Company matches employee contributions up to 50% of the first 5% of the employee
compensation. Certain limitations are in effect with respect to withdrawals from
the plan. The expense associated with the Company's contributions was $183,000
in 2000.
Canadian Forest also provides a savings plan which is available to all of
its employees. Employees may contribute up to 4% of their salary, subject to
certain limitations, with Canadian Forest matching the employee contribution in
full. The expense associated with Canadian Forest's contributions to the plan
was $153,000 in 2000, $150,000 in 1999 and $132,000 in 1998.
LIFE INSURANCE:
The Company provides life insurance benefits for certain key employees and
retirees under split dollar life insurance plans. The premiums for the life
insurance policies were $543,000 in 2000, of which $496,000 was for policies for
retired executives. The premiums for the life insurance policies were $596,000
in 1999 of which $506,000 was for policies for retired executives. The premiums
for the life insurance policies were $921,000 in 1998, of which $831,000 was for
policies for retired executives. Under the life insurance plans, the Company is
assigned a portion of the benefits which is designed to recover the premiums
paid.
(9) FINANCIAL INSTRUMENTS:
ENERGY SWAPS AND COLLARS:
In order to hedge against the effects of declines in oil and natural gas
prices on the Company's future oil and gas production, the Company enters into
various agreements with third parties and accounts for the agreements as hedges
based on analogy to the criteria set forth in Statement of Financial Accounting
Standards No. 80, "Accounting for Futures Contracts." For the years ended
December 31, 2000, 1999 and 1998, the Company's gains (losses) under these
agreements were $(129,092,000), $(8,684,000) and $6,305,000, respectively.
In a typical swap agreement, the Company receives the difference between a
fixed price per unit of production and a price based on an agreed-upon third
party index if the index price is lower. If the index price is higher, the
Company pays the difference. By entering into swap agreements the Company
effectively fixes the price that it will receive in the future for the hedged
production. The Company's current swaps are settled on a monthly basis. As of
December 31, 2000 Forest had the following swaps in place:
NATURAL GAS OIL
----------------------- -----------------------
AVERAGE BARRELS AVERAGE
BBTU'S HEDGED PRICE PER HEDGED PRICE
PER DAY PER MMBTU DAY PER BBL
-------- ------------ -------- ------------
2001................................. 27.1 $3.57 1,000 $28.43
2002................................. 16.7 $2.48 -- $ --
The Company also enters into collar agreements with third parties that are
accounted for as hedges. A collar agreement is similar to a swap agreement,
except that the Company receives the difference between
68
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(9) FINANCIAL INSTRUMENTS: (CONTINUED)
the floor price and the index price only if the index price is below the floor
price, and the Company pays the difference between the ceiling price and the
index price only if the index price is above the ceiling price. Collars are also
settled in cash on a monthly basis. By entering into collars the Company
effectively provides a floor for the price that it will receive for the hedged
production; however, the collar also establishes a maximum price that the
Company will receive for the hedged production if prices increase above the
ceiling price. The Company enters 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 ceiling
price of the hedged production. As of December 31, 2000, the Company had the
following collars in place:
NATURAL GAS
------------------------------------------------------------
AVERAGE FLOOR PRICE AVERAGE CEILING PRICE
PER MMBTU PER MMBTU BBTU'S PER DAY
------------------- --------------------- --------------
2001........................ $4.45 $6.61 53.8
OIL
-------------------------------------------------------------
AVERAGE FLOOR PRICE AVERAGE CEILING PRICE
PER BBL PER BBL BARRELS PER DAY
------------------- --------------------- ---------------
2001........................ $25.39 $31.70 6,000
The Company also uses basis swaps in connection with natural gas swaps to
fix the differential price between the NYMEX price and the index price at which
the hedged gas is sold. At December 31, 2000 there were basis swaps in place
with weighted average volumes of 64,562 MMBTU per day in 2001.
The Company is exposed to off-balance-sheet risks associated with swap and
collar agreements arising from movements in the prices of oil and natural gas
and from the unlikely event of non-performance by the counterparties to the swap
and collar agreements.
As of January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" as amended by SFAS No. 137 and
No. 138. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. It requires the recognition of all
derivative instruments as assets or liabilities in the Company's balance sheet
and the measurement of those instruments at fair value. The accounting treatment
of changes in fair value is dependent upon whether or not a derivative
instrument is designated as a hedge and, if so, the type of hedge. For
derivatives designated as cash flow hedges, changes in fair value are recognized
in other comprehensive income until the hedged item is recognized in earnings.
All of the Company's energy swap and collar agreements and a portion of the
Company's basis swaps in place at December 31, 2000 have been designated as cash
flow hedges. Upon adoption of SFAS No. 133 on January 1, 2001 the Company will
record a liability of approximately $52,700,000 (of which $10,900,000 will be
classified as current) and a deferred tax asset of approximately $20,000,000 (of
which $4,200,000 will be classified as current) and a corresponding reduction in
other comprehensive income of approximately $32,700,000.
69
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(9) FINANCIAL INSTRUMENTS: (CONTINUED)
Set forth below is the estimated fair value of certain on- and off-balance
sheet financial instruments, along with the methods and assumptions used to
estimate such fair values as of December 31, 2000:
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE:
The carrying amount of these instruments approximates fair value due to
their short maturity.
SENIOR SUBORDINATED NOTES:
The fair value of the Company's 8 3/4% Notes was approximately $189,033,000,
based upon quoted market prices of the notes.
The fair value of the Company's 10 1/2% Notes was approximately
$100,153,000, based upon quoted market prices of the notes.
ENERGY SWAP AGREEMENTS:
The fair value of the Company's energy swap agreements was a loss of
approximately $44,152,000, based upon the estimated net amount the Company would
pay to terminate the agreements.
ENERGY COLLAR AGREEMENTS:
The fair value of the Company's energy collar agreements was a loss of
approximately $9,411,000, based upon the estimated net amount the Company would
pay to terminate the agreements.
BASIS SWAP AGREEMENTS:
The fair value of the Company's basis swap agreements was a gain of
approximately $887,000, based upon the estimated net amount the Company would
receive to terminate the agreements.
(10) RELATED PARTY TRANSACTIONS
Beginning in 1995, the Company consummated certain transactions with the
Anschutz pursuant to which Anschutz acquired a significant ownership position in
the Company. As of December 31, 2000 Anschutz owned 15,233,539 shares of
Forest's Common Stock, or approximately 31% of the outstanding shares and held
warrants to purchase an additional 522,216 shares.
In 1998, the Company purchased certain oil and gas assets from Anschutz for
$67,565,000 as described in Note 3. Included in the purchase were exploration
concessions in Tunisia and South Africa. Forest and Anschutz subsequently agreed
to acquire additional concessions in Tunisia and South Africa. Effective
October 1, 1999, Forest and Anschutz entered into an agreement under which
Anschutz repurchased 30% of the original Tunisia and South Africa blocks sold to
Forest and Forest purchased 20% of the new Tunisia and South Africa concessions
from Anschutz. Consideration was based on the original purchase price paid to
Anschutz by Forest and on actual costs incurred by the respective parties in
obtaining the new concessions. As a result of the agreement, Forest has a 70%
interest in all four of the concessions, is the operator of the concession
blocks and is reimbursed by Anschutz for general, technical and administrative
overhead.
70
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(11) COMMITMENTS AND CONTINGENCIES:
Future rental payments for office facilities and equipment under the
remaining terms of noncancelable operating leases are $3,814,000, $3,458,000,
$2,614,000, $2,488,000 and $1,966,000 for the years ending December 31, 2001
through 2005, respectively.
Net rental payments applicable to exploration and development activities and
capitalized in the oil and gas property accounts aggregated $4,021,000 in 2000,
$3,144,000 in 1999 and $2,137,000 in 1998. Net rental payments charged to
expense amounted to $7,011,000 in 2000, $4,806,000 in 1999 and $3,948,000 in
1998. Rental payments include the short-term lease of vehicles. There are no
leases which are accounted for as capital leases.
A significant portion of Canadian Forest's natural gas production is sold
through the ProMark Netback Pool. At December 31, 2000 the ProMark Netback Pool
had entered into fixed price contracts to sell approximately 5.5 BCF of natural
gas in 2001 at an average price of $2.52 CDN per MCF and approximately 5.5 BCF
of natural gas in 2002 at an average price of approximately $2.61 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 2000 Canadian Forest supplied 37%
of the gas for the Netback Pool.
In addition to its commitments to the ProMark Netback Pool, Canadian Forest
is committed to sell .6 BCF of natural gas in 2001 at a fixed price of
approximately $3.25 CDN per MCF and .5 BCF of natural gas in 2002 at a fixed
price of approximately $3.37 CDN per MCF.
As part of ProMark's gas marketing activities, ProMark has entered into
fixed price contracts to purchase and to resell natural gas. ProMark has
commitments to purchase and commitments to resell approximately 14,717 MCF per
day through October 2001 and approximately 1,046 MCF per day thereafter through
October 2002. The Company could be exposed to loss in the event that a
counterparty to these agreements failed to perform in accordance with the terms
of the agreements.
The Company, in the ordinary course of business, is a party to various legal
actions. In the opinion of management, none of these actions, either
individually or in the aggregate, will have a material adverse effect on the
Company's financial condition, liquidity or results of operations.
71
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(12) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
2000
Revenue(1)............................................. $176,984 197,308 230,485 308,281
======== ======= ======= =======
Earnings from operations............................... $ 44,434 44,214 67,325 46,315
======== ======= ======= =======
Net earnings........................................... $ 22,451 18,823 33,794 55,540
======== ======= ======= =======
Net earnings attributable to common stock.............. $ 22,280 17,423 32,334 54,403
======== ======= ======= =======
Basic and diluted earnings per share before
extraordinary item................................... $ .48 .38 .70 1.16
Basic and diluted earnings per share................... $ .48 .37 .68 1.11
1999
Revenue(1)............................................. $ 84,157 88,165 93,798 94,004
======== ======= ======= =======
Earnings from operations............................... $ 5,745 9,835 15,076 14,154
======== ======= ======= =======
Earnings before extraordinary item..................... $ 450 4,043 5,404 9,744
======== ======= ======= =======
Net earnings........................................... $ 450 4,043 4,806 9,744
======== ======= ======= =======
Basic and diluted earnings per share before
extraordinary item................................... $ .02 .18 .22 .36
Basic and diluted earnings per share................... $ .02 .18 .20 .36
- ------------------------
(1) Revenue has been restated to reflect the reclassification of transportation
costs from oil and gas revenue to oil and gas production expense to comply
with a recent accounting pronouncement.
(13) BUSINESS AND GEOGRAPHICAL SEGMENTS:
Segment information has been prepared in accordance with Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information (Statement No. 131). Forest has six
reportable segments: oil and gas operations in the Gulf Coast Offshore Region,
Gulf Coast Onshore Region, Western Region, Alaska and 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 the
consolidated Forest financial statements.
72
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(13) BUSINESS AND GEOGRAPHICAL SEGMENTS: (CONTINUED)
YEAR ENDED DECEMBER 31, 2000
OIL AND GAS OPERATIONS
----------------------------------------------------------------------------
GULF COAST REGION
------------------- WESTERN TOTAL
OFFSHORE ONSHORE REGION ALASKA U.S. CANADA TOTAL
-------- -------- -------- -------- --------- -------- ---------
(IN THOUSANDS)
Revenue............................ $359,843 49,302 95,442 62,882 567,469 58,570 626,039
Marketing and processing expense... -- 901 -- -- 901 -- 901
Oil and gas production expense..... 64,862 11,885 26,807 23,877 127,431 12,787 140,218
General and administrative
expense.......................... 16,272 4,559 6,083 3,220 30,134 4,060 34,194
Depreciation and depletion
expense.......................... 123,020 20,576 27,158 20,148 190,902 18,056 208,958
-------- ------- ------- ------- --------- ------- ---------
Earnings (loss) from operations.... $155,689 11,381 35,394 15,637 218,101 23,667 241,768
======== ======= ======= ======= ========= ======= =========
Capital expenditures............... $218,540 10,083 25,504 58,085 312,212 50,802 363,014
======== ======= ======= ======= ========= ======= =========
Property and equipment, net........ $515,973 257,336 199,456 135,528 1,108,293 202,941 1,311,234
======== ======= ======= ======= ========= ======= =========
MARKETING AND
PROCESSING TOTAL
CANADA COMPANY
------------- ---------
(IN THOUSANDS)
Revenue............................ 287,019 913,058
Marketing and processing expense... 284,138 285,039
Oil and gas production expense..... -- 140,218
General and administrative
expense.......................... 1,386 35,580
Depreciation and depletion
expense.......................... 2,227 211,185
------- ---------
Earnings (loss) from operations.... (732) 241,036
======= =========
Capital expenditures............... -- 363,014
======= =========
Property and equipment, net........ -- 1,311,234
======= =========
Information for Forest's reportable segments relates to the Company's 2000
consolidated totals as follows:
(IN THOUSANDS)
--------------
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM:
Earnings from operations for reportable segments............ $ 241,036
Administrative asset depreciation........................... (1,295)
Other income, net........................................... 1,757
Merger and seismic licensing expense........................ (31,577)
Interest expense............................................ (60,269)
Impairment of international oil and gas properties.......... (5,876)
Translation loss on subordinated debt....................... (7,102)
----------
Earnings before income taxes and extraordinary item......... $ 136,674
==========
CAPITAL EXPENDITURES:
Reportable segments......................................... $ 363,014
International interests..................................... 25,024
Administrative assets and other............................. 1,954
----------
Total capital expenditures.................................. $ 389,992
==========
PROPERTY AND EQUIPMENT, NET:
Reportable segments......................................... $1,311,234
International interests..................................... 40,432
Administrative assets, net and other........................ 8,090
----------
Total property and equipment, net........................... $1,359,756
==========
73
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(13) BUSINESS AND GEOGRAPHICAL SEGMENTS: (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
OIL AND GAS OPERATIONS
----------------------------------------------------------------------------
GULF COAST REGION
------------------- WESTERN TOTAL
OFFSHORE ONSHORE REGION ALASKA U.S. CANADA TOTAL
-------- -------- -------- -------- --------- -------- ---------
(IN THOUSANDS)
Revenue............................. $ 81,478 40,525 30,413 -- 152,416 42,072 194,488
Marketing and processing expense.... -- -- -- -- -- -- --
Oil and gas production expense...... 14,598 14,899 6,417 -- 35,914 13,231 49,145
General and administrative
expense........................... 3,790 3,580 2,542 -- 9,912 3,391 13,303
Depreciation and depletion
expense........................... 41,904 18,331 8,936 -- 69,171 15,726 84,897
-------- ------- ------- ------ --------- ------- ---------
Earnings (loss) from operations..... $ 21,186 3,715 12,518 -- 37,419 9,724 47,143
======== ======= ======= ====== ========= ======= =========
Capital expenditures................ $ 28,744 35,201 6,837 -- 70,782 42,665 113,447
======== ======= ======= ====== ========= ======= =========
Property and equipment, net......... $420,860 277,025 207,168 96,900 1,001,953 178,561 1,180,514
======== ======= ======= ====== ========= ======= =========
MARKETING AND
PROCESSING TOTAL
CANADA COMPANY
------------- ---------
(IN THOUSANDS)
Revenue............................. 165,636 360,124
Marketing and processing expense.... 162,617 162,617
Oil and gas production expense...... -- 49,145
General and administrative
expense........................... 2,059 15,362
Depreciation and depletion
expense........................... 2,321 87,218
------- ---------
Earnings (loss) from operations..... (1,361) 45,782
======= =========
Capital expenditures................ -- 113,447
======= =========
Property and equipment, net......... -- 1,180,514
======= =========
Information for Forest's reportable segments relates to the Company's 1999
consolidated totals as follows:
(IN THOUSANDS)
--------------
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM:
Earnings from operations for reportable segments............ $ 45,782
Administrative asset depreciation........................... (972)
Other income, net........................................... 2,629
Interest expense............................................ (40,873)
Translation gain on subordinated debt....................... 10,561
----------
Earnings before income taxes and extraordinary item......... $ 17,127
==========
CAPITAL EXPENDITURES:
Reportable segments......................................... $ 113,447
International interests..................................... 8,905
Administrative assets and other............................. 2,731
----------
Total capital expenditures.................................. $ 125,083
==========
PROPERTY AND EQUIPMENT, NET:
Reportable segments......................................... $1,180,514
International interests..................................... 21,493
Administrative assets, net and other........................ 7,702
----------
Total property and equipment, net........................... $1,209,709
==========
74
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(13) BUSINESS AND GEOGRAPHICAL SEGMENTS: (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
OIL AND GAS OPERATIONS
---------------------------------------------------------------
GULF COAST REGION MARKETING AND
------------------- WESTERN TOTAL PROCESSING TOTAL
OFFSHORE ONSHORE REGION U.S. CANADA TOTAL CANADA COMPANY
-------- -------- -------- -------- -------- -------- ------------- --------
(IN THOUSANDS)
Revenue.............................. $ 71,571 42,057 20,761 134,389 39,746 174,135 150,645 324,780
Marketing and processing expense..... -- -- -- -- -- -- 144,758 144,758
Oil and gas production expense....... 13,851 12,851 5,893 32,595 12,349 44,944 -- 44,944
General and administrative expense... 4,625 4,346 1,965 10,936 7,496 18,432 1,417 19,849
Depreciation and depletion expense... 47,005 20,558 6,919 74,482 22,226 96,708 2,252 98,960
Impairment of oil and gas
properties......................... 51,500 59,500 28,500 139,500 60,000 199,500 -- 199,500
-------- ------- ------- -------- ------- -------- ------- --------
Earnings (loss) from operations...... $(45,410) (55,198) (22,516) (123,124) (62,325) (185,449) 2,218 (183,231)
======== ======= ======= ======== ======= ======== ======= ========
Capital expenditures................. $ 61,483 263,479 85,169 410,131 44,222 454,353 (10) 454,343
======== ======= ======= ======== ======= ======== ======= ========
Property and equipment, net.......... $127,542 260,940 103,752 492,234 146,105 638,339 4,766 643,105
======== ======= ======= ======== ======= ======== ======= ========
Information for Forest's reportable segments relates to the Company's 1998
consolidated totals as follows:
(IN THOUSANDS)
--------------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM:
Loss from operations for reportable segments................ $(183,231)
Administrative asset depreciation........................... (1,145)
Other income, net........................................... 7,561
Interest expense............................................ (38,986)
Minority interest in loss of subsidiary..................... 517
Translation loss on subordinated debt....................... (8,320)
---------
Loss before income taxes and extraordinary item............. $(223,604)
=========
CAPITAL EXPENDITURES:
Reportable segments......................................... $ 454,343
International interests..................................... 14,435
Administrative assets and other............................. 2,976
---------
Total capital expenditures.................................. $ 471,754
=========
PROPERTY AND EQUIPMENT, NET:
Reportable segments......................................... $ 643,105
International interests..................................... 14,435
Administrative assets, net and other........................ 5,770
---------
Total property and equipment, net........................... $ 663,310
=========
75
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED):
The following information is presented in accordance with Statement of
Financial Accounting Standards No. 69, "Disclosure about Oil and Gas Producing
Activities," (Statement No. 69).
(A) COSTS INCURRED IN OIL AND GAS EXPLORATION AND DEVELOPMENT
ACTIVITIES--The following costs were incurred in oil and gas exploration and
development activities during the years ended December 31, 2000, 1999 and 1998:
UNITED INTER-
STATES CANADA NATIONAL TOTAL
-------- -------- -------- --------
(IN THOUSANDS)
2000
Property acquisition costs (undeveloped leases and
proved properties)................................... $ 22,754 1 (56) 22,699
Exploration costs...................................... 87,051 21,249 25,080 133,380
Development costs...................................... 202,407 29,552 -- 231,959
-------- ------ ------ -------
Total................................................ $312,212 50,802 25,024 388,038
======== ====== ====== =======
1999
Property acquisition costs (undeveloped leases and
proved properties)................................... $ 1,203 -- 1,040 2,243
Exploration costs...................................... 20,752 37,150 7,865 65,767
Development costs...................................... 48,827 5,516 -- 54,343
Cost of Forcenergy properties at fresh start........... 510,000 -- -- 510,000
-------- ------ ------ -------
Combined total....................................... $580,782 42,666 8,905 632,353
======== ====== ====== =======
1998
Property acquisition costs (undeveloped leases and
proved properties)................................... $310,536 17,628 11,000 339,164
Exploration costs...................................... 39,532 17,447 3,435 60,414
Development costs...................................... 61,436 9,137 -- 70,573
-------- ------ ------ -------
Total................................................ $411,504 44,212 14,435 470,151
======== ====== ====== =======
(B) AGGREGATE CAPITALIZED COSTS--The aggregate capitalized costs relating
to oil and gas activities at the end of each of the years indicated were as
follows:
2000 1999 1998
----------- ---------- ----------
(IN THOUSANDS)
Costs related to proved properties....... $ 2,807,033 2,482,534 1,923,521
Costs related to unproved properties:
Costs subject to depletion............. 6,982 6,455 6,344
Costs not subject to depletion......... 206,763 175,618 99,487
----------- ---------- ----------
3,020,778 2,664,607 2,029,352
Less accumulated depletion and valuation
allowance.............................. (1,669,112) (1,459,738) (1,367,086)
----------- ---------- ----------
$ 1,351,666 1,204,869 662,266
=========== ========== ==========
76
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED): (CONTINUED)
(C) RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES--Results of operations
from producing activities for the years ended December 31, 2000, 1999 and 1998
are presented below. Income taxes are different from income taxes shown in the
Consolidated Statements of Operations because this table excludes general and
administrative and interest expense.
UNITED
STATES CANADA INTERNATIONAL TOTAL
--------- -------- ------------- --------
(IN THOUSANDS)
2000
Oil and gas sales................................ $ 555,582 69,343 -- 624,925
Production expense............................... 127,420 12,798 -- 140,218
Depletion expense................................ 190,902 18,057 -- 208,959
Provision for impairment of oil and gas
properties..................................... -- -- 5,876 5,876
Income tax expense............................... 83,041 16,551 -- 99,592
--------- ------- ------ --------
401,363 47,406 5,876 454,645
--------- ------- ------ --------
Results of operations from producing
activities..................................... $ 154,219 21,937 (5,876) 170,280
========= ======= ====== ========
1999
Oil and gas sales................................ $ 150,589 43,252 -- 193,841
Production expense............................... 35,914 13,231 -- 49,145
Depletion expense................................ 69,171 15,726 -- 84,897
Income tax expense............................... -- 5,240 -- 5,240
--------- ------- ------ --------
105,085 34,197 -- 139,282
--------- ------- ------ --------
Results of operations from producing
activities..................................... $ 45,504 9,055 -- 54,559
========= ======= ====== ========
1998
Oil and gas sales................................ $ 133,955 39,746 -- 173,701
Production expense............................... 32,595 12,349 -- 44,944
Depletion expense................................ 74,482 22,226 -- 96,708
Provision for impairment of oil and gas
properties..................................... 139,500 60,000 -- 199,500
Income tax benefit............................... -- (23,418) -- (23,418)
--------- ------- ------ --------
246,577 71,157 -- 317,734
--------- ------- ------ --------
Results of operations from producing
activities..................................... $(112,622) (31,411) -- (144,033)
========= ======= ====== ========
(D) ESTIMATED PROVED OIL AND GAS RESERVES--The Company's estimate of its
proved and proved developed future net recoverable oil and gas reserves and
changes for 2000, 1999 and 1998 follows. Proved oil and gas reserves are the
estimated quantities of crude oil, natural gas and natural gas liquids which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions; i.e., prices and costs as of the date the estimate is
made.
Prices include consideration of changes in existing prices provided only by
contractual arrangement, but not on escalations based on future conditions.
Purchases of reserves in place represent volumes recorded on the closing dates
of the acquisitions for financial accounting purposes.
77
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED): (CONTINUED)
Proved developed oil and gas reserves are reserves that can be expected to
be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the application
of fluid injection or other improved mechanisms of primary recovery are included
as "proved developed reserves" only after testing by a pilot project or after
the operation of an installed program has confirmed through production response
that increased recovery will be achieved.
Proved undeveloped oil and gas reserves are reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion.
LIQUIDS GAS
------------------------------ ------------------------------
(MBBLS) (MMCF)
UNITED UNITED
STATES CANADA TOTAL STATES CANADA TOTAL
-------- -------- -------- -------- -------- --------
Balance at December 31, 1997............... 6,126 18,510 24,636 257,923 120,392 378,315
Revisions of previous estimates.......... 347 (3,095) (2,748) 17,158 (9,231) 7,927
Extensions and discoveries............... 559 336 895 37,708 31,576 69,284
Production............................... (2,405) (1,864) (4,269) (47,394) (14,916) (62,310)
Sales of reserves in place............... (2,008) (432) (2,440) (1,964) (4,215) (6,179)
Purchases of reserves in place........... 18,965 30 18,995 161,089 16,138 177,227
------ ------ ------- -------- ------- --------
Balance at December 31, 1998............... 21,584 13,485 35,069 424,520 139,744 564,264
Revisions of previous estimates.......... 2,108 (438) 1,670 (13,613) (497) (14,110)
Extensions and discoveries............... 611 64 675 37,941 5,565 43,506
Production............................... (2,712) (1,685) (4,397) (49,279) (12,423) (61,702)
Sales of reserves in place............... (308) (648) (956) (6,231) (1,462) (7,693)
Purchases of reserves in place........... 66 -- 66 742 -- 742
Forcenergy reserves at fresh start....... 64,959 -- 64,959 300,616 -- 300,616
------ ------ ------- -------- ------- --------
Balance at December 31, 1999............... 86,308 10,778 97,086 694,696 130,927 825,623
Revisions of previous estimates.......... (1,710) (641) (2,351) 2,680 (19,647) (16,967)
Extensions and discoveries............... 5,780 529 6,309 116,911 23,206 140,117
Production............................... (9,891) (1,536) (11,427) (102,320) (11,522) (113,842)
Sales of reserves in place............... (904) (9) (913) (26,084) (2,172) (28,256)
Purchases of reserves in place........... 537 -- 537 37,383 -- 37,383
------ ------ ------- -------- ------- --------
Balance at December 31, 2000............... 80,120 9,121 89,241 723,266 120,792 844,058
====== ====== ======= ======== ======= ========
78
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED): (CONTINUED)
OIL AND CONDENSATE GAS
------------------------------ ------------------------------
(MBBLS) (MMCF)
UNITED UNITED
STATES CANADA TOTAL STATES CANADA TOTAL
-------- -------- -------- -------- -------- --------
Proved developed reserves at:
December 31, 1997............................. 5,493 14,291 19,784 179,986 109,849 289,835
December 31, 1998............................. 16,697 13,485 30,182 332,575 135,174 467,749
December 31, 1999............................. 57,746 10,715 68,461 539,802 124,201 664,003
December 31, 2000............................. 53,385 9,121 62,506 546,789 83,824 630,613
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS--Future oil
and gas sales and production and development costs have been estimated using
prices and costs in effect at the end of the years indicated, except in those
instances where the sale of oil and natural gas is covered by contracts, in
which case, the applicable contract prices, including fixed and determinable
escalations, were used for the duration of the contract. Thereafter, the current
spot price was used. All cash flow amounts, including income taxes, are
discounted at 10%.
Future income tax expenses are estimated using an estimated combined federal
and state income tax rate of 38% in the United States and a combined Federal and
Provincial rate of 44.62% in Canada. Estimates for future general and
administrative and interest expense have not been considered.
Changes in the demand for oil and natural gas, inflation and other factors
make such estimates inherently imprecise and subject to substantial revision.
This table should not be construed to be an estimate of the current market value
of the Company's proved reserves. Management does not rely upon the information
that follows in making investment decisions.
DECEMBER 31, 2000
-----------------------------------
UNITED
STATES CANADA TOTAL
----------- -------- ----------
(IN THOUSANDS)
Future oil and gas sales................... $ 8,805,617 958,776 9,764,393
Future production costs.................... (1,284,255) (111,954) (1,396,209)
Future development costs................... (359,152) (13,910) (373,062)
Future abandonment costs................... (174,197) (4,091) (178,288)
Future income taxes........................ (1,913,585) (293,654) (2,207,239)
----------- -------- ----------
Future net cash flows...................... 5,074,428 535,167 5,609,595
10% annual discount for estimated timing of
cash flows............................... (1,702,274) (212,890) (1,915,164)
----------- -------- ----------
Standardized measure of discounted future
net cash flows........................... $ 3,372,154 322,277 3,694,431
=========== ======== ==========
Present value of future net cash flows before income taxes was
$4,605,767,000 in the United States and $471,536,000 in Canada at December 31,
2000.
79
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED): (CONTINUED)
DECEMBER 31, 1999
----------------------------------
UNITED
STATES CANADA TOTAL
---------- -------- ----------
(IN THOUSANDS)
Future oil and gas sales................... $3,589,560 444,147 4,033,707
Future production costs.................... (963,204) (113,450) (1,076,654)
Future development costs................... (307,118) (18,473) (325,591)
Future abandonment costs................... (166,574) (4,245) (170,819)
Future income taxes........................ (269,011) (68,792) (337,803)
---------- -------- ----------
Future net cash flows...................... 1,883,653 239,187 2,122,840
10% annual discount for estimated timing of
cash flows............................... (619,128) (84,690) (703,818)
---------- -------- ----------
Standardized measure of discounted future
net cash flows........................... $1,264,525 154,497 1,419,022
========== ======== ==========
Present value of future net cash flows before income taxes was
$1,400,802,000 in the United States and $189,405,000 in Canada at December 31,
1999.
DECEMBER 31, 1998
---------------------------------
UNITED
STATES CANADA TOTAL
---------- -------- ---------
(IN THOUSANDS)
Future oil and gas sales.................... $1,081,183 334,242 1,415,425
Future production costs..................... (278,277) (111,392) (389,669)
Future development costs.................... (105,363) (20,776) (126,139)
Future abandonment costs.................... (12,783) (5,543) (18,326)
Future income taxes......................... (18,327) (38,910) (57,237)
---------- -------- ---------
Future net cash flows....................... 666,433 157,621 824,054
10% annual discount for estimated timing of
cash flows................................ (240,071) (61,152) (301,223)
---------- -------- ---------
Standardized measure of discounted future
net cash flows............................ $ 426,362 96,469 522,831
========== ======== =========
Present value of future net cash flows before income taxes was $433,555,000
in the United States and $113,921,000 in Canada at December 31, 1998.
80
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED): (CONTINUED)
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES--An analysis of the changes in the
standardized measure of discounted future net cash flows during each of the last
three years is as follows.
DECEMBER 31, 2000
-----------------------------------
UNITED
STATES CANADA TOTAL
----------- -------- ----------
(IN THOUSANDS)
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves, at beginning of
year..................................................... $ 1,264,525 154,497 1,419,022
Changes resulting from:
Sales of oil and gas, net of production costs............ (428,162) (56,545) (484,707)
Net changes in prices and future production costs........ 2,454,268 312,067 2,766,335
Net changes in future development costs.................. (135,125) (12,268) (147,393)
Extensions, discoveries and improved recovery............ 833,232 61,298 894,530
Previously estimated development costs incurred during
the period............................................. 188,891 28,995 217,886
Revisions of previous quantity estimates................. (15,250) (68,734) (83,984)
Sales of reserves in place............................... (45,172) (1,621) (46,793)
Purchases of reserves in place........................... 212,201 -- 212,201
Accretion of discount on reserves at beginning of year
before income taxes.................................... 140,080 18,941 159,021
Net change in income taxes............................... (1,097,336) (114,351) (1,211,687)
----------- -------- ----------
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves, at end of
year..................................................... $ 3,372,152 322,279 3,694,431
=========== ======== ==========
The computation of the standardized measure of discounted future net cash
flows relating to proved oil and gas reserves at December 31, 2000 was based on
average natural gas prices of approximately $9.52 per MCF in the U.S. and
approximately $6.11 per MCF in Canada and on average liquids prices of
approximately $23.84 per barrel in the U.S. and approximately $23.59 per barrel
in Canada.
Subsequent to December 31, 2000, the price of natural gas decreased
significantly. During March 2001, the Company was receiving average natural gas
prices of approximately $5.10 per MCF in the U.S. and approximately $4.14 per
MCF in Canada. Had the lower prices been used, the Company's
81
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED): (CONTINUED)
standardized measure of discounted future net cash flows relating to proved oil
and gas reserves at December 31, 2000 would have been reduced.
DECEMBER 31, 1999
---------------------------------
UNITED
STATES CANADA TOTAL
---------- -------- ---------
(IN THOUSANDS)
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves, at beginning of
year...................................................... $ 426,362 96,469 522,831
Changes resulting from:
Sales of oil and gas, net of production costs............. (114,675) (30,021) (144,696)
Net changes in prices and future production costs......... 101,070 107,149 208,219
Net changes in future development costs................... (42,426) (450) (42,876)
Extensions, discoveries and improved recovery............. 68,365 3,859 72,224
Previously estimated development costs incurred during the
period.................................................. 41,855 5,246 47,101
Revisions of previous quantity estimates.................. 10,737 (15,746) (5,009)
Sales of reserves in place................................ (786) (5,945) (6,731)
Purchases of reserves in place............................ 1,421 -- 1,421
Accretion of discount on reserves at beginning of year
before income taxes..................................... 43,356 11,392 54,748
Net change in income taxes................................ (39,683) (17,456) (57,139)
---------- ------- ---------
495,596 154,497 650,093
Reserves of Forcenergy at fresh start..................... 768,929 -- 768,929
---------- ------- ---------
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves, at end of year... $1,264,525 154,497 1,419,022
========== ======= =========
The computation of the standardized measure of discounted future net cash
flows relating to proved oil and gas reserves at December 31, 1999 was based on
average natural gas prices of approximately $2.37
82
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(14) SUPPLEMENTAL FINANCIAL DATA--OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED): (CONTINUED)
per MCF in the U.S. and approximately $1.66 per MCF in Canada and on average
liquids prices of approximately $22.38 per barrel in the U.S. and approximately
$19.98 per barrel in Canada.
DECEMBER 31, 1998
-------------------------------
UNITED
STATES CANADA TOTAL
--------- -------- --------
(IN THOUSANDS)
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves, at beginning of
year...................................................... $ 289,300 150,270 439,570
Changes resulting from:
Sales of oil and gas, net of production costs............. (101,360) (27,397) (128,757)
Net changes in prices and future production costs......... (236,581) (73,799) (310,380)
Net changes in future development costs................... (15,191) (737) (15,928)
Extensions, discoveries and improved recovery............. 46,269 23,140 69,409
Previously estimated development costs incurred during the
period.................................................. 57,285 8,436 65,721
Revisions of previous quantity estimates.................. 18,629 (10,909) 7,720
Sales of reserves in place................................ (6,592) (3,788) (10,380)
Purchases of reserves in place............................ 330,977 3,937 334,914
Accretion of discount on reserves at beginning of year
before income taxes..................................... 30,920 17,731 48,651
Net change in income taxes................................ 12,706 9,585 22,291
--------- ------- --------
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves, at end of year... $ 426,362 96,469 522,831
========= ======= ========
The computation of the standardized measure of discounted future net cash
flows relating to proved oil and gas reserves at December 31, 1998 was based on
average natural gas prices of approximately $2.03 per MCF in the U.S. and
approximately $1.38 per MCF in Canada and on average liquids prices of
approximately $9.56 per barrel in the U.S. and approximately $8.91 per barrel in
Canada.
(15) SUPPLEMENTAL GUARANTOR INFORMATION:
Canadian Forest is the issuer of the 8 3/4% Notes (see Note 4). 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. Saxon became a subsidiary guarantor of the 8 3/4% Notes in August 1998
when it became a wholly owned subsidiary of Forest Oil Corporation. In
October 1998, ownership of Saxon was transferred from Forest to Canadian Forest.
In June 1999, Saxon was liquidated into Canadian Forest. ProMark, which is a
wholly owned subsidiary of Canadian Forest, became a subsidiary guarantor of the
8 3/4% Notes during 1998.
The Company has not presented separate financial statements and other
disclosures concerning Canadian Forest, ProMark or Saxon 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 December 31, 2000, 1999 and 1998 and for the years then ended.
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.
83
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2000
CANADIAN PRODUCERS CONSOLIDATED
FOREST OIL FOREST OIL MARKETING ELIMINATING FOREST OIL
CORPORATION LTD. LTD. ENTRIES CORPORATION
----------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 14,778 (659) (116) -- 14,003
Accounts receivable.......................... 141,932 7,349 53,964 -- 203,245
Other current assets......................... 20,039 1,106 435 -- 21,580
---------- ------- ------- ------- ---------
Total current assets..................... 176,749 7,796 54,283 -- 238,828
Net property and equipment, at cost, full cost
method......................................... 1,161,420 198,276 60 -- 1,359,756
Deferred income taxes............................ 119,300 -- -- -- 119,300
Goodwill and other intangible assets, net........ -- -- 19,412 -- 19,412
Intercompany investments......................... 27,840 25,713 -- (53,553) --
Other assets..................................... 12,096 2,986 -- -- 15,082
---------- ------- ------- ------- ---------
$1,497,405 234,771 73,755 (53,553) 1,752,378
========== ======= ======= ======= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................. $ 123,944 16,569 51,687 -- 192,200
Accrued interest............................. 6,393 5,043 -- -- 11,436
Other current liabilities.................... 35,443 852 6 -- 36,301
---------- ------- ------- ------- ---------
Total current liabilities................ 165,780 22,464 51,693 -- 239,937
Long-term debt................................... 401,162 221,072 -- -- 622,234
Other liabilities................................ 16,458 (82) -- -- 16,376
Deferred income taxes............................ -- 26,300 (11,435) -- 14,865
Shareholders' equity
Common stock................................. 4,840 27,840 25,265 (53,105) 4,840
Capital surplus.............................. 1,139,136 -- -- -- 1,139,136
Accumulated deficit.......................... (220,648) (59,766) 10,847 -- (269,567)
Accumulated other comprehensive loss......... (6,505) (3,057) (2,615) -- (12,177)
Treasury stock, at cost...................... (2,818) -- -- (448) (3,266)
---------- ------- ------- ------- ---------
Total shareholders' equity............... 914,005 (34,983) 33,497 (53,553) 858,966
---------- ------- ------- ------- ---------
$1,497,405 234,771 73,755 (53,553) 1,752,378
========== ======= ======= ======= =========
84
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
CANADIAN PRODUCERS CONSOLIDATED
FOREST OIL FOREST OIL MARKETING ELIMINATING FOREST OIL
CORPORATION LTD. LTD. ENTRIES CORPORATION
----------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
Revenue:
Marketing and processing..................... $ 1,114 -- 287,019 -- 288,133
Oil and gas sales:
Gas...................................... 337,785 29,986 474 -- 368,245
Oil, condensate and natural gas
liquids................................ 217,797 38,363 520 -- 256,680
-------- ------- ------- ----- -------
Total oil and gas sales...................... 555,582 68,349 994 -- 624,925
-------- ------- ------- ----- -------
Total revenue............................ 556,696 68,349 288,013 -- 913,058
Expenses:
Marketing and processing..................... 901 -- 284,138 -- 285,039
Oil and gas production....................... 127,420 12,722 76 -- 140,218
General and administrative................... 30,134 4,060 1,386 -- 35,580
Merger and seismic licensing expense......... 31,577 -- -- -- 31,577
Depreciation and depletion................... 192,181 18,022 2,277 -- 212,480
Impairment of oil and gas properties......... 5,876 -- -- -- 5,876
-------- ------- ------- ----- -------
Total operating expenses................. 388,089 34,804 287,877 -- 710,770
-------- ------- ------- ----- -------
Earnings from operations......................... 168,607 33,545 136 -- 202,288
Other income and expense:
Other (income) expense, net.................. (1,833) (5,468) 5,180 364 (1,757)
Interest expense............................. 39,874 20,308 451 (364) 60,269
Translation gain on subordinated debt........ -- 7,102 -- -- 7,102
-------- ------- ------- ----- -------
Total other income and expense........... 38,041 21,942 5,631 -- 65,614
-------- ------- ------- ----- -------
Earnings (loss) before income taxes and
extraordinary item............................. 130,566 11,603 (5,495) -- 136,674
Income tax expense (benefit):
Current...................................... 1,090 435 141 -- 1,666
Deferred..................................... (1,729) 25,222 (19,093) -- 4,400
-------- ------- ------- ----- -------
(639) 25,657 (18,952) -- 6,066
-------- ------- ------- ----- -------
Earnings (loss) before extraordinary item........ 131,205 (14,054) 13,457 -- 130,608
Extraordinary item -- loss on extinguishment of
debt........................................... -- -- -- -- --
-------- ------- ------- ----- -------
Net earnings (loss).............................. $131,205 (14,054) 13,457 -- 130,608
======== ======= ======= ===== =======
85
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000
CANADIAN PRODUCERS CONSOLIDATED
FOREST OIL FOREST OIL MARKETING FOREST OIL
CORPORATION LTD. LTD. CORPORATION
----------- ---------- ---------- ------------
(IN THOUSANDS)
Cash flow from operating activities:
Net earnings (loss) before extraordinary item............... $ 131,205 (14,054) 13,457 130,608
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and depletion.............................. 192,181 18,022 2,277 212,480
Impairment of oil and gas properties.................... 5,876 -- -- 5,876
Amortization of deferred debt costs..................... 1,118 399 -- 1,517
Translation loss on subordinated notes.................. -- 7,102 -- 7,102
Deferred income tax expense (benefit)................... (1,729) 25,222 (19,093) 4,400
Stock and stock option compensation..................... 3,611 -- -- 3,611
Other, net.............................................. (1,215) (237) -- (1,452)
Increase in accounts receivable......................... (58,946) (4,371) (33,878) (97,195)
(Increase) decrease in other current assets............. (672) 1,574 2,081 2,983
Increase (decrease) in accounts payable................. 6,372 (31,572) 35,861 10,661
Increase in accrued interest and other current
liabilities........................................... 2,733 34,443 1 37,177
--------- ------- ------- --------
Net cash provided by operating activities before
reorganization items.............................. 280,534 36,528 706 317,768
Decrease in accrued reorganization costs payable........ (11,236) -- -- (11,236)
--------- ------- ------- --------
Net cash provided by operating activities after
reorganization items.............................. 269,298 36,528 706 306,532
Cash flows from investing activities:
Capital expenditures for property and equipment......... (338,932) (51,060) -- (389,992)
Proceeds from sale of assets............................ 15,589 1,715 -- 17,304
Decrease in other assets, net........................... (3,373) -- -- (3,373)
--------- ------- ------- --------
Net cash used by investing activities............... (326,716) (49,345) -- (376,061)
Cash flows from financing activities:
Proceeds from bank borrowings........................... 626,157 12,250 -- 638,407
Repayments of bank borrowings........................... (675,130) (15,283) -- (690,413)
Redemption of 10 1/2% notes............................. (3,067) -- -- (3,067)
Redemption of 8 3/4% notes.............................. -- (7,184) -- (7,184)
Proceeds from issuance of preferred stock............... 38,800 -- -- 38,800
Proceeds from exercise of options and warrants.......... 12,556 -- -- 12,556
Purchase of treasury stock.............................. (2,818) -- -- (2,818)
Decrease in other liabilities, net...................... (1,613) (840) -- (2,453)
--------- ------- ------- --------
Net cash used by financing activities............... (5,115) (11,057) -- (16,172)
Intercompany advances, net.................................. (22,837) 23,462 (625) --
Effect of exchange rate changes on cash..................... 12 100 (69) 43
--------- ------- ------- --------
Net decrease in cash and cash equivalents................... (85,358) (312) 12 (85,658)
Cash and cash equivalents at beginning of year.............. 100,136 (347) (128) 99,661
--------- ------- ------- --------
Cash and cash equivalents at end of year.................... $ 14,778 (659) (116) 14,003
========= ======= ======= ========
86
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1999
CANADIAN PRODUCERS CONSOLIDATED
FOREST OIL FOREST OIL MARKETING ELIMINATING FOREST OIL
CORPORATION LTD. LTD. ENTRIES CORPORATION
----------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 100,136 (343) (132) -- 99,661
Accounts receivable.......................... 82,986 4,921 22,826 -- 110,733
Other current assets......................... 19,675 1,176 80 -- 20,931
---------- ------- ------ -------- ---------
Total current assets..................... 202,797 5,754 22,774 -- 231,325
Intercompany receivables......................... 226 65,646 -- (65,872) --
Net property and equipment, at cost, full cost
method......................................... 1,035,633 121,196 52,880 -- 1,209,709
Goodwill and other intangible assets, net........ -- -- 22,092 -- 22,092
Intercompany investments......................... 24,315 25,713 -- (50,028) --
Other assets..................................... 8,387 3,176 -- -- 11,563
---------- ------- ------ -------- ---------
$1,271,358 221,485 97,746 (115,900) 1,474,689
========== ======= ====== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................. $ 106,336 14,733 16,064 -- 137,133
Accrued interest............................. 25,761 5,261 -- -- 31,022
Accrued reorganization costs................. 11,236 -- -- -- 11,236
Other current liabilities.................... 24,828 221 -- -- 25,049
---------- ------- ------ -------- ---------
Total current liabilities................ 168,161 20,215 16,064 -- 204,440
Intercompany payables............................ 12,746 -- 53,126 (65,872) --
Long-term debt................................... 452,940 233,213 -- -- 686,153
Other liabilities................................ 15,823 338 -- -- 16,161
Deferred income taxes............................ -- 1,714 7,237 -- 8,951
Shareholders' equity
Common stock................................. 4,611 24,315 25,265 (49,580) 4,611
Capital surplus.............................. 962,602 -- -- -- 962,602
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............... 621,688 (33,995) 21,319 (50,028) 558,984
---------- ------- ------ -------- ---------
$1,271,358 221,485 97,746 (115,900) 1,474,689
========== ======= ====== ======== =========
87
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
CANADIAN PRODUCERS CONSOLIDATED
FOREST OIL FOREST OIL MARKETING ELIMINATING FOREST OIL
CORPORATION LTD. LTD. ENTRIES CORPORATION
----------- ---------- ---------- ----------- ------------
(IN THOUSANDS)
Revenue:
Marketing and processing....................... $ 647 19 165,617 -- 166,283
Oil and gas sales:
Gas.......................................... 115,469 18,660 297 -- 134,426
Oil, condensate and natural gas liquids...... 35,120 23,513 782 -- 59,415
-------- ------- ------- ------ -------
Total oil and gas sales........................ 150,589 42,173 1,079 -- 193,841
-------- ------- ------- ------ -------
Total revenue................................ 151,236 42,192 166,696 -- 360,124
Expenses:
Marketing and processing....................... -- 21 162,596 -- 162,617
Oil and gas production......................... 35,914 13,172 59 -- 49,145
General and administrative..................... 9,912 3,391 2,059 -- 15,362
Depreciation and depletion..................... 70,163 15,706 2,321 -- 88,190
-------- ------- ------- ------ -------
Total operating expenses..................... 115,989 32,290 167,035 -- 315,314
-------- ------- ------- ------ -------
Earnings (loss) from operations.................. 35,247 9,902 (339) -- 44,810
Other income and expense:
Other (income) expense, net.................... 138 (4,810) (1,733) 3,776 (2,629)
Interest expense............................... 22,396 19,959 2,294 (3,776) 40,873
Translation gain on subordinated debt.......... -- (10,561) -- -- (10,561)
-------- ------- ------- ------ -------
Total other income and expense............... 22,534 4,588 561 -- 27,683
-------- ------- ------- ------ -------
Earnings (loss) before income taxes and
extraordinary item............................. 12,713 5,314 (900) -- 17,127
Income tax expense (benefit):
Current........................................ -- (763) (2,158) -- (2,921)
Deferred....................................... -- (2,084) 2,491 -- 407
-------- ------- ------- ------ -------
-- (2,847) 333 -- (2,514)
-------- ------- ------- ------ -------
Earnings (loss) before extraordinary item........ 12,713 8,161 (1,233) -- 19,641
Extraordinary item -- loss on extinguishment of
debt........................................... (598) -- -- -- (598)
-------- ------- ------- ------ -------
Net earnings (loss).............................. $ 12,115 8,161 (1,233) -- 19,043
======== ======= ======= ====== =======
88
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
CANADIAN PRODUCERS CONSOLIDATED
FOREST OIL FOREST OIL MARKETING FOREST OIL
CORPORATION LTD. LTD. CORPORATION
----------- ---------- ----------- ------------
(IN THOUSANDS)
Cash flow from operating activities:
Net earnings (loss) before extraordinary item............... $ 12,713 8,161 (1,233) 19,641
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and depletion................................ 70,163 15,706 2,321 88,190
Amortization of deferred debt costs....................... 940 401 -- 1,341
Translation gain on subordinated notes.................... -- (10,561) -- (10,561)
Deferred income tax expense (benefit)..................... -- (2,084) 2,491 407
Other, net................................................ (781) (2,748) -- (3,529)
(Increase) decrease in accounts receivable................ (4,448) 356 (857) (4,949)
(Increase) decrease in other current assets............... (981) 1,037 (3,360) (3,304)
Increase (decrease) in accounts payable................... 14,894 3,932 (582) 18,244
Increase in accrued interest and other current
liabilities............................................. 1,858 1,850 1,325 5,033
--------- ------- ------ --------
Net cash provided by operating activities............... 94,358 16,050 105 110,513
Cash flows from investing activities:
Capital expenditures for property and equipment........... (82,248) (42,835) -- (125,083)
Proceeds from sale of assets.............................. 9,772 10,699 -- 20,471
Decrease in other assets, net............................. (1,034) -- -- (1,034)
--------- ------- ------ --------
Net cash used by investing activities................... (73,510) (32,136) -- (105,646)
Cash flows from financing activities:
Proceeds from bank borrowings............................. 78,600 33,827 -- 112,427
Repayments of bank borrowings............................. (300,500) (37,692) -- (338,192)
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)
Cash balance of Forcenergy at date of frest-start......... 96,506 -- -- 96,506
Proceeds of common stock offering, net of offering
costs................................................... 131,188 -- -- 131,188
Proceeds from exercise of options and warrants............ 1,589 -- -- 1,589
Decrease in other liabilities, net........................ (1,588) (41) -- (1,629)
--------- ------- ------ --------
Net cash used by financing activities................... 95,273 (3,906) -- 91,367
Intercompany advances, net.................................. (19,713) 19,713 -- --
Effect of exchange rate changes on cash..................... 15 (31) 28 12
--------- ------- ------ --------
Net increase (decrease) in cash and cash equivalents........ 96,423 (310) 133 96,246
Cash and cash equivalents at beginning of year.............. 3,713 (33) (265) 3,415
--------- ------- ------ --------
Cash and cash equivalents at end of year.................... $ 100,136 (343) (132) 99,661
========= ======= ====== ========
89
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1998
CANADIAN PRODUCERS SAXON CONSOLIDATED
FOREST OIL FOREST OIL MARKETING PETROLIUM, ELIMINATING FOREST OIL
CORPORATION LTD. LTD. INC. ENTRIES CORPORATION
----------- ---------- ----------- ---------- ----------- ------------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 3,713 (33) (265) -- -- 3,415
Accounts receivable........................ 32,524 3,150 18,376 1,537 -- 55,587
Other current assets....................... 1,513 117 532 212 -- 2,374
-------- ------- ------ ------- -------- --------
Total current assets..................... 37,750 3,234 18,643 1,749 -- 61,376
Intercompany receivables..................... 338 52,747 42,266 -- (95,351) --
Net property and equipment, at cost, full
cost method................................ 516,715 106,447 169 39,979 -- 663,310
Goodwill and other intangible assets, net.... -- -- 22,689 -- -- 22,689
Intercompany investments..................... 41,775 68,513 -- -- (110,288) --
Other assets................................. 8,977 3,384 -- -- -- 12,361
-------- ------- ------ ------- -------- --------
$605,555 234,325 83,767 41,728 (205,639) 759,736
======== ======= ====== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................... $ 26,898 5,109 15,702 1,680 -- 49,389
Accrued interest........................... 4,783 5,187 -- -- -- 9,970
Other current liabilities.................. 1,463 206 -- -- -- 1,669
-------- ------- ------ ------- -------- --------
Total current liabilities................ 33,144 10,502 15,702 1,680 -- 61,028
Intercompany payables........................ 51,143 -- 42,266 1,942 (95,351) --
Long-term debt............................... 270,076 210,432 -- 24,942 -- 505,450
Other liabilities............................ 15,837 344 -- -- -- 16,181
Deferred income taxes........................ -- 12,352 4,490 (8,756) -- 8,086
Shareholders' equity
Common stock............................... 4,465 41,775 25,265 42,800 (109,840) 4,465
Capital surplus............................ 589,972 -- -- -- -- 589,972
Accumulated deficit........................ (354,108) (40,805) (1,382) (18,755) -- (415,050)
Accumulated other comprehensive loss....... (4,974) (275) (2,574) (2,125) -- (9,948)
Treasury stock, at cost.................... -- -- -- -- (448) (448)
-------- ------- ------ ------- -------- --------
Total shareholders' equity............... 235,355 695 21,309 21,920 (110,288) 168,991
-------- ------- ------ ------- -------- --------
$605,555 234,325 83,767 41,728 (205,639) 759,736
======== ======= ====== ======= ======== ========
90
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
CANADIAN PRODUCERS SAXON CONSOLIDATED
FOREST OIL FOREST OIL MARKETING PETROLIUM, ELIMINATING FOREST OIL
CORPORATION LTD. LTD. INC. ENTRIES CORPORATION
----------- ---------- ----------- ---------- ----------- ------------
(IN THOUSANDS)
Revenue:
Marketing and processing................... $ 434 14,269 136,083 293 -- 151,079
Oil and gas sales:
Gas...................................... 105,378 14,293 -- 3,681 -- 123,352
Oil, condensate and natural gas
liquids................................ 28,577 14,533 -- 7,239 -- 50,349
--------- ------- ------- ------- ------- --------
Total oil and gas sales.................... 133,955 28,826 -- 10,920 -- 173,701
--------- ------- ------- ------- ------- --------
Total revenue............................ 134,389 43,095 136,083 11,213 -- 324,780
Expenses:
Marketing and processing................... -- 13,070 131,688 -- -- 144,758
Oil and gas production..................... 32,595 8,370 -- 3,979 -- 44,944
General and administrative................. 10,936 3,122 2,819 2,972 -- 19,849
Depreciation and depletion................. 75,108 17,541 2,011 5,445 -- 100,105
Impairment of oil and gas properties....... 139,500 30,800 -- 29,200 -- 199,500
--------- ------- ------- ------- ------- --------
Total operating expenses................. 258,139 72,903 136,518 41,596 -- 509,156
--------- ------- ------- ------- ------- --------
Loss from operations......................... (123,750) (29,808) (435) (30,383) -- (184,376)
Other income and expense:
Other income, net.......................... (1,405) (11,529) (5,373) (517) 10,746 (8,078)
Interest expense........................... 24,430 17,933 5,817 1,552 (10,746) 38,986
Translation loss on subordinated debt...... -- 8,320 -- -- -- 8,320
--------- ------- ------- ------- ------- --------
Total other income and expense........... 23,025 14,724 444 1,035 -- 39,228
--------- ------- ------- ------- ------- --------
Loss before income taxes and extraordinary
item....................................... (146,775) (44,532) (879) (31,418) -- (223,604)
Income tax expense (benefit):
Current.................................... -- 656 493 123 -- 1,272
Deferred................................... -- (13,455) (520) (13,115) -- (27,090)
--------- ------- ------- ------- ------- --------
-- (12,799) (27) (12,992) -- (25,818)
--------- ------- ------- ------- ------- --------
Loss before extraordinary item............... (146,775) (31,733) (852) (18,426) -- (197,786)
Extraordinary item -- gain on extinguishment
of debt.................................... 6,196 -- -- -- -- 6,196
--------- ------- ------- ------- ------- --------
Net loss..................................... $(140,579) (31,733) (852) (18,426) -- (191,590)
========= ======= ======= ======= ======= ========
91
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
(15) SUPPLEMENTAL GUARANTOR INFORMATION: (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
CANADIAN PRODUCERS SAXON CONSOLIDATED
FOREST OIL FOREST OIL MARKETING PETROLIUM, FOREST OIL
CORPORATION LTD. LTD. INC. CORPORATION
----------- ---------- ---------- ---------- ------------
(IN THOUSANDS)
Cash flow from operating activities:
Net loss before extraordinary item........................ $(146,775) (31,733) (852) (18,426) (197,786)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and depletion............................ 75,108 17,541 2,011 5,445 100,105
Impairment of oil and gas properties.................. 139,500 30,800 -- 29,200 199,500
Amortization of deferred debt costs................... 513 389 -- -- 902
Translation loss on subordinated notes................ -- 8,320 -- -- 8,320
Deferred income tax benefit........................... -- (13,455) (520) (13,115) (27,090)
Other, net............................................ 167 2 (2) (865) (698)
(Increase) decrease in accounts receivable............ 9,604 3,553 (5,958) 1,340 8,539
(Increase) decrease in other current assets........... 418 (199) 1,525 (81) 1,663
Increase (decrease) in accounts payable............... (9,296) (4,268) 2,421 (2,666) (13,809)
Increase in accrued interest and other current
liabilities......................................... 4,848 4,359 591 -- 9,798
--------- ------- ------ ------- --------
Net cash provided by operating activities........... 74,087 15,309 (784) 832 89,444
Cash flows from investing activities:
Capital expenditures for property and equipment....... (432,767) (35,131) 4 (3,860) (471,754)
Less stock issued for acquisition..................... 97,376 -- -- -- 97,376
--------- ------- ------ ------- --------
(335,391) (35,131) 4 (3,860) (374,378)
Proceeds from sale of assets.......................... 6,218 4,084 -- -- 10,302
(Increase) decrease in other assets, net.............. 31,671 (32,794) -- (95) (1,218)
--------- ------- ------ ------- --------
Net cash used by investing activities............... (297,502) (63,841) 4 (3,955) (365,294)
Cash flows from financing activities:
Proceeds from bank borrowings......................... 428,899 33,216 -- 1,973 464,088
Repayments of bank borrowings......................... (253,049) (22,322) -- (1,097) (276,468)
Repayments of production payment obligation........... (58) -- -- -- (58)
Issuance of 8 3/4% senior subordinated notes, net of
issuance costs...................................... -- 74,589 -- -- 74,589
Decrease in other liabilities, net.................... (1,169) (28) -- -- (1,197)
--------- ------- ------ ------- --------
Net cash provided by financing activities........... 174,623 85,455 -- 876 260,954
Intercompany advances, net................................ 46,669 (48,916) -- 2,247 --
Effect of exchange rate changes on cash................... 175 (36) (19) -- 120
--------- ------- ------ ------- --------
Net decrease in cash and cash equivalents................. (1,948) (12,029) (799) -- (14,776)
Cash and cash equivalents at beginning of year............ 5,661 11,996 534 -- 18,191
--------- ------- ------ ------- --------
Cash and cash equivalents at end of year.................. $ 3,713 (33) (265) -- 3,415
========= ======= ====== ======= ========
92
PART III
For information concerning Item 10--Directors and Executive Officers of the
Registrant, Item 11--Executive Compensation, Item 12--Security Ownership of
Certain Beneficial Owners and Management and Item 13--Certain Relationships and
Related Transactions, see the definitive Proxy Statement of Forest Oil
Corporation relative to the Annual Meeting of Shareholders to be held in
May 2001 which will be filed with the Securities and Exchange Commission, which
information is incorporated herein by reference. For information concerning Item
10--Executive Officers of Registrant, see Part I--Item 4A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
1. Independent Auditors' Report
2. Consolidated Balance Sheets--December 31, 2000 and 1999
3. Consolidated Statements of Operations--Years ended
December 31, 2000, 1999 and 1998
4. Consolidated Statements of Shareholders' Equity--Years ended
December 31, 2000, 1999 and 1998
5. Consolidated Statements of Cash Flows--Years ended
December 31, 2000, 1999 and 1998
6. Notes to Consolidated Financial Statements--Years ended
December 31, 2000, 1999 and 1998
(2) Financial Statement Schedules
All schedules have been omitted because the information is either
not required or is set forth in the financial statements or the
notes thereto.
Exhibits--See Index of Exhibits for a list of those exhibits
filed herewith, which index also includes management contracts or
compensatory plans or arrangements required to be filed as
(3) exhibits to this Form 10-K by Item 601(10)(iii) of
Regulation S-K. Forest shall, upon written request to the
Corporate Secretary of Forest, addressed to Forest Oil
Corporation, 1600 Broadway, Suite 2200, Denver, CO 80202, provide
copies of each of the Exhibits listed in the Index of Exhibits.
(b) Reports on Form 8-K
On November 14, 2000, Forest filed a Form 8-K announcing (i) earnings
for the third quarter of 2000 and (ii) operations results for the
third quarter of 2000.
On November 20, 2000, Forest filed a Form 8-K announcing completion of
testing on South African well.
On December 7, 2000, Forest filed a Form 8-K announcing (i) financial
forecast information and (ii) merger with Forcenergy Inc and 1-for-2
reverse stock split of Forest common stock.
(c) Index of Exhibits:
Exhibit 3(i) Restated Certificate of Incorporation of Forest Oil
Corporation dated October 14, 1993, incorporated herein by
reference to Exhibit 3(i) to Form 10-Q for Forest Oil
Corporation for the quarter ended September 30, 1993 (File
No. 0-4597).
Exhibit 3(i)(a) Certificate of Amendment of the Restated Certificate of
Incorporation dated as of July 20, 1995, incorporated herein
by reference to Exhibit 3(i)(a) to Form 10-Q for Forest Oil
Corporation for the quarter ended June 30, 1995 (File
No. 0-4597).
93
Exhibit 3(i)(b) Certificate of Amendment of the Certificate of Incorporation
dated as of July 26, 1995, incorporated herein by reference
to Exhibit 3(i)(b) to Form 10-Q for Forest Oil Corporation
for the quarter ended June 30, 1995 (File No. 0-4597).
Exhibit 3(i)(c) Certificate of Amendment of the Certificate of Incorporation
dated as of January 5, 1996, incorporated herein by
reference to Exhibit 3(i)(c) to Forest Oil Corporation's
Registration Statement on Form S-2 (File No. 33-64949).
*Exhibit 3(i)(d) Certificate of Amendment of the Certificate of Incorporation
dated as of December 7, 2000.
*Exhibit 3(ii) Restated By-Laws of Forest Oil Corporation dated as of
February 14, 2001.
Exhibit 4.1 Indenture dated as of September 8, 1993 between Forest Oil
Corporation and Shawmut Bank, Connecticut, (National
Association), incorporated herein by reference to
Exhibit 4.1 to Form 10-Q for Forest Oil Corporation for the
quarter ended September 30, 1993 (File No. 0-4597).
Exhibit 4.2 First Supplemental Indenture dated as of February 8, 1996
among Forest Oil Corporation, 611852 Saskatchewan Ltd. and
Fleet National Bank of Connecticut (formerly known as
Shawmut Bank, Connecticut, National Association, which was
formerly known as The Connecticut Bank), incorporated herein
by reference to Exhibit 4.2 to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1995 (File
No. 0-4597).
Exhibit 4.3 Second Supplemental Indenture dated as of September 12, 1997
between Forest Oil Corporation, 611852 Saskatchewan Ltd. and
State Street Bank and Trust Company (as successor in
interest to Fleet National Bank of Connecticut (formerly
known as Shawmut Bank Connecticut, National Association)),
incorporated herein by reference to Exhibit 4.3 to Form 10-K
for Forest Oil Corporation for the year ended December 31,
1997 (File No. 1-13515).
Exhibit 4.4 Indenture dated as of September 29, 1997 among Canadian
Forest Oil Ltd., Forest Oil Corporation and State Street
Bank and Trust Company, incorporated herein by reference to
Exhibit 4.1 to Forest Oil Corporation's Registration
Statement on Form S-4 dated October 31, 1997 (File
No. 333-39255).
Exhibit 4.5 Indenture dated as of February 5, 1999 between Forest Oil
Corporation and State Street Bank and Trust Company,
incorporated herein by reference to Exhibit 4.16 to Forest
Oil Corporation's Registration Statement on Form S-3 dated
November 14, 1996, as amended (File No. 333-16125).
Exhibit 4.6 Rights Agreement between Forest Oil Corporation and Mellon
Securities Trust Company, as Rights Agent dated as of
October 14, 1993, incorporated herein by reference to
Exhibit 4.3 to Form 10-Q for Forest Oil Corporation for the
quarter ended September 30, 1993 (File No. 0-4597).
Exhibit 4.7 Amendment No. 1 dated as of July 27, 1995 to Rights
Agreement dated as of October 14, 1993 between Forest Oil
Corporation and Mellon Securities Trust Company,
incorporated herein by reference to Exhibit 99.5 of Form 8-K
for Forest Oil Corporation dated October 11, 1995 (File
No. 0-4597).
Exhibit 4.8 Amendment No. 2, dated as of June 25, 1998 to Rights
Agreement, dated as of October 14, 1993, between Forest Oil
Corporation and Mellon Securities Trust Company,
incorporated herein by reference to Exhibit 99.1 to Form 8-K
for Forest Oil Corporation, dated June 25, 1998 (File
No.1-13515).
94
Exhibit 4.9 Amendment No. 3, dated as of September 1, 1998 to Rights
Agreement, dated as of October 14, 1993, between Forest Oil
Corporation and Mellon Securities Trust Company,
incorporated herein by reference to Exhibit 4.13 to Forest
Oil Corporation Registration Statement on Form S-4, dated
November 6, 2000 (File No. 333-49376).
Exhibit 4.10 Amendment No. 4, dated as of July 10, 2000, to Rights
Agreement, dated as of October 14, 1993, between Forest Oil
Corporation and Mellon Securities Trust Company,
incorporated herein by reference to Exhibit 4.14 to Forest
Oil Corporation Registration Statement on Form S-4, dated
November 6, 2000 (File No. 333-49376).
Exhibit 4.11 Registration Rights Agreement, dated as of July 10, 2000, by
and between Forest Oil Corporation and the other signatories
thereto, incorporated herein by reference to Exhibit 4.15 to
Forest Oil Corporation Registration Statement on Form S-4,
dated November 6, 2000 (File No. 333-49376).
*Exhibit 4.12 Credit Agreement, dated as of October 10, 2000, among Forest
Oil Corporation, the lenders party thereto, Bank of America,
N.A., as U.S. Syndication Agent, Citibank, N.A., as U.S.
Documentation Agent, and The Chase Manhattan Bank, as Global
Administrative Agent.
*Exhibit 4.13 Mortgage, Deed of Trust, Assignment, Security Agreement,
Financing Statement and Fixture Filing from Forest Oil
Corporation to Robert C. Mertensotto, trustee, and Gregory
P. Williams, trustee (Utah), and The Chase Manhattan Bank,
as Global Administrative Agent, dated as of December 7,
2000.
*Exhibit 4.14 Canadian Credit Agreement, dated as of October 10, 2000,
among Canadian Forest Oil Ltd., the subsidiary borrowers
from time to time parties thereto, the lenders party
thereto, Bank of Montreal, as Canadian Syndication Agent,
The Toronto-Dominion Bank, as Canadian Documentation Agent,
The Chase Manhattan Bank of Canada, as Canadian
Administrative Agent, and The Chase Manhattan Bank, as
Global Administrative Agent.
Exhibit 10.1 Description of Executive Life Insurance Plan, incorporated
herein by reference to Exhibit 10.2 to Form 10-K for Forest
Oil Corporation for the year ended December 31, 1991 (File
No. 0-4597).
Exhibit 10.2 Form of non-qualified Executive Deferred Compensation
Agreement, incorporated herein by reference to Exhibit 10.3
to Form 10-Q for Forest Oil Corporation for the years ended
December 31, 1990 (File No. 0-4597).
Exhibit 10.3 Form of non-qualified Supplemental Executive Retirement
Plan, incorporated herein by reference to Exhibit 10.4 to
Form 10-K for Forest Oil Corporation for the year ended
December 31, 1990 (File No. 0-4597).
Exhibit 10.4 Form of Executive Retirement Agreement, incorporated herein
by reference to Exhibit 10.5 to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1990 (File
No. 0-4597).
Exhibit 10.5 Forest Oil Corporation Stock Incentive Plan and Option
Agreement, incorporated herein by reference to Exhibit 4.1
to Form S-8 for Forest Oil Corporation dated June 7, 1996
(File No. 0-4597).
95
Exhibit 10.6 Form of Executive Severance Agreement, incorporated herein
by reference to Exhibit 10.9 to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1993 (File
No. 0-4597).
Exhibit 10.7 Shareholders Agreement dated as of January 24, 1996 between
Forest Oil Corporation and Joint Energy Development
Investments Limited Partnership, incorporated herein by
reference to Exhibit 10.12 to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1995 (File
No. 0-4597).
*Exhibit 21 List of Subsidiaries of the Registrant.
*Exhibit 23 Consent of KPMG LLP
*Exhibit 24 Powers of Attorney of the following Officers and Directors:
Philip F. Anschutz, William L. Britton, Cortlandt S.
Dietler, Dod A. Fraser, Cannon Y. Harvey, Forrest E.
Hoglund, Stephen A. Kaplan, James H. Lee, J. J.
Simmons, III, Craig D. Slater, Michael B. Yanney.
- ------------------------
* Filed herewith.
96
SIGNATURES
Pursuant to the requirements of Section 13 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: March 12, 2001 By: /s/ ROBERT S. BOSWELL
-----------------------------------------
Robert S. Boswell
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ ROBERT S. BOSWELL Chairman and Chief Executive March 12, 2001
------------------------------------------- Officer (Principal Executive
(Robert S. Boswell) Officer)
/s/ DAVID H. KEYTE Executive Vice President and March 12, 2001
------------------------------------------- Chief Financial Officer
(David H. Keyte) (Principal Financial
Officer)
/s/ JOAN C. SONNEN Vice President--Controller and March 12, 2001
------------------------------------------- Chief Accounting Officer
(Joan C. Sonnen) (Principal Accounting
Officer)
PHILIP F. ANSCHUTZ* Directors of the Registrant
-------------------------------------------
(Philip F. Anschutz)
/s/ ROBERT S. BOSWELL March 12, 2001
-------------------------------------------
(Robert S. Boswell)
WILLIAM L. BRITTON*
-------------------------------------------
(William L. Britton)
97
SIGNATURES TITLE DATE
---------- ----- ----
CORTLANDT S. DIETLER*
-------------------------------------------
(Cortlandt S. Dietler)
DOD A. FRASER*
-------------------------------------------
(Dod. A. Fraser)
CANNON Y. HARVEY*
-------------------------------------------
(Cannon Y. Harvey)
FORREST E. HOGLUND*
-------------------------------------------
(Forrest E. Hoglund)
STEVEN A. KAPLAN*
-------------------------------------------
(Steven A. Kaplan)
JAMES H. LEE*
-------------------------------------------
(James H. Lee)
J. J. SIMMONS, III*
-------------------------------------------
(J. J. Simmons, III)
CRAIG D. SLATER*
-------------------------------------------
(Craig D. Slater)
MICHAEL B. YANNEY*
-------------------------------------------
(Michael B. Yanney)
*By /s/ NEWTON W. WILSON III March 12, 2001
--------------------------------------
Newton W. Wilson III
(as attorney-in-fact for
each of the persons indicated)
98