SABINE OIL & GAS CORP - FORM 8-K/A - EX-99.1 - PRO FORMA FINANCIAL STATEMENTS - October 6, 2011

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Exhibit 99.1

Introduction to the Unaudited Pro Forma Condensed Consolidated Financial Statements

On September 30, 2011, Forest Oil Corporation (“Forest”) completed the spin-off of Lone Pine Resources Inc. (“Lone Pine”). The spin-off was completed by means of a special stock dividend, which consisted of a pro rata spin-off of the 70,000,000 shares of Lone Pine common stock owned by Forest, representing approximately 82% of the outstanding shares of Lone Pine, to all holders of record of Forest common stock as of September 16, 2011.
 
The following unaudited pro forma condensed consolidated financial statements of Forest adjust the historical condensed consolidated financial statements of Forest for the spin-off of Lone Pine. The historical condensed consolidated financial statements of Forest set forth below have been derived from and should be read together with the historical audited and unaudited consolidated financial statements and the related notes of Forest included in the Annual Report on Form 10-K for the year ended December 31, 2010 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2011. The unaudited pro forma condensed consolidated balance sheet was prepared as if the spin-off occurred on June 30, 2011. The unaudited pro forma condensed consolidated statements of operations were prepared as if the spin-off occurred on January 1, 2010.

The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and do not purport to represent what the results of operations or financial position of Forest would actually have been had the spin-off occurred on the dates noted above, or to project the results of operations or financial position of Forest for any future periods. The pro forma adjustments are based on available information and certain assumptions that management believes are reasonable. Unless otherwise indicated, the pro forma adjustments are directly attributable to the spin-off and are expected to have a continuing impact on the results of operations of Forest. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma condensed consolidation financial statements have been made.



1
Exhibit 99.1

FOREST OIL CORPORATION
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Six Months Ended June 30, 2011
(In Thousands, Except Per Share Amounts)
 
 
 
 
 
 
Historical
Pro Forma Adjustments (a)
 
Pro Forma
Revenues:
 
 
 
 
Oil, natural gas, and NGL sales
$
440,419

$
(87,516
)
 
$
352,903

Interest and other
850

(20
)
 
830

Total revenues
$
441,269

$
(87,536
)
 
$
353,733

Costs, expenses, and other:
 
 
 
 
Lease operating expenses
$
64,320

$
(17,207
)
 
$
47,113

Production and property taxes
25,487

(1,226
)
 
24,261

Transportation and processing costs
15,081

(8,015
)
 
7,066

General and administrative
34,771

(6,035
)
 
28,736

Depreciation, depletion, and amortization
140,885

(39,981
)
 
100,904

Interest expense
76,722

(1,239
)
 
75,483

Realized and unrealized gains on derivative instruments, net
(9,801
)
5,130

 
(4,671
)
Other, net
8,169

4,288

 
12,457

Total costs, expenses, and other
$
355,634

$
(64,285
)
 
$
291,349

Earnings before income taxes
85,635

(23,251
)
 
62,384

Income taxes
49,991

(9,432
)
(b)
40,559

Net earnings
$
35,644

$
(13,819
)
 
$
21,825

Less: net earnings attributable to noncontrolling interest
64

(64
)
 
—

Net earnings attributable to Forest Oil Corporation
$
35,580

$
(13,755
)
 
$
21,825

 
 
 
 
 
Basic earnings per common share attributable to Forest Oil Corporation
$
0.31

 
 
$
0.19

Diluted earnings per common share attributable to Forest Oil Corporation
$
0.31

 
 
$
0.19

 
 
 
 
 
Weighted average basic shares outstanding
111,490

 
 
111,490

Weighted average diluted shares outstanding
112,060

 
 
112,066


(a)
Represents the elimination of the results of operations of Lone Pine Resources Inc. The adjustments do not reflect nonrecurring stock-based compensation costs and the related tax effects directly resulting from the spin-off, estimated to be approximately $13 million, approximately $5 million of which was capitalized to oil and gas properties pursuant to the full cost method of accounting, with the offsetting credit going to capital surplus. This is an estimate of actual costs, the expense portion of which will be included in Forest's results of operations. These costs will occur on the date of the spin-off and relate to modifications of Forest stock-based compensation awards, including restricted stock units where a portion of the unamortized stock-based compensation expense was accelerated due to the lifting of restrictions on a portion of the awards, and to Lone Pine employees' stock-based compensation awards vesting in connection with the spin-off.

(b)
The pro forma income tax adjustments include Lone Pine’s historical Canadian income tax provision as adjusted for the income tax effects related to intercompany interest charges between Forest and Lone Pine at statutory rates.
Exhibit 99.1

FOREST OIL CORPORATION
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Year Ended December 31, 2010
(In Thousands, Except Per Share Amounts)
 
 
 
 
 
 
Historical
Pro Forma Adjustments (a)
 
Pro Forma
Revenues:
 
 
 
 
Oil, natural gas, and NGL sales
$
853,739

$
(146,047
)
 
$
707,692

Interest and other
1,012

(23
)
 
989

Total revenues
$
854,751

$
(146,070
)
 
$
708,681

Costs, expenses, and other:
 
 
 
 
Lease operating expenses
$
118,074

$
(25,680
)
 
$
92,394

Production and property taxes
46,079

(2,423
)
 
43,656

Transportation and processing costs
23,980

(10,738
)
 
13,242

General and administrative
73,204

(9,267
)
 
63,937

Depreciation, depletion, and amortization
251,618

(63,645
)
 
187,973

Interest expense
149,523

(381
)
 
149,142

Realized and unrealized gains on derivative instruments, net
(150,132
)
—

 
(150,132
)
Other, net
(5,743
)
13,082

 
7,339

Total costs, expenses, and other
$
506,603

$
(99,052
)
 
$
407,551

Earnings before income taxes
348,148

(47,018
)
 
301,130

Income taxes
120,627

(7,173
)
(b)
113,454

Net earnings
$
227,521

$
(39,845
)
 
$
187,676

 
 
 
 
 
Basic earnings per common share
$
2.01

 
 
$
1.66

Diluted earnings per common share
$
2.00

 
 
$
1.65

 
 
 
 
 
Weighted average basic shares outstanding
110,809

 
 
110,809

Weighted average diluted shares outstanding
111,498

 
 
111,549


(a)
Represents the elimination of the results of operations of Lone Pine Resources Inc. The adjustments do not reflect nonrecurring stock-based compensation costs and the related tax effects directly resulting from the spin-off, estimated to be approximately $13 million, approximately $5 million of which was capitalized to oil and gas properties pursuant to the full cost method of accounting, with the offsetting credit going to capital surplus. This is an estimate of actual costs, the expense portion of which will be included in Forest's results of operations. These costs will occur on the date of the spin-off and relate to modifications of Forest stock-based compensation awards, including restricted stock units where a portion of the unamortized stock-based compensation expense was accelerated due to the lifting of restrictions on a portion of the awards, and to Lone Pine employees' stock-based compensation awards vesting in connection with the spin-off.

(b)
The pro forma income tax adjustments include Lone Pine’s historical Canadian income tax provision as adjusted for the income tax effects related to intercompany interest charges between Forest and Lone Pine at statutory rates.




3
Exhibit 99.1

FOREST OIL CORPORATION
Unaudited Pro Forma Condensed Consolidated Balance Sheet
June 30, 2011
(In Thousands, Except Share Amount)
 
Historical
Pro Forma Adjustments (a)
 
Pro Forma
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
479,149

$
(5,010
)
 
$
474,139

Accounts receivable
99,390

(28,067
)
 
71,323

Derivative instruments
52,607

(3,984
)
 
48,623

Inventory
24,391

(8,722
)
 
15,669

Other current assets
32,816

(5,940
)
 
26,876

Total current assets
$
688,353

$
(51,723
)
 
$
636,630

Property and equipment, at cost:
 
 
 
 
Oil and gas properties, full cost method of accounting:
 
 
 
 
Proved, net of accumulated depletion
$
2,209,505

$
(621,777
)
(b)
$
1,587,728

Unproved
780,214

(122,717
)
 
657,497

Net oil and gas properties
$
2,989,719

$
(744,494
)
 
$
2,245,225

Other property and equipment, net of accumulated depreciation and amortization
117,951

(66,255
)
 
51,696

Net property and equipment
$
3,107,670

$
(810,749
)
 
$
2,296,921

Deferred income taxes
259,408

(421
)
(b)
258,987

Goodwill
257,386

(17,966
)
 
239,420

Derivative instruments
18,342

(1,146
)
 
17,196

Other assets
46,554

(5,229
)
 
41,325

 
$
4,377,713

$
(887,234
)
 
$
3,490,479

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable and accrued liabilities
$
313,619

$
(37,263
)
 
$
276,356

Accrued interest
23,059

(105
)
 
22,954

Derivative instruments
42,428

—

 
42,428

Deferred income taxes
—

—

(b)
—

Current portion of long-term debt
286,031

—

 
286,031

Asset retirement obligations
3,934

(454
)
 
3,480

Other current liabilities
25,378

(3,850
)
 
21,528

Total current liabilities
$
694,449

$
(41,672
)
 
$
652,777

Long-term debt
1,866,111

(280,973
)
 
1,585,138

Asset retirement obligations
87,139

(15,174
)
 
71,965

Derivative instruments
5,390

—

 
5,390

Deferred income taxes
69,031

(69,031
)
 
—

Other liabilities
75,882

(8,932
)
 
66,950

Total liabilities
$
2,798,002

$
(415,782
)
 
$
2,382,220

Equity:
 
 
 
 
Forest Oil Corporation shareholders’ equity:
 
 
 
 
Preferred stock, none issued and outstanding
$
—

$
—

 
$
—

Common stock, 114,412,436 shares issued and outstanding
11,441

—

 
11,441

Capital surplus
2,799,155

(296,881
)
(b)
2,502,274

Accumulated deficit
(1,389,325
)
(4,825
)
(b)
(1,394,150
)
Accumulated other comprehensive income (loss)
74,316

(85,622
)
 
(11,306
)
Total Forest Oil Corporation shareholders’ equity
$
1,495,587

$
(387,328
)
 
$
1,108,259

Noncontrolling interest
84,124

(84,124
)
 
—

Total equity
$
1,579,711

$
(471,452
)
 
$
1,108,259

 
$
4,377,713

$
(887,234
)
 
$
3,490,479


(a)
Represents the elimination of the assets, liabilities, and accumulated other comprehensive income of Lone Pine Resources Inc. as well as the noncontrolling interest.

(b)
Includes an adjustment to reflect nonrecurring stock-based compensation costs and the related tax effects directly resulting from the spin-off, estimated to be approximately $13 million, approximately $5 million of which was capitalized to oil and gas properties pursuant to the full cost method of accounting, with the offsetting credit going to capital surplus. This is an estimate of actual costs that will be included in Forest's financial position and results of operations. These charges will occur on the date of the spin-off and relate to modifications of Forest stock-based compensation awards, including restricted stock units where a portion of the unamortized stock-based compensation expense was accelerated due to the lifting of restrictions on a portion of the awards, and to Lone Pine employees' stock-based compensation awards vesting in connection with the spin-off.


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