Forest Oil Announces Fourth Quarter and Full Year 2006 Results Including Highly Successful 2006 Drilling Program.Forest's Remainco reserve replacement ratio was 372% from all capital activities, with finding, development and acquisition costs of $2.15 per Mcfe Forest's Remainco organic reserve replacement ratio was 258%, with finding and development costs of $2.09 per Mcfe Forest's Remainco full year 2006 average net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight volumes increased 14% to 310 MMcfe/d Forest's Remainco all-in cash costs decreased on a per-unit basis by 4% in 2006 to $2.68 per Mcfe First Barnett Shale The Barnett Shale is a geological formation of economic significance. It consists of sedimentary rocks of Mississippian age in the U.S. State of Texas. The formation is estimated to stretch from the city of Dallas to west of the city of Fort Worth and south, covering 5,000 square well test was successful with initial production rate of 2.1 MMcfe/d DENVER -- Forest Oil Corporation (NYSE NYSE See: New York Stock Exchange :FST See flat screen. ) (Forest or the Company) today announced financial and operational results for the fourth quarter and full year 2006. The Company reported the following full year 2006 highlights: * Forest's Remainco reserve replacement ratio was 372% from all capital activities, with finding, development and acquisition costs of $2.15 per Mcfe * Forest's Remainco net sales volumes were 310 MMcfe/d, an increase of 14% compared to 2005 Remainco * Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become was $516 million, an increase of 20% compared to 2005 Remainco * Discretionary cash flow Discretionary cash flow Cash flow that is available after the funding of all positive net present value (NPV) capital investment projects; it is available for paying cash dividends, repurchasing common stock, retiring debt, and so on. was $435 million, an increase of 16% compared to 2005 Remainco * Forest's distribution to shareholders of over $1 billion of Mariner Mariner Any of a series of unmanned U.S. space probes sent near Venus, Mars, and Mercury. Mariners 2 (1962) and 5 (1967) passed Venus within 22,000 mi (35,000 km) and 2,500 mi (4,000 km), respectively, and made measurements of temperature and atmospheric density. Energy stock H. Craig Clark, President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , stated, "We had a great year in 2006. Our focus on cost control resulted in operations and investment costs Those program costs required beyond the development phase to introduce into operational use a new capability; to procure initial, additional, or replacement equipment for operational forces; or to provide for major modifications of an existing capability. being essentially flat year over year with excellent reserve replacement and associated finding costs. Given the early announcements we have seen so far, we believe our investment and operating cost metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. will hold up very well in industry comparisions this year. We also were able to increase production by 14% with 10% being organically generated. To be able to achieve these attractive results in an environment of elevated service costs and in a year in which much of management's time was devoted to the spin-off The situation that arises when a parent corporation organizes a subsidiary corporation, to which it transfers a portion of its assets in exchange for all of the subsidiary's capital stock, which is subsequently transferred to the parent corporation's shareholders. of our Gulf of Mexico Noun 1. Gulf of Mexico - an arm of the Atlantic to the south of the United States and to the east of Mexico Golfo de Mexico Atlantic, Atlantic Ocean - the 2nd largest ocean; separates North and South America on the west from Europe and Africa on the east assets is remarkable. We believe that the assets we have agreed to acquire in the Houston Exploration transaction will generate similar investment results over time. We will employ the same strategy, to extract costs and re-allocate capital, at Houston Exploration that we have successfully employed at Forest." In this release, when we refer to "Remainco", we mean the portion of Forest not included in the March 2, 2006 spin-off of our Gulf of Mexico operations and subsequent merger of those operations with a subsidiary of Mariner Energy, Inc. We refer to the operations spun-off as "Spinco". When we refer to "Total Company" or "Forest", we mean Remainco or, for the time prior to the spin-off, Remainco and Spinco added together.
SALES VOLUMES
For the year ended December 31, 2006, Remainco's oil and gas sales volumes increased to 310 MMcfe/d or 14% over Remainco's 272 MMcfe/d in the corresponding period in 2005. The following table sets forth Forest's sales volumes for the three months and years ended December 31, 2006 and 2005 displayed for both Remainco and Total Company:
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ESTIMATED PROVED RESERVES
Forest reported year end estimated proved reserves proved reserves The quantity of minerals expected to be recoverable under current economic and operating conditions. The amount of proved reserves is important in valuing the stock of a company with significant holdings in natural resources. of approximately 1,455 Bcfe, all of which are located in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. . The estimated proved reserves, which are 71% proved developed, consist of approximately 53% natural gas and 47% liquids. The pre-tax present value of estimated proved reserves at year end, based on constant prices and costs and discounted at 10% totaled $3.3 billion. The valuation was based on year end gas prices of $5.64 per MMbtu and oil prices of $61.05 a barrel NYMEX See New York Mercantile Exchange. NYMEX See New York Mercantile Exchange (NYM). , compared to gas prices of $10.08 per MMbtu and oil prices of $61.04 a barrel NYMEX one year earlier. Forest's estimated proved reserves were audited by an independent third party engineering firm.
CAPITAL ACTIVITIES
In the fourth quarter of 2006, Forest invested $140 million in exploration and development and acquisition activities. The following table summarizes these capital expenditures (in millions): [TABLE OMITTED] For the year ended December 31, 2006, Remainco invested $904 million in exploration and development and acquisition activities. The following table summarizes these capital expenditures (in millions):
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FOURTH QUARTER 2006 RESULTS
For the quarter ended December 31, 2006, Forest reported net earnings of $30.8 million or $.49 per basic share. This amount is a decrease of 32% compared to Remainco's net earnings of $45.4 million or $.73 per basic share in the corresponding period in 2005. The net earnings for the quarter ended December 31, 2006 were affected by the following items: * Net unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. on derivative instruments Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. and foreign currency exchange effects of $12.3 million ($6.9 million net of tax) * Impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. related to expired concessions in Italy of $1.6 million ($1.0 million net of tax) Without the effect of these items, Forest's net earnings would have been $25.0 million or $.40 per basic share. This amount compares to Remainco's net earnings of $34.5 million or $.56 per basic share in the corresponding 2005 period computed on a comparable basis excluding unrealized gains on derivative instruments of $24.5 million ($15.2 million net of tax) and additional tax expense of $4.3 million ($4.3 million net of tax) relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc a repatriation Repatriation The process of converting a foreign currency into the currency of one's own country. Notes: If you are American, converting British Pounds back to U.S. dollars is an example of repatriation. dividend from Canada. Adjusted earnings in the fourth quarter of 2006 decreased compared to the same period in 2005 despite higher production volumes primarily as a result of lower natural gas prices, higher depreciation and depletion depletion n. when a natural resource (particularly oil) is being used up. The annual amount of depletion may, ironically, provide a tax deduction for the company exploiting the resource because if the resource they are exploiting runs out, they will no longer be able and interest expense and a higher income tax rate. Forest's income tax rate was 42.1% in the quarter ended December 31, 2006 compared to Remainco's 38.5% for the corresponding period in 2005. The increase in rate was due to adjustments related to state taxes including the expiration EXPIRATION. Cessation; end. As, the expiration of, a lease, of a contract, or statute. 2. In general, the expiration of a contract puts an end to all the engagements of the parties, except to those which arise from the non- fulfillment of obligations created of state net operating losses Net operating losses Losses that a firm can take advantage of to reduce taxes. . Forest's adjusted EBITDA increased 8% compared to Remainco in the fourth quarter of 2005 to $129 million due to higher production volumes. Forest's discretionary cash flow was $102 million, a decrease of 6% compared to Remainco in the fourth quarter of 2005, primarily a result of higher interest expense. Forest's oil and gas sales revenue decreased 9% during the fourth quarter of 2006 to $184.2 million compared to Remainco's $202.6 million in the fourth quarter of 2005. The decrease was primarily the result of a 36% decrease in natural gas prices partially offset by a 21% increase in natural gas sales volumes. The following table reflects sales price information for the three months ended December 31, 2006 and 2005 displayed for both Remainco and Total Company: [TABLE OMITTED] _________________________ (1) For 2006, this represents amortization of hedging gains and losses as the result of electing to discontinue dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: hedge accounting Why is hedge accounting necessary? Many financial institutions and corporate businesses (entities) use derivative financial instruments to hedge their exposure to different risks (eg interest rate risk, foreign exchange risk, commodity risk, etc). in March 2006. As such, this does not include realized and unrealized gains and losses on derivative instruments. For 2005, this reflects the effects of using cash flow hedge A cash flow hedge is a hedge of the exposure to the variability of cash flow that
The components of oil and gas production expense attributable to Remainco were as follows for the three months ended December 31, 2006 and 2005: [TABLE OMITTED] Forest's per-unit oil and gas production expense decreased 2% to $1.84 per Mcfe in 2006 from Remainco's $1.87 per Mcfe in 2005. Forest's lease operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. (LOE LOE Ley Orgánica de Educación (Spanish) LOE Level Of Effort LOE Limited Objective Experiment LOE Letter of Explanation LOE Language Other than English. ) increased 17% to $39.1 million for the quarter ended December 31, 2006 from Remainco's $33.4 million for the corresponding period in 2005. On a per-unit basis, LOE increased 4% to $1.34 per Mcfe in 2006 from Remainco's $1.29 per Mcfe in 2005. Forest's production and property taxes decreased 24% to $8.3 million during the fourth quarter of 2006 compared to Remainco's $11.0 million during the fourth quarter of 2005. The decrease was primarily attributable to lower wellhead well·head n. 1. The source of a well or stream. 2. A principal source; a fountainhead. 3. The structure built over a well. wellhead Noun 1. prices and severance tax severance tax n. A tax imposed by a state on the extraction of natural resources, such as oil, coal, or gas, that will be used in other states. incentive credits in Texas. As a percentage of oil and natural gas revenue, excluding hedging gains and losses, production and property taxes for the three months ended December 31, 2006 for Forest were 4.5% and in the comparable period of 2005 were 4.9% for Remainco. General and administrative expense decreased 18% to $9.6 million for the quarter ended December 31, 2006 compared to $11.6 million for the corresponding period in 2005. General and administrative expense on a per-unit basis without stock-based compensation decreased 40% to $.26 per Mcfe for the quarter ended December 31, 2006 compared to $.43 per Mcfe for the corresponding period in 2005. The decrease resulted primarily from reduced insurance expense. Depreciation and depletion expense increased 13% to $63.5 million for the quarter ended December 31, 2006 from $56.4 million for the corresponding period in 2005. On a per-unit basis, the depreciation and depletion rate was $2.18 per Mcfe for the quarter ended December 31, 2006 compared to $2.17 per Mcfe in the corresponding period in 2005.
2006 RESULTS
For the year ended December 31, 2006, Remainco had net earnings of $161.6 million or $2.60 per basic share. This amount is an increase of 68% compared to Remainco's net earnings of $96.2 million or $1.57 per basic share for the year ended December 31, 2005. The net earnings for the year ended December 31, 2006 were affected by the following items: * Net unrealized gains on derivative instruments and foreign currency exchange effects of $69.9 million ($42.0 million net of tax) * Stock-based compensation recorded in connection with the Mariner transaction of $5.9 million ($3.6 million net of tax) * Non-recurring Spin-off and merger costs associated with the Mariner transaction in the amount of $5.4 million ($5.4 million net of tax) * Income from discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. of $3.6 million ($2.4 million net of tax) * Reduction in the deferred tax liability of $18.0 million ($18.0 million net of tax) to reflect lower statutory rates in Alberta and a change in the Texas state tax regulations * Impairment of a dry hole drilled in Gabon and expired concessions in Italy of $3.7 million ($2.3 million net of tax) Without the effect of these items, Remainco's net earnings would have been $110.4 million, or $1.77 per basic share. This amount compares to Remainco's net earnings of $111.5 million or $1.82 per basic share in the corresponding 2005 period. The net earnings for the year ended December 31, 2005 were affected by the following items: * Unrealized losses Unrealized Loss A loss that results from holding onto an asset rather than cashing it in and officially taking the loss. Notes: Let's say you own a stock that is down 50%, but you haven't sold it to realize the loss yet. This is said to be an unrealized loss. on derivative instruments of $12.6 million ($7.8 million net of tax) * Non-cash charge Non-Cash Charge A charge off, made by a company against earnings, that does not require an initial outlay of cash. Notes: Non-cash charges are typically against the depreciation, amortization, and depletion accounts on a company's balance sheet. of $2.2 million ($1.3 million net of tax) representing the Company's 40% share of a valuation allowance that the Cook Inlet Cook Inlet Inlet, Gulf of Alaska in the northern Pacific Ocean. Bounded by the Kenai Peninsula on the east, it extends northeast for 220 mi (350 km), narrowing from 80 to 9 mi (129 to 14 km). Anchorage is situated near its head. Pipeline Company recorded against a portion of its deferred tax assets * Impairment of certain international properties, principally Romania of $2.9 million ($1.8 million net of tax) * Additional tax expense of $4.3 million ($4.3 million net of tax) relating to a repatriation dividend from Canada Adjusted earnings for the year ended December 31, 2006 were similar to 2005 primarily as a result of higher production volumes and higher liquid prices partially offset by lower natural gas prices and higher depreciation and depletion and interest expense. Remainco's adjusted EBITDA increased 20% in 2006 compared to 2005 to $516 million due to higher production volumes. Remainco's discretionary cash flow was $435 million, an increase of 16% compared to 2005, primarily a result of higher production volumes. Remainco's oil and gas sales revenue increased 15% for the year ended December 31, 2006 to $768.2 million compared to Remainco's $670.2 million in 2005. The increase was primarily the result of a 26% increase in natural gas sales volumes partially offset by a 15% decline in natural gas prices. The following table reflects sales price information for the years ended December 31, 2006 and 2005 displayed for both Remainco and Total Company: [TABLE OMITTED] _________________________ (1) For 2006, this represents amortization of hedging gains and losses as the result of electing to discontinue hedge accounting in March 2006. As such, this does not include realized and unrealized gains and losses on derivative instruments. For 2005, this reflects the effects of using cash flow hedge accounting on qualifying derivative instruments. The components of oil and gas production expense attributable to Remainco were as follows for the years ended December 31, 2006 and 2005: [TABLE OMITTED] Remainco's per-unit oil and gas production expense decreased 3% to $1.74 per Mcfe in 2006 from Remainco's $1.79 per Mcfe in the same period in 2005. Remainco's lease operating expense (LOE) increased 13% to $136.6 million for the year ended December 31, 2006 from Remainco's $121.2 million in 2005. However, on a per-unit basis, LOE decreased 1% to $1.21 per Mcfe in 2006 from Remainco's $1.22 per Mcfe in the same period in 2005. Remainco's production and property taxes decreased 4% to $38.9 million for the year ended December 31, 2006 compared to Remainco's $40.4 million during 2005. The decrease was primarily attributable to severance tax incentive credits in Texas. As a percentage of oil and natural gas revenue, excluding hedging gains and losses, Remainco's production and property taxes for the years ended December 31, 2006 and 2005 were 4.9% and 5.5%, respectively. For the year ended December 31, 2006, Remainco's general and administrative expense increased 14% to $48.0 million compared to $41.9 million for the corresponding period in 2005. The increase for the year resulted primarily from stock-based compensation offset by decreased salaries and wages as a result of fewer employees following the Spin-off. For the year ended December 31, 2006, Remainco's general and administrative expense on a per-unit basis without stock-based compensation decreased 27% to $.30 per Mcfe compared to $.41 per Mcfe for the corresponding period in 2005. The decrease for the year resulted primarily from decreased salaries and wages as a result of fewer employees following the Spin-off. For the year ended December 31, 2006, Remainco's depreciation and depletion expense increased 20% to $244.7 million from $204.3 million for the corresponding period in 2005. On a per-unit basis, the depreciation and depletion rate was $2.16 per Mcfe for 2006 compared to $2.06 per Mcfe in 2005. The increase for the year ended December 31, 2006 compared to 2005 is primarily due to higher estimated drilling and completion costs on future development activities.
DERIVATIVES
Forest currently has derivatives in place for 2007 through 2010 covering the aggregate average daily volumes and weighted average prices shown below. The following is a summary of derivatives Forest has in place as of February 26, 2007: [TABLE OMITTED] _________________________ (1) 40.0 of the 60.0 Bbtu/d of natural gas swaps and the 2008 natural gas collars were entered into in anticipation of Forest's proposed acquisition of The Houston Exploration Company.
OPERATIONAL PROJECT UPDATE
WESTERN BUSINESS UNIT In 2006, the Western Business Unit drilled 265 gross wells with a 99% success rate. Buffalo Wallow wallow mud bath frequented by pigs, elephants, red deer, hippopotami as a cooling aid. Area - Texas Panhandle panhandle, in geography, a strip of land projecting from the main body of an area and shaped like the handle of a pan, such as the panhandles of West Virginia, Texas, and Alaska. (66-100% WI) - During the fourth quarter, 13 wells were drilled with a 100% success rate, bringing the total drilling well count for 2006 to 57 wells, also at a 100% success rate. Forest also increased net production to a record 40 MMcfe/d during the quarter. Forest's gross acreage position increased 37% during the year to 45,400 acres. Recent offset drilling at Frye Ranch ranch, large farm devoted chiefly to raising and breeding cattle, horses, sheep, and goats. The cattle ranch was introduced from Latin America to Texas and the plains of the W United States and Canada. has yielded two completions which tested 4.4 MMcfe/d and 2.7 MMcfe/d. Greater Vermejo/Haley Area - West Texas (42-100% WI) - Forest continues to operate one drilling rig and one re-entry RE-ENTRY, estates. The resuming or retaking possession of land which the party lately had. 2. Ground rent deeds and leases frequently contain a clause authorizing the landlord to reenter on the non-payment of rent, or the breach of some covenant, when the rig. The latest re-entry tested 1.1 MMcfe/d. There are three re-entries planned for the first quarter of 2007. Forest increased its 2006 gross acreage position by 51% to a total of 45,700 acres. The large 3-D seismic survey over this area is expected to be processed by mid-2007. Central Midland Basin - West Texas (100% WI) - A total of 21 wells were drilled with a 100% success rate. Initial production rates ranged from 55 to 376 Boe/d on the shallow oil programs. The 2006 program increased gross production at the Tex-Mex field by 58%. An additional 726 gross acres were recently acquired to extend the western side of the field. Forest has initiated an infill in·fill n. 1. The use of vacant land and property within a built-up area for further construction or development, especially as part of a neighborhood preservation or limited growth program. 2. drilling program on the Martin Field following the acquisition of our partner's 50% WI in the field. At year end 2006, Forest has identified approximately 1,200 potential locations on its acreage position in the Central Midland Basin. SOUTHERN BUSINESS UNIT In 2006, the Southern Business Unit drilled 56 gross wells with an 89% success rate. East Texas Cotton Valley Area - Rusk, Harris & Panola Counties Panola County is the name of several counties in the United States:
Katy Field - Waller, Harris and Ft. Bend Counties, Texas (54% WI) - Gross production increased from 13 MMcfe/d to 20 MMcfe/d in the fourth quarter as a result of Forest's activity since taking over operations in August 2006. Five shallow Frio wells were drilled in the fourth quarter with IP's averaging 930 Mcfe/d. The first Middle Wilcox well was drilled and recently completed at an initial rate of 2.5 MMcfe/d. The second Middle Wilcox well is drilling using the newly commissioned Lantern lantern held by Judas, leading officers to Christ. [N.T.: John 18:3] See : Passion of Christ Rig #10. A nine well Wilcox recompletion / re-entry program was started in the first quarter of 2007. Additional compression is also being installed to handle the increased volumes and optimize optimize - optimisation gathering infrastructure in the field. Sabine Area - Calcasieu Parish, Louisiana Calcasieu Parish (French: Paroisse de Calcasieu) is a parish located in the U.S. state of Louisiana. The parish seat is Lake Charles. As of 2000, the population was 183,577. The Lake Charles Metropolitan Statistical Area consists of Calcasieu and Cameron parishes. (23-45% WI) - Forest participated in the drilling of a successful exploration well on the Company's large Sabine acreage position. The well was completed at a rate of 5.2 MMcfe/d and is currently flowing to sales. Additional 3-D seismic is being shot over 131 square miles A square mil is a unit of area, equal to the area of a square with sides of length one mil. A mil is one thousandth of an international inch. This unit of area is usually used in specifying the area of the cross section of a wire or cable. , and is expected to be completed by mid-2007. Barnett Shale - Hill County, Texas Hill County is a county located in the U.S. state of Texas. As of 2000, the population was 32,321. Its county seat is Hillsboro6. The county is named for George Washington Hill, a secretary of war and secretary of the navy under the Republic of Texas, surgeon and early (50% WI) - The first horizontal well on Forest's JV acreage position was fracture fracture, breaking of a bone. A simple fracture is one in which there is no contact of the broken bone with the outer air, i.e., the overlying tissues are intact. In a comminuted fracture the bone is splintered. stimulated and is currently producing up the casing at 2.1 MMcfe/d. The second well is underway with Forest conducting operations. CANADA BUSINESS UNIT In 2006, the Canada Business Unit drilled 60 gross wells with a 100% success rate. Wild River Area - Alberta, Canada (25-100% WI) - A total of 10 wells were drilled during the fourth quarter at a 100% success rate. The average initial production rate for these wells was 3 MMcfe/d, the best average rates to date. Net production reached a record 37 MMcfe/d during the quarter despite major compression repairs in the fourth quarter. A new gas processing plant with improved NGL NGL - A dialect of IGL. recoveries and lower gathering fees is expected to be in service in the second quarter of 2007. Sundance/Ansell Area - Alberta, Canada (50% WI) - Two additional exploratory wells were completed at rates of 2.0 MMcfe/d and 2.6 MMcfe/d. A third well reached TD and is awaiting completion. Deep rights in five additional sections were acquired in the fourth quarter, increasing our gross acreage position to 26,200 acres. Two additional wells are planned in the first quarter of 2007. Hinton Area - Alberta, Canada (33-50% WI) - The second exploratory well was successful and is testing at a rate of 6.5 MMcfe/d, the best Forest interest well in the area to date. A follow-up delineation well is currently drilling. Forest holds 9,000 gross acres in this field. Copton/Palliser/Narraway Areas - Alberta Foothills, Canada (50% WI) - The Copton 10-33 exploratory well was completed at a rate of 2 MMcfe/d. A second exploratory well is currently drilling in the Palliser area. The West Narraway pipeline is expected to be in service in the second quarter of 2007 to bring the Narraway 13-2 (4.8 MMcfe/d) on-line.
2007 GUIDANCE
The guidance below represents Forest's guidance for 2007 without consideration of the announced acquisition of The Houston Exploration Company (Houston Ex) or the announced intended sale of its Alaska properties. It is based on estimated exploration and development capital expenditures approximately 15% less than the Company spent in 2006. The Company intends to revise its guidance when it closes the acquisition of Houston Ex and sells its Alaska properties. Daily Production. We estimate that our 2007 daily average production will be in the range of 320 to 340 MMcfe/d for the full year of 2007. In the first quarter, we estimate that production will be adversely affected by 1.2 Bcfe due to severe winter weather downtime The time during which a computer is not functioning due to hardware, operating system or application program failure. and crude transportation issues related to refinery outages in the Texas of Panhandle. Liquids Production. We estimate that our 2007 daily average production of oil and natural gas liquids will be between 21,000 and 23,000 Bbls/d. Gas Production. We estimate that our 2007 daily average natural gas production will be between 195 and 205 MMcf/d. Gas Differentials. Based on current market prices, we estimate that our first quarter 2007 gas price differential from NYMEX will be between $1.25 and $1.50 per Mcf. Liquids Differentials. Based on current market prices, we estimate that our first quarter 2007 liquids price differential from NYMEX will be between $10.00 and $13.00 per Bbl. Production Expense. Our oil and gas production expense (which includes LOE, ad valorem taxes Ad Valorem Tax A tax based on the assessed value of real estate or personal property. In other words ad valorem taxes can be property tax or even duty on imported items. Property ad valorem taxes are the major source of revenues for state and municipal governments. , production taxes and product processing, gathering and transportation) varies in response to several factors. Among the most significant of these factors are additions to or deletions from our property base, changes in production taxes, general changes in the prices of services and materials that are used in the operation of our properties and the amount of repair and workover activity required. We expect that our 2007 production expense will be between $205 million and $215 million. General and Administrative Expense (G&A). We estimate our 2007 G&A expense, exclusive of non-cash charges relating to FAS 123(R) will be between $38 million and $42 million. Stock-based Compensation (FAS 123(R)) Expense. We estimate that we will incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. non-cash charges pursuant to FAS 123(R) of approximately $13 million in 2007. Depreciation, Depletion and Amortization (DD&A). We estimate that our 2007 DD&A rate will be between $2.20 and $2.30 per Mcfe during 2007. Capital Expenditures. We estimate that expenditures for exploration and development will be between $480 million and $520 million in 2007. Some of the factors impacting the level of capital expenditures in 2007 include the cost and availability of oil field services and weather disruptions. Prices for Forest's products are determined primarily by prevailing market conditions. Market conditions for these products are influenced by regional and worldwide economic and political conditions, consumer product demand, weather and other substantially variable factors. These factors are beyond Forest's control and are difficult to predict. In addition, prices received by Forest for its oil and gas production may vary considerably due to differences between regional markets, transportation availability and demand for different grades of products. Forest's financial results and resources are highly influenced by this price volatility. Estimates for Forest's future production are based on assumptions of capital expenditure levels and the assumption that market demand and prices for oil and gas will continue at levels that allow for economic production of these products. The production, transportation and marketing of liquids and gas are complex processes that are subject to disruption disruption /dis·rup·tion/ (dis-rup´shun) a morphologic defect resulting from the extrinsic breakdown of, or interference with, a developmental process. due to transportation and processing availability, mechanical failure, human error and meteorological me·te·or·ol·o·gy n. The science that deals with the phenomena of the atmosphere, especially weather and weather conditions. [French météorologie, from Greek events (including, but not limited to severe weather, hurricanes and earthquakes). Our estimates are based on certain other assumptions, such as well performance, which may vary significantly from those assumed. Therefore, we can give no assurance that our future production will be as estimated.
PRO FORMA
Forest presents pro forma statements Pro forma statement A financial statement showing the forecast or projected operating results and balance sheet, as in pro forma income statements, balance sheets, and statements of cash flows. of operations for Remainco. The following unaudited pro forma statements of operations present the operating results of Remainco for the three months and years ended December 31, 2006 and 2005 giving pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma effect to the Spin-off. The unaudited pro forma statements of operations presented do not purport To convey, imply, or profess; to have an appearance or effect. The purport of an instrument generally refers to its facial appearance or import, as distinguished from the tenor of an instrument, which means an exact copy or duplicate. PURPORT, pleading. to represent what the results of operations or financial position of Remainco would actually have been had the transaction occurred at the beginning of each period presented, or to project the results of operations or financial position of Forest for any future periods. The adjustments to present the pro forma results of Remainco are based on available information and certain assumptions that management believes are reasonable. Management believes this information allows for a more comprehensive comparison of Remainco's results in 2006 and 2005. [TABLE OMITTED] _________________________ ((1)) Forest's offshore assets Oil and gas facilities, mining and industrial installations, ocean thermal energy conversion facilities, deep water ports, aids to navigation, and nuclear power plants located or in operation seaward of the coastline. were spun-off and merged with Mariner on March 2, 2006; therefore, there are no Spinco operations or expenses associated with Forest in the fourth quarter of 2006. [TABLE OMITTED] _________________________ (a) To allocate revenue and production expense directly attributable to the oil and gas operations of Remainco and Spinco. (b) To allocate salaries and other direct general and administrative expenses attributable to Remainco and Spinco. The Spinco allocation includes only general and administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. directly related to Forest's offshore Gulf of Mexico operations. Accordingly, no reductions were assumed for general corporate overhead costs overhead costs see fixed costs. , such as indirect personnel costs, professional services (job) professional services - A department of a supplier providing consultancy and programming manpower for the supplier's products. , cost of public ownership, insurance and accounting, which occurred subsequent to the Spin-off. (c) To allocate depreciation and depletion to give effect to the reduction in Remainco's consolidated full cost pool and a reduction in production volumes. (d) To allocate accretion expense In accounting, accretion expense is the expense created when updating the present value(PV) of a financial instrument. For example, if one originally recognizes the present value of a liability at $650, which has a future value (FV) of $1000, every year one must increase the attributable to asset retirement obligations Asset Retirement Obligations provide for future disposal of assets as required by SFAS 143 [1]. Firms must recognize the ARO liability in the period it was acquired, generally acquisition. associated with assets specifically related to Remainco and Spinco. (e) To allocate interest expense to give effect to the repayment of a portion of Forest's outstanding credit facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities using the approximate $200 million in proceeds received by Forest at the time of the Spin-off. (f) To allocate unrealized (gains) losses on derivative instruments that did not qualify for cash flow hedge accounting treatment. (g) To allocate realized (gains) losses on derivative instruments that did not qualify for cash flow hedge accounting treatment. (h) To allocate income tax expense to Remainco and Spinco based on Forest's effective deferred federal and state tax rates.
NON-GAAP FINANCIAL MEASURES
In addition to net income determined in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ), Forest has provided net earnings adjusted for certain items, a non-GAAP financial measure which facilitates comparisons to earnings forecasts prepared by stock analysts and other third parties. Such forecasts generally exclude the effects of items that are difficult to predict or to measure in advance and are not directly related to Forest's ongoing operations. A reconciliation between GAAP net earnings and net earnings adjusted for certain items are provided in the paragraphs in which the non-GAAP measure is presented. Net earnings excluding the effects of certain items should not be considered a substitute for net earnings as reported in accordance with GAAP. In addition to reporting net earnings as defined under GAAP, Forest also presents adjusted EBITDA, which consists of net earnings plus income tax expense - discontinued operations, income tax expense - continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the , unrealized (gains) losses on derivative instruments, net, unrealized foreign currency exchange losses, interest expense, accretion The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes. The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the of asset retirement obligations, depreciation and depletion, impairments and stock-based compensation. Forest further presents discretionary cash flow, which consists of adjusted EBITDA minus interest expense, current income tax expense, and other non-cash items. Management uses adjusted EBITDA and discretionary cash flow as measures of operational performance. Adjusted EBITDA and discretionary cash flow should not be considered as alternatives to net earnings as reported under GAAP. The following is a reconciliation of net earnings to adjusted EBITDA to discretionary cash flow (in thousands): [TABLE OMITTED] [TABLE OMITTED] In addition to total debt, Forest also presents net debt, which consists of principal amount of debt less cash and cash equivalents on hand at the end of the period. Management uses this measure to assess Forest's indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. , based on actual principal amounts owed and cash on hand which has not been applied to reduce amounts drawn on the credit facility. The following table sets forth the components of net debt as of December 31, 2006 and December 31, 2005 (in millions): [TABLE OMITTED] _________________________ (1) Book amounts include the principal amount of debt adjusted for unamortized gains on interest rate swaps Interest Rate Swap A deal between banks or companies where borrowers switch floating-rate loans for fixed rate loans in another country. These can be either the same or different currencies. of $20.6 million and $25.5 million at December 31, 2006 and December 31, 2005, respectively, and unamortized net premiums on issuance of $4.6 million and $5.5 million at December 31, 2006 and December 31, 2005, respectively. EXPLANATION OF RESERVE REPLACEMENT RATIO, FD&A COSTS AND CASH COSTS Remainco's all-sources reserve replacement ratio of 372% was calculated by dividing the sum of total additions, 420 Bcfe, by 2006 net sales volumes of 113 Bcfe. Remainco's FD&A costs of $2.15 per Mcfe were calculated by dividing the sum of total exploration, development and acquisition costs, $904 million, by the sum of total additions to estimated proved oil and gas reserves during 2006 of 420 Bcfe. Remainco's organic reserve replacement ratio of 258% was calculated by dividing the sum of total additions to estimated proved oil and gas reserves during 2006, excluding purchases of properties, 282 Bcfe, by 2006 net sales volumes of 109.5 Bcfe, which excludes the 13 MMcfe/d of net sales volume attributable to the Cotton Valley acquisition that closed on March 31, 2006. Remainco's organic F&D costs of $2.09 per Mcfe were calculated by dividing the sum of total exploration and development costs, $589 million, by the sum of total additions to estimated proved oil and gas reserves during 2006, excluding purchases of properties, of 282 Bcfe. Forest presents cash cost per Mcfe on an historical basis, which consists of the sum of production expense, general and administrative expense (excluding stock-based compensation), interest expense and current income tax expense:
[TABLE OMITTED]
TELECONFERENCE CALL
Forest management will hold a teleconference call on Tuesday, February 27, 2007, at 12:00 pm MT to discuss the items described in this press release. If you would like to participate please call 800.399.6298 (for U.S./Canada) and 706.634.0924 (for International) and request the Forest Oil teleconference (ID # 8385215). A Q&A period will follow. A replay will be available from Tuesday, February 27 through March 6, 2007. You may access the replay by dialing toll free 800.642.1687 (for U.S./Canada) and 706.645.9291 (for International), conference ID # 8385215.
FORWARD-LOOKING STATEMENTS
This news release includes forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, that address activities that Forest assumes, plans, expects, believes, projects, estimates or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements. The forward-looking statements provided in this press release are based on management's current belief, based on currently available information, as to the outcome and timing of future events. Forest cautions that its future natural gas and liquids production, revenues and expenses and other forward-looking statements are subject to all of the risks and uncertainties normally incident to the exploration for and development and production and sale of oil and gas. These risks include, but are not limited to, price volatility, inflation or lack of availability of goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. , environmental risks, drilling and other operating risks Operating risk The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is created by operating leverage. Also called business risk. , regulatory changes, the uncertainty inherent in estimating future oil and gas production or reserves, and other risks as described in Forest's 2005 Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. as filed with the Securities and Exchange Commission. Also, the financial results of Forest's foreign operations are subject to currency exchange rate risks. Any of these factors could cause Forest's actual results and plans to differ materially from those in the forward-looking statements. These materials are not a substitute for the registration statement that was filed with the Securities and Exchange Commission (SEC) in connection with Forest's proposed acquisition of The Houston Exploration Company (Houston Ex), or the joint proxy statement/prospectus to be mailed to shareholders. Investors are urged to read the joint proxy statement/prospectus when the SEC declares it effective, as it will contain important information, including detailed risk factors. The registration statement and other documents filed by Forest and Houston Ex with the SEC are available free of charge at the SEC's website, www.sec.gov, or by directing a request when such a filing is made to Forest Oil Corporation, 707 17th Street, Suite 3600, Denver, CO 80202, Attention: Investor Relations Investor relations The process by which the corporation communicates with its investors. ; or by directing a request when such a filing is made to The Houston Exploration Company, 1100 Louisiana Street, Suite 2000 Houston, TX 77002, Attention: Investor Relations. This news release does not constitute an offer to sell or a solicitation solicitation In criminal law, the act of asking, inducing, or directing someone to commit a crime. The person soliciting another becomes an accomplice to the crime. The term also refers to the act of obtaining bribes, as well as to the crime of a prostitute who offers sexual of an offer to buy any shares of Forest or Houston Ex common stock. Houston Ex, Forest, and their respective directors and executive officers may be considered participants in the solicitation of proxies in connection with the proposed transaction. Information about the participants in the solicitation will be set forth in the final joint proxy statement/prospectus. Forest Oil Corporation is engaged in the acquisition, exploration, development, and production of natural gas and crude oil in North America and selected international locations. Forest's principal reserves and producing properties are located in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. in Alaska, Louisiana, New Mexico New Mexico, state in the SW United States. At its northwestern corner are the so-called Four Corners, where Colorado, New Mexico, Arizona, and Utah meet at right angles; New Mexico is also bordered by Oklahoma (NE), Texas (E, S), and Mexico (S). , Oklahoma, Texas, Utah, and Wyoming, and in Canada. Forest's common stock trades on the New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. under the symbol FST. For more information about Forest, please visit its website at www.forestoil.com. February 26, 2007 [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
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