Forest Oil Corporation (NYSE:FST) (Forest or the Company) today
announced financial and operational results for the first quarter 2008.
For the quarter ended March 31, 2008, the Company reported the following
highlights:
Record adjusted net earnings of $92.7 million, up 141% over $38.4
million in 2007, on revenues of $376.5 million
Record adjusted EBITDA of $294.1 million, up 88% over $156.5 million
in 2007
Record discretionary cash flow of $265.2 million, up 116% over $123.0
million in 2007
Announced strategic shift in the Company’s
capital allocation policy from one of spending within cash flow to one
of spending in excess of cash flow
H. Craig Clark, President and CEO, stated, “This
year is off to a good start with higher volumes and lower per-unit cash
costs from a year earlier, contributing to record adjusted net earnings,
adjusted EBITDA and discretionary cash flow. As we had previously
announced, the first quarter of 2008 was the launching pad for higher
organic production growth as spending activity was restored and even
increased in some areas. This is expected to increase our organic
production growth rate to about 15% starting in the second quarter of
2008. Additional capital is being allocated to our Focus Areas where we
have a successful track record and extensive inventory of unbooked
potential drilling locations and to our new Frontier Program,
specifically the shale programs and the Greater Vermejo/Haley Area. Our
recent Ark-La-Tex acquisition further adds to this inventory.”
FIRST QUARTER 2008 RESULTS
For the three months ended March 31, 2008, Forest reported a net loss of
$4.7 million or $(.05) per basic share. This earnings amount decreased
169% compared to Forest’s net earnings of $6.9
million or $.11 per basic share in the corresponding period in 2007. The
net loss for the three months ended March 31, 2008 was affected by the
following item:
The non-cash effect of net unrealized losses relating to recording
derivative instruments and investments at fair value and to foreign
currency exchange loss, totaling $152.1 million ($97.4 million net of
tax)
Without the effect of this item, Forest’s
adjusted net earnings were a record $92.7 million or $1.06 per basic
share. This is an increase of 141% over Forest’s
adjusted net earnings of $38.4 million or $.62 per basic share in the
corresponding 2007 period.
Forest’s adjusted EBITDA increased 88% for the
three months ended March 31, 2008 to a record $294.1 million compared to
adjusted EBITDA of $156.5 million in the corresponding 2007 period.
Forest’s discretionary cash flow increased
116% for the three months ended March 31, 2008 to a record $265.2
million compared to discretionary cash flow of $123.0 million in the
corresponding 2007 period.
The significant increases in adjusted net earnings, adjusted EBITDA and
discretionary cash flow were due to higher sales volumes resulting from
acquisition and drilling activities, higher per-unit price realizations
and lower per-unit cash costs.
Sales Volumes
For the three months ended March 31, 2008, Forest’s
average oil and gas net sales volumes were 478 MMcfe/d, representing a
58% increase over Forest’s 302 MMcfe/d in the
corresponding 2007 period. The volumes were higher in 2008 due to Forest’s
acquisition and drilling activities.
Product Price Differentials to NYMEX
Forest’s price differential to NYMEX for
natural gas decreased 3% for the three months ended March 31, 2008 to
$.78 per Mcf compared to $.80 per Mcf in the corresponding 2007 period
amid higher NYMEX prices. Realized prices were $7.25 per Mcf and $5.96
per Mcf for the three months ended March 31, 2008 and 2007, respectively.
Forest’s price differentials to NYMEX for oil
and condensate and for natural gas liquids were $4.23 per Bbl and $48.58
per Bbl, respectively, for the three months ended March 31, 2008
compared to $4.51 per Bbl and $29.10 per Bbl, respectively, in the
corresponding 2007 period. Realized prices for oil and condensate and
for natural gas liquids were $93.73 per Bbl and $49.38 per Bbl
(approximately 50% of NYMEX for natural gas liquids), respectively, for
the three months ended March 31, 2008 compared to $53.72 per Bbl and
$29.13 per Bbl (approximately 50% of NYMEX for natural gas liquids),
respectively, in the corresponding 2007 period.
Total Cash Costs
Total cash costs per-unit decreased 22% for the three months ended March
31, 2008 to $2.43 per Mcfe compared to $3.11 per Mcfe in the
corresponding 2007 period. The reduction is a result of Forest’s
improved asset mix and synergies resulting from acquisitions and
divestitures completed in 2007.
Forest’s oil and gas production expense
per-unit decreased 19% for the three months ended March 31, 2008 to
$1.44 per Mcfe from $1.77 per Mcfe in the corresponding 2007 period. The
improved results were due to the addition of the gas oriented Houston
Exploration assets and the divestiture of the high operating cost Alaska
assets. The improvements were partially offset by higher production
taxes as a result of higher commodity prices.
Forest’s per-unit general and administrative
expense, excluding stock-based compensation expense, decreased 15% for
the three months ended March 31, 2008 to $.35 per Mcfe compared to $.41
per Mcfe in the corresponding 2007 period. The decrease reflects
synergies realized through the acquisition of Houston Exploration
partially offset by severance costs related to the divestiture of Forest’s
Alaska assets.
Forest’s interest expense increased 14% for
the three months ended March 31, 2008 to $27.9 million compared to $24.4
million in the corresponding 2007 period. The increase resulted from
higher average debt levels offset somewhat by lower average interest
rates. Debt levels increased to fund the Houston Exploration acquisition.
Depreciation and Depletion Expense
Forest’s per-unit depreciation and depletion
expense increased 20% for the three months ended March 31, 2008 to $2.66
per Mcfe compared to $2.22 per Mcfe in the corresponding 2007 period.
The increase of $.44 per Mcfe was primarily due to the Houston
Exploration acquisition.
Exploration and Development Activities
Forest invested $242.7 million in exploration and development activities
(excluding capitalized interest and equity compensation) for the three
months ended March 31, 2008.
OPERATIONAL PROJECT UPDATE
FOREST’S FOCUS AREAS
The Focus Area assets (Greater Buffalo Wallow Area, Ark-La-Tex, South
Texas and the Deep Basin) constituted 65% of Forest’s
net sales volumes and 68% of capital expenditures for the three months
ended March 31, 2008. These assets are primarily large scale tight-gas
sand development projects in North America. Forest employed 27 rigs in
these areas during the first quarter of 2008 compared to 22 rigs in the
fourth quarter of 2007. Current plans are to increase rigs employed in
the Focus Areas to 31 by the end of 2008. Net sales volumes from these
assets were up 2% sequentially to 310 MMcfe/d.
FOREST’S NEW FRONTIER PROGRAM
Utica Shale (60 – 100% WI) –
Forest anticipates utilizing a rig from Western Canada to execute a
three well horizontal test program which is expected to commence in June
2008. The 2008 program is being undertaken as results from the 2007
summer vertical drilling program indicated the shale could be
effectively fracture stimulated and contains high quality gas.
PROPERTY DIVESTITURES
The Company has identified the properties to be included in its
previously announced sale package and intends to market the properties
in the second quarter of 2008 and hopes to close the sale of the
properties in the third quarter of 2008. The properties to be sold are
located primarily in the Rockies and the Permian Basin. The current
guidance does not include the effects of this planned divestiture.
NON-GAAP FINANCIAL MEASURES
In addition to net income determined in accordance with 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 on page two of
this release 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 (loss) plus
income tax (benefit) expense, unrealized losses on derivative
instruments, net, unrealized foreign currency exchange loss (gain),
unrealized loss on other investments, net, interest expense, accretion
of asset retirement obligations, depreciation and depletion, and
stock-based compensation. Forest further presents discretionary cash
flow, which consists of adjusted EBITDA minus interest expense, current
income tax benefit (expense), and gain on sale of assets 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 (loss) to adjusted EBITDA to discretionary cash flow (in
thousands):
Three Months EndedMarch 31,
2008
2007
Net earnings (loss)
$ (4,732
)
6,891
Income tax (benefit) expense
(2,354
)
3,925
Unrealized losses on derivative instruments, net
142,213
57,838
Unrealized foreign currency exchange loss (gain)
2,775
(49
)
Unrealized loss on other investments, net
7,091
-
Interest expense
27,857
24,353
Accretion of asset retirement obligations
1,784
1,275
Depreciation and depletion
115,567
60,459
Stock-based compensation
3,857
1,796
Adjusted EBITDA
294,058
156,488
Interest expense
(27,857
)
(24,353
)
Current income tax benefit (expense)
22
(878
)
Gain on sale of assets and other non-cash items
(1,024
)
(8,256
)
Discretionary cash flow
$ 265,199
123,001
Total Cash Costs
Total cash costs is a non-GAAP measure calculated in accordance with oil
and gas industry standards that is used by management to assess the cash
operating performance. Total cash costs is defined as all cash operating
costs, including production expense, general and administrative expense
(excluding stock-based compensation), interest expense and current
income tax (benefit) expense.
Three Months Ended March 31,
2008
Per Mcfe
2007
Per Mcfe
(In thousands, except per-unit amounts)
Production expense
$ 62,541
1.44
48,144
1.77
General and administrative expense (excluding stock-based
compensation of $3,857 and $1,796, respectively)
15,431
0.35
11,175
0.41
Interest expense
27,857
0.64
24,353
0.89
Current income tax (benefit) expense
(22
)
(0.00
)
878
0.04
Total cash costs
$105,807
2.43
84,550
3.11
TELECONFERENCE CALL
A conference call is scheduled for Tuesday, May 6, 2008, at 9:00 A.M. MT
to discuss the release. You may access the call by dialing toll free
800.399.6298 (for U.S./Canada) and 706.634.0924 (for International) and
request the Forest Oil teleconference (ID # 44827537). A Q&A period will
follow.
A replay will be available from Tuesday, May 6 through May 13, 2008. You
may access the replay by dialing toll free 800.642.1687 (for
U.S./Canada) and 706.645.9291 (for International), conference ID #
44827537.
FORWARD-LOOKING STATEMENTS
This news release includes 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. 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, environmental risks,
drilling and other operating risks, regulatory changes, the uncertainty
inherent in estimating future oil and gas production or reserves, and
other risks as described in reports that Forest files with the
Securities and Exchange Commission (SEC), including its 2007 Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports
on Form 8-K. 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.
Forest Oil Corporation is engaged in the acquisition, exploration,
development, and production of natural gas and liquids in North America
and selected international locations. Forest's principal reserves and
producing properties are located in the United States in Arkansas,
Colorado, Louisiana, New Mexico, Oklahoma, Texas, Utah, and Wyoming, and
in Canada. Forest's common stock trades on the New York Stock Exchange
under the symbol FST. For more information about Forest, please visit
its website at www.forestoil.com.
FOREST OIL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
March 31,2008
December 31,2007
ASSETS
(In thousands)
Current assets:
Cash and cash equivalents
$ 1,919
9,685
Accounts receivable
217,648
201,617
Derivative instruments
464
30,006
Other investments
28,411
34,694
Deferred income taxes
60,537
23,854
Other current assets
83,894
61,518
Total current assets
392,873
361,374
Net property and equipment
5,158,828
5,025,815
Derivative instruments
4,824
-
Goodwill
254,459
265,618
Other assets
50,289
42,741
$ 5,861,273
5,695,548
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
$ 329,865
361,089
Accrued interest
35,523
7,693
Derivative instruments
162,563
72,675
Asset retirement obligations
3,308
2,562
Current portion of long-term debt
265,454
266,002
Other current liabilities
27,033
28,361
Total current liabilities
823,746
738,382
Long-term debt
1,540,492
1,503,035
Asset retirement obligations
88,382
87,943
Derivative instruments
52,814
38,171
Deferred income taxes
894,040
853,427
Other liabilities
68,256
62,779
Total liabilities
3,467,730
3,283,737
Shareholders' equity:
Common stock
8,862
8,838
Capital surplus
1,976,331
1,966,569
Retained earnings
292,298
306,062
Accumulated other comprehensive income
116,052
130,342
Total shareholders' equity
2,393,543
2,411,811
$ 5,861,273
5,695,548
FOREST OIL CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months EndedMarch 31,
2008
2007
(In thousands, except pershare amounts)
Revenues
$376,530
182,609
Operating expenses:
Lease operating expenses
37,565
36,040
Production and property taxes
20,051
7,910
Transportation and processing costs
4,925
4,194
General and administrative (including stock-based compensation of
$3,857 and $1,796, respectively)
19,288
12,971
Depreciation and depletion
115,567
60,459
Accretion of asset retirement obligations
1,784
1,275
Gain on sale of assets
-
(7,176
)
Total operating expenses
199,180
115,673
Earnings from operations
177,350
66,936
Other income and expense:
Interest expense
27,857
24,353
Unrealized losses on derivative instruments, net
142,213
57,838
Realized loss (gain) on derivative instruments, net
3,663
(25,134
)
Other expense (income), net
10,703
(937
)
Total other income and expense
184,436
56,120
Earnings (loss) before income taxes
(7,086
)
10,816
Income tax (benefit) expense:
Current
(22
)
878
Deferred
(2,332
)
3,047
Total income tax (benefit) expense
(2,354
)
3,925
Net earnings (loss)
$ (4,732
)
6,891
Weighted average number of common shares outstanding:
Basic
87,294
62,393
Diluted
87,294
63,734
Basic earnings per common share
$ (0.05
)
0.11
Diluted earnings per common share
$ (0.05
)
0.11
FOREST OIL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months EndedMarch 31,
2008
2007
(In thousands)
Cash flows from operating activities:
Net earnings (loss)
$ (4,732
)
6,891
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Depreciation and depletion
115,567
60,459
Accretion of asset retirement obligations
1,784
1,275
Unrealized losses on derivative instruments, net
142,213
57,838
Unrealized loss on other investments, net
7,091
-
Unrealized foreign currency exchange loss (gain)
2,775
(49
)
Deferred income tax (benefit) expense
(2,332
)
3,047
Stock-based compensation
3,857
1,796
Other, net
(1,024
)
(8,256
)
Changes in operating assets and liabilities, net of effects of
acquisitions and divestitures:
Accounts receivable
(17,665
)
(9,392
)
Other current assets
(5,581
)
(14,562
)
Accounts payable
(47,955
)
(41,148
)
Accrued interest and other current liabilities
13,074
16,939
Net cash provided by operating activities
207,072
74,838
Cash flows from investing activities:
Capital expenditures
(264,078
)
(142,996
)
Proceeds from sales of assets
466
1,661
Other, net
5
-
Net cash used by investing activities
(263,607
)
(141,335
)
Cash flows from financing activities:
Proceeds from bank borrowings, net of repayments
42,968
42,268
Repayment of term loans
-
(625
)
Proceeds from the exercise of options and from employee stock
purchase plan
4,924
997
Other, net
967
8,463
Net cash provided by financing activities
48,859
51,103
Effect of exchange rate changes on cash
(90
)
(684
)
Net decrease in cash and cash equivalents
(7,766
)
(16,078
)
Cash and cash equivalents at beginning of period
9,685
33,164
Cash and cash equivalents at end of period
$ 1,919
17,086
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