Forest Oil Announces First Quarter 2014 Results

  Forest Oil Announces First Quarter 2014 Results  First Quarter 2014 Average Net Sales Volumes of 105 MMcfe/d (68% Natural Gas, 32% Liquids)  Completed Six Eagle Ford Wells with a 30-Day Average Gross Production Rate of 418 Boe/d (93% oil)  Eagle Ford Drilling and Completion Costs Averaged Approximately $4.5 Million Per Well in the First Quarter 2014  Completed a Liquids-Rich Cotton Valley Well with a 30-Day Average Gross Production Rate of 7 MMcfe/d; Drilled and Completed for Less Than $7 Million  Business Wire  DENVER -- May 6, 2014  Forest Oil Corporation (NYSE:FST) (Forest or the Company) today announced financial and operational results for the first quarter of 2014.  For the three months ended March 31, 2014, Forest reported a net loss of $21 million, or $(0.18) per diluted share, compared to net earnings of $106 million, or $0.89 per share in the fourth quarter of 2013. Net loss for the first quarter of 2014 included the following items:    *Unrealized losses on derivative instruments of $8 million   *Rig lease buyout/stacking costs of $5 million   *Write-off of debt issuance costs of $3 million   *Employee-related asset disposition costs of $1 million   *Loss on asset disposition of $1 million  Without the effect of these items, Forest’s results for the first quarter were as follows:    *Adjusted net loss of $3 million, or $(0.02) per diluted share   *Adjusted EBITDA of $35 million   *Adjusted discretionary cash flow of $21 million  Management Comment  Patrick R. McDonald, President and CEO, stated, “We are pleased with the operational execution and cost discipline that was exhibited by our team during the first quarter. We made further and significant progress in lowering drilling costs through improvements in the efficiencies of our operations and enhancements of completion designs, which continues to translate into lower costs in each of our operating areas.  “We are nearly complete with merging and reprocessing our 3D seismic surveys within the small portion of the Eagle Ford field where the reprocessing was required, and are pleased that it has progressed as anticipated. As previously indicated, the reprocessed data will be available by the third quarter. In the Ark-La-Tex, we increased further our level of activity from the first quarter with the recent addition of a third drilling rig in mid-April.  “We believe that operational execution and continued financial discipline will be instrumental in our ability to meet the strategic objectives we have outlined and allow us to deliver on our 2014 operating plan. As we move forward into 2014, we will continue to manage prudently our drilling program to focus on the highest risk-adjusted rate-of-return projects. The progress shown in the first quarter provides us with a good start to 2014.”  Average Net Sales Volumes, Average Realized Prices, and Revenues  Forest's average net sales volumes for the three months ended March 31, 2014, were 105 MMcfe/d (68% natural gas, 32% liquids), which was within the provided guidance range of 105 – 110 MMcfe/d. Forest began the first quarter operating three rigs and ended the quarter operating four rigs. Beginning in mid-April, Forest is operating five rigs, including three rigs in East Texas and two rigs in the Eagle Ford. With the increased rig count, we expect that average net sales volumes will be sequentially higher on a quarterly basis for the remainder of the year, particularly in the third and fourth quarters of 2014.  The following table details the components of average net sales volumes, average realized prices, and revenues for the three months ended March 31, 2014:                        Three Months Ended March 31, 2014                         Gas          Oil          NGLs        Total                         (MMcf/d)       (MBbls/d)      (MBbls/d)     (MMcfe/d)                                                                      Average Net Sales         71.5           3.6             2.0          105.1 Volumes                                                                   Average Realized        Gas           Oil            NGLs          Total Prices                  ($/Mcf)        ($/Bbl)        ($/Bbl)       ($/Mcfe)                                                                      Average realized prices not              $ 4.38         $ 93.04        $  33.45      $ 6.81 including realized derivative losses Realized losses on       (0.53  )      (3.17  )       -           (0.47  ) NYMEX derivatives Average realized prices including        $ 3.84        $ 89.88       $  33.45      $ 6.34    realized derivative losses                                                                      Revenues (in            Gas            Oil            NGLs          Total thousands)                                                                      Revenues not including realized      $ 28,171       $ 30,332       $  5,954      $ 64,457 derivative losses Realized losses on       (3,428 )      (1,032 )       -           (4,460 ) NYMEX derivatives                                                                               Revenues including realized derivative     $ 24,743      $ 29,300      $  5,954      $ 59,997  losses                                                                                Total Cash Costs  Forest's total cash costs for the first quarter of 2014, excluding stock-based compensation and employee-related asset disposition costs, decreased 21% to $42 million, compared to $53 million in the fourth quarter of 2013. Total cash costs on a per-unit basis were higher compared to the fourth quarter of 2013 as a result of lower equivalent production volumes following the sale of the Texas Panhandle assets during the fourth quarter of 2013. The Company expects to see a reduction in per unit lease operating expense over the coming quarters as production volumes are expected to increase for the remainder of the year in conjunction with the increased level of drilling activity.  The following table details the components of total cash costs for the comparative periods:                       Three Months Ended                        March 31,    Per Mcfe    December 31,   Per Mcfe                        2014                         2013                        (In thousands, except per-unit amounts) Lease operating        $ 14,510       $ 1.53        $  17,059        $ 1.13 expenses Production and           3,225          0.34           2,945           0.19 property taxes Transportation and       2,515          0.27           2,727           0.18 processing costs General and administrative expense (excluding stock-based compensation and         6,853          0.72           5,448           0.36 employee-related asset disposition costs of $1,387 and $6,485, respectively) Interest expense         16,011         1.69           24,790          1.64 Current income tax      (1,214 )      (0.13 )       (245    )      (0.02 ) benefit Total cash costs       $ 41,900      $ 4.43       $  52,724       $ 3.48    ________________________ Total cash costs is a non-GAAP measure that is used by management to assess the Company’s cash operating performance. Forest defines total cash costs as all cash operating costs, including production expense; general and administrative expense (excluding stock-based compensation and employee-related asset disposition costs); interest expense; and current income tax benefit.  Total Capital Expenditures  Forest's exploration and development capital expenditures for the three months ended March 31, 2014 and December 31, 2013, are set forth in the table below (in thousands):                                          Three Months Ended                                           March 31, 2014   December 31, 2013                                                               Exploration and development               $    37,250        $      41,732 Non-drilling capital (capitalized              7,968                9,114 overhead, seismic, and other) Land and leasehold acquisitions               88                  1,933                                                45,306               52,779                                                               Add: ARO, capitalized interest, and                582                 6,198 capitalized equity compensation Total capital expenditures                $    45,888        $      58,977                                                                       Exploration and development capital for the three months ended March 31, 2014 was $37 million compared to Forest’s full year 2014 guidance of $260 million to $270 million. First quarter exploration and development capital was lower than the fourth quarter of 2013 as Forest began the first quarter operating three rigs and ended the quarter operating four rigs. In mid-April, Forest increased its operated rig count to five rigs, including three rigs in East Texas and two rigs in the Eagle Ford. Accordingly, exploration and development capital is anticipated to be higher on a quarterly basis for the remainder of the year.                            OPERATIONAL PROJECT UPDATE  Eagle Ford  Highlighting drilling activity since the last earnings release, six gross (three net) wells were completed across the southern extent of the Eagle Ford field and placed on production with an average 30-day gross production rate of 418 Boe/d (93% oil or 386 Bbls/d). The average lateral length of the wells drilled in the first quarter was 4,099 feet as four wells required shorter-than-average laterals due to lease configurations. When normalized to the 2013 average lateral length of 5,166 feet, the 30-day average gross production rate for the six wells completed in the first quarter was approximately 525 Boe/d (93% oil or 488 Bbls/d), which compares favorably to the 2013 average 30-day gross production rate of 408 Boe/d (95% oil).  Forest also achieved significant cost reductions for the wells drilled during the first quarter through operational synergies and implementing a modified completion technique that, when combined with the shorter laterals, lowered drilling and completion costs to approximately $4.5 million per well. This compares to a 2013 average of $6.0 million per well.  Net sales volumes from the Eagle Ford averaged approximately 3,025 Boe/d in the first quarter, which was a 3% sequential increase over the fourth quarter of 2013.  Ark-La-Tex  Consistent with what the Company outlined in last quarter’s operational update, Forest increased drilling activity targeting the liquids-rich Cotton Valley formation in East Texas during the first quarter with the addition of a second rig in late-February. A third drilling rig was added in mid-April.  Highlighting drilling activity since the last earnings release, a Cotton Valley well was completed in Rusk County, Texas that had a 30-day average gross production rate of 7 MMcfe/d and a completed well cost below $7 million. This compares to the 2013 average of $8.5 million per well. The Company is currently operating two rigs in Rusk County and a third rig in Panola County, Texas.  Net sales volumes for the Ark-La-Tex averaged approximately 87 MMcfe/d in the first quarter of 2014.                           NON-GAAP FINANCIAL MEASURES  Adjusted Net (Loss) Earnings  In addition to reporting net loss as defined under generally accepted accounting principles (GAAP), Forest also presents adjusted net (loss) earnings, which is a non-GAAP performance measure. Adjusted net (loss) earnings consist of net loss after adjustment for those items shown in the table below. Adjusted net (loss) earnings does not represent, and should not be considered an alternative to, GAAP measurements such as net loss (its most comparable GAAP financial measure), and Forest's calculations thereof may not be comparable to similarly titled measures reported by other companies. By eliminating the items shown below, Forest believes that the measure is useful to investors because similar measures are frequently used by securities analysts, investors, and other interested parties in their evaluation of companies in the oil and gas industry. Forest's management does not view adjusted net (loss) earnings in isolation and also uses other measurements, such as net loss and revenues, to measure operating performance. The following table provides a reconciliation of net loss, the most directly comparable GAAP measure, to adjusted net (loss) earnings for the periods presented (in thousands):                                             Three Months Ended                                                March 31,                                                2014 ^(1)       2013 ^(2)                                                                     Net loss                                       $ (21,007 )         $ (67,948 ) Change in valuation allowance on deferred tax assets associated with              -                   24,585 net loss and adjusting items Employee-related asset disposition               721                 4,263 costs, net of tax Rig lease buyout/stacking costs, net             5,184               1,940 of tax Loss on debt extinguishment, net of              -                   16,107 tax Write-off of debt issuance costs                 3,323               - Loss on asset disposition                        794                 - Unrealized losses on derivative                 8,391             24,481   instruments, net of tax Adjusted net (loss) earnings                   $ (2,594  )         $ 3,428                                                                        Earnings attributable to participating          -                 (97     ) securities Adjusted net (loss) earnings for               $ (2,594  )         $ 3,331    diluted (loss) earnings per share                                                                     Weighted average number of diluted              116,838           115,655  shares outstanding                                                                     Adjusted diluted (loss) earnings per           $ (0.02   )         $ 0.03     share  (1) The tax rate used for the three months ended March 31, 2014 was 0% (2) The tax rate used for the three months ended March 31, 2013 was 36.12%    Adjusted EBITDA  In addition to reporting net loss as defined under GAAP, Forest also presents adjusted net earnings before interest, income taxes, depreciation, depletion, amortization, and certain other items (adjusted EBITDA), which is a non-GAAP performance measure. Adjusted EBITDA consists of net loss after adjustment for those items shown in the table below. Adjusted EBITDA does not represent, and should not be considered an alternative to, GAAP measurements such as net loss (its most comparable GAAP financial measure), and Forest's calculations thereof may not be comparable to similarly titled measures reported by other companies. By eliminating the items shown below, Forest believes the measure is useful in evaluating its fundamental core operating performance. Forest also believes that adjusted EBITDA is useful to investors because similar measures are frequently used by securities analysts, investors, and other interested parties in their evaluation of companies in the oil and gas industry. Forest's management uses adjusted EBITDA to manage its business, including in preparing its annual operating budget and financial projections. Forest's management does not view adjusted EBITDA in isolation and also uses other measurements, such as net loss and revenues, to measure operating performance. The following table provides a reconciliation of net loss, the most directly comparable GAAP measure, to adjusted EBITDA for the periods presented (in thousands):                                             Three Months Ended                                                March 31,                                                2014            2013                                                                     Net loss                                       $ (21,007 )         $ (67,948 ) Income tax (benefit) expense                     (1,214  )           337 Interest expense                                 16,011              36,128 Depreciation, depletion, and                     21,415              48,543 amortization Unrealized losses on derivative                  8,391               38,311 instruments, net Stock-based compensation                         794                 3,647 Accretion of asset retirement                    513                 1,244 obligations Loss on asset disposition, net                   794                 - Write-off of debt issuance costs                 3,323               - Employee-related asset disposition               579                 5,821 costs Loss on debt extinguishment                      -                   25,223 Rig lease buyout/stacking costs                 5,184             3,038    Adjusted EBITDA ^(1)                           $ 34,783           $ 94,344    (1) The decrease in adjusted EBITDA was primarily due to oil and natural gas property divestitures completed during 2013.  Adjusted Discretionary Cash Flow  In addition to reporting net cash provided by operating activities as defined under GAAP, Forest also presents adjusted discretionary cash flow, which is a non-GAAP liquidity measure. Adjusted discretionary cash flow consists of net cash provided by operating activities after adjustment for those items shown in the table below. This measure does not represent, and should not be considered an alternative to, GAAP measurements such as net cash provided by operating activities (its most comparable GAAP financial measure), and Forest's calculations thereof may not be comparable to similarly titled measures reported by other companies. Forest's management uses adjusted discretionary cash flow as a measure of liquidity and believes it provides useful information to investors because it assesses cash flow from operations before changes in operating assets and liabilities, which fluctuate due to the timing of collections of receivables and the settlements of liabilities, and other items. Forest's management uses adjusted discretionary cash flow to manage its business, including in preparing its annual operating budget and financial projections. This measure does not represent the residual cash flow available for discretionary expenditures. Forest’s management does not view adjusted discretionary cash flow in isolation and also uses other measurements, such as net cash provided by operating activities, to measure operating performance. The following table provides a reconciliation of net cash provided by operating activities, the most directly comparable GAAP measure, to adjusted discretionary cash flow for the periods presented (in thousands):                                                  Three Months Ended                                                     March 31,                                                     2014          2013                                                                      Net cash provided by operating activities           $ 8,846         $ 34,322                                                                      Changes in operating assets and liabilities: Accounts receivable                                   (135    )       (265   ) Other current assets                                  1,764           1,109 Accounts payable and accrued liabilities              11,533          14,697 Accrued interest and other                            (10,541 )       53 Employee-related asset disposition costs              579             5,821 ^(1) Rig lease buyout/stacking costs ^(1)                  8,794                                                                     Adjusted discretionary cash flow ^(2)               $ 20,840       $ 55,737         The employee-related asset disposition costs and rig lease       buyout/stacking costs are non-recurring cash-settled items. Including (1)  the effect of these items, adjusted discretionary cash flow would have       been $11 million and $50 million for the three months ended March 31,       2014 and 2013, respectively.        (2)   The decrease in adjusted discretionary cash flow was primarily due to       oil and natural gas property divestitures completed during 2013.         Net Debt  In addition to reporting total debt as defined under GAAP, Forest also presents net debt, which is a non-GAAP debt measure. Net debt consists of the principal amount of debt adjusted for cash and cash equivalents at the end of the period. Forest's management uses net debt to assess Forest's indebtedness.  The following table sets forth the components of net debt (in thousands):                           March 31, 2014            December 31, 2013                            Principal   Book^(1)      Principal   Book^(1) Credit facility            $ -           $ -           $ -           $ - 7 1/4% Senior notes          577,914       578,084       577,914       578,092 due 2019 7 1/2% Senior notes         222,087      222,087      222,087      222,087 due 2020 Total debt                   800,001       800,171       800,001       800,179                                                                       Less: cash and cash         48,328       48,328       66,192       66,192 equivalents                                                                       Net debt                   $ 751,673     $ 751,843     $ 733,809     $ 733,987         Book amounts include the principal amount of debt adjusted for ^(1)  unamortized premiums on the issuance of certain senior notes of $0.2        million at March 31, 2014 and December 31, 2013.                                       TELECONFERENCE CALL  Forest will not host the conference call previously scheduled for Wednesday, May 7, 2014 at 7:00 AM MT. Forest expects to file its quarterly report Form 10-Q with the Securities and Exchange Commission on May 6, 2014.                            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, intends, 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 future natural gas and liquids production, revenues, cash flows, liquidity, plans for future operations, expenses, outlook for oil and natural gas prices, timing of capital expenditures, timing and terms of any divestitures, and other forward-looking statements relating to Forest are subject to all of the risks and uncertainties normally incident to the exploration for and development and production and sale of liquids and natural gas.  These risks relating to Forest include, but are not limited to, oil and natural gas price volatility, its level of indebtedness, its ability to replace production, its ability to compete with larger producers, environmental risks, drilling and other operating risks, regulatory changes, credit risk of financial counterparties, risks of using third-party transportation and processing facilities, the decision to sell or offer for sale, or to determine not to sell any portion of its assets, the ability to enter into agreements relating to such sales on desirable terms or at all, the timing of any such agreements, the ability to consummate any such sales, the ability to realize the anticipated benefits of any such sales, the ability to determine the use of proceeds from any such sales, the ability to determine whether to reduce outstanding indebtedness and the amount and timing of any such reductions, and other risks as described in reports that Forest files with the SEC, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. 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 the United States. Forest's principal reserves and producing properties are located in the United States in Arkansas, Louisiana, Oklahoma, and Texas. 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,          December 31,                                              2014               2013 ASSETS                                       (In thousands)                                                                  Current assets: Cash and cash equivalents                    $ 48,328           $ 66,192 Accounts receivable                            32,840             35,654 Derivative instruments                         713                5,192 Other current assets                          23,871           6,756       Total current assets                           105,752            113,794                                                                  Net property and equipment                     841,718            818,569                                                                  Deferred income taxes                          1,762              2,230 Goodwill                                       134,434            134,434 Derivative instruments                         2,216              400 Other assets                                  16,305           48,525                                                   $ 1,102,187       $ 1,117,952                                                                    LIABILITIES AND SHAREHOLDERS' EQUITY                                                                  Current liabilities: Accounts payable and accrued liabilities     $ 149,525          $ 141,107 Accrued interest                               13,445             6,654 Derivative instruments                         9,598              4,542 Deferred income taxes                          1,762              2,230 Other current liabilities                     5,847            12,201      Total current liabilities                      180,177            166,734                                                                  Long-term debt                                 800,171            800,179 Asset retirement obligations                   24,337             22,629 Derivative instruments                         672                - Other liabilities                             61,945           73,941      Total liabilities                              1,067,302          1,063,483                                                                  Shareholders' equity: Common stock                                   11,910             11,940 Capital surplus                                2,556,277          2,554,997 Accumulated deficit                            (2,523,077 )       (2,502,070 ) Accumulated other comprehensive loss          (10,225    )      (10,398    ) Total shareholders' equity                     34,885             54,469                                                                                                              $ 1,102,187       $ 1,117,952                                                                                                                                                                FOREST OIL CORPORATION Condensed Consolidated Statements of Operations (Unaudited)                                                                           Three Months Ended                                       March 31,                                       2014                    2013                                       (In thousands, except per share amounts)                                                                  Revenues: Oil, gas, and NGL sales               $   64,457                $  118,042 Interest and other                       737                    132       Total revenues                            65,194                   118,174                                                                  Costs, expenses, and other: Lease operating expenses                  14,510                   21,204 Production and property taxes             3,225                    2,216 Transportation and processing             2,515                    3,280 costs General and administrative                8,240                    20,014 expense Depreciation, depletion, and              21,415                   48,543 amortization Interest expense                          16,011                   36,128 Realized and unrealized losses on         12,851                   25,580 derivative instruments, net Other, net                               8,648                  28,820    Total costs, expenses, and other         87,415                 185,785   Loss before income taxes                  (22,221   )              (67,611  ) Income tax (benefit) expense             (1,214    )             337       Net loss                              $   (21,007   )           $  (67,948  )                                                                  Basic and diluted weighted                116,838                  115,655 average shares outstanding                                                                  Basic and diluted loss per common     $   (0.18     )           $  (0.59    ) share                                                                                                                                                            FOREST OIL CORPORATION Condensed Consolidated Statements of Cash Flows (Unaudited)                                                                                                 Three Months Ended                                                   March 31,                                                   2014          2013                                                   (In thousands) Operating activities: Net loss                                          $ (21,007 )     $ (67,948  )                                                                    Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, depletion, and amortization           21,415          48,543 Unrealized losses on derivative                     8,391           38,311 instruments, net Stock-based compensation                            794             3,647 Loss on debt extinguishment                         -               25,223 Other, net                                          1,874           2,140 Changes in operating assets and liabilities: Accounts receivable                                 135             265 Other current assets                                (1,764  )       (1,109   ) Accounts payable and accrued liabilities            (11,533 )       (14,697  ) Accrued interest and other                         10,541        (53      ) Net cash provided by operating activities           8,846           34,322                                                                    Investing activities: Capital expenditures for property and equipment: Exploration, development, leasehold, and            (46,380 )       (101,665 ) acquisition costs Other property and equipment                        (3,520  )       (268     ) Proceeds from sales of assets                      2,239         313,805   Net cash (used) provided by investing               (47,661 )       211,872 activities                                                                    Financing activities: Proceeds from bank borrowings                       -               202,000 Repayments of bank borrowings                       -               (127,000 ) Redemption of senior notes                          -               (321,315 ) Change in bank overdrafts                           21,664          590 Other, net                                         (713    )      (300     ) Net cash provided (used) by financing               20,951          (246,025 ) activities                                                                    Net (decrease) increase in cash and cash            (17,864 )       169 equivalents Cash and cash equivalents at beginning of          66,192        1,056     period Cash and cash equivalents at end of               $ 48,328       $ 1,225     period  Contact:  Forest Oil Corporation Larry C. Busnardo, 303-812-1441 VP – Investor Relations  
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