FOREST OIL CORPORATION INTRODUCTION TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Exhibit 99.1
FOREST OIL CORPORATION
INTRODUCTION TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On November 25, 2009, Forest Oil Corporation and its wholly-owned subsidiary, Forest Oil Permian Corporation, entered into an Agreement for Purchase and Sale of Assets (the “Agreement”) with ▇▇▇▇▇▇▇▇▇ Exploration and Production, LLC (“▇▇▇▇▇▇▇▇▇”), a wholly-owned subsidiary of ▇▇▇▇▇▇▇▇▇ Energy, Inc. Pursuant to the Agreement, ▇▇▇▇▇▇▇▇▇ purchased from Forest Oil Corporation and Forest Oil Permian Corporation oil and gas properties located in the states of Texas and New Mexico (the “Oil and Gas Assets”), and various other related interests, rights, receivables, ▇▇▇▇▇, leasehold interests, records, fixtures, equipment, and other assets (together with the Oil and Gas Assets, the “Assets”). The effective date of the purchase and sale of the Assets is November 1, 2009 and the transaction closed on December 21, 2009. The purchase price for the Assets was $800 million, which is subject to customary post-closing adjustments which, when complete, are estimated to yield a final sales price of approximately $795 million.
The following unaudited pro forma condensed consolidated financial statements and explanatory notes present how the financial statements of Forest Oil Corporation and its subsidiaries (“Forest”) may have appeared had the sale of the Assets occurred as of September 30, 2009 (with respect to the balance sheet information) or as of January 1, 2008 (with respect to statements of operations information).
The unaudited pro forma condensed consolidated financial statements have been derived from and should be read together with the historical consolidated financial statements and the related notes of Forest included in its Annual Report on Form 10-K for the year ended December 31, 2008 and its Quarterly Report filed on Form 10-Q for the quarter ended September 30, 2009.
The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and do not purport to represent what the results of operations or financial position of Forest would actually have been had the transaction described above occurred on the dates noted above, or to project the results of operations or financial position of Forest for any future periods. The pro forma adjustments are based on available information and certain assumptions that management believes are reasonable. The pro forma adjustments are directly attributable to the transaction and are expected to have a continuing impact on the results of operations of Forest. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma financial information have been made.
FOREST OIL CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2009
|
|
|
Historical |
|
Pro Forma |
|
Pro Forma |
|
|
|
|
(In Thousands) |
|
||||
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
5,153 |
|
178,052 |
(a) |
183,205 |
|
|
Accounts receivable |
|
95,537 |
|
— |
|
95,537 |
|
|
Derivative instruments |
|
76,744 |
|
— |
|
76,744 |
|
|
Inventory |
|
68,567 |
|
(8,602 |
)(b) |
59,965 |
|
|
Other current assets |
|
56,000 |
|
— |
|
56,000 |
|
|
Total current assets |
|
302,001 |
|
169,450 |
|
471,451 |
|
|
Property and equipment, at cost: |
|
|
|
|
|
|
|
|
Oil and gas properties, full cost method of accounting: |
|
|
|
|
|
|
|
|
Proved, net of accumulated depletion |
|
2,097,696 |
|
(775,923 |
)(c) |
1,321,773 |
|
|
Unproved |
|
843,243 |
|
(11,602 |
)(c) |
831,641 |
|
|
Net oil and gas properties |
|
2,940,939 |
|
(787,525 |
) |
2,153,414 |
|
|
Other property and equipment, net of accumulated depreciation and amortization |
|
117,022 |
|
(313 |
)(d) |
116,709 |
|
|
Net property and equipment |
|
3,057,961 |
|
(787,838 |
) |
2,270,123 |
|
|
Deferred income taxes |
|
293,704 |
|
67,791 |
(e) |
359,662 |
|
|
|
|
|
|
(1,833 |
)(f) |
|
|
|
Goodwill |
|
255,604 |
|
— |
|
255,604 |
|
|
Derivative instruments |
|
2,782 |
|
— |
|
2,782 |
|
|
Other assets |
|
47,383 |
|
(57 |
)(g) |
46,396 |
|
|
|
|
|
|
(930 |
)(h) |
|
|
|
|
|
3,959,435 |
|
(553,417 |
) |
3,406,018 |
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
193,785 |
|
— |
|
193,785 |
|
|
Income taxes payable |
|
— |
|
67,791 |
(e) |
67,791 |
|
|
Accrued interest |
|
39,872 |
|
(5,151 |
)(i) |
34,721 |
|
|
Derivative instruments |
|
30,589 |
|
— |
|
30,589 |
|
|
Deferred income taxes |
|
12,404 |
|
— |
|
12,404 |
|
|
Asset retirement obligations |
|
3,456 |
|
(387 |
)(j) |
3,069 |
|
|
Other current liabilities |
|
22,943 |
|
— |
|
22,943 |
|
|
Total current liabilities |
|
303,049 |
|
62,253 |
|
365,302 |
|
|
Long-term debt |
|
2,475,413 |
|
(610,497 |
)(k) |
1,864,916 |
|
|
Asset retirement obligations |
|
95,696 |
|
(8,207 |
)(j) |
87,489 |
|
|
Derivative instruments |
|
11,148 |
|
— |
|
11,148 |
|
|
Other liabilities |
|
68,541 |
|
(204 |
)(h) |
68,337 |
|
|
Total liabilities |
|
2,953,847 |
|
(556,655 |
) |
2,397,192 |
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, none issued and outstanding |
|
— |
|
— |
|
— |
|
|
Common stock |
|
11,228 |
|
— |
|
11,228 |
|
|
Capital surplus |
|
2,630,769 |
|
— |
|
2,630,769 |
|
|
Accumulated deficit |
|
(1,697,614 |
) |
3,238 |
(f) |
(1,694,376 |
) |
|
Accumulated other comprehensive income |
|
61,205 |
|
— |
|
61,205 |
|
|
Total shareholders’ equity |
|
1,005,588 |
|
3,238 |
|
1,008,826 |
|
|
|
|
3,959,435 |
|
(553,417 |
) |
3,406,018 |
|
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
FOREST OIL CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
|
|
|
Historical |
|
Pro Forma |
|
Pro |
|
|
|
|
(In Thousands, Except Per Share Amounts) |
|
||||
|
Revenues: |
|
|
|
|
|
|
|
|
Oil and gas sales |
|
553,473 |
|
(64,351 |
)(l) |
489,122 |
|
|
Interest and other |
|
602 |
|
— |
|
602 |
|
|
Total revenues |
|
554,075 |
|
(64,351 |
) |
489,724 |
|
|
Costs, expenses, and other: |
|
|
|
|
|
|
|
|
Lease operating expenses |
|
114,205 |
|
(15,367 |
)(l) |
98,838 |
|
|
Production and property taxes |
|
34,359 |
|
(4,820 |
)(l) |
29,539 |
|
|
Transportation and processing costs |
|
15,918 |
|
(582 |
)(l) |
15,336 |
|
|
General and administrative |
|
49,050 |
|
— |
|
49,050 |
|
|
Depreciation, depletion, and amortization |
|
237,964 |
|
(20,323 |
)(m) |
217,641 |
|
|
Accretion of asset retirement obligations |
|
6,195 |
|
(452 |
)(n) |
5,743 |
|
|
Ceiling test write-down of oil and gas properties |
|
1,575,843 |
|
(36,928 |
)(o) |
1,538,915 |
|
|
Interest expense |
|
122,373 |
|
(15,788 |
)(p) |
106,585 |
|
|
Realized and unrealized gains on derivative instruments, net |
|
(112,212 |
) |
— |
|
(112,212 |
) |
|
Other, net |
|
(1,098 |
) |
— |
|
(1,098 |
) |
|
Total costs, expenses, and other |
|
2,042,597 |
|
(94,260 |
) |
1,948,337 |
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
(1,488,522 |
) |
29,909 |
|
(1,458,613 |
) |
|
Income tax |
|
(520,201 |
) |
10,812 |
(q) |
(509,389 |
) |
|
Net loss |
|
(968,321 |
) |
19,097 |
|
(949,224 |
) |
|
|
|
|
|
|
|
|
|
|
Basic loss per common share |
|
(9.46 |
) |
|
|
(9.27 |
) |
|
Diluted loss per common share |
|
(9.46 |
) |
|
|
(9.27 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
102,366 |
|
|
|
102,366 |
|
|
Diluted |
|
102,366 |
|
|
|
102,366 |
|
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
FOREST OIL CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2008
|
|
|
Historical |
|
Pro Forma |
|
Pro |
|
|
|
|
(In Thousands, Except Per Share Amounts) |
|
||||
|
Revenues: |
|
|
|
|
|
|
|
|
Oil and gas sales |
|
1,647,171 |
|
(192,020 |
)(l) |
1,455,151 |
|
|
Interest and other |
|
3,589 |
|
— |
|
3,589 |
|
|
Total revenues |
|
1,650,760 |
|
(192,020 |
) |
1,458,740 |
|
|
Costs, expenses, and other: |
|
|
|
|
|
|
|
|
Lease operating expenses |
|
167,830 |
|
(24,633 |
)(l) |
143,197 |
|
|
Production and property taxes |
|
82,147 |
|
(12,994 |
)(l) |
69,153 |
|
|
Transportation and processing costs |
|
19,472 |
|
(855 |
)(l) |
18,617 |
|
|
General and administrative |
|
74,732 |
|
— |
|
74,732 |
|
|
Depreciation, depletion, and amortization |
|
532,181 |
|
(47,322 |
)(m) |
484,859 |
|
|
Accretion of asset retirement obligations |
|
7,602 |
|
(624 |
)(n) |
6,978 |
|
|
Ceiling test write-down of oil and gas properties |
|
2,369,055 |
|
(304,892 |
)(o) |
2,064,163 |
|
|
Interest expense |
|
125,679 |
|
(31,264 |
)(p) |
94,415 |
|
|
Realized and unrealized gains on derivative instruments, net |
|
(165,529 |
) |
— |
|
(165,529 |
) |
|
Gain on sale of assets |
|
(21,063 |
) |
— |
|
(21,063 |
) |
|
Other, net |
|
59,655 |
|
— |
|
59,655 |
|
|
Total costs, expenses, and other |
|
3,251,761 |
|
(422,584 |
) |
2,829,177 |
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
(1,601,001 |
) |
230,564 |
|
(1,370,437 |
) |
|
Income tax |
|
(574,678 |
) |
83,303 |
(q) |
(491,375 |
) |
|
Net loss |
|
(1,026,323 |
) |
147,261 |
|
(879,062 |
) |
|
|
|
|
|
|
|
|
|
|
Basic loss per common share |
|
(11.46 |
) |
|
|
(9.81 |
) |
|
Diluted loss per common share |
|
(11.46 |
) |
|
|
(9.81 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
89,591 |
|
|
|
89,591 |
|
|
Diluted |
|
89,591 |
|
|
|
89,591 |
|
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
FOREST OIL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and DECEMBER 31, 2008
Note 1 Basis of Presentation
The accompanying unaudited pro forma condensed consolidated financial statements and explanatory notes present how the financial statements of Forest may have appeared had the sale of certain oil and gas properties located in the states of Texas and New Mexico (the “Oil and Gas Assets”), and various other related interests, rights, receivables, ▇▇▇▇▇, leasehold interests, records, fixtures, equipment, and other assets (together with the Oil and Gas Assets, the “Assets”) occurred as of September 30, 2009 (with respect to the balance sheet information) or as of January 1, 2008 (with respect to statements of operations information). The transaction for which these pro forma financial statements are presented is explained in more detail in the introductory paragraph to the accompanying pro forma financial information.
Following are descriptions of certain columns included in the accompanying unaudited pro forma condensed consolidated financial statements:
Historical—Represents the historical condensed consolidated balance sheet of Forest as of September 30, 2009 and the historical condensed consolidated statements of operations of Forest for the nine months ended September 30, 2009 and the year ended December 31, 2008. Certain amounts in the historical condensed consolidated statement of operations for the year ended December 31, 2008 have been reclassified to conform to the 2009 financial statement presentation.
Pro Forma Adjustments—Represents the adjustments to the historical condensed consolidated financial statements necessary to arrive at the pro forma financial position of Forest as of September 30, 2009, as if the sale of the Assets occurred as of September 30, 2009, and the pro forma results of operations of Forest for the nine months ended September 30, 2009 and the year ended December 31, 2008, as if the sale of the Assets occurred as of January 1, 2008.
Note 2 Pro Forma Adjustments for the Sale of Assets
Condensed Consolidated Balance Sheet
(a) To record excess cash remaining after using a portion of the estimated final sales proceeds of $789 million, net of $6 million of transaction costs, to repay Forest’s indebtedness under its credit facilities ($453 million) and 7.75% senior notes due 2014 ($150 million) as well as the related accrued interest on both ($5 million) and the call premium associated with the 7.75% senior notes due 2014 ($2 million).
(b) To eliminate materials and supplies inventory included in the Assets.
(c) To record the sales proceeds attributable to Forest’s proved and unproved oil and gas properties in accordance with the full cost method of accounting.
(d) To eliminate other property and equipment included in the Assets.
(e) To reflect the current income tax liability generated as a result of the sale of the Assets.
(f) To record the income tax and retained earnings impact of the unamortized discount and debt issue costs ($1 million), unamortized deferred gain from the previous termination of interest rate swaps ($8 million), and call premium ($2 million), all of which would be charged, as a net credit, to income, in connection with the redemption of the 7.75% senior notes due 2014.
(g) To eliminate debt issue costs associated with Forest’s 7.75% senior notes due 2014 that were redeemed using a portion of the sales proceeds.
FOREST OIL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and DECEMBER 31, 2008
(h) To eliminate gas balancing receivables and payables included in the Assets.
(i) To eliminate the accrued interest associated with ▇▇▇▇▇▇’s indebtedness under its credit facilities and 7.75% senior notes due 2014 that were redeemed using a portion of the sales proceeds.
(j) To eliminate the asset retirement obligations associated with the Oil and Gas Assets.
(k) To eliminate the outstanding balances under Forest’s credit facilities ($453 million) and the carrying amount of Forest’s 7.75% senior notes due 2014 ($157 million), which were redeemed using a portion of the sales proceeds.
Condensed Consolidated Statements of Operations
(l) To eliminate the revenues and direct operating expenses associated with the Oil and Gas Assets.
(m) To adjust depletion to give effect to the reduction in Forest’s pro forma full cost pool, total estimated proved reserves, and production volumes as a result of the sale of the Oil and Gas Assets and to adjust depreciation to give effect to the reduction in other property and equipment included in the Assets.
(n) To eliminate accretion expense attributable to asset retirement obligations associated with the Oil and Gas Assets.
(o) To adjust the ceiling test write-down of oil and gas properties to give effect to the reduction in Forest’s pro forma future net revenues from estimated production of proved oil and gas properties, properties not being amortized, and capitalized costs used in the ceiling test calculation due to the sale of the Oil and Gas Assets.
(p) To adjust interest expense to give effect to the redemption of Forest’s indebtedness under its credit facilities and 7.75% senior notes due 2014.
(q) To adjust income tax expense for the effects of the pro forma adjustments at statutory rates.