Forest Oil Announces First Quarter 2014 Results

Forest Oil Corp. (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:

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:

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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):

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):

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):

(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):

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):

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 Corp. 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 Corp.
Larry C. Busnardo, 303-812-1441
VP – Investor Relations