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Forest Oil Profits Up 32%; Spin Off with Mariner Nearly Complete

Denver-based Forest Oil Corp., which is repositioning its portfolio to focus its oil and natural gas operations onshore, Thursday reported profits were up 32% in 4Q2005 to $57.2 million (90 cents/share) from $43.6 million (72 cents) a year earlier. For the year, Forest reported net earnings of $151.6 million ($2.47/share), a 24% increase from $122.6 million ($2.15) in 4Q2004.

Last September, Forest spun off its extensive offshore Gulf of Mexico operations -- about 21% of its reserves -- and merged those offshore assets with a subsidiary of Mariner Energy Inc. in a stock-for-stock transaction (see Daily GPI, Sept. 13, 2005). After the spin-off and merger is completed in early March, Mariner will be a separately traded public company that will own and operate the combined businesses of Mariner's and Forest's Gulf operations. Forest's remaining onshore operations will be operated by subsidiary Remainco.

"[Last year] was a pivotal year for Forest as we were able to complete the repositioning of our portfolio, while arranging a substantial dividend to our shareholders," said CEO H. Craig Clark. "Our transaction with Mariner Energy, in addition to our recent onshore acquisitions, creates two attractive portfolios for our shareholders."

The independent replaced 281% of its remaining onshore assets last year at an all-in finding, development and acquisition cost of $2.16/Mcfe. Its East Texas Cotton Valley acquisition, announced earlier this week (see Daily GPI, Feb. 14), "essentially replaces reserves for 2006 and provides another growth area with both near-term and future impact," Clark noted.

In 4Q2005, Forest's sales volumes dropped 23% from a year earlier to 386.4 MMcfe/d. Impacts from last year's hurricanes deferred 10 Bcfe (109 MMcfe/d), of which .7 Bcfe (8 MMcfe/d) related to Forest's onshore assets in Remainco. Remainco's production volumes averaged 282.7 MMcfe/d in 4Q2005, an increase of 7% from 4Q2004.

For the year ended Dec. 31, 2005, Forest's sales volumes were 452.7 MMcfe/d, off 4%, with storm-related downtime reducing volumes by 16 Bcfe (44 MMcfe/d) for all of 2005. Remainco production volumes averaged 272.4 MMcfe/d in 2005, an increase of 9% from 2004.

At year-end 2005, about 70 MMcfe/d of Gulf net production remained shut-in by Katrina and Rita. As of mid-February 45 MMcfe/d remained shut-in, mostly because of repairs still necessary to platforms. as well as third-party transportation and processing facilities and infrastructure.

"The timetable for restoring full production is uncertain as it is dependent on repairs to third party facilities," the company said in a written statement. Total production associated with the Gulf operations deferred for Katrina and Rita during 4Q2005 was 9.3 Bcfe; total production deferred in the final two quarters of 2005 was 14.9 Bcfe.

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