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Forest Oil Announces Second Quarter 2011 Results

Without the effect of the Canadian dividend tax associated with the restructuring of Forest’s Canadian business immediately prior to the initial public offering of Lone Pine, Forest Remainco’s total cash costs for the three months ended June 30, 2011, decreased 1% to $87 million, compared to $88 million in the corresponding 2010 period. Total cash costs per-unit for the three months ended June 30, 2011, increased 14% to $2.85 per Mcfe, compared to $2.51 per Mcfe in the corresponding 2010 period. The increase in total cash costs per-unit was primarily the result of increased production expense due to higher-cost liquids volumes being a greater percentage of total net sales volumes and lower total net sales volumes.

The following table details the components of total cash costs for the three months ended June 30, 2011 and 2010:

            Forest Remainco
Three Months Ended June 30,
  2011               Per Mcfe                 2010               Per Mcfe
(In thousands, except per-unit amounts)
 
Production expense $ 39,553 $ 1.30 $ 37,612 $ 1.08
General and administrative expense (excluding stock-based compensation of $3,057 and $5,078, respectively) 10,096 0.33 10,677 0.31
Interest expense 36,516 1.20 35,332 1.01
Current income tax expense   29,443     0.97     4,008   0.11
Total cash costs $ 115,608   $ 3.80   $ 87,629 $ 2.51
 
Current income tax expense associated with Canadian dividend tax   (28,921 )   (0.95 )   -   -
Pro forma total cash costs $ 86,687   $ 2.85   $ 87,629 $ 2.51

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); interest expense; and current income tax expense.

Depreciation and Depletion Expense

Forest Remainco’s depreciation and depletion expense per-unit for the three months ended June 30, 2011, increased 30% to $1.72 per Mcfe, compared to $1.32 per Mcfe in the corresponding 2010 period. The increase in depreciation and depletion expense per-unit was primarily the result of higher finding and development costs associated with Forest Remainco’s liquids-focused capital expenditure program.

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