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Forest Oil Announces Second Quarter 2011 Results

Stocks in this article: FSTLPR

Exploration and Development Capital Expenditures

Forest Remainco invested $193 million in exploration and development activities (excluding capitalized interest, capitalized stock-based compensation, asset retirement obligations incurred, and acquisitions) for the three months ended June 30, 2011, compared to $135 million in the corresponding 2010 period. The increase in exploration and development capital expenditures for the three months ended June 30, 2011, was a result of increased liquids-focused drilling in 2011 compared to the corresponding 2010 period.

Leasehold Acquisitions

Forest Remainco invested $52 million and $106 million in leasehold acquisitions for the three and six months ended June 30, 2011, respectively, compared to $19 million and $57 million in the corresponding 2010 periods, respectively. The increase in leasehold acquisition spending is a result of Forest Remainco’s strategic decision to focus development efforts in prospective liquids areas. The addition of 137,500 gross acres (125,000 net) in the Eagle Ford Shale, the Wolfcamp Shale, the Texas Panhandle, and other prospective liquids areas during the six months ended June 30, 2011, bolsters Forest Remainco’s inventory of potential liquids drilling locations.

NATURAL GAS, NATURAL GAS LIQUIDS, AND OIL DERIVATIVES

As of August 1, 2011, Forest Remainco had natural gas, natural gas liquids, and oil derivatives in place for the remainder of 2011 and for 2012 covering the aggregate average daily volumes and with the weighted average prices shown below. The NYMEX derivatives in place provide price protection on an estimated 64% and 54% of the midpoint of guidance for the last six months of 2011 natural gas and liquids net sales volumes, respectively.

               

Remainder2011

                2012
Natural gas swaps:
Contract volumes (Bbtu/d) 150.0 105.0
Weighted average price (per MMBtu) $ 5.48 $ 5.30
 
Natural gas liquids swaps:
Contract volumes (MBbls/d) 5.0 2.0
Weighted average price (per Bbl) $ 38.15 $ 45.22
 
Oil swaps:
Contract volumes (MBbls/d) 1.0 -
Weighted average price (per Bbl) $ 85.00 $ -
 
Oil collars:
Contract volumes (MBbls/d) 3.0 -
Weighted average ceiling price (per Bbl) $ 90.20 $ -
Weighted average floor price (per Bbl) $ 75.00 $ -
 

In connection with several natural gas derivatives detailed in the table above, Forest Remainco granted option instruments to counterparties in exchange for receiving premium hedged prices on natural gas swaps. The table below sets forth the outstanding options as of August 1, 2011:

             

Remainder2011

                2012                 2013
Natural gas swaptions:
Contract volumes (Bbtu/d) - 50.0 -
Weighted average price (per MMBtu) $ - $ 5.28 $ -
 
Oil swaptions:
Contract volumes (MBbls/d) - 3.0 2.0
Weighted average price (per Bbl) $ - $ 90.00 $ 120.00
 
Oil call options:
Contract volumes (MBbls/d) 1.0 - -
Weighted average price (per Bbl) $ 90.00 $ - $ -
 

PRO FORMA

The following unaudited statements of operations present a) the operating results of Forest Remainco, giving pro forma effect to the spin-off of Lone Pine at the beginning of each reported period, and b) the consolidated total Company operating results including Lone Pine, each for the three months ended June 30, 2011 and 2010.

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