Forest Oil Announces Second Quarter 2008 Results Including Record Adjusted Earnings,...

Forest Oil Announces Second Quarter 2008 Results Including Record Adjusted Earnings, EBITDA and Discretionary Cash Flow

Net sales volumes increased 31% from 2007 and 6% sequentially to
505 MMcfe/d

Adjusted net earnings per share increased 130% from 2007 to $1.54
per share

Adjusted EBITDA increased 101% from 2007 to $377 million

Adjusted discretionary cash flow increased 118% from 2007 to $344
million

Total cash costs per-unit decreased 17% from 2007 to $2.47 per
Mcfe

Production expense per-unit decreased 19% from 2007 to $1.46 per
Mcfe
DENVER--(Business Wire)--
Forest Oil Corporation (NYSE:FST) (Forest or the Company) today
announced financial and operational results for the second quarter of
2008. For the quarter ended June 30, 2008, the Company reported the
following highlights:

-- Record adjusted net earnings of $135.1 million, up 191% over
$46.5 million in 2007, on revenues of $515.2 million

-- Record adjusted EBITDA of $377.2 million, up 101% over $187.5
million in 2007

-- Record adjusted discretionary cash flow of $344.1 million, up
118% over $157.9 million in 2007

-- Closed the acquisition of producing assets in Forest's
Ark-La-Tex Focus Area for approximately $281 million

H. Craig Clark, President and CEO, stated, "As we had previously
announced, the second quarter of 2008 was the first quarter of the
Company's increased capital spending in our Focus Areas. This
quarter's 6% sequential growth rate (4% organic) is the first data
point on our stated goal to increase our annualized 2008 organic
production growth rate to about 15% by increasing our capital
spending. The sequential increase in production and flat cash costs of
$2.47 per Mcfe, once again demonstrates Forest has proven itself as a
highly successful and disciplined operator even in times of high
commodity prices. We expect to continue to see the trend of solid
production growth while controlling cash costs throughout the
remainder of the year. I am also pleased that we are on schedule in
our exploration efforts and in testing our significant shale acreage."

SECOND QUARTER 2008 RESULTS

For the three months ended June 30, 2008, Forest reported a net
loss of $68.0 million or $(.78) per basic share. This loss compares to
Forest's net earnings of $76.8 million or $1.11 per basic share in the
corresponding period in 2007. The net loss for the three months ended
June 30, 2008 was affected by the following item:

-- The non-cash effect of net unrealized losses relating to
recording derivative instruments and investments at fair value
and to foreign currency exchange, totaling $319.5 million
($203.1 million net of tax)

Without the effect of this item, Forest's adjusted net earnings
were a record $135.1 million or $1.54 per basic share. This is an
increase of 191% over Forest's adjusted net earnings of $46.5 million
or $.67 per basic share in the corresponding 2007 period.

Forest's adjusted EBITDA increased 101% for the three months ended
June 30, 2008 to a record $377.2 million compared to adjusted EBITDA
of $187.5 million in the corresponding 2007 period. Forest's adjusted
discretionary cash flow increased 118% for the three months ended June
30, 2008 to a record $344.1 million compared to adjusted discretionary
cash flow of $157.9 million in the corresponding 2007 period.

The significant increase in adjusted net earnings, adjusted EBITDA
and adjusted discretionary cash flow was primarily due to increased
net sales volumes from successful drilling activity and acquisitions,
including the acquisition of The Houston Exploration Company (Houston
Exploration) in June 2007. Also contributing to the significant
increase was higher per-unit price realizations and lower per-unit
cash costs.

-0-
*T
Net Sales Volumes, Revenues, and Average Sales Price
----------------------------------------------------------------------

Three Months Ended June 30, 2008
-------------------------------------------
Gas Oil NGLs Total
(MMcf/d) (MBbls/d) (MBbls/d) (MMcfe/d)
---------- ---------- ---------- ----------

Net sales volumes
United States 310.6 10.4 8.2 422.1
Canada 64.1 2.3 0.8 82.6
---------- ---------- ---------- ----------
Totals 374.7 12.7 9.0 504.7

Revenues (in thousands)
United States $276,064 115,750 42,024 433,838
Canada 53,005 23,168 5,067 81,240
---------- ---------- ---------- ----------
Totals $329,069 138,918 47,091 515,078

Average sales price
United States $9.77 122.62 56.18 11.29
Canada 9.08 110.85 71.37 10.81
---------- ---------- ---------- ----------
Totals $9.65 120.48 57.50 11.21
*T

For the three months ended June 30, 2008, Forest's average oil and
gas net sales volumes were 505 MMcfe/d, representing a 31% increase
over 385 MMcfe/d in the corresponding 2007 period. The volumes were
higher for the three months ended June 30, 2008 due to Forest's
drilling and acquisition activities.

Forest's price differential to NYMEX for natural gas was $1.28 per
Mcf for the three months ended June 30, 2008 compared to $1.24 per Mcf
in the corresponding 2007 period. Realized price for natural gas was
$9.65 per Mcf for the three months ended June 30, 2008 compared to
$6.31 per Mcf in the corresponding 2007 period.

Forest's price differential to NYMEX for oil and condensate was
$3.50 per Bbl for the three months ended June 30, 2008 compared to
$5.02 per Bbl in the corresponding 2007 period. Realized price for oil
and condensate was $120.48 per Bbl for the three months ended June 30,
2008 compared to $60.00 per Bbl in the corresponding 2007 period.

Forest's realized price for natural gas liquids was $57.50 per
Bbl, or 46% of NYMEX oil prices, for the three months ended June 30,
2008 compared to $35.78 per Bbl, or 55% of NYMEX oil prices, in the
corresponding 2007 period. The decrease in the average natural gas
liquids price as a percentage of NYMEX was the result of relative
weakness in the ethane market for the three months ended June 30,
2008.

Total Cash Costs

Total cash costs per-unit decreased 17% for the three months ended
June 30, 2008 to $2.47 per Mcfe compared to $2.99 per Mcfe in the
corresponding 2007 period. The reduction is a result of Forest's
improved asset mix and successful cost control initiatives.

Forest's oil and gas production expense per-unit decreased 19% for
the three months ended June 30, 2008 to $1.46 per Mcfe from $1.80 per
Mcfe in the corresponding 2007 period. The improved results were due
to the addition of the natural gas oriented Houston Exploration
assets, the divestiture of the high operating cost Alaska assets and
successful cost control initiatives. The improvements were partially
offset by higher production taxes as a result of higher commodity
prices.

Forest's general and administrative expense per-unit, excluding
stock-based compensation expense, increased slightly for the three
months ended June 30, 2008 to $.31 per Mcfe compared to $.30 per Mcfe
in the corresponding 2007 period.

Forest's interest expense decreased 4% for the three months ended
June 30, 2008 to $28.0 million, or $.61 per Mcfe, compared to $29.1
million, or $.83 per Mcfe, in the corresponding 2007 period due to
higher interest capitalization in 2008 offset by increased average
debt levels.

Depreciation and Depletion Expense

Forest's depreciation and depletion expense per-unit increased 12%
for the three months ended June 30, 2008 to $2.76 per Mcfe compared to
$2.46 per Mcfe in the corresponding 2007 period. The increase was
primarily due to the Houston Exploration acquisition.

Capital Expenditures

Forest invested $294.3 million in exploration and development
activities (excluding capitalized interest, equity compensation and
asset retirement obligations) and $292.0 million in acquisition
activities for the three months ended June 30, 2008.

OPERATIONAL PROJECT UPDATE

FOCUS AREAS

The Focus Area assets (Greater Buffalo Wallow Area, Ark-La-Tex,
South Texas and the Alberta Deep Basin) constituted 68% of Forest's
net sales volumes and 63% of capital expenditures for the three months
ended June 30, 2008. These assets are primarily large tight-gas sand
development projects in North America. Forest employed 31 rigs in
these areas during the second quarter of 2008 compared to 27 rigs in
the first quarter of 2008. Current plans are to increase rigs employed
in the Focus Areas to 37 by the end of 2008. Net sales volumes from
these assets were up 10% sequentially to 342 MMcfe/d in the second
quarter of 2008 compared to 310 MMcfe/d in the first quarter of 2008.

NEW FRONTIER PROGRAM

Utica Shale (60 - 100% WI) - In accordance with the previously
announced schedule, Forest commenced drilling a three to four well
horizontal test program in July of 2008. As all the wells will be
drilled consecutively then fracture stimulated consecutively, results
are expected to be available in the fourth quarter of 2008. Initial
indications from the 2007 summer vertical drilling program indicated
that the shale could be effectively fracture stimulated. As previously
announced, if the 2008 horizontal drilling program is successful,
Forest intends to undertake a pilot program in 2009 with full scale
development expected to begin in 2010.

Haynesville/Bossier Shale (52 - 100% WI) - During the quarter,
Forest increased its acreage position in East Texas/North Louisiana by
92% to approximately 143,000 gross acres (113,000 net acres) through
acquisitions and leasing activity. Forest believes that it has
approximately 116,000 gross acres (91,000 net acres) prospective for
the Haynesville/Bossier Shale trend in the current area of heightened
activity in East Texas/North Louisiana. Forest has commenced its
vertical pilot program for 2008 which includes 10 - 15 wells to test
the Haynesville/Bossier Shale in order to identify potential
horizontal targets. The Company then plans to follow up with a
combined vertical and horizontal program to optimize the economics in
the play. Within this plan, Forest intends to commence a three well
Haynesville/Bossier Shale horizontal program in the fourth quarter of
2008 based on its pilot program results.

PROPERTY DIVESTITURES

The Company has identified the properties to be included in its
previously announced sale package and is currently marketing the
properties. The assets, located primarily in the Permian Basin and the
Rockies, are anticipated to sell for $300 million to $500 million.
Forest anticipates closing the sale of these properties by the end of
the third quarter of 2008. For the six months ended June 30, 2008,
Forest has sold approximately $53 million of low growth, primarily
non-operated assets with combined net production of approximately 4
MMcfe/d.

UPDATED 2008 GUIDANCE

The guidance below represents Forest's updated guidance for 2008
based on the previously announced expected capital expenditures of
$1.15 billion to $1.25 billion and the effects of property
dispositions that have already occurred. Except as indicated below,
all other guidance detailed in Forest's press releases dated February
21, 2008 and May 2, 2008 has not changed.

Oil and Gas Net Sales Volumes: As a result of Forest's sale of 4
MMcfe/d of producing properties, Forest expects total net sales
volumes of 188 - 192 Bcfe in 2008. Forest estimates its net sales
volumes will average 525 to 535 MMcfe/d in the third quarter of 2008
and 540 to 555 MMcfe/d in the fourth quarter of 2008. Forest will
reassess 2008 oil and gas net sales volumes guidance upon the
divestiture of its sale package in the Permian Basin and the Rockies.

Price Differentials: Based on current prices, Forest expects the
natural gas price differential for the remainder of 2008 will average
$1.50 to $1.75 per MMbtu less than the NYMEX Henry Hub price.

Based on current prices, Forest expects the oil and condensate
differential for the remainder of 2008 will average $4.00 to $6.00 per
Bbl less than the NYMEX West Texas Intermediate (WTI) price.

Based on current prices, Forest expects the realized price for
natural gas liquids for the remainder of 2008 will average 45% of the
NYMEX WTI price.

The foregoing guidance is subject to all of the cautionary
statements and limitations described in Forest's press release dated
February 21, 2008 and below, under the headline "Forward-Looking
Statements."

NON-GAAP FINANCIAL MEASURES

In addition to net income determined in accordance with generally
accepted accounting principles (GAAP), Forest has provided net
earnings adjusted for certain items, a non-GAAP financial measure,
which facilitates comparisons to earnings forecasts prepared by stock
analysts and other third parties. Such forecasts generally exclude the
effects of items that are difficult to predict or to measure in
advance and are not directly related to Forest's ongoing operations. A
reconciliation between GAAP net earnings and net earnings adjusted for
certain items is provided in the paragraphs on page two of this
release in which the non-GAAP measure is presented. Net earnings
excluding the effects of certain items should not be considered a
substitute for net earnings as reported in accordance with GAAP.

In addition to reporting net earnings as defined under GAAP,
Forest also presents adjusted EBITDA, which consists of net earnings
(loss) plus income tax (benefit) expense; unrealized losses (gains) on
derivative instruments, net; unrealized foreign currency exchange
gains; unrealized losses on other investments, net; realized foreign
currency exchange gains; interest expense; accretion of asset
retirement obligations; depreciation and depletion; and stock-based
compensation. Further, Forest presents adjusted discretionary cash
flow, which consists of adjusted EBITDA minus interest expense;
current income tax expense; and other non-cash items. Management uses
adjusted EBITDA and adjusted discretionary cash flow as measures of
operational performance. Adjusted EBITDA and adjusted discretionary
cash flow should not be considered as alternatives to net earnings as
reported under GAAP. The following is a reconciliation of net earnings
(loss) to adjusted EBITDA to adjusted discretionary cash flow (in
thousands):

-0-
*T
Three Months Ended
June 30,
----------------------
2008 2007
---------- ----------

Net earnings (loss) $(68,018) 76,799
Income tax (benefit) expense (36,140) 34,081
Unrealized losses (gains) on derivative
instruments, net 319,640 (34,813)
Unrealized foreign currency exchange gains (460) (6,271)
Unrealized losses on other investments, net 276 -
Realized foreign currency exchange gains - (1,734)
Interest expense 27,979 29,103
Accretion of asset retirement obligations 1,967 1,292
Depreciation and depletion 126,584 86,126
Stock-based compensation 5,416 2,925
---------- ----------
Adjusted EBITDA 377,244 187,508

Interest expense (27,979) (29,103)
Current income tax expense (4,000) (2,217)
Other non-cash items (1,128) 1,680
---------- ----------
Adjusted discretionary cash flow $344,137 157,868
========== ==========
*T

Total Cash Costs

Total cash costs is a non-GAAP measure calculated in accordance
with oil and gas industry standards that is used by management to
assess the cash operating performance. Total cash costs is defined as
all cash operating costs, including production expense; general and
administrative expense (excluding stock-based compensation); interest
expense; and current income tax expense.

-0-
*T
Three Months Ended June 30,
-----------------------------------
2008 Per Mcfe 2007 Per Mcfe
-------- -------- -------- --------
(In thousands, except per-unit
amounts)

Production expense $67,202 1.46 63,093 1.80
General and administrative expense
(excluding stock-based
compensation of $5,416 and
$2,925, respectively) 14,416 0.31 10,482 0.30
Interest expense 27,979 0.61 29,103 0.83
Current income tax expense 4,000 0.09 2,217 0.06
-------- -------- -------- --------
Total cash costs $113,597 2.47 104,895 2.99
======== ======== ======== ========
*T

TELECONFERENCE CALL

A conference call is scheduled for Wednesday, August 6, 2008, at
12:00 P.M. MT to discuss the release. You may access the call by
dialing toll free 800-399-6298 (for U.S./Canada) and 706-634-0924 (for
International) and request the Forest Oil teleconference (ID #
57179626). A Q&A period will follow.

A replay will be available from Wednesday, August 6 through August
13, 2008. You may access the replay by dialing toll free 800-642-1687
(for U.S./Canada) and 706-645-9291 (for International), conference ID
# 57179626.

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, 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 its future natural
gas and liquids production, revenues and expenses and other
forward-looking statements are subject to all of the risks and
uncertainties normally incident to the exploration for and development
and production and sale of oil and gas.

These risks include, but are not limited to, price volatility,
inflation or lack of availability of goods and services, environmental
risks, drilling and other operating risks, regulatory changes, the
uncertainty inherent in estimating future oil and gas production or
reserves, and other risks as described in reports that Forest files
with the Securities and Exchange Commission (SEC), including its 2007
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and
Current Reports on Form 8-K. Also, the financial results of Forest's
foreign operations are subject to currency exchange rate risks. Any of
these factors could cause Forest's actual results and plans to differ
materially from those in the forward-looking statements.

Forest Oil Corporation is engaged in the acquisition, exploration,
development, and production of natural gas and liquids in North
America and selected international locations. Forest's principal
reserves and producing properties are located in the United States in
Arkansas, Colorado, Louisiana, New Mexico, Oklahoma, Texas, Utah, and
Wyoming, and in Canada. 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.

-0-
*T
FOREST OIL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)

June 30, December 31,
2008 2007
------------ ------------
ASSETS (In thousands)

Current assets:
Cash and cash equivalents $10,811 9,685
Accounts receivable 273,270 201,617
Derivative instruments 2,391 30,006
Other investments 29,001 34,694
Deferred income taxes 135,399 23,854
Other current assets 80,747 61,518
------------ ------------
Total current assets 531,619 361,374

Net property and equipment 5,587,241 5,025,815

Goodwill 265,798 265,618
Other assets 44,831 42,741
------------ ------------
$6,429,489 5,695,548
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $409,680 361,089
Accrued interest 7,908 7,693
Derivative instruments 375,064 72,675
Asset retirement obligations 2,555 2,562
Current portion of long-term debt - 266,002
Other current liabilities 33,865 28,361
------------ ------------
Total current liabilities 829,072 738,382

Long-term debt 1,997,605 1,503,035
Asset retirement obligations 91,738 87,943
Derivative instruments 152,132 38,171
Deferred income taxes 950,432 853,427
Other liabilities 64,253 62,779
------------ ------------
Total liabilities 4,085,232 3,283,737

Shareholders' equity:
Common stock 8,977 8,838
Capital surplus 1,992,640 1,966,569
Retained earnings 224,280 306,062
Accumulated other comprehensive income 118,360 130,342
------------ ------------
Total shareholders' equity 2,344,257 2,411,811
------------ ------------
$6,429,489 5,695,548
============ ============
*T

-0-
*T
FOREST OIL CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)

Three Months Ended
June 30,
---------------------
2008 2007
---------- ----------
(In thousands, except
per share amounts)

Revenues $515,182 254,669

Operating expenses:
Lease operating expenses 38,413 45,027
Production and property taxes 24,148 12,808
Transportation and processing costs 4,641 5,258
General and administrative (including stock-
based compensation of $5,416 and $2,925,
respectively) 19,832 13,407
Depreciation and depletion 126,584 86,126
Accretion of asset retirement obligations 1,967 1,292
---------- ----------
Total operating expenses 215,585 163,918
---------- ----------
Earnings from operations 299,597 90,751

Other income and expense:
Interest expense 27,979 29,103
Unrealized losses (gains) on derivative
instruments, net 319,640 (34,813)
Realized losses (gains) on derivative
instruments, net 58,182 (9,270)
Other income, net (2,046) (5,149)
---------- ----------
Total other income and expense 403,755 (20,129)
---------- ----------

Earnings (loss) before income taxes (104,158) 110,880
Income tax (benefit) expense:
Current 4,000 2,217
Deferred (40,140) 31,864
---------- ----------
Total income tax (benefit) expense (36,140) 34,081
---------- ----------

Net earnings (loss) $(68,018) 76,799
========== ==========

Weighted average number of common shares
outstanding:
Basic 87,717 69,247
========== ==========
Diluted 87,717 70,827
========== ==========

Basic earnings per common share $(0.78) 1.11
========== ==========

Diluted earnings per common share $(0.78) 1.08
========== ==========
*T

-0-
*T
FOREST OIL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Three Months Ended
June 30,
---------------------
2008 2007
---------- ----------
(In thousands)
Cash flows from operating activities:
Net earnings (loss) $(68,018) 76,799
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and depletion 126,584 86,126
Accretion of asset retirement obligations 1,967 1,292
Unrealized losses (gains) on derivative
instruments, net 319,640 (34,813)
Unrealized losses on other investments, net 276 -
Unrealized foreign currency exchange gains (460) (6,271)
Realized foreign currency exchange gains - (1,734)
Deferred income tax (benefit) expense (40,140) 31,864
Stock-based compensation 5,416 2,925
Other, net (1,128) 1,680

Changes in operating assets and liabilities,
net of effects of acquisitions and
divestitures:
Accounts receivable (49,027) 42,149
Other current assets (16,007) 15,288
Accounts payable 35,174 20,645
Accrued interest and other current
liabilities (31,081) (17,117)
---------- ----------
Net cash provided by operating activities 283,196 218,833

Cash flows from investing activities:
Capital expenditures (537,294) (980,486)
Proceeds from sales of assets 51,901 36,952
Other, net 1,031 -
---------- ----------
Net cash used by investing activities (484,362) (943,534)

Cash flows from financing activities:
Proceeds from bank borrowings, net of
repayments 209,293 273,939
Proceeds from issuance of 7 1/4% senior notes,
net of issuance costs 247,188 739,176
Redemption of 8% senior notes (265,000) -
Repurchases of 7% senior subordinated notes (2,960) -
Repayments of bank debt assumed in acquisition - (176,885)
Repayment of term loans - (110,625)
Proceeds from the exercise of options and from
employee stock purchase plan 10,117 6,059
Other, net 11,358 (10,175)
---------- ----------
Net cash provided by financing activities 209,996 721,489

Effect of exchange rate changes on cash 62 1,856
---------- ----------

Net increase (decrease) in cash and cash
equivalents 8,892 (1,356)
Cash and cash equivalents at beginning of
period 1,919 17,086
---------- ----------
Cash and cash equivalents at end of period $10,811 15,730
========== ==========
*T

Forest Oil Corporation
Patrick J. Redmond, 303-812-1441
Director - Investor Relations

Copyright Business Wire 2008