"Forest Oil Corporation to Merge With Forcenergy Inc"
A North American Natural Gas Company With Significant Exposure to High-impact Exploration Opportunities
Monday July 10, 3:01 am Eastern Time
Company Press Release
DENVER--(BUSINESS WIRE)--July 10, 2000--Forest Oil Corporation (Forest) (NYSE:FST - news) and Forcenergy Inc (Forcenergy) (Nasdaq:FORC - news) jointly announced today a merger that creates one of the ten largest independent exploration and production companies in the U.S.
The combined company, which will be called Forest Oil Corporation and will be headquartered in Denver, Colorado, provides its shareholders with an attractive balance of production and high impact exploration both domestically and internationally. The merger is expected to be treated as a tax-free reorganization and to be accounted for as a pooling of interests. The proposed merger is expected to be immediately accretive on a per-share basis to cash flow, production and reserves.
Under the agreement, which was unanimously approved by each company's board of directors, Forcenergy common shareholders will receive 1.6 Forest common shares for each Forcenergy common share they own. Forest will also exchange its common stock for Forcenergy's outstanding preferred stock. After closing, Forest shareholders will hold approximately 56 percent of the combined company and Forcenergy shareholders approximately 44 percent. Forest expects to effect a 2 to 1 reverse split concurrently with the completion of the merger.
The pro forma company will initially have approximately 48 million shares outstanding with a market capitalization over $1.5 billion, based on Forest's closing price of $16.00 per share on July 7, 2000. Based on this closing price, the transaction has an implied value to Forcenergy's common shareholders of $25.60 per share, representing a 21 percent premium to Forcenergy's closing price of $21.19 per common share on July 7, 2000. Shareholders representing approximately 67 percent of Forcenergy and approximately 37 percent of Forest have agreed to vote their shares in favor of the merger. The transaction is subject to approval by shareholders of both companies and to customary regulatory approval.
Robert S. Boswell will continue in his role as Chairman and Chief Executive Officer of Forest. Richard G. (Gus) Zepernick, Jr. is to be named President and Chief Operating Officer of Forest. Two members of Forcenergy's Board of Directors, Forrest E. Hoglund and Stephen A. Kaplan, will join the Forest board for a total of 12 directors.
Robert S. Boswell comments, ``This combination meets Forest's criteria of strategic fit. It places the Company in one of North America's highest potential frontier exploration areas in Alaska with an established platform for expansion. It significantly increases the Company's position in the Gulf of Mexico where Forest has historically achieved its highest rates of return and it will enable the Company to capture additional opportunities as well as cost savings.
The increased cash flow from the combination will enable the Company to better fund its growing portfolio of high impact exploration and development opportunities. We are obviously quite enthused about the potential value that will be created for our shareholders by the transaction. We are also quite pleased to welcome the new Forcenergy employees to the Company and in particular, Gus Zepernick, who will join the new Forest as President and Chief Operating Officer from his position of Chief Executive Officer at Forcenergy after a distinguished career at Ocean Energy, Inc.``
Gus Zepernick stated, ``The combined companies will have a much stronger balance sheet that will allow us to exploit a large inventory of lower risk exploitation and high impact exploration projects. The stronger prospect inventory, balance sheet and technical talent will enable the combined companies to deliver consistent shareholder return.''
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SUMMARY TRANSACTION TERMS
Exchange Ratio: 1.6 Forest shares for each
Forcenergy common share
Accounting Structure: Pooling of interests / Full cost
Tax Structure: Tax free merger
Capitalization: Book debt/cap ratio estimated at 51%
Company Name: Forest Oil Corporation
Headquarters: Denver, Colorado
Board of Directors: 10 Forest, 2 Forcenergy
Target Closing Date: October 2000
FOREST OIL CORPORATION
PRELIMINARY PRO-FORMA INFORMATION
(UNAUDITED)
Pro Forma
First Quarter Results 1Q 00 1Q 00
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Net Daily Production (MMCFE) 220 490
Cash Margin ($mm)
(oil and gas revenue
less production expenses) 44.8 100.0
Cash Flow ($mm) 33.0 80.9
EBITDA ($mm) 42.2 94.3
Weighted Average Shares
Outstanding (millions) 26.8(a) 47.4(a)
(a)Adjusted for proposed 2:1 reverse split
The pro forma data shown above are based on preliminary estimates
and are unaudited.
Pro forma for the quarter ended March 31, 2000; production was
split as follows:
Gulf Offshore 50%
Gulf Coast Onshore 13%
Western 15%
Canada 12%
Alaska 10%
OPERATIONS
Pro Forma
12/31/99 12/31/99 %
Proved Reserves (BCFE):
Gulf Coast Offshore 112 409 29
Gulf Coast Onshore 221 281 20
Western 189 353 25
Alaska -0- 169 12
Canada 196 196 14
Total 718 1,408 100
Reserve Life Index (years) 8.1 7.2
Gas / Liquids Ratio (%) 73%/27% 59%/41%
Exploration -- The merger combines exploration projects for both companies now underway in some of the highest impact areas of North America and the world. Forest brings the significant potential of the Northwest Territories of Canada, the Beaufort Sea, its offshore South Africa project and other international projects with significant reserve potential. Forcenergy contributes its significant Cook Inlet potential in Alaska. The increased cash flow and financial strength provided by the merger will enable the new Forest to aggressively execute its large portfolio of exploration projects on an accelerated timetable.
Development -- The new Forest has identified a broad portfolio of projects. Forcenergy's significant asset base in the Gulf of Mexico provides a portfolio of properties which were under-exploited due to Forcenergy's financial difficulties in 1998 and 1999. The company plans to aggressively pursue continued drilling in the Gulf of Mexico where the new Forest is now one of the largest operators on the shelf. Development in the Canadian Foothills and on the Liard Plateau in the Northwest Territories is planned to be increased. In addition, significant growth opportunities have been identified in existing onshore fields, where in-fill and step-out drilling, state-of-the-art technologies in reservoir drilling, completion and production can be used to extend field limits, increase production and recover more reserves.
FINANCIAL STRENGTH
Earnings and Cash Flow -- The proposed merger is expected to be immediately accretive on a per share basis to cash flow, production and reserves. If the companies had been combined for 1999, cash flow would have been about $234 million. For 2000, assuming production of 465 - 500 mmcfe/d, historical expense rates, NYMEX prices of $3.25 and $25.00 for natural gas and oil, respectively, and taking into account the hedged position of both companies, cash flow on a pro forma basis is forecasted to increase further to a range of approximately $300 - $325 million with EBITDA approaching a range of $350 - $375 million.
Balance Sheet -- The new Forest will have a stronger balance sheet than either company had individually. This increased financial strength and critical mass should give the new Forest a lower cost of capital and a better ability to fund its drilling and development projects primarily in North America. On a pro-forma consolidated basis as of March 31, 2000, the combined companies would have had a total book capitalization of about $1.25 billion, including approximately $600 million of equity. The book debt-to-total capitalization ratio would have been approximately 51 percent.
ADVISORS
Salomon Smith Barney Inc. served as the advisor to Forest Oil for this transaction. In addition, Chase Securities Inc. provided a fairness opinion on the transaction. Advisors to Forcenergy were the firms of Petrie Parkman & Co. and Lehman Brothers Inc.
TELECONFERENCE CALL
Forest Oil Corporation and Forcenergy Inc management will hold a teleconference call Monday, July 10, 2000 at 11:00 a.m. Eastern Daylight Time (EDT) to review the proposed transaction. If you would like to participate, please call toll-free by dialing 1-888/781-5307 (for U.S.) and 1-706/634-0611, reference Forest Oil Corporation.
A replay of the teleconference call will be available Monday afternoon, July 10, 2000. The replay can be accessed by dialing toll-free 1-800/642-1687 (for U.S.) and 1-706/645-9291 (for International), reservation No. 338843.
In addition, you may log on to the Forest Oil website at www.forestoil.com to view the presentation live through Webcast by clicking Investor Relations button.
INVESTOR NOTICES
This press release includes ``forward-looking statements'' as defined by the Securities and Exchange Commission. Such statements are those concerning the companies' merger and strategic plans, expectations and objectives for future operations. All statements included in this press release that address activities, events or developments that the companies expect, believe or anticipate will or may occur in the future are forward-looking statements. This includes completion of the proposed merger, reserve estimates, production, cash flow and EBITDA estimates, future financial performance, future equity issuance and other matters. These statements are based on certain assumptions made by the companies based on their experience and perception of historical trends, current conditions, expected future developments and other factors they believe are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the companies. Statements regarding future production are subject to all of the risks and uncertainties normally incident to the exploration for and development and production of oil and gas. These risks include, but are not limited to, inflation or lack of availability of goods and services, environmental risks, drilling risks and regulatory changes. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.
Investors and security holders are advised to read the joint proxy statement/prospectus that will be included in the Registration Statement on Form S-4 to be filed with the SEC in connection with the proposed merger. Forest and Forcenergy will file the joint proxy statement/prospectus with the SEC. Investors and security holders may obtain a free copy of the joint proxy statement/prospectus (when available) and other documents filed by Forest and Forcenergy with the SEC at the SEC's web site at www.sec.gov. The joint proxy statement/prospectus and such other documents (relating to Forest) may also be obtained for free from Forest by directing such request to: Forest Oil Corporation, 1600 Broadway, Suite 2200, Denver, Colorado 80202, Attention: Donald H. Stevens, Vice President and Treasurer; telephone: 303/812-1400; e-mail: InvestorRelations@ForestOil.com. The joint proxy statement/prospectus and such other documents (relating to Forcenergy) may also be obtained for free from Forcenergy by directing such request to: Forcenergy Inc, 3838 North Causeway, Lakeway Three, Suite 2300, Metairie, Louisiana, 70002; Attn: Tom Getten, Vice President and General Counsel; telephone: 504/846-4300.
Forest, its directors, executive officers and certain members of management and employees may be considered ``participants in the solicitation'' of proxies from Forest's shareholders in connection with the merger. Information regarding such persons and a description of their interests in the merger will be contained in the Registration Statement on Form S-4 when it is filed.
Forcenergy, its directors, executive officers and certain members of management and employees may be considered ``participants in the solicitation'' of proxies from Forcenergy's shareholders in connection with the merger. Information regarding such persons and a description of their interests in the merger will be contained in the Registration Statement on Form S-4 when it is filed.
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Contact:
Forest Oil Corporation
Donald H. Stevens, 303/812-1500
or
Forcenergy Inc
Richard G. Zepernick, Jr., 504/846-4300
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