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Forest Oil (FST)

Q2 2013 Earnings Call

August 07, 2013 9:00 am ET


Larry C. Busnardo - Director of Investor Relations

Patrick R. McDonald - Chief Executive Officer, President, Director and Member of Executive Committee

Victor A. Wind - Chief Accounting Officer, Senior Vice President, Treasurer and Corporate Controller


Stephen P. Shepherd - Simmons & Company International, Research Division

Michael Hall

Dan McSpirit - BMO Capital Markets U.S.

Paul Grigel - Macquarie Research



Good day, ladies and gentlemen, and welcome to the Q2 2013 Forest Oil Corporation Earnings Conference Call. My name is Allison, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I'd now like to turn the call over to Mr. Larry Busnardo, Investor Relations Director. Please proceed, sir.

Larry C. Busnardo

Thank you, Allison, and good morning, everyone. I'd like to thank you for joining us this morning for Forest Oil's Second Quarter 2013 Earnings Conference Call. Joining me on the call today is Patrick McDonald, Forest President and Chief Executive Officer; Michael Kennedy, Executive Vice President and Chief Financial Officer; and Victor Wind, Senior Vice President, who we announced earlier this week would be taking over as Chief Financial Officer later this month.

If you have not already done so, please go to our website to obtain a copy of our earnings release. A replay of this call will be available through August 21, as described in our press release issued yesterday afternoon.

Before we begin, some of the presenters today will reference certain non-GAAP financial measures regularly used by Forest in measuring its financial performance. Reconciliations of such non-GAAP financial measures with the most comparable financial measure calculated in accordance with GAAP will be available on our website and can be viewed by clicking on the Investor Relations tab, then Non-GAAP at Forest's comments today will include 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.

These statements are subject to a number of risks and uncertainties that may cause the actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties are described in Forest's earnings release and Forest's public filings made with the Securities and Exchange Commission.

With that, I will now turn the call over to Pat McDonald.

Patrick R. McDonald

Thanks, Larry. Good morning, everyone. Thanks for joining. I'd like to recognize Victor's promotion to Chief Financial Officer. Victor has been closely involved and instrumental in the execution and strategy of our reorganization and go-forward plan. He's been a key member of our financial team. I'm pleased to have someone with his knowledge and experience serving as a CFO. We look forward to his continued leadership in the role. I'd like to thank Mike Kennedy for his many contributions to Forest Oil over the last 12 years. He'll be missed by all of us, and we wish him well in his future endeavors. I'll turn the call over to Victor now to go through the financial highlights for the quarter, and then I'll come back and talk a little bit about operations and the assets. Thanks.

Victor A. Wind

All right. Thanks, Pat. We made progress on multiple fronts during the second quarter. Earnings and cash flow came in better. The consensus estimates and our portfolio of production was in line with our expectations, including a meaningful growth in oil production. Capital spending for the quarter was in line with guidance, and we were able to reduce slightly our long-term debt.

Moving on to the specifics. With respect to second quarter production volumes, although consistent with last quarter on an equivalent basis at 211 MMcfe/d and quarter oil production of 6,600 barrels per day represented an increase of 14% on a sequential basis, a 23% increase compared to the second quarter of 2012. Each of these pro forma per asset sales.

Clearly, our transition to a more commodity balanced production profile is on track, with second quarter liquids production representing 41% of total equivalent net sales volumes compared to just 37% last quarter.

We would now like to spend a moment on our second quarter capital spending. Exploration and development capital for the second quarter was approximately $69 million. Total capital expenditures, which includes capitalized G&A and leasehold costs, were $74 million. It was in line with the midpoint of the range we gave last quarter of $70 million to $80 million. Despite increased drilling activity during the second quarter associated with our Eagle Ford Shale development program, our total CapEx of $74 million was approximately 45% lower than last quarter's CapEx of $131 million due to the benefit of our partner's carry. One last item to note on our capital expenditures, when comparing our actual CapEx of $74 million for the quarter to what's reflected on our cash flow statement of $102 million, please bear in mind, the cash flow statement number of $102 million represents the actual cash payment for a portion of the drilling and completion work done in the first quarter, not paid until the second quarter. This kind of disconnect is common when there is a significant sequential decrease in CapEx as we had from Q1 to Q2.

Regarding our long-term debt. Forest exited the second quarter with a total debt of $1.63 billion, which represented a $10 million decrease from last quarter. The ratio of total debt to trailing 12-month EBITDA, as defined by our credit facility, was 4.37x at June 30, which is up marginally from 4.34x last quarter.

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