Forest Oil Corporation (FST)

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Forest Oil (FST)

Q4 2011 Earnings Call

February 22, 2012 2:00 pm ET

Executives

Patrick J. Redmond - Vice President of Corporate Planning and Investor Relations

Michael N. Kennedy - Chief Financial Officer and Executive Vice President

John C. Ridens - Chief Operating Officer and Executive Vice President

H. Craig Clark - Chief Executive Officer, President, Director and Member of Executive Committee

Analysts

Daniel Braziller

Pearce W. Hammond - Simmons & Company International, Research Division

Gil Yang - BofA Merrill Lynch, Research Division

Michael A. Hall - Robert W. Baird & Co. Incorporated, Research Division

Biju Z. Perincheril - Jefferies & Company, Inc., Research Division

John P. Herrlin - Societe Generale Cross Asset Research

Andrew Coleman - Raymond James & Associates, Inc., Research Division

Joseph Patrick Magner - Macquarie Research

Jeffrey W. Robertson - Barclays Capital, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Forest Oil Corporation Earnings Conference Call. My name is Derek, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now like to turn the conference over to Mr. Patrick Redmond, Vice President, Corporate Planning and Investor Relations. You may proceed.

Patrick J. Redmond

Thank you, and good afternoon. I want to thank you for participating in our fourth quarter and year-end 2011 earnings conference call. I will note that the replay of this conference call will be available through March 7, as discussed and described in our press release issued yesterday.

We have joining us today, Craig Clark, President and CEO; Michael Kennedy, Executive Vice President and CFO; and J.C. Ridens, Executive Vice President and COO.

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 comparable financial measure calculated in accordance with GAAP, are available on our website and can be viewed by clicking the Investor Relations tab, then Non-GAAP at www.forestoil.com.

In addition, I'd like to caution you about our forward-looking statements. All statements other than statements of historical facts that address activities and outcomes that Forest expects, assumes, plans, believes, budgets, forecasts, projects, estimates, anticipates, et cetera about what will, should or may occur in the future are forward-looking statements. Please carefully review our cautionary language regarding forward-looking statements that is contained at the end of our press release.

I will now turn the call over to Michael Kennedy. Thank you.

Michael N. Kennedy

Thanks, Pat, and thanks to everyone joining us today. Let me first begin by saying that our remarks today relate only to the retained operations of Forest and exclude the operations of Lone Pine from the current and historical periods. We have accounted for Lone Pine during the year as discontinued ops in our financial statements. We also provided our results excluding Lone Pine from Q4 in comparable periods in this press release.

Fourth quarter 2011 production organically increased 6% to $342 million per day from the third quarter and fell within the upper end of our guidance range. Notably, the organic growth was mainly attributable to liquids production as we were able to increase liquids for the fourth quarter to approximately 17.3000 barrels a day, which is a sequential increase of 20% or over 2,800 barrels per day compared to the third quarter. We are able to achieve our goal of exiting 2011 with a production mix comprised of 30% liquids.

Adjusted net earnings came in at $20 million or $0.18 per share, with adjusted EBITDA of $139 million and adjusted cash flow of $104 million. Differentials for natural gas were $0.36 per Mcfe, and oil maintained a positive differential this quarter at $3.56 per barrel.

NGL pricing was approximately 43% of NYMEX. NGL pricing has softened recently due to the depressed FA price environment we are currently experiencing. However, our assumption of NGL pricing has generally been around 40% to 45% of WTI, so we're not surprised by the current pricing environment.

Production expense for the quarter came in at $1.29 per Mcfe due to additional water disposal cost associated with the oil development in the Texas Panhandle and the Eagle Ford Shale. We intend to address the incremental cost by drilling new water disposal wells in the early part of 2012.

Cash G&A cost remained in line at $12 million for the quarter, and total cash cost for the fourth quarter came in flat from the third quarter. Fourth quarter DD&A increased to $2.05 per Mcfe as a result of higher finding and development costs associated with our oil and liquid-focused projects.

Our E&D capital expenditures remained essentially flat in the fourth quarter to $178 million compared to Q3. For the year, we had E&D capital expenditures of $683 million with significant science capital to assist in the development of the Eagle Ford and Wolfcamp Shale plays, and those will not be replicated in 2012.

We invested $22 million in the fourth quarter and $205 million for the year on leasehold acquisitions of approximately 196,000 net acres in the Permian Basin, Eagle Ford Shale, Texas Panhandle and other prospective liquids areas. The significant amount of acreage we acquired in 2011 for $100,000 and $0.50 -- and $50 per acre bolsters our inventory of potential liquids drilling prospects and provides us with the portfolio to be successful in diverse commodity price environments. We don't anticipate any further material undeveloped leasehold acquisitions going forward in 2012.

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