Forcenergy to merge with Forest Oil

No changes expected in Alaska -- for now

Posted: Tuesday, July 11, 2000

It is too early to tell how Forcenergy Inc.'s proposed merger with a Denver firm will affect its Alaska development plans, managers said Monday.

"This thing was just put together last night," said Gary Carlson, vice president for Alaska operations with Miami-based Forcenergy. "I'm not sure how senior management will set priorities between our assets in Alaska and our assets elsewhere. In the short term, though, I don't think there will be any changes."

Forcenergy announced plans Monday to merge with Denver-based Forest Oil Corp. The boards of both companies have approved the merger, which still requires approval from shareholders. Managers hope to close the deal by October. The new company, to be called Forest Oil Corp., will be based in Denver.

"The resulting company will have a strong balance sheet and high cash flow to fund its exploration and development opportunities without increasing debt," said Robert S. Boswell, who will remain chairman and chief executive of Forest Oil.

David Keyte, Forest Oil executive vice president and chief financial officer, said the combined companies will have a cash flow of $300 million to $325 million.

Boswell said Forest Oil proposed the merger after Forcenergy's reorganization last winter after Chapter 11 bankruptcy proceedings. He said Forest Oil managers sought a merger that would produce significant synergies, and they were familiar with Forcenergy positions in the Gulf of Mexico and Alaska.

Boswell said he expects the merger with Forcenergy to produce annual savings of roughly $10 million per year, of which about $6 million would come from administration and $4 million from operations. Carlson said he assumes most of the savings would come from the Gulf of Mexico, where both companies have large operations.

Boswell said the far north holds some of the greatest potential in North America for new natural gas finds. The new company will have significant positions in Canada and Alaska.

"Long-term, the company believes there will be a pipeline built to commercialize those reserves," he said.

Richard G. Zepernick Jr., Forcenergy chief executive, said the merger would put Forcenergy in a much more stable financial position and broaden its development prospects significantly.

"It's a combination that makes a lot of sense for Forcenergy as well as for Forest Oil," he said.

Forcenergy's new Cook Inlet platform should bring a significant boost in production, as it would under the old Forcenergy, he said.

"Except that in this case, we've diversified the asset base," he said. "The risk is more acceptable, and we are able to weather any type of down cycle in commodity prices much more efficiently than we would as a stand-alone company."

Forcenergy's reorganization plan gave unsecured creditors stock amounting to a 96 percent interest in the company. Forcen-ergy also repaid part of its $320 million debt to a consortium of banks and refinanced the rest.

David Brenza, director of financial planning and analysis, said Forcenergy now has a $70 million long-term loan and has borrowed $168 million against its present $320 million line of credit from the consortium.

Forcenergy's major properties are in the Gulf of Mexico and Cook Inlet. It also is exploring in Australia and off Gabon, Africa. Last month, it installed the $35 million Osprey Platform on Redoubt Shoal in upper Cook Inlet, which managers hope will produce up to 25,000 barrels of oil and 4.3 million cubic feet of natural gas per day.

Forcenergy's present net in Cook Inlet includes about 1,700 barrels per day from the West McArthur Field, which it operates, and about 6,300 barrels per day from the McArthur River and Trading Bay fields, which Unocal operates.

Forest Oil's principal properties are in the Gulf of Mexico, Texas, Oklahoma, Wyoming and in Alberta and Northwest Territories, Canada. It is exploring in Switzerland, Albania and South Africa.

In 1999, Forest Oil produced 61.7 billion cubic feet of natural gas, 3.2 million barrels of oil and 1.2 million barrels of natural gas liquids. It reported 1999 revenues of $93.4 million and net earnings of $19 million. As of Dec. 31, 1999, it reported current liabilities of $86.1 million and long-term debts of $371.7 million.

Brenza said he expects the companies' debts to be refinanced under a new line of credit to be arranged before the merger. Boswell said that will be a $600 million credit facility, from which the new company would initially borrow $500 million.

Under the merger agreement, Forcenergy common shareholders will receive 1.6 common Forest shares for each share of Forcenergy stock. Forest also will exchange its common stock for Forcenergy's outstanding preferred stock.

After closing, Forest Oil shareholders will hold roughly 56 percent of the new company, and Forcenergy shareholders will hold about 44 percent. Forest Oil expects to effect a two-to-one reverse split concurrent with the merger.

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