Presentation on theme: "IPAA Mid-Year Meeting June 14, 2006 “Tales from the Road” – Forest Oil’s Perspective."— Presentation transcript:
IPAA Mid-Year Meeting June 14, 2006 “Tales from the Road” – Forest Oil’s Perspective
2 TODAY’S TOPICS So what’s changed in our industry? U.S. & Worldwide? What challenges do we face? What are investors thinking? How Forest Oil has changed
3 SO WHAT’S CHANGED IN OUR INDUSTRY? U.S. companies are market “takers” Global margins – prices and inflation don’t respect borders Margins in line with other industries but cyclical Acquisitions are alternatives to drilling Industry far better at completion techniques (moving down rock “food chain”) Conventional resource search moved to International Industry has come “full circle” – break up of big oil back to consolidation Oil prices have greater impact on public than on people working in extraction Corporate mergers have left us with no presence in big cities (NYC, Chicago) Less influence in Washington
4 State Owned Companies% of World Oil ReservesPublic Companies% of World Oil Reserves Saudi Aramco20.3Exxon Mobil0.9 Iran NIOC10.2BP0.8 Iraq INOC8.9Chevron0.8 Kuwait KPC6.9 Subtotal2.5% Venezuela Pd VSA6.0 UAE Adnoc4.1 Libya NOC2.2 Nigeria NNPC1.6 Russia Gazprom1.5 Russia Lukoil1.2 Mexico Pemex1.1 China PetroChina0.9 Algeria Sonatrach0.8 Qatar OP0.8 Brazil Petrobras0.8 Russia Rosneft0.7 Subtotal68% Source: Reuters, EIA WHO’S IN CONTROL?
5 WORLDWIDE PETROLEUM SUPPLY – INCREASING RISK PROFILE “Prospect short” industry willing to take more risk Africa surpassed Middle East in 2005 as largest crude supplier to U.S. Tight supply/demand makes supply interruptions more newsworthy Highest concentration of U.S. production is most vulnerable – GOM Internal and external conflicts exist in some major suppliers OPEC and others are focused on revenue not production Higher Risk Lower Risk 2005 Top 125 projects Source: Wall Street Journal, Goldman Sachs
6 WHAT’S HAPPENING WITH THE U.S. GOVERNMENT Believes majors not looking for oil and gas More focused on revenue and compensation than supply Less concerned about demand (vehicle fuel economy) Highly focused on oil and gasoline prices Question incentives Debates concentrated on ANWR and MTBE Retail price components @$60 WTI Source – Morgan Stanley
7 SO WHY THE ATTACK? 37.6 million in U.S. will travel Worldwide demand is up Texas going to 80 MPH Heavy airline travel Economics improving U.S. GDP + 4.9% Asia GDP + 8.2% India GDP + 9.3% Capital Goods7.2% Restaurants8.3% Disney8.9% Basic Materials8.7% Conglomerates9.6% McDonalds12.0% Energy13.2% Technology15.0% Software21.6% Pfizer23.5% Microsoft31.6% Margin Comparison (last 12 mos.) Source: Reuters/USA Today
8 WHERE ARE INVESTORS FOCUSED? Current Environment Commodity price strip reflected in assets not stocks MLP/Private offerings have higher valuations Industry is hungry for growth, undeveloped acreage, & prospects Industry is moving down “food chain” for rocks & plays Oil returns > gas returns Investors Comments Worried about gas prices, how we will react? Looking for undervalued stocks or next re-entry point to sector What’s the next CBM/Barnett shale play (story stock)? Ignore technical complexity of upside Somewhat concerned about geo-political risk (Latin America) Want visible and identified production growth Favor long R/P, but not considering PUDs What is the sum of the parts worth?
9 HOW FOREST OIL HAS CHANGED New Leadership at all levels Transition from GOM to N.A. onshore Frontier exploration to balanced spending Drilled 131 net wells vs. 38 net wells three years ago $1.3 B in acquisitions to create balanced portfolio Rationalized to 3 International areas, significantly reduced commitments and political risk 5.6 MM net acres now within focus areas R/P increased to 11.2, PUD % lower Free cash flow from all units, debt/cap lowered Reduced cash cost structure Established 12 growth plays, “Big 3” drive 3-5 years alone Maintained favorable tax position despite transactions
10 FOREST OIL’S PRODUCING ASSETS 100% of December 31, 2005 proved reserves located in North America Replaced 281% of production with a FD&A cost of $2.16 in 2005 Organically replaced 154% of production Organic F&D cost of $2.35 in 2005 12/31/05 Reserves ( Bcfe ) 2006 Est. Production ( MMcfe/d ) 12/31/05 Net Acreage ( M ) R/P ALASKA 123 36 1,230 9.4 CANADA 171 88 735 5.3 12/31/05 Reserves ( Bcfe ) 2006 Est. Production ( MMcfe/d ) 12/31/05 Net Acreage ( M ) R/P WESTERN 681 135 255 13.8 12/31/05 Reserves ( Bcfe ) 2006 Est. Production ( MMcfe/d ) 12/31/05 Net Acreage ( M ) R/P SOUTHERN 296 51 208 15.7 12/31/05 Reserves ( Bcfe )* 2006 Est. Production ( MMcfe/d )* 12/31/05 Net Acreage ( M )* R/P* TOTAL 1,271 72 310 5,623 11.2 12/31/05 Reserves ( Bcfe )* Proved Developed % Reserves * 2006 Est. Production ( MMcfe/d ) 12/31/05 Net Acreage ( M )* R/P * * Pro Forma for the Cotton Valley acquisition Acquisitions 2006 Exploitation 2006 Exploration OPERATIONS OVERVIEW
11 4-POINT STRATEGY 1. Grow organically - 14% production growth in 2006 (10% organic) - 12 growth drivers identified - Exploit “new” portfolio and resource plays to add locations 2. Identify attractive acquisition opportunities - Tax-efficient acquirer ( $700 MM NOLs and tax pools ) with excellent track record - Target prospect rich assets supported by land and drillsites 3. Reduce costs - Remain vigilant in cost control in all areas - Offset anticipated service costs increases 4. Preserve financial flexibility - Strong free cash flow generator - Remain in targeted Net Debt / Book Cap range of 30% - 40% OPERATIONS OVERVIEW
12 Unocal224.0661381.62252,00093,000 New Permian112.9251091.0432,0005,000 Wiser Oil 330.0641911.73388,000288,000 Buffalo Wallow235.0251201.9633,00011,000 Cotton Valley255.0131102.3226,00014,000 Others129.1271231.05100,00045,000 TOTAL1,286.02207911.63831,000456,000 PurchaseInitial Price*ProductionReserves$ Amount Per Net Undeveloped ( $MM )( MMcfe / d )( Bcfe ) ( Mcfe / Res.) Acreage Acreage Acquisition Total F&D cost of $1.63 on 791 Bcfe of reserves without allocation Production per Mcfe/d acquired at $5,845 with R/P of 10 years Primarily proved developed reserves, FST retained upside TARGETED ACQUISITION PROGRAM ACQUISITIONS OVERVIEW * Purchase Price includes original unadjusted cash consideration and debt assumed in connection with the acquisition, and is not equal to the purchase price recorded in purchase accounting
13 NEW PERMIAN, WISER, MINIHAN & BUFFALO WALLOW Tex-Mex (New Permian)Wild River (Wiser) Martin (Minihan)Buffalo Wallow ACQUISITIONS OVERVIEW Jan 04 AprJulOctJan 05 Jan 06 MarAprJulOct 2500 5000 7500 10000 ( Net Mcfe/d )( Net MMcfe/d ) ( Net Mcfe/d )( Net MMcfe/d ) “Up and to the Right” 2000 2500 3000 4500 5000 3500 4000 Nov 04 Jan 05 MarMayJulMarSepNovJan 06
14 2006 GROWTH AREAS - “ROOM TO RUN” OPERATIONS OVERVIEW The “Big Three” Buffalo Wallow Area Wild River Cotton Valley The “Up and Comers” Greater Vermejo/Haley Ansell Onshore Alaska Gas Katy Foothills The “Rock Steadies” Evi / Slave Point Oil Central Permian Oil San Juan Rockies The “Flyers” International New Ventures (CBM & Shale) Susitna Basin WesternCanadaSouthern Alaska
15 VISIBLE PROSPECT INVENTORY Greater Buffalo Wallow Area ( Texas Panhandle ) Wild River Cotton Valley ( E. Texas Cotton Valley Acquisition ) Greater Haley / Vermejo Area Ansell Onshore Alaska Gas Katy Foothills Evi / Slave Point Oil Permian Oil San Juan Rockies TOTAL INCREMENTAL NET UNRISKED POTENTIAL (Bcfe)* KEY GROWTH PLATFORMS UPSIDE PROJECT INVENTORY OPERATIONS OVERVIEW 341 103 246 25 9 47 21 37 55 176 241 110 1,411 209 64 158 93 6 243 74 41 24 225 5 154 1,296 * Does not include proved reserves 14
16 CAPITAL PROGRAM BY FIELD ( $M ) Capex Project Count Capital by Field 2006 PLAN
17 REMAINCO PRODUCTION PROFILE – “WE’VE BEEN GROWING ALREADY” ( MMcfe/d ) 212 250 272 310* 14% CAGR AlaskaWesternCanadaSouthern July 31, 2003: Implementation of initial “4-Point” Game Plan (focused on balancing the portfolio) * Mid-point of guidance 2006 PLAN
18 OFFSET INDUSTRY COST CREEP Production ExpenseGeneral and Administrative Expense * Interest Expense / Cash TaxesTotal Cash Costs $1.79 / Mcfe $0.33 / Mcfe $0.55 / Mcfe $0.62 / Mcfe $1.83 / Mcfe $0.42 / Mcfe $2.77 / Mcfe $2.69 / Mcfe $1.69 / Mcfe $0.34 / Mcfe $0.56 / Mcfe $2.65 / Mcfe Keeping cash costs flat in a rising price environment 2006 PLAN $1.64 / Mcfe $0.35 / Mcfe $0.57 / Mcfe $2.56 / Mcfe * Does not include equity based compensation
19 FOREST OIL ASSET SUMMARY “A Dozen Growth Areas” - 3 significant near-term growth drivers - 5 up and comers on deck for medium term growth - 4 rock steady development fields Additional Assets - Lantern Drilling allows cost efficient program execution - Tax attributes allow tax leveraged acquisition structures - 3 Flyers aren’t valued in the stock - Cook Inlet Pipeline permits us to capture significant portion of the cost stream Strategy - Free cash flow provides acquisition capital - Acquisitions supplement drilling program for additional growth OPERATIONS OVERVIEW
20 SIGNIFICANT SHAREHOLDER VALUE $719 $1,101 $1,831 $1,021* 30% CAGR $1.3 Billion in Acquisitions $235 $330 $113 $224 1 2 3 4 5 $1,820 $3,885 July 31, 2003 June 8, 2006 $129 $255 6 $1,033** Market Value of Equity Net Principal Debt Special Dividend DealProv.Reserve DateTransactionValueValue ( $MM )( $/Mcfe ) Total Acquisition Summary 3 Wiser Oil Company Jun 30, 04 3301.73 4 New Permian Dec 31, 03 1131.04 1,2861.63 5 Unocal Assets Nov 1, 03 2241.62 Other 1291.05 6 1 Apr 1, 06 Cotton Valley 2552.32 2 Buffalo Wallow 2351.96 Apr 1, 05 * Net debt at 3/31/06 ** Value of Mariner shares distributed in transaction with FST not including debt, hedges or ARO FOREST OIL
21 CAUTIONARY STATEMENTS The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use the terms “probable” and “possible” reserves, reserve “potential” or “upside” or other descriptions of volumes of reserves potentially recoverable through additional drilling or recovery techniques that the SEC’s guidelines strictly prohibit Forest from including in filings with the SEC. These estimates are by their nature more speculative than estimates of proved reserves and accordingly are subject to substantially greater risk of being actually realized by us. Investors are urged to consider closely the disclosure in Forest’s Form 10-K for fiscal year ended December 31, 2005, available from Forest at 707 17th Street, Suite 3600, Denver, CO 80202, Attention: Investor Relations. You can also obtain this form from the SEC by calling 1-800-SEC-0330. This presentation 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 presentation 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 Forest's 2005 Annual Report on Form 10-K as filed with the Securities and Exchange Commission. 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. This presentation includes “net debt”, which is a non-GAAP financial measure. Please go to our website, www.forestoil.com, for a reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures.