Forest Oil Announces Further Operational Momentum in the Quarter

Forest Oil Corporation (NYSE: FST) announced financial and operational results for the first quarter 2006. For the quarter ended March 31, 2006, the Company reported the following highlights:
  • The distribution of Forest's offshore Gulf of Mexico operations and merger with a subsidiary of Mariner Energy, Inc.
  • Cotton Valley assets were acquired for $255 million on March 31
  • Remainco (Forest pro forma for the Mariner transaction) net production increased 1% sequentially to 285 MMcfe/d, despite being negatively impacted by a 123,000 Bbl (8 MMcfe/d effect) increase in Alaska oil inventory
  • Remainco discretionary cash flow of $104 million
  • Remainco adjusted EBITDA of $117 million

H. Craig Clark, President and CEO, stated, "The distribution of our Gulf of Mexico assets and merger with Mariner Energy completed an important phase in the repositioning of our portfolio to make Forest primarily an onshore North American company focused on assets with low-risk, multi-year, multi-rig drilling programs. Our onshore portfolio was further enhanced in the first quarter with the East Texas Cotton Valley acquisition which essentially replaces estimated production for 2006 and provides another growth asset with a multi-year, multi-rig drilling program. Our "Big Three" primary growth areas (Buffalo Wallow, Wild River, Cotton Valley) are performing well in addition to several other new growth areas, notably Greater Vermejo/Haley. Through the continued development of our high quality asset base, we are showing good progress on our organic growth goals."

SPIN-OFF

On February 10, 2006, Forest announced a special dividend, which consisted of approximately 50.6 million shares of Forest Energy Resources, Inc. (Spinco), representing 100% of the subsidiary that held Forest's offshore Gulf of Mexico operations. The special dividend was distributed to Forest shareholders of record as of February 21, 2006. Pursuant to the terms of the special dividend and the merger with Mariner Energy, Inc. (Mariner), each Forest shareholder of record on February 21, 2006 ultimately received .8093 shares of Mariner common stock. The transaction was non-taxable to Forest and its shareholders and closed on March 2, 2006. The value of the Mariner shares ultimately received by Forest's shareholders in connection with the special dividend was in excess of $1 billion based on the closing price of Mariner's stock on March 2, 2006.

Mariner is a separately traded public company that now owns and operates the combined businesses of Mariner and Forest's offshore Gulf of Mexico operations, and Mariner's common stock is traded on the New York Stock Exchange under the symbol "ME."

ACCOUNTING TREATMENT OF THE SPIN-OFF

On April 7, 2006, Forest wrote to the Office of the Chief Accountant of the U.S. Securities and Exchange Commission (Office of the Chief Accountant) requesting concurrence with Forest's accounting treatment of the spin-off transaction with Mariner, including the appropriate accounting adjustments to Forest's full cost pool. Forest sent follow-up correspondence to the Office of the Chief Accountant on April 27, 2006 and May 4, 2006. Forest and representatives of its independent auditor have also had teleconferences with the staff of the Office of the Chief Accountant. The Office of the Chief Accountant has not, however, reached a final decision regarding whether it concurs with Forest's accounting treatment of the effect of the transaction on the full cost pool and goodwill. The results described in this press release and in the attached financial statements reflect the treatment that Forest believes to be appropriate.

REMAINCO EARNINGS

The following discussion pertains only to Remainco activities for 2005 and 2006 and are non-GAAP measures. See "Non-GAAP Financial Measures" below for further information. For the quarter ended March 31, 2006, Forest estimates that Remainco had a net loss of $1.9 million or a $.03 loss per basic share. This amount compares to net earnings of $6.0 million or $.10 per basic share in the corresponding period in 2005. The net loss in the first quarter of 2006 was affected by the following items:

  • Unrealized losses on derivative instruments of $34.0 million ($20.8 million after-tax)
  • Stock-based compensation recorded in connection with the Mariner transaction of $5.9 million ($3.6 million after-tax)
  • Non-recurring spin-off and merger costs associated with the Mariner transaction in the amount of $5.4 million ($5.4 million after-tax)
  • Income from discontinued operations of $3.6 million ($2.4 million after-tax)

Without the effect of these items, Remainco's net earnings would have been $25.5 million, or $.41 per basic share.

This amount compares to net earnings of $9.7 million or $.16 per basic share in the corresponding 2005 period computed on a comparable basis excluding unrealized losses on derivative instruments of $6.0 million ($3.7 million after-tax).

DISCUSSION OF REMAINCO RESULTS

For the first quarter ended March 31, 2006, Remainco oil and gas sales volumes increased approximately 9% compared to the corresponding period in 2005. Due to inclement weather and tanker scheduling, the scheduled shipment of Forest's Alaska oil production at the end of March 2006 was delayed until April 2, 2006. The effect of this delay caused reported sales volumes to be lower than production volumes, by approximately 123,000 Bbls or 8 MMcfe/d for the three months ended March 31, 2006.

Remainco oil and gas sales increased 25% during the first quarter of 2006 to $172.8 million from $138.0 million. The increase was a result of increased oil and gas sales volumes and higher oil and gas prices but was partially offset by higher gas differentials. Remainco's differential to NYMEX prices for natural gas increased to $2.49 per Mcf in the first quarter 2006 as compared with $1.00 in the first quarter of 2005. The increase was the result of unseasonably warm weather in the producing regions of the Western U.S. coupled with supply and demand factors resulting from the increase in NYMEX gas prices.

Remainco lease operating expenses (LOE), which includes direct operating expense and overhead, and workovers, decreased 13% to $27.0 million for the quarter ended March 31, 2006 from $31.2 million for the corresponding period in 2005. On a per-unit basis, Remainco LOE decreased 20% to $1.06 per Mcfe in 2006 from $1.33 per Mcfe in 2005. The decrease is primarily attributable to cost reduction initiatives and a higher percentage of production from new gas properties which have lower operating costs.

Remainco production and property taxes increased to $10.6 million or 14% during the first quarter of 2006 compared to the prior year's first quarter. The increase was attributable to higher commodity prices in 2006 compared to the first quarter of 2005. As a percentage of oil and natural gas revenue, excluding hedging losses, production and property taxes for the three months ended March 31, 2006 for Remainco was 5.7% and in the comparable period of 2005 was 6.6%. The decreased rate was a result of severance tax relief on tight sand gas wells.

Remainco general and administrative expense increased 63% to $16.8 million for the quarter ended March 31, 2006 compared to $10.3 million for the corresponding period in 2005. The increase resulted primarily from additional stock-based compensation expense of $7.7 million offset by a non-cash $1.8 million reduction in estimated post-retiree medical benefit liability because of the Forest employees who left in connection with the Mariner transaction.

On a per-unit basis, the depreciation and depletion rate for Remainco was $2.08 per Mcfe for the quarter ended March 31, 2006 compared to $2.13 per Mcfe in the corresponding period in 2005. Depreciation and depletion expense increased 6% to $53.2 million for the quarter ended March 31, 2006 from $50.1 million for the corresponding period in 2005 due to increased production.

During the quarter, Remainco recorded merger related costs of $5.4 million, consisting primarily of professional service fees, associated with the Mariner transaction. Also during the quarter, Remainco received a $3.6 million contingent payment ($2.4 million after-tax) associated with the sale of its Canadian marketing subsidiary in March 2004, which was accounted for as income from discontinued operations.

Net debt increased to $1.02 billion during the quarter due primarily to $285 million of expenditures on three acquisitions in the quarter.

CERTAIN COMPARATIVE FINANCIAL AND OPERATING DATA

The following table sets forth Forest's production data for the three months ended March 31, 2006 and 2005 displayed for both Remainco and Spinco:

                                                   Three Months Ended
                                                        March 31,
                                                  --------------------
                                                      2006       2005
                                                  ---------  ---------
Daily natural gas sales volumes (MMcf):
U.S. Remainco                                        103.2       84.6
Canada                                                63.7       49.0
                                                  ---------  ---------
Total Remainco                                       166.9      133.6

Spinco                                                70.9      174.1
                                                  ---------  ---------
Total                                                237.8      307.7
                                                  =========  =========

Daily liquids sales volumes (MBbls):
U.S. Remainco                                         16.5       17.5
Canada                                                 3.2        3.7
                                                  ---------  ---------
Total Remainco                                        19.7       21.2

Spinco                                                 3.0       10.6
                                                  ---------  ---------
Total                                                 22.7       31.8
                                                  =========  =========

Equivalent daily sales volumes (MMcfe):
U.S. Remainco                                        202.2      189.6
Canada                                                82.9       71.2
                                                  ---------  ---------
Total Remainco                                       285.1      260.8

Spinco                                                88.9      237.7
                                                  ---------  ---------
Total                                                374.0      498.5
                                                  =========  =========

Average Sales Prices

The following table reflects sales price information for the three months ended March 31, 2006 and 2005 displayed for both Remainco and Spinco:

                         Remainco          Spinco       Total Company
                       --------------- --------------- ---------------
                         2006    2005    2006    2005    2006    2005
                       ------- ------- ------- ------- ------- -------
NATURAL GAS:
NYMEX (per MMbtu) (1) $  9.00    6.27    9.00    6.27    9.00    6.27
Sales price received
 (per Mcf)               6.51    5.27    8.46    6.24    7.09    5.82
Effects of energy
 derivatives (per
 Mcf) (2)               (0.51)  (0.10)  (2.65)  (0.35)  (1.15)  (0.24)
                       ------- ------- ------- ------- ------- -------
Average sales price
 (per Mcf)            $  6.00    5.17    5.81    5.89    5.94    5.58

Natural gas sales
 volumes               15,020  12,017   6,378  15,673  21,398  27,690

LIQUIDS:
OIL AND CONDENSATE:
NYMEX (per Bbl) (1)   $ 63.54   49.85   63.54   49.85   63.54   49.85
Sales price received
 (per Bbl)              56.64   43.87   60.18   47.04   57.09   44.82
Effects of energy
 derivatives (per
 Bbl) (2)               (4.99)  (1.78) (27.95) (16.40)  (7.89)  (6.15)
                       ------- ------- ------- ------- ------- -------
Average sales price
 (per Bbl)            $ 51.65   42.09   32.23   30.64   49.20   38.67
NATURAL GAS LIQUIDS:
Average sales price
 (per Bbl)            $ 32.10   27.32   36.83   27.89   32.85   27.59
Oil and condensate
 sales volumes
 (MBbls)                1,334   1,610     193     687   1,527   2,297
Natural gas liquids
 sales volumes
 (MBbls)                  433     295      82     268     515     563

Average sales price
 (per Mcfe)           $  6.74    5.89    5.77    5.65    6.51    5.77

Total sales volumes
 (MMcfe)               25,622  23,447   8,028  21,403  33,650  44,850


    (1) Price differentials for the first quarter of 2006 were $1.91
        per Mcf for natural gas and $12.56 per Bbl for liquids
        compared to price differentials of $.45 and $8.42 for natural
        gas and liquids, respectively, in 2005. Differentials
        increased due to continued disruptions from the hurricanes in
        2005 and significantly increased NYMEX prices.

    (2) Energy derivatives (commodity swaps and collars) were
        transacted to hedge the price of spot market volumes against
        price fluctuations. Included in the effects of energy
        derivatives is a $15.2 million derivative loss settled in the
        fourth quarter of 2005 but recognized in the first quarter of
        2006 to correspond with the timing of the production that was
        deferred by Hurricanes Katrina and Rita.

Production Expense by Component

The components of oil and gas production expense attributable to Remainco and Spinco were as follows:

                                    Three Months Ended March 31,
                               --------------------------------------
Remainco                         2006    Per Mcfe    2005    Per Mcfe
                               --------  --------  --------  --------
                              (in thousands, except per unit amounts)
Direct operating expense and
 overhead                     $ 24,919      0.98    26,053      1.11
Workovers                        2,116      0.08     5,185      0.22
                               --------  --------  --------  --------
Lease operating expense         27,035      1.06    31,238      1.33

Production and property taxes   10,577      0.41     9,304      0.40
Transportation costs             4,385      0.17     4,330      0.18
                               --------  --------  --------  --------

Total                         $ 41,997      1.64    44,872      1.91
                               ========  ========  ========  ========


                                   Three Months Ended March 31,
                               --------------------------------------
Spinco                           2006    Per Mcfe    2005    Per Mcfe
                               --------  --------  --------  --------
                              (in thousands, except per unit amounts)
Direct operating expense and
 overhead                     $  9,535      1.19    14,758      0.69
Workovers                        8,761      1.09     1,864      0.09
                               --------  --------  --------  --------
Lease operating expense         18,296      2.28    16,622      0.78

Production and property taxes      151      0.02       593      0.03
Transportation costs               344      0.04       842      0.04
                               --------  --------  --------  --------

Total                         $ 18,791      2.34    18,057      0.85
                               ========  ========  ========  ========


                                   Three Months Ended March 31,
                              --------------------------------------
Total Company                    2006    Per Mcfe    2005    Per Mcfe
                               --------  --------  --------  --------
                              (in thousands, except per unit amounts)
Direct operating expense and
 overhead                     $ 34,454      1.03    40,811      0.91
Workovers                       10,877      0.32     7,049      0.16
                               --------  --------  --------  --------
Lease operating expense         45,331      1.35    47,860      1.07

Production and property taxes   10,728      0.32     9,897      0.22
Transportation costs             4,729      0.14     5,172      0.12
                               --------  --------  --------  --------

Total                         $ 60,788      1.81    62,929      1.41
                                ======== ========  ========  ========

CAPITAL ACTIVITIES

In the first quarter of 2006, Remainco invested $153 million in exploration and development activities. During the quarter, the Western region spent approximately $15 million more than recent quarters in the Greater Vermejo/Haley area due to increased activity and the purchase of additional leasehold. Canada's capital spending was accelerated in the quarter in advance of spring breakup. The following table summarizes capital expenditures incurred in the first quarter of 2006 for exploration and development, and acquisition activities (in millions).

                U.S.                          Total            Total
               Remainco Canada International Remainco  Spinco Company
              --------- ------ ------------- --------- ------ --------
Exploration
 and
 development   $  102      50             1      153      36      189
Acquisitions      285       -             -      285       -      285
              --------  ------ ------------- --------  ------ --------

Total          $  387      50             1      438      36      474
              ========  ====== ============= ========  ====== ========

CONSOLIDATED EARNINGS

For the quarter ended March 31, 2006, Forest reported net earnings of $3.7 million or $.06 per basic share. The results included two months of Spinco operations prior to the spin-off. This amount compares to net earnings of $38.9 million or $.65 per basic share in the corresponding period in 2005. Net earnings in the first quarter of 2006 were affected by the following items:

  • Unrealized losses on derivative instruments of $24.1 million ($14.8 million after-tax)
  • Stock-based compensation recorded in connection with the Mariner transaction of $5.9 million ($3.6 million after-tax)
  • Non-recurring spin-off and merger costs associated with the Mariner transaction in the amount of $5.4 million ($5.4 million after-tax)
  • Income from discontinued operations of $3.6 million ($2.4 million after-tax)

Without the effect of these items, Forest's net earnings would have been $25.1 million, or $.40 per basic share. See "Non-GAAP Financial Measures" below for further information.

These amounts compare to net earnings of $43.0 million or $.71 per basic share in the corresponding 2005 period computed on a comparable basis excluding unrealized losses on derivative instruments of $6.6 million ($4.1 million after-tax).

DISCUSSION OF CONSOLIDATED RESULTS

For the first quarter ended March 31, 2006, oil and gas sales volumes decreased approximately 25% compared to the corresponding period in 2005. The decrease was the result of the deferral of offshore production due to Hurricanes Katrina and Rita and the spin-off and merger of Spinco with Mariner as Forest only recorded production from Spinco for the first 59 days of 2006.

The decrease in total oil and gas sales revenue of 15% for the first quarter 2006 as compared to 2005 was due to the 25% decrease in production offset by a 13% increase in the average realized sales price. The average realized sales prices for the periods presented include losses recognized on Forest's derivative instruments designated as cash flow hedges. For the three months ended March 31, 2006, Forest recognized as a reduction in revenue, losses from cash flow hedges of $36.7 million compared to losses from cash flow hedges of $20.8 million during the same period in the prior year. The recognized losses in the first quarter of 2006 include $15.2 million in derivative losses settled in the fourth quarter of 2005 but recognized in the first quarter of 2006 to correspond with the timing of the production that was deferred by Hurricanes Katrina and Rita.

Lease operating expenses decreased 5% to $45.3 million for the quarter ended March 31, 2006 from $47.9 million for the corresponding period in 2005. On a per-unit basis, LOE increased to $1.35 per Mcfe or 26% during the first quarter 2006 compared to the prior year. The increase in LOE on an equivalent Mcf basis for the three months ended March 31, 2006 is primarily due to the deferral of offshore Gulf of Mexico production as a result of hurricane activity causing down time in the first quarter 2006.

Production and property taxes increased to $10.7 million or 8% during the first quarter of 2006 compared to the prior year's first quarter. The increases were attributable to higher commodity prices in 2006 compared to the first quarter of 2005. As a percentage of oil and natural gas revenue, excluding hedging losses, production and property taxes for the three months ended March 31, 2006 was 4.2% and in the comparable period of 2005 was 3.5%. The increased rate is a result of a greater percentage of production coming from onshore U.S. fields in 2006 compared to 2005.

General and administrative expense increased 59% to $17.1 million for the quarter ended March 31, 2006 compared to $10.8 million for the corresponding period in 2005. The increase resulted primarily from additional stock-based compensation expense of $7.7 million offset by a non-cash $1.8 million reduction in estimated post-retiree medical benefit liability because of the Forest employees who left in connection with the Mariner transaction.

Depreciation and depletion expense decreased 19% to $77.7 million for the quarter ended March 31, 2006 from $96.3 million for the corresponding period in 2005 due to decreased production. On a per-unit basis, the depreciation and depletion rate was $2.31 per Mcfe for the quarter ended March 31, 2006 compared to $2.15 per Mcfe in the corresponding period in 2005. The increase for the three months ended March 31, 2006 compared to the prior year is primarily due to a higher percentage of Canadian production, which has higher per-unit depletion rates. This increase was partially offset by lower U.S. depletion rates in the month of March as a result of the spin-off.

During the quarter, Forest recorded merger related costs of $5.4 million, consisting primarily of professional service fees, associated with the Mariner transaction. Also during the quarter, Forest received a $3.6 million contingent payment ($2.4 million after-tax) associated with the sale of its Canadian marketing subsidiary in March 2004, which was accounted for as income from discontinued operations.

DERIVATIVES

During the first quarter of 2006, because a portion of Forest's natural gas derivatives no longer qualified for hedge accounting and to increase clarity in its financial statements, Forest elected to discontinue hedge accounting on all of its remaining cash flow hedges. This change in reporting will have no impact on Forest's reported cash flows, although future results of operations will be affected by mark-to-market gains and losses which fluctuate with volatile oil and gas prices.

The net mark-to-market loss on Forest's remaining swaps and collars that qualified for cash flow hedge accounting at the date the decision was made to discontinue hedge accounting is suspended in accumulated other comprehensive income and will be amortized into oil and gas revenues as the original forecasted hedged oil and gas production occurs in 2006. Amortization of the net deferred losses will be recorded in 2006 as follows:

                                              (In Thousands)
                                    ----------------------------------
Second Quarter 2006                 $                           1,677
Third Quarter 2006                                              2,250
Fourth Quarter 2006                                             3,207
                                     ---------------------------------
Total                               $                           7,134
                                     =================================

In future periods, Forest will recognize all unrealized mark-to-market gains and losses and all realized gains and losses as separate line items in the income statement as part of other income and expense.

Forest currently has derivatives in place for 2006 and 2007 covering the aggregate average daily volumes and weighted average prices shown below.

                                                    2006      2007
                                                   ------    ------
Natural gas swaps:
Contract volumes (Bbtu/d)                           10.0 (1)     -
Weighted average price (per MMBtu)                $ 5.51         -

Natural gas collars:
Contract volumes (Bbtu/d)                           50.0      15.0 (1)
Weighted average ceiling price (per MMBtu)        $11.88    $10.85
Weighted average floor price (per MMBtu)          $ 7.43    $ 9.60

Oil swaps:
Contract volumes (MBbls/d)                           4.0 (1)     -
Weighted average price (per Bbl)                  $31.58         -

Oil collars:
Contract volumes (MBbls/d)                           5.5 (2)   1.0
Weighted average ceiling price (per Bbl)          $65.87    $85.00
Weighted average floor price (per Bbl)            $46.73    $65.00

(1) Represents volumes associated with Forest's acquisition
    activities.

(2) 1.0 of the 5.5 MBbls/d of oil collar volumes are associated with
    Forest's acquisition activities.

OPERATIONAL PROJECT UPDATE

Western Business Unit

Buffalo Wallow Area, Texas Panhandle (66-100% WI) -- During the first quarter, Forest completed 12 wells with a 100% success rate and had 7 wells in progress at the end of the quarter, including new activity in offset areas. Initial production rates for all wells drilled since acquiring the property in April 2005 have averaged 3.6 MMcfe/d. Net production in this area increased to 36 MMcfe/d in the first quarter. Additional acreage was added in the first quarter and a fifth drilling rig was deployed in the field at the start of the second quarter. A sixth drilling rig is anticipated in the 3rd quarter of this year.

Greater Vermejo/Haley Area, West Texas (42-100% WI) -- Forest added to its acreage holdings in the first quarter, increasing its total to approximately 39,500 gross acres. In the first quarter, Forest completed 1 re-entry project and 2 new drilling wells and cased an additional drilling well. The re-entry tested 4 MMcfe/d and the first drilling well tested 7 MMcfe/d without fracture stimulation. The second drilling well was tested at 7 MMcfe/d. A third well is currently being fracture stimulated and a fourth well is drilling. Net production in this area increased to 23 MMcfe/d in the first quarter without the effect of the 2 new drilling wells. Based on recent success, Forest is considering adding an additional drilling rig in 2006.

Central Midland Basin, West Texas (25-100% WI) -- A total of 7 wells were drilled in the first quarter with a 100% success rate. Most of these were shallow oil wells which involved infill and step-out drilling. Early results from downspacing to 40 and 20 acres yielded Forest's best well to date in the Tex-Mex Field which tested 240 Bbls/d. There are approximately 150 locations currently identified in this area as well as waterflood potential.

Wild Rose/Wamsutter Area, SW Wyoming (30-100% WI) -- Approval for 80 acre spacing has recently been received. The first 4 wells have been drilled and cased with an average initial production rate of approximately 1.6 MMcfe/d. Approximately 25 to 50 locations have been identified for development drilling.

Canada Business Unit

Wild River Area, Alberta, Canada (25-100% WI) -- The Wild River area continues to be Forest's most active area in Canada with production records set again in the first quarter. Net production in this area increased to 30 MMcfe/d in the first quarter. A total of 14 wells have been drilled in 2006 with a 100% success rate. There are currently 10 wells awaiting completion of pipeline connection.

Ansell Area, Alberta, Canada (50% WI) -- Following the first discovery well in 2005, 3 additional delineation wells have been cased with the first 2 wells testing between 2.5-4.5 MMcfe/d. The two remaining wells will be completed after spring break-up. Forest's acreage position has now been increased to 23,000 gross acres. A 3-D seismic survey is also being acquired.

Evi-Loon Field, Alberta, Canada (100% WI) -- Shallow oil well drilling resumed in the first quarter following the 3 successful tests in 2005 which produced 60-80 Bbls/d. There are currently 52 locations identified on Forest's 10,600 acre position.

Waterton Area, Alberta Foothills (31% WI) -- The Waterton 10-30 tested 14 MMcfe/d. A new production facility installation is expected to be completed in the second quarter 2006.

Palliser/Copton Area, Alberta Foothills (50-57% WI) -- Two wells were drilled and cased in the first quarter. The first well was completed at 1.5 MMcfe/d. Completion and pipeline operations should resume after spring break-up.

Narraway Area, Alberta Foothills (50-100% WI) -- The Narraway 13-2 well completion tested 4.8 MMcfe/d. This well should be tied-in after spring break-up.

Southern Business Unit

Cotton Valley Area, East Texas (52-100% WI) -- Forest closed on its Cotton Valley acquisition on March 31, 2006 and immediately took over operations. Since taking over operations, Forest has completed 2 Cotton Valley wells and initiated commingling of Cotton Valley sands. Two additional wells are now being completed and two rigs are actively drilling. Forest expects to increase activity in the area to four rigs by year end.

Katy Field, Walker County, Texas (52% WI) -- A recent recompletion to the Middle Wilcox tested 1.9 MMcfe/d. There are 3 Middle Wilcox and 7 Frio wells planned for 2006.

West White Lake Field, Vermilion Parish, LA (100% WI) -- First quarter recompletions added 3.8 MMcfe/d. Additional prospects are planned in 2006. Forest was successful bidder on 2 adjacent state tracts.

Barnett Shale, Hill, Erath and Hamilton Counties, Texas (95% WI) -- Forest consummated a purchase of 5,800 gross acres in the Barnett Shale in Hill, Erath and Hamilton Counties, Texas. This increased Forest's total Barnett Shale acreage to 11,800 gross acres. The purchase also has an option to lease up to an additional 10,000 gross acres in these counties.

Alaska Business Unit

Onshore Cook Inlet Exploration Program (100% WI) -- The 2005-2006 winter seismic program is nearing completion. 100 miles of proprietary 2-D and 25 square miles of 3-D is being acquired onshore Cook Inlet. An additional 100 miles of proprietary 2-D seismic is being acquired on Forest's 857,000 acre position in the Susitna Basin.

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