Houston Exploration Reports Lower Earnings for 2006

The Houston Exploration Company on Tuesday reported full-year 2006 net income of $67.8 million, or $2.36 per diluted share. This compares with net income of $105.2 million, or $3.62 per diluted share, reported in 2005.

Excluding certain items, the company's adjusted net income for 2006 was $93.0 million, or $3.24 per diluted share, versus $3.76 per diluted share in 2005 on a comparable basis. Cash from operations before changes in operating assets and liabilities totaled $372.1 million for the year compared to $469.6 million reported in 2005.

For the fourth quarter 2006, the company reported a net loss of $19.4 million, or a loss of $0.69 per diluted share. This compares with net income of $19.8 million, or $0.68 per diluted share, in the fourth quarter 2005. Excluding certain items described below and in the attached schedules, the company's adjusted net income for the fourth quarter 2006 was $17.2 million, or $0.62 per diluted share, versus a loss of $0.38 per diluted share in the fourth quarter 2005. Cash from operations before changes in operating assets and liabilities totaled $68.8 million for the fourth quarter 2006 compared to $71.9 million during the prior year period.

The comparability of the company's full-year and fourth quarter 2006 results to those of the prior year periods was significantly impacted by (i) the sale of substantially all of the company's Gulf of Mexico assets during the first half of 2006 and (ii) the production shut-ins and delays that occurred during the fourth quarter 2005 following the hurricanes in the Gulf of Mexico. Adjusted net income and cash from operations before changes in operating assets and liabilities are non-GAAP financial measures that are defined and reconciled to GAAP measures in the attached schedules.

Full-Year 2006 Results - Consolidated

Reserves and Capital. The company's estimated proved reserves as of year- end 2006 totaled 699.3 billion cubic feet of natural gas equivalent (Bcfe). Net reserve additions, including purchases and revisions, were 161.1 Bcfe. Total oil and gas capital expenditures for the year (including capitalized interest and G&A) were $612.8 million.

Production and Prices. Production for 2006 totaled 88.2 Bcfe, or 242 million cubic feet of natural gas equivalent per day (MMcfe/d), down from 114.3 Bcfe, or 313 MMcfe/d, in 2005. This 23 percent decline in production was primarily due to the sale of substantially all of the company's Gulf of Mexico assets during the first half of 2006. The company's average unhedged natural gas price for 2006 was $6.56 per thousand cubic feet (Mcf) compared to $7.71 per Mcf in 2005. The company's average realized natural gas price for 2006 was $5.72 per Mcf compared to $5.21 per Mcf reported during 2005. Crude oil prices averaged $56.56 per barrel for 2006 compared to $48.43 per barrel reported during 2005.

Revenues and Expenses. Revenues for 2006 totaled $531.6 million compared to $621.5 million during 2005, as the impact of higher realized prices was more than offset by lower production. Total revenues for 2006 included $64.5 million of net losses associated with the company's natural gas hedging activities compared to $264.5 million of net losses in 2005. The current year net losses of $64.5 million were comprised of the following:

     *  $54.0 million of realized losses associated with the settlement of
        hedge contracts;
     *  $15.2 million of realized losses associated with the unwinding of
        certain hedge contracts following the sale of the company's Gulf of
        Mexico assets; and
     *  $4.7 million of net unrealized gains resulting primarily from changes
        in the fair value of the company's hedge portfolio, all of which is
        now being accounted for using mark-to-market accounting.  These non-
        cash gains were partially offset by non-cash losses associated with
        hedge related production shortfalls that were deferred from the fourth
        quarter 2005 and other items.

The company's lease operating, severance tax and transportation expenses for 2006 totaled $1.06 per thousand cubic feet of natural gas equivalent (Mcfe) versus $0.85 per Mcfe reported in 2005. Depreciation, depletion and amortization and asset retirement accretion expenses for the year were $2.92 per Mcfe compared to $2.63 per Mcfe in 2005. As described below (see "Fourth Quarter 2006 Results - Consolidated"), the company recorded a non-cash charge of $19.0 million, or $0.22 per Mcfe, during 2006 to write down the carrying value of its natural gas and oil properties. Net general and administrative expenses for 2006 were $0.41 per Mcfe compared to $0.34 per Mcfe in the prior year. Other income for 2006 totaled $13.5 million and was comprised of interest earned on escrowed cash following the sale of the company's Gulf of Mexico assets and refunds of prior years' severance tax expense, and was partially offset by an accrual of certain unbilled prior years' transportation expenses.

Full-Year 2006 Results - Onshore

Reserves and Capital. The company's estimated onshore proved reserves as of year-end 2006 totaled 697.1 Bcfe, up 13 percent from year-end 2005. Net onshore reserve additions, including purchases and revisions, were 155.3 Bcfe. Total onshore oil and gas capital expenditures for the year (excluding capitalized interest and G&A) were $516.8 million.

Production and Prices. The company's onshore production increased by 8 percent during 2006, to 74.4 Bcfe, or 204 MMcfe/d, compared to 68.6 Bcfe, or 188 MMcfe/d, during 2005. The company's average unhedged natural gas price for its onshore production was $6.33 per Mcf in 2006, a decline of 15 percent from $7.44 per Mcf in 2005.

Revenues and Expenses. The 15 percent decline in the company's average unhedged natural gas price more than offset the 8 percent increase in onshore production, resulting in a 6 percent decline in onshore oil and gas revenues during the year, to $479.6 million, from $511.2 million in 2005. Onshore lease operating, severance tax and transportation expenses during 2006 totaled $1.00 per Mcfe compared to $0.82 per Mcfe reported in 2005.

Fourth Quarter 2006 Results - Consolidated

Production and Prices. Production in the fourth quarter 2006 totaled 19.5 Bcfe, or 212 MMcfe/d, down from 26.3 Bcfe, or 285 MMcfe/d, in the fourth quarter 2005. This 26 percent decline in production primarily reflects the sale of substantially all of the company's Gulf of Mexico assets in 2006. In addition, the company's fourth quarter 2005 production was impacted by delays and shut-ins that occurred following the hurricanes in the Gulf of Mexico. The company's average unhedged natural gas price for the fourth quarter 2006 was $5.88 per Mcf compared to $10.39 per Mcf for the fourth quarter 2005. The company's average realized natural gas price for the fourth quarter 2006 was $5.80 per Mcf compared to $3.75 per Mcf for the fourth quarter 2005. Crude oil prices averaged $48.28 per barrel for the fourth quarter 2006 versus $54.02 for the comparable quarter in 2005.

Revenues and Expenses. Revenues for the fourth quarter 2006 totaled $76.7 million compared to $154.6 million during the fourth quarter 2005, as the impact of higher realized natural gas prices was more than offset by lower production. Total revenues for the fourth quarter 2006 included $41.2 million of net losses associated with the company's natural gas hedging activities compared to $116.5 million of net losses in the fourth quarter 2005. The current period net losses of $41.2 million were comprised of the following:

     *  $1.5 million of net realized losses associated with the settlement of
        hedge contracts; and
     *  $39.7 million of net unrealized losses resulting primarily from
        changes in the fair value of the company's hedge portfolio, all of
        which is now being accounted for using mark-to-market accounting.

The company's lease operating, transportation and severance tax expenses for the fourth quarter 2006 totaled $0.87 per Mcfe versus $0.96 per Mcfe reported during the fourth quarter 2005. Depreciation, depletion and amortization and asset retirement accretion expenses for the fourth quarter 2006 were $3.08 per Mcfe compared to $3.10 per Mcfe in the fourth quarter 2005. As described below, the company recorded a non-cash charge of $19.0 million, or $0.98 per Mcfe, during the fourth quarter 2006 to write down the carrying value of its natural gas and oil properties. Net general and administrative expenses in the fourth quarter 2006 were $0.48 per Mcfe compared to $0.41 per Mcfe reported in the fourth quarter 2005. Other income for the fourth quarter 2006 totaled $3.0 million and was comprised of interest earned on escrowed cash following the sale of the company's Gulf of Mexico assets and refunds of prior years' severance tax expense, and was partially offset by an accrual of certain unbilled prior years' transportation expenses.

Ceiling Test Writedown. The company utilizes the full cost method of accounting for its exploration and development activities. Under full cost accounting, the company is required to perform a ceiling test each quarter. In calculating its ceiling test for the fourth quarter 2006, the company estimated that, using an average net wellhead price of $4.94 per Mcf on December 31, 2006, the carrying value of its full cost pool exceeded the ceiling limitation by approximately $582.8 million. However, subsequent to December 31, 2006, the market price for natural gas increased such that, using an average net wellhead price of $6.63 per Mcf on February 20, 2007, the carrying value of the company's full cost pool exceeded the ceiling limitation by $19.0 million. As a result, and pursuant to full cost accounting rules, the company recorded a $19.0 million non-cash charge to write down the carrying value of its natural gas and oil properties.

Fourth Quarter 2006 Results - Onshore

Production and Prices. The company's onshore production increased by 11 percent during the fourth quarter 2006, to 19.4 Bcfe, or 211 MMcfe/d, compared to 17.5 Bcfe, or 190 MMcfe/d, during the fourth quarter 2005. The company's average unhedged natural gas price for its onshore production was $5.88 per Mcf for the fourth quarter 2006, a decline of 40 percent from $9.82 per Mcf in the fourth quarter 2005.

Revenues and Expenses. The 40 percent decline in the company's average unhedged natural gas price more than offset the 11 percent increase in onshore production, resulting in a 32 percent decline in onshore oil and gas revenues during the quarter, to $116.9 million, from $172.0 million during the fourth quarter 2005. Onshore lease operating, severance tax and transportation expenses during the fourth quarter 2006 totaled $0.87 per Mcfe compared to $0.94 per Mcfe reported in the fourth quarter 2005.

    2006 Snapshot
     *  The company's total estimated proved reserves as of year-end 2006 were
        699.3 Bcfe.  Onshore reserves increased 13 percent to 697.1 Bcfe.
     *  Onshore net reserve additions totaled 155.3 Bcfe, for a reserve
        replacement ratio of 209 percent.
     *  Onshore production totaled 74.4 Bcfe, or 204 MMcfe/d for the year,
        compared to 68.6 Bcfe, or 188 MMcfe/d, in 2005.
     *  The company drilled a record 363 wells during the year, 360 of which
        were drilled onshore, at an overall success rate of 91 percent.
     *  The company's 2006 operations and results, and the comparability of
        those results to 2005, were significantly impacted by the sale of
        substantially all of its Gulf of Mexico assets, which included
        244.6 Bcfe of estimated proved reserves at year-end 2005, for
        a total gross sales price of $810.0 million.
     *  Following the sale of its Gulf of Mexico assets, the company unwound
        natural gas hedges totaling 60,000 million British thermal units per
        day (MMBtu/d) for the period July 2006 through December 2006 for a
        cost of $14.3 million, as well as another 20,000 MMBtu/d for the
        period September 2006 through October 2006 for a cost of $0.9 million.
     *  The company completed three tactical acquisitions of approximately
        32.2 Bcfe of estimated proved reserves for a total net purchase price
        of $47.0 million, or $1.46 per Mcfe.  In East Texas the company
        acquired 16.2 Bcfe of proved reserves located in the Willow Springs
        Field of Gregg County for $21.3 million.  In South Texas the company
        acquired 1.8 Bcfe of proved reserves in Webb County for $4.3 million.
        Lastly, the company acquired 14.2 Bcfe of proved reserves located in
        Colorado's DJ Basin for $21.4 million.
     *  The company repurchased 1,176,500 shares of its common stock for
        approximately $61.6 million.
     *  The company engaged Lehman Brothers to assist the company in exploring
        a broad range of strategic alternatives. These alternatives included,
        but were not limited to, a recapitalization of the company either
        through additional share repurchases or a special dividend; operating
        partnerships and/or strategic alliances; and the sale or merger of the
        company.

Pending Merger with Forest Oil Corporation

On January 7, 2007, Houston Exploration announced that it had entered into a definitive agreement to merge with Forest Oil Corporation, under which Forest will acquire all of the outstanding shares of Houston Exploration for a combination of cash and Forest common stock. The merger is subject to customary terms and conditions, including the approval of both Houston Exploration and Forest shareholders.

On February 8, 2007, Forest filed a registration statement on Form S-4 with the Securities and Exchange Commission, including a preliminary joint proxy statement / prospectus with respect to the proposed merger. Also on February 8, 2007, the companies received notice of early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act with respect to the transaction. The companies expect to complete the merger in the second quarter 2007.

Hedging Update

Since year-end 2006, the company has added to its portfolio of natural gas hedges for 2007 and 2008. As a result, the company's 2007 hedge portfolio is currently comprised of the following:

     *  30,000 MMBtu/d of costless collars for January through December with
        weighted average floor and ceiling prices of $5.00 per MMBtu and
        $6.59 per MMBtu, respectively;
     *  80,000 MMBtu/d of costless collars for March through December with
        weighted average floor and ceiling prices of $7.75 per MMBtu and
        $9.20 per MMBtu, respectively; and
     *  80,000 MMBtu/d of basis swaps for March through December with a
        weighted average price of $0.30 per MMBtu.

The company's 2008 hedge portfolio is currently comprised of the following:

     *  20,000 MMBtu/d of costless collars for January through December with
        weighted average floor and ceiling prices of $5.00 per MMBtu and
        $5.72 per MMBtu, respectively;
     *  80,000 MMBtu/d of costless collars for January through February with
        weighted average floor and ceiling prices of $7.75 per MMBtu and
        $9.20 per MMBtu, respectively; and
     *  80,000 MMBtu/d of basis swaps for January through February with a
        weighted average price of $0.30 per MMBtu.

Guidance

In light of the company's pending merger with Forest, Houston Exploration will no longer issue guidance. Accordingly, previous estimates of future financial or operational performance should now be considered obsolete. In addition, as a result of the pending merger, Houston Exploration will not host a conference call or webcast regarding its 2006 results.

The Houston Exploration Company is an independent natural gas and crude oil producer engaged in the development, exploitation, exploration and acquisition of natural gas and crude oil properties. The company's operations are focused in South Texas, the Arkoma Basin, East Texas, and the Rocky Mountains.

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