Forest Oil to merge with Forcenergy

Forest Oil Corp., Denver, and Forcenergy Inc., Miami, on Monday announced their intention to merge. The move will create one of the 10 largest independent exploration and production companies in the US, say the firms.

Jul 10th, 2000


Forest Oil Corp., Denver, and Forcenergy Inc., Miami, on Monday announced their intention to merge. The move will create one of the 10 largest independent exploration and production companies in the US, say the firms.

The combined company will be called Forest Oil Corp. and will be headquartered in Denver. It will initially have about 48 million shares outstanding and a market capitalization of more than $1.5 billion, based on Forest's July 7 closing price of $16/share.

"This combination meets Forest's criteria of strategic fit," said Robert S. Boswell, who will continue his role as chairman and CEO of Forest. "It places Forest in one of North America's highest-potential frontier exploration areas in Alaska, with an established platform for expansion."

Boswell noted that the transaction also increases Forest's position in the Gulf of Mexico.

Richard G. "Gus" Zepernick, who has served as CEO of Forcenergy, will be named president and COO of Forest.

Under the agreement, which has been unanimously approved by each company's board, Forcenergy common shareholders will receive 1.6 Forest common shares for each Forcenergy common share they own. Forest will also exchange its common stock for Forcenergy's outstanding preferred stock.

After closing, Forest shareholders will hold about 56% of the combined company and Forcenergy shareholders 44%. Forest expects to effect a 2-to-1 reverse split upon completion of the merger.

The merger is expected to be treated as a tax-free reorganization and to be accounted for as a pooling of interests.

Based on the closing price of $16, the transaction has an implied value to Forcenergy's common shareholders of $25.60/share, a 21% premium over Forcenergy's closing price of $21.19/common share on July 7. Shareholders representing about 67% of Forcenergy and about 37% of Forest have agreed to vote their shares in favor of the merger.

The transaction is subject to approval by shareholders of both companies and to customary regulatory approval.

Two members of Forcenergy's Board of Directors, Forrest E. Hoglund and Stephen A. Kaplan, will join the Forest board for a total of 12 directors.

Combined operations
Pro forma net production for the combined firm, based on first quarter 2000 data, is 490 MMcfed. Of this, 50% is in the Gulf of Mexico, 15% in the Western US, 13% in the onshore Gulf Coast area, 12% in Canada, and 10% in Alaska. Combined reserves for the merged firm would total 1.408 tcfe.

"The merger combines exploration projects for both companies now under way in some of the highest-impact areas of North America and the world," said Forest Oil. "Forest brings the significant potential of the Northwest Territories of Canada, the Beaufort Sea, its offshore South Africa project, and other international projects with significant reserve potential," said the company.

"Forcenergy contributes its significant Cook Inlet potential in Alaska.

"The increased cash flow and financial strength provided by the merger will enable the new Forest to aggressively execute its large portfolio of exploration projects on an accelerated timetable," said Forest.

The firm says the new Forest has identified a broad portfolio of development projects. "Forcenergy's significant asset base in the Gulf of Mexico provides a portfolio of properties that were underexploited due to Forcenergy's financial difficulties in 1998 and 1999. The company plans to aggressively pursue continued drilling in the Gulf of Mexico, where the new Forest is now one of the largest operators on the shelf.

"Development in the Canadian Foothills and on the Liard Plateau in the Northwest Territories is planned to be increased," said the company. "In addition, significant growth opportunities have been identified in existing onshore fields, where in-fill and step-out drilling [and] state-of-the-art technologies in reservoir drilling, completion, and production can be used to extend field limits, increase production, and recover more reserves."

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