Exhibit 10.1

 

Forest Oil Corporation

 

Annual Incentive Plan

 

2011

 

 

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Forest Oil Corporation

2011 Annual Incentive Plan

 

Summary

 

Plan Objectives

 

The Annual Incentive Plan (the “Plan”) has been designed to meet the following
objectives:

 

·                  Provide an annual incentive plan framework that is
performance-driven and focused on objectives that are critical to the Company’s
success.

 

·                  Offer competitive cash compensation opportunities to
employees.

 

·                  Reward outstanding achievement.

 

Basic Plan Concept

 

The Plan provides annual incentive awards, which will be determined primarily on
the basis of the Company’s consolidated results on selected financial and
operating performance measures as well as business unit or department
performance objectives.  Individual performance will also be considered in
determining the actual participant award payout.  The Company shall have the
flexibility to adjust individual awards to reflect individual or team
performance.

 

Performance Measures and Weights

 

Each year the Company will establish the threshold, target and outstanding
performance levels on each performance measure and its appropriate weighting,
subject to the confirmation of the Compensation Committee of the Board of
Directors (the “Committee”).  These performance measures and their weighting
will be reviewed (and modified, if appropriate) in light of changing Company
priorities and strategic objectives.

 

The Company has also established performance objectives for each business unit
and department for 2011, the achievement of which will be determined by the
President and Chief Executive Officer (the “CEO”) at year end, subject to the
confirmation of the Committee.

 

The 2011 performance measures and their relative weightings are described below.

 

Plan Administration

 

The Plan will be administered by the Committee and the CEO (for all positions
except his own).  Certain elements of the Plan administration will be delegated
to the senior Human Resources executive of the Company.  The Executive Vice
President and Chief Financial Officer will verify the performance calculation
for the performance and operating measures in consultation with the Senior Vice
President, Business Development & Engineering, who shall be responsible for the
estimation of the Company’s oil and gas reserves.

 

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Actual performance goals, standards, award determinations and modifications to
the Plan design must be approved by the Committee.

 

Measure

 

Weighting

 

Production

 

20

%

Cash Cost

 

20

%

Bankable Value PV10

 

20

%

Business Unit/Department Performance Objectives

 

40

%

Total Financial and Operating Objectives

 

100

%

 

Once the total bonus pool has been established following the performance
calculations, the CEO shall have the discretion to distribute bonus monies
within business units and the corporate group or to move monies from one group
to another, and to allocate incentive monies to individuals, based on his
assessment (with advice of senior management) as to individual or group
performance.

 

Targets

 

Targets for the Plan will be set consistent with the following:

 

·                  Threshold — Minimum level at which payout occurs.  The
threshold percentage is 25% of the target award percentage.

 

·                  Target — Level at which the participant receives the target
award percentage.

 

·                  Outstanding — Level at which the participant receives 200% of
the target award percentage.

 

Completion percentages between Threshold, Target and Outstanding will be
determined, with the exception of those for Business Unit and Department
Performance Objectives, by interpolation.  Completion for results above
Outstanding will be directly proportional to the change in completion between
Target and Outstanding.

 

A Completion Percentage for each business unit and department with regard to its
Business Unit/Department Performance Objectives will be assigned at year end by
the CEO following a thorough review of its activities and accomplishments.  The
assigned Completion Percentage on Business Unit/Department Performance
Objectives for each business unit or department will be included in the
calculation of the Overall Completion Percentage for that business unit or
department in the same manner as is the Completion Percentage on other
performance measures.

 

Targets shall be adjusted for material changes made during the year to the
business plan or scope thereof, including the capital expenditure budget.

 

Maximum Completion

 

Although there will be no limit on completion of individual financial and
operating measures, completion for the total Plan will be limited to 200% of
target.

 

Performance Levels

 

Performance levels will be set for individual measures.  Results below the
Threshold will equate to a zero completion percentage.

 

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A minimum 25% completion threshold is required for the total plan for award
payments to be made under the plan.

 

Completion Calculation

 

Completion percentages for each individual measure will be equal to the
completion percentage of the measure times the weighting for that measure. The
overall completion percentage for the Plan for financial and operating measures
and business unit and department objectives will be the sum of the weighted
completion percentages for each individual measure.

 

Property Sales

 

In computing results, non-budgeted property sales are not to be considered.  To
avoid non-budgeted property sales from affecting results, they will be
incorporated into performance measures as though they had been budgeted.

 

Participants

 

The CEO shall determine which employees are to be participants in the Plan.  If
a participant’s employment with the Company terminates for any reason prior to
payment, no bonus award will be paid.

 

The target award percentage for the CEO and other officers of the Company are
established by the Committee. Any changes to target award percentages for
Company officers are subject to the approval of the Committee. The CEO is
authorized to establish and adjust at his discretion the target award
percentages for non-officer Plan participants. All awards to officers under the
Plan are subject to approval of the Committee.

 

Plan participants who change positions and/or have their individual target
incentive levels changed during the Plan year will have their award prorated
accordingly.  All awards paid will be rounded to the nearest $100.

 

Incentive compensation awards will be calculated based upon the participant’s
base salary in effect at the end of the Plan year or earned salary during the
Plan year if the participant was a new hire during the year.

 

Board of Directors’ Discretion

 

The granting of any and all incentive compensation awards is at the discretion
of the Forest Oil Corporation Board of Directors.

 

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Forest Oil Corporation

2011 Annual Incentive Plan

Operating Measure

Production

 

Objective

 

Measure net production on an annual basis.

 

Definition

 

Net production equals total net production (after royalty and other burdens)
equal to that set forth in the 2011 Business Plan.

 

Should a business unit overspend budgeted Capex significantly, the Production
target will either be proportionately adjusted or the target level will become
the threshold for payout under this measure.

 

The calculation of net production volumes for the Canadian business unit shall
be calculated as if Plan oil and gas prices were experienced, with no volume
adjustments being made for higher or lower prices.

 

Targets

 

Measured against an approved annual plan with:

 

·                  Threshold equal to achievement of 95% of Business Plan
objective (See Attachment 1A).

 

·                  Target equal to achievement of 100% of Business Plan
objective (See Attachment 1A).

 

·                  Outstanding equal to achievement of 110% of Business Plan
objective (See Attachment 1A).

 

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Forest Oil Corporation

2011 Annual Incentive Plan

Financial Measure

Cash Cost

 

Objective

 

Measure cash cost on an annual basis.

 

Definition

 

Corporate:  The sum of direct operating expense and expensed workovers,
transportation expense and total expensed G&A for the Company, but excluding ad
valorem taxes, divided by total production for the Company measured in MCFE.

 

Business Unit:  The sum of direct operating expense and expensed workovers,
transportation expense and allocated corporate G&A expense for the business
unit, but excluding ad valorem taxes, divided by production for the business
unit measured in MCFE.

 

Cash Cost excludes production severance taxes.  Additionally, the calculation of
Cash Cost for the Canadian business unit shall be calculated at the Plan
exchange rate ignoring any variance between the actual exchange rate and the
exchange rate assumed in the Plan.

 

Targets

 

Measured against an approved annual plan with:

 

·                  Threshold equal to achievement of 105% of Business Plan
objective (See Attachment 1B)

 

·                  Target equal to achievement of 100% of Business Plan
objective (See Attachment 1B)

 

·                  Outstanding equal to achievement of 90% of Business Plan
objective (See Attachment 1B)

 

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Forest Oil Corporation

2011 Annual Incentive Plan

Financial Measure

Bankable Value PV10

 

Objective

 

Measure the creation of value (NAV) by the Company through the addition of
proved reserves, lower lease operating expense (LOE), lower well costs, lower
future development Capex, marketing enhancements, remedial work, and other
efforts.

 

Definition

 

Bankable Value PV10 will measure the increase in value added on December 31,
2011 over the baseline value as of December 31, 2010, expressed as a percent of
growth in PV10, using the same database assumptions for each date.

 

The measure of Bankable Value PV10 will be pre-tax, debt-adjusted, share-count
adjusted and price-adjusted so that the effects of tax, added debt, increased
share count and price during the year are neutralized. Divestitures and land
investments are excluded from the calculation. Acquisitions are included in the
calculation.

 

The baseline for calculation of Bankable Value PV10 will be the year-end 2010
calculation of PV10 from the SEC reserve report (SMOG).  The value of any
properties sold during 2011 is subtracted, the value of capital investments
during 2011 (drilling, land, acquisitions) is added and 2011 operating income is
subtracted to arrive at a Reference PV10.  The current year SEC PV10 is then
calculated and adjusted for prices as of December 31, 2010 to arrive at an
Ending PV10.  The Bankable Value PV10 for 2011 will be the percentage change in
the Ending PV10 over the Reference PV10.

 

All reserve calculations are based on SEC reserve rules.

 

Targets

 

·                  See Attachment 1C.

 

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Forest Oil Corporation

2011 Annual Incentive Plan

Operating Measure

Business Unit and Department Performance Objectives

 

Objective

 

Measure the achievement of key objectives that are established for each business
unit and department for each year.

 

Definition

 

Objectives that are key to the success of each business unit or department have
been established by the CEO.  Objectives will be established for each corporate
staff department that directly support the achievement of business unit and
other staff department objectives.  Established objectives are specific to each
business unit or department, well-defined and to the extent possible,
measurable.

 

Targets

 

Performance Objectives will be established for the Canadian, Eastern Region,
Western Region, Southern Region, International, and New Ventures Business Units
as well as for each corporate administrative or support department. Awards to
business unit and department participants will be based on the achievement of
performance objectives established for the business unit or department in which
they work.

 

At year-end 2011 the achievement of performance objectives for each business
unit as well as for each corporate administrative or support department will be
evaluated and assigned a completion percentage by the CEO over a range of 0 —
200%.  This completion percentage will be multiplied by the 40% relative
weighting for Business Unit/Department Performance Objectives and included in
the calculation of the overall completion percentage for the business unit or
department.

 

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Attachment 1

 

2011

 

Goal Description

 

Weighting

 

Target

 

 

 

 

 

 

 

Production (Full Year)

 

20

%

See Attachment1A

 

 

 

 

 

 

 

Cash Cost

 

20

%

See Attachment 1B

 

 

 

 

 

 

 

Bankable Value PV10

 

20

%

See Attachment 1C

 

 

 

 

 

 

 

Business Unit/Department Performance Objectives

 

40

%

 

 

 

 

 

 

 

 

Total Weighting

 

100

%

 

 

 

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Attachment 1A

 

2011 Production (BCFE)

 

Business Unit

 

Threshold

 

Target

 

Outstanding

 

 

 

 

 

 

 

 

 

Company*

 

175.8

 

185.1

 

203.6

 

 

 

 

 

 

 

 

 

Canada

 

36.1

 

38.0

 

41.8

 

 

 

 

 

 

 

 

 

Eastern

 

37.5

 

39.5

 

43.4

 

 

 

 

 

 

 

 

 

Western

 

69.2

 

72.9

 

80.2

 

 

 

 

 

 

 

 

 

Southern

 

33.0

 

34.7

**

38.2

 

 

 

 

 

 

 

 

 

International*

 

—

 

—

 

—

 

 

 

 

 

 

 

 

 

New Ventures

 

—

 

—

 

—

 

 

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*Awards to Business Unit participants will be based on the Production
performance of the Business Unit in which they work with the exception of
International, New Ventures and corporate department participants, whose awards
will be based on total company results.

 

**Eagle Ford production is included in Southern Region.

 

The Threshold, Target and Outstanding objectives are directly related to the
2011 capital expenditures plan of $737 million, which excludes corporate capital
(and the underlying oil and gas price assumptions) as approved by the Forest Oil
Corporation Board of Directors.  To the extent that (i) the Company incurs more
or less than $737 million in capital expenditures in 2011, or (ii) oil and gas
prices are materially different from those assumed in the foregoing plan,
management and the Compensation Committee will adjust the objectives
appropriately.

 

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Attachment 1B

 

2011 Cash Cost

 

 

 

($/MCFE)

 

Business Unit

 

Threshold

 

Target

 

Outstanding

 

 

 

 

 

 

 

 

 

Company *

 

.636

 

.606

 

.545

 

 

 

 

 

 

 

 

 

Canada

 

.846

 

.806

 

.725

 

 

 

 

 

 

 

 

 

Eastern

 

.734

 

.699

 

.629

 

 

 

 

 

 

 

 

 

Western

 

.387

 

.360

 

.324

 

 

 

 

 

 

 

 

 

Southern

 

.838

 

.798

 

.718

 

 

 

 

 

 

 

 

 

International*

 

—

 

—

 

—

 

 

 

 

 

 

 

 

 

New Ventures*

 

—

 

—

 

—

 

 

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*Awards to Business Unit participants will be based on the Cash Cost performance
of the Business Unit in which they work with the exception of International, New
Ventures and corporate department participants, whose awards will be based on
total Company results.

 

The Threshold, Target and Outstanding objectives are directly related to the
2011 capital expenditures plan of $737 million, which excludes corporate capital
(and the underlying oil and gas price assumptions) as approved by the Forest Oil
Corporation Board of Directors.  To the extent that (i) the Company incurs more
or less than $737 million in capital expenditures in 2011, or (ii) oil and gas
prices are materially different from those assumed in the foregoing plan,
management and the Compensation Committee will adjust the objectives
appropriately.

 

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Attachment 1C

 

Bankable Value PV10

 

(MM$)

 

 

 

 

 

Threshold

 

Target

 

Outstanding

 

 

 

 

 

 

 

5

%

10

%

15

%

 

The Bankable Value PV10 results for the company will comprise the consolidated
results of the Eastern, Western, Southern, Canadian, International and New
Ventures business units. PV10 for Canada will be calculated through the date of
any spin-off of those assets to occur during 2011. PV10 for International will
be based on 1) the results of initiatives in Italy and 2) results in South
Africa up to the date of any divestiture during 2011 and excluding the effect of
any divestiture that may occur.

 

PV10 for New Ventures and all corporate staff groups for 2011 will equal the
combined results for the company. PV10 will be calculated for New Ventures for
the period December 31, 2010 to December 31, 2012 and those results will be
included in the PV10 results for the company for purposes of 2012 annual
incentive compensation awards.

 

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