Forest Oil Corporation

Annual Incentive Plan

2012

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Forest Oil Corporation
2012 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 2012, 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 2012 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

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Financial Officer will verify the performance calculation for the performance
and operating measures in consultation with the Senior Vice President, Chief
Accounting Officer and Corporate Controller and the Vice President, Corporate
Engineering, who shall be responsible for the estimation of the Company's oil
and gas reserves.

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

Measure
 Weighting 

Production
25%
Reserves
25%
Rate of Return on Company Drilling Capital
25%
Business Unit/Department Performance Objectives
25%
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.

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.

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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. Achievement at or above
the Threshold is required for award payments (starting at the 25% level) 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
2012 Annual Incentive Plan
Operating Measure
Production

Objective

Measure net production growth on an annual basis. Each business unit will be
given an aggregate net production goal, and the Plan participants in each
business unit will be judged against whether their business unit achieved its
individual goal. The business unit production goals, when added together, shall
reflect Forest's annual net production growth goal and be consistent with the
2012 Business Plan. Participants in the corporate departments will be judged
against whether the entire Company achieved its annual net production growth
goal, measured on a per diluted share basis.

Definition

Net production equals total net production (after royalty and other burdens)
equal to that set forth in the 2012 Business Plan. Production growth per diluted
share for the entire Company is calculated by dividing the quotient of the
Company's production during 2012 and the average number of diluted shares of the
Company's common stock outstanding on the last day of each month in 2012 by the
quotient of the Company's production during 2011 and the average number of
diluted shares of the Company's common stock outstanding on the last day of each
month in 2011. For purposes of computing equivalent production, the following
economic ratios will apply (a) 15-to-1 for oil/condensate to gas and (b)
7.5-to-1 for natural gas liquids to gas.

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.

Targets

The threshold, target, and outstanding objectives for the business units and the
corporate departments are shown in Attachment 1A.

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Forest Oil Corporation
2012 Annual Incentive Plan
Operating Measure
Reserves

Objective
 
Measure proved reserves growth on an annual basis. Each business unit will be
given an aggregate goal for adding proved reserves during the year, and the Plan
participants in each business unit will be judged against whether their business
unit achieved its individual goal. The business unit proved reserve additions
goals, when added together, shall reflect Forest's annual proved reserves growth
goal and be consistent with the 2012 Business Plan. Participants in the
corporate departments will be judged against whether the entire Company achieved
its annual proved reserves growth goal, measured on a per diluted share basis.

Definition

Reserves growth per diluted share for the entire Company is calculated by
dividing the quotient of the Company's U.S. proved reserves at the end of 2012
(including the effect of performance revisions, but excluding price-related
revisions) and the average number of diluted shares of the Company's common
stock outstanding on the last day of each month in 2012 by the quotient of the
Company's U.S. proved reserves at the end of 2011 and the average number of
diluted shares of the Company's common stock outstanding on the last day of each
month in 2011. Reserves added will be equal to the sum of extensions/discoveries
and performance revisions line items contained in the 2012 year-end SEC reserve
report. For purposes of computing equivalent reserves, the following economic
ratios will apply (a) 15-to-1 for oil/condensate to gas and (b) 7.5-to-1 for
natural gas liquids to gas.

Targets

The threshold, target, and outstanding objectives for the business units and the
corporate departments are shown in Attachment 1B.

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Forest Oil Corporation
2012 Annual Incentive Plan
Operating Measure
Rate of Return on Drilling Capital

Objective

Measure the annual pre-tax rate-of-return (“ROR”) achieved through the
deployment of approved drilling and completion capital.

Definition

Pre-tax rate-of-return on all capital projects during the year related to
drilling and completion projects, but excluding acquisitions, land lease,
seismic, maintenance and P&A, and capitalized G&A, equity compensation, and
interest. The price assumptions to be utilized will be those utilized for the
Investment Results Report (“IRR”). In evaluating the accomplishment of this
objective, the Compensation Committee will take into account all revisions to
estimated proved reserves made in 2012.

Targets

The threshold, target, and outstanding objectives for the business units and the
corporate departments are shown in Attachment 1C.

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Forest Oil Corporation
2012 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 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 2012 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 25% relative
weighting for Business Unit/Department Performance Objectives and included in
the calculation of the overall completion percentage for the business unit or
department.

A corporate objective tied to the Company's ratio of net debt-to-proved
developed reserves (on an adjusted equivalents basis, using an
oil/condensate-to-gas ratio of 15-to-1 and an NGLs-to-gas ratio of 7.5-to-1)
will be included. Corporate departments will also have a capital discipline
objective.

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Attachment 1

2012

Goal Description
Weighting
Target
 
 
 
Production
25%
See Attachment 1A
 
 
 
Reserves
25%
See Attachment 1B
 
 
 
Rate of Return on Company Drilling Capital
25%
See Attachment 1C
 
 
 
Business Unit/Department Objectives
25%
 
 
 
 
Total Weighting
100%
 

                                    

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Attachment 1A

2012 Production

Business Unit
 
Threshold
 
Target
 
Outstanding
 
 
 
 
 
 
 
Company (% Growth/Share)
 
0
%
 
10
%
 
20
%
 
 
 
 
 
 
 
Eastern (Bcfe)
 
53.7

 
59.7

 
65.6

 
 
 
 
 
 
 
Western (Bcfe)
 
59.7

 
66.3

 
73.0

 
 
 
 
 
 
 
Southern (Bcfe)
 
35.9

 
39.9

 
43.9

 
 
 
 
 
 
 
New Ventures (Bcfe)
 
4.1

 
5.5

 
8.1

Awards to participants in the Eastern, Western, and Southern business units and
in New Ventures will be based on the performance of the business unit in which
they work. Awards to participants in the International and corporate departments
will be based on total Company results.

The Threshold, Target and Outstanding objectives are directly related to the
2012 capital expenditures plan of $591 million, as approved by the Forest Oil
Corporation Board of Directors. To the extent that (i) the Company incurs more
or less than $591 million in capital expenditures in 2012, or (ii) oil and gas
prices are materially different from those assumed in the foregoing plan,
management and the Compensation Committee may adjust the objectives
appropriately. Further, the Threshold, Target, and Outstanding objectives will
be updated to reflect the Company's final 2011 production. In addition, diluted
shares outstanding for 2011 and forecasted diluted shares outstanding for 2012
will be updated to reflect the Company's final 2011 outstanding diluted share
count and final forecasted 2012 outstanding diluted share count, respectively.

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Attachment 1B

2012 Reserves

Business Unit
 
Threshold
 
Target
 
Outstanding
 
 
 
 
 
 
 
Company (% Growth/Share)
 
3
%
 
5
%
 
7
%
 
 
 
 
 
 
 
Eastern (Bcfe)
 
111

 
128

 
151

 
 
 
 
 
 
 
Western (Bcfe)
 
124

 
142

 
166

 
 
 
 
 
 
 
Southern (Bcfe)
 
36

 
42

 
49

 
 
 
 
 
 
 
New Ventures (Bcfe)
 
20

 
23

 
26

Awards to participants in the Eastern, Western, and Southern business units and
in New Ventures will be based on the performance of the business unit in which
they work. Awards to participants in the International and corporate departments
will be based on total Company results.

The Threshold, Target, and Outstanding objectives are directly related to the
2012 capital expenditures plan of $591 million as approved by the Forest Oil
Corporation Board of Directors. To the extent that (i) the Company incurs more
or less than $591 million in capital expenditures in 2012, or (ii) oil and gas
prices are materially different from those assumed in the foregoing plan,
management and the Compensation Committee may adjust the objectives
appropriately. Further, the Threshold, Target, and Outstanding objectives will
be updated to reflect the Company's final proved reserve estimates at December
31, 2011. In addition, diluted shares outstanding for 2011 and forecasted
diluted shares outstanding for 2012 will be updated to reflect the Company's
final 2011 outstanding diluted share count and final forecasted 2012 outstanding
diluted share count, respectively.

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Attachment 1C

2012 Rate-of-Return on Company Drilling Capital

 
Threshold
 
Target
 
Outstanding
 
 
 
 
 
 
Rate-of-Return
20
%
 
23
%
 
26
%
 
 
 
 
 
 

The Rate-of-Return (“ROR”) on Drilling Capital results for the company will
comprise the consolidated results of the Eastern, Western, Southern,
International and New Ventures business units.

ROR on Drilling Capital for all corporate staff groups will equal the combined
results for the company.

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