**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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FORM 10-Q
| **(Mark One)**                                                                                                                                                                          | ** **                                                                                              |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
| **x**                                                                                                                                                                                   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
| **For the quarterly period ended June 30,  2005**                                                                                                                                  |
| **Or**                                                                                                                                                                                  |
| **o**                                                                                                                                                                                   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
| **For the transition period from                           to** |

 

**CommissionFile Number 1-13515**

**FOREST OIL CORPORATION**

(Exact name of registrantas specified in its charter)
| **New York**                                                     | ** ** | **25-0484900**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

**1600 Broadway Suite 2200Denver, Colorado 80202**

(Address of principalexecutive offices) (Zip Code)

Registrant’s telephonenumber, including area code: **(303) 812-1400**

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Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes x  No o

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act). Yes x  No o

Asof July 31, 2005 there were 62,012,491 shares of the registrant’s common stock, par value $.10 per share,outstanding.

 

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**FOREST OILCORPORATIONINDEX TO FORM 10-QJune 30, 2005**
| Part I—FINANCIAL  INFORMATION                                                                                |   |   |
|------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Item  1—Financial Statements                                                                                      |   | 1      |
| Condensed  Consolidated Balance Sheets as of June 30, 2005 and December 31,  2004                            |   | 1      |
| Condensed  Consolidated Statements of Operations for the Three and Six Months Ended  June 30, 2005 and 2004  |   | 2      |
| Condensed  Consolidated Statement of Shareholders’ Equity for the Six Months Ended  June 30, 2005  |   | 3      |
| Condensed  Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004                  |   | 4      |
| Notes  to Condensed Consolidated Financial Statements                                                                  |   | 5      |
| Item  2—Management’s Discussion and Analysis of Financial Condition and Results of  Operations               |   | 19     |
| Item  3—Quantitative and Qualitative Disclosures about Market Risk                                                |   | 28     |
| Item  4—Controls and Procedures                                                                                   |   | 29     |
| Part II—OTHER  INFORMATION                                                                                   |   |   |
| Item  2—Unregistered Sales of Equity Securities and Use of Proceeds                                               |   | 30     |
| Item  4—Submission of Matters to a Vote of Security Holders                                                       |   | 30     |
| Item  6—Exhibits                                                                                                  |   | 31     |
| Signatures                                                                                                             |   | 32     |

 

i

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**PART I**.   FINANCIALINFORMATION

**Item 1**.   FINANCIALSTATEMENTS

**FOREST OILCORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)**
| ** **                                                                                             | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                             | ** ** | **(In Thousands)** | ** ** |
| **ASSETS**                                                                                             |       |                    |       |                        |       |   |   |
| Current assets:                                                                                        |       |                    |       |                        |       |   |   |
| Cash and cash  equivalents                                                                             |       | $                       | 14,048     |                        |       | 55,251 |   |   |
| Accounts receivable                                                                                    |       | 146,138                 |       |                        | 151,927    |   |   |
| Deferred tax asset                                                                                     |       | 66,457                  |       |                        | 38,321     |   |   |
| Other current assets                                                                                   |       | 30,019                  |       |                        | 37,969     |   |   |
| Total current assets                                                                                   |       | 256,662                 |       |                        | 283,468    |   |   |
| Property and equipment, at cost:                                                                       |       |                    |       |                        |       |   |   |
| Oil and gas  properties, full cost method of accounting:                                               |       |                    |       |                        |       |   |   |
| Proved, net of accumulated depletion of $2,887,890  and $2,701,402                                     |       | 2,728,035               |       |                        | 2,495,894  |   |   |
| Unproved                                                                                               |       | 279,603                 |       |                        | 213,870    |   |   |
| Net oil and gas properties                                                                             |       | 3,007,638               |       |                        | 2,709,764  |   |   |
| Other property and equipment, net of accumulated  depreciation and amortization of $30,913 and $28,797 |       | 20,997                  |       |                        | 11,354     |   |   |
| Net property and equipment                                                                             |       | 3,028,635               |       |                        | 2,721,118  |   |   |
| Goodwill                                                                                               |       | 99,897                  |       |                        | 68,560     |   |   |
| Other assets                                                                                           |       | 43,531                  |       |                        | 49,359     |   |   |
|                                                                                                   |       | $                       | 3,428,725  |                        |       | 3,122,505 |   |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                         |       |                    |       |                        |       |   |   |
| Current liabilities:                                                                                   |       |                    |       |                        |       |   |   |
| Accounts payable and  accrued expenses                                                                 |       | $                       | 203,122    |                        |       | 217,640 |   |   |
| Derivative instruments                                                                                 |       | 136,193                 |       |                        | 80,523     |   |   |
| Asset retirement  obligations                                                                          |       | 36,772                  |       |                        | 25,452     |   |   |
| Total current  liabilities                                                                             |       | 376,087                 |       |                        | 323,615    |   |   |
| Long-term debt                                                                                         |       | 917,958                 |       |                        | 888,819    |   |   |
| Asset retirement  obligations                                                                          |       | 180,217                 |       |                        | 184,724    |   |   |
| Derivative  instruments                                                                                |       | 41,259                  |       |                        | 20,890     |   |   |
| Other liabilities                                                                                      |       | 37,492                  |       |                        | 35,785     |   |   |
| Deferred income taxes                                                                                  |       | 317,928                 |       |                        | 196,525    |   |   |
| Total liabilities                                                                                      |       | 1,870,941               |       |                        | 1,650,358  |   |   |
| Shareholders’ equity:                                                                             |       |                    |       |                        |       |   |   |
| Preferred stock, none issued                                                                           |       | —                  |       |                        | —     |   |   |
| Common stock, 63,864 and  61,595 shares issued and outstanding                                         |       | 6,386                   |       |                        | 6,159      |   |   |
| Capital surplus                                                                                        |       | 1,493,753               |       |                        | 1,444,367  |   |   |
| Retained earnings                                                                                      |       | 157,066                 |       |                        | 66,007     |   |   |
| Accumulated other  comprehensive (loss) income                                                         |       | (48,518                 | )          |                        | 6,780      |   |   |
| Treasury stock, at cost,  1,891 and 1,902 shares held                                                  |       | (50,903                 | )          |                        | (51,166    | ) |   |
| Total shareholders’  equity                                                                       |       | 1,557,784               |       |                        | 1,472,147  |   |   |
|                                                                                                   |       | $                       | 3,428,725  |                        |       | 3,122,505 |   |   |

 

See accompanying Notes to Condensed Consolidated Financial Statements.

1

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**FOREST OILCORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)**
| ** **                                                | ** ** | **Three Months Ended  June 30,**                      | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                | ** ** | **2005**                                                             | ** ** | **2004**                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                | ** ** | **(In Thousands Except Per Share Amounts)** | ** ** |
| Revenue:                                                  |       |                                                                 |       |                                          |       |   |   |   |   |
| Oil and gas  sales:                                       |       |                                                                 |       |                                          |       |   |   |   |   |
| Natural gas                                               |       | $                                                                    | 160,115    |                                          | 131,153    |   | 314,641 |   | 255,215 |   |
| Oil, condensate and natural gas liquids                   |       | 109,240                                                              |       | 76,735                                        |       | 213,584 |   | 146,510 |   |
| Total oil and gas sales                                   |       | 269,355                                                              |       | 207,888                                       |       | 528,225 |   | 401,725 |   |
| Processing and marketing income, net                      |       | 1,700                                                                |       | 590                                           |       | 3,121 |   | 1,006 |   |
| Total revenue                                             |       | 271,055                                                              |       | 208,478                                       |       | 531,346 |   | 402,731 |   |
| Operating expenses:                                       |       |                                                                 |       |                                          |       |   |   |   |   |
| Lease operating expenses                                  |       | 45,783                                                               |       | 43,868                                        |       | 93,643 |   | 92,057 |   |
| Production and property taxes                             |       | 10,547                                                               |       | 7,095                                         |       | 20,444 |   | 14,543 |   |
| Transportation costs                                      |       | 4,583                                                                |       | 3,728                                         |       | 9,755 |   | 7,420 |   |
| General and administrative                                |       | 11,091                                                               |       | 8,169                                         |       | 21,847 |   | 14,529 |   |
| Depreciation and depletion                                |       | 97,249                                                               |       | 83,474                                        |       | 193,525 |   | 163,102 |   |
| Accretion of asset retirement obligation                  |       | 4,322                                                                |       | 4,153                                         |       | 8,599 |   | 8,428 |   |
| Impairment of oil and gas properties                      |       | —                                                               |       | 1,690                                         |       | 2,924 |   | 1,690 |   |
| Total operating expenses                                  |       | 173,575                                                              |       | 152,177                                       |       | 350,737 |   | 301,769 |   |
| Earnings from  operations                                 |       | 97,480                                                               |       | 56,301                                        |       | 180,609 |   | 100,962 |   |
| Other income and  expense:                                |       |                                                                 |       |                                          |       |   |   |   |   |
| Interest expense                                          |       | 16,061                                                               |       | 13,084                                        |       | 30,560 |   | 26,031 |   |
| Unrealized (gain) loss on derivative instruments          |       | (4,310                                                               | )          | (1,248                                        | )          | 2,270 |   | (217 | ) |
| Other expense (income), net                               |       | 1,659                                                                |       | 115                                           |       | 3,592 |   | (1,340 | ) |
| Total other income and expense                            |       | 13,410                                                               |       | 11,951                                        |       | 36,422 |   | 24,474 |   |
| Earnings before  income taxes and discontinued operations |       | 84,070                                                               |       | 44,350                                        |       | 144,187 |   | 76,488 |   |
| Income tax expense:                                       |       |                                                                 |       |                                          |       |   |   |   |   |
| Current                                                   |       | 617                                                                  |       | 157                                           |       | 2,174 |   | 868 |   |
| Deferred                                                  |       | 31,252                                                               |       | 16,063                                        |       | 50,941 |   | 27,853 |   |
| Total income tax expense                                  |       | 31,869                                                               |       | 16,220                                        |       | 53,115 |   | 28,721 |   |
| Earnings from  continuing operations                      |       | 52,201                                                               |       | 28,130                                        |       | 91,072 |   | 47,767 |   |
| Loss from  discontinued operations, net of tax            |       | —                                                               |       | —                                        |       | — |   | (575 | ) |
| Net earnings                                              |       | $                                                                    | 52,201     |                                          | 28,130     |   | 91,072 |   | 47,192 |   |
| Basic earnings per  common share:                         |       |                                                                 |       |                                          |       |   |   |   |   |
| Earnings from continuing operations                       |       | $                                                                    | .85        |                                          | .51        |   | 1.50 |   | .88 |   |
| Loss from discontinued operations, net of tax             |       | —                                                               |       | —                                        |       | — |   | (.01 | ) |
| Net earnings per common share                             |       | $                                                                    | .85        |                                          | .51        |   | 1.50 |   | .87 |   |
| Diluted earnings per  common share:                       |       |                                                                 |       |                                          |       |   |   |   |   |
| Earnings from continuing operations                       |       | $                                                                    | .83        |                                          | .50        |   | 1.46 |   | .86 |   |
| Loss from discontinued operations, net of tax             |       | —                                                               |       | —                                        |       | — |   | (.01 | ) |
| Net earnings per  common share                            |       | $                                                                    | .83        |                                          | .50        |   | 1.46 |   | .85 |   |

 

See accompanying Notes to Condensed Consolidated Financial Statements.

2

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**FOREST OILCORPORATIONCONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY(Unaudited)**
| ** **                                                                      | ** ** | ** **              | ** ** | ** **             | ** ** | ** **   | ** ** | ** **        | ** ** | ** **                         | ** ** | ** **                                    | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|--------------|------------|-------------------|------------|------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                      | ** ** | ** **              | ** ** | ** **             | ** ** | ** **   | ** ** | **Accumulated**   | ** ** | ** **                         | ** ** | ** **                                    | ** ** |
| ** **                                                                      | ** ** | ** **              | ** ** | ** **             | ** ** | ** **   | ** ** | **Other**         | ** ** | ** **                         | ** ** | **Total**                                     | ** ** |
| ** **                                                                      | ** ** | **Common Stock**   | ** ** | **Capital**            | ** ** | **Retained** | ** ** | **Comprehensive** | ** ** | **Treasury**                       | ** ** | **Shareholders’**                        | ** ** |
| ** **                                                                      | ** ** | **Shares**              | ** ** | ** Amount ** | ** ** | **Surplus**  | ** ** | **Earnings**      | ** ** | ** Income (Loss) ** | ** ** | **   Stock   ** | ** ** | **       Equity       ** | ** ** |
| ** **                                                                      | ** ** | **(In Thousands)** | ** ** |
| Balances at January 1, 2005                                                |       | 61,595                  |       |                   | $          | 6,159        |       |              | 1,444,367  |                               | 66,007     |                                          |       | 6,780 |   |   | (51,166 | ) |   | 1,472,147 |   |   |
| Exercise of warrants to  purchase shares of common stock                   |       | 1,358                   |       |                   | 136        |         |       | 14,248            |       | —                             |       |                                          | —     |   |   | — |   |   | 14,384 |   |   |
| Stock options exercised                                                         |       | 901                     |       |                   | 90         |         |       | 23,696            |       | —                             |       |                                          | —     |   |   | — |   |   | 23,786 |   |   |
| Tax benefit of stock options exercised                                          |       | —                  |       |                   | —     |         |       | 3,241             |       | —                             |       |                                          | —     |   |   | — |   |   | 3,241 |   |   |
| Employee stock purchase plan                                               |       | 10                      |       |                   | 1          |         |       | 282               |       | —                             |       |                                          | —     |   |   | — |   |   | 283 |   |   |
| Effect of issuance of treasury stock for stock  options exercised               |       | —                  |       |                   | —     |         |       | (28               | )          | (13                                | )          |                                          | —     |   |   | 272 |   |   | 231 |   |   |
| Restricted stock granted, net of forfeitures                                    |       | —                  |       |                   | —     |         |       | 9                 |       | —                             |       |                                          | —     |   |   | (9 | ) |   | — |   |   |
| Amortization of deferred stock compensation, net of  forfeitures and other |       | —                  |       |                   | —     |         |       | 443               |       | —                             |       |                                          | —     |   |   | — |   |   | 443 |   |   |
| Tax benefit of acquired net operating losses                                    |       | —                  |       |                   | —     |         |       | 7,495             |       | —                             |       |                                          | —     |   |   | — |   |   | 7,495 |   |   |
| Comprehensive earnings:                                                         |       |                    |       |                   |       |         |       |              |       |                               |       |                                          |       |   |   |   |   |   |   |   |   |
| Net earnings                                                                    |       | —                  |       |                   | —     |         |       | —            |       | 91,072                             |       |                                          | —     |   |   | — |   |   | 91,072 |   |   |
| Unrealized loss on effective derivative instruments,  net  of tax               |       | —                  |       |                   | —     |         |       | —            |       | —                             |       |                                          | (48,259    | ) |   | — |   |   | (48,259 | ) |   |
| Increase in unfunded pension liability, net of tax                              |       | —                  |       |                   | —     |         |       | —            |       | —                             |       |                                          | (149       | ) |   | — |   |   | (149 | ) |   |
| Foreign currency translation                                                    |       | —                  |       |                   | —     |         |       | —            |       | —                             |       |                                          | (6,890     | ) |   | — |   |   | (6,890 | ) |   |
| Total comprehensive earnings                                                    |       |                    |       |                   |       |         |       |              |       |                               |       |                                          |       |   |   |   |   |   | 35,774 |   |   |
| Balances at  June 30, 2005                                                 |       | 63,864                  |       |                   | $          | 6,386        |       |              | 1,493,753  |                               | 157,066    |                                          |       | (48,518 | ) |   | (50,903 | ) |   | 1,557,784 |   |   |
|                                                                                 |            |                         |            |                        |            |              |            |                   |            |                                    |            |                                               |            |  |  |  |  |  |  |  |  |  |  |

 

See accompanying Notes to Condensed Consolidated Financial Statements.

3

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**FOREST OILCORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)**
| ** **                                                                           | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                           | ** ** | **2005**                                      | ** ** | **2004** | ** ** |
| ** **                                                                           | ** ** | **(In Thousands)**                       | ** ** |
| Operating activities:                                                                |       |                                          |       |   |   |
| Net earnings                                                                         |       | $                                             | 91,072     |   | 47,192 |   |
| Adjustments to reconcile net earnings to net cash  provided by operating activities: |       |                                          |       |   |   |
| Depreciation and  depletion                                                          |       | 193,525                                       |       | 163,102 |   |
| Accretion of asset  retirement obligations                                           |       | 8,599                                         |       | 8,428 |   |
| Impairment of oil and gas properties                                                 |       | 2,924                                         |       | 1,690 |   |
| Unrealized loss (gain)  on derivative instruments                                    |       | 2,270                                         |       | (217 | ) |
| Deferred income tax  expense                                                         |       | 50,941                                        |       | 28,574 |   |
| Other, net                                                                           |       | (222                                          | )          | (2,359 | ) |
| Changes in  operating assets and liabilities, net of effects of acquisitions:        |       |                                          |       |   |   |
| Accounts receivable                                                                  |       | 20,745                                        |       | 24,251 |   |
| Other current assets                                                                 |       | 1,324                                         |       | (5,046 | ) |
| Accounts payable and  accrued expenses                                               |       | (45,755                                       | )          | (22,420 | ) |
| Net cash provided by  operating activities                                           |       | 325,423                                       |       | 243,195 |   |
| Investing activities:                                                                |       |                                          |       |   |   |
| Acquisition of  subsidiaries                                                         |       | (196,631                                      | )          | (167,968 | ) |
| Capital expenditures for property and equipment:                                     |       |                                          |       |   |   |
| Exploration, development  and other acquisition costs                                |       | (201,577                                      | )          | (163,603 | ) |
| Other fixed assets                                                                   |       | (4,853                                        | )          | (1,229 | ) |
| Proceeds from sales of  assets                                                       |       | 6,437                                         |       | 8,510 |   |
| Sale of goodwill and  contract value                                                 |       | —                                        |       | 8,493 |   |
| Other, net                                                                           |       | (5,047                                        | )          | 1,168 |   |
| Net cash used by  investing activities                                               |       | (401,671                                      | )          | (314,629 | ) |
| Financing activities:                                                                |       |                                          |       |   |   |
| Proceeds from bank  borrowings                                                       |       | 1,157,953                                     |       | 493,490 |   |
| Repayments of bank  borrowings                                                       |       | (1,126,000                                    | )          | (470,000 | ) |
| Repayments of bank debt  assumed in acquisitions                                     |       | (35,000                                       | )          | (30,000 | ) |
| Proceeds of common stock  offering, net of offering costs                            |       | —                                        |       | 117,143 |   |
| Proceeds from the  exercise of options and warrants and employee stock purchases     |       | 38,453                                        |       | 4,541 |   |
| Other, net                                                                           |       | 322                                           |       | (2,566 | ) |
| Net cash provided by  financing activities                                           |       | 35,728                                        |       | 112,608 |   |
| Effect of exchange rate  changes on cash                                             |       | (683                                          | )          | (495 | ) |
| Net (decrease) increase  in cash and cash equivalents                                |       | (41,203                                       | )          | 40,679 |   |
| Cash and cash  equivalents at beginning of period                                    |       | 55,251                                        |       | 11,509 |   |
| Cash and cash equivalents  at end of period                                          |       | $                                             | 14,048     |   | 52,188 |   |
| Cash paid during the period for:                                                     |       |                                          |       |   |   |
| Interest                                                                             |       | $                                             | 32,283     |   | 26,703 |   |
| Income taxes                                                                         |       | 5,141                                         |       | 2,993 |   |

 

See accompanying Notes to Condensed Consolidated Financial Statements.

4

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**FOREST OILCORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)**

**(1) BASIS OF PRESENTATION**

The Condensed Consolidated Financial Statementsincluded herein are unaudited and include the accounts of Forest OilCorporation and its consolidated subsidiaries (collectively, “Forest” or the “Company”).In the opinion of management, all adjustments, consisting of normal recurringaccruals, have been made which are necessary for a fair presentation of thefinancial position of Forest at June 30, 2005, the results of itsoperations for the three and six months ended June 30, 2005 and 2004, andits cash flows for the six months ended June 30, 2005 and 2004. Quarterlyresults are not necessarily indicative of expected annual results because ofthe impact of fluctuations in prices received for liquids (oil, condensate, andnatural gas liquids) and natural gas and other factors.

In the course of preparing the Condensed ConsolidatedFinancial Statements, management makes various assumptions, judgments, andestimates to determine the reported amount of assets, liabilities, revenue, andexpenses, and in the disclosures of commitments and contingencies. Changes inthese assumptions, judgments, and estimates will occur as a result of thepassage of time and the occurrence of future events and, accordingly, actualresults could differ from amounts initially established.

The more significant areas requiring the use ofassumptions, judgments, and estimates relate to volumes of oil and gas reservesused in calculating depletion, the amount of future net revenues used incomputing the ceiling test limitations, and the amount of future capital costsand abandonment obligations used in such calculations. Assumptions, judgments,and estimates are also required in determining impairments of undevelopedproperties, valuing deferred tax assets, and estimating fair values ofderivative instruments.

Certain amounts in the prior year financial statementshave been reclassified to conform to the 2005 financial statement presentation.

For a more completeunderstanding of Forest’s operations, financial position, and accountingpolicies, reference is made to the consolidated financial statements of Forest,and related notes thereto, filed with Forest’s annual report on Form 10-Kfor the year ended December 31, 2004, previously filed with the Securitiesand Exchange Commission.

**(2) ACQUISITIONS ANDDIVESTITURES**

***Acquisitions***

***BuffaloWallow Acquisition***

On April 1, 2005, Forest purchased a privatecompany whose primary assets are located in the Buffalo Wallow field in Texasand include approximately 33,000 gross acres located primarily in Hemphill andWheeler Counties, Texas (“the Buffalo Wallow Acquisition”). The purchase pricewas allocated to assets and liabilities, adjusted for tax effects, based on thefair values at the date of acquisition. The acquisition was accounted for usingthe purchase method of accounting and has been included in the consolidatedfinancial statements of Forest since the date of acquisition.

5

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**(2)ACQUISITIONS AND DIVESTITURES (Continued)**

The net cash considerationpaid for the private company was allocated as follows:
| ** **                         | ** ** | **(In Thousands)** | ** ** |
|------------------------------------|------------|-------------------------|------------|
| Current assets                     |       |                    | $          | 9,286 |   |   |
| Oil and gas  properties            |       |                    | 305,005    |   |   |
| Goodwill                           |       |                    | 38,081     |   |   |
| Other assets                       |       |                    | 68         |   |   |
| Current  liabilities               |       |                    | (25,039    | ) |   |
| Derivative  liability—current |       |                    | (6,373     | ) |   |
| Long-term  debt                    |       |                    | (35,000    | ) |   |
| Asset retirement  obligation       |       |                    | (705       | ) |   |
| Deferred taxes                     |       |                    | (88,692    | ) |   |
| Net cash  consideration            |       |                    | $          | 196,631 |   |   |

 

Goodwill of $38.1 million has been recognized to theextent that cost exceeded the fair value of net assets acquired. Goodwill isnot expected to be deductible for tax purposes. The goodwill was assigned toForest’s Western business unit. The principal factors that contributed to therecognition of goodwill include the mix of complementary high-quality assets inone of our existing core areas, lower-risk exploitation opportunities, expectedincreased cash flow from operations available for investing activities, andopportunities for cost savings through administrative and operationalsynergies.

The allocation of thepurchase price is preliminary because certain items such as the determinationof the final tax basis and the fair value of certain assets and liabilities asof the acquisition date have not been finalized.

*Acquisition of TheWiser Oil Company*

In June 2004, Forest completed its acquisition ofthe common stock of The Wiser Oil Company (“Wiser”), which held oil and gasassets located in the geographic areas of Forest’s Gulf Coast, Western, andCanada business units (“the Wiser Acquisition”).

The following unauditedpro forma consolidated statements of operations information assumes that theWiser Acquisition occurred as of January 1, 2004. The pro forma results ofoperations is not necessarily indicative of the results of operations thatwould have actually been attained if the transaction had occurred as of January 1,2004.
| ** **                           | ** ** | **Three Months**              | ** ** | **Six Months**         | ** ** |
|--------------------------------------|------------|------------------------------------|------------|-----------------------------|------------|
| ** **                           | ** ** | **Ended**                          | ** ** | **Ended**                   | ** ** |
| ** **                           | ** ** | **June 30, 2004**        | ** ** | **June 30, 2004** | ** ** |
| ** **                           | ** ** | **(In Thousands Except** | ** ** |
| ** **                           | ** ** | **Per Share Amounts)**   | ** ** |
| Total revenue                        |       |                               | $          | 243,311                     |       |   |   | 465,961 |   |   |
| Earnings from  continuing operations |       |                               | 30,604     |                        |       |   | 46,691 |   |   |
| Net earnings                         |       |                               | 30,604     |                        |       |   | 46,116 |   |   |
| Basic earnings  per share            |       |                               | .55        |                        |       |   | .85 |   |   |
| Diluted earnings per  share          |       |                               | .54        |                        |       |   | .83 |   |   |

 

6

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**(2)ACQUISITIONS AND DIVESTITURES (Continued)**

***Divestitures***

On March 1, 2004, the assets and businessoperations of Forest’s Canadian marketing subsidiary, ProMark, were sold toCinergy Canada, Inc. (“Cinergy”) for $11.2 million CDN. Under the terms ofthe purchase and sale agreement, Cinergy will market natural gas (not alreadysubject to prior contractual commitments) on behalf of Forest’s Canadianexploration and production subsidiary, Canadian Forest Oil Ltd., for five years.Cinergy will also administer the netback pool formerly administered by ProMark.Forest could receive additional contingent payments over the next five years ifCinergy meets certain earnings goals with respect to the acquired business.

As aresult of the sale, ProMark’s results of operations have been reported asdiscontinued operations in the accompanying financial statements. Thecomponents of loss from discontinued operations for the six months ended June 30,2004 are as follows:
| ** **                                     | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------|------------|--------------------------------|------------|
| ** **                                     | ** ** | **June 30, 2004**    | ** ** |
| ** **                                     | ** ** | **(In Thousands)**        | ** ** |
| Marketing  revenue, net                        |       |                           | $          | 597 |   |   |
| General and  administrative expense            |       |                           | (280       | ) |   |
| Interest expense                               |       |                           | (2         | ) |   |
| Other expense                                  |       |                           | (166       | ) |   |
| Current income  tax expense                    |       |                           | (2         | ) |   |
| Deferred income  tax expense                   |       |                           | (722       | ) |   |
| Loss from discontinued  operations, net of tax |       |                           | $          | (575 | ) |   |

 

**(3) EARNINGS PERSHARE AND COMPREHENSIVE EARNINGS (LOSS)**

***Earnings per Share***

Basic earnings per share is computed by dividing netearnings from continuing operations attributable to common stock by theweighted average number of common shares outstanding during each period,excluding treasury shares.

Dilutedearnings per share is computed by adjusting the average number of common sharesoutstanding for the dilutive effect, if any, of convertible preferred stock,stock options, unvested restricted stock grants, and warrants. The followingsets forth the calculation of basic and diluted earnings per share:
| ** **                                                                               | ** ** | **Three Months**                                                | ** ** | **Six Months**                                      | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                               | ** ** | **Ended June 30,**                                              | ** ** | **Ended June 30,**                             | ** ** |
| ** **                                                                               | ** ** | **    2005    **             | ** ** | **    2004    ** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                               | ** ** | **(In Thousands Except Per Share Amounts)** | ** ** |
| Earnings from  continuing operations                                                     |       | $                                                                    | 52,201     |                                                     | 28,130     |   | 91,072 |   | 47,767 |   |
| Weighted average  common shares outstanding during the period                            |       | 61,419                                                               |       | 55,437                                                   |       | 60,817 |   | 54,560 |   |
| Add dilutive  effects of stock options and unvested restricted stock grants              |       | 990                                                                  |       | 281                                                      |       | 984 |   | 301 |   |
| Add dilutive  effects of warrants                                                        |       | 318                                                                  |       | 719                                                      |       | 632 |   | 733 |   |
| Weighted average  common shares outstanding including the effects of dilutive securities |       | 62,727                                                               |       | 56,437                                                   |       | 62,433 |   | 55,594 |   |
| Basic earnings  per share from continuing operations                                     |       | $                                                                    | .85        |                                                     | .51        |   | 1.50 |   | .88 |   |
| Diluted earnings per  share from continuing operations                                   |       | $                                                                    | .83        |                                                     | .50        |   | 1.46 |   | .86 |   |

 

7

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**(3)EARNINGS PER SHARE AND COMPREHENSIVE EARNINGS (LOSS) (Continued)**

For the three months ended June 30, 2005 and2004, options to purchase 30,500 and 1,545,450 shares of common stock,respectively, were not included in the computation of diluted earnings pershare, because the exercise prices of these options were greater than theaverage market price of the common stock during the period. For thesix months ended June 30, 2005 and 2004, options to purchase 27,500and 1,539,950 shares of common stock, respectively, were not included in the computationof diluted earnings per share, because the exercise prices of these optionswere greater than the average market price of the common stock during theperiod.

As of June 30, 2005,Forest has no outstanding Subscription Warrants. Forest had SubscriptionWarrants which entitled the holder to purchase 0.8 shares of Common Stock for$10.00, or an equivalent per share of $12.50 per share, and which wereoriginally scheduled to expire on March 20, 2010 or earlier upon notice ofexpiration (the “Subscription Warrants”). On April 8, 2005, Forest gavenotice that it was accelerating the expiration of the Subscription Warrants to May 9,2005.

***Comprehensive Earnings (Loss):***

Comprehensive earnings (loss) is a term used to referto net earnings (loss) plus other comprehensive income (loss). Othercomprehensive income (loss) is comprised of revenues, expenses, gains, andlosses that under generally accepted accounting principles are reported asseparate components of shareholders’ equity instead of net earnings (loss).Items included in Forest’s other comprehensive income (loss) for the three andsix months ended June 30, 2005 and 2004 are foreign currency gains(losses) related to the translation of the assets and liabilities of Forest’sCanadian operations, changes in the unfunded pension liability, unrealizedgains (losses) related to the change in fair value of derivative instrumentsdesignated as cash flow hedges, and unrealized gains (losses) related to thechange in fair value of securities held for sale.

The componentsof comprehensive earnings (loss) are as follows:
| ** **                                                    | ** ** | **Three Months **  | ** ** | **Six Months**          | ** ** |
|---------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                    | ** ** | **Ended June 30,** | ** ** | **Ended June 30,** | ** ** |
| ** **                                                    | ** ** | **2005**                     | ** ** | **2004**                     | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                    | ** ** | **(In Thousands)**      | ** ** |
| Net earnings                                                  |       | $                            | 52,201     |                         | 28,130     |   | 91,072 |   | 47,192 |   |
| Other comprehensive  income (loss):                           |       |                         |       |                         |       |   |   |   |   |
| Foreign currency translation losses                           |       | (4,011                       | )          | (4,327                       | )          | (6,890 | ) | (7,369 | ) |
| Unfunded pension liability, net of tax                        |       | —                       |       | —                       |       | (149 | ) | 6 |   |
| Unrealized gain (loss) on derivative instruments,  net of tax |       | 27,250                       |       | (4,707                       | )          | (48,259 | ) | (27,433 | ) |
| Unrealized gain on securities available for sale,  net of tax |       | —                       |       | 875                          |       | — |   | 875 |   |
| Total  comprehensive earnings                                 |       | $                            | 75,440     |                         | 19,971     |   | 35,774 |   | 13,271 |   |

 

**(4) STOCK-BASEDCOMPENSATION**

Forest applies APB Opinion25, *Accounting for Stock Issued to Employees*,and related Interpretations to account for its stock-based compensationplans. Accordingly, no compensation cost is recognized for options granted at aprice equal to or greater than the fair market value of the common stock.Compensation cost is recognized over the vesting period of options granted at aprice less than the fair market value of the common stock at the date of thegrant. No compensation cost is recognized for stock purchase rights thatqualify under Section 423 of the Internal Revenue Code as anon-compensatory plan. Had compensation cost for Forest’s stock option grantsand stock purchase rights been determined using the fair value of the optionsat the grant date as prescribed by Statement of Financial Accounting 

8

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**(4)STOCK-BASED COMPENSATION (Continued)**

Standards No. 123, *Accounting for Stock-Based Compensation*, Forest’s proforma net earnings and earnings per common share would have been as follows:
| ** **                                                                                                                   | ** ** | **Three Months**                                                | ** ** | **Six Months**                                            | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                                                                   | ** ** | **Ended June 30,**                                         | ** ** | **Ended June 30,**                                   | ** ** |
| ** **                                                                                                                   | ** ** | **    2005     **       | ** ** | **    2004     ** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                   | ** ** | **(In Thousands Except Per Share Amounts)** | ** ** |
| Net earnings  attributable to common stockholders, as reported                                                               |       | $                                                                    | 52,201     |                                                           |       | 28,130 |   |   | 91,072 |   | 47,192 |   |
| Add: Stock-based employee compensation included in  reported net earnings, net of tax                                        |       | 125                                                                  |       |                                                           | —     |   |   | 257 |   | — |   |
| Deduct: Total stock-based employee compensation  expense determined under fair value based method for all awards, net of tax |       | (1,710                                                               | )          |                                                           | (2,959     | ) |   | (2,994 | ) | (5,615 | ) |
| Pro forma net earnings                                                                                                       |       | $                                                                    | 50,616     |                                                           |       | 25,171 |   |   | 88,335 |   | 41,577 |   |
| Earnings per share:                                                                                                          |       |                                                                 |       |                                                           |       |   |   |   |   |   |   |
| Basic earnings per common share:                                                                                             |       |                                                                 |       |                                                           |       |   |   |   |   |   |   |
| As reported                                                                                                                  |       | $                                                                    | .85        |                                                           |       | .51 |   |   | 1.50 |   | .87 |   |
| Pro forma                                                                                                                    |       | $                                                                    | .82        |                                                           |       | .45 |   |   | 1.45 |   | .76 |   |
| Diluted earnings per common share:                                                                                           |       |                                                                 |       |                                                           |       |   |   |   |   |   |   |
| As reported                                                                                                                  |       | $                                                                    | .83        |                                                           |       | .50 |   |   | 1.46 |   | .85 |   |
| Pro forma                                                                                                                    |       | $                                                                    | .81        |                                                           |       | .45 |   |   | 1.41 |   | .75 |   |

 

**(5) LONG-TERM DEBT**

Componentsof long-term debt are as follows:
| ** **                       | ** ** | **June 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|----------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                       | ** ** | ** **                  | ** ** | **Unamortized**                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Unamortized** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | ** **                  | ** ** | **Premium**                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Premium** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **Principal**               | ** ** | **(Discount)**                  | ** ** | **Other**(1) | ** ** | **Total** | ** ** | **Principal** | ** ** | **(Discount)** | ** ** | **Other**(1) | ** ** | **Total** | ** ** |
| ** **                       | ** ** | **(In Thousands)**     | ** ** |
| U.S. Credit Facility             |       | $                           | 184,000    |                            |       | — |   |   | — |   | 184,000 |   | 152,000 |   |   | — |   |   | — |   | 152,000 |   |
| Canadian Credit Facility         |       | —                      |       |                            | —     |   |   | — |   | — |   | — |   |   | — |   |   | — |   | — |   |
| 8% Senior Notes Due 2008         |       | 265,000                     |       |                            | (292       | ) |   | 6,811 |   | 271,519 |   | 265,000 |   |   | (341 | ) |   | 7,952 |   | 272,611 |   |
| 8% Senior Notes Due 2011         |       | 285,000                     |       |                            | 8,396      |   |   | 5,414 |   | 298,810 |   | 285,000 |   |   | 9,042 |   |   | 5,829 |   | 299,871 |   |
| 73¤4% Senior Notes Due 2014 |       | 150,000                     |       |                            | (2,109     | ) |   | 15,738 |   | 163,629 |   | 150,000 |   |   | (2,228 | ) |   | 16,565 |   | 164,337 |   |
|                             |       | $                           | 884,000    |                            |       | 5,995 |   |   | 27,963 |   | 917,958 |   | 852,000 |   |   | 6,473 |   |   | 30,346 |   | 888,819 |   |

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(1)                 Representsthe unamortized portion of gains realized upon termination of interest rateswaps that were accounted for as fair value hedges. The gains are being amortizedas a reduction of interest expense over the terms of the note issues.

**(6) PROPERTY ANDEQUIPMENT**

Forest uses the full cost method of accounting for oiland gas properties. Separate cost centers are maintained for each country inwhich Forest has operations. During the periods presented, Forest’s primary oiland gas operations were conducted in the United States and Canada. All costsincurred in the acquisition, exploration, and development of properties(including costs of surrendered and abandoned leaseholds, delay lease rentals,dry holes, and overhead related to exploration and development activities) andthe fair value of estimated future costs of site restoration, dismantlement,and abandonment activities 

9

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**(6)PROPERTY AND EQUIPMENT (Continued)**

are capitalized. For thesix months ended June 30, 2005 and 2004, Forest capitalized $12.6 millionand $11.8 million, respectively, of general and administrative costs related toexploration and development activity. Costs associated with production andgeneral corporate activities are expensed in the period incurred.

Investments in unproved properties, including relatedcapitalized interest costs, are not depleted pending determination of theexistence of proved reserves. Unproved properties are assessed periodically toascertain whether impairment has occurred. Unproved properties whose costs areindividually significant are assessed individually by considering the primarylease terms of the properties, the holding period of the properties, andgeographic and geologic data obtained relating to the properties. Where it isnot practicable to assess individually the amount of impairment of propertiesfor which costs are not individually significant, such properties are groupedfor purposes of assessing impairment. The amount of impairment assessed isadded to the costs to be amortized, or is reported as a period expense, asappropriate.

Pursuant to full cost accounting rules, capitalizedcosts less related accumulated depletion and deferred income taxes for eachcost center may not exceed the sum of (1) the present value of future netrevenue from estimated production of proved oil and gas reserves using currentprices, including the effects of derivative instruments but excluding thefuture cash outflows associated with settling asset retirement obligations thathave been accrued on the balance sheet, and a discount factor of 10%; plus (2) thecost of properties not being amortized, if any; plus (3) the lower of costor estimated fair value of unproved properties included in the costs beingamortized, if any; less (4) income tax effects related to differences inthe book and tax basis of oil and gas properties. There were no such provisionsfor impairment of oil and gas properties in the periods presented, although ourCanadian full cost pool, in particular, could be adversely impacted by moderatedeclines in commodity prices. Gain or loss is not recognized on the sale of oiland gas properties unless the sale significantly alters the relationshipbetween capitalized costs and estimated proved oil and gas reservesattributable to a cost center.

Depletion of proved oiland gas properties is computed on the units-of-production method, wherebycapitalized costs, as adjusted for future development costs and assetretirement obligations, are amortized over the total estimated proved reserves.Furniture and fixtures, computer hardware and software, and other equipment aredepreciated on the straight-line or declining balance method, based uponestimated useful lives of the assets ranging from five to 14 years.

**(7) ASSET RETIREMENTOBLIGATIONS**

Forest records estimated future asset retirementobligations pursuant to the provisions of Statement of Financial AccountingStandards No. 143, *Accounting for AssetRetirement Obligations* (“SFAS No. 143”). SFAS No. 143requires entities to record the fair value of a liability for an assetretirement obligation in the period in which it is incurred with acorresponding increase in the carrying amount of the related long-lived asset. Subsequentto initial measurement, the asset retirement liability is required to beaccreted each period to its present value. Capitalized costs are depleted as acomponent of the full cost pool using the units of production method. Forest’sasset retirement obligations consist of costs related to the plugging of wells,the removal of facilities and equipment, and site restoration on oil and gasproperties.

10

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**(7) ASSETRETIREMENT OBLIGATIONS (Continued)**

The following tablesummarizes the activity for Forest’s asset retirement obligations for thesix months ended June 30, 2005 and 2004:
| ** **                                           | ** ** | **Six Months **    | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|
| ** **                                           | ** ** | **Ended June 30,** | ** ** |
| ** **                                           | ** ** | **2005**                     | ** ** | **2004** | ** ** |
| ** **                                           | ** ** | **(In Thousands)**      | ** ** |
| Asset retirement  obligations at beginning of period |       | $                            | 210,176    |   | 211,432 |   |
| Accretion expense                                    |       | 8,599                        |       | 8,428 |   |
| Liabilities  incurred                                |       | 3,433                        |       | 10,025 |   |
| Liabilities  assumed                                 |       | 705                          |       | 7,997 |   |
| Liabilities  settled                                 |       | (9,266                       | )          | (913 | ) |
| Revisions of  estimated liabilities                  |       | 3,561                        |       | 3,898 |   |
| Impact of foreign  currency exchange rate            |       | (219                         | )          | (213 | ) |
| Asset retirement  obligations at end of period       |       | 216,989                      |       | 240,654 |   |
| Less: current  asset retirement obligations          |       | (36,772                      | )          | (24,746 | ) |
| Long-term asset  retirement obligations              |       | $                            | 180,217    |   | 215,908 |   |

 

**(8) EMPLOYEE BENEFITS**

Thefollowing table sets forth the components of the net periodic cost of theCompany’s defined benefit pension plans and post retirement benefits in theUnited States for the three and six months ended June 30, 2005 and2004:
| ** **                      | ** ** | ** **                       | ** ** | ** **                       | ** ** | **Postretirement**               | ** ** | ** **                       | ** ** | ** **                       | ** ** | **Postretirement**               | ** ** |
|---------------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                      | ** ** | **Pension Benefits**        | ** ** | **Benefits**(1)                  | ** ** | **Pension Benefits**        | ** ** | **Benefits**(1)                  | ** ** |
| ** **                      | ** ** | **Three Months **      | ** ** | **Three Months **      | ** ** | **Six Months**              | ** ** | **Six Months**              | ** ** |
| ** **                      | ** ** | **Ended June 30,**     | ** ** | **Ended June 30,**     | ** ** | **Ended June 30,**     | ** ** | **Ended June 30,**     | ** ** |
| ** **                      | ** ** | **  2005  ** | ** ** | **  2004  ** | ** ** | **  2005  ** | ** ** | **  2004  ** | ** ** | **  2005  ** | ** ** | **  2004  ** | ** ** | **  2005  ** | ** ** | **  2004  ** | ** ** |
| ** **                      | ** ** | **(In Thousands)**          | ** ** |
| Service cost                    |       | $                                | —     |                             |       | —                           |       |                             |       | 167                              |       |                             |       | 158 |   |   | — |   |   | — |   |   |   | 334 |   |   |   | 316 |   |   |
| Interest cost                   |       | 581                              |       |                             | 431        |                             |       |                             | 113        |                             |       |                             | 138        |   |   | 1,162 |   |   | 832 |   |   |   | 226 |   |   |   | 276 |   |   |
| Expected return  on plan assets |       | (586                             | )          |                             | (381       | )                                |       |                             | —     |                             |       |                             | —     |   |   | (1,172 | ) |   | (762 | ) |   |   | — |   |   |   | — |   |   |
| Recognized  actuarial loss      |       | 188                              |       |                             | 173        |                             |       |                             | —     |                             |       |                             | 12         |   |   | 376 |   |   | 346 |   |   |   | — |   |   |   | 24 |   |   |
| Total net periodic  expense     |       | $                                | 183        |                             |       | 223                              |       |                             |       | 280                              |       |                             |       | 308 |   |   | 366 |   |   | 416 |   |   |   | 560 |   |   |   | 616 |   |   |

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(1)                 Foresthas recently concluded that the benefits provided by the plan are actuariallyequivalent to Medicare Part D under the Medicare Prescription Drug,Improvement and Modernization Act of 2003 (the “Act”). As a result of the Act’ssubsidy, Forest’s projected benefit obligation was reduced by approximately $.5million in 2005.

**(9) FINANCIALINSTRUMENTS**

Forest recognizes the fairvalue of its derivative instruments as assets or liabilities on the balancesheet. The accounting treatment for the changes in fair value is dependent uponwhether or not a derivative instrument is a cash flow hedge or a fair valuehedge, and upon whether or not the derivative qualifies as an effective hedge.Changes in fair value of cash flow hedges are recognized, to the extent thehedge is effective, in other comprehensive income until the hedged item isrecognized in earnings. For fair value hedges, to the extent the hedge iseffective, there is no effect on the statement of operations because changes infair value of the derivative offset changes in the fair value of the hedgeditem. For derivative instruments that do not qualify as fair value hedges orcash flow hedges and ineffective portions of hedges designated as cash flowhedges, changes in fair value are recognized in earnings as other income or expense.Unless otherwise noted, all of Forest’s derivative instruments in place at June 30,2005 have been designated as cash flow hedges.

11

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**(9) FINANCIALINSTRUMENTS (Continued)**

***Commodity Hedges***

Forest periodically hedges a portion of its oil andgas production through swap, basis swap, and collar agreements. The purpose ofthe hedges is to provide a measure of stability to Forest’s cash flows in anenvironment of volatile oil and gas prices and to manage the exposure tocommodity price risk.

The tables below setforth, as of June 30, 2005, the quantity of oil and gas hedged undercommodity swaps and collars.
| ** **           | ** ** | **Swaps**                                 | ** ** |
|----------------------|------------|-------------------------------------------|------------|
| ** **           | ** ** | **Natural Gas (NYMEX HH)** | ** ** | **Oil (NYMEX WTI)** | ** ** |
| ** **           | ** ** | ** **                                | ** ** | **Weighted Average** | ** ** | ** ** | ** ** | **Weighted Average** | ** ** |
| ** **           | ** ** | **Bbtu**                                  | ** ** | **Hedged Price** | ** ** | **Barrels** | ** ** | **Hedged Price** | ** ** |
| ** **           | ** ** | **Per Day**                          | ** ** | **per MMBtu** | ** ** | **Per Day** | ** ** | **per Bbl** | ** ** |
| Third Quarter  2005  |       |                                      | 110.0      |   |   |   | $ | 5.18 |   |   |   | 8,500 |   |   |   | $ | 35.42 |   |   |
| Fourth Quarter  2005 |       |                                      | 103.4      |   |   |   | 5.09 |   |   |   | 8,500 |   |   |   | 35.42 |   |   |
| First Quarter 2006   |       |                                      | 50.0       |   |   |   | 6.02 |   |   |   | 4,000 |   |   |   | 31.58 |   |   |
| Second Quarter 2006  |       |                                      | 50.0       |   |   |   | 6.02 |   |   |   | 4,000 |   |   |   | 31.58 |   |   |
| Third Quarter 2006   |       |                                      | 50.0       |   |   |   | 6.02 |   |   |   | 4,000 |   |   |   | 31.58 |   |   |
| Fourth Quarter  2006 |       |                                      | 50.0       |   |   |   | 6.02 |   |   |   | 4,000 |   |   |   | 31.58 |   |   |

 
| ** **           | ** ** | **Costless Collars**                 | ** ** |
|----------------------|------------|-------------------------------------------|------------|
| ** **           | ** ** | **Natural Gas (NYMEX HH)** | ** ** | **Oil (NYMEX WTI)** | ** ** |
| ** **           | ** ** | ** **                                | ** ** | **Weighted Average** | ** ** | ** ** | ** ** | **Weighted Average** | ** ** |
| ** **           | ** ** | ** **                                | ** ** | **Hedged Floor and** | ** ** | ** ** | ** ** | **Hedged Floor and** | ** ** |
| ** **           | ** ** | **Bbtu**                                  | ** ** | **Ceiling Price** | ** ** | **Barrels** | ** ** | **Ceiling Price** | ** ** |
| ** **           | ** ** | **Per Day**                          | ** ** | **per MMBtu** | ** ** | **Per Day** | ** ** | **per Bbl** | ** ** |
| Third Quarter  2005  |       |                                      | 30.0       |   |   |   | $ | 6.45/7.39 |   |   |   | 1,000 |   |   |   | $ | 42.00/47.30 |   |   |
| Fourth Quarter  2005 |       |                                      | 23.4       |   |   |   | 6.48/7.42 |   |   |   | 1,000 |   |   |   | 42.00/47.30 |   |   |
| First Quarter  2006  |       |                                      | 20.0       |   |   |   | 6.32/11.00 |   |   |   | 5,500 |   |   |   | 46.73/65.87 |   |   |
| Second Quarter  2006 |       |                                      | 20.0       |   |   |   | 6.32/11.00 |   |   |   | 5,500 |   |   |   | 46.73/65.87 |   |   |
| Third Quarter  2006  |       |                                      | 20.0       |   |   |   | 6.32/11.00 |   |   |   | 5,500 |   |   |   | 46.73/65.87 |   |   |
| Fourth Quarter 2006  |       |                                      | 20.0       |   |   |   | 6.32/11.00 |   |   |   | 5,500 |   |   |   | 46.73/65.87 |   |   |

 
| ** **          | ** ** | **Three-way Collars**    | ** ** |
|---------------------|------------|-------------------------------|------------|
| ** **          | ** ** | **Oil (NYMEX WTI)** | ** ** |
| ** **          | ** ** | ** **                    | ** ** | **Weighted** | ** ** | **Weighted** | ** ** | **Weighted ** | ** ** |
| ** **          | ** ** | ** **                    | ** ** | **Average Hedged** | ** ** | **Average Hedged** | ** ** | **Average Hedged** | ** ** |
| ** **          | ** ** | **Barrels**                   | ** ** | **Lower Floor Price** | ** ** | **Upper Floor Price** | ** ** | **Ceiling Price** | ** ** |
| ** **          | ** ** | **per Day**              | ** ** | **per Bbl** | ** ** | **per Bbl** | ** ** | **per Bbl** | ** ** |
| Third Quarter  2005 |       |                          | 1,500      |   |   |   | $ | 24.00 |   |   |   | $ | 28.00 |   |   |   | $ | 32.00 |   |   |
| Fourth Quarter 2005 |       |                          | 1,500      |   |   |   | 24.00 |   |   |   | 28.00 |   |   |   | 32.00 |   |   |

 

Forest also obtained thefollowing collar agreements in the Buffalo Wallow Acquisition. These collaragreements could not be designated as cash flow hedges by Forest undergenerally accepted accounting principles, because the collars had unrealizedlosses at the date of the Buffalo Wallow Acquisition.
| ** **          | ** ** | **Natural Gas (NYMEX HH)** | ** ** |
|---------------------|------------|-------------------------------------------|------------|
| ** **          | ** ** | ** **                                | ** ** | **Weighted Average** | ** ** | **Weighted Average** | ** ** |
| ** **          | ** ** | **Bbtu**                                  | ** ** | **Hedged Floor Price** | ** ** | **Hedged Ceiling Price** | ** ** |
| ** **          | ** ** | **per Day**                          | ** ** | **per MMBtu** | ** ** | **per MMBtu** | ** ** |
| Third Quarter  2005 |       |                                      | 20.0       |   |   |   | $ | 5.13 |   |   |   | $ | 6.86 |   |   |
| Fourth Quarter 2005 |       |                                      | 20.0       |   |   |   | 5.13 |   |   |   | 6.86 |   |   |

 

12

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**(9)FINANCIAL INSTRUMENTS (Continued)**

Forest also uses basis swaps in connection withnatural gas swaps in order to fix the price differential between the NYMEXprice and the index price at which the hedged gas is sold. At June 30,2005, there were basis swaps not designated as cash flow hedges in place withweighted average volumes of 40.0 Bbtu per day for the remainder of 2005.

Thetable below sets forth realized and unrealized losses Forest incurred relatedto its hedging activities for the periods indicated.
| ** **                                                                                                                                        | ** ** | **Three Months**        | ** ** | **Six Months**          | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                        | ** ** | **Ended June 30,** | ** ** | **Ended June 30,** | ** ** |
| ** **                                                                                                                                        | ** ** | **2005**                     | ** ** | **2004**                     | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                                        | ** ** | **(In Thousands)**      | ** ** |
| Realized losses  on derivatives designated as cash flow hedges(1) (3)                                                                        |       | $                            | 33,541     |                         | 30,211     |   | 54,350 |   | 49,662 |   |
| Realized gains on  derivatives not designated as cash flow hedges(2) (4)                                                                     |       | (850                         | )          | (468                         | )          | (318 | ) | (984 | ) |
| Unrealized  (gains) losses on derivatives not designated as cash flow hedges and  ineffective portion of hedges designated as cash flow hedges(3) |       | (4,310                       | )          | (1,248                       | )          | 2,270 |   | (217 | ) |
| Total loss recognized                                                                                                                             |       | $                            | 28,381     |                         | 28,495     |   | 56,302 |   | 48,461 |   |

----

(1)                 Included in oiland gas sales in the Condensed Consolidated Statements of Operations.

(2)                 Included in otherexpense (income), net in the Condensed Consolidated Statements of Operations.

(3)                 Included in netcash flows from operating activities in the Condensed Consolidated Statementsof Cash Flows.

(4)                 Included in netcash flows from financing activities in the Condensed Consolidated Statementsof Cash Flows.

At June 30, 2005, thenet fair value of Forest’s commodity derivative contracts was a net liabilityof $171.2 million. The net $171.2 million includes a derivative asset of $6.3million (of which $3.0 million was classified as current) and a derivativeliability of $177.5 million (of which $136.2 million was classified as current).Based on the estimated fair values of the derivative contracts at June 30,2005, Forest would reclassify net losses of $133.2 million into earningsrelated to the derivative contracts during the next 12 months; however,actual gains or losses recognized may differ materially. Forest is exposed torisks associated with swap and collar agreements arising from movements in theprices of oil and natural gas and from the unlikely event of non-performance bythe counterparties to the swap and collar agreements.

***Interest Rate Swaps***

In prior years, Forestentered into interest rate swaps designated as fair value hedges of fixed ratedebt. The swaps were intended to exchange the fixed interest rates on the notesfor variable rates over the terms of the notes. Forest terminated theseinterest rate swaps in 2002 and 2003. The aggregate gains of $40.7 million weredeferred and added to the carrying value of the related debt, and are beingamortized as a reduction of interest expense over the remaining terms of thenotes. During the three months ended June 30, 2005 and 2004, Forestrecognized a portion of the gains by reducing interest expense by $1.2 millionin each period. During the six months ended June 30, 2005 and 2004, Forestrecognized a portion of the gains by reducing interest expense by $2.4 millionand $2.5 million, respectively.

**(10) COMMON STOCKOFFERING**

In June 2004, Forestissued 5.0 million shares of common stock at a price of $24.40 per share.Net proceeds from this offering were approximately $117.1 million afterdeducting underwriting discounts and commissions and estimated offeringexpenses. The net proceeds from the offering were used to fund a portion of theWiser Acquisition.

13

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**(11) BUSINESS ANDGEOGRAPHICAL SEGMENTS**

Segment information hasbeen prepared in accordance with Statement of Financial Accounting Standards No. 131,*Disclosures About Segments of an Enterpriseand Related Information*. At June 30, 2005, Forest had fivereportable segments consisting of oil and gas operations in five business units(Gulf Coast, Western, Alaska, Canada, and International). Forest’s remainingprocessing activities are not significant and therefore are not reported as aseparate segment, but are included as a reconciling item in the informationbelow. The segments were determined based upon the type of operations in eachbusiness unit and the geographical location of each. The segment data presentedbelow was prepared on the same basis as the Condensed Consolidated FinancialStatements.

**Three Months Ended June 30, 2005**
| ** **                               | ** ** | **Oil and Gas Operations** | ** ** |
|------------------------------------------|------------|-------------------------------------------|------------|
| ** **                               | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Total** | ** ** |
| ** **                               | ** ** | **Gulf Coast**                       | ** ** | **Western** | ** ** | **Alaska** | ** ** | **Total U.S.** | ** ** | **Canada** | ** ** | **International** | ** ** | **Company** | ** ** |
| ** **                               | ** ** | **(In Thousands)**                   | ** ** |
| Revenue                                  |       | $                                         | 136,050    |   | 70,132 |   | 27,004 |   | 233,186 |   | 36,169 |   |   | — |   |   | 269,355 |   |
| Expenses:                                |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Lease operating expenses                 |       | 22,034                                    |       | 9,232 |   | 10,016 |   | 41,282 |   | 4,501 |   |   | — |   |   | 45,783 |   |
| Production and property taxes            |       | 3,431                                     |       | 6,288 |   | 559 |   | 10,278 |   | 269 |   |   | — |   |   | 10,547 |   |
| Transportation costs                     |       | 1,112                                     |       | 447 |   | 1,827 |   | 3,386 |   | 1,197 |   |   | — |   |   | 4,583 |   |
| General and administrative               |       | 2,562                                     |       | 1,356 |   | 909 |   | 4,827 |   | 1,283 |   |   | 304 |   |   | 6,414 |   |
| Depletion                                |       | 49,123                                    |       | 25,160 |   | 7,762 |   | 82,045 |   | 14,349 |   |   | — |   |   | 96,394 |   |
| Accretion of asset retirement obligation |       | 3,503                                     |       | 215 |   | 391 |   | 4,109 |   | 203 |   |   | 10 |   |   | 4,322 |   |
| Earnings (loss) from operations          |       | $                                         | 54,285     |   | 27,434 |   | 5,540 |   | 87,259 |   | 14,367 |   |   | (314 | ) |   | 101,312 |   |
| Capital expenditures                     |       | $                                         | 67,335     |   | 323,512 |   | 5,514 |   | 396,361 |   | 11,926 |   |   | 987 |   |   | 409,274 |   |
| Net oil and gas properties               |       | $                                         | 1,246,978  |   | 937,697 |   | 372,810 |   | 2,557,485 |   | 395,424 |   |   | 54,729 |   |   | 3,007,638 |   |
| Goodwill                                 |       | $                                         | 14,602     |   | 70,583 |   | — |   | 85,185 |   | 14,712 |   |   | — |   |   | 99,897 |   |

 

Information for reportablesegments relates to Forest’s June 30, 2005 consolidated totals as follows:
| ** **                                                | ** ** | **(In Thousands)** | ** ** |
|-----------------------------------------------------------|------------|-------------------------|------------|
| Earnings from  operations for reportable segments         |       |                    | $          | 101,312 |   |   |
| Processing and  marketing income, net                     |       |                    | 1,700      |   |   |
| Corporate general  and administrative expense             |       |                    | (4,677     | ) |   |
| Administrative  asset depreciation                        |       |                    | (855       | ) |   |
| Interest expense                                          |       |                    | (16,061    | ) |   |
| Unrealized gain  on derivative instruments                |       |                    | 4,310      |   |   |
| Other expense,  net                                       |       |                    | (1,659     | ) |   |
| Earnings before income  taxes and discontinued operations |       |                    | $          | 84,070 |   |   |

 

14

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**(11)BUSINESS AND GEOGRAPHICAL SEGMENTS (Continued)**

**Six Months Ended June 30, 2005**
| ** **                               | ** ** | **Oil and Gas Operations** | ** ** |
|------------------------------------------|------------|-------------------------------------------|------------|
| ** **                               | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Total** | ** ** |
| ** **                               | ** ** | **Gulf Coast**                       | ** ** | **Western** | ** ** | **Alaska** | ** ** | **Total U.S.** | ** ** | **Canada** | ** ** | **International** | ** ** | **Company** | ** ** |
| ** **                               | ** ** | **(In Thousands)**                   | ** ** |
| Revenue                                  |       | $                                         | 284,078    |   | 121,539 |   | 53,406 |   | 459,023 |   | 69,202 |   |   | — |   |   | 528,225 |   |
| Expenses:                                |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Lease operating expenses                 |       | 42,096                                    |       | 17,583 |   | 24,241 |   | 83,920 |   | 9,723 |   |   | — |   |   | 93,643 |   |
| Production and property taxes            |       | 6,993                                     |       | 10,884 |   | 1,122 |   | 18,999 |   | 1,445 |   |   | — |   |   | 20,444 |   |
| Transportation costs                     |       | 2,061                                     |       | 906 |   | 3,664 |   | 6,631 |   | 3,124 |   |   | — |   |   | 9,755 |   |
| General and administrative               |       | 5,751                                     |       | 2,685 |   | 1,735 |   | 10,171 |   | 2,771 |   |   | 568 |   |   | 13,510 |   |
| Depletion                                |       | 108,436                                   |       | 34,679 |   | 19,719 |   | 162,834 |   | 29,005 |   |   | — |   |   | 191,839 |   |
| Accretion of asset retirement obligation |       | 6,892                                     |       | 508 |   | 750 |   | 8,150 |   | 439 |   |   | 10 |   |   | 8,599 |   |
| Impairment of oil and gas properties     |       | —                                    |       | — |   | — |   | — |   | — |   |   | 2,924 |   |   | 2,924 |   |
| Earnings (loss) from operations          |       | $                                         | 111,849    |   | 54,294 |   | 2,175 |   | 168,318 |   | 22,695 |   |   | (3,502 | ) |   | 187,511 |   |
| Capital expenditures                     |       | $                                         | 104,500    |   | 347,031 |   | 7,237 |   | 458,768 |   | 45,855 |   |   | 1,254 |   |   | 505,877 |   |
| Net oil and gas properties               |       | $                                         | 1,246,978  |   | 937,697 |   | 372,810 |   | 2,557,485 |   | 395,424 |   |   | 54,729 |   |   | 3,007,638 |   |
| Goodwill                                 |       | $                                         | 14,602     |   | 70,583 |   | — |   | 85,185 |   | 14,712 |   |   | — |   |   | 99,897 |   |

 

Information for reportablesegments relates to Forest’s June 30, 2005 consolidated totals as follows:
| ** **                                                | ** ** | **(In Thousands)** | ** ** |
|-----------------------------------------------------------|------------|-------------------------|------------|
| Earnings from  operations for reportable segments         |       |                    | $          | 187,511 |   |   |
| Processing and  marketing income, net                     |       |                    | 3,121      |   |   |
| Corporate general  and administrative expense             |       |                    | (8,337     | ) |   |
| Administrative  asset depreciation                        |       |                    | (1,686     | ) |   |
| Interest expense                                          |       |                    | (30,560    | ) |   |
| Unrealized loss  on derivative instruments                |       |                    | (2,270     | ) |   |
| Other expense,  net                                       |       |                    | (3,592     | ) |   |
| Earnings before income  taxes and discontinued operations |       |                    | $          | 144,187 |   |   |

 

15

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**(11)BUSINESS AND GEOGRAPHICAL SEGMENTS (Continued)**

**Three Months Ended June 30, 2004**
| ** **                               | ** ** | **Oil and Gas Operations** | ** ** |
|------------------------------------------|------------|-------------------------------------------|------------|
| ** **                               | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Total** | ** ** |
| ** **                               | ** ** | **Gulf Coast**                       | ** ** | **Western** | ** ** | **Alaska** | ** ** | **Total U.S.** | ** ** | **Canada** | ** ** | **International** | ** ** | **Company** | ** ** |
| ** **                               | ** ** | **(In Thousands)**                   | ** ** |
| Revenue                                  |       | $                                         | 137,222    |   | 33,977 |   | 17,069 |   | 188,268 |   | 19,620 |   |   | — |   |   | 207,888 |   |
| Expenses:                                |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Lease operating expenses                 |       | 26,848                                    |       | 6,048 |   | 8,160 |   | 41,056 |   | 2,812 |   |   | — |   |   | 43,868 |   |
| Production and property taxes            |       | 2,874                                     |       | 3,252 |   | 790 |   | 6,916 |   | 179 |   |   | — |   |   | 7,095 |   |
| Transportation costs                     |       | 762                                       |       | 221 |   | 2,475 |   | 3,458 |   | 270 |   |   | — |   |   | 3,728 |   |
| General and administrative               |       | 2,202                                     |       | 584 |   | 929 |   | 3,715 |   | 674 |   |   | — |   |   | 4,389 |   |
| Depletion                                |       | 52,369                                    |       | 6,569 |   | 15,322 |   | 74,260 |   | 8,327 |   |   | — |   |   | 82,587 |   |
| Accretion of asset retirement obligation |       | 3,340                                     |       | 298 |   | 367 |   | 4,005 |   | 148 |   |   | — |   |   | 4,153 |   |
| Impairment of oil and gas properties     |       | —                                    |       | — |   | — |   | — |   | — |   |   | 1,690 |   |   | 1,690 |   |
| Earnings (loss) from operations          |       | $                                         | 48,827     |   | 17,005 |   | (10,974 | ) | 54,858 |   | 7,210 |   |   | (1,690 | ) |   | 60,378 |   |
| Capital expenditures                     |       | $                                         | 149,309    |   | 177,166 |   | 2,493 |   | 328,968 |   | 115,228 |   |   | 1,004 |   |   | 445,200 |   |
| Net oil and gas properties               |       | $                                         | 1,347,039  |   | 578,819 |   | 379,436 |   | 2,305,294 |   | 408,387 |   |   | 56,516 |   |   | 2,770,197 |   |
| Goodwill                                 |       | $                                         | 16,102     |   | 35,472 |   | — |   | 51,574 |   | 12,783 |   |   | — |   |   | 64,357 |   |

 

Information for reportablesegments relates to Forest’s June 30, 2004 consolidated totals as follows:
| ** **                                                | ** ** | **(In Thousands)** | ** ** |
|-----------------------------------------------------------|------------|-------------------------|------------|
| Earnings from operations  for reportable segments         |       |                    | $          | 60,378 |   |   |
| Processing and  marketing income, net                     |       |                    | 590        |   |   |
| Corporate general  and administrative expense             |       |                    | (3,780     | ) |   |
| Administrative  asset depreciation                        |       |                    | (887       | ) |   |
| Interest expense                                          |       |                    | (13,084    | ) |   |
| Unrealized gain  on derivative instruments                |       |                    | 1,248      |   |   |
| Other expense,  net                                       |       |                    | (115       | ) |   |
| Earnings before income  taxes and discontinued operations |       |                    | $          | 44,350 |   |   |

 

16

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**(11)BUSINESS AND GEOGRAPHICAL SEGMENTS (Continued)**

**Six Months Ended June 30, 2004**
| ** **                               | ** ** | **Oil and Gas Operations** | ** ** |
|------------------------------------------|------------|-------------------------------------------|------------|
| ** **                               | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Total** | ** ** |
| ** **                               | ** ** | **Gulf Coast**                       | ** ** | **Western** | ** ** | **Alaska** | ** ** | **Total U.S.** | ** ** | **Canada** | ** ** | **International** | ** ** | **Company** | ** ** |
| ** **                               | ** ** | **(In Thousands)**                   | ** ** |
| Revenue                                  |       | $                                         | 261,442    |   | 69,189 |   | 34,028 |   | 364,659 |   | 37,066 |   |   | — |   |   | 401,725 |   |
| Expenses:                                |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Lease operating expenses                 |       | 55,574                                    |       | 11,835 |   | 19,087 |   | 86,496 |   | 5,561 |   |   | — |   |   | 92,057 |   |
| Production and property taxes            |       | 5,760                                     |       | 6,346 |   | 1,545 |   | 13,651 |   | 892 |   |   | — |   |   | 14,543 |   |
| Transportation costs                     |       | 1,712                                     |       | 381 |   | 5,010 |   | 7,103 |   | 317 |   |   | — |   |   | 7,420 |   |
| General and administrative               |       | 3,849                                     |       | 945 |   | 1,778 |   | 6,572 |   | 1,484 |   |   | — |   |   | 8,056 |   |
| Depletion                                |       | 100,169                                   |       | 13,841 |   | 31,226 |   | 145,236 |   | 16,109 |   |   | — |   |   | 161,345 |   |
| Accretion of asset retirement obligation |       | 6,866                                     |       | 590 |   | 725 |   | 8,181 |   | 247 |   |   | — |   |   | 8,428 |   |
| Impairment of oil and gas properties     |       | —                                    |       | — |   | — |   | — |   | — |   |   | 1,690 |   |   | 1,690 |   |
| Earnings (loss) from operations          |       | $                                         | 87,512     |   | 35,251 |   | (25,343 | ) | 97,420 |   | 12,456 |   |   | (1,690 | ) |   | 108,186 |   |
| Capital expenditures                     |       | $                                         | 188,294    |   | 185,473 |   | 4,885 |   | 378,652 |   | 123,440 |   |   | 2,525 |   |   | 504,617 |   |
| Net oil and gas properties               |       | $                                         | 1,347,039  |   | 578,819 |   | 379,436 |   | 2,305,294 |   | 408,387 |   |   | 56,516 |   |   | 2,770,197 |   |
| Goodwill                                 |       | $                                         | 16,102     |   | 35,472 |   | — |   | 51,574 |   | 12,783 |   |   | — |   |   | 64,357 |   |

 

Information for reportablesegments relates to Forest’s June 30, 2004 consolidated totals as follows:
| ** **                                                | ** ** | **(In Thousands)** | ** ** |
|-----------------------------------------------------------|------------|-------------------------|------------|
| Earnings from  operations for reportable segments         |       |                    | $          | 108,186 |   |   |
| Processing and  marketing income, net                     |       |                    | 1,006      |   |   |
| Corporate general  and administrative expense             |       |                    | (6,473     | ) |   |
| Administrative  asset depreciation                        |       |                    | (1,757     | ) |   |
| Interest expense                                          |       |                    | (26,031    | ) |   |
| Unrealized gain  on derivative instruments                |       |                    | 217        |   |   |
| Other income, net                                         |       |                    | 1,340      |   |   |
| Earnings before income  taxes and discontinued operations |       |                    | $          | 76,488 |   |   |

 

**(12) IMPACT OFRECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS**

In December 2004, the FASB issued Statement ofFinancial Accounting Standards (“SFAS”) No. 123(R), *Share-BasedPayment*(“SFAS 123(R)”), which is a revision of SFAS No. 123, *Accounting for Stock-Based Compensation*. SFAS 123(R) iseffective for public companies for interim or annual periods beginning after December 15,2005, supersedes APB Opinion No. 25, *Accounting for StockIssued to Employees*, and amends SFAS No. 95, *Statement of Cash Flows*. SFAS 123(R) requires allshare-based payments to employees, including grants of employee stock options,to be recognized in the financial statements based on their fair values,beginning with the first interim or annual period after December 15, 2005,with early adoption encouraged. The pro forma disclosures previously permittedunder SFAS No. 123 will no longer be an alternative to financial statementrecognition. SFAS 123(R) also requires the tax benefits in excess ofrecognized compensation expenses to be reported as a financing cash flow,rather than as an operating cash flow as currently required. This requirementmay serve to reduce Forest’s future cash provided by operating activities andincrease future cash provided by financing activities, to the extent ofassociated tax benefits that may be realized in the future.

17

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**(12)IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)**

We are required to adopt SFAS 123(R) in the firstquarter of 2006. Under SFAS 123(R), we must determine the appropriate fairvalue model to be used for valuing share-based payments, the amortizationmethod for compensation cost, and the transition method to be used at date ofadoption. The transition methods include prospective and retroactive adoption options.Under the retroactive options, prior periods may be restated either as of thebeginning of the year of adoption or for all periods presented. The prospectivemethod requires that compensation expense be recorded for all unvested stockoptions and restricted stock at the beginning of the first quarter of adoptionof SFAS 123(R); the retroactive methods would record compensation expense forall unvested stock options and restricted stock beginning with the first periodrestated. We are evaluating the requirements of SFAS 123(R), and we expect thatthe adoption of SFAS 123(R) will have a material impact on our consolidatedresults of operations and earnings per share. We have not yet determined themethod of adoption or the effect of adopting SFAS 123(R), and we have notdetermined whether the adoption will result in amounts that are similar to thecurrent pro forma disclosures under SFAS No. 123.

Forest has an Employee Stock Purchase Plan (the “ESPP”)that allows eligible employees to purchase annually Forest’s common stock at adiscount. The provisions of SFAS 123(R) will cause the ESPP to be acompensatory plan. However, the change in accounting for the ESPP is notexpected to have a material impact on Forest’s financial position, futureresults of operations, or liquidity. Historically, the ESPP compensatoryamounts that would have been recorded under SFAS 123(R) have been nominal.

In March 2005, the SEC issued Staff AccountingBulletin No. 107, *Share-Based Payment*(“SAB107”), which expresses views of the staff regarding the interaction betweenSFAS 123(R) and certain SEC rules and regulations. SAB 107 also providesthe Staff’s views regarding the valuation of share-based payment arrangementsfor public companies. Forest will evaluate the requirements of SAB 107 inconnection with Forest’s future adoption of SFAS 123(R).

In June 2005, the FASB issued SFAS No. 154, *Accounting Changes and Error Corrections*(“SFAS 154”),**which replaces APB Opinion No. 20 and SFAS No. 3.SFAS 154 changes the requirements for the accounting and reporting of a changein accounting principle. APB Opinion No. 20 previously required that mostvoluntary changes in accounting principle be recognized by including thecumulative effect of the new accounting principle in net income of the periodof the change. SFAS 154 now requires retrospective application of changes inaccounting principle to prior period financial statements, unless it isimpracticable to determine either the period-specific effects or the cumulativeeffect of the change. SFAS 154 is effective for fiscal years beginningafter December 15, 2005. We do not expect the adoption of this statementwill have a material impact on our results of operations or financial position.

In March 2005, the FASB issued FASBInterpretation No. 47, *Accounting for ConditionalAsset Retirement Obligations*(“FIN 47”). This Interpretationclarifies the definition and treatment of conditional asset retirementobligations as discussed in FASB Statement No. 143, *Accountingfor Asset Retirement Obligations*. A conditional asset retirementobligation is defined as an asset retirement activity in which the timingand/or method of settlement are dependent on future events that may be outsidethe control of the Company. FIN 47 states that a Company must record aliability when incurred for conditional asset retirement obligations if thefair value of the obligation is reasonably estimable. This Interpretation isintended to provide more information about long-lived assets, more informationabout future cash outflows for these obligations and more consistentrecognition of these liabilities. FIN 47 is effective for fiscal years endingafter December 15, 2005. The Company does not believe that its financialposition, results of operations or cash flows will be impacted by thisInterpretation.

18

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**Item 2**.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

Forest is an independent oil and gas company engagedin the acquisition, exploration, development, and production of natural gas andliquids in North America and selected international locations. Forest wasincorporated in New York in 1924, as the successor to a company formed in 1916,and has been a publicly held company since 1969. 

The following discussionand analysis should be read in conjunction with Forest’s Condensed ConsolidatedFinancial Statements and Notes thereto, the information under the heading “Forward-LookingStatements” below, and the information included in Forest’s 2004 Annual Reporton Form 10-K under the heading “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Risk Factors, and—CriticalAccounting Policies, Estimates, Judgments, and Assumptions.” Unless the contextotherwise indicates, references in this quarterly report on Form 10-Q to “Forest,”  “we,” “ours,” “us,” or like terms refer toForest Oil Corporation and its subsidiaries. 

**Second Quarter 2005Overview**

Our reportedearnings of $52.2 million for the second quarter of 2005, or $.83 per dilutedshare, was 86% higher than net income of $28.1 million, or $.50 per dilutedshare, for the same period in 2004. The quarter-over-quarter net income gainswere primarily driven by the following factors:

·       Salesvolumes increased 10% to 44.8 Bcfe in the second quarter of 2005 from 40.6 Bcfein 2004. 

·       Averagerealized prices increased 18% to $6.02 per Mcfe in 2005 from $5.12 per Mcfe in2004.

·       Oiland natural gas revenues increasing 30% to $269.4 million in the second quarterof 2005 from $207.9 million in the corresponding period in 2004 due toincreased sales volumes and higher realized prices. 

·       Leaseoperating expense declined 6% from $1.08 per Mcfe for the three months ended June 30,2004 to $1.02 per Mcfe for the three months ended June 30, 2005.

Other notableevents occurring during the quarter include:

·       On April 1, 2005, we acquired all of the stock of a privatecompany whose primary assets are located in the Buffalo Wallow field in Texasand include approximately 33,000 gross acres located primarily in Hemphill andWheeler Counties, Texas (“the Buffalo Wallow Acquisition”). At the time theacquisition was announced, the Buffalo Wallow field had estimated provedreserves of 120 Bcfe.

·  Despite the Buffalo Wallow Acquisition onApril 1, 2005, the principal amount of debt outstanding increased only $145 millionfrom $739 million at March 31, 2005 to $884 million at June 30, 2005.

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**Results ofOperations**

***Oil and Gas Sales***

Salesvolumes, oil and gas sales revenue, and average sales prices for the three andsix months ended June 30, 2005 and 2004 were as follows: 
| ** **                  | ** ** | **Three Months Ended June 30,** | ** ** |
|-----------------------------|------------|-----------------------------------------------------|------------|
| ** **                  | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| ** **                  | ** ** | ** **                                          | ** ** | ** ** | ** ** | **Natural** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Natural** | ** ** | ** ** | ** ** |
| ** **                  | ** ** | **Natural**                                         | ** ** | **Oil and** | ** ** | **Gas** | ** ** | ** ** | ** ** | **Natural** | ** ** | **Oil and** | ** ** | **Gas** | ** ** | ** ** | ** ** |
| ** **                  | ** ** | **Gas**                                             | ** ** | **Condensate** | ** ** | **Liquids** | ** ** | **Total** | ** ** | **Gas** | ** ** | **Condensate** | ** ** | **Liquids** | ** ** | **Total** | ** ** |
| Sales  volumes:             | * *   | *(MMcf)*                                            | * *   |   | *(MBbls)* | * * |   | *(MBbls)* | * * | *(MMcfe)* | * * | *(MMcf)* | * * |   | *(MBbls)* | * * |   | *(MBbls)* | * * | *(MMcfe)* | * * |
| United States               |       | 23,133                                              |       |   | 1,981 | * * |   | 564 |   | 38,403 |   | 21,975 | * * |   | 2,168 | * * |   | 155 |   | 35,913 |   |
| Canada                      |       | 4,448                                               |       |   | 216 | * * |   | 101 |   | 6,350 |   | 3,260 | * * |   | 147 | * * |   | 88 |   | 4,670 |   |
| Total                       |       | 27,581                                              |       |   | 2,197 | * * |   | 665 |   | 44,753 |   | 25,235 | * * |   | 2,315 | * * |   | 243 |   | 40,583 |   |
| Revenues (in thousands)(1): |       |                                                |       |   |   | * * |   |   |   |   |   | * * | * * |   |   | * * |   |   |   |   |   |
| United States               |       | $                                                   | 135,389    |   |   | 82,631 | * * |   | 15,166 |   | 233,186 |   | 118,623 | * * |   | 66,353 | * * |   | 3,292 |   | 188,268 |   |
| Canada                      |       | 24,726                                              |       |   | 8,244 | * * |   | 3,199 |   | 36,169 |   | 12,530 | * * |   | 5,046 | * * |   | 2,044 |   | 19,620 |   |
| Total                       |       | $                                                   | 160,115    |   |   | 90,875 | * * |   | 18,365 |   | 269,355 |   | 131,153 | * * |   | 71,399 | * * |   | 5,336 |   | 207,888 |   |
| Average sales price:        |       |                                                |       |   |   | * * |   |   |   |   |   | * * | * * |   |   | * * |   |   |   |   |   |
| United States(1)            |       | $                                                   | 5.85       |   |   | 41.71 | * * |   | 26.89 |   | 6.07 |   | 5.40 | * * |   | 30.61 | * * |   | 21.24 |   | 5.24 |   |
| Canada(1)                   |       | 5.56                                                |       |   | 38.17 | * * |   | 31.67 |   | 5.70 |   | 3.84 | * * |   | 34.33 | * * |   | 23.23 |   | 4.20 |   |
| Total:                      |       |                                                |       |   |   | * * |   |   |   |   |   |   | * * |   |   | * * |   |   |   |   |   |
| Sales price received        |       | $                                                   | 6.39       |   |   | 49.37 | * * |   | 27.62 |   | 6.77 |   | 5.81 | * * |   | 37.23 | * * |   | 21.96 |   | 5.86 |   |
| Hedging effects             |       | (.58                                                | )          |   | (8.01 | ) |   | — |   | (.75 | ) | (.61 | ) |   | (6.39 | ) |   | — |   | (.74 | ) |
| Net sales price  received   |       | $                                                   | 5.81       |   |   | 41.36 | * * |   | 27.62 |   | 6.02 |   | 5.20 | * * |   | 30.84 | * * |   | 21.96 |   | 5.12 |   |

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(1)                 Includesthe effects of hedging. See Note 9 to the Condensed Consolidated FinancialStatements for further details regarding hedging activities.
| ** **                  | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------|------------|---------------------------------------------------|------------|
| ** **                  | ** ** | **2005**                                          | ** ** | **2004** | ** ** |
| ** **                  | ** ** | ** **                                        | ** ** | ** ** | ** ** | **Natural** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Natural** | ** ** | ** ** | ** ** |
| ** **                  | ** ** | **Natural**                                       | ** ** | **Oil and** | ** ** | **Gas** | ** ** | ** ** | ** ** | **Natural** | ** ** | **Oil and** | ** ** | **Gas** | ** ** | ** ** | ** ** |
| ** **                  | ** ** | **Gas**                                           | ** ** | **Condensate** | ** ** | **Liquids** | ** ** | **Total** | ** ** | **Gas** | ** ** | **Condensate** | ** ** | **Liquids** | ** ** | **Total** | ** ** |
| Sales  volumes:             | * *   | *(MMcf)*                                          | * *   |   | *(MBbls)* | * * |   | *(MBbls)* | * * | *(MMcfe)* | * * | *(MMcf)* | * * |   | *(MBbls)* | * * |   | *(MBbls)* | * * | *(MMcfe)* | * * |
| United States               |       | 46,416                                            |       |   | 4,059 | * * |   | 1,013 |   | 76,848 |   | 43,249 |   |   | 4,286 | * * |   | 255 |   | 70,495 |   |
| Canada                      |       | 8,855                                             |       |   | 435 | * * |   | 215 |   | 12,755 |   | 6,397 |   |   | 289 | * * |   | 173 |   | 9,169 |   |
| Total                       |       | 55,271                                            |       |   | 4,494 | * * |   | 1,228 |   | 89,603 |   | 49,646 |   |   | 4,575 | * * |   | 428 |   | 79,664 |   |
| Revenues (in thousands)(1): |       |                                              |       |   |   | * * |   |   |   |   |   |   |   |   |   | * * |   |   |   |   |   |
| United States               |       | $                                                 | 268,466    |   |   | 163,481 | * * |   | 27,076 |   | 459,023 |   | 231,974 |   |   | 126,456 | * * |   | 6,229 |   | 364,659 |   |
| Canada                      |       | 46,175                                            |       |   | 16,205 | * * |   | 6,822 |   | 69,202 |   | 23,241 |   |   | 9,602 | * * |   | 4,223 |   | 37,066 |   |
| Total                       |       | $                                                 | 314,641    |   |   | 179,686 | * * |   | 33,898 |   | 528,225 |   | 255,215 |   |   | 136,058 | * * |   | 10,452 |   | 401,725 |   |
| Average sales price:        |       |                                              |       |   |   | * * |   |   |   |   |   |   |   |   |   | * * |   |   |   |   |   |
| United States(1)            |       | $                                                 | 5.78       |   |   | 40.28 | * * |   | 26.73 |   | 5.97 |   | 5.36 |   |   | 29.50 | * * |   | 24.43 |   | 5.17 |   |
| Canada(1)                   |       | 5.21                                              |       |   | 37.25 | * * |   | 31.73 |   | 5.43 |   | 3.63 |   |   | 33.23 | * * |   | 24.41 |   | 4.04 |   |
| Total:                      |       |                                              |       |   |   | * * |   |   |   |   |   |   |   |   |   | * * |   |   |   |   |   |
| Sales price received        |       | $                                                 | 6.10       |   |   | 47.04 | * * |   | 27.60 |   | 6.51 |   | 5.60 |   |   | 35.62 | * * |   | 24.42 |   | 5.66 |   |
| Hedging effects             |       | (.41                                              | )          |   | (7.06 | ) |   | — |   | (.61 | ) | (.46 | ) |   | (5.88 | ) |   | — |   | (.62 | ) |
| Net sales price  received   |       | $                                                 | 5.69       |   |   | 39.98 | * * |   | 27.60 |   | 5.90 |   | 5.14 |   |   | 29.74 | * * |   | 24.42 |   | 5.04 |   |

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(1)                 Includesthe effects of hedging. See Note 9 to the Condensed Consolidated FinancialStatements for further details regarding hedging activities.

Net oil and gas production in the second quarter of2005 increased to 44.8 Bcfe or an average of 491.8 MMcfe per day, from40.6 Bcfe or an average of 445.9 MMcfe per day in the second quarter of 2004.Net oil and gas production in the first six months of 2005 increased to 89.6Bcfe or an average of 495.1 MMcfe per day, from 79.7 Bcfe or an average of437.8 MMcfe per day in the first half of 2004.

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Oil and natural gas revenues were $269.4 million and$528.2 million during the three and six months ended June 30, 2005, ascompared to $207.9 million and $401.7 million for the same periods in the prioryear. The increase in oil and natural gas revenues for the three month periodwas primarily due to a 10% increase in oil and gas production as well as a 18%increase in the average realized sales price per Mcfe from $5.12 in 2004 to$6.02 in 2005. Likewise, the increase in oil and natural gas revenues for thesix month period was primarily due to a 12% increase in oil and gas productionas well as a 17% increase in the average realized sales price per Mcfe.

The average realized salesprices for the periods presented include hedging losses recognized on theCompany’s derivative instruments. For the three and six months ended June 30,2005, Forest recognized hedging losses of $33.5 million and $54.4 million,respectively, compared to hedging losses of $30.2 million and $49.7 millionduring the same periods in the prior year.

***Lease Operating Expenses***

Lease operating expenses (“LOE”),the primary component of oil and gas production expense, increased to $45.8million for the quarter ended June 30, 2005 from $43.9 million for thecorresponding 2004 period. On a per-unit-of-production basis, LOE decreased 6%from $1.08 per Mcfe in the first quarter of 2004 to $1.02 per Mcfe in the firstquarter of 2005. For the six months ended June 30, 2005, LOE was $93.6million, or $1.05 per Mcfe compared to $92.1 million, or $1.16 per Mcfe for thesix months ended June 30, 2004. The 6% and 9% decrease in LOE on anequivalent Mcfe basis for the three and six months ended June 30, 2005,respectively, is primarily a result of cost control efforts as announced in thethird quarter of 2004.

***Production and Property Taxes***

Production and propertytaxes increased by 49% or $3.5 million during the second quarter 2005 ascompared to the prior year’s second quarter. Production and property taxesincreased by 41% or $5.9 million during the six months ended June 30,2005 as compared to the corresponding period in 2004. The increases in eachperiod are primarily a result of the higher realized oil and gas revenuesbefore hedging losses, higher assessed property valuations, and a change in ourproduction mix with a higher percentage of onshore production, which isgenerally subject to production taxes, versus offshore production which isgenerally not subject to production taxes.

***Transportation Costs***

Transportation costs increased to $4.6 million in thethree months ended June 30, 2005 from $3.7 million for thecorresponding 2004 period as a result of increases in production as well asincreases in commodity prices. Transportation costs on a per-Mcfe basis were$.10 per Mcfe and $.09 per Mcfe, for the quarters ended June 30, 2005 and2004, respectively. Transportation costs increased to $9.8 million in the sixmonths ended June 30, 2005 from $7.4 million for the corresponding 2004period as a result of increases in production as well as increases in commodityprices. Transportation costs on a per-Mcfe basis were $.11 per Mcfe and$.09 per Mcfe, for the six months ended June 30, 2005 and 2004,respectively.

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***General and Administrative Expense; Overhead***

Thefollowing table summarizes the components of total overhead costs incurredduring the periods:
| ** **                        | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|-----------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                        | ** ** | **2005**                                        | ** ** | **2004**                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                        | ** ** | **(In Thousands)**                         | ** ** |
| Total overhead  costs             |       | $                                               | 17,457     |                                          | 14,153     |   | 34,435 |   | 26,360 |   |
| Overhead costs  capitalized       |       | (6,366                                          | )          | (5,984                                        | )          | (12,588 | ) | (11,831 | ) |
| Overhead costs  expensed          |       | $                                               | 11,091     |                                          | 8,169      |   | 21,847 |   | 14,529 |   |
| Overhead costs expensed  per Mcfe |       | $                                               | .25        |                                          | .20        |   | .24 |   | .18 |   |

 

The increase in totaloverhead costs as well as overhead costs expensed was primarily related to anincrease in salaries and related burdens caused by our hiring additionalemployees in conjunction with our recent acquisitions.

***Depreciation and Depletion***

Depreciation, depletionand amortization expense for the three months ended June 30, 2005 was$97.2 million compared to $83.5 million for the same period in 2004. On anequivalent Mcf basis, depreciation, depletion and amortization expense was$2.17 per Mcfe for three months ended June 30, 2005 compared to $2.06 perMcfe for the same period in the prior year. During the six months ended June 30,2005, depreciation, depletion and amortization expense was $193.5 million or$2.16 per Mcfe as compared to $163.1 million or $2.05 per Mcfe for the sameperiod in the prior year. The increase of $.11 per Mcfe for the three and sixmonths ended June 30, 2005 as compared to the corresponding periods in theprior year are primarily due to the full effect of marginal Canadian propertiesthat were sold in the later part of the fourth quarter of 2004. The sales pricereceived per Mcfe was less than the Canadian cost pool’s depletion rate,resulting in an increase in the depletion rate on the remaining reserves.

***Impairment of Oil and Gas Properties***

During the six monthsended June 30, 2005, Forest recorded an impairment of $2.9 million relatedto certain international properties, principally related to its leaseholds inRomania. The Romania impairment was recorded in the first quarter of 2005 inconnection with our decision to exit the country as we rationalize ourinternational assets to concentrate on fewer areas.

***Interest Expense***

Interest expense in thesecond quarter of 2005 totaled $16.1 million compared to $13.1 million in thesecond quarter of 2004. Interest expense for the first six months of 2005 was$30.6 million compared to $26.0 million in the first half of 2004. The increasein interest expense is due primarily to higher average debt balances duringeach period in 2005 compared to the corresponding periods in 2004 as well ashigher average interest rates. Interestexpense on a per-Mcfe basis was $.36 per Mcfe and $.34 per Mcfe for the three andsix months ended June 30, 2005, respectively, compared with $.32 per Mcfeand $.33 per Mcfe for the three and six months ended June 30, 2004,respectively.

***Other expense (income)***

Other expense for thethree and six months ended June 30, 2005 includes a charge of $2.2 millionrepresenting our 40% share of a valuation allowance that our equity methodinvestee recorded in June 2005 against a portion of its deferred tax assets.

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***Current and Deferred Income Tax Expense***

Forest recorded currentincome tax expense of $.6 million and $2.2 million in the three and six monthsended June 30, 2005, compared to $.2 million and $.9 million in thecomparable periods of 2004. The increases in each period were due primarily toincreased federal alternative minimum tax and state income taxes due toincreased taxable income in each period.

Deferred income taxexpense was $31.3 million and $50.9 million in the three and six months ended June 30,2005, compared to $16.1 million and $27.9 million in the comparable periods of2004. The increase in the three month period was attributable to higherearnings before income taxes. The increase in the six month period was due tohigher earnings before income taxes and discontinued operations partiallyoffset by a decreased effective income tax rate on our Canadian operations. Thedecrease in the Canadian effective income tax rate was due primarily to thereversal of valuation allowances on capital loss carryforwards.

***Results of Discontinued Operations***

On March 1, 2004, theassets and business operations of our Canadian marketing subsidiary, ProMark,were sold to Cinergy Canada, Inc. for $11.2 million CDN. See Note 2to the Condensed Consolidated Financial Statements for more information.

**Liquidity andCapital Resources**

In 2005, as in 2004, we expect our cash flow fromoperations to provide our primary source of liquidity to meet operatingexpenses and fund capital expenditures other than large acquisitions. Anyremaining cash flow from operations will be available to fund acquisitions, inwhole or in part, or other corporate purposes.

The prices we receive for our oil and natural gasproduction have a significant impact on operating cash flows. While pricedeclines in 2005 would adversely affect the amount of cash flow generated fromoperations, we utilize a hedging program to mitigate the risks associated withvolatile oil and gas prices. As of June 30, 2005, Forest had hedgedapproximately 40.4 Bcfe of its remaining 2005 production primarily to protectthe economics of recent acquisitions of oil and gas properties. This level ofhedging provides greater certainty of the cash flow we will receive for our2005 production. Depending on changes in oil and gas futures markets andmanagement’s view of underlying oil and natural gas supply and demand trends,we may increase or decrease our current hedging positions. For furtherinformation concerning our 2005 and 2006 hedging contracts, see Note 9 to theCondensed Consolidated Financial Statements.

Another source of liquidity is our $600 millionrevolving bank credit facilities, as explained below, under the caption “BankCredit Facilities.” We use the credit facilities to fund daily operatingactivities and acquisitions in the United States and Canada as needed.

The public capital marketshave been our principal source of permanent financing. We have issued debt andequity in both public and private offerings in the past, and we expect thatthese sources of capital should continue to be available to us in the future. Nevertheless,ready access to capital on reasonable terms are subject to many uncertainties,as explained in Forest’s 2004 Annual Report on Form 10-K under theheading, “Managements Discussion and Analysis of Financial Condition andResults of Operations—Risk Factors.”

***Bank Credit Facilities***

We have credit facilities totaling $600 million,consisting of a $550 million U.S. credit facility through a syndicate ofbanks led by JPMorgan Chase and a $50 million Canadian credit facilitythrough a syndicate 

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of banks led by JPMorganChase Bank, Toronto Branch. The credit facilities mature in September 2009.Subject to the agreement of Forest and the applicable lenders, the size of thecredit facilities may be increased by $200 million in the aggregate. The creditfacilities are collateralized by a portion of Forest’s assets.

Currently, the amount available under the creditfacilities is determined by a borrowing base (the “Global Borrowing Base”). EffectiveMay 16, 2005 the Global Borrowing Base was increased to $700 million,however, our borrowing capacity is limited to $600 million, the currentcommitment level. At June 30, 2005, there were outstanding borrowings of$184 million under the U.S. credit facility at a weighted average interestrate of 4.5%, and there were no outstanding borrowings under the Canadiancredit facility. We also had used the credit facilities for approximately $8million in letters of credit, leaving an unused borrowing amount under theGlobal Borrowing Base of approximately $408 million at June 30, 2005.

On July 31, 2005, amounts outstanding under theU.S. facility were $171 million at a weighted average interest rate of 4.6%,and there were no amounts outstanding under the Canadian facility. As a resultof decreased amounts outstanding, and $8 million in letters of credit, theunused borrowing amount on July 31, 2005 was approximately$421 million.

The credit facilitiesinclude terms and covenants that place limitations on certain types ofactivities, including restrictions or requirements with respect to additionaldebt, liens, asset sales, hedging activities, investments, dividends, mergers,and acquisitions. The credit facilities also include several financialcovenants. Availability, interest rates, security requirements, and other termsof borrowing under the credit facilities will vary based on Forest’s creditratings and financial condition, as determined by certain financial tests. Inparticular, any time that availability is not determined by the GlobalBorrowing Base, the amount available and Forest’s ability to borrow under thecredit facilities is determined by certain financial covenants. Also, even whenavailability is determined by the Global Borrowing Base, certain financialcovenants can still affect the amount available and Forest’s ability to borrowamounts under the credit facilities.

***Cash Flow***

Net cash provided byoperating activities, net cash used by investing activities, and net cashprovided by financing activities for the six months ended June 30, 2005and 2004 were as follows:
| ** **                                 | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                 | ** ** | **2005**                                          | ** ** | **2004** | ** ** | **% Change** | ** ** |
| ** **                                 | ** ** | **(In Thousands)**                           | ** ** |
| Net cash provided  by operating activities |       | $                                                 | 325,423    |   | 243,195 |   |   | 34 | % |   |
| Net cash used by  investing activities     |       | (401,671                                          | )          | (314,629 | ) |   | 28 | % |   |
| Net cash provided by  financing activities |       | 35,728                                            |       | 112,608 |   |   | (68 | )% |   |
|                                            |            |                                                   |            |  |  |  |  |  |  |  |

 

The increase in net cashprovided by operating activities in the six months ended June 30, 2005compared to the same period of 2004 was due primarily to higher oil and gasrevenues. The increase in cash used by investing activities in the six monthsended June 30, 2005 was due primarily to increased capital spending. Netcash provided by financing activities in the six months ended June 30,2005 included net bank repayments of $3.0 million offset by proceeds fromthe exercise of stock options and warrants of $23.8 million and $14.4 million,respectively. As of June 30, 2005, Forest has no outstanding stock purchasewarrants. The 2004 period included net bank debt repayments of $6.5 millionoffset by proceeds from the issuance of common stock of $117.1 million andproceeds from the exercise of stock options and warrants of approximately $4.5million.

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***Capital Expenditures***

Expendituresfor property acquisition, exploration, and development were as follows:
| ** **                                                                                     | ** ** | **Six Months  Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                     | ** ** | **2005**                                      | ** ** | **2004** | ** ** |
| ** **                                                                                     | ** ** | **(In Thousands)**                       | ** ** |
| Property acquisition  costs(1):                                                                |       |                                          |       |   |   |
| Proved properties                                                                              |       | $                                             | 242,970    |   | 317,523 |   |
| Unproved properties                                                                            |       | 69,405                                        |       | 46,046 |   |
|                                                                                           |       | 312,375                                       |       | 363,569 |   |
| Exploration costs:                                                                             |       |                                          |       |   |   |
| Direct costs                                                                                   |       | 65,614                                        |       | 51,317 |   |
| Overhead capitalized                                                                           |       | 6,569                                         |       | 6,095 |   |
|                                                                                           |       | 72,183                                        |       | 57,412 |   |
| Development costs:                                                                             |       |                                          |       |   |   |
| Direct costs                                                                                   |       | 115,300                                       |       | 77,900 |   |
| Overhead capitalized                                                                           |       | 6,019                                         |       | 5,736 |   |
|                                                                                           |       | 121,319                                       |       | 83,636 |   |
| Total capital  expenditures for property acquisition, exploration, and development(1) (2) |       | $                                             | 505,877    |   | 504,617 |   |

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(1)                 Totalcapital expenditures include both cash expenditures and accrued expenditures.In addition, the property acquisitions include a gross up for deferred taxes ofapproximately $88.7 million in 2005 and $53.6 million in 2004.

(2)                 Doesnot include estimated discounted asset retirement obligations of $7.7 millionand $21.9 million related to assets placed in service during the six monthsended June 30, 2005 and 2004, respectively.

Forest’s anticipated expenditures for exploration anddevelopment in 2005 are estimated to range from $425 million to $475 million.Some of the factors impacting the level of capital expenditures in 2005 includecrude oil and natural gas prices, the volatility in these prices, the cost andavailability of the oil field services, and weather disruptions.

In addition, while we intendto continue a strategy of acquiring reserves that meet our investment criteria,no assurance can be given that we can locate or finance any propertyacquisitions.

**Recent AccountingPronouncements**

In December 2004, the FASB issued Statement ofFinancial Accounting Standards (“SFAS”) SFAS No. 123(R), *Share-Based Payment*(“SFAS 123(R)”), which is a revision ofSFAS No. 123, *Accounting for Stock-BasedCompensation*. SFAS 123(R) is effective for public companies forinterim or annual periods beginning after December 15, 2005, supersedesAPB Opinion No. 25, *Accounting for StockIssued to Employees*, and amends SFAS No. 95, *Statement of Cash Flows*. SFAS 123(R) requires allshare-based payments to employees, including grants of employee stock options,to be recognized in the financial statements based on their fair values,beginning with the first interim or annual period after December 15, 2005,with early adoption encouraged. The pro forma disclosures previously permittedunder SFAS No. 123 will no longer be an alternative to financialstatement recognition. SFAS 123(R) also requires the tax benefits inexcess of recognized compensation expenses to be reported as a financing cashflow, rather than as an operating cash flow as currently required. Thisrequirement may serve to reduce Forest’s future cash provided by operatingactivities and increase future cash provided by financing activities, to theextent of associated tax benefits that may be realized in the future.

We are required to adopt SFAS 123(R) in the firstquarter of 2006. Under SFAS 123(R), we must determine the appropriate fairvalue model to be used for valuing share-based payments, the amortization 

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method for compensationcost, and the transition method to be used at date of adoption. The transitionmethods include prospective and retroactive adoption options. Under theretroactive options, prior periods may be restated either as of the beginningof the year of adoption or for all periods presented. The prospective methodrequires that compensation expense be recorded for all unvested stock optionsand restricted stock at the beginning of the first quarter of adoption of SFAS123(R); the retroactive methods would record compensation expense for allunvested stock options and restricted stock beginning with the first periodrestated. We are evaluating the requirements of SFAS 123(R), and we expect thatthe adoption of SFAS 123(R) will have a material impact on ourconsolidated results of operations and earnings per share. We have not yetdetermined the method of adoption or the effect of adopting SFAS 123(R), and wehave not determined whether the adoption will result in amounts that aresimilar to the current pro forma disclosures under SFAS No. 123.

Forest has an Employee Stock Purchase Plan (the “ESPP”)that allows eligible employees to purchase annually Forest’s common stock at adiscount. The provisions of SFAS 123(R) will cause the ESPP to be acompensatory plan. However, the change in accounting for the ESPP is notexpected to have a material impact on Forest’s financial position, futureresults of operations, or liquidity. Historically, the ESPP compensatoryamounts that would have been recorded under SFAS 123(R) have been nominal.

In March 2005, the SEC issued Staff AccountingBulletin No. 107, *Share-Based Payment*(“SAB107”), which expresses views of the staff regarding the interaction betweenSFAS 123(R) and certain SEC rules and regulations. SAB 107 alsoprovides the Staff’s views regarding the valuation of share-based paymentarrangements for public companies. Forest will evaluate the requirements of SAB107 in connection with Forest’s future adoption of SFAS 123(R).

In June 2005, the FASB issued SFAS No. 154, *Accounting Changes and Error Corrections*(“SFAS 154”),**which replaces APB Opinion No. 20 and SFAS No. 3.SFAS 154 changes the requirements for the accounting and reporting of a changein accounting principle. APB Opinion No. 20 previously required that mostvoluntary changes in accounting principle be recognized by including thecumulative effect of the new accounting principle in net income of the periodof the change. SFAS 154 now requires retrospective application of changes inaccounting principle to prior period financial statements, unless it isimpracticable to determine either the period-specific effects or the cumulativeeffect of the change. SFAS 154 is effective for fiscal years beginningafter December 15, 2005. We do not expect the adoption of this statementwill have a material impact on our results of operations or financial position.

In March 2005, theFASB issued FASB Interpretation No. 47, *Accountingfor Conditional Asset Retirement Obligations*(“FIN 47”). ThisInterpretation clarifies the definition and treatment of conditional assetretirement obligations as discussed in FASB Statement No. 143, *Accounting for Asset Retirement Obligations*. A conditionalasset retirement obligation is defined as an asset retirement activity in whichthe timing and/or method of settlement are dependent on future events that maybe outside the control of the Company. FIN 47 states that a Company must recorda liability when incurred for conditional asset retirement obligations if thefair value of the obligation is reasonably estimable. This Interpretation isintended to provide more information about long-lived assets, more informationabout future cash outflows for these obligations and more consistentrecognition of these liabilities. FIN 47 is effective for fiscal years endingafter December 15, 2005. The Company does not believe that its financialposition, results of operations or cash flows will be impacted by thisInterpretation.

***Forward-Looking Statements***

Certain information included in this quarterly reporton Form 10-Q and other materials that we file with the Securities andExchange Commission, as well as information included in oral statements orother written statements that we make, include “forward-looking statements”within the meaning of Section 27A of the Securities Act of 1933 and Section 21Eof the Securities Exchange Act of 1934 relating to our 

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operations, financialcondition, and the oil and gas industry. All statements, other than statementsof historical facts or present facts, that address activities, events,outcomes, and other matters that Forest plans, expects, intends, assumes,believes, budgets, predicts, forecasts, projects, estimates, or anticipates(and other similar expressions) will, should, or may occur in the future areforward-looking statements. These forward-looking statements are based onmanagement’s current belief, based on currently available information, as tothe outcome and timing of future events.

These forward-looking statements appear in a number ofplaces and include statements with respect to, among other things, estimates ofour oil and gas reserves; estimates of our future natural gas and liquidsproduction, including estimates of any increases in oil and gas production;planned capital expenditures and availability of capital resources to fundcapital expenditures; cash flow; our outlook on oil and gas prices; drillingactivities and drilling locations; acquisition and development activities andthe funding thereof; hedging activities and the results thereof; liquidity;operating costs; operating margins; political and regulatory developments; ourfuture financial condition or results of operations; and our business strategyand other plans and objectives for future operations.

We caution you thatthese forward-looking statements are not guarantees of future performance andare subject to all of the risks and uncertainties, many of which are beyond ourcontrol, incident to the exploration for and development, production, and saleof oil and gas. In particular, the risk factors discussed below and in ourAnnual Report on Form 10-K could affect our actual results and cause ouractual results to differ materially from expectations, estimates, plans, orassumptions expressed in, forecasted in, or implied in such forward-lookingstatement. Among the factors that could cause actual results to differ materiallyare:

·       commodityprice volatility,

·       inflation,

·       lackof availability of oil field personnel, equipment, and services,

·       environmentalrisks,

·       drillingand other operating risks,

·       regulatorychanges,

·       theuncertainty inherent in estimating proved oil and natural gas reserves and inprojecting future rates of production,

·       timingof development expenditures, and

·       interestrates.

The financial results of our foreign operations arealso subject to currency exchange rate risks.

Should one or more of the risks or uncertaintiesdescribed above or elsewhere in this Form 10-Q occur, or should underlyingassumptions prove incorrect, our actual results and plans could differmaterially from those expressed in any forward-looking statements.

All forward-lookingstatements, expressed or implied, included in this Form 10-Q andattributable to Forest are expressly qualified in their entirety by thiscautionary statement. This cautionary statement should also be considered inconnection with any subsequent written or oral forward-looking statements thatForest or persons acting on its behalf may issue. Forest does not undertake toupdate any forward-looking statements to reflect events or circumstances afterthe date of filing this Form 10-Q with the Securities and ExchangeCommission, except as required by law.

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**Item3**.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK

We are exposed to marketrisk, including the effects of adverse changes in commodity prices, foreigncurrency exchange rates, and interest rates as discussed below.

**Commodity PriceRisk**

We produce and sell natural gas, crude oil, andnatural gas liquids for our own account in the United States and Canada. As aresult, our financial results are affected when prices for these commoditiesfluctuate. Such effects can be significant.

In order to reduce the impact of fluctuations inprices, or to protect the economics of property acquisitions, we make use of anoil and gas hedging strategy. Under our hedging strategy, we enter intocommodity swaps, collars, and other financial instruments with counterpartieswho, in general, are participants in our credit facilities. These arrangements,which are based on prices available in the financial markets at the time thecontracts are entered into, are settled in cash and do not require physicaldeliveries of hydrocarbons. Hedging arrangements covered 49% and 47%, of ourconsolidated production, on an equivalent basis, during the three months ended June 30,2005 and 2004, respectively, and 52% and 57% during the six months ended June 30,2005 and 2004, respectively. We do not enter into derivative instruments fortrading purposes.

See Note 9 to the Condensed Consolidated FinancialStatements for information regarding the terms of the Forest’s derivativeinstruments that are sensitive to changes in both current and forward oil andgas prices.

Thefollowing table reconciles the changes that occurred in the fair values ofForest’s open derivative contracts during the six months ended June 30,2005, beginning with the fair value of our commodity contracts on December 31,2004, less the decrease in fair value during the period, less the fair value ofcommodity contracts acquired in connection with the acquisition of oil and gascompanies, and plus the contract losses settled, or recognized, during theperiod.
| ** **                                                   | ** ** | **Fair Value of** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                   | ** ** | **Derivative**              | ** ** |
| ** **                                                   | ** ** | **Contracts**               | ** ** |
| ** **                                                   | ** ** | **(In Thousands)**     | ** ** |
| Unrealized losses  on contracts as of December 31, 2004 |       |                        | $          | (90,249 | ) |   |
| Net decrease in  fair value                                  |       |                        | (130,849   | ) |   |
| Unrealized losses  on acquired contracts                     |       |                        | (6,373     | ) |   |
| Net contract  losses recognized                              |       |                        | 56,302     |   |   |
| Unrealized losses on  contracts of as June 30, 2005     |       |                        | $          | (171,169 | ) |   |

 

**Foreign CurrencyExchange Risk**

We conduct business inseveral foreign currencies and thus are subject to foreign currency exchangerate risk on cash flows related to sales, expenses, financing, and investingtransactions. In the past, we have not entered into any foreign currencyforward contracts or other similar financial instruments to manage this risk.Expenditures incurred relative to the foreign concessions held by Forestoutside of North America have been primarily United States dollar-denominated,as have cash proceeds related to property sales and farmout arrangements. Substantiallyall of our Canadian revenues and costs are denominated in Canadian dollars. Whilethe value of the Canadian dollar does fluctuate in relation to the U.S. dollar,we believe that any currency risk associated with our Canadian operations wouldnot have a material impact on our results of operations.

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**Interest Rate Risk**

Thefollowing table presents principal amounts and related weighted average fixedinterest rates by year of maturity for Forest’s debt obligations and the fairvalue of debt obligations at June 30, 2005:
| ** **                  | ** ** | **2008**                                         | ** ** | **2009** | ** ** | **2011** | ** ** | **2014** | ** ** | **Total** | ** ** | **Fair Value** | ** ** |
|-----------------------------|------------|--------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|---------------------|------------|
| ** **                  | ** ** | **(Dollar Amounts in Thousands)** | ** ** |
| Bank credit facilities:     |       |                                             |       |     |       |     |       |     |       |      |       |                |       |
| Variable rate               |       | $                                                | —     |     | 184,000    |     | —     |     | —     |      | 184,000    |                | 184,000    |   |
| Average interest rate(1)    |       | —                                           |       | 4.50     | %          | —   |       | —   |       | 4.50      | %          |                |       |
| Long-term debt:             |       |                                             |       |     |       |     |       |     |       |      |       |                |       |
| Fixed rate                  |       | $                                                | 265,000    |     | —     |     | 285,000    |     | 150,000    |      | 700,000    |                | 764,021    |   |
| Coupon interest rate        |       | 8.00                                             | %          | —   |       | 8.00     | %          | 7.75     | %          | 7.95      | %          |                |       |
| Effective  interest rate(2) |       | 7.13                                             | %          | —   |       | 7.71     | %          | 6.56     | %          | 7.24      | %          |                |       |

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(1)                 Asof June 30, 2005.

(2)                 Theeffective interest rates on the 8% Senior Notes due 2008, the 8% Senior Notesdue 2011, and the 73¤4%Senior Notes due 2014 are reduced from the coupon rate as a result ofamortization of the gains related to termination of the related interest rateswaps.

**Item4.   CONTROLS AND PROCEDURES**

***Disclosure Controls and Procedures***

We have established disclosure controls and proceduresto ensure that material information relating to Forest and its consolidatedsubsidiaries is made known to the Officers who certify Forest’s financialreports and the Board of Directors. There are inherent limitations to theeffectiveness of any system of disclosure controls and procedures, includingthe possibility of human error and the circumvention or overriding of controlsand procedures. Accordingly, even effective disclosure controls and procedurescan only provide reasonable assurance of achieving their control objectives.

Our Chief ExecutiveOfficer, H. Craig Clark, and our Chief Financial Officer, David H.Keyte, evaluated the effectiveness of our disclosure controls and procedures asof the end of the quarterly period ended June 30, 2005. Based on theevaluation, they believe that:

·       ourdisclosure controls and procedures were effective to ensure that informationrequired to be disclosed by us in the reports we file or submit under theSecurities Exchange Act of 1934 is recorded, processed, summarized, andreported within the time periods specified in the SEC’s rules and forms;and

·       our disclosure controls andprocedures were effective to ensure that information required to be disclosedby us in the reports we file or submit under the Securities Exchange Act of1934 was accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosure.

***Internal Control Over Financial Reporting***

There has not been any change in our internal controlover financial reporting that occurred during our quarterly period ended June 30,2005 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

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**PART II**—OTHERINFORMATION

**Item2**.   UNREGISTERED SALES OF EQUITY SECURITIES AND USEOF PROCEEDS

In the second quarter of2005, 1,748,800 warrants to purchase 1,255,815 shares of Forest common stockwere exercised in cash and cashless exercises. The exercise activity wasrelated to certain warrants that expired on May 9, 2005. The warrants wereoriginally issued by Forcenergy Inc. in connection with its reorganizationunder the federal bankruptcy code. Upon the merger of Forcenergy Inc. andForest, the warrants became warrants to acquire shares of Forest common stock.The issuance of the warrants and shares of common stock upon exercise wereexempt from registration under the Securities Act of 1933 pursuant to section1145 of the federal bankruptcy code.

**Item4**.   SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

On May 10, 2005, Forest held its Annual Meetingof Shareholders (“Annual Meeting”) in Denver, Colorado. A total of 50,951,666shares of common stock were present at the Annual Meeting, either in person orby proxy, constituting a quorum. The matters voted upon at the Annual Meetingconsisted of three proposals set forth in Forest’s Proxy Statement dated April 1,2005. The three proposals submitted to a vote of shareholders are set forthbelow. The proposals were each adopted by the shareholders by the indicatedmargins. 

*Proposal No. 1:  *Electionof two (2) Class II directors. 
| ** **          | ** ** | **Shares**         | ** ** | **Shares**   | ** ** |
|---------------------|------------|--------------------|------------|--------------|------------|
| ** **          | ** ** | **Voted for** | ** ** | **Withheld** | ** ** |
| Forrest E.  Hoglund |       | 48,564,956         |       | 2,386,709    |       |
| James H. Lee        |       | 49,100,883         |       | 1,850,782    |       |

 

In addition to the two Class II directors notedabove, the other directors of Forest whose terms did not expire at the 2005Annual Meeting include: William L. Britton, H. Craig Clark, Cortlandt S.Dietler, Dod A. Fraser, James D. Lightner, and Patrick R. McDonald. 

*Proposal No. 2:  *Approvalof an additional 175,000 shares for the Company’s 1999 Employee Stock PurchasePlan.

| **Shares**         | ** ** | ** ** | ** ** | **Shares**  | ** ** | ** ** | ** ** | ** **      | ** ** |
|--------------------|------------|------------|------------|-------------|------------|------------|------------|-----------------|------------|
| **Voted for** | ** ** | ** ** | ** ** | **Against** | ** ** | ** ** | ** ** | **Abstentions** | ** ** |
| 44,256,159         |       |       |       | 949,694     |       |       |       |            | 18,545     |   |   |
|                    |            |            |            |             |            |            |            |                 |            |  |  |

 

*Proposal No. 3:   Ratificationof the appointment of KPMG as independent accountants.*

| **Shares**         | ** ** | ** ** | ** ** | **Shares ** | ** ** | ** ** | ** ** | ** **      | ** ** |
|--------------------|------------|------------|------------|------------------|------------|------------|------------|-----------------|------------|
| **Voted for** | ** ** | ** ** | ** ** | **Against**      | ** ** | ** ** | ** ** | **Abstentions** | ** ** |
| 50,611,932         |       |       |       | 323,456          |       |       |       |            | 16,278     |   |   |
|                    |            |            |            |                  |            |            |            |                 |            |  |  |

 

There were no brokernon-votes.

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**Item6**.   EXHIBITS

(a)   Exhibits.
| 10.1*      |   | First Amendment to  Forest Oil Corporation Pension Trust Agreement as Amended and Restated  January 1, 2002.                                                    |
|------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1*      |   | Certification of  Principal Executive Officer of Forest Oil Corporation as required by  Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
| 31.2*      |   | Certification of  Principal Financial Officer of Forest Oil Corporation as required by  Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
| 32.1† |   | Certification of Chief  Executive Officer of Forest Oil Corporation pursuant to 18 U.S.C. §1350.                                                                |
| 32.2† |   | Certification of Chief  Financial Officer of Forest Oil Corporation pursuant to 18 U.S.C. §1350.                                                                |

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*                    Filed herewith.

†                      Not considered to be “filed” for purposesof Section 18 of the Securities Exchange Act of 1934 or otherwise subjectto the liabilities of that section.

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized. 
|                     | FOREST OIL CORPORATION |
|---------------------|------------------------|
|                | (Registrant)           |
| August 9, 2005 | By:                    | /s/ DAVID H. KEYTE |
|                |                   | David H. Keyte |
|                |                   | *Executive Vice President and* |
|                |                   | *Chief Financial Officer* |
|                |                   | *(on behalf of the Registrant and as Principal* |
|                |                   | *Financial Officer)* |
|                | By:                    | /s/ VICTOR A. WIND |
|                |                   | Victor A. Wind |
|                |                   | *Corporate Controller* |
|                |                   | *(Principal Accounting Officer)* |

 

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**Exhibit Index**
| Exhibit Number | ** ** | ** **                                                                                                                                                           | ** ** | **Description** |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| 10.1                |       | First Amendment to Forest Oil Corporation Pension  Trust Agreement as Amended and Restated January 1, 2002.                                                     |
| 31.1                |       | Certification of Principal Executive Officer of  Forest Oil Corporation as required by Rule 13a-14(a) of the  Securities Exchange Act of 1934, as amended. |
| 31.2                |       | Certification of Principal Financial Officer of  Forest Oil Corporation as required by Rule 13a-14(a) of the  Securities Exchange Act of 1934, as amended. |
| 32.1                |       | Certification of Chief Executive Officer of Forest  Oil Corporation, pursuant to 18 U.S.C. §1350.                                                     |
| 32.2                |       | Certification of Chief Financial Officer of Forest  Oil Corporation, pursuant to 18 U.S.C. §1350.                                                     |

 

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