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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2007
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                             to

Commission File Number 1-13515

FOREST OIL CORPORATION
(Exact name of registrant as specified in its charter)

New York (State or other jurisdiction of incorporation or organization)		25-0484900 (I.R.S. Employer Identification No.)
707 17th Street, Suite 3600 Denver, Colorado 80202 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 812-1400

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        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý Yes o No

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer    ý

Accelerated filer    o

Non-accelerated filer    o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    o Yes ý No

        As of July 31, 2007 there were 87,975,195 shares of the registrant's common stock, par value $.10 per share, outstanding.

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FOREST OIL CORPORATION
INDEX TO FORM 10-Q
June 30, 2007

Part I—FINANCIAL INFORMATION
	Item 1—Financial Statements
		Condensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006		1
		Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2007 and 2006		2
		Condensed Consolidated Statement of Shareholders' Equity for the Six Months Ended June 30, 2007		3
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006		4
		Notes to Condensed Consolidated Financial Statements		5
	Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations			34
	Item 3—Quantitative and Qualitative Disclosures About Market Risk			46
	Item 4—Controls and Procedures			49
Part II—OTHER INFORMATION
	Item 1—Legal Proceedings			50
	Item 1A—Risk Factors			50
	Item 4—Submission of Matters to a Vote of Security Holders			53
	Item 6—Exhibits			54
Signatures				55

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PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

FOREST OIL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)
(In Thousands, Except Share Data)

					June 30, 2007			December 31, 2006
ASSETS
Current assets:
	Cash and cash equivalents				$	15,730		33,164
	Accounts receivable					171,907		125,446
	Derivative instruments					32,950		53,205
	Other current assets					82,444		49,185
		Total current assets				303,031		261,000
Property and equipment, at cost:
	Oil and gas properties, full cost method of accounting:
		Proved, net of accumulated depletion of $2,457,641 and $2,265,018				4,538,760		2,486,153
		Unproved				489,864		261,259
			Net oil and gas properties			5,028,624		2,747,412
	Other property and equipment, net of accumulated depreciation and amortization of $31,903 and $32,504					58,634		42,514
			Net property and equipment			5,087,258		2,789,926
Derivative instruments						6,247		15,019
Goodwill						338,383		86,246
Other assets						64,338		36,881
					$	5,799,257		3,189,072
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Accounts payable				$	355,089		224,933
	Accrued interest					10,248		6,235
	Derivative instruments					21,925		1,294
	Current portion of long-term debt					269,610		2,500
	Asset retirement obligations					6,232		2,694
	Deferred income taxes					1,579		14,907
	Other current liabilities					13,236		11,378
		Total current liabilities				677,919		263,941
Long-term debt						1,903,646		1,204,709
Asset retirement obligations						102,265		61,408
Derivative instruments						18,525		811
Deferred income taxes						758,291		191,957
Other liabilities						54,173		32,240
	Total liabilities					3,514,819		1,755,066
Shareholders' equity:
	Preferred stock, none issued and outstanding					—		—
	Common stock, 87,954,104 and 62,998,155 shares issued and outstanding					8,795		6,300
	Capital surplus					1,952,409		1,215,660
	Retained earnings					220,446		137,796
	Accumulated other comprehensive income					102,788		74,250
	Total shareholders' equity					2,284,438		1,434,006
					$	5,799,257		3,189,072

See accompanying Notes to Condensed Consolidated Financial Statements.

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FOREST OIL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

						Three Months Ended June 30,					Six Months Ended June 30,
						2007			2006		2007		2006
						(In Thousands, Except Per Share Amounts)
Revenue:
	Oil and gas sales:
		Natural gas				$	140,757		94,753		238,054		221,806
		Oil, condensate, and natural gas liquids					113,182		115,470		198,441		207,513
			Total oil and gas sales				253,939		210,223		436,495		429,319
	Marketing, processing, and other						730		1,630		783		3,980
			Total revenue				254,669		211,853		437,278		433,299
Operating expenses:
	Lease operating expenses						45,027		35,529		81,067		80,860
	Production and property taxes						12,808		10,997		20,718		21,725
	Transportation and processing costs						5,258		5,642		9,452		10,371
	General and administrative (including stock-based compensation)						13,407		11,071		26,378		28,207
	Depreciation and depletion						86,126		63,253		146,585		140,921
	Accretion of asset retirement obligations						1,292		1,301		2,567		4,653
	Impairments						—		2,078		—		2,078
	Gain on sale of assets						—		—		(7,176	)	—
	Spin-off costs						—		—		—		5,416
			Total operating expenses				163,918		129,871		279,591		294,231
Earnings from operations							90,751		81,982		157,687		139,068
Other income and expense:
	Interest expense						29,103		17,340		53,456		32,491
	Unrealized (gains) losses on derivative instruments, net						(34,813	)	(14,378	)	23,025		9,736
	Realized (gains) losses on derivative instruments, net						(9,270	)	13,698		(34,404	)	17,613
	Unrealized foreign currency exchange gains						(6,271	)	—		(6,320	)	—
	Other expense (income), net						1,122		(110	)	234		750
			Total other income and expense				(20,129	)	16,550		35,991		60,590
Earnings before income taxes and discontinued operations							110,880		65,432		121,696		78,478
Income tax expense:
	Current						2,217		1,819		3,095		2,821
	Deferred						31,864		6,565		34,911		17,360
				Total income tax expense			34,081		8,384		38,006		20,181
Earnings from continuing operations							76,799		57,048		83,690		58,297
Income from discontinued operations, net of tax							—		—		—		2,422
Net earnings						$	76,799		57,048		83,690		60,719
Basic earnings per common share:
	Earnings from continuing operations					$	1.11		.92		1.27		.94
	Income from discontinued operations, net of tax						—		—		—		.04
	Basic earnings per common share					$	1.11		.92		1.27		.98
Diluted earnings per common share:
	Earnings from continuing operations					$	1.08		.90		1.24		.92
	Income from discontinued operations, net of tax						—		—		—		.04
	Diluted earnings per common share					$	1.08		.90		1.24		.96

See accompanying Notes to Condensed Consolidated Financial Statements.

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FOREST OIL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(Unaudited)

			Common Stock									Accumulated Other Comprehensive Income
								Capital Surplus		Retained Earnings				Total Shareholders' Equity
			Shares		Amount
			(In Thousands)
Balances at December 31, 2006			62,998		$	6,300		1,215,660		137,796		74,250		1,434,006
	Acquisition of Houston Exploration		23,990			2,399		724,013		—		—		726,412
	Tax benefit of stock options exercised		—			—		27		—		—		27
	Exercise of stock options		385			38		6,443		—		—		6,481
	Employee stock purchase plan		15			1		574		—		—		575
	Restricted stock issued, net of cancellations		566			57		(399	)	—		—		(342	)
	Amortization of stock-based compensation		—			—		6,091		—		—		6,091
	Adoption of FIN 48		—			—		—		(1,040	)	—		(1,040	)
Comprehensive earnings:
	Net earnings		—			—		—		83,690		—		83,690
	Increase in unfunded postretirement benefits, net of tax		—			—		—		—		(209	)	(209	)
	Foreign currency translation		—			—		—		—		28,747		28,747
	Total comprehensive earnings													112,228
Balances at June 30, 2007			87,954		$	8,795		1,952,409		220,446		102,788		2,284,438

See accompanying Notes to Condensed Consolidated Financial Statements.

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FOREST OIL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

				Six Months Ended June 30,
				2007			2006
				(In Thousands)
Operating activities:
	Net earnings			$	83,690		60,719
	Adjustments to reconcile net earnings to net cash provided by operating activities:
		Depreciation and depletion			146,585		140,921
		Accretion of asset retirement obligations			2,567		4,653
		Stock-based compensation			4,721		9,812
		Impairments			—		2,078
		Unrealized losses on derivative instruments, net			23,025		9,736
		Amortization of deferred derivative losses			—		15,204
		Gain on sale of assets			(7,176	)	—
		Deferred income tax expense			34,911		18,587
		Other, net			(7,454	)	46
	Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
		Accounts receivable			32,757		(13,938	)
		Other current assets			726		(19,197	)
		Accounts payable			(20,503	)	(19,232	)
		Accrued interest and other current liabilities			(178	)	(12,237	)
Net cash provided by operating activities					293,671		197,152
Investing activities:
	Acquisition of Houston Exploration, net of cash acquired (Note 2)				(775,960	)	—
	Capital expenditures for property and equipment:
		Exploration, development, and other acquisition costs			(331,983	)	(610,151	)
		Other fixed assets			(15,539	)	(5,330	)
	Proceeds from sales of assets				38,613		1,355
	Other, net				—		(35	)
Net cash used in investing activities					(1,084,869	)	(614,161	)
Financing activities:
	Issuance of 71/4% senior notes, net of issuance costs				739,176		—
	Proceeds from bank borrowings				963,734		961,943
	Repayments of bank borrowings				(647,527	)	(583,614	)
	Repayments of bank debt assumed in acquisition				(176,885	)	—
	Repayments of term loan				(111,250	)	—
	Proceeds from Spin-off (Note 2)				—		21,670
	Proceeds from the exercise of options and from employee stock purchase plan				7,056		3,775
	Other, net				(1,712	)	11,528
Net cash provided by financing activities					772,592		415,302
Effect of exchange rate changes on cash					1,172		(68	)
Net decrease in cash and cash equivalents					(17,434	)	(1,775	)
Cash and cash equivalents at beginning of period					33,164		7,231
Cash and cash equivalents at end of period				$	15,730		5,456
Cash paid during the period for:
	Interest			$	52,575		38,087
	Income taxes				1,278		4,618

See accompanying Notes to Condensed Consolidated Financial Statements.

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FOREST OIL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) BASIS OF PRESENTATION

        The Condensed Consolidated Financial Statements included herein are unaudited and include the accounts of Forest Oil Corporation and its consolidated subsidiaries (collectively, "Forest" or the "Company"). In the opinion of management, all adjustments, consisting of normal recurring accruals, have been made which are necessary for a fair presentation of the financial position of Forest at June 30, 2007, the results of its operations for the three and six months ended June 30, 2007 and 2006, and its cash flows for the six months ended June 30, 2007 and 2006. Interim results are not necessarily indicative of expected annual results because of the impact of fluctuations in prices received for liquids (oil, condensate, and natural gas liquids) and natural gas and other factors.

        In the course of preparing the Condensed Consolidated Financial Statements, management makes various assumptions, judgments, and estimates to determine the reported amount of assets, liabilities, revenue, and expenses, and in the disclosures of commitments and contingencies. Changes in these assumptions, judgments, and estimates will occur as a result of the passage of time and the occurrence of future events and, accordingly, actual results could differ from amounts initially established.

        The more significant areas requiring the use of assumptions, judgments, and estimates relate to volumes of oil and gas reserves used in calculating depletion, the amount of future net revenues used in computing the ceiling test limitations, and the amount of future capital costs and abandonment obligations used in such calculations. Assumptions, judgments, and estimates are also required in determining impairments of undeveloped properties, valuing deferred tax assets, and estimating fair values of derivative instruments.

        Certain amounts in the prior year financial statements have been reclassified to conform to the 2007 financial statement presentation.

        For a more complete understanding of Forest's operations, financial position, and accounting policies, reference is made to the consolidated financial statements of Forest, and related notes thereto, filed with Forest's Annual Report on Form 10-K for the year ended December 31, 2006, previously filed with the Securities and Exchange Commission.

(2) ACQUISITIONS AND DIVESTITURES

Acquisitions

Acquisition of Houston Exploration

        On June 6, 2007, Forest completed the acquisition of The Houston Exploration Company ("Houston Exploration") in a cash and stock transaction totaling approximately $1.5 billion and the assumption of Houston Exploration's debt. Houston Exploration was an independent natural gas and oil producer engaged in the exploration, development, exploitation, and acquisition of natural gas and oil reserves in North America. Houston Exploration had operations in four producing regions within the United States: South Texas, East Texas, the Arkoma Basin of Arkansas, and the Uinta and DJ Basins in the Rocky Mountains. The principal factors considered by management in making the acquisition included the mix of complementary high-quality assets in certain of the Company's existing core areas, lower-risk exploitation opportunities, expected increased cash flow from operations available for investing activities, and opportunities for cost savings through administrative and operational synergies. At the time the acquisition was announced on January 7, 2007, Forest estimated the Houston

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Exploration net oil and gas reserves to be 655 Bcfe, of which 65% were classified as proved developed and the remaining amounts were classified as proved undeveloped. Pursuant to the terms and conditions of the agreement and plan of merger ("Merger Agreement"), Forest paid total merger consideration of approximately $750 million in cash and issued approximately 24 million common shares, valued at $30.28 per share. The per share value of the Forest common shares issued was calculated as the average of Forest's closing share price for a five day period surrounding the announcement date of January 7, 2007. The cash component of the merger consideration was financed from a private placement of $750 million of senior notes due 2019 and borrowings under the Company's $1.0 billion second amended and restated credit facilities that were executed on June 6, 2007. Immediately following the completion of the merger, Forest repaid all of Houston Exploration's outstanding bank debt totaling approximately $177 million.

        The acquisition, which was accounted for using the purchase method of accounting, has been included in Forest's Condensed Consolidated Financial Statements since June 6, 2007, the date the acquisition closed. The following table represents the preliminary allocation of the total purchase price of Houston Exploration to the acquired assets and liabilities of Houston Exploration. The allocation represents the estimated fair values assigned to each of the assets acquired and liabilities assumed. The purchase price allocation is preliminary, subject to finalized fair value appraisals and completed evaluations of proved and unproved oil and gas properties, deferred income taxes, contractual

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arrangements and legal and environmental matters. These and other estimates are subject to change as additional information becomes available and is assessed by Forest.

        Goodwill of $250.7 million has been recognized to the extent that the consideration paid exceeded the fair value of the net assets acquired and has been assigned to the U.S. reporting unit. Goodwill is not expected to be deductible for tax purposes. The principal factors that contributed to the recognition of goodwill include the mix of complementary high-quality assets in certain of our existing core areas, lower-risk exploitation opportunities, expected increased cash flow from operations available for investing activities, and opportunities for cost savings through administrative and operational synergies. Included in the working capital assumed at the acquisition date is a severance accrual of $28.9 million for costs to involuntarily terminate employees of Houston Exploration. Management determined it would be necessary to eliminate certain overlapping positions to achieve cost savings through administrative and operational synergies. Management is still finalizing its business integration plans as a result of the acquisition and, accordingly, the severance accrual will be finalized once these plans are complete. As of June 30, 2007, $5.1 million had been paid against this accrual, leaving a balance of $23.8 million.

        The following summary pro forma combined statement of operations data of Forest for the three and six month periods ended June 30, 2007 and 2006 has been prepared to give effect to the merger as if the merger had occurred on January 1, 2007 and 2006, respectively. The pro forma financial

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information is not necessarily indicative of the results that might have occurred had the transaction taken place on January 1, 2007 and 2006 and is not intended to be a projection of future results. Future results may vary significantly from the results reflected in the following pro forma financial information because of normal production declines, changes in commodity prices, future acquisitions and divestitures, future development and exploration activities, and other factors. The pro forma financial information also gives pro forma effect to Forest's spin-off of its offshore Gulf of Mexico operations completed in March 2006 and Houston Exploration's sale of substantially all of its offshore Gulf of Mexico operations completed in June 2006, as though each disposition occurred on January 1, 2006.

Cotton Valley Acquisition

        On March 31, 2006, Forest completed the acquisition of oil and gas properties located primarily in the Cotton Valley trend in East Texas. Forest paid approximately $255 million, as adjusted to reflect an economic effective date of February 1, 2006, for properties with an estimated 110 Bcfe of estimated proved reserves at the time the acquisition was announced in February 2006 and production that averaged 13 MMcfe per day in January 2006. Forest acquired approximately 26,000 net acres in the fields, of which approximately 14,000 net acres were undeveloped. Forest funded this acquisition utilizing its bank credit facilities.

Divestitures

Pending Sale of Alaska Assets

        On May 29, 2007, Forest announced the execution of definitive agreements to sell substantially all of its Alaska assets to Pacific Energy Resources Ltd. ("Pacific"). On July 31, 2007, the parties entered into amendments to the definitive agreements modifying certain provisions contained in each of the agreements, including among others the consideration terms. The total consideration to be received for the sale of the Alaska assets will include $400 million in cash, 10 million restricted shares of Pacific common stock, and a $60.75 million zero coupon Senior Subordinated Note from Pacific due 2014. The $400 million in cash will be adjusted downward by $380.0 million (equal to the outstanding balance and prepayment premium under Forest Alaska Operating LLC's term loan facilities at January 1, 2007) and

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adjusted upward by $111.1 million (equal to the prepayment of $110.0 million and prepayment premium of $1.1 million that was made under those term loans on June 29, 2007). Pacific will be obligated at closing to pay down the remaining balance under the Forest Alaska term loans of approximately $268 million (which includes a prepayment premium of approximately $4 million). The amendment extends the closing date to August 24, 2007 and also provides for a deposit of 5 million shares of Pacific common stock in addition to the $5.2 million cash deposit already received and substantially reduces the circumstances under which closing would not occur.

Spin-off and Merger of Offshore Gulf of Mexico Operations

        On March 2, 2006, Forest completed the spin-off of its offshore Gulf of Mexico operations by means of a special dividend, which consisted of a pro rata spin-off (the "Spin-off") of all outstanding shares of Forest Energy Resources, Inc. (hereinafter known as Mariner Energy Resources, Inc. or "MERI"), a total of approximately 50.6 million shares of common stock, to holders of record of Forest common stock as of the close of business on February 21, 2006. Immediately following the Spin-off, MERI was merged with a subsidiary of Mariner Energy, Inc. ("Mariner") (the "Merger"). Mariner's common stock commenced trading on the New York Stock Exchange on March 3, 2006.

        The Spin-off was a tax-free transaction for federal income tax purposes. Prior to the Merger, as part of the Spin-off, MERI paid Forest approximately $176.1 million. The $176.1 million was drawn on a newly created bank credit facility established by MERI immediately prior to the Spin-off. This credit facility and associated liability were included in the Spin-off. Subsequent to the closing, Forest received additional net cash proceeds of $21.7 million from MERI for a total of $197.8 million. In accordance with the transaction agreements, Forest and MERI had submitted post-closing adjustments from which Forest paid MERI approximately $5.8 million. Additional adjustments to the cash amount may occur pending the resolution of certain matters which have been submitted to binding arbitration.

        The table below sets forth the assets and liabilities included in the Spin-off (in thousands):

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        The following table presents the revenues and direct operating expenses of the offshore Gulf of Mexico operations reported in the Condensed Consolidated Statements of Operations for the six months ended June 30, 2006.

Sale of ProMark—Discontinued Operations

        On March 1, 2004, the Company sold the assets and business operations of Producers Marketing, Ltd. ("ProMark") to Cinergy Canada, Inc. ("Cinergy") for $11.2 million CDN. As a result of the sale, ProMark's results of operations were reported as discontinued operations in the historical financial statements. Under the terms of the purchase and sale agreement, Forest may receive additional contingent consideration over a period of five years through February 2009. During the six months ended June 30, 2006, Forest recognized an additional $3.6 million contingent payment ($2.4 million net of tax), which has been reflected as income from discontinued operations in the Condensed Consolidated Statements of Operations. No contingent payments will be received during 2007.

Other Divestitures

        During the six months ended June 30, 2007, Forest sold properties, including oil and gas properties with estimated proved reserves of approximately 14 Bcfe, for total proceeds of approximately $39 million, including overriding royalty interests in Australia for net proceeds of approximately $7.2 million that resulted in a gain on the sale of approximately $7.2 million ($4.5 million net of tax). In addition, in August 2007, the Company entered into a sale-leaseback transaction whereby the Company sold its drilling rigs for cash proceeds of approximately $62.6 million and simultaneously entered into an operating lease with the buyer which provides for monthly rental payments of approximately $.8 million for a term of seven years.

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

Earnings per Share

        Basic earnings per share is computed by dividing net earnings attributable to common stock by the weighted average number of common shares outstanding during each period, excluding treasury shares.

        Diluted earnings per share is computed by adjusting the average number of common shares outstanding for the dilutive effect, if any, of stock options, unvested restricted stock grants, and

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unvested phantom stock units. The following sets forth the calculation of basic and diluted earnings per share:

			Three Months Ended June 30,					Six Months Ended June 30,
			2007			2006		2007		2006
			(In Thousands, Except Per Share Amounts)
Earnings from continuing operations			$	76,799		57,048		83,690		58,297
Income from discontinued operations, net of tax				—		—		—		2,422
Net earnings			$	76,799		57,048		83,690		60,719
Weighted average common shares outstanding during the period				69,247		62,195		65,839		62,155
Add dilutive effects of stock options, unvested restricted stock grants, and unvested phantom stock units				1,580		1,294		1,444		1,184
Weighted average common shares outstanding, including the effects of dilutive securities				70,827		63,489		67,283		63,339
Basic earnings per share:
	From continuing operations		$	1.11		.92		1.27		.94
	From discontinued operations			—		—		—		.04
	Basic earnings per share		$	1.11		.92		1.27		.98
Diluted earnings per share:
	From continuing operations		$	1.08		.90		1.24		.92
	From discontinued operations			—		—		—		.04
	Diluted earnings per share		$	1.08		.90		1.24		.96

Comprehensive Earnings (Loss)

        Comprehensive earnings (loss) is a term used to refer to net earnings plus other comprehensive income (loss). Other comprehensive income (loss) is comprised of revenues, expenses, gains, and losses that under generally accepted accounting principles are reported as separate components of shareholders' equity instead of net earnings. Items included in Forest's other comprehensive income (loss) for the three and six months ended June 30, 2007 and 2006 are foreign currency gains (losses) related to the translation of the assets and liabilities of Forest's Canadian operations, changes in the unfunded postretirement benefits, and unrealized gains (losses) related to the changes in the fair value of derivative instruments designated as cash flow hedges.

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        The components of comprehensive earnings (loss) are as follows:

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(4) STOCK-BASED COMPENSATION

      The table below sets forth total stock-based compensation recorded during the three and six months ended June 30, 2007 and 2006 under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised), Share-Based Payment ("SFAS 123(R)").

			Stock Options			Restricted Stock		Phantom Stock Units		Total(1)
			(In Thousands)
Three months ended June 30, 2007:
	Total stock-based compensation costs		$	1,749		1,831		568		4,148
	Less: stock-based compensation costs capitalized			(329	)	(600	)	(366	)	(1,295	)
	Stock-based compensation costs expensed		$	1,420		1,231		202		2,853
Six months ended June 30, 2007:
	Total stock-based compensation costs		$	2,682		3,264		792		6,738
	Less: stock-based compensation costs capitalized			(638	)	(1,020	)	(504	)	(2,162	)
	Stock-based compensation costs expensed		$	2,044		2,244		288		4,576
Unamortized stock-based compensation costs as of June 30, 2007			$	4,110		29,687		5,589	(2)	39,386
Weighted average amortization period remaining				2.4 years		2.2 years		2.3 years		2.2 years
Three months ended June 30, 2006:
	Total stock-based compensation costs		$	1,896		1,275		107		3,278
	Less: stock-based compensation costs capitalized			(279	)	(505	)	(61	)	(845	)
	Stock-based compensation costs expensed		$	1,617		770		46		2,433
Six months ended June 30, 2006:
	Total stock-based compensation costs		$	3,022		11,522		1,520		16,064
	Less: stock-based compensation costs capitalized			(710	)	(4,286	)	(848	)	(5,844	)
	Stock-based compensation costs expensed		$	2,312		7,236		672		10,220

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(1)

The Company also maintains an employee stock purchase plan (which is not included in the table) under which $.1 million of compensation cost was recognized for each of the three and six months ended June 30, 2007 and 2006 under the provisions of SFAS 123(R).

(2)

Based on the closing price of the Company's common stock on June 30, 2007.

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Stock Options

        The following table summarizes stock option activity in the Company's stock-based compensation plans for the six months ended June 30, 2007.

		Number of Shares		Weighted Average Exercise Price			Aggregate Intrinsic Value (In Thousands)(1)			Number of Shares Exercisable
Outstanding at January 1, 2007		3,328,279		$	18.80		$	46,279		2,338,751
Granted at fair value(2)		651,655			42.10
Exercised		(385,147	)		17.20			7,930
Cancelled		(113,576	)		35.51
Outstanding at June 30, 2007		3,481,211			22.79			68,542		2,270,736

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(1)

The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the option.

(2)

During the second quarter, the Company granted 651,655 stock options, which includes 616,655 options granted to Houston Exploration employees pursuant to the Merger Agreement after closing of the acquisition on June 6, 2007. The value of these options will be amortized as compensation costs over the four year vesting period from the date of grant.

        The fair value of stock options granted during the second quarter of 2007 was estimated using the Black-Scholes option pricing model. The following weighted average assumptions were used to compute the fair market value of stock options granted:

        The expected life of the options is based, in part, on historical exercise patterns of the holders of options with similar terms, with consideration given to how historical patterns may differ from future exercise patterns based on current or expected market conditions and employee turnover. The risk free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility was based on the historical volatility of the Company's stock for a term consistent with the expected life of the options.

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Restricted Stock and Phantom Stock Units

        The following table summarizes the restricted stock and phantom stock unit activity in the Company's stock-based compensation plans for the six months ended June 30, 2007.

		Restricted Stock					Phantom Stock Units
		Number of Shares		Weighted Average Grant Date Fair Value			Number of Shares		Weighted Average Grant Date Fair Value
Unvested at January 1, 2007		627,450		$	43.15		77,950		$	44.32
Awarded		608,450			41.39		89,000			41.00
Vested		(24,850	)		29.14		—			—
Forfeited		(33,200	)		41.58		(800	)		46.07
Unvested at June 30, 2007		1,177,850			42.58		166,150			42.53

        The restricted stock and phantom stock units generally vest on the third anniversary of the date of the award, but may vest earlier upon a qualifying disability, death, retirement, or a change in control of the Company in accordance with the terms of the underlying agreement. The phantom stock units can be settled in cash, shares of common stock, or a combination of both. The phantom stock units have been accounted for as a liability within the Condensed Consolidated Financial Statements.

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(5) DEBT

        Components of debt are as follows:

		June 30, 2007									December 31, 2006
		Principal			Unamortized Premium (Discount)		Other(3)		Total		Principal		Unamortized Premium (Discount)		Other(3)		Total
		(In Thousands)
U.S. Credit Facility		$	350,000		—		—		350,000		23,000		—		—		23,000
Canadian Credit Facility			81,658		—		—		81,658		84,094		—		—		84,094
Term Loan Agreements(1)			263,750		—		—		263,750		375,000		—		—		375,000
8% Senior Notes due 2008			265,000		(98	)	2,208		267,110		265,000		(146	)	3,346		268,200
8% Senior Notes due 2011			285,000		5,813		3,737		294,550		285,000		6,458		4,152		295,610
7% Senior Subordinated Notes due 2013(2)			5,822		(175	)	—		5,647		—		—		—		—
73/4% Senior Notes due 2014			150,000		(1,631	)	12,172		160,541		150,000		(1,751	)	13,056		161,305
71/4% Senior Notes due 2019(2)			750,000		—		—		750,000		—		—		—		—
Total debt			2,151,230		3,909		18,117		2,173,256		1,182,094		4,561		20,554		1,207,209
Less: current portion of long-term debt			267,500		(98	)	2,208		269,610		2,500		—		—		2,500
Long-term debt		$	1,883,730		4,007		15,909		1,903,646		1,179,594		4,561		20,554		1,204,709

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(1)

During the six months ended June 30, 2007, Forest paid down the principal amount of the first lien term loan agreement by two scheduled principal payments totaling $1.3 million as well as a discretionary prepayment totaling $110 million.

(2)

In connection with the acquisition of Houston Exploration, Forest assumed approximately $5.8 million of 7% Senior Subordinated Notes due 2013 and issued $750 million of 7¹/4% Senior Notes due 2019 for net proceeds of approximately $739.2 million after deducting initial purchasers' discounts.

(3)

Represents the unamortized portion of gains realized upon termination of interest rate swaps that were accounted for as fair value hedges. The gains are being amortized as a reduction of interest expense over the terms of the notes.

Credit Facilities

        On June 6, 2007, Forest entered into amended and restated credit facilities totaling $1.0 billion. The amended and restated facilities consist of an $850 million U.S. credit facility (the "U.S. Facility") through a syndicate of banks led by JPMorgan Chase Bank, N.A. and a $150 million Canadian credit facility (the "Canadian Facility", and together with the U.S. Facility, the "Credit Facilities") through a syndicate of banks led by JPMorgan Chase Bank, N.A., Toronto Branch. The Credit Facilities mature in June 2012. Subject to the agreement of Forest and the applicable lenders, the size of the Credit Facilities may be increased by $800 million in the aggregate.

        Forest's availability under the Credit Facilities will be governed by a borrowing base ("Global Borrowing Base") which currently is set at $1.4 billion, with $1.25 billion allocated to the U.S. credit facility and $150 million allocated to the Canadian credit facility. The determination of the Global Borrowing Base is made by the lenders in their sole discretion taking into consideration the estimated value of Forest's oil and gas properties in accordance with the lenders' customary practices for oil and gas loans. The Global Borrowing Base is redetermined semi-annually and the available borrowing amount could be increased or decreased as a result of such redeterminations. In addition, Forest and

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the lenders each have discretion at any time, but not more often than once during any calendar year, to have the Global Borrowing Base redetermined.

        The Credit Facilities include terms and covenants that place limitations on certain types of activities, including restrictions or requirements with respect to additional debt, liens, asset sales, hedging activities, investments, dividends, mergers and acquisitions, and include financial covenants. Interest rates and collateral requirements under the Credit Facilities will vary based on Forest's credit ratings and financial condition, as governed by certain financial tests.

        Under certain conditions, amounts outstanding under the Credit Facilities may be accelerated. Bankruptcy and insolvency events with respect to Forest or certain of its subsidiaries will result in an automatic acceleration of the indebtedness under the Credit Facilities. Subject to notice and cure periods in certain cases, other events of default under either of the Credit Facilities will result in acceleration of the indebtedness under the facilities at the option of the lenders. Such other events of default include non-payment, breach of warranty, non-performance of obligations under the Credit Facilities (including financial covenants), default on other indebtedness, certain pension plan events, certain adverse judgments, change of control, a failure of the liens securing the Credit Facilities, and an event of default under the Canadian Facility.

        The Credit Facilities are collateralized by Forest's assets. Forest is required to mortgage, and grant a security interest in, 75% of the present value of the proved oil and gas properties and related assets of Forest and its subsidiaries. If Forest's corporate credit ratings by Moody's and S&P meet pre-established levels, the security requirements would cease to apply and at Forest's request the banks would release their liens and security interest on Forest's properties.

        From time to time, Forest and the syndication agents, documentation agents, global administrative agent and the other lenders party to the Credit Facilities, engage in other transactions, including securities offerings where such parties or their affiliates, may serve as an underwriter or initial purchaser of Forest's securities and, or serve as counterparties to Forest's hedging arrangements.

Term Loan Agreements

        On December 8, 2006, Forest, through its wholly-owned subsidiaries Forest Alaska Operating LLC and Forest Alaska Holding LLC (together "Forest Alaska"), issued, on a non-recourse basis to Forest, term loan financing facilities in the aggregate principal amount of $375 million. The issuance was comprised of two term loan facilities, including a $250 million first lien credit agreement and a $125 million second lien credit agreement (together the "Credit Agreements"). The loan proceeds were used to fund a $350 million distribution to Forest, which Forest used to pay down its U.S. credit facility, and to provide Forest Alaska working capital for its operations and pay transaction fees and expenses. Interest on the loans is based on an adjusted LIBO rate ("LIBOR") (LIBOR plus 3.50% under the first lien credit agreement and LIBOR plus 6.50% under the second lien credit agreement) or on a rate based on the federal funds rate (federal funds rate plus 3.0% under the first lien credit agreement and federal funds rate plus 6.0% under the second lien credit agreement), at the election of Forest Alaska. The loans under the first lien agreement will become due on December 8, 2010 and the loans under the second lien agreement will become due on December 8, 2011. The Credit Agreements are secured by substantially all of Forest Alaska's assets.

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        Partial repayments on the loans outstanding under the first lien agreement are due at the end of each calendar quarter, while the loans under the second lien agreement are scheduled for repayment on the maturity date. In addition, Forest Alaska is obligated to make mandatory prepayments annually using its excess cash flow and the proceeds associated with certain equity issuances, asset sales, and incurrence of additional indebtedness. Under certain circumstances involving a change in control involving Forest Alaska, the Credit Agreements also require Forest Alaska to offer to repurchase outstanding loans and purchase loans put to it by the lenders and, depending on the date of any such repurchase, the repurchase price may include a premium. Upon an event of default, a majority of the lenders under each of the Credit Agreements may request the agent to declare the loans immediately payable. Under certain circumstances involving insolvency, the loans will automatically become immediately due and payable.

        The Credit Agreements include terms and covenants that place limitations on certain types of activities that may be conducted by Forest Alaska. The terms include restrictions or requirements with respect to additional debt, liens, investments, hedging activities, acquisitions, dividends, mergers, sales of assets, transactions with affiliates, and capital expenditures. In addition, the Credit Agreements include financial covenants addressing limitations on present value to total debt and first lien debt, interest coverage and leverage ratios. In the event Forest Alaska should not meet the prescribed financial or non-financial covenants and enter into a default position, the creditor may take action to terminate the committed term loan facilities and declare amounts outstanding to be immediately due and payable in whole or in part including accrued interest.

        The Credit Agreements contain a covenant requiring that, for rolling time periods equal to four consecutive fiscal quarters, Forest Alaska may not have a "Leverage Ratio" greater than a defined amount. The Leverage Ratio is the ratio of (i) the total debt outstanding under the Credit Agreements at the end of the applicable four quarters to (ii) Forest Alaska's net income plus interest expense, depreciation, depletion expense, amortization expense, income taxes, exploration expense, and other non-cash charges and expenses, subject to certain adjustments (defined in the Credit Agreements as "Consolidated EBITDAX"), for the applicable four quarters. In addition, the first lien credit agreement (but not the second lien credit agreement) contains a covenant requiring that, for the same rolling time periods, Forest Alaska may not have an "Interest Coverage Ratio" less than a defined amount. The Interest Coverage Ratio is the ratio of (i) Forest Alaska's Consolidated EBITDAX for the applicable four quarters to (ii) the total interest expense under the two credit agreements, subject to certain adjustments, for the same time period.

        On April 26, 2007, Forest Alaska entered into amendments to the first lien credit agreement and second lien credit agreement, which amended certain definitions within each. During the six months ended June 30, 2007, Forest Alaska made scheduled principal payments of $1.3 million under the first lien facility. In addition, Forest made a capital contribution to Forest Alaska of $111.1 million using borrowings under Forest's U.S. Credit Facility, which Forest Alaska used to make an additional prepayment under the first lien facility of $110.0 million plus a prepayment premium of $1.1 million.

7¹/4% Senior Notes Due 2019

        On June 6, 2007 Forest issued $750 million of 7¹/4% senior notes due in 2019 ("the 7¹/4% Notes") at par for net proceeds of approximately $739.2 million, after deducting initial purchaser discounts,

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which were used to fund a portion of the cash merger consideration for Forest's acquisition of Houston Exploration. The 7¹/4% Notes were issued under an indenture (the "Indenture") dated as of June 6, 2007 among Forest, Forest Oil Permian Corporation, a wholly-owned subsidiary of Forest ("Forest Permian"), as subsidiary guarantor, and U.S. Bank National Association, as trustee. The 7¹/4% Notes are jointly and severally guaranteed by Forest Permian on an unsecured basis. Interest is payable on June 15 and December 15 of each year, beginning December 15, 2007. The 7¹/4% Notes will mature on June 15, 2019.

        Forest may redeem up to 35% of the 7¹/4% Notes at any time prior to June 15, 2010, on one or more occasions, with the proceeds from certain equity offerings at a redemption price equal to 107.25% of the principal amount, plus accrued but unpaid interest. Forest may redeem the 7¹/4% Notes at any time beginning on or after June 15, 2012 at the prices set forth below, expressed as percentages of the principal amount redeemed, plus accrued but unpaid interest:

        Forest may also redeem the 7¹/4% Notes, in whole or in part, at a price equal to the principal amount plus a "make whole" premium, at any time prior to June 15, 2012, using a discount rate of the Treasury rate plus 0.50%, plus accrued but unpaid interest.

        Forest and its restricted subsidiaries are subject to certain negative covenants under the Indenture governing the 7¹/4% Notes. The Indenture limits the ability of Forest and each of its restricted subsidiaries to, among other things: incur additional indebtedness, create certain liens, make certain types of "restricted payments", make investments, sell assets, enter into agreements that restrict dividends or other payments from its subsidiaries to itself, consolidate, merge or transfer all or substantially all of its assets, engage in transactions with affiliates, and pay dividends or make other distributions on capital stock or subordinated indebtedness.

7% Senior Subordinated Notes Due 2013

        In connection with the acquisition of Houston Exploration, Forest assumed $5.8 million of 7% senior subordinated notes due in 2013 ("the 7% Notes") originally issued by Houston Exploration in June 2003. The 7% Notes can be redeemed at the option of Forest, in whole or in part, at any time after June 15, 2008 at a price equal to 100% of the principal amount plus accrued but unpaid interest, if any, plus a specified premium that decreases yearly from 3.5% in 2008 to 0% in 2011 and thereafter. The 7% Notes are general unsecured obligations of Forest and rank subordinate in right of payment to all existing senior debt and will rank senior or equal in right to all of our existing and future subordinated debt. Interest is payable on June 15 and December 15 of each year.

(6) PROPERTY AND EQUIPMENT

        Forest uses the full cost method of accounting for oil and gas properties. Separate cost centers are maintained for each country in which Forest has operations. During the periods presented, Forest's

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primary oil and gas operations were conducted in the United States and Canada. All costs incurred 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) and the fair value of estimated future costs of site restoration, dismantlement, and abandonment activities are capitalized. Forest capitalized $8.9 million and $6.4 million of general and administrative costs (including stock-based compensation) during the three months ended June 30, 2007 and 2006, respectively. During the six months ended June 30, 2007 and 2006, Forest capitalized $17.1 million and $17.4 million, respectively, of general and administrative costs (including stock-based compensation). Interest costs related to significant unproved properties that are under development are also capitalized to oil and gas properties. Forest capitalized interest expense attributed to unproved properties of $1.4 million and $1.3 million during the three month periods ending June 30, 2007 and 2006, respectively. During the six months ended June 30, 2007 and 2006, the Company capitalized approximately $2.2 million and $2.0 million, respectively, of interest expense attributed to unproved properties.

        Investments in unproved properties, including related capitalized interest costs, are not depleted pending determination of the existence of proved reserves. Unproved properties are assessed periodically to ascertain whether impairment has occurred. Unproved properties whose costs are individually significant are assessed individually by considering the primary lease terms of the properties, the holding period of the properties, and geographic and geologic data obtained relating to the properties. Where it is not practicable to assess individually the amount of impairment of properties for which costs are not individually significant, such properties are grouped for purposes of assessing impairment. The amount of impairment assessed is added to the costs to be amortized, or is reported as a period expense, as appropriate. During the second quarter of 2006, the Company recorded an impairment of $2.1 million related to certain properties located in Gabon. The Gabon impairment was related to historical costs impaired to reflect a drilled dry hole.

        Pursuant to full cost accounting rules, the Company must perform a ceiling test each quarter on its proved oil and gas assets within each separate cost center. The ceiling test provides that capitalized costs less related accumulated depletion and deferred income taxes for each cost center may not exceed the sum of (1) the present value of future net revenue from estimated production of proved oil and gas reserves using current prices, including the effects of derivative instruments but excluding the future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, at a discount factor of 10%; plus (2) the cost of properties not being amortized, if any; plus (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less (4) income tax effects related to differences in the book and tax basis of oil and gas properties. Should the net capitalized costs for a cost center exceed the sum of the components noted above, an impairment charge would be recognized to the extent of the excess capitalized costs. There were no ceiling test impairments of oil and gas properties in 2007 or 2006, although the Company's ceiling test in each of its cost centers could be adversely impacted by declines in commodity prices.

        Gain or loss is not recognized on the sale of oil and gas properties unless the sale significantly alters the relationship between capitalized costs and estimated proved oil and gas reserves attributable to a cost center.

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        Depletion of proved oil and gas properties is computed on the units-of-production method, whereby capitalized costs, as adjusted for future development costs and asset retirement obligations, are amortized over the total estimated proved reserves. Furniture and fixtures, computer hardware and software, and other equipment are depreciated on the straight-line or declining balance method, based upon estimated useful lives of the assets ranging from three to 15 years.

(7) ASSET RETIREMENT OBLIGATIONS

        Forest records estimated future asset retirement obligations pursuant to the provisions of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations ("SFAS 143"). SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. Subsequent to initial measurement, the asset retirement liability is required to be accreted each period to its present value. Capitalized costs are depleted as a component of the full cost pool using the units-of-production method. Forest's asset retirement obligations consist of costs related to the plugging of wells, the removal of facilities and equipment, and site restoration on oil and gas properties.

        The following table summarizes the activity for Forest's asset retirement obligations for the six months ended June 30, 2007 and 2006:

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(8) EMPLOYEE BENEFITS

        The following table sets forth the components of the net periodic cost of Forest's defined benefit pension plans and postretirement benefits in the United States for the three and six months ended June 30, 2007 and 2006:

		Pension Benefits					Postretirement Benefits				Pension Benefits				Postretirement Benefits
		Three Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,				Six Months Ended June 30,
		2007			2006		2007		2006		2007		2006		2007		2006
		(In Thousands)
Service cost		$	57		—		102		137		57		—		205		306
Interest cost			581		548		94		101		1,134		1,096		188		219
Curtailment gain(1)			—		—		—		—		—		—		—		(1,851	)
Expected return on plan assets			(640	)	(607	)	—		—		(1,281	)	(1,215	)	—		—
Amortization of prior service cost			26		—		—		—		26		—		—		—
Recognized actuarial loss (gain)			195		228		(21	)	—		390		455		(43	)	—
Total net periodic expense		$	219		169		175		238		326		336		350		(1,326	)

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(1)

Forest recognized a $1.9 million curtailment gain in connection with the Spin-off on March 2, 2006. This gain was recorded as a reduction in general and administrative expense for six months ended June 30, 2006.

        Forest assumed a postretirement benefit obligation of approximately $5 million related to Houston Exploration's Supplemental Executive Retirement Plans ("SERPs") in the acquisition completed June 6, 2007. The SERPs are unfunded, non-tax qualified defined benefit pension plans, which provided retirement benefits to certain management level and other highly compensated employees. Participants in the SERPs are entitled to a monthly retirement benefit for life. As defined in the SERPs, all benefits under the plans become fully vested upon a change of control whether or not a participant's employment is terminated. The benefit payable is to be paid as a lump sum in the event of a change of control and the participant's employment is terminated without cause or if the participant resigns for good reason within two years following a change of control.

(9) DERIVATIVE INSTRUMENTS

        Forest periodically enters into derivative instruments such as swap, basis swap, and collar agreements in order to provide a measure of stability to Forest's cash flows in an environment of volatile oil and gas prices and to manage the exposure to commodity price risk. Forest's commodity derivative instruments generally serve as effective economic hedges of commodity price exposure; however, various circumstances can cause commodity hedges to not qualify for cash flow hedge accounting either at the inception of the hedge or during the term of the hedge. When the criteria for cash flow hedge accounting are not met or when cash flow hedging is not elected, realized gains and losses (i.e., cash settlements) are recorded in other income and expense in the Condensed Consolidated Statements of Operations. Similarly, changes in the fair value of the derivative instruments are recorded as unrealized gains or losses in the Condensed Consolidated Statements of Operations. In contrast, cash settlements for derivative instruments that qualify for hedge accounting are recorded as additions to or reductions of oil and gas revenues while changes in fair value of cash flow hedges are

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recognized, to the extent the hedge is effective, in other comprehensive income until the hedged item is recognized in earnings. In March 2006, Forest elected to discontinue cash flow hedge accounting prospectively for all of its commodity derivative instruments. Accordingly, subsequent to March 2006, Forest has recognized all mark-to-market gains and losses in earnings, rather than deferring such amounts in accumulated other comprehensive income included in shareholders' equity.

        The table below summarizes the realized and unrealized losses (gains) Forest incurred related to its oil and gas derivative instruments for the periods indicated.

		Three Months Ended June 30,					Six Months Ended June 30,
		2007			2006		2007		2006
		(In Thousands)
Realized losses on derivatives designated as cash flow hedges(1)		$	—		1,677		—		38,357
Realized (gains) losses on derivatives not designated as cash flow hedges(2)			(9,140	)	13,698		(34,273	)	17,613
Ineffectiveness recognized on derivatives designated as cash flow hedges(2)			—		—		—		(5,573	)
Unrealized (gains) losses on derivatives not designated as cash flow hedges(2)			(33,074	)	(14,378	)	24,814		15,309
Total realized and unrealized (gains) losses recorded		$	(42,214	)	997		(9,459	)	65,706

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(1)

Included in oil and gas sales in the Condensed Consolidated Statements of Operations. Realized gains or losses on derivatives that had previously been designated as cash flow hedges at the time the Company elected to discontinue hedge accounting were required to be included as part of oil and gas sales.

(2)

Included in other income and expense in the Condensed Consolidated Statements of Operations.

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        The tables below set forth Forest's outstanding commodity swaps and collars as of June 30, 2007:

		Swaps
		Natural Gas (NYMEX HH)					Oil (NYMEX WTI)
		Bbtu per Day		Weighted Average Hedged Price per MMBtu			Barrels per Day		Weighted Average Hedged Price per Bbl
Third Quarter 2007		60		$	7.88		7,000		$	70.03
Fourth Quarter 2007		60			7.88		7,000			70.03
Calendar 2008		10			9.10		6,500			69.72
Calendar 2009		—			—		4,500			69.01
Calendar 2010		—			—		1,500			72.95

		Costless Collars(1)
		Natural Gas (NYMEX HH)				Oil (NYMEX WTI)
		Bbtu per Day		Weighted Average Hedged Floor and Ceiling Price per MMBtu		Barrels per Day		Weighted Average Hedged Floor and Ceiling Price per Bbl
Third Quarter 2007		145		$7.42/9.27		4,000		$65.81/87.18
Fourth Quarter 2007		145		7.42/9.27		4,000		65.81/87.18
January – February 2008		130		7.39/8.89		—		—
March – December 2008		70		7.23/8.85		—		—

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(1)

Included in Forest's outstanding natural gas costless collars at June 30, 2007 are natural gas costless collars assumed in the Houston Exploration acquisition with a fair value of $(17.2) million. At June 30, 2007, these costless collars had weighted average hedged floor and ceiling prices per MMBtu of $7.00/8.49 for 110 Bbtu per day for both the third and fourth quarters of 2007, $7.20/8.51 for 100 Bbtu per day for January – February 2008, and $5.00/5.72 for 20 Bbtu per day for March – December 2008.

		Three-Way Costless Collar
		Natural Gas (NYMEX HH)
		Bbtu per Day		Weighted Average Hedged Lower Floor, Upper Floor, and Ceiling Price per MMBtu
Calendar 2008		20		$6.00/8.00/10.00

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        Forest also uses basis swaps in connection with natural gas swaps in order to fix the price differential between the NYMEX price and the index price at which the natural gas production is sold. The table below sets forth Forest's outstanding basis swaps as of June 30, 2007:

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(1)

Included in Forest's outstanding basis swaps at June 30, 2007 are basis swaps assumed in the Houston Exploration acquisition with a fair value of $.8 million. At June 30, 2007, these basis swaps are for 80 Bbtu per day for each of the following periods: third quarter 2007, fourth quarter 2007, and January – February 2008.

        At June 30, 2007, the fair values of Forest's commodity derivative contracts are presented on the Condensed Consolidated Balance Sheet as liabilities of $40.5 million (of which $21.9 million was classified as current) and assets of $37.4 million (of which $32.3 million was classified as current). Forest is exposed to risks associated with swap and collar agreements arising from movements in the prices of oil and natural gas and from the unlikely event of non-performance by the counterparties to the swap and collar agreements.

        In July 2007, the Company entered into an additional basis swap agreement covering 10 Bbtu per day for the period March 1, 2008 through December 31, 2008.

Interest Rate Swaps

        The Company also may enter into interest rate swap agreements in an attempt to normalize the mix of fixed and floating interest rates within its debt portfolio. Unrealized gains, losses, or any settlements are recorded in other income and expense in the Condensed Consolidated Statement of Operations. Pursuant to the requirements under Forest Alaska's Credit Agreements, Forest Alaska entered into two floating to fixed interest rate swaps. In March 2007, Forest Alaska entered into a $75 million floating to fixed interest rate swap for three years at a one month LIBOR fixed rate of 4.80%. In April 2007, Forest Alaska entered into a $112.5 million floating to fixed interest rate swap for three years at a one month LIBOR fixed rate of 4.96%. At June 30, 2007, the fair value of the Forest Alaska interest rate swaps was an asset of $1.8 million (of which $.7 million was classified as current). For the three and six months ended June 30, 2007, the Company recorded unrealized gains related to the interest rate swaps of $1.7 million and $1.8 million, respectively. For the three and six months ended June 30, 2007, the Company recorded realized gains of $.1 million related to the interest rate swaps.

(10) GEOGRAPHICAL SEGMENTS

        Segment information has been prepared in accordance with Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise and Related Information. Forest conducts operations in one industry segment, that being the oil and gas exploration and production industry, and

25

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has three reportable geographical business segments: United States, Canada, and International. Forest's remaining activities are not significant and therefore are not reported as a separate segment, but are included as a reconciling item in the information below. The segments were determined based upon the geographical location of operations in each business segment. The segment data presented below was prepared on the same basis as the Condensed Consolidated Financial Statements. Effective in the third quarter of 2006, Forest decreased the number of reportable segments from five to three to correspond to the same number of cost centers under the full cost accounting rules. Segment information previously reported has been modified to conform to the current presentation.

			Oil and Gas Operations
			Three Months Ended June 30, 2007									Six Months Ended June 30, 2007
			U.S.			Canada		International		Total Company		U.S.		Canada		International		Total Company
			(In Thousands)
Revenue			$	201,953		51,986		—		253,939		339,377		97,118		—		436,495
Expenses:
	Lease operating expenses			36,811		8,216		—		45,027		65,446		15,621		—		81,067
	Production and property taxes			12,063		745		—		12,808		19,283		1,435		—		20,718
	Transportation and processing costs			2,398		2,860		—		5,258		4,111		5,341		—		9,452
	Depletion			63,008		22,056		—		85,064		104,240		40,487		—		144,727
	Accretion of asset retirement obligations			1,026		254		12		1,292		2,028		515		24		2,567
Earnings (loss) from operations			$	86,647		17,855		(12	)	104,490		144,269		33,719		(24	)	177,964
Capital expenditures			$	2,182,144		24,470		2,201		2,208,815		2,280,682		80,732		2,830		2,364,244
Goodwill			$	322,119		16,264		—		338,383		322,119		16,264		—		338,383

26

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        A reconciliation of segment earnings (loss) from operations to consolidated earnings before income taxes and discontinued operations is as follows:

		Three Months Ended June 30, 2007			Six Months Ended June 30, 2007
		(In Thousands)
Earnings from operations for reportable segments		$	104,490		177,964
Marketing, processing, and other			730		783
General and administrative expense (including stock-based compensation)			(13,407	)	(26,378	)
Administrative asset depreciation			(1,062	)	(1,858	)
Interest expense			(29,103	)	(53,456	)
Unrealized gains (losses) on derivative instruments, net			34,813		(23,025	)
Realized gains on derivative instruments, net			9,270		34,404
Unrealized foreign currency exchange gains			6,271		6,320
Gain on sale of assets			—		7,176
Other expense, net			(1,122	)	(234	)
Earnings before income taxes and discontinued operations		$	110,880		121,696

			Oil and Gas Operations
			Three Months Ended June 30, 2006									Six Months Ended June 30, 2006
			United States			Canada		International		Total Company		United States		Canada		International		Total Company
			(In Thousands)
Revenue			$	166,145		44,078		—		210,223		340,735		88,584		—		429,319
Expenses:
	Lease operating expenses			28,164		7,365		—		35,529		67,183		13,677		—		80,860
	Production and property taxes			10,256		741		—		10,997		20,272		1,453		—		21,725
	Transportation and processing costs			3,428		2,214		—		5,642		6,284		4,087		—		10,371
	Depletion			42,849		19,548		—		62,397		100,766		38,487		—		139,253
	Accretion of asset retirement obligations			1,026		264		11		1,301		4,118		513		22		4,653
Impairments				—		—		2,078		2,078		—		—		2,078		2,078
Earnings (loss) from operations			$	80,422		13,946		(2,089	)	92,279		142,112		30,367		(2,100	)	170,379
Capital expenditures			$	109,005		25,128		4,689		138,822		532,838		74,815		5,563		613,216
Goodwill			$	71,376		16,349		—		87,725		71,376		16,349		—		87,725

27

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        A reconciliation of segment earnings (loss) from operations to consolidated earnings before income taxes and discontinued operations is as follows:

		Three Months Ended June 30, 2006			Six Months Ended June 30, 2006
		(In Thousands)
Earnings from operations for reportable segments		$	92,279		170,379
Marketing, processing, and other			1,630		3,980
General and administrative expense (including stock-based compensation)			(11,071	)	(28,207	)
Administrative asset depreciation			(856	)	(1,668	)
Spin-off costs			—		(5,416	)
Interest expense			(17,340	)	(32,491	)
Unrealized gains (losses) on derivative instruments, net			14,378		(9,736	)
Realized losses on derivative instruments, net			(13,698	)	(17,613	)
Other income (expense), net			110		(750	)
Earnings before income taxes and discontinued operations		$	65,432		78,478

(11) CONDENSED CONSOLIDATING FINANCIAL INFORMATION

        Each of the Company's 8% Senior Notes due 2008, 8% Senior Notes due 2011, 7³/4% Senior Notes due 2014, and 7¹/4% Senior Notes due 2019 are fully and unconditionally guaranteed by a wholly-owned subsidiary of the Company (the "Guarantor Subsidiary"). The Company's remaining subsidiaries (the "Non-Guarantor Subsidiaries") have not provided guarantees. Based on this distinction, the following presents condensed consolidating financial information as of June 30, 2007 and December 31, 2006 and for the three and six months ended June 30, 2007 and 2006 on an issuer (parent company), guarantor subsidiary, non-guarantor subsidiary, eliminating entries, and consolidated basis. Elimination entries presented are necessary to combine the entities.

28

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CONDENSED CONSOLIDATING BALANCE SHEETS
(Unaudited)
(In Thousands)

					June 30, 2007											December 31, 2006
					Parent Company			Guarantor Subsidiary		Combined Non-Guarantor Subsidiaries		Eliminations		Consolidated		Parent Company		Guarantor Subsidiary		Combined Non-Guarantor Subsidiaries		Eliminations		Consolidated
ASSETS
Current assets:
	Cash and cash equivalents				$	1,241		26		14,463		—		15,730		771		126		32,267		—		33,164
	Accounts receivable					93,482		8,469		75,011		(5,055	)	171,907		48,010		9,428		69,709		(1,701	)	125,446
	Other current assets					87,428		2,909		25,057		—		115,394		82,227		2,380		17,783		—		102,390
		Total current assets				182,151		11,404		114,531		(5,055	)	303,031		131,008		11,934		119,759		(1,701	)	261,000
Property and equipment, at cost						5,053,288		225,531		2,297,983		—		7,576,802		2,819,163		236,143		2,032,142		—		5,087,448
	Less accumulated depreciation, depletion and amortization					1,666,753		72,450		750,341		—		2,489,544		1,605,072		63,624		628,826		—		2,297,522
			Net property and equipment			3,386,535		153,081		1,547,642		—		5,087,258		1,214,091		172,519		1,403,316		—		2,789,926
Investment in subsidiaries						791,875		—		—		(791,875	)	—		648,250		—		—		(648,250	)	—
Note receivable from subsidiary						103,307		—		—		(103,307	)	—		59,497		—		—		(59,497	)	—
Goodwill						299,159		—		39,224		—		338,383		48,417		—		37,829		—		86,246
Due from (to) parent and subsidiaries						237,806		18,911		(256,717	)	—		—		236,075		(16,276	)	(219,799	)	—		—
Other assets						60,064		1		10,520		—		70,585		43,256		1		8,643		—		51,900
					$	5,060,897		183,397		1,455,200		(900,237	)	5,799,257		2,380,594		168,178		1,349,748		(709,448	)	3,189,072
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Accounts payable				$	294,785		10,905		54,454		(5,055	)	355,089		147,397		8,394		70,843		(1,701	)	224,933
	Current portion of long-term debt					267,110		—		2,500		—		269,610		—		—		2,500		—		2,500
	Other current liabilities					43,653		1,059		8,508		—		53,220		33,978		(2,111	)	4,641		—		36,508
		Total current liabilities				605,548		11,964		65,462		(5,055	)	677,919		181,375		6,283		77,984		(1,701	)	263,941
Long-term debt						1,560,738		—		342,908		—		1,903,646		748,115		—		456,594		—		1,204,709
Notes payable to parent						—		—		103,307		(103,307	)	—		—		—		59,497		(59,497	)	—
Other liabilities						127,620		1,832		45,511		—		174,963		57,496		1,831		35,132		—		94,459
Deferred income taxes						482,553		57,215		218,523		—		758,291		(40,398	)	40,949		191,406		—		191,957
			Total liabilities			2,776,459		71,011		775,711		(108,362	)	3,514,819		946,588		49,063		820,613		(61,198	)	1,755,066
Shareholders' equity						2,284,438		112,386		679,489		(791,875	)	2,284,438		1,434,006		119,115		529,135		(648,250	)	1,434,006
					$	5,060,897		183,397		1,455,200		(900,237	)	5,799,257		2,380,594		168,178		1,349,748		(709,448	)	3,189,072

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CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands)

					Three Months Ended June 30,
					2007											2006
					Parent Company			Guarantor Subsidiary		Combined Non-Guarantor Subsidiaries		Eliminations		Consolidated		Parent Company		Guarantor Subsidiary		Combined Non-Guarantor Subsidiaries		Eliminations		Consolidated
Revenue:
		Natural gas			$	81,621		3,844		55,292		—		140,757		49,473		3,425		41,855		—		94,753
		Oil, condensate, and natural gas liquids				49,693		12,965		50,524		—		113,182		73,695		14,509		27,266		—		115,470
		Marketing, processing, and other				(151	)	48		1,208		(375	)	730		244		65		2,496		(1,175	)	1,630
			Total revenue			131,163		16,857		107,024		(375	)	254,669		123,412		17,999		71,617		(1,175	)	211,853
Operating expenses:
	Lease operating expenses					16,661		3,585		24,754		27		45,027		22,920		4,174		8,574		(139	)	35,529
	Other direct operating costs					11,511		1,400		5,155		—		18,066		10,527		1,744		4,368		—		16,639
	General and administrative (including stock-based compensation)					10,337		37		3,033		—		13,407		9,496		50		1,525		—		11,071
	Depreciation and depletion					41,973		4,777		39,378		(2	)	86,126		31,591		4,400		27,262		—		63,253
	Other operating expenses					568		70		654		—		1,292		970		31		2,378		—		3,379
			Total operating expenses			81,050		9,869		72,974		25		163,918		75,504		10,399		44,107		(139	)	129,871
Earnings from operations						50,113		6,988		34,050		(400	)	90,751		47,908		7,600		27,510		(1,036	)	81,982
Equity earnings in subsidiaries						22,968		—		—		(22,968	)	—		31,321		—		—		(31,321	)	—
Other income and expense:
	Interest expense					16,711		2		16,133		(3,743	)	29,103		15,345		55		4,094		(2,154	)	17,340
	Unrealized (gains) losses on derivative instruments, net					(38,631	)	(1,114	)	4,932		—		(34,813	)	(11,415	)	(2,716	)	(247	)	—		(14,378	)
	Realized (gains) losses on derivative instruments, net					(5,193	)	(1,820	)	(2,257	)	—		(9,270	)	10,775		2,359		564		—		13,698
	Other (income) expense, net					(4,095	)	90		(4,910	)	3,766		(5,149	)	(1,951	)	(221	)	(2,932	)	4,994		(110	)
		Total other income and expense				(31,208	)	(2,842	)	13,898		23		(20,129	)	12,754		(523	)	1,479		2,840		16,550
Earnings before income taxes						104,289		9,830		20,152		(23,391	)	110,880		66,475		8,123		26,031		(35,197	)	65,432
		Income tax expense:				27,490		3,651		2,940		—		34,081		9,427		1,463		(2,506	)	—		8,384
Net earnings					$	76,799		6,179		17,212		(23,391	)	76,799		57,048		6,660		28,537		(35,197	)	57,048

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					Six Months Ended June 30,
					2007											2006
					Parent Company			Guarantor Subsidiary		Combined Non-Guarantor Subsidiaries		Eliminations		Consolidated		Parent Company		Guarantor Subsidiary		Combined Non-Guarantor Subsidiaries		Eliminations		Consolidated
Revenue:
		Natural gas			$	125,209		6,996		105,849		—		238,054		125,836		7,989		87,981		—		221,806
		Oil, condensate, and natural gas liquids				87,804		24,855		85,782		—		198,441		132,607		26,091		48,815		—		207,513
		Marketing, processing, and other				(99	)	(1	)	3,073		(2,190	)	783		735		49		4,458		(1,262	)	3,980
			Total revenue			212,914		31,850		194,704		(2,190	)	437,278		259,178		34,129		141,254		(1,262	)	433,299
Operating expenses:
	Lease operating expenses					29,479		8,100		43,530		(42	)	81,067		57,358		6,921		16,695		(114	)	80,860
	Other direct operating costs					18,475		2,707		8,988		—		30,170		19,362		3,628		9,106		—		32,096
	General and administrative (including stock-based compensation)					20,240		68		6,070		—		26,378		24,297		110		3,800		—		28,207
	Depreciation and depletion					66,118		8,894		71,578		(5	)	146,585		76,596		9,777		54,548		—		140,921
	Other operating expenses					1,141		110		(5,860	)	—		(4,609	)	9,373		61		2,713		—		12,147
			Total operating expenses			135,453		19,879		124,306		(47	)	279,591		186,986		20,497		86,862		(114	)	294,231
Earnings from operations						77,461		11,971		70,398		(2,143	)	157,687		72,192		13,632		54,392		(1,148	)	139,068
Equity earnings in subsidiaries						31,906		—		—		(31,906	)	—		49,801		—		—		(49,801	)	—
Other income and expense:
	Interest expense					28,723		9		31,898		(7,174	)	53,456		29,040		90		7,350		(3,989	)	32,491
	Unrealized (gains) losses on derivative instruments, net					(1,901	)	5,869		19,057		—		23,025		8,033		(460	)	2,163		—		9,736
	Realized (gains) losses on derivative instruments, net					(21,952	)	(5,005	)	(7,447	)	—		(34,404	)	13,729		3,068		816		—		17,613
	Other (income) expense, net					(7,284	)	244		(6,243	)	7,197		(6,086	)	(2,853	)	(186	)	(3,040	)	6,829		750
		Total other income and expense				(2,414	)	1,117		37,265		23		35,991		47,949		2,512		7,289		2,840		60,590
Earnings before income taxes and discontinued operations						111,781		10,854		33,133		(34,072	)	121,696		74,044		11,120		47,103		(53,789	)	78,478
		Income tax expense:				28,091		3,924		5,991		—		38,006		13,325		4,385		2,471		—		20,181
Earnings from continuing operations						83,690		6,930		27,142		(34,072	)	83,690		60,719		6,735		44,632		(53,789	)	58,297
Income from discontinued operations, net of tax						—		—		—		—		—		—		—		2,422		—		2,422
Net earnings					$	83,690		6,930		27,142		(34,072	)	83,690		60,719		6,735		47,054		(53,789	)	60,719

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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)

				Six Months Ended June 30,
				2007									2006
				Parent Company			Guarantor Subsidiary		Combined Non-Guarantor Subsidiaries		Consolidated		Parent Company		Guarantor Subsidiary		Combined Non-Guarantor Subsidiaries		Consolidated
Operating activities:
	Net earnings			$	49,618		6,930		27,142		83,690		6,930		6,735		47,054		60,719
	Adjustments to reconcile net earnings to net cash provided by operating activities:
		Depreciation and depletion			66,118		8,894		71,573		146,585		76,596		9,777		54,548		140,921
		Unrealized (gains) losses on derivative instruments, net			(1,901	)	5,869		19,057		23,025		8,033		(460	)	2,163		9,736
		Deferred income tax expense			27,489		3,924		3,498		34,911		10,281		4,385		3,921		18,587
		Other, net			2,371		110		(9,823	)	(7,342	)	28,727		61		3,005		31,793
	Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
		Accounts receivable			29,009		959		2,789		32,757		(20,142	)	1,624		4,580		(13,938	)
		Other current assets			8,020		(529	)	(6,765	)	726		(19,701	)	(35	)	539		(19,197	)
		Accounts payable			(7,195	)	137		(13,445	)	(20,503	)	(26,188	)	(682	)	7,638		(19,232	)
		Accrued interest and other current liabilities			1,621		(136	)	(1,663	)	(178	)	(2,492	)	(347	)	(9.398	)	(12,237	)
Net cash provided by operating activities					175,150		26,158		92,363		293,671		62,044		21,058		114,050		197,152
Investing activities:
	Acquisitions, net of cash acquired				(775,960	)	—		—		(775,960	)	—		—		—		—
	Capital expenditures for property and equipment				(160,207	)	(11,378	)	(175,937	)	(347,522	)	(436,461	)	(19,163	)	(159,857	)	(615,481	)
	Other, net				4,144		25,751		8,718		38,613		76		—		1,244		1,320
Net cash used in investing activities					(932,023	)	14,373		(167,219	)	(1,084,869	)	(436,385	)	(19,163	)	(158,613	)	(614,161	)
Financing activities:
	Proceeds from bank borrowings				875,000		—		88,734		963,734		882,102		—		79,841		961,943
	Repayments of bank borrowings				(548,000	)	—		(99,527	)	(647,527	)	(523,000	)	—		(60,614	)	(583,614	)
	Repayments of debt				(176,885	)	—		(111,250	)	(288,135	)	—		—		—		—
	Issuance of 71/4% senior notes, net of issuance costs				739,176		—		—		739,176		—		—		—		—
	Net activity in investments of subsidiaries				(143,442	)	(40,631	)	184,073		—		(29,740	)	(1,612	)	31,352		—
	Other, net				11,494		—		(6,150	)	5,344		43,603		—		(6,630	)	36,973
Net cash provided (used) by financing activities					757,343		(40,631	)	55,880		772,592		372,965		(1,612	)	43,949		415,302
Effect of exchange rate changes on cash					—		—		1,172		1,172		—		—		(68	)	(68	)
Net increase (decrease) in cash and cash equivalents					470		(100	)	(17,804	)	(17,434	)	(1,376	)	283		(682	)	(1,775	)
Cash and cash equivalents at beginning of period					771		126		32,267		33,164		2,076		(114	)	5,269		7,231
Cash and cash equivalents at end of period				$	1,241		26		14,463		15,730		700		169		4,587		5,456

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(12) RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes," an interpretation of FAS 109, "Accounting for Income Taxes" ("FIN 48"), to create a single model to address accounting for uncertainty in income tax positions. FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

        The Company adopted FIN 48 on January 1, 2007. As a result of the implementation of FIN 48 the Company recognized a liability for uncertain tax benefits of approximately $1.0 million which was accounted for as a reduction to the January 1, 2007 balance of retained earnings. The adoption of FIN 48 increased the Company's previously recognized liability for uncertain tax benefits of $.5 million to $1.5 million. The $1.5 million liability does not relate to uncertainties about the timing of items of income or deduction and would affect the Company's effective tax rate if recognized in the Company's income tax provision. The Company records interest accrued related to unrecognized tax benefits in interest expense and penalties in other expense, to the extent they apply. The Company recognized no significant interest or penalties at the date of its adoption of FIN 48.

        There was no change in the amount of unrecognized tax benefits during the six months ended June 30, 2007. Furthermore, the Company does not expect any significant change in the total amounts of unrecognized tax benefits within the 12 months ending June 30, 2008.

        The statute of limitations is closed for the Company's U.S. federal income tax returns for years ending before and including December 31, 2002. Pre-acquisition returns of acquired businesses are also closed for tax years ending before and including December 31, 2002. However, the Company has utilized, and will continue to utilize, net operating losses ("NOLs") (including NOLs of acquired businesses) in its open tax years. The earliest available NOLs were generated in the tax year beginning January 1, 1989, but are potentially subject to adjustment by the federal tax authorities in the tax year in which they are utilized. Thus, the Company's earliest U.S. federal income tax return that is closed to potential audit adjustments is the tax year ending December 31, 1988. The Company's most recent Canadian income tax return that is closed to potential audit adjustments is the tax year ended December 31, 2002.

        In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"("SFAS 157"). This statement clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We have not determined the effect, if any, the adoption of this statement will have on our financial position or results of operations.

        In February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement expands the use of fair value measurement and applies to entities that elect the fair value option. The fair value option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We have not determined the effect, if any, the adoption of this statement will have on our financial position or results of operations.

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        Forest Oil Corporation ("Forest") is an independent oil and gas company engaged in the acquisition, exploration, development, and production of natural gas and liquids in North America and selected international locations. Forest was incorporated 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 discussion and analysis should be read in conjunction with Forest's Condensed Consolidated Financial Statements and Notes thereto, the information under the heading "Forward-Looking Statements" below, and the information included in Forest's 2006 Annual Report on Form 10-K under the heading "Risk Factors", and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies, Estimates, Judgments, and Assumptions." Unless the context otherwise indicates, references in this quarterly report on Form 10-Q to "Forest," "we," "ours," "us," or like terms refer to Forest Oil Corporation and its subsidiaries.

2007 OVERVIEW

Acquisition of Houston Exploration

        On June 6, 2007, Forest completed the acquisition of The Houston Exploration Company ("Houston Exploration") in a cash and stock transaction totaling approximately $1.5 billion and the assumption of Houston Exploration's debt. Houston Exploration was an independent natural gas and oil producer engaged in the exploration, development, exploitation, and acquisition of natural gas and oil reserves in North America. Houston Exploration had operations in four producing regions within the United States: South Texas, East Texas, the Arkoma Basin of Arkansas, and the Uinta and DJ Basins in the Rocky Mountains. The principal factors management considered in making the acquisition included the mix of complementary high-quality assets in certain of our existing core areas, lower-risk exploitation opportunities, expected increased cash flow from operations available for investing activities, and opportunities for cost savings through administrative and operational synergies. At the time the acquisition was announced on January 7, 2007, Forest estimated the Houston Exploration net oil and gas reserves to be 655 Bcfe, of which 65% were classified as proved developed and the remaining amounts were classified as proved undeveloped. Pursuant to the terms and conditions of the agreement and plan of merger ("Merger Agreement"), Forest paid total merger consideration of approximately $750 million in cash and issued approximately 24 million common shares, valued at $30.28 per share. The per share value of the Forest common shares issued was calculated as the average of Forest's closing share price for a five day period surrounding the announcement date of January 7, 2007. The cash component of the merger consideration was financed from a private placement of $750 million of senior notes due 2019 and borrowings under our $1.0 billion second amended and restated credit facilities that were executed on June 6, 2007. Immediately following the completion of the merger, Forest repaid all of Houston Exploration's outstanding bank debt totaling approximately $177 million. The revenues and expenses associated with Houston Exploration have been included in Forest's Condensed Consolidated Statements of Operations since the date of acquisition on June 6, 2007.

Pending Sale of Alaska Assets

        On May 29, 2007, Forest announced the execution of definitive agreements to sell substantially all of its Alaska assets to Pacific Energy Resources Ltd. ("Pacific"). On July 31, 2007, the parties entered into amendments to the definitive agreements modifying certain provisions contained in each of the agreements, including among others the consideration terms. The total consideration to be received for the sale of the Alaska assets will include $400 million in cash, 10 million restricted shares of Pacific common stock, and a $60.75 million zero coupon Senior Subordinated Note from Pacific due 2014. The $400 million in cash will be adjusted downward by $380.0 million (equal to the outstanding balance and

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prepayment premium under Forest Alaska Operating LLC's term loan facilities at January 1, 2007) and adjusted upward by $111.1 million (equal to the prepayment of $110.0 million and prepayment premium of $1.1 million that was made under those term loans on June 29, 2007). Pacific will be obligated at closing to pay down the remaining balance under the Forest Alaska term loans of approximately $268 million (which includes a prepayment premium of approximately $4 million). The amendment extends the closing date to August 24, 2007 and also provides for a deposit of 5 million shares of Pacific common stock in addition to the $5.2 million cash deposit already received and substantially reduces the circumstances under which closing would not occur.

Amended Credit Facilities

        On June 6, 2007, Forest entered into second amended and restated U.S. and Canadian credit facilities in connection with the Houston Exploration acquisition which will mature in 2012. The initial Global Borrowing Base under the amended and restated credit facilities is $1.4 billion. Initial commitments consist of a U.S. facility of $850 million and a Canadian facility of $150 million for a total of $1.0 billion. See Bank Credit Facilities below for additional information regarding the amended and restated credit facilities.

Senior Notes Issuance

        On June 6, 2007, Forest issued $750 million of 7¹/4% senior notes due in 2019 ("the 7¹/4% Notes"). The net proceeds of the 7¹/4% Notes offering of approximately $739.2 million, after deducting initial purchaser discounts, were used to fund a portion of the cash consideration for Forest's acquisition of Houston Exploration. Interest on the 7¹/4% Notes is payable semi-annually beginning December 15, 2007. Forest may redeem the 7¹/4% Notes at different intervals during the term of the notes. See 7¹/4% Senior Notes Due 2019 below for additional information.

Production Increase

        Production increased 18% during the three months ended June 30, 2007 from the corresponding period in 2006. The increase was primarily attributable to the additional production associated with the Houston Exploration acquisition which closed on June 6, 2007.

Other Divestitures

        During the six months ended June 30, 2007, Forest sold properties, including oil and gas properties with estimated proved reserves of approximately 14 Bcfe, for total proceeds of approximately $39 million, including overriding royalty interests in Australia for cash proceeds of approximately $7.2 million that resulted in a gain on the sale of approximately $7.2 million ($4.5 million net of tax). In addition, in August 2007, Forest entered into a sale-leaseback transaction whereby we sold our drilling rigs for cash proceeds of approximately $62.6 million and simultaneously entered into an operating lease with the buyer which provides for monthly rental payments of approximately $.8 million for a term of seven years.

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RESULTS OF OPERATIONS

Oil and Gas Production and Revenues

        Production volumes, revenues, and weighted average sales prices by product and location for the three and six months ended June 30, 2007 and 2006 were as follows:

			Three Months Ended June 30,
			2007									2006
			Gas (MMcf)			Oil (MBbls)		NGLs (MBbls)		Total (MMcfe)		Gas (MMcf)		Oil (MBbls)		NGLs (MBbls)		Total (MMcfe)
Production volumes:
	United States			15,714		1,334		516		26,814		11,503		1,379		349		21,871
	Canada			6,591		206		65		8,217		5,964		181		107		7,692
Totals				22,305		1,540		581		35,031		17,467		1,560		456		29,563
Revenues (in thousands):
	United States		$	102,367		81,350		18,236		201,953		63,896		92,159		11,767		167,822
	United States hedging gains (losses)			—		—		—		—		2,713		(4,390	)	—		(1,677	)
	Canada			38,390		11,043		2,553		51,986		28,144		10,699		5,235		44,078
Totals			$	140,757		92,393		20,789		253,939		94,753		98,468		17,002		210,223
Average sales price:
	United States		$	6.51		60.98		35.34		7.53		5.55		66.83		33.72		7.67
	United States hedging gains (losses)			—		—		—		—		.24		(3.18	)	—		(.08	)
	Canada			5.82		53.61		39.28		6.33		4.72		59.11		48.93		5.73
Totals			$	6.31		60.00		35.78		7.25		5.42		63.12		37.29		7.11

			Six Months Ended June 30,
			2007									2006
			Gas (MMcf)			Oil (MBbls)		NGLs (MBbls)		Total (MMcfe)		Gas (MMcf)		Oil (MBbls)		NGLs (MBbls)		Total (MMcfe)
Production volumes:
	United States			26,061		2,444		957		46,467		27,172		2,715		767		48,064
	Canada			12,565		412		124		15,781		11,693		372		204		15,149
Totals				38,626		2,856		1,081		62,248		38,865		3,087		971		63,213
Revenues (in thousands):
	United States		$	166,441		141,956		30,980		339,377		183,250		171,254		24,588		379,092
	United States hedging losses			—		—		—		—		(21,920	)	(16,437	)	—		(38,357	)
	Canada			71,613		21,132		4,373		97,118		60,476		18,776		9,332		88,584
Totals			$	238,054		163,088		35,353		436,495		221,806		173,593		33,920		429,319
Average sales price:
	United States		$	6.39		58.08		32.37		7.30		6.74		63.08		32.06		7.89
	United States hedging losses			—		—		—		—		(.81	)	(6.05	)	—		(.80	)
	Canada			5.70		51.29		35.27		6.15		5.17		50.47		45.75		5.85
Totals			$	6.16		57.10		32.70		7.01		5.71		56.23		34.93		6.79

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        Net oil and gas production in the second quarter of 2007 was 35.0 Bcfe or an average of 385.0 MMcfe per day, an 18% increase from 29.6 Bcfe or an average of 324.9 MMcfe per day in the second quarter of 2006. The increase was primarily attributable to the additional production associated with the Houston Exploration acquisition which closed on June 6, 2007. Net oil and gas production in the first six months of 2007 was 62.2 Bcfe or an average of 343.9 MMcfe per day, a 2% decrease from 63.2 Bcfe or an average of 349.2 MMcfe per day in the same period of 2006. The decrease was due to the spin-off of our offshore Gulf of Mexico properties in early March 2006, which was offset primarily by the additional volumes generated from the Houston Exploration acquisition in June 2007.

        Oil and natural gas revenues were $253.9 million during the three months ended June 30, 2007, a 21% increase as compared to $210.2 million for the same period in the prior year, which included realized hedging losses of $1.7 million. The increase in oil and natural gas revenues during the comparable three month periods was primarily due to the 18% increase in production volumes. Oil and natural gas revenues were $436.5 million during the six months ended June 30, 2007, a 2% increase as compared to $429.3 million for the same period in the prior year, which included realized hedging losses of $38.4 million. The increase in oil and natural gas revenues during the comparable six month periods was primarily due to a $38.4 million decrease in hedging losses on derivatives accounted for as cash flow hedges offset by a 5% decrease in average realized sales price before the effects of hedging. No hedging gains or losses were included in the average sales prices presented for each period in 2007 because we elected to discontinue cash flow hedge accounting effective in March 2006. See Realized and Unrealized Gains and Losses on Derivative Instruments below for information on gains and losses recognized on derivative instruments not designated as cash flow hedges.

Oil and Gas Production Expense

        The table below sets forth the detail of oil and gas production expense, for the three and six months ended June 30, 2007 and 2006:

			Three Months Ended June 30,					Six Months Ended June 30,
			2007			2006		2007		2006
			(In Thousands, Except per Mcfe Data)
Lease operating expenses:
	Direct operating expense and overhead		$	38,313		32,840		70,734		67,294
	Workover expense			6,714		2,689		10,333		13,566
Lease operating expenses			$	45,027		35,529		81,067		80,860
Lease operating expenses per Mcfe			$	1.29		1.20		1.30		1.28
Production and property taxes			$	12,808		10,997		20,718		21,725
Production and property taxes as a percentage of oil and gas revenues, excluding hedging losses				5.0	%	5.2	%	4.7	%	4.6	%
Transportation and processing costs			$	5,258		5,642		9,452		10,371
Transportation and processing costs per Mcfe			$	.15		.19		.15		.16

Lease Operating Expenses

        Lease operating expenses in the second quarter of 2007 increased 27%, or $9.5 million, to $45.0 million from $35.5 million in the second quarter of 2006. On a per-Mcfe basis, lease operating expenses increased 8% to $1.29 per Mcfe in the second quarter of 2007 from $1.20 per Mcfe in the second quarter of 2006 primarily due to higher lease operating expenses incurred for our outside-operated properties in Alaska partially offset by lower average per-unit lease operating expenses from other Forest and Houston Exploration assets. Lease operating expenses in the first six months of 2007

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of $81.1 million were consistent with the $80.9 million incurred in the first six months of 2006. On a per-Mcfe basis, lease operating expenses increased 2% to $1.30 per Mcfe in the first six months of 2007 from $1.28 per Mcfe for the same period in 2006. Increases in our per-unit lease operating expense incurred on our outside-operated properties in Alaska in the first six months of 2007 as compared to the first six months of 2006 were primarily offset by the absence of the offshore Gulf of Mexico properties in 2007, which had an average per-unit lease operating cost of $2.28 per Mcfe prior to the spin-off of these properties on March 2, 2006.

Production and Property Taxes

        Production and property taxes as a percentage of oil and gas sales, excluding hedging losses, were generally consistent for all periods presented. Normal fluctuations will occur between periods based on the receipt and approval of incentive tax credits and due to changes in tax rates or valuation assessments.

Transportation and Processing Costs

        Transportation and processing costs decreased slightly to $5.3 million, or $.15 per Mcfe, in the three months ended June 30, 2007, from $5.6 million, or $.19 per Mcfe, for the corresponding 2006 period. Transportation and processing costs decreased slightly to $9.5 million, or $.15 per Mcfe, in the six months ended June 30, 2007, from $10.4 million, or $.16 per Mcfe, for the corresponding 2006 period. The decrease in each period was due primarily to the higher processing and transportation costs incurred in Canada and Alaska in the second quarter of 2006.

General and Administrative Expense

        The following table summarizes the components of general and administrative expense and stock-based compensation expense incurred during the three and six month periods ended June 30, 2007 and 2006:

		Three Months Ended June 30,					Six Months Ended June 30,
		2007			2006		2007		2006
		(In Thousands, Except per Mcfe Data)
Total general and administrative costs		$	18,085		14,095		36,600		29,439
General and administrative costs capitalized			(7,603	)	(5,522	)	(14,943	)	(11,584	)
General and administrative expense		$	10,482		8,573		21,657		17,855
General and administrative expense per Mcfe		$	.30		.29		.35		.28
Total stock-based compensation costs		$	4,220		3,343		6,883		16,196
Stock-based compensation costs capitalized			(1,295	)	(845	)	(2,162	)	(5,844	)
Stock-based compensation expense		$	2,925		2,498		4,721		10,352
Stock-based compensation expense per Mcfe		$	.08		.08		.08		.16
Total general and administrative expense including stock-based compensation		$	13,407		11,071		26,378		28,207

        The increase in general and administrative expense for the three and six month periods in 2007 of $1.9 million and $3.8 million, respectively, as compared to the same periods in 2006 is primarily related to increased employee salary and benefit costs. Stock-based compensation expense increased $.4 million and decreased by $5.6 million during the three and six month periods in 2007, respectively, as compared to the same periods in 2006. The decrease in stock-based compensation during the first six

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months of 2007 as compared to 2006 is the result of the partial settlement of our restricted stock awards and phantom stock unit awards in connection with the spin-off of the Gulf of Mexico operations during the first quarter of 2006.

Depreciation and Depletion

        Depreciation, depletion and amortization expense ("DD&A") for the three months ended June 30, 2007 was $86.1 million as compared to $63.3 million for the same period in 2006. On an equivalent Mcf basis, DD&A expense was $2.46 per Mcfe for the three months ended June 30, 2007 as compared to $2.14 per Mcfe for the same period in the prior year. The increase of $.32 per Mcfe was primarily due to the acquisition of Houston Exploration. DD&A for the six months ended June 30, 2007 was $146.6 million as compared to $140.9 million for the same period in 2006. On an equivalent Mcf basis, DD&A expense was $2.35 per Mcfe for the six months ended June 30, 2007 as compared to $2.23 per Mcfe for the same period in the prior year. The increase of $.12 per Mcfe was primarily due to the acquisition of Houston Exploration offset by the spin-off of the Gulf of Mexico operations in March 2006.

Interest Expense

        Interest expense in the second quarter of 2007 totaled $29.1 million as compared to $17.3 million in the second quarter of 2006. Interest expense during the first six months of 2007 totaled $53.5 million as compared to $32.5 million in the same period of 2006. The increase in interest expense during each period in 2007 as compared to the corresponding period in 2006 was due to increased average debt balances and higher average interest rates primarily associated with the Forest Alaska term loans.

Realized and Unrealized Gains and Losses on Derivative Instruments

        The table below sets forth realized and unrealized gains and losses on oil and natural gas derivatives recognized under "Other income and expense" in our Condensed Consolidated Statements of Operations for the periods indicated. Since March 2006, when Forest elected to discontinue cash flow hedge accounting for all of its derivative instruments, Forest has recognized all mark-to-market gains and losses in earnings, rather than deferring any such amounts in "Accumulated other comprehensive income" in shareholders' equity. In addition, cash settlements on derivative instruments are recorded as "Realized gains and losses on derivative instruments" in other income and expense in the Condensed Consolidated Statements of Operations rather than an adjustment to "Oil and gas sales". See Note 9 to the Condensed Consolidated Financial Statements for more information on our derivative instruments.

		Three Months Ended June 30,													Six Months Ended June 30,
		2007							2006						2007						2006
		Oil			Natural Gas		Total		Oil		Natural Gas		Total		Oil		Natural Gas		Total		Oil		Natural Gas		Total
		(In Thousands)
Unrealized losses (gains)		$	18,182		(51,256	)	(33,074	)	(4,627	)	(9,751	)	(14,378	)	44,043		(19,229	)	24,814		26,728		(16,992	)	9,736
Realized (gains) losses			(3,687	)	(5,453	)	(9,140	)	16,657		(2,959	)	13,698		(20,764	)	(13,509	)	(34,273	)	21,035		(3,422	)	17,613

        During the three and six months ended June 30, 2007, we also recorded unrealized gains related to interest rate swaps of $1.7 million and $1.8 million, respectively. For the three and six months ended June 30, 2007, we recorded realized gains of $.1 million related to interest rate swaps.

Unrealized Foreign Currency Exchange Gains

        The unrealized foreign currency exchange gains of $6.3 million for both the three and six months ended June 30, 2007 relate to intercompany indebtedness between Forest Oil Corporation and our

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Canadian subsidiary. The intercompany debt is denominated in U.S. dollars and with the recent strength in the Canadian dollar, unrealized foreign currency gains have been recorded.

Current and Deferred Income Tax Expense

        Forest recorded income tax expense of $34.1 million in the three months ended June 30, 2007, as compared to $8.4 million in the comparable period of 2006. Our effective tax rates for the three months ended June 30, 2007 and 2006 were 30.7% and 12.8%, respectively. The quarter-over-quarter increase in the effective rate was primarily attributable to 2006 statutory rate reductions enacted in Canada as well as changes in the tax regulations in Texas. Together, these adjustments reduced our effective tax rate by approximately 25% and our total expense in the second quarter of 2006 by approximately $16.2 million.

        Forest recorded income tax expense of $38.0 million and $20.2 million in the six months ended June 30, 2007 and 2006, respectively. Our effective tax rates for the six months ended June 30, 2007 and 2006 were 31.2% and 25.7%, respectively. The increase in the effective tax rate was primarily due to 2006 statutory rate reductions enacted in Canada and changes in the Texas income tax law partially offset by non-deductible spin-off costs and an increase in our estimated combined state income tax rates resulting from the spin-off of our offshore Gulf of Mexico operations. Together, these adjustments decreased our effective tax rate by approximately 12% and decreased our total tax expense during the six months of 2006 by approximately $9.2 million. The difference between our effective tax rate of 31% and our statutory tax rate of approximately 36% for each period in 2007 is primarily due to additional Canadian rate reductions enacted in 2007, the release of valuation allowances, and lower apportioned state income tax rates.

Impairments of International Properties

        During the second quarter of 2006, Forest recorded an impairment of $2.1 million related to certain properties located in Gabon. The Gabon impairment was related to historical costs impaired to reflect a drilled dry hole.

Liquidity and Capital Resources

        In 2007, as in 2006, we expect our cash flow from operations to be our primary source of liquidity to meet operating expenses and fund capital expenditures other than large acquisitions. Any remaining cash flow from operations will be available for acquisitions, in whole or in part, or other corporate purposes, including the repayment of indebtedness.

        The prices we receive for our oil and natural gas production have a significant impact on operating cash flows. While significant price declines would adversely affect the amount of cash flow generated from operations, we utilize a hedging program to partially mitigate that risk. As of August 1, 2007, Forest has hedged approximately 50 Bcfe of its remaining six months of 2007 production and 54 Bcfe of its 2008 production. This level of hedging provides a measure of certainty of the cash flow we will receive for a portion of our production through 2008. Depending on changes in oil and gas futures markets and management's view of underlying oil and natural gas supply and demand trends, we may increase or decrease our current hedging positions. For further information concerning our hedging contracts, see Item 3—"Quantitative and Qualitative Disclosures about Market Risk—Commodity Price Risk", below.

        Our revolving U.S. and Canadian bank credit facilities, which were amended and restated in June 2007, provide another source of liquidity. These credit facilities, which mature in June 2012, are used to fund daily operating activities and acquisitions in the United States and Canada as needed. See "Bank Credit Facilities" below for details.

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        The public capital markets have been our principal source of funds to finance large acquisitions. We have issued debt and equity securities in both public and private offerings in the past, including the second quarter of 2007, and we expect that these sources of capital will continue to be available to us in the future for acquisitions. Nevertheless, ready access to capital on reasonable terms can be impacted by our debt ratings assigned by independent rating agencies and are subject to many uncertainties, including restrictions contained in our bank credit facilities and indentures for our senior notes, macroeconomic factors outside of our control, and other risks as explained in Part 1, Item 1A—"Risk Factors" of our 2006 Annual Report on Form 10-K and Part II, Item 1A of this Report.

        We believe that our available cash, cash provided by operating activities, and funds available under our bank credit facilities will be sufficient to fund our operating, interest, and general and administrative expenses, our capital expenditure budget, and our short-term contractual obligations at current levels for the foreseeable future, including the ability to redeem the $265 million in 8% senior notes due in June 2008.

Bank Credit Facilities

        On June 6, 2007, Forest entered into amended and restated credit facilities totaling $1.0 billion. The amended and restated facilities consist of a $850 million U.S. credit facility (the "U.S. Facility") through a syndicate of banks led by JPMorgan Chase Bank, N.A. and a $150 million Canadian credit facility (the "Canadian Facility", and together with the U.S. Facility, the "Credit Facilities") through a syndicate of banks led by JPMorgan Chase Bank, N.A., Toronto Branch. The Credit Facilities mature in June 2012. Subject to the agreement of Forest and the applicable lenders, the size of the Credit Facilities may be increased by $800 million in the aggregate.

        Forest's availability under the Credit Facilities will be governed by a borrowing base ("Global Borrowing Base") which currently is set at $1.4 billion, with $1.25 billion allocated to the U.S. credit facility and $150 million allocated to the Canadian credit facility. The determination of the Global Borrowing Base is made by the lenders in their sole discretion taking into consideration the estimated value of Forest's oil and gas properties in accordance with the lenders' customary practices for oil and gas loans. The Global Borrowing Base is redetermined semi-annually and the available borrowing amount could be increased or decreased as a result of such redeterminations. In addition, Forest and the lenders each have discretion at any time, but not more often than once during any calendar year, to have the Global Borrowing Base redetermined.

        The Credit Facilities include terms and covenants that place limitations on certain types of activities, including restrictions or requirements with respect to additional debt, liens, asset sales, hedging activities, investments, dividends, mergers and acquisitions, and include financial covenants. Interest rates and collateral requirements under the Credit Facilities will vary based on Forest's credit ratings and financial condition, as governed by certain financial tests.

        Under certain conditions, amounts outstanding under the Credit Facilities may be accelerated. Bankruptcy and insolvency events with respect to Forest or certain of its subsidiaries will result in an automatic acceleration of the indebtedness under the Credit Facilities. Subject to notice and cure periods in certain cases, other events of default under either of the Credit Facilities will result in acceleration of the indebtedness under the facilities at the option of the lenders. Such other events of default include non-payment, breach of warranty, non-performance of obligations under the Credit Facilities (including financial covenants), default on other indebtedness, certain pension plan events, certain adverse judgments, change of control, a failure of the liens securing the Credit Facilities and an event of default under the Canadian Facility.

        The Credit Facilities are collateralized by Forest's assets. Forest is required to mortgage, and grant a security interest in, 75% of the present value of the proved oil and gas properties and related assets of Forest and its subsidiaries. If Forest's corporate credit ratings by Moody's and S&P meet

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pre-established levels, the security requirements would cease to apply and at Forest's request the banks would release their liens and security interest on Forest's properties.

        From time to time, Forest and the syndication agents, documentation agents, global administrative agent and the other lenders party to the Credit Facilities, engage in other transactions, including securities offerings where such parties or their affiliates, may serve as an underwriter or initial purchaser of Forest's securities and, or serve as counterparties to Forest's hedging arrangements.

        At June 30, 2007, there were outstanding borrowings of $350 million under the U.S. credit facility at a weighted average interest rate of 6.70%, and there were outstanding borrowings of $81.7 million under the Canadian credit facility at a weighted average interest rate of 5.68%. We also had used the credit facilities for approximately $2.5 million in letters of credit, leaving an unused borrowing amount under the Credit Facilities of approximately $565.8 million at June 30, 2007.

Term Loan Financing Agreements

        On December 8, 2006, Forest Alaska issued, on a non-recourse basis to Forest, term loan financing facilities in the aggregate principal amount of $375 million. The issuance was comprised of two term loan facilities, including a $250 million first lien credit agreement and a $125 million second lien credit agreement (together the "Credit Agreements"). The loan proceeds were used to fund a $350 million distribution to Forest, which Forest used to pay down its U.S. credit facility, and to provide Forest Alaska working capital for its operations and pay transaction fees and expenses. Interest on the loans are based on an adjusted LIBO rate ("LIBOR") (LIBOR plus 3.50% under the first lien credit agreement and LIBOR plus 6.50% under the second lien credit agreement) or on a rate based on the federal funds rate (federal funds rate plus 3.0% under the first lien credit agreement and federal funds rate plus 6.0% under the second lien credit agreement), at the election of Forest Alaska. The loans under the first lien agreement will become due on December 8, 2010 and the loans under the second lien agreement will become due on December 8, 2011. The Credit Agreements are secured by substantially all of Forest Alaska's assets.

        Partial repayments on the loans outstanding under the first lien agreement are due at the end of each calendar quarter, while the loans under the second lien agreement are scheduled for repayment on the maturity date. In addition, Forest Alaska is obligated to make mandatory prepayments annually using its excess cash flow and the proceeds associated with certain equity issuances, asset sales, and incurrence of additional indebtedness. Under certain circumstances involving a change in control involving Forest Alaska, the Credit Agreements also require Forest Alaska to offer to repurchase outstanding loans and purchase loans put to it by the lenders and, depending on the date of any such repurchase, the repurchase price may include a premium. Upon an event of default, a majority of the lenders under each of the Credit Agreements may request the agent to declare the loans immediately payable. Under certain circumstances involving insolvency, the loans will automatically become immediately due and payable.

        The Credit Agreements include terms and covenants that place limitations on certain types of activities that may be conducted by Forest Alaska. The terms include restrictions or requirements with respect to additional debt, liens, investments, hedging activities, acquisitions, dividends, mergers, sales of assets, transactions with affiliates, and capital expenditures. In addition, the Credit Agreements include financial covenants addressing limitations on present value to total debt and first lien debt, interest coverage and leverage ratios. In the event Forest Alaska should not meet the prescribed financial or non-financial covenants and enter into a default position, the creditor may take action to terminate the committed term loan facilities and declare amounts outstanding to be immediately due and payable in whole or in part including accrued interest.

        The Credit Agreements contain a covenant requiring that, for rolling time periods equal to four consecutive fiscal quarters, Forest Alaska may not have a "Leverage Ratio" greater than a defined

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amount. The Leverage Ratio is the ratio of (i) the total debt outstanding under the Credit Agreements at the end of the applicable four quarters to (ii) Forest Alaska's net income plus interest expense, depreciation, depletion expense, amortization expense, incomes taxes, exploration expense, and other non-cash charges and expenses, subject to certain adjustments (defined in the Credit Agreements as "Consolidated EBITDAX"), for the applicable four quarters. In addition, the first lien credit agreement (but not the second lien credit agreement) contains a covenant requiring that, for the same rolling time periods, Forest Alaska may not have an "Interest Coverage Ratio" less than a defined amount. The Interest Coverage Ratio is the ratio of (i) Forest Alaska's Consolidated EBITDAX for the applicable four quarters to (ii) the total interest expense under the two credit agreements, subject to certain adjustments, for the same time period.

        On April 26, 2007, Forest Alaska entered into amendments to the first lien credit agreement and second lien credit agreement, which amended certain definitions within each. During the six months ended June 30, 2007, Forest Alaska made scheduled principal payments of $1.3 million under the first lien facility. In addition, Forest made a capital contribution to Forest Alaska of $111.1 million using borrowings under Forest's U.S. Credit Facility, which Forest Alaska used to make an additional prepayment under the first lien facility of $110.0 million plus a prepayment premium of $1.1 million.

7¹/4% Senior Notes Due 2019

        On June 6, 2007 Forest issued $750 million of 7¹/4% senior notes due in 2019 at par for net proceeds of approximately $739.2 million, after deducting initial purchaser discounts, which were used to fund a portion of the cash merger consideration for Forest's acquisition of Houston Exploration. The 7¹/4% Notes were issued under an indenture (the "Indenture") dated as of June 6, 2007 among Forest, Forest Oil Permian Corporation, a wholly-owned subsidiary of Forest ("Forest Permian"), as subsidiary guarantor, and U.S. Bank National Association, as trustee. The 7¹/4% Notes are jointly and severally guaranteed by Forest Permian on an unsecured basis. Interest is payable on June 15 and December 15 of each year, beginning December 15, 2007. The 7¹/4% Notes will mature on June 15, 2019.

Cash Flow

        Net cash provided by operating activities, net cash used in investing activities, and net cash provided by financing activities for the six months ended June 30, 2007 and 2006 were as follows:

        The increase in net cash provided by operating activities of $96.5 million in the six months ended June 30, 2007 as compared to the same period in 2006 was primarily due to higher net income and a decreased investment in net operating assets and liabilities in the first six months of 2007 as compared to the same period in 2006. The increase in cash used in investing activities of $470.7 million during the six months ended June 30, 2007 as compared to the corresponding period in 2006 was primarily due to the cash used in the acquisition of Houston Exploration of $776.0 million (including cash consideration and expenses) in June 2007 as compared to approximately $255 million used to fund our purchase of the Cotton Valley assets in East Texas in 2006. Net cash provided by financing activities in the six months ended June 30, 2007 included the issuance of the 7¹/4% Notes for net proceeds of $739.2 million, net bank proceeds of $316.2 million, and proceeds from the exercise of stock options and from the employee stock purchase plan of $7.1 million offset by the repayment of Houston

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Exploration's bank debt of $176.9 million and repayments on the term loan of $111.3 million. Net cash provided by financing activities in the six months ended June 30, 2006 included net bank proceeds of $378.3 million, of which $176.1 million was drawn on a bank credit facility established by Mariner Energy Resources, Inc. in March 2006, immediately prior to the spin-off of the offshore Gulf of Mexico operations. This credit facility and associated liability was included in the spin-off of the offshore Gulf of Mexico operations. The 2006 period also included proceeds from the exercise of stock options and from the employee stock purchase plan of approximately $3.8 million.

Capital Expenditures

        Expenditures for property acquisition, exploration, and development were as follows:

---

(1)

Total capital expenditures include both cash expenditures, accrued cash expenditures, and non-cash capital expenditures including stock issued for properties and stock-based compensation capitalized under the full cost method of accounting.

(2)

Does not include the effect of estimated discounted asset retirement obligations.

        For the six months ended June 30, 2007, expenditures for exploration and development activities totaled $313 million. Forest's anticipated expenditures for exploration and development in 2007 are estimated to range from $760 million to $810 million. Some of the factors impacting the level of capital expenditures in 2007 include crude oil and natural gas prices, the volatility in these prices, the cost and availability of oil field services, and weather disruptions.

Forward-Looking Statements

        The information in this Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of 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 are forward-looking statements. Generally, the words "expects," "anticipates," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions identify forward-looking statements, and any statements regarding Forest's future

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financial condition, results of operations and business, are also forward-looking statements. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading "Risk Factors" included in Part I of our 2006 Annual Report on Form 10K and Part II, Item 1A of this Report.

        These forward-looking statements appear in a number of places and include statements with respect to, among other things:

•

estimates of our oil and gas reserves;



•

estimates of our future natural gas and liquids production, including estimates of any increases in oil and gas production;



•

the amount, nature and timing of capital expenditures, including future development costs, and availability of capital resources to fund capital expenditures;



•

the amount, nature and timing of any synergies or other benefits expected to result from acquisitions, including the merger with Houston Exploration;



•

our outlook on oil and gas prices;



•

the impact of political and regulatory developments;



•

our future financial condition or results of operations and our future revenues and expenses; and



•

our business strategy and other plans and objectives for future operations.

        We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the exploration for and development, production, and sale of oil and gas. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating proved oil and natural gas reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, and the other risks described in the Form 10-K and our quarterly reports on Form 10-Q including this Report, under the caption "Risk Factors." The financial results of our foreign operations are also subject to currency exchange rate risks.

        Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data, and price and cost assumptions made by reservoir engineers. In addition, the results of drilling, testing, and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered.

        Should one or more of the risks or uncertainties described above or elsewhere in this Form 10-Q occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

        All forward-looking statements, expressed or implied, included in this Form 10-Q and attributable to Forest are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Forest or persons acting on its behalf may issue. Forest does not undertake to update any forward-looking statements to reflect events or circumstances after the date of filing this Form 10-Q with the Securities and Exchange Commission, except as required by law.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to market risk, including the effects of adverse changes in commodity prices, foreign currency exchange rates, and interest rates as discussed below.

Commodity Price Risk

        We produce and sell natural gas, crude oil, and natural gas liquids for our own account in the United States and Canada. As a result, our financial results are affected when prices for these commodities fluctuate. Such effects can be significant. In order to reduce the impact of fluctuations in prices on our revenues, or to protect the economics of property acquisitions, we make use of an oil and gas hedging strategy. Under our hedging strategy, we enter into commodity swaps, collars, and other financial instruments with counterparties who, in general, are participants in our credit facilities. These arrangements, which are based on prices available in the financial markets at the time the contracts are entered into, are settled in cash and do not require physical deliveries of hydrocarbons.

Swaps

        In a typical commodity swap agreement, we receive the difference between a fixed price per unit of production and a price based on an agreed upon published, third-party index if the index price is lower than the fixed price. If the index price is higher, we pay the difference. By entering into swap agreements, we effectively fix the price that we will receive in the future for the hedged production. Our current swaps are settled in cash on a monthly basis. As of June 30, 2007, we had entered into the following swaps:

		Swaps
		Natural Gas (NYMEX HH)								Oil (NYMEX WTI)
		Bbtu per Day		Weighted Average Hedged Price per MMBtu			Fair Value (In Thousands)			Barrels per Day		Weighted Average Hedged Price per Bbl			Fair Value (In Thousands)
Third Quarter 2007		60		$	7.88		$	5,659		7,000		$	70.03		$	(516	)
Fourth Quarter 2007		60			7.88			427		7,000			70.03			(858	)
Calendar 2008		10			9.10			2,487		6,500			69.72			(5,908	)
Calendar 2009		—			—			—		4,500			69.01			(5,195	)
Calendar 2010		—			—			—		1,500			72.95			599

        Forest also uses basis swaps in connection with natural gas swaps in order to fix the price differential between the NYMEX price and the index price at which the hedged gas is sold. As of June 30, 2007, we had entered into the following basis swaps:

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(1)

Included in Forest's outstanding basis swaps at June 30, 2007 are basis swaps assumed in the Houston Exploration acquisition with a fair value of $.8 million. At June 30, 2007, these basis swaps are for 80 Bbtu per day for each of the following periods: third quarter 2007, fourth quarter 2007, and January – February 2008.

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Collars

        Forest also enters into collar agreements with third parties. A collar agreement is similar to a swap agreement, except that we receive the difference between the floor price and the index price only if the index price is below the floor price; and we pay the difference between the ceiling price and the index price only if the index price is above the ceiling price. As of June 30, 2007, we had entered into the following collars:

		Costless Collars(1)
		Natural Gas (NYMEX HH)								Oil (NYMEX WTI)
		Bbtu per Day		Weighted Average Hedged Floor and Ceiling Price per MMBtu			Fair Value (In Thousands)			Barrels per Day		Weighted Average Hedged Floor and Ceiling Price per Bbl			Fair Value (In Thousands)
Third Quarter 2007		145		$	7.42/9.27		$	5,507		4,000		$	65.81/87.18		$	236
Fourth Quarter 2007		145			7.42/9.27			5,507		4,000			65.81/87.18			590
January – February 2008		130			7.39/8.89			(807	)	—			—			—
March – December 2008		70			7.23/8.85			(10,926	)	—			—			—

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(1)

Included in Forest's outstanding natural gas costless collars at June 30, 2007 are natural gas costless collars assumed in the Houston Exploration acquisition with a fair value of $(17.2) million. At June 30, 2007, these costless collars had weighted average hedged floor and ceiling prices per MMBtu of $7.00/8.49 for 110 Bbtu per day for both the third and fourth quarters of 2007, $7.20/8.51 for 100 Bbtu per day for January – February 2008, and $5.00/5.72 for 20 Bbtu per day for March – December 2008.

Three-Way Collar

        Forest also enters into three-way collars with third parties. These instruments establish two floors and one ceiling. Upon settlement, if the index price is below the lowest floor, Forest receives the difference between the two floors. If the index price is between the two floors, Forest receives the difference between the higher of the two floors and the index price. If the index price is between the higher floor and the ceiling, Forest does not receive or pay any amounts. If the index price is above the ceiling, Forest pays the excess over the ceiling price. As of June 30, 2007, we had entered into the following three-way collar:

        The fair value of our commodity derivative instruments based on the futures prices quoted on June 30, 2007 was a net liability of approximately $3.0 million.

        In July 2007, Forest entered into an additional basis swap agreement covering 10 Bbtu per day for the period March 1, 2008 through December 31, 2008.

Interest Rate Swaps

        Pursuant to the requirements under Forest Alaska's Credit Agreements, Forest Alaska entered into two floating to fixed interest rate swaps. In March 2007, Forest Alaska entered into a $75 million floating to fixed interest rate swap for three years at a one month LIBOR fixed rate of 4.80%. In April 2007, Forest Alaska entered into a $112.5 million floating to fixed interest rate swap for three

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years at a one month LIBOR fixed rate of 4.96%. At June 30, 2007, the fair value of Forest Alaska's interest rate swaps was an asset of $1.8 million.

Fair Value Reconciliation

        The following table reconciles the changes that occurred in the fair values of our open derivative contracts during the six months ended June 30, 2007, beginning with the fair value of our derivative contracts on December 31, 2006:

Foreign Currency Exchange Risk

        We conduct business in several foreign currencies and thus are subject to foreign currency exchange rate risk on cash flows related to sales, expenses, financing, and investing transactions. In the past, we have not entered into any foreign currency forward contracts or other similar financial instruments to manage this risk. Expenditures incurred relative to the foreign concessions held by Forest outside of North America have been primarily United States dollar-denominated, as have cash proceeds related to property sales and farmout arrangements. Substantially all of our Canadian revenues and costs are denominated in Canadian dollars. While the 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 would not have a material impact on our results of operations.

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Interest Rate Risk

        The following table presents principal amounts and related weighted average fixed interest rates by year of maturity for Forest's debt obligations and the fair value of our debt obligations at June 30, 2007:

			2007			2008		2009		2010		2011		2012		2013		2014		2019		Total		Fair Value
			(Dollar Amounts in Thousands)
Bank credit facilities:
	Variable rate		$	—		—		—		—		—		431,658		—		—		—		431,658		431,658
	Average interest rate(1)			—		—		—		—		—		6.50	%	—		—		—		6.50	%
Term debt:
	Variable rate		$	1,250		2,500		2,500		132,500		125,000		—		—		—		—		263,750		263,170
	Average interest rate(1)			8.82	%	8.82	%	8.82	%	8.82	%	11.82	%	—		—		—		—		10.24	%
Total variable rate debt:
	Variable rate		$	1,250		2,500		2,500		132,500		125,000		431,658		—		—		—		695,408		694,828
	Average interest rate(1)			8.82	%	8.82	%	8.82	%	8.82	%	11.82	%	6.50	%	—		—		—		7.64	%
Short-term debt:
	Fixed rate		$	—		265,000		—		—		—		—		—		—		—		265,000		268,313
	Coupon interest rate			—		8.00	%	—		—		—		—		—		—		—		8.00	%
	Effective interest rate(2)			—		7.13	%	—		—		—		—		—		—		—		7.13	%
Long-term debt:
	Fixed rate		$	—		—		—		—		285,000		—		5,822		150,000		750,000		1,190,822		1,178,372
	Coupon interest rate			—		—		—		—		8.00	%	—		7.00	%	7.75	%	7.25	%	7.58	%
	Effective interest rate(2)			—		—		—		—		7.71	%	—		7.00	%	6.56	%	7.25	%	7.27	%

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(1)

As of June 30, 2007.

(2)

The effective interest rate on the 8% Senior Notes due 2008, the 8% Senior Notes due 2011, and the 7³/4% Senior Notes due 2014 is reduced from the coupon rate as a result of amortization of gains related to the termination of related interest rate swaps.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

        We have established disclosure controls and procedures to ensure that material information relating to Forest and its consolidated subsidiaries is made known to the Officers who certify Forest's financial reports and the Board of Directors.

        Our Chief Executive Officer, H. Craig Clark, and our Chief Financial Officer, David H. Keyte, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a—15(e) and 15d—15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the quarterly period ended June 30, 2007 (the "Evaluation Date"). Based on this evaluation, they believe that as of the Evaluation Date our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms; and (ii) is accumulated and communicated to Forest's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

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Changes in Internal Control Over Financial Reporting

        There has not been any change in our internal control over financial reporting that occurred during our quarterly period ended June 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

        On June 6, 2007, Forest acquired The Houston Exploration Company pursuant to an agreement and plan of merger. In connection with the acquisition, on June 6, 2007, Houston Exploration was merged with and into Forest, with Forest continuing as the surviving entity. Houston Exploration's directors and Forest are defendants in a shareholder lawsuit brought by the City of Monroe Employees' Retirement System (the "Plaintiff") on June 22, 2006 in State court in Houston, Texas. The Plaintiff asserts that the Houston Exploration directors breached their fiduciary duties by not pursuing a June 12, 2006 unsolicited proposal to purchase the outstanding shares of Houston Exploration common stock for $62 per share that was made by a Houston Exploration shareholder. The Plaintiff also asserts, on behalf of an uncertified class of Houston Exploration's shareholders, that the Houston Exploration directors' decision to enter into the merger agreement with Forest constituted a breach of fiduciary duties, because, the Plaintiff alleges, the merger consideration being offered by Forest is inadequate. The Plaintiff asserts that Forest aided and abetted the Houston Exploration directors' alleged breach of fiduciary duties. On August 2, 2007, Plaintiff filed with the court a notice of nonsuit without prejudice and a request for dismissal. At the time of filing this Report, the court has not ruled on the Plaintiff's request to dismiss the lawsuit.

Item 1A. RISK FACTORS

        The following risk factors update the Risk Factors included in our Annual Report on Form 10-K for fiscal year ended December 31, 2006 ("Annual Report"). Except as set forth below or in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, there have been no material changes to the risks described in Part I, Item 1A, of our Annual Report.

Risk Factors Relating to Forest

Forest Alaska could default on its term loan agreements.

        Forest Alaska Operating LLC and Forest Alaska Holding LLC (together, "Forest Alaska") are wholly-owned subsidiaries of Forest. During 2006, Forest transferred all of its producing oil and gas properties located in Alaska to Forest Alaska. In December 2006, Forest Alaska entered into a $250 million first lien credit agreement and a $125 million second lien credit agreement. As explicitly contemplated in the two credit agreements, the borrowings under the credit agreements were used in part to fund a $350 million dividend from Forest Alaska to their parent, Forest. Both credit agreements are secured by Forest Alaska's oil and gas properties and are non-recourse to Forest. The first lien credit agreement and the second lien credit agreement contain a covenant requiring that, for rolling time periods equal to four consecutive fiscal quarters, Forest Alaska may not have a "Leverage Ratio" greater than a defined amount. The Leverage Ratio is the ratio of (i) the total debt outstanding under the credit agreements at the end of the applicable four quarters to (ii) Forest Alaska's net income plus interest expense, depreciation, depletion expense, amortization expense, incomes taxes, exploration expense, and other non-cash charges and expenses, subject to certain adjustments (defined in the credit agreements as "Consolidated EBITDAX"), for the applicable four quarters. In addition, the first lien credit agreement (but not the second lien credit agreement) contains a covenant requiring that, for the same rolling time periods, Forest Alaska may not have an "Interest Coverage Ratio" less than a defined amount. The Interest Coverage Ratio is the ratio of (i) Forest Alaska's Consolidated

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EBITDAX for the applicable four quarters to (ii) the total interest expense under the two credit agreements, subject to certain adjustments, for the same time period.

        Based on its preliminary assessment of Forest Alaska's Consolidated EBITDAX in April 2007, Forest believed that Forest Alaska would fail to meet the Leverage Ratio and Interest Coverage Ratio requirements for the four-quarter period that ended on March 31, 2007. A failure to meet the Leverage Ratio and the Interest Coverage Ratio constitutes an event of default, entitling the lenders to declare the credit agreements terminated and demand immediate payment by Forest Alaska of all outstanding borrowings at par (approximately $374 million as of March 31, 2007), accrued interest and unpaid accrued fees. Forest Alaska subsequently negotiated amendments to its credit agreements. Further, on June 29, 2007, Forest elected to make a capital contribution of $111.1 million to Forest Alaska, which Forest Alaska used to reduce the total debt under its credit agreements to approximately $264 million. Forest Alaska believes the amendments and the reduction in total debt provide it an enhanced ability to comply with the Leverage Ratio and Interest Coverage Ratio requirements in the future. However, there is no assurance that Forest Alaska will be able to meet the ratio tests in future quarters. Forest does not believe that a default by Forest Alaska under the two Forest Alaska credit agreements would have a material effect upon Forest's financial results. In addition, such a default by Forest Alaska would not constitute a cross-default under Forest's senior notes, bank credit facilities, or other material contracts. Any future default by Forest Alaska that was not resolved to the satisfaction of the lenders could have a negative impact on Forest's ability to raise funds in the capital markets in the future.

Lower oil and gas prices and other factors may cause us to record ceiling test writedowns.

        We use the full cost method of accounting to report our oil and gas operations. Accordingly, we capitalize the cost to acquire, explore for, and develop oil and gas properties. Under full cost accounting rules, the net capitalized costs of oil and gas properties may not exceed a "ceiling limit," which is based upon the present value of estimated future net cash flows from proved reserves, discounted at 10%. If net capitalized costs of oil and gas properties exceed the ceiling limit, we must charge the amount of the excess to earnings. This is called a "ceiling test writedown." Under the accounting rules, we are required to perform a ceiling test each quarter. A ceiling test writedown would not impact cash flow from operating activities, but it would reduce our shareholders' equity. The risk that we will be required to write down the carrying value of our oil and gas properties increases when oil and gas prices are low or volatile. In addition, writedowns may occur if we experience substantial downward adjustments to our estimated proved reserves or our undeveloped property values, or if estimated future development costs increase. We cannot assure you that we will not experience ceiling test writedowns in the future. Our Canadian full cost pool, in particular, could be adversely impacted by moderate declines in commodity prices. In addition, our ceiling test cushion is subject to fluctuation as a result of our corporate development activity which is difficult to fully assess prior to completion. For example, our recent acquisition of Houston Exploration was expected to increase the risk of a ceiling test writedown in the second quarter 2007. At June 30, 2007, the ceiling test cushion was negatively impacted by the Houston Exploration merger, but the impact was offset by favorable results associated with Forest's properties. The merger with Houston Exploration is expected to increase the risk of a ceiling test writedown in the future. Also, our pending sale of our Alaska assets, which is expected to close in August 2007, is expected to have an unfavorable impact on our ceiling test for the third quarter 2007.

We have substantial debt, which may materially affect our operations.

        As of June 30, 2007, the principal amount of our ouststanding consolidated long-term debt was approximately $1.9 billion, including approximately $431.7 million outstanding under the combined U.S. and Canadian bank credit facilities among Forest and its Canadian subsidiary and the various lenders

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that are parties to the facilities and $263.8 million outstanding under term loan facilities among Forest Alaska Operating LLC and the lenders that are parties to those facilities, which are nonrecourse to Forest and its non-Alaska subsidiaries. Our long-term debt (including current maturities) represented 49% of our total capitalization at June 30, 2007. Further, we may incur additional debt in the future, including in connection with acquisitions and refinancings.

        The level of our debt has several important effects on our operations. In particular, it could:

•

require us to dedicate a significant portion of our cash flow from operations to the payment of indebtedness, thereby reducing the availability to fund working capital, capital expenditures, and other general corporate purposes;



•

increase our costs as credit rating agencies have changed, and may change in the future, their ratings of our debt and other obligations as a result of changes in our debt level, financial condition, earnings, and cash flow and these changes may impact the costs, terms, conditions, and availability of financing;



•

impact our operations as covenants contained in our existing and future credit and debt arrangements require us to meet financial tests that may affect our flexibility in planning for and reacting to changes in our business, including possible acquisition opportunities;



•

burden our ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate, and other purposes as any such financing may be subject to increased costs or more restrictive covenants;



•

place us at a competitive disadvantage compared to similar companies that have less debt; and



•

increase our vulnerability to adverse economic and industry conditions.

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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        On May 10, 2007, Forest held its Annual Meeting of Shareholders ("Annual Meeting") in Denver, Colorado. A total of 54,256,906 shares of common stock were present at the Annual Meeting, either in person or by proxy, constituting a quorum. The matters voted upon at the Annual Meeting consisted of two proposals set forth in Forest's Proxy Statement dated March 21, 2007. The two proposals submitted to a vote of shareholders are set forth below. The proposals were each adopted by the shareholders by the indicated margins.

        Proposal No. 1: Election of three Class I directors.

        In addition to the three Class I directors noted above, the other directors of Forest whose terms did not expire at the 2007 Annual Meeting include: Forrest E. Hoglund, H. Craig Clark, William L. Britton, James H. Lee, and James D. Lightner.

        Proposal No. 2: Ratification of the appointment of Ernst & Young LLP as independent registered public accountants.

        There were no broker non-votes.

        On June 5, 2007, Forest held a Special Meeting of Shareholders ("Special Meeting") in Denver, Colorado. A total of 52,577,403 shares of common stock were present at the Special Meeting, either in person or by proxy, constituting a quorum. The matters voted upon at the Special Meeting consisted of two proposals set forth in a joint Proxy Statement/Prospectus dated May 1, 2007. The two proposals submitted to a vote of shareholders are set forth below. The proposals were each adopted by Forest's shareholders by the indicated margins.

        Proposal No. 1: Approval of the issuance of additional shares of Forest common stock pursuant to the Agreement and Plan of Merger, dated as of January 7, 2007.

        Proposal No. 2: Approval of the adoption of the Forest 2007 Stock Incentive Plan.

        There were no broker non-votes.

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Item 6. EXHIBITS

(a)

Exhibits.

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*

Filed herewith.

+

Not considered to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		FOREST OIL CORPORATION (Registrant)
August 9, 2007
		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
4.1		Indenture dated as of June 6, 2007 between Forest Oil Corporation and U.S. Bank National Association.
4.2		Registration Rights Agreement, dated June 6, 2007, by and among Forest Oil Corporation and the other signatories thereto.
4.3		Form of Global Note due 2019.
4.4		U.S. Credit Agreement—Second Amended and Restated Credit Agreement dated as of June 6, 2007 among Forest Oil Corporation, each of the lenders that is party thereto, Bank of America, N.A. and Citibank, N.A., as Co-Global Syndication Agents, BNP Paribas, BMO Capital Markets Financing, Inc., Credit Suisse, Cayman Islands Branch, and Deutsche Bank Securities Inc., as Co-U.S. Documentation Agents, and JPMorgan Chase Bank, N.A., as Global Administrative Agent.
4.5		Canadian Credit Agreement—Second Amended and Restated Credit Agreement dated as of June 6, 2007 among Canadian Forest Oil Ltd., each of the lenders party thereto, Bank of America, N.A. and Citibank, N.A., as Co-Global Syndication Agents, Bank of Montreal and The Toronto Dominion Bank, as Co-Canadian Documentation Agents, JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent, and JPMorgan Chase Bank, N.A., as Global Administrative Agent.
10.1		Form of Restricted Stock Agreement pursuant to the Forest Oil Corporation 2001 Stock Incentive Plan, as amended.
10.2		Form of Phantom Stock Unit Agreement pursuant to the Forest Oil Corporation 2001 Stock Incentive Plan, as amended.
10.3		Form of Restricted Stock Agreement pursuant to the Forest Oil Corporation 2007 Stock Incentive Plan.
10.4		Form of Phantom Stock Unit Agreement pursuant to the Forest Oil Corporation 2007 Stock Incentive Plan.
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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+

Not considered to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section.

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QuickLinks

FOREST OIL CORPORATION INDEX TO FORM 10-Q June 30, 2007
PART I—FINANCIAL INFORMATION
FOREST OIL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In Thousands, Except Share Data)
FOREST OIL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOREST OIL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
FOREST OIL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOREST OIL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEETS (Unaudited) (In Thousands)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (Unaudited) (In Thousands)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
PART II—OTHER INFORMATION
SIGNATURES
Exhibit Index