DEBT

6 Months Ended

Jun. 30, 2011

DEBT

DEBT

(4) DEBT

The components of debt are as follows:

	June 30, 2011												December 31, 2010
	Principal			Unamortized Premium (Discount)			Other(1)			Total			Principal			Unamortized Premium (Discount)			Other(1)			Total
	(In Thousands)
U.S. Credit Facility	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Canadian Credit Facility	280,973			—			—			280,973			—			—			—			—
8% Senior Notes due 2011(2)	285,000			646			385			286,031			285,000			1,292			800			287,092
7% Senior Subordinated Notes due 2013	12			—			—			12			12			—			—			12
81/2% Senior Notes due 2014	600,000			(15,323		)	—			584,677			600,000			(18,210		)	—			581,790
71/4% Senior Notes due 2019	1,000,000			449			—			1,000,449			1,000,000			478			—			1,000,478
Total debt	2,165,985			(14,228		)	385			2,152,142			1,885,012			(16,440		)	800			1,869,372
Less: current portion of debt(2)	(285,000		)	(646		)	(385		)	(286,031		)	(285,000		)	(1,292		)	(800		)	(287,092		)
Long-term portion of debt	$	1,880,985		$	(14,874	)	$	—		$	1,866,111		$	1,600,012		$	(17,732	)	$	—		$	1,582,280

(1) Represents the unamortized portion of deferred gains realized upon termination of interest rate swaps in 2002 that were accounted for as fair value hedges. The gains are being amortized as a reduction of interest expense over the term of the notes.

(2) Due December 2011.

Bank Credit Facilities

As of June 30, 2011, the Company had two separate credit facilities, one in the U.S. and one in Canada.

U.S. Credit Facility

On June 30, 2011, the Company entered into the Third Amended and Restated Credit Facility with a syndicate of banks led by JPMorgan Chase Bank, N.A. (the “U.S. Credit Facility”), consisting of a $1.5 billion credit facility maturing in June 2016. Subject to the agreement of Forest and the applicable lenders, the size of the U.S. Credit Facility may be increased by $300 million, to a total of $1.8 billion.

Forest’s availability under the U.S. Credit Facility is governed by a borrowing base. As of June 30, 2011, the borrowing base under the U.S. Credit Facility was $1.25 billion. The determination of the borrowing base is made by the lenders in their sole discretion, on a semi-annual basis, taking into consideration the estimated value of Forest’s oil and gas properties based on pricing models determined by the lenders at such time, in accordance with the lenders’ customary practices for oil and gas loans. The available borrowing amount under the U.S. Credit Facility could increase or decrease based on such redetermination. In addition to the scheduled semi-annual redeterminations, Forest and the lenders each have discretion at any time, but not more often than once during a calendar year, to have the borrowing base redetermined. The borrowing base is also subject to automatic adjustments if certain events occur.  The next scheduled redetermination of the borrowing base will occur on or about November 1, 2011.

The borrowing base is also subject to change in the event (i) Forest or its Restricted Subsidiaries issue senior unsecured notes, in which case the borrowing base will immediately be reduced by an amount equal to 25% of the stated principal amount of such issued senior notes, excluding any senior unsecured notes that Forest or any of its Restricted Subsidiaries may issue to refinance then-existing senior notes, or (ii) Forest sells oil and natural gas properties included in the borrowing base having a fair market value in excess of 10% of the borrowing base then in effect. A lowering of the borrowing base could require Forest to repay indebtedness in excess of the borrowing base in order to cover the deficiency.

Borrowings under the U.S. Credit Facility bear interest at one of two rates as may be elected by the Company. Borrowings bear interest at:

(i) the greatest of (a) the prime rate announced by JPMorgan Chase Bank, N.A., (b) the federal funds effective rate from time to time plus ½ of 1%, and (c) the one-month rate applicable to dollar deposits in the London interbank market for one, two, three or six months (as selected by Forest) (the “LIBO Rate”) plus 1%, plus, in the case of each of clauses (a), (b), and (c), 50 to 150 basis points depending on borrowing base utilization; or

(ii) the LIBO Rate as adjusted for statutory reserve requirements (the “Adjusted LIBO Rate”), plus 150 to 250 basis points, depending on borrowing base utilization.

The U.S. Credit Facility includes 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 also includes a financial covenant. The U.S. Credit Facility provides that Forest will not permit its ratio of total debt outstanding to consolidated EBITDA (as adjusted for non-cash charges) for a trailing twelve-month period to be greater than 4.50 to 1.00 at any time.

Under certain conditions, amounts outstanding under the U.S. Credit Facility 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 U.S. Credit Facility. Subject to notice and cure periods, certain events of default under the U.S. Credit Facility will result in acceleration of the indebtedness under the facility at the option of the lenders. Such other events of default include non-payment, breach of warranty, non-performance of obligations under the U.S. Credit Facility (including the financial covenants), default on other indebtedness, certain pension plan events, certain adverse judgments, change of control, a failure of the liens securing the credit facility, and an event of default under the Canadian Credit Facility (as defined below).

The U.S. Credit Facility is collateralized by Forest’s assets. Under the U.S. Credit Facility, 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 U.S. subsidiaries. Forest is required to pledge, and has pledged, the stock of certain subsidiaries to secure the U.S. Credit Facility.  If Forest’s corporate credit rating 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.

Of the $1.5 billion total nominal amount under the U.S. Credit Facility, JPMorgan and eleven other banks hold approximately 68% of the total commitments, with each of these twelve lenders holding an equal share. With respect to the other 32% of the total commitments, no single lender holds more than 3.3% of the total commitments.

At June 30, 2011, there were no borrowings and $2.1 million in letters of credit outstanding under the U.S. Credit Facility.

Prior to entering into the U.S. Credit Facility, the previous combined credit facility, dated as of June 6, 2007, consisting of U.S. and Canadian facilities (the “Combined Credit Facility”) was amended on May 25, 2011, to, among other things, remove any collateral owned by Lone Pine or any of its subsidiaries from the collateral securing the U.S. portion of the Combined Credit Facility, terminate the previous Canadian portion of the Combined Credit Facility, terminate various guaranties securing the Canadian portion of the Combined Credit Facility, release collateral securing the Canadian portion of the Combined Credit Facility, and terminate certain liens and mortgages securing the Canadian portion of the Combined Credit Facility. The lender commitments and borrowing base were also reset at this time to $1.65 billion and $1.155 billion, respectively.

Canadian Credit Facility

On March 18, 2011, Lone Pine entered into a stand-alone, CDN$500 million credit facility among Lone Pine, as parent, Lone Pine Resources Canada Ltd. (“LPR Canada,” formerly Canadian Forest Oil Ltd.), as borrower, and a syndicate of banks led by JPMorgan Chase Bank, N.A., Toronto Branch (the “Canadian Credit Facility”).  The Canadian Credit Facility became effective upon the closing of Lone Pine’s initial public offering, and replaced the Canadian portion of the Combined Credit Facility at such time. The Canadian Credit Facility will mature in March 2016. Availability under the Canadian Credit Facility is governed by a borrowing base, which is currently CDN$350 million. The determination of the borrowing base is made by the lenders, in their sole discretion, taking into consideration the estimated value of LPR Canada’s oil and gas properties in accordance with the lenders’ customary practices for oil and gas loans. The borrowing base will be redetermined semi-annually, and the available borrowing amount under the Canadian Credit Facility could increase or decrease based on such redetermination. In April 2011, the lenders set the borrowing base at CDN$350 million, and the first redetermination of the borrowing base will occur on or about October 1, 2011. In addition to the scheduled semi-annual redeterminations, LPR Canada and the lenders each have discretion at any time, but not more often than once during any calendar year, to have the borrowing base redetermined.

The borrowing base is also subject to change in the event (1) Lone Pine or any of its subsidiaries issue senior unsecured notes, in which case the borrowing base will immediately be reduced by an amount equal to 25% of the stated principal amount of such issued senior unsecured notes, excluding any senior unsecured notes that Lone Pine or any of its subsidiaries may issue to refinance then-existing senior notes, or (2) LPR Canada sells oil and gas properties included in the borrowing base having a fair market value in excess of 10% of the borrowing base then in effect. The borrowing base is subject to other automatic adjustments under the Canadian Credit Facility. A lowering of the borrowing base could require LPR Canada and Lone Pine to repay indebtedness in excess of the borrowing base in order to cover a deficiency.

Borrowings under the Canadian Credit Facility bear interest at one of two rates that may be elected by LPR Canada. Borrowings bear interest at a rate that may be based on:

(i) the sum of the applicable bankers’ acceptance rate and a stamping fee of between 175 to 275 basis points, depending on borrowing base utilization; or

(ii) the Canadian Prime Rate plus 75 to 175 basis points, depending on borrowing base utilization.

The Canadian Credit Facility includes 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 also includes a financial covenant. The Canadian Credit Facility provides that LPR Canada will not permit its ratio of total debt outstanding to consolidated EBITDA (as adjusted for non-cash charges) for a trailing twelve-month period to be greater than 4.00 to 1.00.

Under certain conditions, amounts outstanding under the Canadian Credit Facility may be accelerated. Bankruptcy and insolvency events with respect to Lone Pine, LPR Canada, or certain of Lone Pine’s or LPR Canada’s subsidiaries will result in an automatic acceleration of the indebtedness under the Canadian Credit Facility. Subject to notice and cure periods, certain events of default under the Canadian Credit Facility will result in acceleration of the indebtedness under the facility at the option of the lenders. Such other events of default include non-payment, breach of warranty, non-performance of obligations under the Canadian Credit Facility (including the financial covenant), default on other indebtedness, certain pension plan events, certain adverse judgments, change of control, a failure of the liens securing the Canadian Credit Facility, and, until completion of the spin-off, an event of default under Forest’s U.S. Credit Facility.

The Canadian Credit Facility is collateralized by Lone Pine’s assets. Under the Canadian Credit Facility, LPR Canada 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 LPR Canada and its subsidiaries. LPR Canada is required to pledge, and has pledged, the stock of its subsidiary to the lenders to secure the Canadian Credit Facility. Under certain circumstances, LPR Canada could be obligated to pledge additional assets as collateral. Upon completion of the spin-off, the stock of all of Lone Pine’s subsidiaries will be pledged to the lenders to secure the Canadian Credit Facility. Until the spin-off is completed, Forest will guarantee the obligations of LPR Canada under the Canadian Credit Facility. Following the spin-off, Lone Pine and certain of its other subsidiaries will guarantee the obligations of LPR Canada under the Canadian Credit Facility.

Of the CDN$500 million total nominal amount under the Canadian Credit Facility, JPMorgan Chase Bank and 10 other banks hold 100% of the total commitments, with JPMorgan Chase holding 13.3% of the total commitments, two lenders holding 11.7% each of the total commitments, three lenders holding 10% each of the total commitments, and the other lenders holding 6.7% each of the total commitments.

At June 30, 2011, there were outstanding borrowings of $281 million (CDN$271 million) under the Canadian Credit Facility.