Exhibit 99.1
POGO PRODUCING COMPANY & SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On August 14, 2007, Pogo Producing Company, a Delaware corporation (the “Company”) completed the sale of all of the issued and outstanding stock of its wholly-owned subsidiary, Northrock Resources Ltd. (“Northrock”), to Abu Dhabi National Energy Company PJSC (“TAQA”) for approximately $2 billion (“Northrock Disposition”). The sale of the Company’s Northrock subsidiary resulted in the disposition of the Company’s operations in Canada.
The following Unaudited Pro Forma Condensed Consolidated Financial Statements of the Company are presented to give effect to the Northrock disposition described above. Although SFAS 144 requires the inclusion of pro forma income statements for the three most recent fiscal years, the Company has only included pro forma income statements for the years ended December 31, 2006 and 2005 since Northrock was acquired by the Company on September 27, 2005. The Unaudited Pro Forma Condensed Consolidated Income Statements for the years ended December 31, 2005 and 2006 have been derived from the Company’s audited consolidated income statements for the years ended December 31, 2005 and 2006. The Unaudited Pro Forma Condensed Consolidated Income Statements should be read together with the Company’s audited consolidated income statements and the notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2006.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2007 and the Unaudited Pro Forma Condensed Consolidated Income Statement for the six months ended June 30, 2007 have been derived from the Company’s interim consolidated financial statements included in its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007 and should be read in conjunction with those financial statements, including the notes thereto.
The Unaudited Pro Forma Condensed Consolidated Financial Statements are based on the following assumptions and adjustments:
· the pro forma income statements present the Company’s operations as if the Northrock Disposition had occurred on January 1, 2005;
· the balance sheet data presents the Company’s Northrock Disposition as if it occurred on June 30, 2007; and
· the unaudited pro forma estimates of proved reserves and unaudited pro forma standardized measure of discounted future net cash flows related to proved oil and gas reserves give effect to the Northrock Disposition as if it had occurred at December 31, 2006.
The Unaudited Pro Forma Condensed Consolidated Financial Statements are presented for illustrative purposes only. The financial results may have been different if the Northrock Disposition had occurred as of the dates indicated above. This financial information does not purport to indicate the future results that the Company will experience.
POGO PRODUCING COMPANY AND SUBSIDIARIES
Pro Forma Condensed Consolidated Balance Sheet
June 30, 2007
(in millions)
(Unaudited)
| | Historical | | Pro Forma | | | |
| | Consoldated | | Adjustments | | Pro Forma | |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash investments | | $ | 20.3 | | $ | 1,973.0 | (a) | $ | 1,594.6 | |
| | | | (390.0 | )(e) | | |
| | | | (8.7 | )(g) | | |
Accounts receivable | | 89.6 | | — | | 89.6 | |
Other receivables | | 46.4 | | — | | 46.4 | |
Federal income taxes receivable | | — | | — | | — | |
Inventories - Product | | — | | — | | — | |
Inventories - Tubulars | | 16.0 | | — | | 16.0 | |
Assets from discontinued operations | | 103.1 | | (103.1 | )(b) | — | |
Other | | 4.1 | | — | | 4.1 | |
Total current assets | | 279.5 | | 1,471.2 | | 1,750.7 | |
| | | | | | | |
Property and equipment: | | 4,589.6 | | — | | 4,589.6 | |
Less - Accumulated D D & A | | 1,236.9 | | — | | 1,236.9 | |
| | 3,352.7 | | — | | 3,352.7 | |
| | | | | | | |
Other | | 26.0 | | | | 26.0 | |
Assets from discontinued operations | | 2,946.6 | | (2,946.6 | ) | — | |
| | $ | 6,604.8 | | $ | (1,475.4 | ) | $ | 5,129.4 | |
LIABILITIES | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable - operating activities | | $ | 109.6 | | $ | — | | $ | 109.6 | |
Accounts payable - investing activities | | 58.0 | | — | | 58.0 | |
Income taxes payable | | 93.6 | | 23.0 | (c) | 116.6 | |
Accrued interest payable | | 24.8 | | — | | 24.8 | |
Accrued payroll and related | | 10.0 | | — | | 10.0 | |
Deferred income taxes | | 3.7 | | — | | 3.7 | |
Commodity derivative contracts | | 5.6 | | — | | 5.6 | |
Liabilities from discontinued operations | | 169.1 | | (169.1 | )(b) | — | |
Other | | 16.6 | | — | | 16.6 | |
Total current liabilities | | 491.0 | | (146.1 | ) | 344.9 | |
| | | | | | | |
Long-term debt | | 1,837.8 | | (390.0 | )(e) | 1,447.8 | |
Asset retirement obligation | | 60.5 | | — | | 60.5 | |
Deferred income taxes | | 737.8 | | — | | 737.8 | |
Liabilities from discontinued operations | | 737.8 | | (737.8 | )(b) | — | |
Deferred credits | | 48.1 | | — | | 48.1 | |
Total liabilities | | 3,913.0 | | (1,273.9 | ) | 2,639.1 | |
SHAREHOLDERS’ EQUITY | | | | | | | |
Common stock | | 66.0 | | — | | 66.0 | |
Additional capital | | 987.7 | | — | | 987.7 | |
Retained earnings | | 1,818.1 | | — | | 1,818.1 | |
Accumulated other comprehensive income | | 181.3 | | (201.5 | )(b) | (20.2 | ) |
Treasury stock, at cost | | (361.3 | ) | — | | (361.3 | ) |
Total shareholders’ equity | | 2,691.8 | | (201.5 | ) | 2,490.3 | |
| | $ | 6,604.8 | | $ | (1,475.4 | ) | $ | 5,129.4 | |
POGO PRODUCING COMPANY AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statement of Income
Six Months Ended June 30, 2007
(in millions, except per share amounts)
(Unaudited)
| | Historical | | Pro Forma | | | |
| | Consolidated | | Adjustments (b) | | Pro Forma | |
| | | | | | | |
Revenue and Other Income | | | | | | | |
Oil & gas revenues | | $ | 430.9 | | $ | — | | $ | 430.9 | |
Other | | 3.6 | | — | | 3.6 | |
Total | | 434.5 | | — | | 434.5 | |
Operating Costs and Expenses: | | | | | | | |
Lease operating | | 96.6 | | — | | 96.6 | |
General and administrative | | 56.9 | | — | | 56.9 | |
Exploration | | 14.0 | | — | | 14.0 | |
Dry hole and impairment | | 51.7 | | — | | 51.7 | |
DD&A | | 164.0 | | — | | 164.0 | |
Production and other taxes | | 32.9 | | — | | 32.9 | |
Net gain on sales of properties | | (129.5 | ) | | | (129.5 | ) |
Other | | 13.1 | | — | | 13.1 | |
Total | | 299.7 | | — | | 299.7 | |
Operating Income | | 134.8 | | — | | 134.8 | |
Interest: | | | | | | | |
Charges | | (83.7 | ) | 13.2 | (e) | (70.5 | ) |
Income | | 0.1 | | — | | 0.1 | |
Capitalized | | 39.9 | | (26.9 | )(e) | 13.0 | |
Commodity Derivative Expense | | (4.6 | ) | — | | (4.6 | ) |
Income from Continuing Operations before Taxes | | 86.5 | | (13.7 | ) | 72.8 | |
Income Tax Expense | | 24.2 | (h) | (5.0 | )(f) | 19.2 | |
Income from Continuing Operations | | $ | 62.3 | | $ | (8.7 | ) | $ | 53.6 | |
| | | | | | | |
Earnings (Loss) Per Share | | | | | | | |
Basic | | $ | 1.08 | | | | $ | 0.93 | |
Diluted | | $ | 1.06 | | | | $ | 0.92 | |
| | | | | | | |
Weighted Average Shares: | | | | | | | |
Basic | | 57.8 | | | | 57.8 | |
Diluted | | 58.5 | | | | 58.5 | |
POGO PRODUCING COMPANY AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 2006
(in millions, except per share amounts)
(Unaudited)
| | Pogo | | Less: | | | | | |
| | Historical | | Northrock | | Pro Forma | | | |
| | Consolidated | | Disposition (d) | | Adjustments | | Pro Forma | |
| | | | | | | | | |
Revenue and Other Income | | | | | | | | | |
Oil & gas revenues | | $ | 1,375.4 | | $ | 450.7 | | $ | — | | $ | 924.7 | |
Other | | 64.9 | | 59.2 | | — | | 5.7 | |
Total | | 1,440.3 | | 509.9 | | — | | 930.4 | |
Operating Costs and Expenses | | | | | | | | | |
Lease operating | | 264.8 | | 81.4 | | — | | 183.4 | |
General and administrative | | 129.5 | | 28.3 | | — | | 101.2 | |
Exploration | | 31.8 | | 16.0 | | — | | 15.8 | |
Dry hole and impairment | | 106.6 | | 25.6 | | — | | 81.0 | |
DD&A | | 484.6 | | 199.4 | | — | | 285.2 | |
Production and other taxes | | 78.4 | | 10.7 | | — | | 67.7 | |
Natural gas purchases | | 56.0 | | 56.0 | | | | — | |
Net (gain) loss on sales of properties | | (304.7 | ) | 0.1 | | | | (304.8 | ) |
Other | | 31.0 | | 9.8 | | — | | 21.2 | |
Total | | 878.0 | | 427.3 | | — | | 450.7 | |
Operating Income | | 562.3 | | 82.6 | | — | | 479.7 | |
Interest: | | | | | | | | | |
Charges | | (148.1 | ) | (0.3 | ) | 25.6 | (e) | (122.2 | ) |
Income | | 1.8 | | 1.4 | | — | | 0.4 | |
Capitalized | | 77.7 | | — | | (57.0 | )(e) | 20.7 | |
Commodity Derivative Income | | 7.3 | | — | | — | | 7.3 | |
Foreign Currency Transaction Gain (Loss) | | (1.7 | ) | (1.8 | ) | — | | 0.1 | |
Income from Continuing Operations before Taxes | | 499.3 | | 81.9 | | (31.4 | ) | 386.0 | |
Income Tax Expense | | 53.1 | (h) | 13.5 | | (11.5 | )(f) | 28.1 | |
Income from Continuing Operations | | $ | 446.2 | | $ | 68.4 | | $ | (19.9 | ) | $ | 357.9 | |
| | | | | | | | | |
Earnings Per Share | | | | | | | | | |
Basic | | $ | 7.74 | | | | | | $ | 6.21 | |
Diluted | | $ | 7.68 | | | | | | $ | 6.16 | |
| | | | | | | | | |
Weighted Average Shares: | | | | | | | | | |
Basic | | 57.6 | | | | | | 57.6 | |
Diluted | | 58.1 | | | | | | 58.1 | |
POGO PRODUCING COMPANY AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 2005
(in millions, except per share amounts)
(Unaudited)
| | Pogo | | Less: | | | | | |
| | Historical | | Northrock | | Pro Forma | | | |
| | Consolidated | | Disposition (d) | | Adjustments | | Pro Forma | |
| | | | | | | | | |
Revenue and Other Income | | | | | | | | | |
Oil & gas revenues | | $ | 1,216.2 | | $ | 134.2 | | $ | — | | $ | 1,082.0 | |
Other | | 9.4 | | 5.5 | | — | | 3.9 | |
Total | | 1,225.6 | | 139.7 | | — | | 1,085.9 | |
Operating Costs and Expenses | | | | | | | | | |
Lease operating | | 153.7 | | 17.7 | | — | | 136.0 | |
General and administrative | | 87.3 | | 9.4 | | — | | 77.9 | |
Exploration | | 26.5 | | 3.4 | | — | | 23.1 | |
Dry hole and impairment | | 87.2 | | 5.0 | | — | | 82.2 | |
DD&A | | 312.2 | | 50.9 | | — | | 261.3 | |
Production and other taxes | | 59.5 | | 2.7 | | — | | 56.8 | |
Natural gas purchases | | 4.5 | | 4.5 | | — | | — | |
Net gain on sales of properties | | (0.1 | ) | 0.1 | | — | | (0.2 | ) |
Other | | (13.6 | ) | 2.2 | | — | | (15.8 | ) |
Total | | 717.2 | | 95.9 | | — | | 621.3 | |
Operating Income | | 508.4 | | 43.8 | | — | | 464.6 | |
Interest: | | | | | | | | | |
Charges | | (68.7 | ) | — | | 5.5 | (e) | (63.2 | ) |
Income | | 8.3 | | 0.4 | | — | | 7.9 | |
Capitalized | | 23.5 | | — | | (13.2 | )(e) | 10.3 | |
Commodity Derivative Expense (e) | | (13.6 | ) | — | | — | | (13.6 | ) |
Foreign Currency Transaction Loss | | 0.1 | | 0.1 | | — | | — | |
Income from Continuing Operations before Taxes | | 458.0 | | 44.3 | | (7.7 | ) | 406.0 | |
Income Tax Expense | | 167.9 | | 15.2 | | (2.8 | )(f) | 149.9 | |
Income from Continuing Operations | | $ | 290.1 | | $ | 29.1 | | $ | (4.9 | ) | $ | 256.1 | |
| | | | | | | | | |
Earnings Per Common Share: | | | | | | | | | |
Basic | | $ | 4.80 | | | | | | $ | 4.24 | |
Diluted | | $ | 4.76 | | | | | | $ | 4.21 | |
Weighted Average Shares: | | | | | | | | | |
Basic | | 60.4 | | | | | | 60.4 | |
Diluted | | 60.9 | | | | | | 60.9 | |
POGO PRODUCING COMPANY AND SUBSIDIARIES
PRO-FORMA ESTIMATES OF PROVED RESERVES
Oil, Condensate and Natural Gas Liquids (Bbls.)
(Unaudited)
| | Historical | | Less: Historical | | | |
| | Consolidated | | Northrock | | Pro-Forma | |
| | | | | | | |
Proved Reserves as of December 31, 2004 | | 83,866,054 | | — | | 83,866,054 | |
Revisions of previous estimates | | 5,513,972 | | (23,300 | ) | 5,537,272 | |
Extensions, discoveries and other additions | | 4,884,697 | | 3,083,600 | | 1,801,097 | |
Purchase of properties | | 60,688,379 | | 60,100,000 | | 588,379 | |
Sale of properties | | — | | — | | — | |
Estimated 2005 production | | (10,912,237 | ) | (1,357,312 | ) | (9,554,925 | ) |
Proved Reserves as of December 31, 2005 | | 144,040,865 | | 61,802,988 | | 82,237,877 | |
Revisions of previous estimates | | 9,610,942 | | 1,102,519 | | 8,508,423 | |
Extensions, discoveries and other additions | | 15,399,900 | | 6,896,000 | | 8,503,900 | |
Purchase of properties | | 23,607,000 | | 186,000 | | 23,421,000 | |
Sale of properties | | (15,846,500 | ) | — | | (15,846,500 | ) |
Estimated 2006 production | | (13,477,277 | ) | (5,370,507 | ) | (8,106,770 | ) |
Proved Reserves as of December 31, 2006 | | 163,334,930 | | 64,617,000 | | 98,717,930 | |
| | | | | | | |
Proved Developed Reserves as of: | | | | | | | |
December 31, 2004 | | 72,968,008 | | — | | 72,968,008 | |
December 31, 2005 | | 118,573,719 | | 55,413,014 | | 63,160,705 | |
December 31, 2006 | | 123,602,975 | | 55,917,925 | | 67,685,050 | |
Natural Gas (MMcf)
(Unaudited)
| | Historical | | Less: Historical | | | |
| | Consolidated | | Northrock | | Pro-Forma | |
| | | | | | | |
Proved Reserves as of December 31, 2004 | | 933,981 | | — | | 933,981 | |
Revisions of previous estimates | | 7,234 | | 954 | | 6,280 | |
Extensions, discoveries and other additions | | 61,709 | | 32,646 | | 29,063 | |
Purchase of properties | | 266,110 | | 259,610 | | 6,500 | |
Sale of properties | | — | | — | | — | |
Estimated 2005 production | | (91,309 | ) | (6,783 | ) | (84,526 | ) |
Proved Reserves as of December 31, 2005 | | 1,177,725 | | 286,427 | | 891,298 | |
Revisions of previous estimates | | (78,190 | ) | (15,028 | ) | (63,162 | ) |
Extensions, discoveries and other additions | | 143,295 | | 69,410 | | 73,885 | |
Purchase of properties | | 140,467 | | 5,990 | | 134,477 | |
Sale of properties | | (48,288 | ) | — | | (48,288 | ) |
Estimated 2006 production | | (102,039 | ) | (28,486 | ) | (73,553 | ) |
Proved Reserves as of December 31, 2006 | | 1,232,970 | | 318,313 | | 914,657 | |
| | | | | | | |
Proved Developed Reserves as of: | | | | | | | |
December 31, 2004 | | 769,753 | | — | | 769,753 | |
December 31, 2005 | | 906,005 | | 220,704 | | 685,301 | |
December 31, 2006 | | 938,341 | | 236,791 | | 701,550 | |
POGO PRODUCING COMPANY AND SUBSIDIARIES
PRO-FORMA STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS RELATED TO PROVED OIL AND GAS RESERVES—(Unaudited)
(expressed in millions)
| | Year Ended December 31, 2006 | |
| | Historical | | Less: Historical | | | |
| | Consolidated | | Northrock | | Pro-Forma | |
Future gross revenues | | $ | 14,339.0 | | $ | 4,275.5 | | $ | 10,063.5 | |
Future production costs | | (4,193.9 | ) | (1,315.4 | ) | (2,878.5 | ) |
Future development and abandonment costs | | (1,575.9 | ) | (251.4 | ) | (1,324.5 | ) |
Future net cash flows before income taxes | | 8,569.2 | | 2,708.7 | | 5,860.5 | |
Discount at 10% per annum | | (4,091.1 | ) | (1,209.8 | ) | (2,881.3 | ) |
Discounted future net cash flows before income taxes | | 4,478.1 | | 1,498.9 | | 2,979.2 | |
Future income taxes, net of discount at 10% per annum | | (1,125.2 | ) | (343.3 | ) | (781.9 | ) |
Standardized measure of discounted future net cash flows related to proved oil and gas reserves | | $ | 3,352.9 | | $ | 1,155.6 | | $ | 2,197.3 | |
| | Year Ended December 31, 2005 | |
| | Historical | | Less: Historical | | | |
| | Consolidated | | Northrock | | Pro-Forma | |
Future gross revenues | | $ | 16,504.9 | | $ | 4,834.5 | | $ | 11,670.4 | |
Future production costs | | (3,754.9 | ) | (1,169.8 | ) | (2,585.1 | ) |
Future development and abandonment costs | | (914.1 | ) | (204.5 | ) | (709.6 | ) |
Future net cash flows before income taxes | | 11,835.9 | | 3,460.2 | | 8,375.7 | |
Discount at 10% per annum | | (5,215.3 | ) | (1,506.1 | ) | (3,709.2 | ) |
Discounted future net cash flows before income taxes | | 6,620.6 | | 1,954.1 | | 4,666.5 | |
Future income taxes, net of discount at 10% per annum | | (2,057.8 | ) | (612.7 | ) | (1,445.1 | ) |
Standardized measure of discounted future net cash flows related to proved oil and gas reserves | | $ | 4,562.8 | | $ | 1,341.4 | | $ | 3,221.4 | |
The standardized measure of discounted future net cash flows does not purport to present the fair value of the Company’s oil and gas reserves. An estimate of fair value would also take into account, among other things, the recovery of reserves in excess of proved reserves, anticipated future changes in prices and costs, a discount factor more representative of the time value of money and the risks inherent in reserve estimates.
POGO PRODUCING COMPANY & SUBSIDIARIES
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
a) Represents the purchase price of $2.0 billion from the Northrock Disposition, less estimated transaction costs and purchase price adjustments of approximately $27.0 million.
b) Northrock operations were reported as discontinued operations in the Company’s June 30, 2007 Form 10-Q. Accumulated other comprehensive income includes $201.5 million of foreign currency translation adjustments related to the Company’s investment in Canada as of June 30, 2007.
c) Represents the estimated current U.S. income taxes payable associated with the previously unremitted foreign earnings of Northrock.
d) Represents adjustments to remove the historical revenues, operating expenses, and income taxes associated with the Northrock Disposition. Adjustments to the 2005 pro forma income statement reflect the period from the Company’s acquisition of Northrock on September 27, 2005 through December 31, 2005.
e) Represents the repayment of senior debt under the Company’s revolving credit facility and money market accounts using the proceeds from the Northrock Disposition. Adjustments to interest expense based on the amount outstanding at June 30, 2007 were calculated using weighted average interest rates of 5.639%, 6.554% and 6.773% for the periods ended December 31, 2005 and 2006 and June 30, 2007, respectively. All capitalized interest related to Canada has been adjusted in the accompanying pro forma income statements.
f) Represents income tax expense on the pro forma adjustments calculated using a 36.5% statutory U.S. federal and state tax rate.
g) Represents the sum of cash held by Northrock of $16.8 million as of June 30, 2007, net of cash repayments of intercompany debt of $8.1 million allowed under the sales agreement to TAQA.
h) During 2006 and 2007, the Company’s consolidated effective tax rate was 10.6% and 28.0%, respectively. These rates include the effects for the enactment of a reduction of the Alberta and Saskatchewan provincial tax rates, in addition to a reduction in the statutory Canadian federal income tax rate, which generated a deferred tax benefit of approximately $112 million and $10 million in 2006 and 2007, respectively. GAAP requires that the entire effect of changes in enacted tax rates be allocated to continuing operations.
