SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 1994 OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERION FROM ______ TO _____
Commission file number 1-7792
Pogo Producing Company
(Exact name of registrant as specified in its charter)
Delaware 74-1659398
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Greenway Plaza, Suite 2700
Houston, Texas 77046-0504
(Address of principal executive offices) (Zip Code)
(713) 297-5000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 requirement for the past 90 days: Yes X No
Registrant's number of common shares outstanding as of March 31, 1994:
32,543,952
Part I. Financial Information
Item 1. Financial Statements
Pogo Producing Company and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended
March 31,
---------------------------------
1994 1993
-------------- ---------------
(Expressed in thousands, except per share amounts)
Revenues: $ 37,892 $ 34,681
------------- ---------------
Operating Costs and Expenses:
Lease operating 6,656 6,373
General and administrative 3,819 3,492
Exploration 733 225
Dry hole and impairment 1,390 615
Depreciation, depletion and amortization 11,758 10,137
------------- ---------------
Total 24,356 20,842
------------- ---------------
Operating Income 13,536 13,839
Interest:
Charges (2,517) (3,041)
Income 15 4
Capitalized 147 95
------------- ---------------
Income Before Income Taxes 11,181 10,897
Income Tax Expense (3,903) (3,737)
------------- ---------------
Net Income $ 7,278 $ 7,160
============= ===============
Primary and Fully Diluted
Earnings Per Common Share $ 0.22 $ 0.22
============= ===============
Weighted Average Number of
Common Stock and Common
Stock Equivalent Shares Outstanding 33,253 32,818
============= ===============
See accompanying notes to consolidated financial statements.
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Pogo Producing Company and Subsidiaries
Consolidated Balance Sheets
March 31, December 31,
1994 1993
------------- -------------
(Unaudited)
(Expressed in thousands, except share amounts)
Assets
Current Assets:
Cash and cash investments $ 20,453 $ 6,713
Accounts receivable 26,794 18,480
Other receivables 5,580 10,123
Federal income taxes and interest receivable 3,320 3,320
Inventories 1,927 1,105
Other 249 727
------------- -------------
Total current assets 58,323 40,468
------------- _____________
Property and Equipment:
Oil and gas, on the basis of successful efforts accounting
Proved properties being amortized 826,545 817,218
Unproved properties and properties
under development, not being amortized 5,987 6,465
Other, at cost 6,980 6,961
-------------- -------------
839,512 830,644
Less--accumulated depreciation, depletion and
amortization, including $4,576 and $4,452,
respectively, applicable to other property 648,340 638,658
-------------- -------------
191,172 191,986
-------------- -------------
Other 10,977 7,320
-------------- -------------
$ 260,472 $ 239,774
============== =============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 8,886 $ 8,307
Other payables 8,736 22,955
Current portion of long-term debt 24,000 4,000
Federal income taxes payable 500 -
Accrued interest payable 2,413 1,202
Accrued payroll and related benefits 872 1,005
Other 94 122
-------------- -------------
Total current liabilities 45,501 37,591
Long-Term Debt 129,789 130,539
Deferred Federal Income Tax 32,886 29,724
Deferred Credits 9,687 8,117
-------------- -------------
Total liabilities 217,863 205,971
-------------- -------------
Shareholders' Equity:
Preferred stock, $1 par; 2,000,000 shares authorized - -
Common stock, $1 par; 43,333,333 shares authorized,
32,559,527 and 32,449,197 shares issued, respectively 32,560 32,449
Additional capital 127,336 125,919
Retained earnings (deficit) (116,963) (124,241)
Treasury stock, at cost (324) (324)
-------------- -------------
Total shareholders' equity 42,609 33,803
-------------- -------------
$ 260,472 $ 239,774
============== =============
See accompanying notes to consolidated financial statements.
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Pogo Producing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
March 31,
------------------------------------
1994 1993
------------- --------------
(Expressed in thousands)
Cash flows from operating activities:
Cash received from customers $ 31,717 $ 38,896
Operating, exploration, and general
and administrative expenses paid (10,565) (11,883)
Interest paid (1,267) (1,246)
Settlement of natural gas transportation and exchange imbalance (2,168) -
Other 340 322
------------- --------------
Net cash provided by operating activities 18,057 26,089
------------- --------------
Cash flows from investing activities:
Capital expenditures (22,685) (8,705)
Proceeds from the sales of properties 52 1,556
------------- --------------
Net cash used in investing activities (22,633) (7,149)
------------- --------------
Cash flows from financing activities:
Proceeds from issuance of new debt 86,250 -
Net payments under revolving credit agreement (67,000) (4,000)
Principal payments of production payment obligation - (8,696)
Payment of debt issue expenses (2,156) -
Proceeds from exercise of stock options 1,222 212
------------- --------------
Net cash provided by (used in) financing activities 18,316 (12,484)
------------- --------------
Net increase in cash and cash investments 13,740 6,456
Cash and cash investments at the beginning of the year 6,713 5,037
------------- --------------
Cash and cash investments at the end of the period $ 20,453 $ 11,493
============= ==============
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 7,278 $ 7,160
Adjustments to reconcile net income to
net cash provided by operating activities -
Gains from the sales of properties (52) (626)
Depreciation, depletion and amortization 11,758 10,137
Dry hole and impairment 1,390 615
Interest capitalized (147) (95)
Change in operating assets and liabilities (2,170) 8,898
------------- --------------
Net cash provided by operating activities $ 18,057 26,089
============= ==============
See accompanying notes to consolidated financial statements.
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Pogo Producing Company and Subsidiaries
Consolidated Statements of Shareholders' Equity (Unaudited)
Three Months Ended March 31,
--------------------------------------------------------------
1994 1993
-------------------------- -----------------------------
Shares Amount Shares Amount
---------- ------------ ---------- -------------
(Dollars expressed in thousands)
Common Stock:
$1.00 par - Authorized 43,333,333 shares
Balance at beginning of year 32,449,197 $ 32,449 32,103,864 $ 32,104
Stock options exercised 110,330 111 39,567 40
---------- ------------ ---------- -------------
Issued at end of period 32,559,527 32,560 32,143,431 32,144
---------- ------------ ---------- -------------
Additional Capital:
Balance at beginning of year 125,919 122,846
Stock options exercised 1,417 289
------------ -------------
Balance at end of period 127,336 123,135
------------ -------------
Retained Earnings (Deficit):
Balance at beginning of year (124,241) (149,302)
Net income 7,278 7,160
------------ -------------
Balance at end of period (116,963) (142,142)
------------ -------------
Treasury Stock:
Balance at beginning of year (15,575) (324) - -
Activity during period - - - -
---------- ------------ ---------- -------------
Balance at end of period (15,575) (324) - -
---------- ------------ ---------- -------------
Common stock outstanding,
at the end of the period 32,543,952 32,143,431
========== ==========
Total Shareholders' Equity $ 42,609 $ 13,137
============ =============
See accompanying notes to consolidated financial statements.
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Pogo Producing Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(1) General Information -
The consolidated financial statements included herein have been
prepared by Pogo Producing Company (the "Company") without audit and include
all adjustments (of a normal and recurring nature) which are, in the opinion of
management, necessary for the fair presentation of interim results which are
not necessarily indicative of results for the entire year. The financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's latest annual report.
(2) Earnings per Share -
Earnings per common and common equivalent share (primary earnings
per share) are based on the weighted average number of shares of common stock
and common equivalent shares outstanding during the periods. The dilutive
effect of stock options was considered in the earnings per share reported for
the periods. The 8% convertible subordinated debentures, due 2005 are common
stock equivalents and were anti-dilutive in both periods. Earnings
per common and common equivalent share assuming full dilution (fully diluted
earnings per share) considered the 10.25% convertible subordinated notes, due
1999 (and retired on April 18, 1994) which were anti-dilutive in both periods
and the 5 1/2% convertible subordinated notes, due 2004 (issued on March 16,
1994) which were dilutive for the 16 days in the 1994 period they were
outstanding but such dilution was not sufficient to change primary earnings
per share.
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Pogo Producing Company and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This discussion should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's annual report on Form 10-K for the year ended December 31, 1993.
Results of Operations -
The Company reported net income for the first quarter of 1994 of
$7,278,000 or $0.22 per share compared to net income for the first quarter
of 1993 of $7,160,000 or $0.22 per share. Earnings per common share are
based on the weighted average number of shares of common and common equivalent
shares outstanding for the quarter ended March 31, 1994 of 33,253,000 compared
to 32,818,000 for the quarter ended March 31, 1993. The increase in the
weighted average number of common and common equivalent shares outstanding for
the 1994 period primarily relates to common stock issued in connection with the
exercise of stock options pursuant to the Company's stock option plans.
The Company's total revenues for the first quarter of 1994 were
$37,892,000, an increase of approximately 9% from total revenues of
$34,681,000 for the first quarter of 1993. The increase in the Company's total
revenues for the first quarter of 1994, compared to the first quarter of 1993,
was primarily related to increases of approximately 16% in its natural gas
production volumes and 14% in its crude oil and condensate production volumes.
The first quarter of 1994 also saw an increase of approximately 22% in the
average price that the Company received for its natural gas production volumes
compared to the first quarter of 1993 which was more than offset
by a decline of approximately 28% in the average price that the Company received
for its crude oil and condensate production in the comparable periods.
The following table reflects an analysis of differences in the
Company's total revenues (expressed in thousands of dollars) between the first
quarter of 1994 and the first quarter of 1993.
1st Qtr '94
Compared to
1st Qtr '93
-----------
Increase (decrease) in revenues
resulting from differences in :
Natural gas -
Price . . . . . . . . . . . . . . . . $ 3,451
Production. . . . . . . . . . . . . . . 3,048
----------
6,499
----------
Crude oil and condensate -
Price . . . . . . . . . . . . . . . . (4,534)
Production. . . . . . . . . . . . . . . 1,699
----------
(2,835)
----------
Natural gas liquids ("NGL") and other, net . . . . (453)
----------
Increase in total revenues . . . . . . . . . . $ 3,211
==========
Prices received by the Company for its natural gas production during
the first quarter of 1994 averaged $2.20 per thousand cubic feet ("Mcf"), an
increase of approximately 22% from the average price of $1.81 per Mcf that the
Company received during the first quarter of 1993. The Company believes that
the increased prices which it received for its natural gas production were
primarily related to the increased severity of the winter weather in the
northeast and central portions of the United States during the first quarter of
1994 compared to the first quarter of 1993, together with increased demand
resulting from generally improving economic conditions in the United States as
a whole. The Company's natural gas production for the first quarter of 1994
averaged 113.7 million cubic feet per day, an increase of approximately 16% from
98.3 million cubic feet per day that the Company produced during the first
quarter of 1993. The increase in the Company's natural gas production during
the first quarter of 1994, compared to the first quarter of 1993, was primarily
related to natural gas production from the Company's Eugene Island 295 "B"
platform from which production commenced in late February 1994, and the
continued success of the Company's offshore drilling and workover program which
has been partially offset by a natural decline in deliverability from certain
of the Company's more mature properties.
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Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
( Continued )
As of March 31, 1994, the Company had contracted to sell 30 million
cubic feet per day of its natural gas production during the months of May 1994
through September 1994 at an average price of approximately $2.13 per Mcf.
The 30 million cubic feet per day represented approximately 20% of the Company's
average daily production of natural gas during the month of March 1994. The
average price of $2.13 per Mcf is approximately 3% higher than the average price
(before transportation expenses) the Company received for its natural gas
production during the period of May 1993 through September 1993.
Prices received by the Company for its crude oil and condensate
production averaged $13.90 per barrel during the first quarter of 1994, a
decrease of approximately 28% from the average price of $19.20 per barrel
that the Company received during the first quarter of 1993. The Company's
crude oil and condensate production during the first quarter of 1994 averaged
10,860 barrels per day, an increase of approximately 14% from an average of
9,501 barrels per day during the first quarter of 1993. The Company's increased
crude oil and condensate production during the first quarter of 1994, compared
to the first quarter of 1993, was primarily related to the successful results
of several ongoing development programs, primarily in the offshore Gulf of
Mexico Eugene Island area and several fields located in Lea and Eddy Counties
of southeastern New Mexico.
As of March 31, 1994, the Company had entered into crude oil swap
agreements with other parties in which it swapped the floating market price it
receives from purchasers of its crude oil for a fixed price of $16.00 per barrel
on 1,000 barrels per day of the Company's production for the period of April
through July 1994 and a fixed price of $17.08 per barrel on 1,000 barrels per
day of the Company's production for the period of May through October 1994. The
agreements expire on July 31 and October 31, 1994, respectively, but may be
extended through January 31, and April 30, 1995, respectively, at the other
parties' option.
NGL and other, net revenues for the first quarter of 1994 decreased
$453,000 from the first quarter of 1993. The decrease in NGL and other, net
revenues for the first quarter of 1994, compared to the first quarter of 1993,
was primarily related to a decrease in the average price received by the Company
for its NGL production which was related to the decrease in crude oil and
condensate prices previously mentioned. NGL are liquid products which are
extracted from natural gas streams and sold separately.
Lease operating expenses for the first quarter of 1994 were
$6,656,000, an increase of approximately 4% from lease operating expenses of
$6,373,000 for the first quarter of 1993. The increases in lease operating
expenses for the first quarter of 1994, compared to the first quarter of
1993, was primarily related to the Company's increased operating activities,
including increased operating costs related to additional properties brought on
production after the first quarter of 1993. The increased operating costs were
partially offset by lower maintenance costs.
General and administrative expenses for the first quarter of 1994
were $3,819,000, an increase of approximately 9% from general and administrative
expenses of $3,492,000 for the first quarter of 1993. The increase in general
and administrative expenses for the first quarter of 1994, compared to the first
quarter of 1993, was primarily related to increased business insurance premiums
resulting from the Company's increased drilling activity and insurance premium
rate increases resulting from the insurance industry's recent loss experience
in general, rather than losses specifically related to the Company's operations,
as well as normal salary adjustments.
Exploration expenses consist primarily of delay rentals and geological
and geophysical ("G&G") costs which are expensed as incurred. Exploration
expenses for the first quarter of 1994 were $733,000, an increase of
approximately 226% from exploration expenses of $225,000 for the first quarter
of 1993. The increase in exploration expenses for the first quarter of 1994,
compared to the first quarter of 1993, was primarily related to the cost of
conducting and processing a 3-D seismic survey on the Company's oil and gas
concession in the Gulf of Thailand which occurred primarily in the second half
of 1993 and the first quarter of 1994 and the cost of purchasing significant
additional seismic data in the Gulf of Mexico during the first quarter of 1994
as a result of the Company's increased activity in that area.
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Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
( Continued )
Dry hole and impairment expenses relate to costs of unsuccessful wells
drilled along with impairments to the associated unproved property costs and
impairments to previously proved property costs as a result of decreases in
expected reserves. The Company's dry hole and impairment expenses for the first
quarter of 1994 were $1,390,000, an increase of approximately 126% from dry hole
and impairment expenses of $615,000 for the first quarter of 1993.
The Company accounts for its oil and gas activities using the
successful efforts method of accounting. Under the successful efforts method,
lease acquisition costs and all development costs are capitalized. Unproved
properties are reviewed quarterly to determine if there has been impairment of
the carrying value, with any such impairment charged to expense in the period.
Exploratory drilling costs are capitalized until the results are determined.
If proved reserves are not discovered, the exploratory drilling costs are
expensed. Other exploratory costs are expensed as incurred.
The provision for depreciation, depletion and amortization ("DD&A")
is determined on a field-by-field basis using the units of production method.
The Company's DD&A expense for the first quarter of 1994 was $11,758,000, an
increase of approximately 16% from DD&A expense of $10,137,000 for the first
quarter of 1993. The increase for the first quarter of 1994, compared to the
first quarter of 1993, was primarily related to increased volumes produced
(largely related to the increased natural gas, crude oil and condensate
production discussed earlier) and, to a lesser extent, an increase in the
composite DD&A rate. The composite DD&A rate for all of the Company's producing
fields for the first quarter of 1994 was $0.68 per equivalent Mcf ($4.11 per
equivalent barrel), compared to a composite DD&A rate of $0.67 per equivalent
Mcf ($4.04 per equivalent barrel) for the first quarter of 1993. The Company
produced 16,986,000 equivalent Mcf (2,831,000 equivalent barrels) during
the first quarter of 1994, an increase of approximately 14% from the 14,876,000
equivalent Mcf (2,479,000 equivalent barrels) produced by the Company during
the first quarter of 1993.
Interest charges for the first quarter of 1994 were $2,517,000, a
decrease of approximately 17% from interest charges of $3,041,000 for the first
quarter of 1993. The decrease in interest charges for the first quarter of
1994, compared to the first quarter of 1993, was primarily related to lower
levels of debt outstanding during the first quarter of 1994, compared to the
first quarter of 1993.
As of March 31, 1994, the Company was a party to an interest rate swap
agreement. The swap agreement, which terminates on July 31, 1994, effectively
changes the interest paid by the Company on $10,000,000 of debt from a market
based variable rate to a fixed rate of 5.91%.
Liquidity and Capital Resources -
The Condensed Consolidated Statement of Cash Flows for the three
months ended March 31, 1994 reflects net cash provided by operating activities
of $18,057,000. In addition to the net cash provided by operating activities,
minor property sales, and the proceeds from the exercise of stock options, the
Company sold $86,250,000 of 5 1/2% Convertible Subordinated Notes due 2004
in March 1994. Proceeds from the sale ($84,094,000 net of debt issue expenses)
were primarily used to reduce the amount outstanding under the Company's
revolving credit facility and, in April 1994, to prepay the remaining
outstanding principal and interest on the Company's 10.25% Convertible
Subordinated Notes due 1999 (the 10.25% Notes). The Company investd $22,685,000
in capital projects during the first quarter of 1994. Of the $22,685,000,
$20,645,000 was applicable to 1993 capital projects and $2,040,000 was
applicable to 1994 capital projects. The Company's cash and cash investments
were $20,453,000 as of March 31, 1994. At March 31, 1994, pending prepayment
of the 10.25% Notes discussed above, the Company had no outstanding indebtedness
under its revolving credit facility. The Company's long-term debt (excluding
the $24,000,000 current portion of the 10.25% Notes) stood at $129,789,000
as of March 31, 1994.
- 8 -
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
( Continued )
The Company's capital and exploration budget for 1994, as previously
announced, has been established by the Company's Board of Directors at
$75,000,000, of which $2,040,000 has been paid and is included in the
$22,685,000 mentioned in the preceding paragraph. In addition to anticipated
capital and exploration expenses and the prepayment of the 10.25% Notes in
April 1994 discussed in the preceding paragraph, other material 1994 cash
requirements that the Company currently anticipates include ongoing operating,
general and administrative, interest and income tax expenses. Cash requirements
for future payments of federal income taxes are expected to be greater than
those experienced in the immediate past. The increased tax payments result from
expected increases in taxable income, increased tax rates and the prior
utilization of available tax credits and net operating tax loss carry-forwards.
The Company currently anticipates that cash provided by operating activities
and funds available under its revolving credit facility will be sufficient to
fund the Company's ongoing expenses and to fund its 1994 capital and
exploration budget.
- 9 -
Pogo Producing Company and Subsidiaries
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
None
(B) Reports on Form 8-K
A report on Form 8-K was filed on February 14, 1994 setting
forth under Item 5 thereof, certain information regarding the
time and location of the registrant's annual meeting of
stockholders.
- 10 -
Pogo Producing Company and Subsidiaries
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.
Pogo Producing Company
(Registrant)
/s/ THOMAS E. HART
Thomas E. Hart
Vice President and Controller
/s/ D. STEPHEN SLACK
D. Stephen Slack
Senior Vice President, Chief
Financial Officer and Treasurer
Date: May 2, 1994
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