UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 1994
OR
( ) 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 1-7792
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 June 30, 1994: 32,718,393
Part I. Financial Information
Pogo Producing Company and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- -------------------------------
1994 1993 1994 1993
------------- --------------- ----------- --------------
(Expressed in thousands, except per share amounts)
Revenues $ 49,734 $ 34,533 $ 87,626 $ 69,214
------------- --------------- ----------- --------------
Operating Costs and Expenses:
Lease operating 7,708 6,478 14,364 12,851
General and administrative 3,985 3,684 7,804 7,176
Exploration 573 605 1,306 830
Dry hole and impairment 2,826 2,203 4,216 2,818
Depreciation, depletion and amortization 16,845 9,856 28,603 19,993
------------- --------------- ----------- --------------
Total 31,937 22,826 56,293 43,668
------------- --------------- ----------- --------------
Operating Income 17,797 11,707 31,333 25,546
Interest:
Charges (2,747) (2,806) (5,264) (5,847)
Income 18 3 33 7
Capitalized 184 115 331 210
------------- --------------- ----------- --------------
Income Before Income Taxes
and Extraordinary Loss 15,252 9,019 26,433 19,916
Income Tax Expense (5,349) (3,423) (9,252) (7,160)
------------- --------------- ----------- --------------
Income Before Extraordinary Loss 9,903 5,596 17,181 12,756
Extraordinary Loss on
Early Extinguishment of Debt (307) -- (307) --
------------- --------------- ----------- --------------
Net Income $ 9,596 $ 5,596 $ 16,874 $ 12,756
============= =============== =========== ==============
Primary Earnings Per Share:
Income before extraordinary loss $ 0.30 $ 0.17 $ 0.52 $ 0.39
Extraordinary loss (0.01) -- (0.01) --
------------- --------------- ----------- --------------
Net Income $ 0.29 $ 0.17 $ 0.51 $ 0.39
============= =============== =========== ==============
Fully Diluted Earnings Per Share:
Income before extraordinary loss $ 0.29 $ 0.17 $ 0.51 $ 0.39
Extraordinary loss (0.01) -- (0.01) --
------------- --------------- ----------- --------------
Net Income $ 0.28 $ 0.17 $ 0.50 $ 0.39
============= =============== =========== ==============
See accompanying notes to consolidated financial statements.
- 1 -
Pogo Producing Company and Subsidiaries
Consolidated Balance Sheets
June 30, December 31,
1994 1993
-------------- -------------
(Unaudited)
(Expressed in thousands,
except share amounts)
Assets
Current Assets:
Cash and cash investments $ 4,256 $ 6,713
Accounts receivable 28,626 18,480
Other receivables 10,691 10,123
Federal income taxes and interest receivable -- 3,320
Inventories 1,867 1,105
Other 1,309 727
------------- -------------
Total current assets 46,749 40,468
------------- -------------
Property and Equipment:
Oil and gas, on the basis of successful efforts accounting
Proved properties being amortized 860,148 817,218
Unproved properties and properties
under development, not being amortized 6,160 6,465
Other, at cost 7,507 6,961
-------------- -------------
873,815 830,644
Less--accumulated depreciation, depletion and
amortization, including $4,751 and $4,452,
respectively, applicable to other property 666,244 638,658
-------------- -------------
207,571 191,986
-------------- -------------
Other 11,372 7,320
-------------- -------------
$ 265,692 $ 239,774
============== =============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 9,793 $ 8,307
Other payables 9,531 22,955
Current portion of long-term debt -- 4,000
Accrued interest payable 1,519 1,202
Accrued payroll and related benefits 999 1,005
Other 155 122
-------------- -------------
Total current liabilities 21,997 37,591
Long-Term Debt 145,743 130,539
Deferred Federal Income Tax 33,472 29,724
Deferred Credits 9,841 8,117
-------------- -------------
Total liabilities 211,053 205,971
-------------- -------------
Shareholders' Equity:
Preferred stock, $1 par; 2,000,000 shares authorized -- --
Common stock, $1 par; 43,333,333 shares authorized,
32,733,968 and 32,449,197 shares issued, respectively 32,734 32,449
Additional capital 129,596 125,919
Retained earnings (deficit) (107,367) (124,241)
Treasury stock, at cost (324) (324)
-------------- -------------
Total shareholders' equity 54,639 33,803
-------------- -------------
$ 265,692 $ 239,774
============== =============
See accompanying notes to consolidated financial statements.
- 2 -
Pogo Producing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
-----------------------------------
1994 1993
-------------- --------------
(Expressed in thousands)
Cash flows from operating activities:
Cash received from customers $ 79,707 $ 71,827
Operating, exploration, and general
and administrative expenses paid (21,823) (21,804)
Interest paid (4,925) (6,103)
Federal income taxes paid (4,500) (2,800)
Federal income taxes and interest received 3,364 --
Settlement of natural gas transportation and exchange imbalance (2,168) --
Other (581) (53)
-------------- --------------
Net cash provided by operating activities 49,074 41,067
-------------- --------------
Cash flows from investing activities:
Capital expenditures (45,508) (20,612)
Purchase of proved reserves (17,319) --
Proceeds from the sales of properties 52 953
-------------- --------------
Net cash used in investing activities (62,775) (19,659)
-------------- --------------
Cash flows from financing activities:
Proceeds from issuance of new debt 86,250 --
Net borrowings under uncommitted money market line of credit 5,000 --
Net payments under revolving credit agreement (56,000) (4,000)
Other payments of long-term debt (24,472) (4,000)
Principal payments of production payment obligation -- (15,591)
Payment of debt issue expenses (2,446) --
Purchase of 8% debentures due 2005 (46) --
Proceeds from exercise of stock options 2,958 2,236
-------------- --------------
Net cash provide by (used in) financing activities 11,244 (21,355)
-------------- --------------
Net increase (decrease) in cash and cash investments (2,457) 53
Cash and cash investments at the beginning of the year 6,713 5,037
-------------- --------------
Cash and cash investments at the end of the period $ 4,256 $ 5,090
============== ==============
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 16,874 $ 12,756
Adjustments to reconcile net income to
net cash provided by operating activities -
Extraordinary loss on early extinguishment of debt 307 --
Gains from the sales of properties (52) (353)
Depreciation, depletion and amortization 28,603 19,993
Dry hole and impairment 4,216 2,818
Interest capitalized (331) (210)
Change in operating assets and liabilities (543) 6,063
-------------- --------------
Net cash provided by operating activities $ 49,074 $ 41,067
============== ==============
See accompanying notes to consolidated financial statements.
- 3 -
Pogo Producing Company and Subsidiaries
Consolidated Statements of Shareholders' Equity (Unaudited)
Six Months Ended June 30,
--------------------------------------------------------------
1994 1993
-------------------------- -----------------------------
Shares Amount Shares Amount
---------- ------------ ---------- -------------
(Expressed in thousands, except share amounts)
Preferred Stock:
$1.00 par - 2,000,000 shares authorized,
none issued or outstanding
Common Stock:
$1.00 par - 43,333,333 shares authorized
Balance at beginning of year 32,449,197 $ 32,449 32,103,864 $ 32,104
Stock options exercised 284,771 285 330,110 330
---------- ------------ ---------- -------------
Issued at end of period 32,733,968 32,734 32,433,974 32,434
---------- ------------ ---------- -------------
Additional Capital:
Balance at beginning of year 125,919 122,846
Stock options exercised 3,677 2,935
-------------- -------------
Balance at end of period 129,596 125,781
-------------- -------------
Retained Earnings (Deficit):
Balance at beginning of year (124,241) (149,302)
Net income 16,874 12,756
------------ -------------
Balance at end of period (107,367) (136,546)
------------ -------------
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 32,718,393 32,433,974
========== ==========
Total Shareholders' Equity $ 54,639 $ 21,669
============ =============
See accompanying notes to consolidated financial statements.
- 4 -
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 ant-dilutive in all
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 all periods in which they were outstanding
and the 5 1/2% convertible subordinated notes due 2004 (issued on
March 16, 1994) which were dilutive in the 1994 periods they were
outstanding. Earnings per share are based on the following:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- -------------------------------
1994 1993 1994 1993
------------- --------------- ----------- --------------
(Expressed in thousands)
Earnings applicable to common stock:
Primary --
Income before extraordinary loss $ 9,903 $ 5,596 $ 17,181 $ 12,756
Extraordinary loss (307) -- (307) --
------------- --------------- ----------- --------------
Net Income $ 9,596 $ 5,596 $ 16,874 $ 12,756
============= =============== =========== ==============
Fully diluted --
Income before extraordinary loss $ 10,672 $ 5,596 $ 18,085 $ 12,756
Extraordinary loss (307) -- (307) --
------------- --------------- ----------- --------------
Net Income $ 10,365 $ 5,596 $ 17,778 $ 12,756
============= =============== =========== ==============
Weighted average number of common
stock and common equivalent
shares outstanding:
Primary 33,343 33,076 33,290 32,938
Fully diluted 37,295 33,078 35,588 33,008
- 5 -
Pogo Producing Company and Subsidiaries
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
second quarter of 1994 of $9,596,000 or $0.29 per share
($0.28 on a fully diluted basis) compared to net income
for the second quarter of 1993 of $5,596,000 or $0.17
per share (primary and fully diluted). For the
first six months of 1994, the Company reported net
income of $16,874,000 or $0.51 per share ($0.50 on a
fully diluted basis) compared to net income for the
first six months of 1993 of $12,756,000 or $0.39 per
share (on both a primary and fully diluted basis). The Company
has recorded an extraordinary loss during the second
quarter of 1994 of $307,000 related to early
retirement of the Company's 10.25% Convertible
Subordinated Notes due 1999 (the "10.25% Notes") with the proceeds
from the Company's issuance on March 16, 1994, of its 5 1/2%
Convertible Subordinated Notes due 2004 (the "5 1/2%
Notes"). Earnings per common share are based on the
weighted average number of shares of common and common
equivalent shares outstanding for the second quarter and
first six months of 1994 of 33,343,000 and
33,290,000, respectively, compared to 33,076,000 and
32,938,000, respectively, for the second quarter and
first six months of 1993. The increases in the
weighted average number of common and common equivalent
shares outstanding for the 1994 periods primarily
relate to common stock issued in connection with the
exercise of stock options pursuant to the Company's
stock option plans. Earnings per common share
computations on a fully diluted basis reflect
additional common shares issuable upon the assumed
conversion of the Company's 5 1/2% Notes (the only
convertible securities of the Company that were
dilutive during the applicable periods) and the
elimination of related interest requirements, as adjusted for
applicable federal income taxes. The weighted average
number of shares of common and common equivalent shares
outstanding on a fully diluted basis for the second
quarter and first six months of 1994 were 37,295,000 and
35,588,000, respectively, compared to 33,078,000 and
33,008,000, respectively, for the second quarter and
first six months of 1993. Earnings applicable to common stock,
assuming full dilution, for the second quarter and first six months of
1994 increased to $10,365,000 and $17,778,000, respectively,
compared to $5,596,000 and $12, 756,000, respectively, for
the second quarter and first six months of 1993.
The Company's total revenues for the second
quarter of 1994 were $49,734,000, an increase of
approximately 44% compared to total revenues of
$34,533,000 for the second quarter of 1993. The
increase in the Company's total revenues for the second
quarter of 1994, compared to the second quarter of
1993, was primarily related to increases of
approximately 75% in the Company's natural gas production volumes
and 31% in its crude oil and condensate production volumes,
which was partially offset by declines in the prices
received by the Company for such production volumes.
The Company's total revenues for the first six
months of 1994 were $87,626,000, an increase of
approximately 27% compared to total revenues of
$69,214,000 for the first six months of 1993. The
increase in the Company's total revenues for the first six
months of 1994, compared to the first six months of 1993,
was primarily related to increased natural gas, crude oil
and condensate production volumes, together with a slightly
higher average price for the Company's natural gas production.
Partially offsetting volume increases and natural gas price
increases were substantial decreases in the prices that the
Company received for its crude oil and condensate volumes.
The following table reflects an analysis of
differences in the Company's total revenues (expressed
in thousands of dollars) between the second quarter and
first six months of 1994 and the same periods in the
preceding year.
2nd Qtr '94 6 mos. '94
Compared to Compared to
2nd Qtr '93 6 mos. '93
----------- ----------
Increase (decrease) in total revenues
resulting from differences in :
Natural gas --
Price . . . . . . . . . . . . . . . . $ (560) $ 2,516
Production . . . . . . . . . . . . . . 12,837 16,260
--------- ---------
12,277 18,776
--------- ---------
(Table continued on following page)
- 6 -
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
(Table continued from preceding page)
Crude oil and condensate --
Price . . . . . . . . . . . . . . . . (2,316) (6,704)
Production . . . . . . . . . . . . . . 4,151 5,704
--------- ---------
1,835 (1,000)
--------- ---------
Natural gas liquids ("NGL") and
other, net . . . . . . . . . . . . . . 1,089 636
Increase in total revenues . . . . . . . $ 15,201 $ 18,412
========= =========
Prices received by the Company for its
natural gas production during the second quarter of
1994 averaged $1.99 per thousand cubic feet ("Mcf"), a
decrease of approximately 3% from the average price of
$2.06 per Mcf that the Company received during the
second quarter of 1993. The Company believes that the
decrease in the average price that it received for its natural gas
production during the second quarter of 1994, compared
to the second quarter of 1993, was primarily related to
increased availability of supplies of natural gas in the
United States coupled with the resumption of power
generation by certain nuclear plants that were not
operating in the second quarter of 1993. Prices received
by the Company for its natural gas production during
the first six months of 1994 averaged $2.08 per Mcf, an
increase of approximately 8% from the average price of
$1.93 per Mcf that the Company received during the
first six months of 1993. The Company believes that the
increase in the average price that it received for its natural gas
production during the first six months of 1994,
compared to the first six months of 1993, was
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, that was
partially offset by weakening prices in the second quarter of
1994 resulting from the reasons discussed above. The Company's
natural gas production during the second quarter of 1994
averaged 165.5 million cubic feet per day, an increase
of approximately 75% from an average of 94.8 million cubic feet
per day that the Company produced during the second
quarter of 1993. The Company's natural gas production
during the first six months of 1994 averaged 139.8 million
cubic feet per day, an increase of approximately 45% from an
average of 96.5 million cubic feet per day that the Company
produced during the first six months of 1993.
The increase in the Company's natural gas production during
the second quarter and first six months of 1994, compared to
the second quarter and first six months 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.
As of June 30, 1994, the Company has contracted to sell 25
million cubic feet per day of its natural gas production during the
months of July 1994 through September 1994 at an average price of
approximately $2.11 per Mcf. The 25 million cubic feet per day
represents approximately 15% of the Company's average daily
production of natural gas during the second quarter of 1994. The
contract price of $2.11 per Mcf is approximately 5% higher
than the average daily price (before transportation expenses) that the
Company received for its natural gas production during the third
quarter of 1993.
Prices received by the Company for its crude
oil and condensate production averaged $16.43 per barrel during
the second quarter of 1994, a decrease of approximately 15% from
the average price of $19.31 per barrel that the Company
received during the second quarter of 1993. Prices received by
the Company for its crude oil and condensate production averaged
$15.22 during the first six months of 1994, a decrease of
approximately 21% from the average price of $19.25 per barrel
that the Company received during the first six months of 1993.
The Company's crude oil
- 7 -
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
and condensate production during the second
quarter of 1994 averaged 11,618 barrels per day, an increase of
approximately 31% from an average of 8,843 barrels per day during
the second quarter of 1993. The Company's crude oil and condensate
production during the first six months of 1994 averaged 11,241
barrels per day, an increase of approximately 23% from an average of
9,170 barrels per day during the first six months of 1993.
The increase in the Company's crude oil and condensate production during
the second quarter and first six months of 1994, compared to the
second quarter and first six months of 1993, was primarily related
to the results of ongoing development drilling programs in the
offshore Gulf of Mexico Eugene Island area and several fields
located in Lea and Eddy Counties of southeastern New Mexico, together
with the acquisition of an increased interest in certain producing
offshore Gulf of Mexico Main Pass area blocks during the first
quarter of 1994.
As of June 30, 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 a period ending January 31, 1995 and a fixed price of $17.08 per
barrel on another 1,000 barrels per day of the Company's production for a
period ending October 31, 1994, which agreement may be extended at the
other party's option through April 30, 1995.
The Company's NGL and other, net revenues for the second quarter
and first six months of 1994 increased $1,089,000 and $636,000,
from the second quarter and first six months of 1993, respectively.
The increase in the Company's NGL and other, net revenues for the second
quarter and first six months of 1994, compared to the second quarter
and first six months of 1993, was primarily related to an increase in NGL
production from the Company's New Mexico properties which was partially
offset by a decrease in the average price that the Company received for
its NGL production. NGL are liquid products which are extracted from
natural gas streams and sold separately.
The Company's total liquids production, including
crude oil, condensate and NGL, during the second quarter
of 1994 averaged 13,944 barrels per day, an increase of
approximately 39% from an average total liquids production
of 10,056 barrels per day during the second quarter of 1993.
The Company's total liquids production during the first six
months of 1994 averaged 13,227 barrels per day, an increase
of approximately 25% from an average total liquids production
of 10,605 barrels per day during the first six months of 1993.
Lease operating expenses for the second quarter of
1994 were $7,708,000, an increase of approximately 19% from lease
operating expenses of $6,478,000 for the second quarter of 1993.
Lease operating expenses for the first six months of 1994 were
$14,364,000, an increase of approximately 12% from lease operating
expenses of $12,851,000 for the first six months of 1993.
The increases in lease operating expenses for the second quarter
and first six months of 1994, compared to the second quarter and
first six months of 1993, were primarily related to the Company's
increased operating activities, including increased operating
costs related to additional properties brought on production
after the second quarter of 1993. The increase in operating costs
for the first six months of 1994, compared to the first six months
of 1993, was partially offset by lower maintenance costs.
General and administrative expenses for the second
quarter of 1994 were $3,985,000, an increase of approximately 8% from
general and administrative expenses of $3,684,000 for the second
quarter of 1993. General and administrative expenses for the first
six months of 1994 were $7,804,000, an increase of approximately 9%
from general and administrative expenses of $7,176,000 for the first
six months of 1993. The increase in general and administrative
expenses for the second quarter and first six months of 1994,
compared to the second quarter and first six months of 1993, was
related to, among other things, an increase of approximately
6% in the Company's work force resulting from increased activity,
as well as normal salary and concomitant benefit expense adjustments.
Exploration expenses consist primarily of delay rentals and
geological and geophysical ("G&G") costs which are expensed as incurred.
Exploration expenses for the second quarter of 1994 were $573,000, a
decrease of approximately 5% from exploration expenses of $605,000
for the second quarter of 1993. The decline in exploration expenses
for the second quarter of 1994, compared to the second 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 Kingdom
of Thailand during the second quarter of 1993, which was partially offset by
the acquisition cost of significant quantities of 3-D and 2-D
- 8 -
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
seismic data covering portions of the Gulf of Mexico during the second
quarter of 1994. Exploration expenses for the first six months of 1994
were $1,306,000, an increase of approximately 57% from exploration expenses
of $830,000 for the first six months of 1993. The increase in exploration
expenses for the first six months of 1994, compared to the first six months
of 1993, was primarily related to the acquisition cost of significant
quantities of 3-D and 2-D seismic data covering portions of the Gulf of
Mexico.
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 second quarter of 1994 were
$2,826,000, an increase of approximately 28% from dry hole and
impairment expenses of $2,203,000 for the second quarter of 1993. The
Company's dry hole and impairment expenses for the first six months of
1994 were $4,216,000, an increase of approximately 50% from dry hole and
impairment expenses of $2,818,000 for the first six months 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 second quarter of
1994 was $16,845,000, an increase of approximately 71% from DD&A
expense of $9,856,000 for the second quarter of 1993. The Company's
DD&A expense for the first six months of 1994 was $28,603,000, an
increase of approximately 43% from DD&A expense of $19,993,000 for the
first six months of 1993. The
increases in DD&A expense for the second quarter and first six months
of 1994, compared to the second quarter and first six months of 1993, were
primarily related to increased volumes produced by the Company (largely
related to increased natural gas, crude oil and condensate
production discussed earlier) and, to a lesser extent, an increase in
the Company's composite DD&A rate. The composite DD&A rate for all of the
Company's producing fields for the second quarter of 1994 was $0.74
per equivalent Mcf ($4.42 per equivalent barrel), an increase of
approximately 7% from a composite DD&A rate of $0.69 per equivalent
Mcf ($4.14 per equivalent barrel) for the second quarter of 1993.
The Company produced 22,676,000 equivalent Mcf (3,779,000 equivalent
barrels) during the second quarter of 1994, an increase of approximately
61% from the 14,113,000 equivalent Mcf (2,352,000 equivalent barrels)
produced by the Company during the second quarter of 1993. The composite
DD&A rate for all of the Company's producing fields for the first six
months of 1994 was $0.71 per equivalent Mcf ($4.29 per equivalent barrel),
an increase of approximately 4% from a composite DD&A rate of $0.68
per equivalent Mcf ($4.09 per equivalent barrel) for the first six
months of 1993. The Company produced 39,663,000 equivalent Mcf (6,610,000
equivalent barrels) during the first six months of 1994, an increase of
approximately 37% from the 28,989,000 equivalent Mcf (4,832,000 equivalent
barrels) produced by the Company during the first six months of 1993.
Interest charges for the second quarter of 1994 were
$2,747,000, a decrease of approximately 2% from interest charges of
$2,806,000 for the second quarter of 1993. Interest charges for the
first six months of 1994 were $5,264,000, a decrease of approximately
10% from interest charges of $5,847,000 for the first six months of
1993. The decrease in interest charges for the second quarter and
first six months of 1994, compared to the second quarter and first
six months of 1993, was related to lower interest rate
levels on the debt outstanding which was partially offset by the increased
amount of debt outstanding and increased commitment fees resulting
from increased availability under the Company's bank revolving
credit facility. In addition, the Company expensed the amortization of
certain debt issuance costs in the second quarter and first six
months of 1993, and the Company wrote off certain costs in connection
with the retirement of the Company's 10.25% Notes during
the first quarter of 1994. Neither of these charges were recurring in the
comparable periods.
As of June 30, 1994, the Company was a party to an interest rate
swap agreement. The swap agreement, which terminated on July 31, 1994,
effectively changed the interest rate paid by the Company on $10,000,000
of its debt from a market based variable rate to a fixed rate of 4.16%.
As of August 1, 1994, the Company was not a party to an interest rate swap
agreement.
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Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Liquidity and Capital Resources -
The Company's Condensed Consolidated Statement of Cash Flows for
the six months ended June 30, 1994 reflects net cash provided by operating
activities of $49,074,000. In addition to net cash provided by operating
activities, the Company received $2,958,000 from the exercise of stock
options and $52,000 from the sale of certain non-strategic properties.
The Company also sold $86,250,000 of 5 1/2% Notes in March 1994 and
borrowed $5,000,000 under a money market credit line. During the first
six months of 1994, the Company invested $45,508,000 of such cash flow in
capital projects, purchased certain
proved reserves for $17,319,000, prepaid the remaining outstanding
principal and prepayment fee on its 10.25% Notes ($24,472,000) and made
net payments of $56,000,000 on the Company's revolving credit facility.
Of the $45,508,000 invested in capital projects, $22,821,000 was
applicable to 1993 capital projects and $22,687,000 was applicable to 1994
capital projects. As of June 30, 1994, the Company's cash and cash
investments were $4,256,000 and its long-term debt stood at $145,743,000.
The Company's capital and exploration budget for 1994,
originally announced to be $75,000,000, has been increased by the
Company's Board of Directors to $90,000,000. The capital and
exploration budget has been revised primarily to increase expenditures
for exploitation of the Company's producing oil and gas properties
in the Gulf of Mexico, expansion of its development drilling
program in southeastern New Mexico and to accelerate development drilling
in the Gulf of Thailand. In addition to anticipated capital and
exploration expenses, other material 1994 cash requirements that the
Company currently anticipates include ongoing operating, general and
administrative, income tax, and interest expenses and the payment of
dividends on its common stock, including a $.03 per share dividend
on its common stock to be paid on August 31, 1994 to stockholders of
record as of August 8, 1994. The Company currently
anticipates that cash provided by operating activities and funds
available under its revolving credit facility and money market credit
line will be sufficient to fund the Company's ongoing expenses, to
fund its 1994 capital and exploration budget and anticipated future
dividend payments. In this regard, the Company reinstated the practice
of declaring a quarterly cash dividend in the third quarter of 1994.
However, the declaration of future dividends will depend upon, among
other things, the Company's future earnings and financial condition,
liquidity and capital requirements, the general economic and regulatory
climate and other factors deemed relevant by the Company's Board of
Directors.
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Pogo Producing Company and Subsidiaries
Part II. Other Information
Item 2. Change in Securities
The registrant's report on Form 8-K, together with the exhibits
thereto, including the Form of Certificate of Designations of
Series A Junior Participating Preferred Stock, filed on April
26, 1994 setting forth under Item 5 thereof, certain information
regarding the registrant's declaration of a dividend of one
right to purchase preferred stock for each outstanding share of
registrant's common stock to shareholders of record at the close
of business on May 20, 1994, is incorporated herein by
reference.
Item 4. Submission of Matters to a Vote of Security-Holders
The registrant held it annual meeting of stockholders in
Houston, Texas on April 26, 1994. The following sets forth
the items that were put to a vote of the stockholders and
the results thereof, concerning:
(A) the election of four directors, each for a term of
three years. Proxies for the meeting were solicited
pursuant to Regulation 14A under the Securities Exchange
Act of 1934. There were no solicitations in opposition
to management's nominees as listed in the proxy statement
and all such nominees were elected;
(B) an amendment to the registrant's 1989 Incentive and
Nonqualified Stock Option Plan (the "Stock Option Plan")
principally to increase the number of shares on the
registrant's common stock that may be offered pursuant
to the Stock Option Plan from 1,500,000 to 2,500,000
shares and to limit the number of shares upon which
options may be granted in any one year to any one key
employee under the Stock Option Plan to no more than
150,000 shares, with 28,195,263 votes cast for the
amendment, 731,952 votes cast against the amendment,
and 140,421 abstentions and broker non-votes; and
(C) the appointment of Arthur Andersen & Co., independent
public accountants, to audit the financial statements
of the registrant for the year 1994, with 28,744,059
votes cast for the appointment, 271,011 votes cast
against the appointment, and 52,566 abstentions and
broker non-votes.
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 April 26, 1994
setting forth under Item 5 thereof, certain
information regarding the registrant's declaration
of a dividend of one right to purchase preferred
stock ("Right") for each outstanding share of
registrant's common stock to stockholders of
record at the close of business on May 20, 1994.
Each Right entitles the registered holder to
purchase from the registrant a unit consisting of
one one-hundredth of a share ("Unit") of the
registrant's Series A Junior Participating
Preferred Stock, par value $1.00 per share, at
a purchase price of $80 per Unit, subject to
adjustment. The description and terms of the Rights
are set forth in a Rights Agreement dated as of April
26, 1994 (and attached as an exhibit to the Form 8-K),
between the registrant and Harris Trust Company of
New York, as Rights Agent.
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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: August 5, 1994
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