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 September 30, 1996
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 September 30, 1996: 33,260,328
Part I. Financial Information
Pogo Producing Company and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- -------------------------------
1996 1995 1996 1995
------------- --------------- ----------- --------------
(Expressed in thousands, except per share amounts)
Revenues:
Oil and gas $ 48,233 $ 36,967 $ 147,993 $ 120,415
Gains (losses) on sales -- -- (165) 100
------------- --------------- ----------- --------------
Total 48,233 36,967 147,828 120,515
------------- --------------- ----------- --------------
Operating Costs and Expenses:
Lease operating 9,676 9,891 27,756 26,555
General and administrative 3,930 4,050 13,734 12,726
Exploration 4,257 1,737 12,133 4,229
Dry hole and impairment 2,043 2,112 7,161 4,483
Depreciation, depletion and amortization 15,412 16,378 46,918 52,774
------------- --------------- ----------- --------------
Total 35,318 34,168 107,702 100,767
------------- --------------- ----------- --------------
Operating Income 12,915 2,799 40,126 19,748
Interest:
Charges (3,307) (2,742) (9,491) (8,268)
Income 60 -- 199 60
Capitalized 1,069 709 2,899 945
------------- --------------- ----------- --------------
Income Before Income Taxes 10,737 766 33,733 12,485
Income Tax Expense (3,766) (44) (11,560) (3,979)
------------- --------------- ----------- --------------
Income Before Extraordinary Loss 6,971 722 22,173 8,506
Extraordinary Loss on
Early Extinguishment of Debt (net of taxes) -- -- (821) --
------------- --------------- ----------- --------------
Net Income $ 6,971 $ 722 $ 21,352 $ 8,506
============= =============== =========== ==============
Primary Earnings Per Share:
Income before extraordinary loss $ 0.21 $ 0.02 $ 0.65 $ 0.25
Extraordinary loss -- -- (0.02) --
------------- --------------- ----------- --------------
Net Income $ 0.21 $ 0.02 $ 0.63 $ 0.25
============= =============== =========== ==============
Fully Diluted Earnings Per Share:
Income before extraordinary loss $ 0.20 $ 0.02 $ 0.65 $ 0.25
Extraordinary loss -- -- (0.02) --
------------- --------------- ----------- --------------
Net Income $ 0.20 $ 0.02 $ 0.63 $ 0.25
============= =============== =========== ==============
Dividends Per Common Share $ 0.03 $ 0.03 $ 0.09 $ 0.09
============= =============== =========== ==============
See accompanying notes to consolidated financial statements.
- 1 -
Pogo Producing Company and Subsidiaries
Consolidated Balance Sheets
September 30, December 31,
1996 1995
-------------- -------------
(Unaudited)
(Expressed in thousands,
except share amounts)
Assets
Current Assets:
Cash and cash investments $ 5,512 $ 4,481
Accounts receivable 21,024 21,820
Other receivables 25,374 30,504
Inventories 9,007 6,438
Other 1,069 722
------------- -------------
Total current assets 61,986 63,965
------------- -------------
Property and Equipment:
Oil and gas, on the basis of successful efforts accounting
Proved properties being amortized 1,011,727 963,330
Unproved properties and properties
under development, not being amortized 90,684 47,431
Other, at cost 8,342 8,811
-------------- -------------
1,110,753 1,019,572
Less--accumulated depreciation, depletion and
amortization, including $4,600 and $5,603,
respectively, applicable to other property 803,154 757,739
-------------- -------------
307,599 261,833
-------------- -------------
Other 18,472 12,379
-------------- -------------
$ 388,057 $ 338,177
============== =============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 7,236 $ 10,007
Other payables 23,509 35,254
Current portion of long-term debt -- 3,000
Accrued interest payable 2,166 1,714
Accrued payroll and related benefits 2,704 1,239
Other 97 103
-------------- -------------
Total current liabilities 35,712 51,317
-------------- -------------
Long-Term Debt 206,230 163,249
Deferred Federal Income Tax 39,295 41,409
Deferred Credits 10,996 10,494
-------------- -------------
Total liabilities 292,233 266,469
-------------- -------------
Shareholders' Equity:
Preferred stock, $1 par; 2,000,000 shares authorized -- --
Common stock, $1 par; 100,000,000 shares
authorized, 33,275,903 and
33,006,972 shares issued, respectively 33,276 33,007
Additional capital 138,322 132,881
Retained earnings (deficit) (75,485) (93,856)
Currency translation adjustment 35 --
Treasury stock, at cost (324) (324)
-------------- -------------
Total shareholders' equity 95,824 71,708
-------------- -------------
$ 388,057 $ 338,177
============== =============
See accompanying notes to consolidated financial statements.
- 2 -
Pogo Producing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
-----------------------------------
1996 1995
-------------- --------------
(Expressed in thousands)
Cash Flows from Operating Activities:
Cash received from customers $ 148,789 $ 127,704
Operating, exploration, and general
and administrative expenses paid (56,394) (42,871)
Interest paid (9,039) (8,516)
Federal income taxes paid (12,500) --
Other (1,790) (883)
-------------- --------------
Net cash provided by operating activities 69,066 75,434
-------------- --------------
Cash Flows from Investing Activities:
Capital expenditures (106,395) (72,325)
Purchase of proved reserves -- (11,921)
Proceeds from the sales of properties 100 100
-------------- --------------
Net cash used in investing activities (106,295) (84,146)
-------------- --------------
Cash flows from Financing Activities:
Proceeds from issuance of new debt 115,000 --
Net borrowings (payments) under revolving credit agreement (29,000) 13,000
Net borrowings (payments) under uncommitted lines
of credit with banks (4,000) 2,000
Payments of cash dividends on common stock (2,981) (2,956)
Purchase of 8% debentures due 2005 (40,699) (450)
Payment of debt issue expenses (3,060) --
Proceeds from exercise of stock options 2,965 1,628
-------------- --------------
Net cash provide by financing activities 38,225 13,222
-------------- --------------
Effect of Exchange Rate Changes 35 __
-------------- --------------
Net Increase in Cash and Cash Investments 1,031 4,510
Cash and Cash Investments at the Beginning of the Year 4,481 2,922
-------------- --------------
Cash and Cash Investments at the End of the Period $ 5,512 $ 7,432
============== ==============
Reconciliation of Net Income to Net
Cash Provided by Operating Activities:
Net income $ 21,352 $ 8,506
Adjustments to reconcile net income to
net cash provided by operating activities -
Extraordinary loss on early extinguishment
of debt (net of tax) 821 --
(Gains) losses from the sales of properties 165 (100)
Depreciation, depletion and amortization 46,918 52,774
Dry hole and impairment 7,161 4,483
Interest capitalized (2,899) (945)
Deferred federal income taxes (246) 10,489
Change in operating assets and liabilities (4,206) 227
-------------- --------------
Net Cash Provided by Operating Activities $ 69,066 $ 75,434
============== ==============
See accompanying notes to consolidated financial statements.
- 3 -
Pogo Producing Company and Subsidiaries
Consolidated Statements of Shareholders' Equity (Unaudited)
Nine Months Ended September 30,
--------------------------------------------------------------
1996 1995
-------------------------- -----------------------------
Shares Amount Shares Amount
---------- ------------ ---------- -------------
(Expressed in thousands, except share amounts)
Common Stock:
$1.00 par - 100,000,000 shares authorized
Balance at beginning of year 33,006,972 $ 33,007 32,825,836 $ 32,826
Stock options exercised 235,132 235 167,136 167
Conversion of 8% debentures due 2005 32,898 33 -- --
Conversion of 5 1/2% notes due 2004 901 1 -- --
---------- ------------ ---------- -------------
Issued at end of period 33,275,903 33,276 32,992,972 32,993
---------- ------------ ---------- -------------
Additional Capital:
Balance at beginning of year 132,881 130,675
Stock options exercised 4,155 2,131
Conversion of 8% debentures due 2005 1,267 --
Conversion of 5 1/2% notes due 2004 19 --
-------------- -------------
Balance at end of period 138,322 132,806
-------------- -------------
Retained Earnings (Deficit):
Balance at beginning of year (93,856) (99,140)
Net income 21,352 8,506
Dividends ($0.09 per common share) (2,981) (2,956)
------------ -------------
Balance at end of period (75,485) (93,590)
------------ -------------
Treasury Stock:
Balance at beginning of year (15,575) (324) (15,575) (324)
Activity during period -- -- -- --
---------- ------------ ---------- -------------
Balance at end of period (15,575) (324) (15,575) (324)
---------- ------------ ---------- -------------
Cumulative Foreign
Currency Translation 35 --
------------ -------------
Common Stock Outstanding,
at the End of the Period 33,260,328 32,977,397
========== ==========
Total Shareholders' Equity $ 95,824 $ 71,885
============ =============
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) Long-Term Debt -
Long-term debt and the amount due within one year at September 30,
1996 and December 31, 1995, consists of the following:
September 30, December 31,
1996 1995
-------------- -------------
(Expressed in thousands)
Senior debt --
Bank revolving credit agreement
LIBO Rate based loan, borrowing at
an interest rate of 6.81% $ -- $ 27,000
Prime rate based loan, borrowing at
an interest rate of 8.5% -- 2,000
Uncommitted credit lines with banks, borrowings at
average interest rates of 6.1% and 6.8%, respectively 5,000 9,000
-------------- -------------
Total senior debt 5,000 38,000
-------------- -------------
Subordinated debt --
5 1/2% Convertible subordinated notes due 2004 86,230 86,250
5 1/2% Convertible subordinated notes due 2006 115,000 --
8% Convertible subordinated debentures due 2005 -- 41,999
-------------- -------------
Total subordinated debt 201,230 128,249
-------------- -------------
Total debt 206,230 166,249
Amount due within one year consisting of the sinking fund
requirement on the 2005 Debentures -- (3,000)
-------------- -------------
Long-term debt $ 206,230 $ 163,249
============== =============
On June 18, 1996, the Company issued $115,000,000 of 5 1/2%
Convertible Subordinated Notes due 2006 (the "2006 Notes"). The 2006
Notes are convertible into common stock of the Company at a price of
$42.185 per share. The proceeds from the issuance of the 2006 Notes
were used to retire the Company's 8% Convertible Subordinated Debentures
due 2005 (the "2005
Debentures"), to repay the amounts outstanding under the Company's bank
revolving credit agreement and uncommitted lines of credit with banks,
and to purchase short-term cash investments. During the third quarter
of this year, holders of $20,000 of the Company's Convertible Subordinated
Notes due 2004 (the "2004 Notes") elected to convert their notes
into common stock of the Company at $22.188 per share. Refer to Note
3 of the Notes to Consolidated Financial
Statements included in the Company's latest annual report for a further
discussion of the bank revolving credit agreement, the Company's uncommitted
credit lines and the 2004 Notes; and to the Company's quarterly report on
Form 10-Q for the quarter ended June 30, 1996, for a further discussion
of the 2006 Notes.
- 5 -
Pogo Producing Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(3) 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 2005 Debentures (retired on June 28, 1996)
were common stock equivalents and were anti-dilutive in all periods in which
they were outstanding. Earnings per common and common equivalent share
assuming full dilution (fully diluted earnings per share) considered the
2004 Notes, which were dilutive in the 1996 periods, but anti-dilutive in
the 1995 periods, and the 2006 Notes (issued on June 18, 1996) which were
anti-dilutive in the 1996 periods they were outstanding. Earnings per
share are based on the following:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- -------------------------------
1996 1995 1996 1995
------------- --------------- ----------- --------------
(Expressed in thousands)
Earnings applicable to common stock:
Primary --
Income before extraordinary loss $ 6,971 $ 722 $ 22,173 $ 8,506
Extraordinary loss -- -- (821) --
------------- --------------- ----------- --------------
Net Income $ 6,971 $ 722 $ 21,352 $ 8,506
============= =============== =========== ==============
Fully diluted --
Income before extraordinary loss $ 7,742 $ 722 $ 24,485 $ 8,506
Extraordinary loss -- -- (821) --
------------- --------------- ----------- --------------
Net Income $ 7,742 $ 722 $ 23,664 $ 8,506
============= =============== =========== ==============
Weighted average number of common
stock and common equivalent
shares outstanding:
Primary 34,023 33,539 33,697 33,465
============= =============== =========== ==============
Fully diluted 37,917 33,539 37,593 33,465
============= =============== =========== ==============
- 6 -
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, 1995.
Results of Operations -
The Company reported net income for the
third quarter of 1996 of $6,971,000 or $0.21 per share
($0.20 on a fully diluted basis) compared to net income
for the third quarter of 1995 of $722,000 or $0.02
per share (on both a primary and a fully diluted basis). For the
first nine months of 1996, the Company reported net
income of $21,352,000 or $0.63 per share (on both a primary and
fully diluted basis), compared to net income for the first nine months
of 1995 of $8,506,000 or $0.25 per share (on both a primary and a
fully diluted basis). The Company recorded an extraordinary loss
during the second quarter of 1996 of $821,000, or $0.02 per share
related to the early
retirement of the Company's 2005 Debentures with the proceeds
from the Company's issuance of its 2006 Notes on June 18, 1996.
Earnings per share are based on the
weighted average number of common and common
equivalent shares outstanding for the third quarter and
first nine months of 1996 of 34,023,000 and
33,697,000, respectively, compared to 33,539,000 and
33,465,000, respectively, for the third quarter and
first nine months of 1995. The increases in the
weighted average number of common and common equivalent
shares outstanding for the 1996 periods, compared to
the 1995 periods,
resulted primarily from the issuance of shares of common stock
upon the exercise of stock options pursuant to the Company's
stock option plans and the conversion of $1,300,000 of the Company's
2005 Debentures in July 1996. Earnings per share
computations on a fully diluted basis in the 1996 periods
primarily reflect
additional shares of common stock issuable upon the assumed
conversion of the Company's 2004 Notes (the only
convertible securities of the Company that were
dilutive during any of the periods presented) 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 third
quarter and first nine months of 1996 were 37,917,000 and
37,593,000, respectively, compared to 33,539,000 and
33,465,000, respectively, for the third quarter and
first nine months of 1995. Earnings applicable to common stock,
assuming full dilution, for the third quarter and first nine months of
1996 were $7,742,000 and $23,664,000, respectively,
compared to $722,000 and $8,506,000, respectively, for
the third quarter and first nine months of 1995.
The Company's total revenues for the third
quarter of 1996 were $48,233,000, up
approximately 30% compared to total revenues of
$36,967,000 for the third quarter of 1995. The
- 7 -
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Company's total revenues for the first nine
months of 1996 were $147,828,000, up approximately 23%
compared to total revenues of $120,515,000 for the first nine
months of 1995. These increases resulted primarily
from increases in the prices that the Company received for its
natural gas and liquid hydrocarbon (including crude oil, condensate
and natural gas liquid ("NGL")) production volumes and, to a lesser
extent, the increase in the Company's crude oil, condensate and (with
respect to the quarter to quarter comparisons only) NGL
production volumes, that were only partially offset by decreases in
the Company's natural gas and (with respect to the nine month
comparisons only) NGL production volumes. In addition, the
total revenues for the first nine months of 1996, compared to the
first nine months of 1995, were adversely affected by a $165,000 loss on
the sale of a non-strategic property in the first quarter
of 1996, together with a $100,000 gain on the sale of another
non-strategic property in the first quarter of 1995.
The following table reflects an analysis of
differences in the Company's oil and gas revenues (expressed
in thousands of dollars) between the third quarter and
first nine months of 1996 and the same periods in the
preceding year.
3rd Qtr '96 9 mos. '96
Compared to Compared to
3rd Qtr '95 9 mos. '95
----------- ----------
Increase (decrease) in oil and gas revenues
resulting from differences in :
Natural gas --
Price . . . . . . . . . . . . . . . . $ 6,456 $ 24,788
Production . . . . . . . . . . . . . . (559) (11,326)
--------- ---------
5,897 13,462
--------- ---------
Crude oil and condensate --
Price . . . . . . . . . . . . . . . . 4,974 11,778
Production . . . . . . . . . . . . . . 432 1,391
--------- ---------
5,406 13,169
--------- ---------
NGL and other, net . . . . . . . . . . . (37) 947
--------- ---------
Increase in oil and gas revenues . . . . $ 11,266 $ 27,578
========= =========
- 8 -
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Prices that the Company received for its natural gas production
during the third quarter of 1996 averaged $2.16 per thousand cubic feet
("Mcf"), up approximately 42% from an average price of
$1.52 per Mcf that the Company received during the
third quarter of 1995. Prices that the Company received
for its natural gas production during
the first nine months of 1996 averaged $2.30 per Mcf, up
approximately 46% from an average price of
$1.58 per Mcf for the same period in 1995.
The Company's natural gas production during the third quarter
of 1996 averaged 107.0 million cubic feet ("MMcf") per day, down
approximately 3% from an average of 109.8 MMcf
per day during the third
quarter of 1995. The Company's natural gas production
during the first nine months of 1996 averaged 108.3 MMcf
per day, down approximately 14% from an
average of 126.6 MMcf per day
during the first nine months of 1995.
These decreases were related in large
measure to the lower levels of offshore Gulf of Mexico development drilling
and well workovers resulting from
unusually low natural gas prices
in 1995; 1996 budgetary considerations of certain of the Company's partners;
and the anticipated decline from certain of the Company's
properties, particularly the shallow reservoir horizontal wells located
at Eugene Island Block 295 and Ship Shoal Block 240 fields, that was not
entirely offset by new and increased production resulting from the
offshore drilling and workovers performed by the Company and its partners.
High levels of development drilling activity in 1997 combined with good
1996 exploration drilling results are expected to result in higher average
daily natural gas production in 1997. As of November 1, 1996,
the Company was not a party to any future natural gas sales contracts.
Prices received by the Company for its crude
oil and condensate production during the third quarter of 1996
averaged $22.15 per barrel, up approximately 27% from
an average price of $17.45 per barrel that the Company
received during the third quarter of 1995. Prices that the
Company received for its crude oil and condensate production during
the first nine months of 1996 averaged $21.47 per barrel, up
approximately 20% from an average price of $17.83 per barrel
for the same period in 1995.
The Company's crude oil and condensate production during the
third quarter of 1996 averaged 11,723 barrels per day, up
approximately 2% from an average of 11,511 barrels per day during
the third quarter of 1995. This increase resulted primarily from the
success of the
Company's oil well drilling and workover operations in the offshore
Gulf of Mexico. The Company's crude oil and condensate
production during the first nine months of 1996 averaged 12,071
barrels per day, up approximately 2% from an average of
11,878 barrels per day during the first nine months of 1995.
This increase
- 9 -
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
resulted primarily from successful
development drilling and workover operations in
the offshore Gulf of Mexico and in Lea and Eddy counties of southeastern
New Mexico. As of November 1, 1996,
the Company was not a party to any crude oil swap agreements.
The prices that the Company typically receives for its NGL
production is related to the prices that the Company receives for its
crude oil production. However, because NGL is extracted from natural gas,
the Company's NGL production volumes usually parallel the Company's natural
gas production volumes. The Company's oil and gas revenues, and total
liquid hydrocarbon production volumes, reflect the production and sale of
NGL by the Company. In addition, the Company's oil and gas revenues for
the third quarter and first nine months of 1996, and in the comparison
year of 1995, also reflect
adjustments for various miscellaneous items of a non-recurring nature.
The Company's NGL and "other" net oil and gas revenues for the
third quarter
of 1996 decreased by an increment of $37,000, compared to the third quarter
of 1995. This
decrease related primarily to several large gas imbalance settlement payments
received during the third quarter of 1995. These payments were not
entirely offset by
increased revenues in the third quarter of 1996 resulting from
increased average prices for and
production of NGL, and increased revenues from leasing
a portion of the Company's interest in a pipeline located in the Gulf
of Mexico. The Company's NGL and "other" net oil and gas revenues for the
first nine months of 1996 increased by an increment of $947,000, compared
to the first nine months of 1995. This increase was related primarily to an
increase in the
average price that the Company received for its NGL production; together
with an increase in various miscellaneous net income items, including
increased revenues resulting from leasing a portion of its interest
in a pipeline located in the Gulf of Mexico; partially
offset by the gas imbalance settlement payments received during the third
quarter of 1995.
The Company's average liquid hydrocarbon (including crude oil,
condensate and NGL) production during the third quarter
of 1996 was 13,995 barrels per day, up
approximately 5% from an average liquid hydrocarbon production
of 13,370 barrels per day during the third quarter of 1995.
The Company's average liquid hydrocarbon production during the first nine
months of 1996 was 14,314 barrels per day, up approximately
1% from an average liquid hydrocarbon production
of 14,137 barrels per day during the first nine months of 1995.
Lease operating expenses for the third quarter of
1996 were $9,676,000, down approximately 2% from lease
operating expenses of $9,891,000 for the third quarter of 1995.
This decrease is primarily a result of a 1995 maintenance program
on certain of the Company's offshore properties, which resulted in significant
expenses during the third quarter of 1995. No comparable expenses
were incurred during the third quarter of 1996.
Lease operating expenses for the first nine months of 1996 were
$27,756,000, up approximately 5% from lease operating
expenses of $26,555,000 for the first nine months of 1995. This increase
resulted primarily from increased operating activity by the Company;
increased costs due to a shortage of qualified offshore
- 10 -
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
service contractors, which has permitted such contractors to increase
the costs of their services; and increased severance taxes resulting
from increased production from certain of the Company's properties.
General and administrative expenses for the third
quarter of 1996 were $3,930,000, down approximately 3% from
general and administrative expenses of $4,050,000 for the third
quarter of 1995. This decrease
resulted primarily from a reversal of certain accruals related to
the Company's retirement plan resulting from changes in the retirement
plan's actuarial assumptions required by current financial market conditions,
partially offset by, among other
things, expenses related to changes in the actuarial assumptions for the
Company's salary continuation plan and an increase in the size of the
Company's workforce and leased office space in the United States and
Bangkok, Thailand. General and administrative expenses for the first nine
months of 1996 were $13,734,000, up approximately
8% from general and administrative expenses of $12,726,000 for the first
nine months of 1995. This increase
was related to, among other things, a non-recurring termination settlement
of an employment contract, increased
expenses related to changes in the actuarial assumptions for the
Company's salary continuation plan and an increase in
the size of the Company's work force and leased office space in the United
States and Bangkok, Thailand. These increases
were only
partially offset by a reversal of certain accruals related to
the Company's retirement plan resulting from changes in the retirement
plan's actuarial assumptions that were required by current financial
market conditions and
decreases in various general and administrative items, primary among
which was a decrease in insurance premiums.
Exploration expenses consist primarily of delay rentals and
geological and geophysical costs which are expensed as incurred.
Exploration expenses for the third quarter of 1996 were $4,257,000, an
increase of approximately 145% from exploration expenses of $1,737,000
for the third quarter of 1995. Exploration expenses for the first
nine months of 1996 were $12,133,000, up approximately 187%
from exploration expenses of $4,229,000 for the first nine months of 1995.
These increases resulted primarily from increased geophysical activity by the
Company, including principally the costs of conducting and processing certain
proprietary 3-D seismic surveys on Company leases in South Louisiana,
East Texas and West Texas, and to a lesser extent, the cost of participation
in, and acquisition of, certain non-proprietary 3-D seismic surveys in the
onshore and offshore Gulf of Mexico region.
- 11 -
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 due to decreases in
expected reserves from producing wells. The Company's dry
hole and impairment expenses for the third quarter of 1996 were
$2,043,000, down approximately 3% from dry hole and
impairment expenses of $2,112,000 for the third quarter of 1995. The
Company's dry hole and impairment expenses for the first nine months of
1996 were $7,161,000, up approximately 60% from dry hole and
impairment expenses of $4,483,000 for the first nine months of 1995.
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 whenever events or
changes in circumstances indicate that the carrying amount of such asset
may not be recoverable. Unproved properties are reviewed quarterly, 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 based on the capitalized costs, as determined in the preceding
paragraph, plus future costs to abandon offshore wells and platforms, and
is determined on a cost center by cost center basis using the units of
production method. The Company's DD&A expense for the third quarter of
1996 was $15,412,000, down approximately 6% from DD&A
expense of $16,378,000 for the third quarter of 1995. This decrease resulted
from a decrease in the Company's composite DD&A rate, that was
only partially offset by increased production of oil and gas from the
Company's properties. The Company's
DD&A expense for the first nine months of 1996 was $46,918,000,
down approximately 11% from DD&A expense of $52,774,000 for the
first nine months of 1995.
This decrease resulted
primarily from decreased production of oil and gas from the Company's
properties and, to a lesser extent, a decrease in the Company's composite
DD&A rate.
The composite DD&A rate for all of the
Company's producing fields for the third quarter of 1996 was $0.87
per equivalent Mcf ($5.19 per equivalent barrel), down
approximately 6% from a composite DD&A rate of $0.93 per equivalent
Mcf ($5.56 per equivalent barrel) for the third quarter of 1995.
The composite DD&A rate for all of the Company's producing fields for
the first nine months of 1996 was $0.87 per equivalent Mcf ($5.23 per
equivalent
barrel), down approximately 4% from a composite DD&A rate of $0.91
per equivalent Mcf ($5.43 per equivalent barrel) for the first nine
months of 1995. These decreases
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Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
resulted primarily from an increased percentage of the Company's production
from certain of the Company's fields with DD&A rates that are
lower than the Company's recent historical composite rate and a corresponding
decrease in the percentage of the Company's production from fields
with DD&A rates that are higher than the Company's recent historical
composite DD&A rate. The Company produced 17,568,000 equivalent Mcf
(2,928,000 equivalent
barrels) during the third quarter of 1996, a slight increase
from the 17,483,000 equivalent Mcf (2,914,000 equivalent barrels)
produced by the Company during the third quarter of 1995.
The Company produced 53,176,000 equivalent Mcf (8,863,000
equivalent barrels) during the first nine months of 1996, down
approximately 8% from the 57,728,000 equivalent Mcf (9,621,000 equivalent
barrels) produced by the Company during the first nine months of 1995.
The Company incurred interest charges for the third quarter
of 1996 of $3,307,000, up approximately 21% from interest charges of
$2,742,000 for the third quarter of 1995. This increase
resulted primarily from an increase in the average amount of the Company's
outstanding debt and, to a lesser extent, increased amortization and
debt issuance expense resulting from the issuance of the 2006 Notes and
a non-recurring accounting adjustment, that were only partially offset
by a decrease in the average interest rate on the Company's debt (resulting
primarily from the retirement of the 2005 Debentures which bore interest at
an 8% annual rate and the issuance of the 2006 Notes that bear interest at
a 5 1/2% annual rate). Interest charges incurred by the Company for the
first nine months of 1996 were $9,491,000,
up approximately 15% from interest charges of $8,268,000 for the
first nine months of 1995. This increase resulted primarily from an
increase in the amount of the Company's outstanding debt and, to a
lesser extent, increased amortization and debt issuance expense resulting
from the issuance of the 2006 Notes, that was
only partially offset by a slight decrease in the average interest rate
on the Company's debt and a decrease in the commitment fees paid by the
Company on its revolving loan facility.
Interest income for the third quarter of 1996 was $60,000,
compared to no interest income for the third quarter of
1995. Interest income for the first nine months of 1996 was $199,000,
up approximately 232% from interest income of $60,000 for the first
nine months of 1995. These increases resulted primarily from an increase in
the Company's cash invesments related to the placement of the Company's
2006 Notes in June, 1996.
Capitalized interest expense for the third quarter of 1996 was
$1,069,000, up approximately 51% from capitalized interest
expense of $709,000 for the first quarter of 1995. Capitalized interest
expense for the first nine months of 1996 was $2,899,000, up
approximately 207% from capitalized interest expense of $945,000 for the
first nine months of 1995.
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Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
These increases resulted primarily from the
requirement to capitalize interest expense attributable to capital
expenditures on non-producing properties, principally capital expenditures
related to the Company's development of the Tantawan field in the Gulf of
Thailand and the construction of several platforms to be installed in the
Gulf of Mexico.
As of November 1, 1996, the Company was a party to an interest rate
swap agreement. The swap agreement, which terminates on March 10, 1998,
effectively changes the interest rate that the Company would pay on
$5,000,000 of debt from a market based variable rate to a fixed rate of 7.2%.
Income tax expense for the third quarter of 1996 was
$3,766,000, an increase from income tax expense
of $44,000 for the third quarter of 1995. Income tax expense
for the first nine months of 1996 was $11,560,000, up
approximately 191% from income tax expense of $3,979,000 for the
first nine months of 1995. These increases resulted primarily from
increased pre-tax income.
Liquidity and Capital Resources -
The Company's Condensed Consolidated Statement of Cash Flows for the
nine months ended September 30, 1996, reflects net cash provided by operating
activities of $69,066,000. In addition to net cash provided by operating
activities, the Company received net proceeds of $111,940,000 from the
issuance of the 2006 Notes on June 18, 1996, $2,965,000 from the exercise
of stock options and $100,000 from the sale of certain non-strategic
properties.
During the first nine months of 1996, the Company invested
$106,395,000 of such cash flow in capital projects, redeemed $40,699,000
of its 2005 Debentures, repaid $33,000,000 under its revolving credit
facility and uncommitted bank credit lines and paid $2,981,000
($0.03 per share for each of the first three quarters of 1996) in
cash dividends to holders of the Company's common stock. Of the $106,395,000
invested in capital projects, $35,254,000 was applicable to 1995 capital
projects and $71,141,000 was applicable to 1996
capital projects. As of September 30, 1996, the Company's cash and cash
investments were $5,512,000 and its long-term debt stood at $206,230,000.
The Company's capital and exploration budget for 1996, which
does not include any amounts that may be expended for the purchase of
proved reserves or any interest which may be capitalized resulting from
projects in progress, has been established by
- 14 -
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
the Company's Board of Directors as $180,000,000. In addition to anticipated
capital and exploration expenses, other material 1996 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
November 22, 1996 to stockholders of record as of November 8, 1996.
The Company currently anticipates that its available cash and cash
investments, cash provided by operating
activities and funds available under its revolving credit facility
and uncommitted lines of credit with banks will be sufficient to fund
the Company's ongoing expenses, its 1996 capital and exploration
budget, any currently anticipated costs associated with the Company's
Thailand projects during 1996 and anticipated future
dividend payments. 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 6. Exhibits and Reports on Form 8-K
(A) Exhibits
None
(B) Reports on Form 8-K
None
- 16 -
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/ JOHN W. ELSENHANS
John W. Elsenhans
Vice President-Finance
and Treasurer
Date: November 7, 1996
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