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, 1997 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, 1997: 33,363,089
Part I. Financial Information
Item 1. Financial Statements
Pogo Producing Company and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended
March 31,
1997 1996
--------------- ---------------
(Expressed in thousands, except per share amounts)
Revenues:
Oil and gas $ 61,314 $ 48,217
Loss on sale -- (165)
_____________ _______________
Total 61,314 48,052
------------- ---------------
Operating Costs and Expenses:
Lease operating 12,297 8,875
General and administrative 5,836 5,421
Exploration 1,900 3,910
Dry hole and impairment 921 2,550
Depreciation, depletion and amortization 18,420 15,713
------------- ---------------
Total 39,374 36,469
------------- ---------------
Operating Income 21,940 11,583
Interest:
Charges (4,295) (3,012)
Income 56 15
Capitalized 1,870 826
------------- ---------------
Income Before Income Taxes 19,571 9,412
Income Tax Expense (6,753) (3,147)
------------- ---------------
Net Income $ 12,818 $ 6,265
============= ===============
Earnings Per Common Share
Primary $ 0.38 $ 0.19
============= ===============
Diluted $ 0.36 $ 0.19
============= ===============
Dividends Per Common Share $ 0.03 $ 0.03
============= ===============
Weighted Average Number of
Common Stock and Common
Stock Equivalent Shares Outstanding
Primary 34,176 33,834
Diluted 40,789 33,856
See accompanying notes to consolidated financial statements.
- 1 -
Pogo Producing Company and Subsidiaries
Consolidated Balance Sheets
March 31, December 31,
1997 1996
------------- -------------
(Unaudited)
(Expressed in thousands, except share amounts)
Assets
Current Assets:
Cash and cash investments $ 9,586 $ 3,054
Accounts receivable 29,545 30,031
Other receivables 47,560 35,027
Inventories - Product 1,966 --
Inventories - Tubulars 6,759 6,165
Other 214 641
------------- -------------
Total current assets 95,630 74,918
------------- _____________
Property and Equipment:
Oil and gas, on the basis of successful efforts accounting
Proved properties being amortized 1,186,528 1,079,523
Evaluated properties and properties
under development, not being amortized 71,138 111,192
Other, at cost 10,570 8,773
-------------- -------------
1,268,236 1,199,488
Less--accumulated depreciation, depletion and
amortization, including $5,067 and $4,822,
respectively, applicable to other property 832,826 814,623
-------------- -------------
435,410 384,865
-------------- -------------
Other 21,792 19,459
-------------- -------------
$ 552,832 $ 479,242
============== =============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 10,969 $ 7,676
Other payables 39,099 56,961
Accrued interest payable 2,562 1,957
Accrued payroll and related benefits 2,287 1,490
Other 139 163
-------------- -------------
Total current liabilities 55,056 68,247
Long-Term Debt 306,230 246,230
Deferred Federal Income Tax 59,873 46,321
Deferred Credits 11,435 11,162
-------------- -------------
Total liabilities 432,594 371,960
-------------- -------------
Shareholders' Equity:
Preferred stock, $1 par; 2,000,000 shares authorized - -
Common stock, $1 par; 100,000,000 shares authorized,
33,378,664 and 33,321,381 shares issued, respectively 33,379 33,321
Additional capital 140,496 139,337
Retained earnings (deficit) (53,258) (65,075)
Currency translation adjustment (55) 23
Treasury stock, at cost (324) (324)
-------------- -------------
Total shareholders' equity 120,238 107,282
-------------- -------------
$ 552,832 $ 479,242
============== =============
See accompanying notes to consolidated financial statements.
- 2 -
Pogo Producing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
March 31,
------------------------------------
1997 1996
------------- --------------
(Expressed in thousands)
Cash Flows from Operating Activities:
Cash received from customers $ 59,834 $ 46,037
Operating, exploration, and general
and administrative expenses paid (16,740) (18,607)
Interest paid (3,690) (3,413)
Federal income taxes received (paid) 7,037 (2,000)
Other (542) (358)
------------- --------------
Net cash provided by operating activities 45,899 21,659
------------- --------------
Cash Flows from Investing Activities:
Capital expenditures (70,388) (22,753)
Purchase of proved reserves (28,617) --
Proceeds from the sale of a property -- 100
------------- --------------
Net cash used in investing activities (99,005) (22,653)
------------- --------------
Cash Flows from Financing Activities:
Net borrowings under revolving credit agreement 60,000 8,000
Payment of cash dividend on common stock (1,001) (989)
Proceeds from exercise of stock options 717 1,871
------------- --------------
Net cash provided by financing activities 59,716 8,882
------------- --------------
Effect of exchange rate change (78) --
------------- --------------
Net Increase in Cash and Cash Investments 6,532 7,888
Cash and Cash Investments at the Beginning of the Year 3,054 4,481
------------- --------------
Cash and Cash Investments at the End of the Period $ 9,586 $ 12,369
============= ==============
Reconciliation of Net Income to Net
Cash Provided by Operating Activities:
Net income $ 12,818 $ 6,265
Adjustments to reconcile net income to
net cash provided by operating activities -
Losses from the sale of a property -- 165
Depreciation, depletion and amortization 18,420 15,713
Dry hole and impairment 921 2,550
Interest capitalized (1,870) (826)
Deferred federal income taxes 14,052 330
Change in operating assets and liabilities 1,558 (2,538)
------------- --------------
Net cash provided by operating activities $ 45,899 $ 21,659
============= ==============
See accompanying notes to consolidated financial statements.
- 3 -
Pogo Producing Company and Subsidiaries
Consolidated Statements of Shareholders' Equity (Unaudited)
Three Months Ended March 31,
--------------------------------------------------------------
1997 1996
-------------------------- -----------------------------
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 33,321,381 $ 33,321 33,006,972 $ 33,007
Stock options exercised 57,283 58 136,348 136
---------- ------------ ---------- -------------
Issued at end of period 33,378,664 33,379 33,143,320 33,143
---------- ------------ ---------- -------------
Additional Capital:
Balance at beginning of year 139,337 132,881
Stock options exercised 1,159 2,407
------------ -------------
Balance at end of period 140,496 135,288
------------ -------------
Retained Earnings (Deficit):
Balance at beginning of year (65,075) (93,856)
Net income 12,818 6,265
Dividends ($0.03 per common share) (1,001) (989)
------------ -------------
Balance at end of period (53,258) (88,580)
------------ -------------
Cumulative Foreign Currency Translation:
Balance at beginning of year 23 --
Activity during the period (78) --
------------ -------------
Balance at end of period (55) --
------------ -------------
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)
---------- ------------ ---------- -------------
Common stock outstanding,
at the end of the period 33,363,089 33,127,745
========== ==========
Total Shareholders' Equity $ 120,238 $ 79,527
============ =============
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 annual report on
Form 10-K for the year ended December 31, 1996.
(2) Long-Term Debt -
Long-term debt and the amount due within one year at March 31,
1997 and December 31, 1996, consists of the following:
March 31, December 31,
1997 1996
-------------- -------------
(Expressed in thousands)
Senior debt --
Bank revolving credit agreement
LIBO Rate based loans, borrowings at March 31, 1997 and
December 31, 1996 at average interest rates of 6.53%
and 6.59%, respectively $ 77,000 $ 22,000
Prime rate based loans, borrowings at March 31, 1997 and
December 31, 1996 at interest rates of 8.5% and 8.25%,
respectively 18,000 13,000
Uncommitted credit lines with banks, borrowings at March 31,
1997 and December 31, 1996 at average interest rates of
6.42% and 7.0%, respectively 10,000 10,000
-------------- -------------
Total senior debt 105,000 45,000
-------------- -------------
Subordinated debt --
5 1/2% Convertible subordinated notes due 2004 ("2004 Notes") 86,230 86,230
5 1/2% Convertible subordinated notes due 2006 ("2006 Notes") 115,000 115,000
-------------- -------------
Total subordinated debt 201,230 201,230
-------------- -------------
Total debt 306,230 246,230
Amount due within one year -- --
Long-term debt $ 306,230 $ 246,230
============== =============
Refer to Note 3 of the Notes to Consolidated Financial Statements
included in the Company's annual report on Form 10-K for the year ended
December 31, 1996, for a further discussion of the bank revolving
credit agreement, the Company's uncommitted credit lines, the 2006
Notes and the 2004 Notes.
- 5 -
Pogo Producing Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(3) Earnings per Share -
Earnings per share (in thousands, except per share amounts) are
based on the following:
Three Months Ended
March 31, 1997
--------------------------------------------
Income Shares Per Share
-------------- ------------- -----------
Primary earnings per share -- $ 12,818 33,348
Effect of dilutive securities:
Options to purchase common shares
at average price 828
_____________ ____________
Primary earnings per share $ 12,818 34,176 $ 0.38
==========
2004 Notes 771 3,887
2006 Notes 1,028 2,726
------------- ------------
Fully diluted earnings per share $ 14,617 40,789 $ 0.36
============= ============ ==========
Antidilutive securities --
Options to purchase common shares 11 $ 44.27
Three Months Ended
March 31, 1996
--------------------------------------------
Income Shares Per Share
-------------- ------------- -----------
Primary earnings per share -- $ 6,265 33,064
Effect of dilutive securities:
Options to purchase common shares
at average price 770
_____________ ____________
Primary earnings per share $ 6,265 33,834 $ 0.19
==========
Options to purchase common shares
at closing price 22
------------- ------------
Fully diluted earnings per share $ 6,265 33,856 $ 0.19
============= ============ ==========
Antidilutive securities --
8% Convertible subordinated
debentures due 2005
("2005 Debentures") $ 546 1,063 $ 0.51
2004 Notes $ 771 3,887 $ 0.20
The 2005 Debentures (retired on June 28, 1996) were common stock
equivalents. The 2004 Notes and the 2006 Notes (issued on June 18, 1996)
are not common stock equivalents. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
Earnings per Share ("SFAS 128"). It is effective for periods ending after
December 15, 1997, and early adoption is not permitted. The following is the
pro forma effect (in thousands, except per share amounts) of applying the
provisions of SFAS 128 to the periods indicated:
Three Months Ended
March 31, 1997
(Pro forma)
--------------------------------------------
Income Shares Per Share
-------------- ------------- -----------
Basic earnings per share -- $ 12,818 33,348 $ 0.38
==========
Effect of dilutive securities:
Options to purchase common shares 828
2004 Notes 771 3,887
2006 Notes 1,028 2,726
------------- ------------
Diluted earnings per share $ 14,617 40,789 $ 0.36
============= ============ ==========
- 6 -
Pogo Producing Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Three Months Ended
March 31, 1996
(Pro forma)
--------------------------------------------
Income Shares Per Share
-------------- ------------- -----------
Basic earnings per share -- $ 6,265 33,064 $ 0.19
==========
Effect of dilutive securities:
Options to purchase common shares 770
------------- ------------
Diluted earnings per share $ 6,265 33,834 $ 0.19
============= ============ ==========
- 7 -
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, 1996. Certain statements contained herein
are "Forward Looking Statements" and are thus prospective. As further
discussed in the Company's annual report on Form 10-K, such
forward-looking statements are subject to risks, uncertainties and other
factors which could cause actual results to differ materially from
future results expressed or implied by such forward-looking statements.
Results of Operations -
The Company reported net income for the
first quarter of 1997 of $12,818,000 or $0.38 per share
($0.36 per share on a fully diluted basis)
compared to net income for the first quarter of 1996
of $6,265,000 or $0.19 per share (on both a primary and
a fully diluted basis).
Earnings per common share are based on the
weighted average number of common and common
equivalent shares outstanding for the first quarter
of 1997 of 34,176,000 (40,789,000 on a fully diluted basis),
compared to 33,834,000 (33,856,000 on a fully diluted basis)
for the first quarter of 1996. The increase in the
weighted average number of common and common equivalent
shares outstanding for the first quarter of 1997,
compared to the first quarter of 1996, 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. The increase in the
number of shares used in the fully-diluted computation of earnings
per share primarily reflects additional
shares of common stock issuable upon the assumed conversion of
the Company's 2004 Notes (which were dilutive in both periods) and the
2006 Notes (which were dilutive during the first quarter of 1997, the
only comparative period in which they were outstanding)
and the elimination of related interest requirements, as adjusted
for applicable federal income taxes.
Earnings applicable to
common stock, assuming full dilution, for the first quarter of 1997 was
$14,617,000, compared to $6,265,000 for the first quarter
of 1996.
The Company's total revenues for the first
quarter of 1997 were $61,314,000, an increase of
approximately 28% from total revenues of
$48,052,000 for the first quarter of 1996. The
increase in the Company's total revenues for the first
quarter of 1997, compared to the first quarter of
1996, resulted primarily from increases in the Company's natural
gas, crude oil and condensate production volumes and, to a lesser
extent, increases in the average prices that the Company
received for its natural gas and liquid hydrocarbon (including crude oil,
condensate and natural gas liquids ("NGL")) production volumes, that was
only partially offset by a decrease in the Company's NGL production volumes.
The following table reflects an analysis of differences
in the Company's oil and gas revenues (expressed
in thousands of dollars) between the first quarter of 1997 and
the first quarter of 1996:
- 8 -
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
1st Qtr '97
Compared to
1st Qtr '96
-----------
Increase (decrease) in oil and gas revenues
resulting from differences in :
Natural gas --
Price . . . . . . . . . . . . . . . . $ 2,581
Production . . . . . . . . . . . . . . 4,140
---------
6,721
---------
Crude oil and condensate --
Price . . . . . . . . . . . . . . . . 2,900
Production . . . . . . . . . . . . . . 3,774
---------
6,674
---------
NGL and other, net . . . . . . . . . . . (298)
---------
Increase in oil and gas revenues . . . . $ 13,097
=========
Prices that the Company received for its natural gas production
during the first quarter of 1997 averaged $2.67 per thousand cubic feet
("Mcf"),compared to $2.41 per Mcf for the first quarter of 1996, an
increase of approximately 11% The average price that the Company received
for its natural gas production includes an average price of approximately
$1.50, or a discount of 25% off of the contract price of approximately
$2.00 that the Company is currently receiving under its long term gas sales
contract governing production from the Tantawan Field in the Gulf of
Thailand. The Company received the discounted price (denominated in Baht as
set forth in the gas sales contract) for
its natural gas production from the Tantawan Field during the startup phase
of production from the Tantawan Field, which period ended on March 15, 1997.
The Company's natural gas production
during the first quarter of 1997 averaged 129.7 million cubic feet ("MMcf")
per day, an increase of approximately 17% from an average of 111.2 MMcf
per day during the first quarter of 1996. The increase in the Company's
natural gas production during the first quarter of 1997, compared to
the first quarter of 1996, was related in large measure to production
from the Tantawan Field (an average over the quarter of 17.6 MMcf per day net
to the Company's working interest) which commenced in early February, 1997.
During the first two weeks of April, production from the Tantawan Field
averaged 88.7 MMcf per day (41.1 MMcf per day net to the Company's
working interest). In addition, production from the Company's new "E"
platform on East Cameron Block 334, which commenced production in early
April, 1997, is not included in the results for the first quarter. As of
April 17, 1997, production from the East Cameron Block 334 "E" platform
was averaging approximately 145 MMcf per day (approximately 84.5 MMcf per
day net to the Company's working interest). As of April 25, 1997, the
Company was not a party to any natural gas futures contracts.
- 9 -
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Prices received by the Company for its crude oil and condensate
production during the first quarter of 1997 averaged $22.29
per barrel, an increase of approximately 14% from
the average price of $19.61 per barrel that the Company
received for its crude oil and condensate production during the first
quarter of 1996.
The Company's crude oil and condensate production during the first
quarter of 1997 averaged 13,903 barrels per day, an increase of
approximately 17% from an average of 11,889 barrels per
day during the first quarter of 1996. This increase resulted primarily
from new production from the Tantawan Field which, during the first two weeks
in April 1997,
averaged 6,158 barrels per day (2,854 barrels net to the Company's working
interest) and, to a lesser extent, the success of the Company's oil well
drilling and workover operations in the offshore Gulf of Mexico.
This increased production does not include any crude oil, condensate
or NGL production attributable to the Company's East Cameron Block 334 "E"
platform, from which production commenced in early April, 1997. As of April
17, 1997, oil and condensate production from this new field was averaging
approximately 5,000 barrels per day (approximately 2,900 barrels per day
net to the Company's working interest). As of April 25, 1997, the Company
was not a party to any crude oil swap agreements.
Liquid products are often extracted from natural gas streams and sold
separately as NGL. The prices that the Company receives for its NGL
production is related to crude oil prices. However, because NGL is
extracted from liquid rich natural gas, the Company's NGL production
volumes correlate most closely with increases (or decreases) from certain
of the Company's natural gas fields. Natural gas production from the
Company's East Cameron Block 334 "E" platform is considered to be relatively
rich in NGL. Therefore, the Company currently anticipates that its NGL
production volumes should increase in the future as a result of production
from this field. However, the Company can give no assurances that such
increases will not be offset by decreases in NGL production volumes from
other fields where the Company extracts NGL from the natural gas it produces.
In addition, the Company's oil and gas revenues for the
first quarter of 1997 and the first quarter of 1996 also reflect adjustments
for various miscellaneous items. The Company's NGL and other net revenues
for the first quarter of 1997 decreased $298,000 from those reported in
the first quarter of 1996. The decrease in the Company's NGL revenues for
the first quarter of 1997, compared to the first quarter of 1996, primarily
resulted from decreased NGL production volumes that were not entirely offset
by increased prices that the Company received for its NGL
production and various miscellaneous net income items.
The Company's average liquid hydrocarbons (including
crude oil, condensate and NGL) production during the first quarter
of 1997 was 15,215 barrels per day, an increase of
approximately 10% from an average liquid hydrocarbons production
of 13,874 barrels per day during the first quarter of 1996. The
increase in the Company's average liquid hydrocarbon production during
the first quarter of 1997, compared to the first quarter of 1996, primarily
resulted from an increase in the Company's crude oil and condensate
production, that was only partially offset by a decline in the Company's
NGL production.
Lease operating expenses for the first quarter of
1997 were $12,297,000, an increase of approximately 39% from lease
operating expenses of $8,875,000 for the first quarter of 1996.
The increase in lease operating expenses for the first quarter
of 1997, compared to the first quarter of 1996, resulted primarily
from the higher expenses of operating in Thailand, including expenses
related to the leasing of equipment (principally the FPSO); increased
severance taxes resulting from increased production from certain of the
Company's onshore properties that have higher severance tax obligations;
increased operating activity by the Company; and increased costs to the
Company (and the entire offshore oil industry) due to a shortage of
qualified
- 10 -
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
offshore service contractors, which has permitted such
contractors to increase the costs of their services.
General and administrative expenses for the first
quarter of 1997 were $5,836,000, an increase of approximately 8% from
general and administrative expenses of $5,421,000 for the first
quarter of 1996. The increase in general and administrative
expenses for the first quarter of 1997, compared to the first
quarter of 1996, was related to, among other things,
an increase in the size of the Company's work
force and leased office space in the United States and Bangkok, Thailand
and normal salary and concomitant benefit expense adjustments that
were not entirely offset by decreases in various general
and administrative expense items.
Exploration expenses consist primarily of delay rentals and
geological and geophysical costs which are expensed as incurred.
Exploration expenses for the first quarter of 1997 were $1,900,000, a
decrease of approximately 51% from exploration expenses of $3,910,000
for the first quarter of 1996. This decrease in exploration expenses
resulted primarily from the completion of certain
proprietary 3-D seismic surveys on Company leases in South Louisiana and
East Texas incurred in the first quarter of 1996 and for which no
comparable expense was incurred in the first quarter of 1997. This
decrease in exploration expenses was partially offset by ongoing
geophysical activity by the Company in other regions.
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 first quarter of 1997 were
$921,000, a decrease of approximately 64% from dry hole and
impairment expenses of $2,550,000 for the first quarter of 1996.
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. Proved properties are reviewed whenever events or changes in
circumstances indicate that the carrying amount of such assets 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 first quarter of
1997 was $18,420,000, an increase of approximately 17% from DD&A
expense of $15,713,000 for the first quarter of 1996. The increase
in the Company's DD&A expense for the first quarter of 1997, compared
to the first
quarter of 1996, resulted primarily from increased oil and natural gas
production from the Company's properties and, to a lesser extent,
from an increase in the Company's DD&A rate. The composite DD&A rate
for all of the Company's producing fields for the first quarter of 1997
was $0.912 per equivalent Mcf ($5.47 per equivalent barrel), an increase of
approximately 4% from a composite DD&A rate of $0.877 per equivalent
Mcf ($5.26 per equivalent barrel) for the first quarter of 1996.
- 11 -
Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
The increase in the composite DD&A rate for all of the
Company's producing fields for the first quarter of 1997, compared with
the first quarter of 1996, resulted primarily from an increased
percentage of the Company's production coming from certain of the Company's
fields that have DD&A rates that are higher than the Company's recent
historical composite rate and a corresponding decrease in the percentage
of the Company's production from fields that have DD&A rates that are lower
than the Company's recent historical composite DD&A rate.
The Company produced 19,888,000 equivalent Mcf (3,315,000 equivalent
barrels) during the first quarter of 1997, an increase of approximately
12% from the 17,696,000 equivalent Mcf (2,949,000 equivalent barrels)
produced by the Company during the first quarter of 1996.
The Company incurred interest charges of $4,295,000
for the first quarter of 1997, an increase of approximately 43% from
interest charges of $3,012,000 for the first quarter of 1996.
The increase in interest
charges for the first quarter of 1997, compared to the first quarter
of 1996, 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 partially offset by lower average interest rate levels on the
debt outstanding (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).
Capitalized interest expense for the first quarter of 1997 was
$1,870,000, an increase of approximately 126% from capitalized interest
expense of $826,000 for the first quarter of 1996. The increase in
capitalized interest expense for the first quarter of 1997, compared to
the first quarter of 1996, resulted primarily from the requirement to
capitalize interest expense attributable to capital expenditures on
non-producing properties which, during portions of the first quarter of 1997
included capital expenditures related to the Company's
development of the Tantawan Field and, during the
entire first quarter of 1997, capital expenditures related to development
of the Benchamas Field in the Gulf of Thailand and construction and
installation of the East Cameron Block 334 "E" platform.
As of April 22, 1997, 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 paid by the Company on $5,000,000
of debt from a market based variable rate to a fixed rate of 7.2%.
Income tax expense for the first quarter of 1997 was $6,753,000,
an increase of approximately 115% from income tax expense of $3,147,000 for
the first quarter of 1996. The increase in income tax expense for the first
quarter of 1997, compared to the first quarter of 1996, resulted primarily
from increased pretax income.
Liquidity and Capital Resources -
The Company's Condensed Consolidated Statement of Cash Flows for
the three months ended March 31, 1997 reflects net cash provided by
operating activities of $45,899,000. In addition to net cash provided by
operating activities, the Company received $717,000 from the exercise of
stock options. The Company also had net borrowings of $60,000,000 under
its revolving credit facility.
During the first three months of 1997, the Company
invested $70,388,000 of such cash flow in capital projects, purchased
proved reserves for $28,617,000 and paid $1,001,000 ($0.03 per share)
in cash dividends to holders of the Company's common stock. Of the
$70,388,000 invested in capital projects, $49,908,000 was
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Pogo Producing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
applicable to 1996 capital projects and $20,480,000 was applicable to 1997
capital projects. As of March 31, 1997, the Company's cash and cash
investments were $9,586,000 and its long-term debt stood at $306,230,000.
The Company's capital and exploration budget for 1997, which does
not include any amounts which may be expended for the purchase of proved
reserves or any interest which may be capitalized resulting from projects
in progress, was established by the Company's Board of Directors at
$210,000,000. In addition to anticipated capital and exploration expenses,
other material 1997 cash requirements that the Company currently anticipates
include ongoing operating, general and administrative, income tax, interest
expense and payments of dividends on its common stock,
including a $.03 per share dividend on its common stock to be paid on
May 23, 1997, to stockholders of record as of May 9, 1997. The Company
currently anticipates that cash provided by operating activities and funds
available under its revolving credit facility, uncommitted money market
credit lines and amounts that the Company currently believes it can raise
from external sources, will be sufficient to fund the Company's ongoing
expenses, its 1997 capital and exploration budget and anticipated future
dividend payments. The Company is currently discussing an
amendment of its bank credit facility that, if consummated, will, among
other things, extend the maturity of the facility, increase the
maximum commitment amount and expand
the borrowing base to include properties located in the Gulf of Thailand.
No assurance can be given that the Company and its lenders will consummate
this transaction and, if such transaction is agreed to, that it will contain
the terms discussed in the preceding sentence. The declaration and payment
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
3(b) Bylaws of Pogo Producing Company, as amended and
restated through April 22, 1997.
(B) Reports on Form 8-K
A report on Form 8-K was filed on January 21, 1997 setting
forth under Item 5 thereof, certain information regarding the
time and location of the registrant's annual meeting of
stockholders.
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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/ JOHN W. ELSENHANS
John W. Elsenhans
Vice President - Finance
and Treasurer
Date: April 25, 1997
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