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, 2000 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, 2000: 40,384,548
PART I. FINANCIAL INFORMATION
POGO PRODUCING COMPANY AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ---------------------------
2000 1999 2000 1999
-------- -------- -------- --------
(Expressed in thousands, except per share amounts)
REVENUES:
Oil and gas $108,530 $ 43,159 $211,007 $ 80,894
Pipeline sales and other 3,476 1,263 6,503 2,230
Gains (losses) on sales (9) 406 (14) 37,750
-------- -------- -------- --------
Total 111,997 44,828 217,496 120,874
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES:
Lease operating 24,215 12,952 46,006 28,517
Pipeline operating and natural gas purchases 3,156 1,336 6,546 2,198
General and administrative 7,539 6,746 17,962 13,629
Exploration 2,114 1,374 5,787 3,139
Dry hole and impairment 2,120 791 7,192 1,030
Depreciation, depletion and amortization 33,082 23,394 66,046 47,245
-------- -------- -------- --------
Total 72,226 46,593 149,539 95,758
-------- -------- -------- --------
OPERATING INCOME (LOSS) 39,771 (1,765) 67,957 25,116
-------- -------- -------- --------
INTEREST:
Charges (8,210) (9,234) (16,956) (19,109)
Income 186 238 479 310
Capitalized 4,604 5,017 9,614 8,767
MINORITY INTEREST - Dividends and costs associated
with preferred securities of a subsidiary trust (2,559) (799) (5,117) (799)
FOREIGN CURRENCY TRANSACTION GAIN (LOSS) (794) 460 (1,121) 409
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 32,998 (6,083) 54,856 14,694
INCOME TAX BENEFIT (EXPENSE) (14,689) 3,077 (24,591) (3,387)
-------- -------- -------- --------
NET INCOME (LOSS) $ 18,309 $ (3,006) $ 30,265 $ 11,307
======== ======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE
Basic $ 0.45 $ (0.07) $ 0.75 $ 0.28
======== ======== ======== ========
Diluted $ 0.42 $ (0.07) $ 0.71 $ 0.28
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE $ 0.03 $ 0.03 $ 0.06 $ 0.06
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND POTENTIAL COMMON SHARES OUTSTANDING:
Basic 40,382 40,141 40,337 40,138
Diluted 50,052 40,141 47,263 40,315
See accompanying notes to consolidated financial statements.
-1-
POGO PRODUCING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
(Expressed in thousands
except share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 42,145 $ 6,267
Accounts receivable 44,859 37,321
Other receivables 25,967 35,870
Inventory - Product 15,767 7,209
Inventories - Tubulars 9,645 10,352
Other 2,462 2,370
----------- -----------
Total current assets 140,845 99,389
----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of successful efforts accounting
Proved properties being amortized 1,601,916 1,638,321
Unevaluated properties and properties
under development, not being amortized 220,726 144,357
Pipelines, at cost 7,095 6,984
Other, at cost 13,567 13,103
----------- -----------
1,843,304 1,802,765
----------- -----------
Accumulated depreciation, depletion and amortization
Oil and gas (1,066,039) (1,006,542)
Pipelines (1,656) (1,534)
Other (7,986) (7,329)
----------- -----------
(1,075,681) (1,015,405)
----------- -----------
Property and equipment, net 767,623 787,360
----------- -----------
OTHER ASSETS:
Foreign tax net operating losses 5,299 16,237
Foreign value added taxes receivable 10,663 12,025
Debt issue expenses 11,679 12,686
Other 21,301 20,496
----------- -----------
48,942 61,444
----------- -----------
$ 957,410 $ 948,193
=========== ===========
See accompanying notes to consolidated financial statements.
-2-
POGO PRODUCING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
2000 1999
--------- -----------
(Unaudited)
(Expressed in thousands
except share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - operating activities $ 21,218 $ 21,724
Accounts payable - investing activities 38,656 62,878
Accrued interest payable 7,327 7,457
Accrued dividends associated with
preferred securities of a subsidiary trust 813 813
Accrued payroll and related benefits 3,208 2,149
Other 475 208
-------- --------
Total current liabilities 71,697 95,229
-------- --------
LONG-TERM DEBT 365,000 375,000
DEFERRED FEDERAL INCOME TAX 57,108 51,177
DEFERRED CREDITS 20,197 13,524
-------- --------
Total liabilities 514,002 534,930
-------- --------
MINORITY INTEREST:
Company-obligated mandatorily redeemable
convertible preferred securities of a subsidiary trust,
net of unamortized issue expenses 144,837 144,751
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par; 2,000,000 shares authorized - -
Common stock, $1 par; 100,000,000 shares authorized,
40,400,123 and 40,279,661 shares issued, respectively 40,400 40,279
Additional capital 294,107 291,909
Retained earnings (deficit) (34,451) (62,291)
Treasury stock (15,575 shares) and other, at cost (1,485) (1,385)
-------- --------
Total shareholders' equity 298,571 268,512
-------- --------
$957,410 $948,193
======== ========
See accompanying notes to consolidated financial statements.
-3-
POGO PRODUCING COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
------------------------
2000 1999
(Expressed in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $200,589 $ 80,740
Operating, exploration, and general
and administrative expenses paid (76,807) (47,254)
Interest paid (16,061) (12,242)
Federal income taxes received 3,000 6,446
Federal income taxes paid (3,000) (8,000)
Value added taxes received (paid) 1,362 (3,956)
Other 301 597
-------- ---------
Net cash provided by operating activities 109,384 16,331
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (57,665) (129,179)
Proceeds from the sale of properties - 81,983
-------- ---------
Net cash used in investing activities (57,665) (47,196)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of new debt - 150,000
Proceeds from issuance of new financing - 150,000
Borrowings under senior debt agreements 67,000 250,053
Payments under senior debt agreements (77,000) (470,000)
Payments of cash dividends on common stock (2,425) (2,407)
Payments of preferred dividends of a subsidiary trust (4,875) -
Payment of financing issue expenses (22) (11,425)
Proceeds from exercise of stock options and other 1,876 59
-------- ---------
Net cash (used in) provided by financing activities (15,446) 66,280
-------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (395) (305)
-------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 35,878 35,110
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 6,267 7,959
-------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 42,145 $ 43,069
======== =========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 30,265 $ 11,307
Adjustments to reconcile net income to
net cash provided by operating activities -
Minority interest 5,117 799
Foreign currency transaction losses (gains) 1,121 (409)
Losses (gains) from the sales of properties 14 (37,750)
Depreciation, depletion and amortization 66,046 47,245
Dry hole and impairment 7,192 1,030
Interest capitalized (9,614) (8,767)
Deferred federal income taxes 6,373 6,139
Change in operating assets and liabilities 2,870 (3,263)
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $109,384 $ 16,331
======== =========
See accompanying notes to consolidated financial statements.
-4-
POGO PRODUCING COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Unaudited)
Six Months Ended June 30,
-------------------------------------------
2000 1999
--------------------- --------------------
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 40,279,661 $ 40,279 40,136,254 $ 40,136
Stock options exercised 120,462 121 8,250 8
Adjustment for fractional shares and other - - 13,132 13
---------- -------- ---------- --------
Issued at end of period 40,400,123 40,400 40,157,636 40,157
---------- -------- ---------- --------
ADDITIONAL CAPITAL:
Balance at beginning of year 291,909 290,655
Stock options exercised 2,198 71
Adjustment for fractional shares and other - (13)
-------- --------
294,107 290,713
-------- --------
RETAINED EARNINGS (DEFICIT):
Balance at beginning of year (62,291) (79,600)
Net income 30,265 11,307
Dividends ($0.06 per common share) (2,425) (2,407)
-------- --------
Balance at end of period (34,451) (70,700)
-------- --------
TREASURY STOCK AND OTHER:
Balance at beginning of year (15,575) (1,385) (15,575) (1,531)
Activity during the period - (100) - 126
---------- -------- ---------- --------
Balance at end of period (15,575) (1,485) (15,575) (1,405)
---------- -------- ---------- --------
COMMON STOCK OUTSTANDING,
AT THE END OF THE PERIOD 40,384,548 40,142,061
========== ==========
TOTAL SHAREHOLDERS' EQUITY $298,571 $258,765
======== ========
See accompanying notes to consolidated financial statements.
-5-
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 and are not necessarily
indicative of results for the entire year. Certain prior year amounts have been
reclassified to conform with current year presentation. 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, 1999.
(2) LONG-TERM DEBT -
Long-term debt and the amount due within one year at June 30, 2000 and
December 31, 1999, consist of the following:
June 30, December 31,
2000 1999
-------- -----------
(Expressed in thousands)
Senior debt -
Bank revolving credit agreement
LIBO Rate based loans, borrowings at an average interest rate of 7.8% $ - $ 5,000
Uncommitted credit lines with banks, borrowings at an average interest rate of 5.9% - 5,000
-------- --------
Total senior debt - 10,000
-------- --------
Subordinated debt -
8 3/4% Senior subordinated notes due 2007 ("2007 Notes") 100,000 100,000
10 3/8% Senior subordinated notes due 2009 ("2009 Notes") 150,000 150,000
5 1/2% Convertible subordinated notes due 2006 ("2006 Notes") 115,000 115,000
-------- --------
Total subordinated debt 365,000 365,000
-------- --------
Long-term debt, none due within one year $365,000 $375,000
======== ========
Refer to Note 3 of Notes to Consolidated Financial Statements included in
the Company's annual report on Form 10-K for the year ended December 31, 1999,
for a further discussion of the Company's debt agreements. Effective May 3,
2000, the borrowing base under the Company's bank revolving credit agreement was
increased to $200,000,000 and the restriction against new indebtedness was
increased a corresponding amount to $565,000,000. As of June 30, 2000
$34,700,000 was available to the Company for common stock dividends under the
most restrictive covenants included in the indentures governing the Company's
various debt agreements.
(3) IMPACT OF SFAS 133 -
In June 1998, the FASB issued SFAS 133, Accounting for Derivative
Investments and Hedging Activities. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair market value
and that changes in the derivative's fair market value be recognized currently
in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
In June 1999, the FASB issued SFAS 137 which deferred the effective date of
SFAS 133 to fiscal years beginning after June 15, 2000. A company may implement
SFAS 133 as of the beginning of any fiscal quarter after issuance, however, the
statement cannot be applied retroactively. The Company does not plan to early
adopt SFAS 133. The Company has not yet quantified the impact of the adoption of
SFAS 133.
-6-
POGO PRODUCING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(4) BUSINESS SEGMENT INFORMATION -
Financial information by operating segment is presented below:
Company Oil and Gas Pipelines Other
-------- ----------- --------- --------
(Expressed in thousands)
LONG-LIVED ASSETS:
As of June 30, 2000:
United States $423,372 $414,720 $5,439 $ 3,213
Kingdom of Thailand 337,187 335,123 - 2,064
Canada 7,064 6,760 - 304
-------- -------- ------ -------
Total $767,623 $756,603 $5,439 $ 5,581
======== ======== ====== =======
As of December 31, 1999:
United States $440,914 $432,034 $5,450 $ 3,430
Kingdom of Thailand 340,204 338,084 - 2,120
Canada 6,242 6,018 - 224
-------- -------- ------ -------
Total $787,360 $776,136 $5,450 $ 5,774
======== ======== ====== =======
REVENUES:
For the three months ended June 30, 2000
United States $ 67,977 $ 64,595 $3,210 $ 172
Kingdom of Thailand 42,975 42,890 - 85
Canada 1,045 1,045 - -
-------- -------- ------ -------
Total $111,997 $108,530 $3,210 $ 257
======== ======== ====== =======
For the three months ended June 30, 1999
United States $ 38,969 $ 37,218 $1,482 $ 269
Kingdom of Thailand 4,959 5,042 - (83)
Canada 900 899 - 1
-------- -------- ------ -------
Total $ 44,828 $ 43,159 $1,482 $ 187
======== ======== ====== =======
For the six months ended June 30, 2000
United States $134,400 $128,031 $6,592 $ (223)
Kingdom of Thailand 81,194 81,108 - 86
Canada 1,902 1,868 - 34
-------- -------- ------ -------
Total $217,496 $211,007 $6,592 $ (103)
======== ======== ====== =======
For the six months ended June 30, 1999
United States $108,856 $ 68,789 $2,472 $37,595
Kingdom of Thailand 10,114 10,187 - (73)
Canada 1,904 1,918 - (14)
-------- -------- ------ -------
Total $120,874 $ 80,894 $2,472 $37,508
======== ======== ====== =======
OPERATING INCOME (LOSS):
For the three months ended June 30, 2000
United States $ 18,973 $ 18,919 $ (118) $ 172
Kingdom of Thailand 21,172 21,087 - 85
Canada (374) (374) - -
-------- -------- ------ -------
Total $ 39,771 $ 39,632 $ (118) $ 257
======== ======== ====== =======
For the three months ended June 30, 1999
United States $ 1,259 $ 1,157 $ (167) $ 269
Kingdom of Thailand (2,234) (2,151) - (83)
Canada (790) (791) - 1
-------- -------- ------ -------
Total $ (1,765) $ (1,785) $ (167) $ 187
======== ======== ====== =======
For the six months ended June 30, 2000
United States $ 31,989 $ 32,552 $ (340) $ (223)
Kingdom of Thailand 36,535 36,449 - 86
Canada (567) (601) - 34
-------- -------- ------ -------
Total $ 67,957 $ 68,400 $ (340) $ (103)
======== ======== ====== =======
For the six months ended June 30, 1999
United States $ 33,125 $ (4,397) $ (73) $37,595
Kingdom of Thailand (6,391) (6,318) - (73)
Canada (1,618) (1,604) - (14)
-------- -------- ------ -------
Total $ 25,116 $(12,319) $ (73) $37,508
======== ======== ====== =======
-7-
POGO PRODUCING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(5) EARNINGS PER SHARE -
Earnings per common share (basic earnings per share) are based on the
weighted average number of shares of common stock outstanding during the
periods. Earnings per share and potential common share (diluted earnings per
share) consider the effect of dilutive securities as set out below, in
thousands, except per share amounts:
Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000
--------------------------------- -----------------------------------
Income Shares Per Share Income Shares Per Share
--------- --------- ---------- -------- ---------- ----------
BASIC EARNINGS PER SHARE - $18,309 40,382 $ 0.45 $30,265 40,337 $ 0.75
====== ======
Effect of dilutive securities:
Options to purchase common shares - 628 - 610
2006 Notes 1,028 2,726 - -
Trust Preferred Securities 1,584 6,316 3,169 6,316
------- ------ ------- ------
DILUTED EARNINGS PER SHARE $20,921 50,052 $ 0.42 $33,434 47,263 $ 0.71
======= ====== ====== ======= ====== ======
Antidilutive securities -
Options to purchase common shares - 224 $34.82 - 226 $34.72
2006 Notes - - - 2,056 2,726 $ 0.75
Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000
--------------------------------- -----------------------------------
Income Shares Per Share Income Shares Per Share
--------- --------- ---------- -------- ---------- ----------
BASIC EARNINGS PER SHARE - $(3,006) 40,141 $(0.07) $11,307 40,121 $ 0.28
====== ======
Effect of dilutive securities:
Options to purchase common shares - - - 17
------- ------ ------- ------
DILUTED EARNINGS PER SHARE $(3,006) 40,141 $(0.07) $11,307 40,138 $ 0.28
======= ====== ====== ======= ====== ======
Antidilutive securities -
Options to purchase common shares - 2,521 $19.35 - 2,195 $21.14
2006 Notes 1,028 2,726 $ 0.38 2,056 2,726 $ 0.75
Trust Preferred Securities (a) 488 1,943 $ 0.25 490 977 $ 0.50
(a) The Trust Preferred Securities were issued on June 2, 1999.
(6) COMPREHENSIVE INCOME -
During 1998, the Company adopted the Financial Accounting Standards Board's
(FASB) Reporting Comprehensive Income ("SFAS 130"). Currently there are no
significant amounts to be included in the computation of comprehensive income of
the Company, as defined, that are required to be disclosed under the provisions
of SFAS 130.
-8-
POGO PRODUCING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(7) PRICE HEDGE TRANSACTIONS -
During the first six months of 2000, approximately 26% of the Company's
equivalent production was subject to hedge positions. No significant amounts of
hedge positions were held by the Company in the first six months of 1999 and
approximately 7% of the Company's equivalent production was subject to hedge
positions in all of 1999.
As of June 30, 2000, the Company had entered into commodity price hedging
contracts with respect to its natural gas production for 2000 as follows:
NYMEX Contract Price per MMBtu(a)
----------------------------------
Collars Fair
Volume in ------------------- Market
Period MMBtu(a) Swaps Floors Ceilings Value (b)
------ --------- ----- ------ -------- ---------
Price Swap Contracts
July 2000 -- August 2000 930 $ 2.87 - - $(1,520,000)
July 2000 -- August 2000 1,240 $ 2.53 - - $(2,458,000)
Collar Contract
July 2000 -- September 2000 3,680 - $ 2.25 $ 2.80 $(6,204,000)
As of June 30, 2000, the Company had entered into commodity price
hedging contracts with respect to its crude oil and condensate production for
2000 as follows:
NYMEX Contract Price per Bbl
------------------------------
Collars Fair
Volume in ------------------- Market
Period Bbls Swaps Floors Ceilings Value (b)
------ --------- ----- ------ -------- ---------
Price Swap Contract
July 2000 -- December 2000 368,000 $21.15 - - $(3,208,000)
Collar Contracts
July 2000 -- September 2000 92,000 - $21.00 25.00 $ (708,000)
July 2000 -- December 2000 184,000 - $21.00 25.03 $ (890,000)
(a) MMBtu means million British Thermal Units
(b) Fair market value is calculated using prices derived from NYMEX
futures contract prices existing at June 30, 2000.
-9-
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, 1999.
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 for the year ended December 31, 1999, such forward-looking statements are
subject to risks, uncertainties and other factors that could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements.
RESULTS OF OPERATIONS
Net income
The Company reported net income for the second quarter of 2000 of
$18,309,000 or $0.45 per share ($20,921,000 or $0.42 per share on a diluted
basis), compared to a net loss for the second quarter of 1999 of $3,006,000 or
$0.07 per share (on both a basic and a diluted basis). For the first six months
of 2000, the Company reported net income of $30,265,000 or $0.75 per share
($33,434,000 or $0.71 per share on a diluted basis) compared to net income for
the first six months of 1999 of $11,307,000 or $0.28 per share (on both a basic
and a diluted basis). The increase in net income during the second quarter and
first six months of 2000, compared to the second quarter and first six months of
1999, was primarily related to increased oil and gas revenues resulting from
improved oil and gas production levels and prices. The net income reported in
the first six months of 1999 was related to gains recognized by the Company from
the sale of certain properties, most of which were recognized in the first
quarter of 1999.
Earnings per common share are based on the weighted average number of
common shares outstanding for the respective periods. The increase in the
weighted average number of common shares outstanding for the second quarter and
first six months of 2000, compared to the second quarter and first six months of
1999, resulted primarily from the issuance of common stock upon the exercise of
stock options pursuant to the Company's incentive plans. The earnings per share
computation on a diluted basis in the periods presented primarily reflects
additional shares of common stock issuable upon the assumed conversion of the
Company's 6 1/2% Cumulative Quarterly Income Convertible Preferred Securities
due 2029 (the "Trust Preferred Securities") and, to a lesser extent, additional
shares of common stock issuable upon the assumed exercise of options to purchase
common shares under the Company's incentive plans, less treasury shares that are
assumed to have been purchased by the Company from the option proceeds. In
addition, the earnings per share computation on a diluted basis for the second
quarter of 2000 reflects additional shares issuable upon the assumed conversion
of the Company's 5 1/2% Convertible Subordinated Notes due 2006.
Total Revenues
The Company's total revenues for the second quarter of 2000 were
$111,997,000, an increase of approximately 150% from total revenues of
$44,828,000 for the second quarter of 1999. The Company's total revenues for
the first six months of 2000 were $217,496,000, an increase of approximately 80%
compared to total revenues of $120,874,000 for the first six months of 1999.
The increase in the Company's total revenues for the second quarter and first
six months of 2000, compared to the second quarter and first six months of 1999,
resulted primarily from a substantial increase in oil and gas revenues and, to a
much lesser extent, pipeline sales that was only partially offset by a decrease
in gain on
10
sales of certain Company properties.
Oil and Gas Revenues
The Company's oil and gas revenues for the second quarter of 2000 were
$108,530,000, an increase of approximately 151% from oil and gas revenues of
$43,159,000 for the second quarter of 1999. The Company's oil and gas revenues
for the first six months of 2000 were $211,007,000, an increase of approximately
161% from oil and gas revenues of $80,894,000 for the first six months of 1999.
The following table (expressed in thousands) reflects an analysis of variances
in the Company's oil and gas revenues between 2000 and 1999:
Increase (decrease) in oil and gas revenues
resulting from variances in:
2nd QTR 2000 1st HALF 2000
COMPARED TO COMPARED TO
2nd QTR 1999 1st HALF 1999
-------------- ---------------
NATURAL GAS --
Price $ 7,708 $ 17,095
Production 10,781 21,017
------- --------
18,489 38,112
------- --------
CRUDE OIL AND CONDENSATE --
Price 14,964 34,172
Production 29,640 53,630
------- --------
44,604 87,802
------- --------
NATURAL GAS LIQUIDS ("NGL") 2,278 4,199
------- --------
Increase (decrease) in oil and gas revenues $65,371 $130,113
------- --------
The increase in the Company's oil and gas revenues for the second quarter
and first six months of 2000, compared to the second quarter and first six
months of 1999, is primarily related to increases in the Company's natural gas
and oil, condensate and NGL ("liquid hydrocarbons") production volumes and, to a
lesser extent, an increase in the price that it received for its liquid
hydrocarbons and natural gas production volumes.
Comparison of Increases (Decreases) in:
NATURAL GAS -- 2nd QUARTER 1st SIX MONTHS
------------------- % -------------------- %
2000 1999 CHANGE 2000 1999 CHANGE
-------- ------- ------ ------- ------- ------
Average prices
North America (a) $ 3.00 $ 2.18 38% $ 2.88 $ 1.96 47%
Kingdom of Thailand (b) $ 2.20 $ 1.34 64% $ 2.08 $ 1.43 45%
Company-wide average price $ 2.73 $ 2.02 35% $ 2.61 $ 1.86 40%
Average daily production volumes (MMcf per day)
North America (a)(c) 107.8 96.5 12% 112.7 101.7 11%
Kingdom of Thailand 55.1 23.0 140% 56.8 24.2 135%
-------- ------- ------ ------- ------- ------
Company-wide average daily production 162.9 119.5 36% 169.5 125.9 35%
======== ======= ====== ======= ======= ======
- --------------------
(a) North American average prices and production reflect production
from the United States and Canada. The average prices received for
North American production reflect the effect of the Company's hedging
transactions during the relevant period. See "Liquidity and Capital
Resources - Other Matters; Current Hedging Activity."
(b) The Company is paid for its natural gas production in the Kingdom
of Thailand in Thai Baht. The average prices are presented in dollars
based on the revenue recorded in the Company's financial records.
(c) "MMcf" stands for million cubic feet.
11
Comparison of Increases (Decreases) in:
CRUDE OIL AND CONDENSATE-- 2nd QUARTER 1st SIX MONTHS
------------------- % -------------------- %
2000 1999 CHANGE 2000 1999 CHANGE
-------- ------- ------ ------- ------- ------
Average prices
North America (a) $ 26.59 $ 15.99 66% $ 26.15 $ 13.71 91%
Kingdom of Thailand $ 31.16 $ 18.45 69% $ 29.00 $ 16.38 77%
Company-wide average price $ 28.68 $ 16.24 77% $ 27.46 $ 13.96 97%
Average daily production volumes (Bbls per day)
North America (a)(b) 13,348 11,893 12% 13,350 12,662 5%
Kingdom of Thailand 11,234 1,331 744% 11,297 1,329 750%
-------- ------- ------ ------- ------- ------
Company-wide average daily production 24,582 13,224 86% 24,647 13,991 76%
======== ======= ====== ======= ======= ======
TOTAL LIQUID HYDROCARBONS --
Company-wide average daily production
(Bbls per day) 27,132 14,824 83% 26,887 15,875 83%
======== ======= ====== ======= ======= ======
- -------------------------
(a) North American average prices and production reflect production from the
United States and Canada. The average prices received for North American
production reflects the effect of the Company's hedging transactions during
the relevant period. See "Liquidity and Capital Resources-Other Matters;
Current Hedging Activity."
(b) "BBLs" stands for barrels.
12
Natural Gas
Thailand Prices. The price that the Company receives under the Gas Sales
Agreement with the Petroleum Authority of Thailand ("PTT") is subject to a
penalty provision if the Company does not meet the minimum delivery requirements
set forth in the agreement. During the first six months of 1999, the Company and
its joint venture partners did not meet the contractual minimum delivery
requirements under the Gas Sales Agreement. This permitted PTT to reduce the
price it paid on a portion of the natural gas which the Company sold to PTT
during that period by 25% from the then current contract price. As a result of
new production from new facilities installed in the Tantawan Field during the
second quarter of 1999 and the commencement of production from the Benchamas
Field during the third quarter of 1999, the Company has generally been able to
meet its contractual minimum delivery obligations to PTT and is currently
receiving the full contract price.
Production. The increase in the Company's natural gas production during the
second quarter and first six months of 2000, compared to the second quarter and
first six months of 1999, was related in large measure to increased production
from the Tantawan Field and production from the Benchamas Field which commenced
during the third quarter of 1999 and, to a lesser extent, increased production
from the Company's domestic properties, including its East Cameron Block 270
Field and certain of its Permian basin fields.
Crude Oil and Condensate
Thailand Prices. Since the inception of production, crude oil and
condensate has been stored offshore until an economic quantity was accumulated
for offloading and sale. Prices that the Company receives for its crude oil and
condensate production from Thailand are based on world benchmark prices, which
are denominated in U.S. dollars. In addition, the Company is generally paid for
its crude oil and condensate production from Thailand in U.S. dollars.
Production. The increase in the Company's crude oil and condensate
production from the Gulf of Thailand during the second quarter and first six
months of 2000, compared to the second quarter and first six months of 1999,
resulted from production from the Benchamas Field during the third quarter of
1999 and, to a lesser extent, increased production from the Tantawan Field. The
increase in the Company's North American crude oil and condensate production
during the second quarter and first six months of 2000, compared to the second
quarter and first six months of 1999, resulted from increased production from
its Permian basin fields that was only partially offset by the anticipated
natural decline in oil and condensate production from certain of the Company's
offshore properties.
NGL Production. The Company's oil and gas revenues, and its total liquid
hydrocarbon production, reflect the production and sale by the Company of NGL,
which are liquid products extracted from natural gas production. The increase in
NGL revenues for the second quarter of 2000, compared with the second quarter of
1999, related to increased NGL production volumes, primarily from its Permian
basin properties and, to a lesser extent, an increase in the average price that
the Company received for its NGL production. The increase in NGL revenues for
the first six months of 2000, compared with the first six months of 1999,
related to an increase in the average price that the Company received for its
NGL production volumes and, to a lesser extent, an increase in NGL production
volumes.
Costs and Expenses
Comparison of Increases (Decreases) in:
2nd Quarter 1st Six Months
--------------------------- % ---------------------------- %
2000 1999 Change 2000 1999 Change
------------- ----------- ------ ------------ ----------- ------
LEASE OPERATING EXPENSES
North America $ 14,859,000 $11,488,000 29% $ 29,243,000 $22,944,000 27%
Kingdom of Thailand $ 9,356,000 $ 1,464,000 539% $ 16,763,000 $ 5,573,000 201%
Total Lease Operating Expenses $ 24,215,000 $12,952,000 87% $ 46,006,000 $28,517,000 61%
PIPELINE OPERATING AND NATURAL
13
GAS PURCHASES $ 3,156,000 $ 1,336,000 136% $ 6,546,000 $ 2,198,000 198%
GENERAL AND ADMINISTRATIVE EXPENSES $ 7,539,000 $ 6,746,000 12% $ 17,962,000 $13,629,000 32%
EXPLORATION EXPENSES $ 2,114,000 $ 1,374,000 54% $ 5,787,000 $ 3,139,000 84%
DRY HOLE AND IMPAIRMENT EXPENSES $ 2,120,000 $ 791,000 168% $ 7,192,000 $ 1,030,000 598%
DEPRECIATION, DEPLETION AND
AMORTIZATION (DD&A) EXPENSES $ 33,082,000 $23,394,000 41% $ 66,046,000 $47,245,000 40%
DD&A rate $1.10 $1.20 (8%) $1.08 $1.11 (4%)
Mcfe produced (a) 29,637,000 18,965,000 56% 60,205,000 40,033,000 50%
- ----------------------
(a) "Mcfe" stands for thousands of
cubic feet equivalent.
Comparison of Increases (Decreases) in:
2nd Quarter 1st Six Months
--------------------------- % ---------------------------- %
2000 1999 Change 2000 1999 Change
------------- ----------- ------ ------------ ----------- ------
INTEREST--
Charges $ 8,210,000 $ 9,234,000 (11%) $ 16,956,000 $19,109,000 (11%)
Interest Income $ 186,000 $ 238,000 (22%) $ 479,000 $ 310,000 55%
Capitalized Interest Expense $ 4,604,000 $ 5,017,000 (8%) $ 9,614,000 $ 8,767,000 10%
MINORITY INTEREST - Dividends and costs
Associated with Preferred
Securities of a Subsidiary Trust $ (2,559,000) $ (799,000) 220% $ (5,117,000) $ (799,000) 540%
FOREIGN CURRENCY TRANSACTION
GAIN (LOSS) $ (794,000) $ 460,000 N/A $ (1,121,000) $ 409,000 N/A
INCOME TAX BENEFIT (EXPENSE) $(14,689,000) $ 3,077,000 N/A $(24,591,000) $(3,387,000) 626%
Lease Operating Expenses.
The increase in North American lease operating expenses for the second
quarter and first six months of 2000, compared to the second quarter and first
six months of 1999, related in large measure to non-budgeted equipment repairs
in the Gulf of Mexico, the acceleration of annual routine maintenance and repair
on the Company's Western Division properties, increased severance taxes
resulting from increased revenues from the Company's non-U.S. government owned
properties and increased transportation and processing expenses resulting from
increased production on certain of the Company's offshore Gulf of Mexico
properties. The increase in lease operating expenses in the Kingdom of Thailand
for the second quarter and first six months of 2000, compared to the second
quarter and first six months of 1999, primarily related to the fact that, prior
to the commencement of production in the third quarter of 1999, no lease
operating expenses were incurred by the Company in the Benchamas field. A
substantial portion of the Company's lease operating expenses in the Kingdom of
Thailand relates to the lease payments made in connection with the bareboat
charter of the FPSO for the Tantawan field and the FSO for the Benchamas field.
Collectively, these lease payments accounted for $3,757,000, $7,513,000,
$3,281,000 and $6,023,000 (net to the Company's interest) of the Company's
Thailand lease operating expenses for the second quarter and first six months of
2000 and the second quarter and first six months of 1999, respectively.
Pipeline Operating and Natural Gas Purchases
Revenue from the sale of natural gas is reported as revenue under "Pipeline
sales and other." Prior to the acquisition of the Pogo Onshore Pipeline
interests, the Company did not separately report its pipeline operating expenses
14
or revenues, nor did it purchase any natural gas for resale to customers of its
pipelines. The increase in pipeline operating expenses and natural gas purchase
costs for the second quarter and first six months of 2000, compared to the
second quarter and first six months of 1999, primarily related to increased
purchases of natural gas resulting from increased natural gas sales by the
Company.
General and Administrative Expenses
The increase in general and administrative expenses for the second quarter
and first six months of 2000, compared with the second quarter and first six
months of 1999, related to, among other items, an increase in the size of the
Company's work force and normal salary and concomitant benefit expense
adjustments and, with respect to the six month comparative periods, increased
expenses associated with the Company's Thailand operations related to the
commencement of production from the Benchamas field.
Exploration Expenses
Exploration expenses consist primarily of rental payments required under
oil and gas leases to hold non-producing properties ("delay rentals") and
exploratory geological and geophysical costs which are expensed as incurred. The
increase in exploration expense for the second quarter of 2000, compared to the
second quarter of 1999, resulted primarily from generally increased geophysical
activity by the Company in: Canada, where a significant 3-D seismic survey was
acquired; Hungary, where approximately 800 kilometers of proprietary 2-D seismic
survey commenced; and in Thailand, where additional 3-D seismic data was
acquired and existing 3-D seismic data was reprocessed. The increase in
exploration expense for the first six months of 2000, compared to the first six
months of 1999, resulted primarily from increased geophysical activity by the
Company in the previously mentioned areas as well as expenses related to 3-D
seismic surveys acquired in the offshore Gulf of Mexico and on the Company's
exploration leases in the United Kingdom sector of the North Sea.
15
Depreciation, Depletion and Amortization Expenses
The increase in the Company's depreciation, depletion and amortization
("DD&A") expense for the second quarter and first six months of 2000, compared
to the second quarter and first six months of 1999, resulted primarily from an
increase in the Company's natural gas and liquid hydrocarbon production, that
was only partially offset by a decrease in the Company's composite DD&A rate.
The decrease in the composite DD&A rate for all of the Company's producing
fields for the second quarter and first six months of 2000, compared to the
second quarter and first six months of 1999, 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 lower than the Company's recent
historical composite rate (principally the Benchamas Field and certain Permian
basin properties) and a corresponding decrease in the percentage of the
Company's production coming from fields that have DD&A rates that are higher
than the Company's recent historical composite DD&A rate.
Interest
Interest Charges. The decrease in the Company's interest charges for the
second quarter and first six months of 2000, compared to the second quarter and
first six months of 1999, resulted primarily from a decrease in the average
amount of the Company's outstanding debt, primarily due to the issuance of the
Trust Preferred Securities in the second quarter of 1999, and, to a lesser
extent, increased cash flow from operations that was not entirely offset by
increased average interest rates on the debt outstanding. As of July 31, 2000,
the Company was not a party to any interest rate swap agreements.
Capitalized Interest. The decrease in capitalized interest for the second
quarter of 2000, compared to the second quarter of 1999, resulted primarily from
a decrease in the amount of capital expenditures subject to interest
capitalization during the second quarter of 2000 ($225,405,000), compared to the
second quarter of 1999 ($248,340,000), that was only partially offset by an
increase in the interest rate discussed above that the Company uses to apply on
such capital expenditures to arrive at the total amount of capitalized interest.
The increase in capitalized interest for the first six months of 2000, compared
to the first six months of 1999, resulted primarily from an increase in the
amount of capital expenditures subject to interest capitalization during the
first six months of 2000 ($229,920,000), compared to the first quarter of 1999
($218,044,000) and, to a lesser extent, from an increase in the interest rate
discussed above that the Company uses to apply on such capital expenditures to
arrive at the total amount of capitalized interest. A substantial percentage of
the Company's capitalized interest expense resulted from capitalization of
interest related to capital expenditures for the development of the Benchamas
field in the Gulf of Thailand and, to a lesser extent, several development
projects in the Gulf of Mexico.
Minority Interest -- Dividends and Costs Associated
with Preferred Securities of a Subsidiary Trust
Pogo Trust I, a business trust in which the Company owns all of the issued
common securities, issued $150,000,000 of Trust Preferred Securities on June 2,
1999. Therefore the amounts recorded for the second quarter and first six
months of 1999 under Minority Interest -- Dividends and Costs Associated with
Preferred Securities of a Subsidiary Trust principally reflected cumulative
unpaid dividends and, to a lesser extent, the amortization of issuance expenses
related to the offering and sale of the Trust Preferred Securities for a small
portion of such periods. The amounts recorded for such expenses for second
quarter and first six months of 2000 are indicative of future expenses that will
be incurred during the term of the Trust Preferred Securities.
Foreign Currency Transaction Losses
The foreign currency transaction losses reported for the second quarter and
first six months of 2000 and the foreign currency transaction gains reported for
the second quarter and first six months of 1999 resulted primarily from the
fluctuation against the U.S. dollar of cash and other monetary assets and
liabilities denominated in Thai Baht that were on the Company's subsidiary
financial statements during the respective periods. In early July 1997, the
government of
16
the Kingdom of Thailand announced that the value of the Baht would be set
against the dollar and other currencies under a "managed float" program
arrangement. During the second quarter and first six months of 2000, the value
of the Thai Baht weakened against the U.S. dollar, resulting in a foreign
currency transaction loss. The Company cannot predict what the Thai Baht to U.S.
dollar exchange rate may be in the future. Moreover, it is anticipated that this
exchange rate will remain volatile. As of July 31, 2000, the Company was not a
party to any financial instrument that was intended to constitute a foreign
currency hedging arrangement.
17
Income Tax Expense
The increase in the Company's income tax expense for the second quarter and
first six months of 2000, compared to the second quarter and first six months of
1999, resulted primarily from increased pre-tax income and the increased
contribution to pre-tax income from the Company's Kingdom of Thailand operations
which are subjected to a tax rate in excess of the U.S. statutory tax rate.
Management currently expects that its foreign taxes will constitute a
substantial portion of its overall tax burden for the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company's Condensed Consolidated Statement of Cash Flows for the first
six months of 2000 reflects net cash provided by operating activities of
$109,384,000. In addition to net cash provided by operating activities, the
Company received $1,876,000, primarily from the exercise of stock options.
During the first six months of 2000, the Company invested $57,665,000 of
such cash flow in capital projects, repaid a net $10,000,000 under its senior
debt agreements and paid $2,425,000 (two quarterly dividend payments of $0.03
per share) in cash dividends to holders of the Company's common stock and paid
$4,875,000 in cash distributions to holders of its Trust Preferred Securities.
As of June 30, 2000, the Company's cash and cash equivalents were $42,145,000
and its long-term debt stood at $365,000,000.
Effective May 3, 2000, the borrowing base under the Company's revolving
credit facility was increased to $200,000,000 and restriction against new
indebtedness was increased a corresponding amount to $565,000,000. As of August
1, 2000, the Company had $200,000,000 of availability under its revolving credit
facility and its unsecured credit line.
Future Capital Requirements
The Company's capital and exploration budget for 2000, which does not
include any amounts that may be expended for the purchase of proved reserves,
was established by the Company's Board of Directors at $200,000,000. The Company
currently anticipates that its available cash and cash equivalents, cash
provided by operating activities and funds available under its credit agreement,
uncommitted credit line and banker's acceptance facility will be sufficient to
fund the Company's ongoing operating, interest and general and administrative
expenses, any currently anticipated costs associated with the Company's projects
during 2000, and future dividend and distribution payments at current levels
(including a dividend payment of $0.03 per share to be paid on August 18, 2000
to shareholders of record on August 4, 2000). The declaration of future
dividends on the Company's equity securities will depend upon, among other
things, the Company's future earnings and financial condition, liquidity and
capital requirements, its ability to pay dividends and distributions under
certain covenants contained in its debt instruments, the general economic and
regulatory climate and other factors deemed relevant by the Company's Board of
Directors.
Other Matters
Year 2000 Readiness Disclosure. Information regarding the Company's Year
2000 readiness is contained in the Company's annual report on Form 10-K for the
year ended December 31, 1999 and reference is made to the information contained
there. There has been no material change in the Company's Year 2000 readiness
since that information was disclosed.
Current Hedging Activity. From time to time, the Company has used and may
continue to use hedging transactions with respect to a portion of its oil and
gas production to achieve a more predictable cash flow, as well as to reduce its
exposure to price fluctuations. While the use of these hedging arrangements
limits the downside risk of adverse price movements, it may also limit future
revenues from favorable price movements. The use of hedging transactions
18
also involves the risk that the counterparties will be unable to meet the
financial terms of such transactions. All of the Company's recent historical
hedging transactions have been carried out in the over-the-counter market with
investment grade institutions. The Company accounts for these transactions as
hedging activities and, accordingly, gains or losses are included in oil and gas
revenues when the hedged production is delivered. Neither the hedging contract
nor the unrealized gains and losses on these contracts are recognized in the
financial statements. During the first six months of 2000, approximately 26% of
the Company's equivalent oil and natural gas production was subject to hedge
positions. No significant amounts of the Company's equivalent oil and natural
gas production were subject to hedge positions during the first six months of
1999.
19
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
The registrant held its annual meeting of stockholders in Houston, Texas on
April 25, 2000. The following sets forth the items that were put to a vote
of the stockholders and the results thereof concerning:
(A) election of three directors, each for a term of three years. The vote
tabulation for each nominee was as follows:
For Withheld
----- --------
Robert H. Campbell 37,961,482 121,669
Gerrit W. Gong 37,962,269 120,882
Stephen A. Wells 37,962,070 121,081
(B) approval of the Company's 2000 Incentive Plan, including the
reservation of 1,000,000 shares of the Company's common stock for
issuance in connection therewith, with 26,416,240 shares of stock cast
for approval, 11,580,931 shares against approval and 85,979
absentions.
(C) ratification of the appointment of Arthur Andersen LLP, independent
public accountants, to audit the financial statements of the
registrant for the year 2000, with 38,040,648 shares of stock cast for
the appointment, 16,007 against the appointment, and 26,496
abstentions and broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
4.1 -- Fourth Amendment dated May 3, 2000, to Amended and Restated
Credit Agreement dated as of August 1, 1997 among Pogo Producing
Company, certain commercial lending institutions, Bank of
Montreal as the Agent and Banque Paribas as the Co-Agent.
27 -- Financial Data Schedule
(B) Reports on Form 8-K
None.
20
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 Chief
Accounting Officer
/s/ James P. Ulm, II
-----------------------------
James P. Ulm, II
Vice President and Chief
Financial Officer
Date: August 9, 2000
21