EXHIBIT 99
[LETTERHEAD FOR RYDER SCOTT COMPANY PETROLEUM ENGINEERS APPEARS HERE]
February 28, 1997
Pogo Producing Company
Post Office Box 2504
Houston, Texas 77252-2504
Gentlemen:
At your request we have prepared an estimate of the reserves, future
production, and income attributable to certain leasehold and royalty interests
of Pogo Producing Company and its wholly owned subsidiaries (the Company) as of
December 31, 1996. In accordance with the requirements of FASB 69, our estimates
of the Company's net proved reserves as of December 31, 1993, 1994, 1995, and
1996, as contained in this report and our previous reports, are presented in
attached Table No. 1 together with a tabulation of the components of the
differences in the estimates as of such dates. The Company's reserves in the
United States are located in the states of Louisiana, New Mexico, Oklahoma,
Texas, and in state and federal waters offshore Louisiana and Texas. The
Company's foreign reserves are located offshore Thailand.
The estimated reserve volumes and future income amounts presented in
this report are related to hydrocarbon prices. December 1996 hydrocarbon prices
were used in the preparation of this report as required by Securities and
Exchange Commission (SEC) and Financial Accounting Standards Bulletin No. 69
(FASB 69) guidelines; however, actual future prices may vary significantly from
December 1996 prices. Therefore, volumes of reserves actually recovered and
amounts of income actually received may differ from the estimated quantities
presented in this report. Our estimates of the proved net reserves attributable
to the interests of the Company as of December 31, 1996 are shown below:
Proved Net Reserves
As of December 31, 1996
----------------------------------
Liquid, Barrels Gas, MMCF
-------------------- -------------
Developed and Undeveloped
United States 28,270,402 215,946
Foreign 21,331,780 144,998
Total Worldwide 49,602,182 360,944
Developed
United States 25,898,414 192,034
Foreign 5,191,993 45,998
Total Worldwide 31,090,407 238,032
The "Liquid" reserves shown above are comprised of crude oil,
condensate, and natural gas liquids. Natural gas liquids comprise 12 percent of
the Company's developed liquid reserves and 9 percent of the Company's developed
and undeveloped liquid reserves. All hydrocarbon liquid reserves are expressed
in standard 42 gallon barrels. All gas volumes are sales gas expressed in MMCF
at the pressure and temperature bases of the area where the gas reserves are
located.
Pogo Producing Company
February 28, 1997
Page 2
The proved reserves presented in this report comply with the SEC's
Regulation S-X Part 210.4-10 Sec. (a) as clarified by subsequent Commission
Staff Accounting Bulletins, and are based on the following definitions and
criteria:
Proved reserves of crude oil, condensate, natural gas, and natural
gas liquids are estimated quantities that geological and engineering data
demonstrate with reasonable certainty to be recoverable in the future from
known reservoirs under existing conditions. Reservoirs are considered
proved if economic producibility is supported by actual production or
formation tests. In certain instances, proved reserves are assigned on the
basis of a combination of core analysis and electrical and other type logs
which indicate the reservoirs are analogous to reservoirs in the same field
which are producing or have demonstrated the ability to produce on a
formation test. The area of a reservoir considered proved includes (1) that
portion delineated by drilling and defined by fluid contacts, if any, and
(2) the adjoining portions not yet drilled that can be reasonably judged as
economically productive on the basis of available geological and
engineering data. In the absence of data on fluid contacts, the lowest
known structural occurrence of hydrocarbons controls the lower proved limit
of the reservoir. Proved reserves are estimates of hydrocarbons to be
recovered from a given date forward. They may be revised as hydrocarbons
are produced and additional data become available. Proved natural gas
reserves are comprised of non-associated, associated, and dissolved gas. An
appropriate reduction in gas reserves has been made for the expected
removal of natural gas liquids, for lease and plant fuel, and the exclusion
of non-hydrocarbon gases if they occur in significant quantities and are
removed prior to sale. Reserves that can be produced economically through
the application of improved recovery techniques are included in the proved
classification when these qualifications are met: (1) successful testing by
a pilot project or the operation of an installed program in the reservoir
provides support for the engineering analysis on which the project or
program was based, and (2) it is reasonably certain the project will
proceed. Improved recovery includes all methods for supplementing natural
reservoir forces and energy, or otherwise increasing ultimate recovery from
a reservoir, including (1) pressure maintenance, (2) cycling, and (3)
secondary recovery in its original sense. Improved recovery also includes
the enhanced recovery methods of thermal, chemical flooding, and the use of
miscible and immiscible displacement fluids. Estimates of proved reserves
do not include crude oil, natural gas, or natural gas liquids being held in
underground storage. Depending on the status of development, these proved
reserves are further subdivided into:
(i) "developed reserves" which are those proved reserves reasonably
expected to be recovered through existing wells with existing
equipment and operating methods, including (a) "developed producing
reserves" which are those proved developed reserves reasonably
expected to be produced from existing completion intervals now open
for production in existing wells, and (b) "developed non-producing
reserves" which are those proved developed reserves which exist behind
the casing of existing wells which are reasonably expected to be
produced through these wells in the predictable future where the cost
of making such hydrocarbons available for production should be
relatively small compared to the cost of a new well; and
(ii) "undeveloped reserves" which are those proved reserves reasonably
expected to be recovered from new wells on undrilled acreage, from
existing wells where a relatively large expenditure is required, and
from acreage for which an application of fluid injection or other
improved recovery technique is contemplated where the technique has
been proved effective by actual tests in the area in the same
reservoir. Reserves from undrilled acreage are limited to those
drilling units offsetting productive units that
Pogo Producing Company
February 28, 1997
Page 3
are reasonably certain of production when drilled. Proved reserves for
other undrilled units are included only where it can be demonstrated
with reasonable certainty that there is continuity of production from
the existing productive formation.
Because of the direct relationship between volumes of proved
undeveloped reserves and development plans, we include in the proved undeveloped
category only reserves assigned to undeveloped locations that we have been
assured will definitely be drilled and reserves assigned to the undeveloped
portions of secondary or tertiary projects which we have been assured will
definitely be developed.
The Company has interests in certain tracts which have substantial
additional hydrocarbon quantities which cannot be classified as proved and
consequently are not included herein. The Company has active exploratory and
development drilling programs which may result in the reclassification of
significant additional volumes to the proved category.
In accordance with the requirements of FASB 69, our estimates of
future cash inflows, future costs, and future net cash inflows before income tax
as of December 31, 1996 from this report and as of December 31, 1995 from our
previous report are presented below.
As of December 31
-------------------------------------
1996 1995
----------------- -----------------
Future Cash Inflows $2,318,113,574 $1,495,319,661
Future Costs
Production $ 504,898,780 $ 415,830,130
Development 310,839,357 247,017,456
-------------- --------------
Total Costs $ 815,738,137 $ 662,847,586
Future Net Cash Inflows
Before Income Tax $1,502,375,437 $ 832,472,075
Present Value at 10%
Before Income Tax $ 954,544,450 $ 532,475,185
Our estimates as of December 31, 1996 and 1995 of future cash
inflows, future costs, future net cash inflows before income tax, and present
value at 10 percent before income tax are shown individually for total
worldwide, total United States (onshore and offshore), and foreign areas in
Table No. 2 which is attached.
The future cash inflows are gross revenues before any deductions. The
production costs were based on current data and include production taxes, ad
valorem taxes, and certain other items such as transportation costs in addition
to the operating costs directly applicable to the individual leases or wells.
The development costs were based on current data and include dismantlement and
abandonment costs net of salvage for those properties where such costs are
considered relatively significant by the company.
The Company furnished us with gas prices in effect at December 31,
1996 and with its forecasts of future gas prices which take into account SEC
guidelines, current market prices, contract prices, and fixed and determinable
price escalations where applicable. In accordance with SEC guidelines, the
future gas prices used in this report make no allowances for future gas price
increases which may occur as a result of inflation nor do they account for
seasonal variations in gas prices which may cause future yearly average gas
prices to be somewhat lower than December gas prices.
Pogo Producing Company
February 28, 1997
Page 4
For gas sold under contract, the contract gas price including fixed and
determinable escalations exclusive of inflation adjustments, was used until the
contract expires and then was adjusted to the current market price for the area
and held at this adjusted price to depletion of the reserves.
The Company furnished us with liquid prices in effect at December 31,
1996 and these prices were held constant to depletion of the properties. In
accordance with SEC guidelines, changes in liquid prices subsequent to December
31, 1996 were not considered in this report.
The estimates of future net revenue from the Company's foreign
property are based on existing law. Operating costs for the leases and wells in
this report were based on the operating expense reports of the Company and
include only those costs directly applicable to the leases or wells. When
applicable, the operating costs include a portion of general and administrative
costs allocated directly to the leases and wells under terms of operating
agreements. Development costs were furnished to us by the Company and are based
on authorizations for expenditure for the proposed work or actual costs for
similar projects. The current operating and development costs were held constant
throughout the life of the properties. At the request of the Company, their
estimate of zero net abandonment costs after salvage value for onshore
properties was used in this report. Ryder Scott has not performed a detailed
study of the abandonment costs nor the salvage value and makes no warranty for
the Company's estimate. The estimated net cost of abandonment after salvage was
included for offshore properties where abandonment costs net of salvage are
significant. The estimates of the offshore net abandonment costs furnished by
the Company were accepted without independent verification. No deduction was
made for indirect costs such as general administration and overhead expenses,
loan repayments, interest expenses, and exploration and development prepayments.
The Company supplied data on accumulated gas production imbalances which were
taken into account in our estimates of future production and income.
The estimates of reserves presented herein are based upon a detailed
study of the properties in which the Company owns an interest; however, we have
not made any field examination of the properties. No consideration was given in
this report to potential environmental liabilities which may exist nor were any
costs included for potential liability to restore and clean up damages, if any,
caused by past operating practices. The Company has informed us that they have
furnished us all of the accounts, records, geological and engineering data and
reports, and other data required for this investigation. The ownership
interests, prices, and other factual data furnished by the Company were accepted
without independent verification. The estimates presented in this report are
based on data available through December 1996.
The reserves included in this report are estimates only and should
not be construed as being exact quantities. They may or may not be actually
recovered, and if recovered, the revenues therefrom and the actual costs related
thereto could be more or less than the estimated amounts. Moreover, estimates of
reserves may increase or decrease as a result of future operations.
In general, we estimate that future gas production rates will
continue to be the same as the average rate for the latest available 12 months
of actual production until such time that the well or wells are incapable of
producing at this rate. The well or wells were then projected to decline at
their decreasing delivery capacity rate. Our general policy on estimates of
future gas production rates is adjusted when necessary to reflect actual gas
market conditions in specific cases. The future production rates from wells now
on production may be more or less than estimated because of changes in market
demand or allowables set by regulatory bodies. Wells or locations which are not
currently producing may start producing earlier or later than anticipated in our
estimates of their future production rates.
Pogo Producing Company
February 28, 1997
Page 5
While it may reasonably be anticipated that the future prices
received for the sale of production and the operating costs and other costs
relating to such production may also increase or decrease from existing levels,
such changes were, in accordance with rules adopted by the SEC, omitted from
consideration in making this evaluation.
Neither we nor any of our employees have any interest in the subject
properties and neither the employment to make this study nor the compensation is
contingent on our estimates of reserves and future cash inflows for the subject
properties.
Very truly yours,
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
/s/ ROBERT M. WAGNER, P.E.
Robert M. Wagner, P.E.
Vice President
TABLE NO. 1
POGO PRODUCING COMPANY
PROVED NET RESERVE DATA
United States
Total Worldwide Total Onshore and Offshore
-------------------------------------- --------------------------------------
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
Net Proved Liquid/1/
Reserves, Barrels
- ----------------------------------
Developed and Underdeveloped
Beginning of Year 45,182,002 33,861,612 28,268,441 26,185,010 26,187,240 22,843,628
Revisions -499,595 496,849 1,286,984 3,374,647 363,213 1,286,984
Extensions and Discoveries 9,810,363 11,901,880 6,565,442 3,601,333 4,267,871 4,315,883
Improved Recovery 0 0 0 0 0 0
Estimated Production -4,890,588 -5,078,326 -4,945,677 -4,890,588 -5,078,326 -4,945,677
Purchase of Reserves In-Place 0 4,015,131 2,686,919 0 460,156 2,686,919
Sales of Reserves In-Place 0 -15,144 -497 0 -15,144 -497
---------- ---------- ---------- ---------- ---------- ----------
End of Year 49,602,182 45,182,002 33,861,612 28,270,402 26,185,010 26,187,240
Developed
Beginning of Year 22,487,608 24,669,755 20,976,194 22,487,608 24,669,755 20,976,194
End of Year 31,090,407 22,487,608 24,669,755 25,898,414 22,487,608 24,669,755
Net Proved Gas
Reserves, Millions of Cubic Feet
- ----------------------------------
Developed and Undeveloped
Beginning of Year 328,061 242,890 232,866 196,454 186,151 199,392
Revisions -30,034 21,800 -2,558 3,022 16,592 -2,558
Extensions and Discoveries 102,039 78,434 49,517 55,592 35,058 26,252
Improved Recovery 0 0 0 0 0 0
Estimated Production -39,122 -44,369 -52,618 -39,122 -44,369 -52,618
Purchase of Reserves In-Place 0 30,054 15,792 0 3,770 15,792
Sales of Reserves In-Place 0 -748 -109 0 -748 -109
---------- ---------- ---------- ---------- ---------- ----------
End of Year 360,944 328,061 242,890 215,946 196,454 186,151
Developed
Beginning of Year 164,679 178,518 183,139 164,679 178,518 183,139
End of Year 238,032 164,679 178,518 192,034 164,679 178,518
Foreign
Thailand Offshore
--------------------------------------
1996 1995 1994
---------- ---------- ----------
Net Proved Liquid/1/
Reserves, Barrels
- ----------------------------------
Developed and Underdeveloped
Beginning of Year 18,996,992 7,674,372 5,424,813
Revisions -3,874,242 133,636 0
Extensions and Discoveries 6,209,030 7,634,009 2,249,559
Improved Recovery 0 0 0
Estimated Production 0 0 0
Purchase of Reserves In-Place 0 3,554,975 0
Sales of Reserves In-Place 0 0 0
---------- ---------- ----------
End of Year 21,331,780 18,996,992 7,674,372
Developed
Beginning of Year 0 0 0
End of Year 5,191,993 0 0
Net Proved Gas
Reserves, Millions of Cubic Feet
- ----------------------------------
Developed and Undeveloped
Beginning of Year 131,607 56,739 33,474
Revisions -33,056 5,208 0
Extensions and Discoveries 46,447 43,376 23,265
Improved Recovery 0 0 0
Estimated Production 0 0 0
Purchase of Reserves In-Place 0 26,284 0
Sales of Reserves In-Place 0 0 0
---------- ---------- ----------
End of Year 144,998 131,607 56,739
Developed
Beginning of Year 0 0 0
End of Year 45,998 0 0
- -----------------
/1/ Liquid reserves shown above are comprised of crude oil, condensate, and
natural gas liquids.
TABLE NO. 2
POGO PRODUCING COMPANY
CASH INFLOW AND COST DATA (U.S. DOLLARS)
United States
Total Worldwide Onshore and Offshore Thailand Offshore
As of December 31 As of December 31 As of December 31
------------------------------- ----------------------------- --------------------------
1996 1995 1996 1995 1996 1995
--------------- -------------- -------------- ------------ ------------ -----------
Future Cash Inflows /1/ $2,318,113,574 $1,495,319,661 $1,491,057,387 $873,577,735 $827,056,187 $621,741,926
Future Costs
Production /2/ $ 504,898,780 $ 415,830,130 $ 259,501,165 $208,477,740 $245,397,615 $207,352,390
Development /3/ 310,839,357 247,017,456 126,085,805 119,819,654 184,753,552 127,197,802
--------------- -------------- -------------- ------------ ------------ -----------
Total Costs $ 815,738,137 $ 662,847,586 $ 385,586,970 $328,297,394 $430,151,167 $334,550,192
Future Cash Inflows
Before Income Tax $1,502,375,437 $ 832,472,075 $1,105,470,417 $545,280,341 $396,905,020 $287,191,734
Present Value @ 10%
Before Income Tax $ 954,544,450 $ 532,475,185 $ 773,126,716 $400,844,626 $181,417,734 $131,630,559
_______________________________
1 Gross revenues before any deductions.
2 Includes production taxes in the U.S.A., SRB taxes in Thailand, ad valorem
taxes and certain other items such as transportation charges.
3 Includes future abandonment costs net of salvage for offshore properties
where such costs are relatively significant.