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EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
statements give effect to the merger of NORIC Corporation, a New York
corporation ("NORIC"), the parent company of North Central Oil Corporation,
a Delaware corporation ("North Central"), with and into Pogo Producing Company,
a Delaware corporation ("Pogo"), with Pogo remaining as the surviving
corporation. Since NORIC has disposed of all of its non-oil and gas assets and
operations other than its investment in North Central and cash and cash
equivalents generated from the disposition of the non-oil and gas assets, the
following unaudited pro forma condensed consolidated financial statements are
based on the historical financial statements for North Central adjusted to
reflect approximately $18,300,000 of cash and cash equivalents of NORIC.
The unaudited pro forma condensed consolidated statement of income presents
the combined results of operations of Pogo and North Central as if the proposed
merger had occurred on January 1, 2000. The unaudited pro forma condensed
consolidated balance sheet presents the combined financial position of Pogo and
North Central (including NORIC cash and cash equivalents) as if the proposed
merger had occurred as of December 31, 2000.
Based on the merger consideration guidelines, including subsequent purchase
price adjustments, 12.6 million shares were issued to former NORIC shareholders
at an assumed price for pro forma purposes of $28.88. Cash consideration paid,
after the purchase price adjustment, consisted of $344.7 million. After the
closing, former NORIC stockholders own approximately 24% of Pogo's outstanding
common stock.
The accompanying unaudited pro forma condensed consolidated financial
statements reflect the acquisition of NORIC by Pogo under the purchase method
of accounting. The final determination of the allocation of the purchase price
to the assets acquired and liabilities assumed based on their respective fair
values has not yet been made. Accordingly, the purchase accounting adjustments
made in connection with the development of the unaudited pro forma condensed
consolidated financial statements are preliminary and have been made solely for
purposes of developing the pro forma financial information.
The unaudited pro forma condensed consolidated financial statements are
presented for illustration purposes only, and do not necessarily indicate the
operating results or financial position that would have occurred if the merger
had been completed as of December 31, 2000 or January 1, 2000. The unaudited
pro forma condensed consolidated financial statements are not necessarily
indicative of future operating results or of the financial position of the
combined enterprise.
These unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the historical consolidated financial
statements, including the notes thereto, of Pogo and North Central filed
previously with the Securities and Exchange Commission or included elsewhere in
this current report on Form 8-K, including the information filed in the
definitive proxy statement relating to the merger on February 6, 2001. The
unaudited condensed consolidated financial statements do not reflect any cost
savings or other synergies anticipated as a result of the merger, nor do they
reflect any future merger-related expenses.
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POGO PRODUCING COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000
(EXPRESSED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NORTH PRO FORMA PRO FORMA
POGO CENTRAL ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
Revenues:
Oil and gas sales.......................... $479,202 $144,900 $ (100)(a) $624,002
Pipeline sales and other................... 15,113 300 15,413
Gains (losses) on sales.................... 3,676 -- 3,676
-------- -------- --------- --------
Total.............................. 497,991 145,200 (100) 643,091
-------- -------- --------- --------
Operating Costs and Expenses:
Lease operating............................ 93,640 27,100 120,740
Pipeline operating and natural gas
purchases............................... 15,090 -- 15,090
General and administrative................. 34,568 40,000 (34,400)(b) 40,168
Exploration................................ 15,291 1,200 16,491
Dry hole and impairment.................... 28,608 6,200 34,808
(31,500)(c)
Depreciation, depletion and amortization... 131,151 31,500 72,700 (d) 203,851
-------- -------- --------- --------
Total.............................. 318,348 106,000 6,800 431,148
-------- -------- --------- --------
Operating Income (Loss)...................... 179,643 39,200 (6,900) 211,943
Interest:
Charges.................................... (34,064) (10,300) (20,200)(e) (64,564)
Income..................................... 2,634 400 3,034
Capitalized................................ 20,918 -- 20,918
Minority Interest............................ (9,965) -- (9,965)
Foreign Currency Transaction Gain............ (3,174) -- (3,174)
-------- -------- --------- --------
Income (Loss) Before Taxes................... 155,992 29,300 (27,100) 158,192
Income Tax Benefit (Expense)................. (66,969) (11,100) 9,485 (f) (68,584)
-------- -------- --------- --------
Net Income (Loss) Before Cumulative Effect
of Change in Accounting Principle.......... $ 89,023 $ 18,200 $ (17,615) $ 89,608
======== ======== ========= ========
EARNINGS (LOSS) PER COMMON SHARE
Basic........................................ $ 2.20 $ 1.69(l)
Diluted...................................... $ 1.99 $ 1.48(l)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
POTENTIAL COMMON SHARES OUTSTANDING:
Basic........................................ 40,445 12,616 (l) 53,061
Diluted...................................... 50,155 12,616 (l) 62,771
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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POGO PRODUCING COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2000
(EXPRESSED IN THOUSANDS)
NORTH PRO FORMA PRO FORMA
POGO CENTRAL ADJUSTMENTS COMBINED
----------- --------- ----------- -----------
CURRENT ASSETS:
Cash and cash equivalents............. $ 81,510 $ 10,800 $ 18,300 (i) $ 44,810
(65,800)(j)
Other current assets.................. 133,162 20,400 153,562
----------- --------- --------- -----------
Total current assets.......... 214,672 31,200 (47,500) 198,372
----------- --------- --------- -----------
PROPERTY AND EQUIPMENT (AT COST):
Oil and gas properties (successful
efforts 883,800 (l)
method)............................ 1,853,318 445,200 (143,600)(k) 3,038,718
Pipelines and other fixed assets...... 22,352 5,500 27,852
----------- --------- --------- -----------
1,875,670 450,700 740,200 3,066,570
Less -- Accumulated depreciation,
depletion, and amortization........ (1,064,016) (143,600) 143,600 (k) (1,064,016)
----------- --------- --------- -----------
811,654 307,100 883,800 2,002,554
----------- --------- --------- -----------
OTHER ASSETS:
Deferred charges -- commodity
hedges............................. -- 30,200 (30,200)(g) --
Gas imbalance receivable.............. -- 2,100 (2,100)(a) --
Other noncurrent assets............... 57,196 1,400 58,596
----------- --------- --------- -----------
57,196 33,700 (32,300) 58,596
----------- --------- --------- -----------
$ 1,083,522 $ 372,000 $ 804,000 $ 2,259,522
=========== ========= ========= ===========
CURRENT LIABILITIES..................... $ 106,429 $ 41,100 $ 147,529
OTHER LIABILITIES:
$ (65,800)(j)
Long-term debt........................ 365,000 124,500 355,000 (l) 778,700
Deferred federal income taxes......... 95,453 25,700 330,455 (l) 451,608
Deferred compensation................. -- 45,400 (45,400)(b) --
Deferred income -- interest rate
hedges............................. -- 2,300 (2,300)(g) --
Other noncurrent liabilities.......... 13,456 1,300 (600)(h) 14,156
----------- --------- --------- -----------
580,338 240,300 571,355 1,391,993
----------- --------- --------- -----------
MINORITY INTEREST....................... 144,913 -- -- 144,913
----------- --------- --------- -----------
SHAREHOLDERS' EQUITY.................... 358,271 131,700 232,645 (l) 722,616
----------- --------- --------- -----------
$ 1,083,522 $ 372,000 $ 804,000 $ 2,259,522
=========== ========= ========= ===========
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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POGO PRODUCING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
a. To conform North Central's method of accounting for natural gas production
imbalances to be consistent with Pogo's method. Pogo follows the sales
method of accounting for production imbalances whereby Pogo recognizes
revenues on production it has taken and delivered to its purchasers
notwithstanding its ownership percentage. North Central has historically
followed the entitlements method whereby North Central recognized revenue
for its share of production whether or not the gas is actually taken by
North Central's purchasers.
b. To eliminate the North Central deferred compensation liability and related
expense pursuant to the terms of the merger agreement. The merger agreement
required that the obligation related to North Central's phantom share plan
be settled immediately prior to the merger. Pogo will not offer benefits to
employees of North Central after the merger which are comparable to, or
which would replace, the phantom share plan.
c. To record the reversal of North Central's historical depreciation,
depletion and amortization expense.
d. To record depreciation, depletion and amortization expense based on the
estimated fair value of North Central's properties and equipment.
e. To record interest expense on the acquisition debt to be funded using
Pogo's revolving bank credit agreement at Pogo's current interest rate of
7%. A 1/8% increase or decrease in the interest rate would change interest
expense $400,000 for the year ended December 31, 2000.
f. To record income tax effect on the pro forma adjustments based on the 35%
statutory income tax rates.
g. To reflect the elimination of North Central's deferred realized loss from
commodity hedging activities and deferred realized gain from interest rate
hedging activities in connection with the purchase price allocation in
accordance with the purchase method of accounting. See footnote (l).
h. To adjust North Central's accrued retirement obligation to estimated fair
value in accordance with the purchase method of accounting. See footnote
(l).
i. To reflect the approximately $18,300,000 in cash and cash equivalents of
NORIC that were acquired in the merger. See footnote (l).
j. To reduce Pogo cash and acquisition debt for the amount of Pogo cash on
hand used to satisfy a portion of the cash consideration in the merger. See
footnote (l).
k. To reverse historical North Central accumulated depreciation, depletion and
amortization in connection with the purchase price allocation in accordance
with the purchase method of accounting. See footnote (l).
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l. To record purchase accounting adjustments related to the allocation of the
purchase price of the acquisition of NORIC, including estimated merger
costs, to assets acquired and liabilities assumed in accordance with the
purchase method of accounting.
The following is a calculation of the fair value of Pogo common stock
issued to NORIC shareholders in connection with the merger (expressed in
thousands, except per share amounts).
FAIR VALUE OF COMMON STOCK:
Number of shares of common stock issued in connection
with the merger .......................................... 12,615,816
Pogo's common stock price (the average of the closing
prices for March 9-13, 2001) ............................. $ 28.88
-----------
Fair value of common stock issued........................... $ 364,345
===========
The following is an allocation of the purchase price to assets acquired,
and liabilities incurred and assumed, based on their estimated fair values
(expressed in thousands).
ALLOCATION OF PURCHASE PRICE:
NORIC cash and cash equivalents............................. $ 18,300
Other current assets........................................ 31,200
Properties and equipment.................................... 1,190,900
Other noncurrent assets..................................... 1,400
Current liabilities......................................... (41,100)
North Central long-term debt................................ (124,500)
Additional acquisition indebtedness (including $10,300 of
estimated merger related costs)........................... (355,000)
Deferred income taxes....................................... (356,155)
Other non-current liabilities............................... (700)
-----------
Shareholders' equity........................................ $ (364,345)
===========
The purchase accounting adjustments, including allocation, is subject to
changes in the actual merger costs incurred.
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