1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 1995
OR
( ) Transition report pursuant to section 13 or 15[d] of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-7792
Pogo Producing Company
(Exact name of registrant as specified in its charter)
Delaware 74-1659398
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Greenway Plaza, Suite 2700
Houston, Texas 77046-0504
(Address of principal executive offices) (Zip Code)
(713) 297-5000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days: Yes X No
Registrant's number of common shares outstanding
as of September 30, 1995: 32,977,397
2
PART I. FINANCIAL INFORMATION
POGO PRODUCING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- -------------------------------
1995 1994 1995 1994
--------- --------- ---------- ----------
(Expressed in thousands, except per share amounts)
Revenues:
Oil and gas $ 36,967 $ 46,452 $ 120,415 $ 134,026
Gains on sales -- -- 100 52
--------- --------- ---------- ----------
Total 36,967 46,452 120,515 134,078
--------- --------- ---------- ----------
Operating Costs and Expenses:
Lease operating 9,891 8,098 26,555 22,462
General and administrative 4,050 3,876 12,726 11,680
Exploration 1,737 902 4,229 2,208
Dry hole and impairment 2,112 2,049 4,483 6,265
Depreciation, depletion and amortization 16,378 17,641 52,774 46,244
--------- --------- ---------- ----------
Total 34,168 32,566 100,767 88,859
--------- --------- ---------- ----------
Operating Income 2,799 13,886 19,748 45,219
Interest:
Charges (2,742) (2,450) (8,268) (7,714)
Income -- 10 60 43
Capitalized 709 199 945 530
--------- --------- ---------- ----------
Income Before Income Taxes 766 11,645 12,485 38,078
Income Tax Expense (44) (4,212) (3,979) (13,464)
--------- --------- ---------- ----------
Income Before Extraordinary Loss 722 7,433 8,506 24,614
Extraordinary Loss on
Early Extinguishment of Debt -- -- -- (307)
--------- --------- ---------- ----------
Net Income $ 722 $ 7,433 $ 8,506 $ 24,307
========= ========= ========== ==========
Primary Earnings Per Share:
Income before extraordinary loss $ 0.02 $ 0.22 $ 0.25 $ 0.74
Extraordinary loss -- -- -- (0.01)
--------- --------- ---------- ----------
Net Income $ 0.02 $ 0.22 $ 0.25 $ 0.73
========= ========= ========== ==========
Fully Diluted Earnings Per Share:
Income before extraordinary loss $ 0.02 $ 0.22 $ 0.25 $ 0.73
Extraordinary loss -- -- -- (0.01)
--------- --------- ---------- ----------
Net Income $ 0.02 $ 0.22 $ 0.25 $ 0.72
========= ========= ========== ==========
Dividends Per Common Share $ 0.03 $ 0.03 $ 0.09 $ 0.03
========= ========= ========== ==========
See accompanying notes to consolidated financial statements.
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3
POGO PRODUCING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
(Expressed in thousands,
except share amounts)
Assets
Current Assets:
Cash and cash investments $ 7,432 $ 2,922
Accounts receivable 21,137 28,915
Other receivables 24,316 14,717
Federal income tax receivable 6,000 --
Inventories 4,769 2,422
Other 1,169 745
---------- ----------
Total current assets 64,823 49,721
---------- ----------
Property and Equipment:
Oil and gas, on the basis of successful efforts accounting
Proved properties being amortized 936,594 913,865
Unevaluated properties and properties
under development, not being amortized 35,582 6,890
Other, at cost 8,551 8,268
---------- ----------
980,727 929,023
Less--accumulated depreciation, depletion and
amortization, including $5,556 and $5,040,
respectively, applicable to other property 741,852 691,110
---------- ----------
238,875 237,913
---------- ----------
Other 11,853 11,192
---------- ----------
$ 315,551 $ 298,826
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 8,704 $ 8,065
Other payables 11,471 26,497
Current portion of long-term debt 871 1,282
Accrued interest payable 1,335 1,583
Accrued payroll and related benefits 1,312 1,237
Other 49 40
---------- ----------
Total current liabilities 23,742 38,704
---------- ----------
Long-Term Debt 164,249 149,249
Deferred Federal Income Tax 46,306 36,487
Deferred Credits 9,369 10,349
---------- ----------
Total liabilities 243,666 234,789
---------- ----------
Shareholders' Equity:
Preferred stock, $1 par; 2,000,000 shares authorized -- --
Common stock, $1 par; 100,000,000 and 43,333,333 shares
authorized, respectively, 32,992,972 and
32,825,836 shares issued, respectively 32,993 32,826
Additional capital 132,806 130,675
Retained earnings (deficit) (93,590) (99,140)
Treasury stock, at cost (324) (324)
---------- ----------
Total shareholders' equity 71,885 64,037
---------- ----------
$ 315,551 $ 298,826
========== ==========
See accompanying notes to consolidated financial statements.
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4
POGO PRODUCING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
----------------------------
1995 1994
(Expressed in thousands)
Cash Flows from Operating Activities:
Cash received from customers $ 127,704 $ 129,044
Operating, exploration, and general
and administrative expenses paid (42,871) (35,537)
Interest paid (8,516) (7,588)
Federal income taxes paid -- (7,500)
Federal income taxes and interest received -- 3,364
Settlement of natural gas transportation and
exchange imbalance -- (2,168)
---------- ----------
Other (883 (542)
---------- ----------
Net cash provided by operating activities 75,434 79,073
---------- ----------
Cash Flows from Investing Activities:
Capital expenditures (72,325) (64,520)
Purchase of proved reserves (11,921) (17,319)
Proceeds from the sales of properties 100 52
Net cash used in investing activities (84,146) (81,787)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from issuance of new debt -- 86,250
Net borrowings (payments) under revolving
credit agreement 13,000 (66,000)
Net borrowings under uncommitted lines of
credit with banks 2,000 5,000
Payments of cash dividends on common stock (2,956) (982)
Purchase of 8% debentures due 2005 (450) (91)
Other payments of long-term debt -- (24,472)
Payment of debt issue expenses -- (2,446)
Proceeds from exercise of stock options 1,628 3,437
---------- ----------
Net cash provided by financing activities 13,222 696
---------- ----------
Net Increase (Decrease) in Cash and Cash Investments 4,510 (2,018)
Cash and Cash Investments at the
Beginning of the Year 2,922 6,713
---------- ----------
Cash and Cash Investments at the End of the Period $ 7,432 $ 4,695
========== ==========
Reconciliation of Net Income to Net
Cash Provided by Operating Activities:
Net income $ 8,506 $ 24,307
Adjustments to reconcile net income to net cash
provided by operating activities -
Extraordinary loss on early extinguishment
of debt -- 307
Gains from the sales of properties (100) (52)
Depreciation, depletion and amortization 52,774 46,244
Dry hole and impairment 4,483 6,265
Interest capitalized (945) (530)
Deferred federal income taxes 10,489 6,206
Change in operating assets and liabilities 227 (3,674)
---------- ----------
Net Cash Provided by Operating Activities $ 75,434 $ 79,073
========== ==========
See accompanying notes to consolidated financial statements.
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5
POGO PRODUCING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Nine Months Ended September 30,
-----------------------------------------------------------
1995 1994
-------------------------- ---------------------------
Shares Amount Shares Amount
---------- --------- ---------- ---------
(Expressed in thousands, except shareamounts)
Common Stock:
$1.00 par - 100,000,000 and 43,333,333
shares authorized, respectively
Balance at beginning of year 32,825,836 $ 32,826 32,449,197 $ 32,449
Stock options exercised 167,136 167 344,597 345
---------- --------- ---------- ---------
Issued at end of period 32,992,972 32,993 32,793,794 32,794
---------- --------- ---------- ---------
Additional Capital:
Balance at beginning of year 130,675 125,919
Stock options exercised 2,131 4,376
--------- ---------
Balance at end of period 132,806 130,295
--------- ---------
Retained Earnings (Deficit):
Balance at beginning of year (99,140) (124,241)
Net income 8,506 24,307
Dividends ($0.09 and $0.03 per common share,
respectively) (2,956) (982)
--------- ---------
Balance at end of period (93,590) (100,916)
--------- ---------
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 32,977,397 32,778,219
========== ==========
Total Shareholders' Equity $ 71,885 $ 61,849
========= =========
See accompanying notes to consolidated financial statements.
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6
POGO PRODUCING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) General Information -
The consolidated financial statements included herein have been prepared
by Pogo Producing Company (the "Company") without audit and include all
adjustments (of a normal and recurring nature) which are, in the opinion of
management, necessary for the fair presentation of interim results which are not
necessarily indicative of results for the entire year. The financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's latest annual report.
(2) Long-Term Debt -
Long-term debt and the amount due within one year at September 30, 1995
and December 31, 1994, consists of the following:
September 30, December 31,
1995 1994
------------- ------------
(Expressed in thousands)
Senior debt --
Bank revolving credit agreement
LIBO Rate based loans, borrowings at September 30, 1995 and
December 31, 1994 at average interest rates of 6.97%
and 7.63%, respectively $ 19,000 $ 14,000
Prime rate based loan, borrowing at September 30, 1995 at
an interest rate of 8.75% 8,000 --
Uncommitted credit lines with banks, borrowings at September 30,
1995 and December 31, 1994 at average interest rates of
6.83% and 7.21%, respectively 9,000 7,000
--------- ---------
Total senior debt 36,000 21,000
--------- ---------
Subordinated debt --
5 1/2% Convertible subordinated notes due 2004 86,250 86,250
8% Convertible subordinated debentures due 2005 42,870 43,281
--------- ---------
Total subordinated debt 129,120 129,531
--------- ---------
Total debt 165,120 150,531
Amount due within one year consisting of the sinking fund
requirement on the 8% Debentures (871) (1,282)
--------- ---------
Long-term debt $ 164,249 $ 149,249
========= =========
On March 16, 1994, the Company issued $86,250,000 of 5 1/2% Convertible
Subordinated Notes due 2004 (the "5 1/2% Notes"). The 5 1/2% Notes are
convertible into common stock of the Company at a price of $22.188 per share.
The proceeds from the issuance of the 5 1/2% Notes were used to retire the
remaining balance of the Company's 10.25% Convertible Subordinated Notes due
1999 (the "10.25% Notes") and to reduce the amount outstanding under the
Company's bank revolving credit agreement. Refer to the subsection of this
quarterly report entitled Liquidity and Capital Resources and to Note 3 of the
Notes to Consolidated Financial Statements included in the Company's latest
annual report for a further discussion of the bank revolving credit agreement
and the 8% Convertible Subordinated Debentures due 2005 (the "8% Debentures").
- 5 -
7
POGO PRODUCING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(3) Earnings per Share -
Earnings per common and common equivalent share (primary earnings per
share) are based on the weighted average number of shares of common stock and
common equivalent shares outstanding during the periods. The dilutive effect of
stock options was considered in the earnings per share reported for the
periods. The 8% Debentures are common stock equivalents and were ant-dilutive
in all periods. Earnings per common and common equivalent share assuming full
dilution (fully diluted earnings per share) considered the 10.25% Notes (retired
on April 18, 1994) which were anti-dilutive in all periods in which they were
outstanding and the 5 1/2% Notes (issued on March 16, 1994) which were dilutive
in the 1994 periods but anti-dilutive in the 1995 periods. Earnings per share
are based on the following:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- -------------------------------
1995 1994 1995 1994
--------- --------- ---------- ----------
(Expressed in thousands) (Expressed in thousands)
Earnings applicable to common stock:
Primary --
Income before extraordinary loss $ 722 $ 7,433 $ 8,506 $ 24,614
--------- --------- ---------- ----------
Extraordinary loss -- -- -- (307)
========= ========= ========== ==========
Net Income $ 722 $ 7,433 $ 8,506 $ 24,307
========= ========= ========== ==========
Fully diluted --
Income before extraordinary loss $ 722 $ 8,204 $ 8,506 $ 26,224
Extraordinary loss -- -- -- (307)
--------- --------- ---------- ----------
Net Income $ 722 $ 8,204 $ 8,506 $ 25,917
========= ========= ========== ==========
Weighted average number of common
stock and common equivalent
shares outstanding:
Primary 33,539 33,422 33,465 33,335
========= ========= ========== ==========
Fully diluted 33,539 37,309 33,465 36,168
========= ========= ========== ==========
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8
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, 1994.
Results of Operations -
The Company reported net income for the third quarter of 1995 of
$722,000 or $0.02 per share (on both a primary and a fully diluted basis)
compared to net income for the third quarter of 1994 of $7,433,000 or $0.22 per
share (on both a primary and a fully diluted basis). For the first nine months
of 1995, the Company reported net income of $8,506,000 or $0.25 per share (on
both a primary and a fully diluted basis) compared to net income for the first
nine months of 1994 of $24,307,000 or $0.73 per share ($0.72 on a fully diluted
basis). The Company recorded an extraordinary loss during the second quarter of
1994 of $307,000 related to early retirement of the Company's 10.25% Notes with
the proceeds from the Company's issuance on March 16, 1994, of its 5 1/2%
Notes. Earnings per share are based on the weighted average number of shares
of common and common equivalent shares outstanding for the third quarter and
first nine months of 1995 of 33,539,000 and 33,465,000, respectively, compared
to 33,422,000 and 33,335,000, respectively, for the third quarter and first nine
months of 1994. The increases in the weighted average number of common and
common equivalent shares outstanding for the 1995 periods primarily relate to
common stock issued in connection with the exercise of stock options pursuant to
the Company's stock option plans. Earnings per share computations on a fully
diluted basis in the 1994 periods reflect additional common shares issuable upon
the assumed conversion of the Company's 5 1/2% Notes (the only convertible
securities of the Company that were dilutive during any of the periods
presented) and the elimination of related interest requirements, as adjusted for
applicable federal income taxes. The weighted average number of shares of
common and common equivalent shares outstanding on a fully diluted basis for the
third quarter and first nine months of 1995 were 33,539,000 and 33,465,000,
respectively, compared to 37,309,000 and 36,168,000, respectively, for the third
quarter and first nine months of 1994. Earnings applicable to common stock,
assuming full dilution, for the third quarter and first nine months of 1995 were
$722,000 and $8,506,000, respectively, compared to $8,204,000 and $25,917,000,
respectively, for the third quarter and first nine months of 1994.
The Company's total revenues for the third quarter of 1995 were
$36,967,000, a decrease of approximately 20% compared to total revenues of
$46,452,000 for the third quarter of 1994. The Company's total revenues for the
first nine months of 1995 were $120,515,000, a decrease of approximately 10%
compared to total revenues of $134,078,000 for the first nine months of 1994.
The decrease in the Company's total revenues for the third quarter of 1995,
compared to the third quarter of 1994, resulted primarily from decreases in the
Company's natural gas and natural gas liquid ("NGL") production volumes and the
prices that the Company received for such natural gas and NGL production volumes
that were only partially offset by increases in the Company's oil and condensate
production volumes and slight increases in the prices that the Company received
for its oil and condensate production volumes. The decrease in the Company's
total revenues for the first nine months of 1995, compared to the first nine
months of 1995 resulted primarily from decreases in prices that the Company
received for its natural gas and NGL production volumes, coupled with a decrease
in production of natural gas and NGL, that were only partially offset by
increases in prices that the Company received for its oil and condensate
production, as well as increases in oil and condensate production.
- 7 -
9
POGO PRODUCING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The following table reflects an analysis of differences in the Company's
total revenues (expressed in thousands of dollars) between the third quarter and
first nine months of 1995 and the same periods in the preceding year.
3rd Qtr '95 9 mos. '95
Compared to Compared to
3rd Qtr '94 9 mos. '94
----------- -----------
Increase (decrease) in total revenues
resulting from differences in :
Natural gas --
Price . . . . . . . . . . . . . . . . $ (3,974) $ (15,663)
Production . . . . . . . . . . . . . . (6,768) (8,338)
--------- ---------
(10,742) (24,001)
--------- ---------
Crude oil and condensate --
Price . . . . . . . . . . . . . . . . 88 5,801
Production . . . . . . . . . . . . . . 847 3,523
--------- ---------
935 9,324
--------- ---------
NGL and other, net . . . . . . . . . . . 322 1,114
--------- ---------
Decrease in total revenues . . . . . . . $ (9,485) $ (13,563)
========= =========
The average price per thousand cubic feet ("Mcf") that the Company
received for its natural gas production during the third quarter of 1995 was
$1.52 per Mcf, a decrease of approximately 15% from the average price of $1.79
per Mcf that the Company received during the third quarter of 1994. The average
price that the Company received for its natural gas production during the first
nine months of 1995 was $1.58 per Mcf, a decrease of approximately 20% from the
average price of $1.97 per Mcf that the Company received during the first nine
months of 1994. The Company's natural gas production during the third quarter
of 1995 averaged 109.8 million cubic feet ("MMcf") per day, a decrease of
approximately 31% from an average of 158.2 MMcf per day that the Company
produced during the third quarter of 1994. The Company's natural gas production
during the first nine months of 1995 averaged 126.6 MMcf per day, a decrease of
approximately 13% from an average of 146 MMcf per day that the Company produced
during the first nine months of 1994. The decrease in the Company's natural gas
production during the third quarter of 1995, compared to the third quarter of
1994, resulted primarily from the difference between the high initial natural
gas production rates from horizontal wells drilled from the Company's Eugene
Island 295 "B" platform which commenced in late February 1994 and the subsequent
natural production decline from those reservoirs, the slow down of workover and
recompletion work on certain of the Company's non-operated properties in the
Gulf of Mexico, largely as a result of reticence by the operators of such
properties to expend capital funds, and production curtailment due to adverse
weather conditions [and drilling and workover operations on certain of the
Company's properties], along with the natural decline in deliverability from
certain of the Company's other more mature properties. Those decreases were
only partially offset by new and increased production resulting from the
Company's continued successful offshore drilling and workover program during the
third quarter.
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10
POGO PRODUCING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
As of November 1, 1995, the Company had entered into forward sales
contracts with various parties for approximately 61,000 MMcf per day (net to the
Company) of its daily natural gas production during the month of November and
36,000 MMcf per day (net to the Company) commencing with the month of December
and running through March 30, 1996, at varying monthly contract prices ranging
from approximately $1.81 per Mcf to $2.01 per Mcf.
The average price that the Company received for its crude oil and
condensate production during the third quarter of 1995 was $17.45 per barrel, a
slight increase from the average price of $17.37 per barrel that the Company
received during the third quarter of 1994. The average price that the Company
received for its crude oil and condensate production during the first nine
months of 1995 was $17.83 per barrel, an increase of approximately 12% from the
average price of $15.93 per barrel that the Company received during the first
nine months of 1994.
The Company's crude oil and condensate production during the third
quarter of 1995 averaged 11,511 barrels per day, an increase of approximately 5%
from an average of 10,983 barrels per day during the third quarter of 1994. The
Company's crude oil and condensate production during the first nine months of
1995 averaged 11,878 barrels per day, an increase of approximately 6% from an
average of 11,154 barrels per day during the first nine months of 1994. The
increase in the Company's crude oil and condensate production during the third
quarter and first nine months of 1995, compared to the third quarter and first
nine months of 1994, resulted primarily from the Company's ongoing development
drilling and workover programs in Lea and Eddy Counties of southeastern New
Mexico that was partially offset by the slow down of workover and recompletion
work on certain of the Company's non-operated properties in the Gulf of Mexico,
largely as a result of reticence by the operators of such properties to expend
capital funds, and production curtailment due to adverse weather conditions and
drilling and workover operations on certain of the Company's properties, along
with the natural decline in deliverability from certain of the Company's other
more mature properties. As of November 1, 1995, the Company was not a party to
any crude oil swap agreements.
The Company's NGL and other, net revenues for the third quarter and
first nine months of 1995 increased $322,000 and $1,114,000, from the third
quarter and first nine months of 1994, respectively. The increase in the
Company's NGL and other, net revenues for the third quarter and first nine
months of 1995, compared to the third quarter and first nine months of 1994, was
primarily related to the settlement of two disputes for a total of $1,255,000 in
the third quarter of 1995, that was significantly offset, with respect to the
quarterly comparison periods, by a substantial decrease in NGL production
volume, and to a lesser extent the price received for such production. The
decrease in NGL production volume was primarily related to the decline in the
Company's natural gas production volumes. NGL are liquid products which are
extracted from natural gas streams and sold separately.
The Company's average liquid hydrocarbon (including crude oil,
condensate and NGL) production during the third quarter of 1995 was 13,370
barrels per day, a decrease of approximately 3% from an average liquid
hydrocarbon production of 13,722 barrels per day during the third quarter of
1994. The decrease in the Company's average liquids hydrocarbon production for
the third quarter of 1995, compared to the third quarter of 1994, was
attributable to the decline in NGL production discussed above, which was not
entirely offset by the increase in oil and condensate production that was also
discussed above. The Company's average liquid hydrocarbon production during the
first nine months of 1995 was 14,137 barrels per day, an increase of
approximately 6% from an average liquid hydrocarbon production of 13,394 barrels
per day during the first nine months of 1994.
- 9 -
11
POGO PRODUCING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Lease operating expenses for the third quarter of 1995 were $9,891,000,
an increase of approximately 22% from lease operating expenses of $8,098,000 for
the third quarter of 1994. Lease operating expenses for the first nine months of
1995 were $26,555,000, an increase of approximately 18% from lease operating
expenses of $22,462,000 for the first nine months of 1994. The increases in
lease operating expenses for the third quarter and first nine months of 1995,
compared to the third quarter and first nine months of 1994, resulted primarily
from increased costs to the Company (and the entire offshore oil industry)
because of an increasing shortage of qualified offshore service contractors,
which has permitted such contractors to increase the costs of their services
significantly in the last year, a year to year increase in the Company's
operating activities, including increased operating costs related to additional
properties brought on production and an increased ownership interest in certain
properties as a result of the acquisition of such interests. To a lesser extent,
lease operating expenses also increased as a result of a recently completed
routine general maintenance and repair program on many properties in which the
Company has an interest, for which there were no corresponding offsets in the
third quarter and first nine months of 1994.
General and administrative expenses for the third quarter of 1995 were
$4,050,000, an increase of approximately 4% from general and administrative
expenses of $3,876,000 for the third quarter of 1994. General and
administrative expenses for the first nine months of 1995 were $12,726,000, an
increase of approximately 9% from general and administrative expenses of
$11,680,000 for the first nine months of 1994. The increase in general and
administrative expenses for the third quarter and first nine months of 1995,
compared to the third quarter and first nine months of 1994, was primarily
related to costs associated with the establishment of a Company office in
Bangkok, Thailand in connection with the Company's development project and other
activities in the Gulf of Thailand, an increase in the size of the Company's
work force resulting from increased activity and normal salary adjustments.
Exploration expenses consist primarily of delay rentals and geological
and geophysical costs which are expensed as incurred. Exploration expenses for
the third quarter of 1995 were $1,737,000, an increase of approximately 93% from
exploration expenses of $902,000 for the third quarter of 1994. Exploration
expenses for the first nine months of 1995 were $4,483,000, an increase of
approximately 92% from exploration expenses of $2,208,000 for the first nine
months of 1994. The increase in exploration expenses for the third quarter and
first nine months of 1995, compared to the third quarter and first nine months
of 1994, resulted from increased geophysical activity by the Company, including
the costs of conducting and processing certain proprietary 3-D seismic surveys
on Company leases in South and West Texas and, with respect to the third quarter
compared to third quarter, in the Gulf of Thailand. In addition, a portion of
the increase in both periods was attributable to increased delay rental expense
resulting from the Company's acquisition last year of prospective oil and gas
acreage. However, the increase in exploration expenses for the first nine months
of 1995, compared to the first nine months of 1994, was partially offset by a
decrease in exploration expenses attributable to the Company's oil and gas
concession in the Kingdom of Thailand.
Dry hole and impairment expenses relate to costs of unsuccessful wells
drilled, along with impairments to the associated unproved property costs and
impairments to previously proved property costs as a result of decreases in
expected reserves. The Company's dry hole and impairment expenses for the third
quarter of 1995 were $2,112,000, an increase of approximately 3% from dry hole
and impairment expenses of $2,049,000 for the third quarter of 1994. The
Company's dry hole and impairment expenses for the first nine months of 1995
were $4,483,000, a decrease of approximately 28% from dry hole and impairment
expenses of $6,265,000 for the first nine months of 1994.
- 10 -
12
POGO PRODUCING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The Company accounts for its oil and gas activities using the successful
efforts method of accounting. Under the successful efforts method, lease
acquisition costs and all development costs are capitalized. Unproved
properties are reviewed quarterly to determine if there has been impairment of
the carrying value, 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 mentioned in the preceding paragraph plus future
costs to abandon offshore wells and platforms and is determined on a
field-by-field basis using the units of production method. The Company's DD&A
expense for the third quarter of 1995 was $16,378,000, a decrease of
approximately 7% from DD&A expense of $17,641,000 for the third quarter of
1994. The decrease in DD&A expense for the third quarter of 1995, compared
with the third quarter of 1994, resulted primarily from a decrease in the
volume of natural gas produced by the Company, that was only partially offset
by an increase in the Company's composite DD&A rate. The Company's DD&A
expense for the first nine months of 1995 was $52,774,000, an increase of
approximately 14% from DD&A expense of $46,244,000 for the first nine months
of 1994. The increases in DD&A expense for the first nine months of 1995,
compared to the first nine months of 1994, resulted primarily from an increase
in the Company's composite DD&A rate and, to a lesser extent, from increased
volumes of liquid hydrocarbons produced by the Company that was only partially
offset by a decrease in the volume of natural gas produced by the Company.
The composite DD&A rate for all of the Company's producing fields for the
third quarter of 1995 was $0.93 per equivalent Mcf ($5.56 per equivalent
barrel), an increase of approximately 18% from a composite DD&A rate of $0.79
per equivalent Mcf ($4.74 per equivalent barrel) for the third quarter of
1994. The Company produced 17,483,000 equivalent Mcf (2,913,000 equivalent
barrels) during the third quarter of 1995, a decrease of approximately 21%
from the 22,132,000 equivalent Mcf (3,689,000 equivalent barrels) produced by
the Company during the third quarter of 1994. The composite DD&A rate for all
of the Company's producing fields for the first nine months of 1995 was $0.91
per equivalent Mcf ($5.43 per equivalent barrel), an increase of approximately
23% from a composite DD&A rate of $0.74 per equivalent Mcf ($4.45 per
equivalent barrel) for the first nine months of 1994. The Company produced
57,728,000 equivalent Mcf (9,621,000 equivalent barrels) during the first nine
months of 1995, a decrease of approximately 7% from the 61,794,000 equivalent
Mcf (10,299,000 equivalent barrels) produced by the Company during the first
nine months of 1994. The increase in the composite DD&A rate for all of the
Company's producing fields for the third quarter and the first nine months of
1995, compared to the third quarter and first nine months of 1994, resulted
primarily from the increased percentage of the Company's production that is
attributable to certain of the Company's newer fields that have higher DD&A
rates than the Company's historical composite DD&A rate.
The Company's interest charges for the third quarter of 1995 were
$2,742,000, an increase of approximately 12% compared to interest charges of
$2,450,000 for the third quarter of 1994. The Company's interest charges for
the first nine months of 1995 were $8,268,000, an increase of approximately 7%
compared to interest charges of $7,714,000 for the first nine months of 1994.
Interest charges for the third quarter and first nine months of 1995, compared
to the third quarter and first nine months of 1994, increased primarily due to
an increase in average debt outstanding.
The Company's capitalized interest expense for the third quarter of 1995
was $709,000, an increase of approximately 256% compared to capitalized interest
expense of $199,000 for the third quarter of 1994. The
- 11 -
13
POGO PRODUCING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Company's capitalized interest expense for the first nine months of 1995 was
$945,000, an increase of approximately 78% compared to capitalized interest
expense of $530,000 for the first nine months of 1994. The increase in the
Company's capitalized interest expense for the third quarter and first nine
months of 1995, compared to the third quarter and first nine months of 1994, is
related primarily to the capitalization of interest expenses resulting from the
engineering, acquisition and construction of facilities and equipment for the
Company's development project in the Gulf of Thailand.
As of November 1, 1995, 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 third quarter of 1995 was $44,000, a decrease
of approximately 99% from income tax expense of $4,212,000 for the third quarter
of 1994. Income tax expense for the first nine months of 1995 was $3,979,000, a
decrease of approximately 70% from income tax expense of $13,464,000 for the
first nine months of 1994. The decrease in income tax expense for the third
quarter and first nine months of 1995, compared to the third quarter and first
nine months of 1994, resulted primarily from decreased pre-tax income.
Liquidity and Capital Resources -
The Company's Condensed Consolidated Statement of Cash Flows for the
nine months ended September 30, 1995 reflects net cash provided by operating
activities of $75,434,000. In addition to net cash provided by operating
activities, the Company received $1,628,000 from the exercise of stock options
and $100,000 from the sale of certain non-strategic properties. The Company also
had net borrowings of $15,000,000 under its revolving credit facility and
uncommitted lines of credit with banks. During the first nine months of 1995,
the Company invested $72,325,000 of such cash flow in capital projects,
purchased certain proved reserves for $11,921,000, expended $450,000 on the
repurchase of certain of its 8% Debentures in open market transactions, and paid
$0.09 per share in dividends to holders of the Company's common stock. Of the
$75,434,000 invested in capital projects, $26,497,000 was applicable to 1994
capital projects and $48,937,000 was applicable to 1995 capital projects. As of
September 30, 1995, the Company's cash and cash investments were $7,432,000 and
its long-term debt stood at $164,249,000.
The Company's capital and exploration budget for 1995, which does not
include any amounts that may be expended for the purchase of proved reserves or
any interest which may be capitalized resulting from projects in progress,
previously announced to be $100,000,000, has been increased by the Company's
Board of Directors to $115,000,000. The capital and exploration budget has been
revised primarily to accelerate development of the Company's Tantawan project in
the Gulf of Thailand. In addition to anticipated capital and exploration
expenses, other material 1995 cash requirements that the Company currently
anticipates include ongoing operating, general and administrative, income tax
and interest expense, a $3,000,000 sinking fund payment on the 8% Debentures
(for which the Company may tender all or a portion of the $2,129,000 face amount
of 8% Debentures that it currently holds) and the payment of dividends on its
common stock, including a $.03 per share dividend on its common stock to be paid
on November 30, 1995 to stockholders of record as of November 10, 1995. The
Company currently anticipates that cash provided by operating activities and
funds available under its revolving credit facility and uncommitted lines of
credit with banks will be sufficient to fund the Company's ongoing expenses, its
1995 capital and exploration budget, currently anticipated costs associated with
the Company's Thailand projects during 1995 and anticipated future dividend
payments. In this regard, the Company reinstated the practice of declaring a
quarterly cash dividend in the third quarter of 1994. However,
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14
POGO PRODUCING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
the declaration of future dividends will depend upon, among other things, the
Company's future earnings and financial condition, liquidity and capital
requirements, the general economic and regulatory climate and other factors
deemed relevant by the Company's Board of Directors.
Effective June 1, 1995, the Company entered into an amended and restated
credit agreement (the "Credit Agreement") with the same banks that were parties
to the credit agreement that it superseded. The Credit Agreement provided for
an unsecured $150,000,000 revolving/term credit facility which will be fully
revolving until January 1, 1998, after which the balance will be due in eight
quarterly term loan installments, commencing April 30, 1998. Effective November
1, 1995 the Company voltuntarily reduced, on a temporary basis, the lenders'
commitment under the Credit Agreement to $125,000,000. The amount that may be
borrowed under the Credit Agreement may not exceed a borrowing base, determined
semiannually by the lenders in accordance with the Credit Agreement based on the
discounted present value of future net income from certain of the Company's oil
and gas reserves. As of November 1, 1995, the borrowing base exceeded
$125,000,000. The Credit Agreement is governed by various financial and other
covenants, including requirements to maintain positive working capital
(excluding current maturities of debt), and a fixed charge coverage ratio, and
limitations on indebtedness, creation of liens, the prepayment of subordinated
debt, the payment of dividends, mergers and consolidations, investments and
asset dispositions. In addition, the Company is prohibited from pledging
borrowing base properties as security for other debt. Borrowings under the
Credit Agreement currently bear interest at a Base (Prime) rate, a certificate
of deposit rate plus 1 1/8%, or LIBOR plus 1%, at the Company's option. A
commitment fee on the unborrowed amount under the Credit Agreement is also
charged. The commitment fee is 5/16 of 1% per annum on the unborrowed amount
under the Credit Agreement that is designated as "active" and 1/8 of 1% per
annum on the unborrowed amount under the Credit Agreemeent that is designated as
"inactive." Of the $125,000,000 that is currently available under the Credit
Agreement, $100,000,000 is designated as "active" and $25,000,000 is designated
as "inactive."
15
POGO PRODUCING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
4(a) -- Amended and Restated Credit Agreement dated as
as of June 1, 1995 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
- 13 -
16
POGO PRODUCING COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Pogo Producing Company
Registrant
/s/ THOMAS E. HART
Thomas E. Hart
Vice President and Controller
(Principal Accounting Officer)
/s/ JOHN W. ELSENHANS
John W. Elsenhans
Vice President and Treasurer
(Principal Financial Officer)
Date: November 13, 1995
- 14 -
17
EXHIBIT INDEX
4(a) -- Amended and Restated Credit Agreement dated as
as of June 1, 1995 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